Consumer sentiment is expected to remain weak in October. The release of the preliminary data of the University of Michigan survey of consumers by Thompson Reuters indicated the consumer sentiment index will deteriorate further in October, edging down 0.3 points, following a 0.7 point decrease in September.
The preliminary numbers show that consumers are becoming frustrated and disenchanted with their current circumstances. The present situation index fell 6.6 points to 73.0, the lowest level since November last year. Recent reports of continued weakness in the economy, with the Federal Reserve contemplating a second round of quantitative easing (purchasing US Treasury securities to lower long term interest rates and stimulate investment spending), further declines in employment, the US dollar sliding relative to other major currencies and the prospect of deflation, are making consumers increasingly uncomfortable about their current situation.
Despite this, it appears that consumers do see a light at the end of the tunnel, with the future expectations index rising 3.7 points to 64.6. The growth in the future expectations index is encouraging as it indicates that consumers see the current economic problems as temporary and expect their circumstances to begin to improve soon.
The index of buying conditions for homes bounced back in October to its August level of 154, recovering ground lost in September. Over three quarters of respondents (76%) identified that they believe home buying conditions were good, with low prices (64%) and low interest rates (42%) the main reasons. Overall, the home buying conditions index is very high, indicating that consumers recognize the excellent housing affordability conditions. Despite this, home sales are at close to record low levels. The sharp decline in the present situation index suggests the weak economic conditions are weighing heavily on consumer confidence and restraining housing demand. Therefore, until we begin to see improvement in the overall economy, housing demand is expected to remain tepid. We expect only modest gains in housing demand over the remainder of 2010, before demand picks up and gains momentum through 2011.