Survey shows lack of confidence in state and local government bonds
NEW YORK, Feb. 3 /CNW/ - U.S. consumer confidence for February declined
slightly for a second month as consumers await a definitive signal on
the direction of the economy, according to the monthly RBC Consumer
Outlook Index. The Index for February declined to 44.5, down 0.4 points
from January's 44.9 but still above the 42.6 points recorded a year
ago. In line with the volatility in the municipal bond market, the
survey also found that a majority of Americans are not confident in
municipal bonds as an investment.
"Although the RBC Consumer Outlook Index has done nothing but move
sideways since hitting a post-recession high in December, it's
surprising that consumer confidence didn't fall even more, given recent
events," said RBC Capital Markets Chief U.S. economist Tom Porcelli.
"The survey was conducted in the midst of daily headlines about unrest
in Egypt, rising fuel prices and a sharp decline in the markets - all
of which historically weigh on confidence. It appears that the Index
was backstopped by future expectations, which reached their highest
level in a year. This suggests that consumers view current events as
transitory and are willing to look past them."
State and local governments' budgets, already strained by falling tax
receipts and rising expenditures, could soon face another challenge:
investors who lack confidence in their financial health and are less
willing to buy their bonds. A large majority of consumers surveyed (62
per cent) are not confident in municipal bonds as an investment,
according to the RBC Consumer Outlook Index, with only 22 per cent
saying they find these bonds to be a good investment. Weakening demand
for bonds could push up borrowing costs for governments, further
pressuring their budgets.
"The consumer response confirms that the continual stream of news
stories about state and local government fiscal problems is having a
negative impact on investor perception," said Chris Mauro, head of
Municipal Bond Research. "The results are consistent with the sizable
outflows from municipal bond mutual funds that we have seen over the
last several weeks. Given the current challenging budget environment,
consumers will likely continue to see these negative headlines for at
least the next several months."
This month's decline in the RBC Consumer Outlook Index is driven mainly
by a weaker Current Conditions Sub-Index, which edged down to 34.4 from 35.0 last month, and softening of
confidence in the labor market, with the Jobs Sub-Index declining for the first time in four months, slipping to 50.9 from
When asked where they think new jobs will appear over the next three
months, most consumers expect the healthcare industry (45 per cent),
information technology field (31 per cent), and manufacturing sector
(27 per cent) will produce the most jobs.
In contrast to the findings of the Current Conditions and Jobs
Sub-Indices, the Expectations Sub-Index perked up slightly to 56.8, from 55.3 in January, indicating that more
Americans think the economy will get better in the next year.
One-in-four consumers (23 per cent) say they think the economy in their
community will be stronger in six months, compared to 20 per cent who
say it will be weaker. Moreover, 30 per cent expect their personal
finances to strengthen in the next six months, compared with only 20
per cent who expect them to weaken.
While expectations for strengthening personal finances could potentially
generate higher spending, consumers' expectations of price increases
continue to climb. Gasoline and fuel prices show the highest increase,
with 88 per cent of consumers expecting fuel prices to go up in the
next year. Overall, 56 per cent of consumers expect inflation to
increase over the next five years.
The Investment Confidence Sub-Index held steady at 39.0, a tick above last month's 38.9. One-in-four
consumers (22 per cent) think it is a good time to invest in stocks,
compared to 29 per cent who believe it is a bad time to invest, the
highest level of confidence in the markets in more than a year.
Three-in-five Americans (60 per cent) say the country is on the wrong
track, compared to 40 per cent who say it is headed in the right
direction. The "wrong track" number, although improved from last month,
remains above the 60 per cent level for the tenth consecutive month.
About The RBC Consumer Outlook Index
The RBC U.S. Consumer Outlook Index provides the most up-to-date and
comprehensive outlook of U.S. consumers based on data collected from
interviews with a nationally representative sample of more than 1,011
U.S. adults conducted over a multi-day polling period each month by
Ipsos, the world's second-largest market and opinion research firm. The
results in this news release reflect some of the findings of the Ipsos
poll of 1,011 U.S. adults conducted January 28-31, 2011. The RBC
Consumer Outlook Index is released within 36 hours after the U.S.
online panel members are interviewed. Weighting is employed to balance
demographics and ensure that the survey sample's composition reflects
that of the U.S. adult population according to Census data and to
provide results intended to approximate the sample universe.
For further information:
Kait Conetta, RBC Capital Markets, firstname.lastname@example.org, (212) 428-6409
Greg Hamrock, Hubbell Group, email@example.com, (781) 878-8882