Consumer confidence is hit by housing slowdown

Mar 28 2008 by Peter McCusker, The Journal

HIGH street spending remained subdued as the housing slowdown tightened its grip on consumer confidence, a survey has revealed.

Sales of “big ticket” household goods such as washing machines and fridges were sharply lower, although the CBI’s latest distributive trades survey still showed that a balance of 1% of firms achieved a rise in year-on-year sales volumes.

This was up from the minus 3% balance reported last month – the first negative figure for more than a year – but well down on the long-term average of plus 17%.

And the underlying trend weakened, with a balance of plus 1% of retailers reporting sales up year-on-year during the three months to March. The CBI survey has recently been gloomier than the official measure of retail sales, which last week showed a 1% hike in retail sales during February.

However, economist Vicky Redwood of Capital Economics said the CBI survey pointed to “very sluggish high street spending growth”. She added: “What’s more, the earlier fall of Mothers’ Day and Easter compared to last year should, if anything, have boosted the survey.

“It surely cannot be long before consumers give up the fight against weak income growth and a faltering housing market.”

The CBI said retailers were expecting the outlook for next month to remain subdued, with volumes expected to be broadly the same as last April.

Howard Archer, chief UK economist with Global Insight, said: “The CBI survey for March does little to change our view that consumer spending will be markedly softer over the coming months after a surprisingly robust start to the year. We believe that spending will suffer over the coming months as consumers are pressurised by muted real disposable income growth, tighter lending conditions, a substantially softer housing market, lower equity prices and increased debt levels.”

The CBI report showed continued belt-tightening for big ticket items, with the durable household goods sector seeing a fifth consecutive month of shrinking annual sales.

A balance of minus 77% of retailers reported a year-on-year sales drop for this category. Grocers continued to improve, with plus 29% reporting sales were up, while booksellers and stationers also had a good month, with the sector posting a plus 17% balance.

The CBI’s chief economic adviser, Ian McCafferty, said: “This month’s survey has borne out retailers’ expectations that the strong growth enjoyed in 2007 has come to an end.

“The picture now is of subdued activity as consumers tighten their belts amid the general cooling of activity we are seeing across the whole economy.

“One area which saw good growth was the food sector – perhaps because people are preferring to treat themselves at home instead of eating out.

“However sales of bigger items, especially white goods, continued to fall, as the slowdown in the housing market and tightening of credit takes hold.”

The March survey was carried out between February 26 and March 12, with 152 firms taking part.