The “Globes” Consumer Confidence Index rose by three points in February 2007, to 81 points, after staying unchanged in the preceding two months. Most of the rise in the index was derived from the respondents’ improved assessments about the current economic situation and about their personal future economic situation. On the other hand, assessments about the future economic situation are still declining.
An analysis of developments in the index’s trends by Globes Research indicates a small rise that has not yet restored the index to its level of early 2006. Most of the change was due to respondents’ assessments about their personal future economic situation in six months. The net balance of optimism on this question rose by nine points, after falling almost continuously over the previous six months. The public is nevertheless more pessimistic about the future economic situation. Doubts about Israeli economic performance in the near term remain, despite positive macroeconomic reports.
In contrast to the contradiction between respondents’ assessments about their personal future economic situation and the economy in general, assessments about the current economic situation remain upbeat. The trend in this component of the index has been positive since the start of the fourth quarter of 2006, replacing the widespread pessimism in the aftermath of last summer’s second Lebanon war.
The Consumer Confidence Index is therefore climbing thanks to respondents’ positive assessments about both the current economic situation and about their personal economic futures, despite belief that the general economic situation in six months will worsen. In other words, whereas in January, public confidence in the future general economic and personal situation was pessimistic on both counts, now doubts only remain about the functioning of the economy as a whole.
A joint analysis by Globes Research and Kesselman and Kesselman -PricewaterhouseCoopers Israel indicate that, despite public pessimism about the future economic climate, and possibly because of optimism about their personal economic situation, the trend is future purchase plans rose again in February, especially for cars and durable goods. There was some erosion in real estate purchase plans, however.
The February figures therefore indicate a strong probability of an expansion in private consumption in the coming months, even though the Consumer Confidence Index has been fairly stable. In view of the turnaround in respondents’ assessments about their personal economic futures, the most important issue is whether assessments about the general future economic situation will also improve. In other words, when will the public realize the positive macroeconomic data that has been published. The effect of recent various corruption scandals on the public’s confidence will also have to be weighed.
A Bank of Israel study found that the question in the Consumer Confidence Index about respondents’ assessments about their future economic situation was more important in predicting private consumption than the assessments about the general future economic situation.
A demographic breakdown of the answers in the Consumer Confidence Index, conducted by the Smith Institute, found that women were the most pessimistic group, with the lowest assessment about the economic future, whereas people with higher education and above average incomes were notably optimistic.
Visit Consumer Confidence Index for February for the complete index, including analyses and breakdown of data (in Hebrew).
Published by Globes [online], Israel business news - www.globes.co.il - on March 1, 2007
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