RBC Consumer Outlook Index Highest Since Sept. 2008

Most Americans believe spending cuts, tax increases are necessary to balance budget

More good economic news Thursday in a week of largely good economic news thus far.  Registering the highest reading since September 2008, the RBC Consumer Outlook Index increased 3.2 points to 45.2 in December (42.0 in November) as a result of improved conditions, employment security, expectations and investment attitudes. Consumer confidence has been on the rise for three months in a row and has broken through the top of the recent range. However, despite the recent improvements in consumer sentiment, the RBC index remains well below its long-term average of 50 points and continues to reflect a very modest economic recovery.

"Consumers are entering the holiday season with greater hope and optimism than at any point since September 2008 - just before the global financial crisis hit a fever pitch—closing out 2010 on a high note," said Marc Harris, Co-Head of Global Research at RBC Capital Markets, in a statement. "Although the RBC Consumer Outlook Index witnessed a sharp improvement this month, it still reads below the long-term average, which is in line with what we believe will continue to be a backdrop of cautious consumer spending."

Highlights of this month’s results include:

  • As Congress reconvenes this week to address a list of national fiscal issues, most Americans believe the best way for Congress to balance the Federal budget is through a combination of spending cuts and tax hikes. While more than two-thirds of Americans (68%) believe it will take a combination of tax increases and spending cuts to close the federal budget deficit, one-quarter (27%) say that spending cuts alone can balance the budget, and only five percent are confident that tax increases will be enough to reduce the deficit. Only 10% expect the deficit to shrink in 2011.
  • Despite the harsh fiscal realities facing the nation, this month four-in-ten respondents (39%) say the country is on the right track, up from 35% last month, and they are beginning to feel better about their local economies. For the first time this year, more Americans say their local economies will be stronger in six months (24%) than weaker (20%), and the percentage of consumers rating their current local economy as weak dropped five points to 51%, down from 56% in November.
  • In terms of expectations for 2011, 54% of respondents predict inflation will be higher next year, while just nine percent say it will be lower. However, regarding the outlook for unemployment and the stock market in 2011, U.S. consumers are mixed. Thirty-five percent of respondents predict unemployment will go higher, while 25% say it will decrease and 30% say it will remain at its current level. One-quarter (26%) predict the stock market will go up while 24% say it will go lower. Interestingly, 38% of consumers currently invested in the stock market expect it to go higher next year.
  • Consumers also are more confident about employment security for themselves and those in their inner circle. The number of people reporting that someone they know has lost a job in the past six months dropped to 43%- the lowest reading in 2010. Consumers reporting they are more confident about job security jumped seven points this month, while those who are less comfortable dropped three points.
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