The Consumer Confidence Index, compiled by Globes Research and pwc Israel, rose by 8.6 points in June 2013 to 71.5 points (baseline 100 = 1996), after plummeting 22.2 points in May and rising 4.3 points in April. It is possible that the public believes that some of the austerity measures will not be implemented, but whatever the case, the public was still pessimistic in June.
The index's trend figure (the three-month moving average) fell by 3.1 points in June, after falling 3.7 points in May and rising 1.8 points in April. The index fell 6.8 points in trend figures in May-June, strengthening the explanation that consumers are nearing the pessimistic pole.
The Consumer Confidence Index, conducted by the Smith Institute, comprises three questions: "What in your opinion is the current state of the economy?"; "What will be the state of the economy in six months' time?"; and "What will be your personal economic situation in six months' time?" For each question, "Globes" takes the proportion of optimists, deducts the proportion of pessimists, and thus obtain what is called "the net balance of optimism."
If, for example, 40% of the respondents in the survey estimate that their situation will be better in six months' time, and 50% estimate that it will be worse, the net balance is ten percentage points.
Still in a slump
The net balance of optimists to the question, "What in your opinion is the current state of the economy?" rose by 8.4 points in June to minus 39.1 points, after falling 21.8 points in May and 1.8 points in April. Despite the correction in June, the net balance remains at the low levels reminiscent of 2009-11.
The trend figure (the three-month moving average) fell by five points in June, after falling 6.4 points in May, and rising 2.5 points in April. The current figure, minus 37.4 points, is the lowest since September 2009.
The public's assessment of state of the economy in six months' time also partly corrected in June from May's crash. The net balance rose by 8.1 points to minus 27.9 points in June, after falling 23 points in May and rising 6.2 points in April.
The trend figure fell by 2.9 points in June, after falling 0.9 points in May. The 3.8-point drop in two months suggests a pessimistic turn in the public's assessments. In other words, there is a real trend beyond the large monthly variability.
Pessimism about the future
Consumers' net balance of optimism about their personal situation in six months also rose in June, in line with the rise in other components of the index. The net balance rose by 9.5 points in June, after falling 21.8 points in May and rising 8.3 points in April. Despite the gain, the balance is still negative, at minus 4 points, which is not routine.
The trend figure fell by 4 points in June, after falling 4.1 points in May and rising 0.1 points in April. Here too, the trend figure indicates a slide into pessimism. It should be noted, however, that in the last four months of 2012, the trend figure was lower than in May-June.
In addition to the basic Consumer Confidence Index, each month "Globes" calculates the expanded Consumer Confidence Index, which includes a question about expectations on the labor market. The regular figure of the expanded in index was 65.7 points in June, compared with 58.1 points in May and 77.9 points in April.
The expanded index's trend figure fell by 3.1 points in June, after falling 3.7 points in May and rising 1.1 points in April. The trend figure fell to 67.2 points in June, its level in November 2012.
The net balance of expectations for the labor market in six months rose by 4.4 points in June, after falling 12.3 points in May and 1.2 points in April. The trend figure for this component fell by 3 points in June to minus 20.4 points, a level similar to the lows in late 2012, but still higher that the low in the third quarter of last year.
Consumption edges up
The Consumer Confidence Index data indicate that even if there will be no rapid and sharp drop in consumer spending, there will be only a very small increase in consumption toward the fourth quarter of 2013 and in early 2014. The depth of the slowdown in private consumption depends on developments in the 2013-14 state budget, specifically, which cuts will be approved, and which won't.
In conclusion, given that private consumption accounts for 55% of Israel's GDP, we can see why economic growth is liable to be affected if there is no improvement in consumer confidence in the coming months.
Published by Globes [online], Israel business news - www.globes-online.com - on July 16, 2013
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