The Deloitte Consumer Tracker Q3 2019

The end of consumers’ resilience?

The Deloitte consumer confidence index* fell to -9 per cent in Q3 2019, one point lower than in the previous quarter and two points lower compared to the same period a year ago. Confidence is now at a level last seen in Q4 2018 and below the Deloitte Consumer Tracker’s long-running average.

Lower overall confidence

​Six months after the UK was given an extension to delay its departure from the EU until 31 October, the uncertainty surrounding Brexit has persisted and appears to be weighing more heavily on consumers. Additional data from our survey, indicates that over the last three months consumer confidence in the state of the UK economy was weak (-55 per cent). By contrast, confidence levels among consumers who do not own a home improved, a sign that they might be benefiting from property price growth being the slowest in six years.

Upbeat over personal finances but concerns about job market grow stronger

​The fall in our confidence index this quarter was due to a decline in five of the six confidence measures. Consumers appear more confident about their own personal finances than the state of the economy overall. Compared to a year ago consumer sentiment about personal finances improved while confidence in the job market deteriorated.

Confidence in levels of debt increased by two percentage points compared to Q2 2019 and by three points compared to the same period a year ago. This coincides with the Bank of England’s decision to maintain interest rates at 0.75 per cent in August. Moreover, lenders have become more cautious and as a result the year-on-year growth rate for all unsecured lending including cars and credit cards slowed to 4.9 per cent in August, its lowest rate in almost four years.

Although official data shows that wage growth slowed in August, earnings had been hitting a decade high in July and with low inflation, these results have marginally bolstered consumers’ confidence in their levels of disposable income, which was one point higher than it was a year ago (-19 per cent). In particular, confidence in levels of disposable income among the 18- to 34-year olds improved from -17 per cent a year ago to -7 per cent this quarter, which could be attributed to the nearly 5 per cent rise in the national living wage in April.

However, our data shows that confidence in job opportunities/career progression and job security have continued their downward trend this quarter. Despite unemployment at historical lows, it unexpectedly rose from a four-decade low in the three months to August. Indeed, according to the Tracker confidence in job opportunities/career progression fell by a significant five percentage points (to -6 per cent) compared to both the previous quarter and the same period a year ago. With the increasing number of job cuts being announced, and major companies going into administration or restructuring their operations, sentiment about job security was also hit and was three points lower (at -8 per cent) this quarter compared to Q3 2018.

In fact, according to the latest Deloitte Survey of UK Chief Financial Officers, CFOs are intensifying their focus on cost control, with 58 per cent saying it is a strong priority for the next 12 months, the highest level for ten years. So far, corporate caution has had its greatest effect on investment, which has slowed dramatically since the EU referendum. The labour market has shown resilience with unemployment at record lows and earnings rising at the fastest pace in more than ten years however, as the latest official data shows this era might be ending. With a sharper focus on curbing costs, 70 per cent of CFOs expect hiring to decrease in the next 12 months and just 3 per cent expect it to rise.

So is lower overall confidence affecting spending? According to our research, spending on both discretionary and essential categories is down this quarter compared to Q2 2019. Figures for net spending in each category indicate that consumers have been reducing their net spending on groceries, utilities and transport an indication that low inflation is easing cost pressures of essential items. As a result, leisure sector categories such as going out to the cinema or to a restaurant have seen a strong recovery compared to the same period a year ago. A sign that people continue to favour experiences over goods.

​* Deloitte’s overall confidence index is the aggregate of six individual measures: levels of disposable income, levels of debt, job security, job opportunities and career progression, children’s education and welfare, and general health and wellbeing.

Outlook

Consumers enter the fourth quarter in a relatively cautious mood and maybe for good reasons. While most of the UK economic fundamentals remain solid including the level of unemployment close to its historic low, there are already some signs of strain. The fact that CFOs are firmly focused on cost control means the UK may be set for weaker job and wage growth in the coming months. Our data suggests that consumers have been anticipating a deterioration in the job market for a while. The brunt of the UK’s slowdown in the last year has been borne by the corporate sector with the labour market remaining buoyant. That disconnect is unlikely to last. The UK might have just averted a recession in the third quarter of 2019, and although consumers have been quite resilient since the EU referendum, a deterioration in the jobs market could see some contraction in consumer spending especially in the discretionary categories.

Key contacts

Simon Oaten

Partner, Hospitality & Leisure

Céline Fenech

Research Manager

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