Falling employment intensifies consumers’ misery

The near-term outlook for consumer spending looks exceptionally weak. Surveys suggest that job cuts in the private sector will gather pace in the coming months. Consumer confidence fell in August from its already very low level and has therefore continued to point to further large falls in overall consumer spending. Meanwhile, real earnings have continued to fall by around 2% a year and will fall at a faster rate in the coming months as inflation rises to a peak of around 5% (on the CPI measure) in the fourth quarter of this year. Recent developments have therefore supported our view that real household spending will fall sharply through the remainder of 2011 and in 2012 too.