Americans are beginning to shed their anxiety about the economy, which has dominated consumer sentiment over the past two years, and they are less pessimistic about both their local economies and job security, according to the recent results of the RBC US Consumer Outlook Index.

Driven by improving attitudes about the local economy, the RBC Consumer Outlook Index climbed to 72.7 in May 2010, up 8.1 points from its April reading of 64.6.

However, consumers remain concerned about personal finances and are deeply skeptical about investing and the national economy.

"This month's RBC Consumer Outlook Index shows that consumers' negative attitudes are moving towards neutral, but not yet into positives—they are not yet ready to say that things have gotten better, especially when it comes to the national economy," said Marc Harris, co-head of Global Research at RBC Capital Markets. "Few Americans are ready to say they are enjoying good times."

The uptick in consumer confidence has been slow, since many consumers do not see things as especially stronger than last month: 52% of consumers rate their local economy as "very weak," down from 55% in April and 59% in March. In addition, 22% expect their local economy to grow stronger in the next six months, up from 18% last month.

Summer spending plans are a historically good barometer of consumer sentiment, and this year's plans underscore consumers' caution: Fewer than one in eight say they plan to spend more this year than last on travel and vacations (12%), entertaining and socializing (11%), apparel or clothing (8%), and dining out (8%).

With summer vacations approaching, most consumers plan to stay at home on "staycation" (63%) or drive somewhere for a vacation (59%). Consumers are much less likely to fly domestically for a vacation (26%) or travel internationally (12%).

Highlights of the survey results:

  • Consumers are less concerned about job security: 42% say it is unlikely that someone they know will lose their job in the next six months, significantly better than the 36% who said so in April. However, the percentage of consumers who say they are now experiencing job loss in their immediate circle is unchanged from last month (49%).
  • Consumers are concerned about the national economy. Despite increased confidence in employment and the local economy, only 31% of consumers believe the US economy will improve in the next year, while 26% believe it will worsen and 43% expect it will stay the same.
  • The share of Americans who say the US is generally on the wrong track climbed to 60% in May, while 40% said the country is on the right track. In April, 56% said the country was on the wrong track, and 44% said it was in the right track.
  • Consumers remain concerned about personal finances: 49% say their personal financial situation is bad compared with three months ago, up from 45% who said so in April. Similarly, 44% continue to describe their current finances as weak (vs. 43% in April).
  • Looking ahead, only 20% of consumers say their debt level will improve in the next three months, down from 23% in April. Some 52% say their discretionary income, after bills are paid, will remain the same in the next three months.
  • Regarding investment in markets and real estate, only 20% of consumers say it is a good time to invest in the stock market, unchanged from last month. Some 32% say this month is a good time to buy real estate, down from 34% who said so in April. However, those consumers who say they are now shopping for a new house inched up to 8% in May 2010 (vs. 6% last month).

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The overall impression from this month's RBC Consumer Outlook Index is that consumers are slowly growing more confident about their local situations but are not yet convinced that a robust recovery is here to stay at the national level.

"Consumers are saying 'Show-Me.' They want to see proof of solid, long-term economic improvement before they are willing to believe the recovery is here to stay," said Harris. "Until they see that proof, they are going to continue to withhold judgment, and that could affect their spending and investment plans."

About the data: The RBC US Consumer Outlook Index is a monthly national survey of consumer attitudes on the current and future state of local economies, personal finance situations, savings, and confidence to make large investments. The current findings are based on a representative nationwide sample of 1,008 US adults polled from April 29 to May 2, 2010, by survey-based research company Ipsos Public Affairs.

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