Blog: Thoughts on 'consumer sentiment'
Dave Leggett | 19 September 2007
I see the authorities in the US have acted to try and restore some confidence and lessen the chances of a serious recession by reducing interest rates. The fact that they have cut interest rates at the top end of expectations suggests that there are some pretty serious underlying concerns.
I met some guys at Kroll in London earlier this week (as they put it, they help and advise 'challenged' companies) and we got to talking about the credit crunch, runs on banks, Northern Rock, the housing market, consumer confidence, 'equity withdrawal' (for things like car purchases).
There are some similarities here with what's happening in the US and what may happen in Britain. Certainly consumers here are highly indebted and the outlook for the overcooked housing market here is similarly dampened by suggestions that there is a bubble about to burst following interest rate rises and higher mortgage repayments for many.
But confidence is the thing. At the margin people who were thinking of taking on a bigger mortgage or remortaging to take money out and buy that new car may be saying to themselves 'let's wait and see what happens to interest rates and the economy - perhaps now's not the time to take the plunge'. The volume of remortgages taken out could go down also because lenders simply can't access funds on money markets as easily as they had been doing until the abrupt siezing up of those markets last month.
How quickly does dented 'confidence' recover? The images on TV of people taking their savings out of a bank tend to stick. Could take a while for this 'hidden crisis' to be ridden out.
Vehicle sales will be unlikely to remain unscathed I would think. If economic growth forecasts are revised down, that'll depress vehicle markets further over the next couple of years. I'll be calling some of my friends in the car market forecasting business for their latest assessments.
One thing on the interest rate cut in the US. Yes, that might be what is needed to restore some short-term confidence and please Wall Street, but isn't the availability of cheap credit over a long period of time what got us into this mess?
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