German consumer sentiment remained strong in August as very good news on the economic development and continued positive reports on the labour market put the public in good mood. Expectations for the overall economy and personal income have again increased significantly. Propensity to buy, in contrast, is stabilizing. The overall indicator forecasts 4.1 points for September following a revised 4.0 points in August.

The consumer group Gfk says consumer sentiment in the current month is strongly influenced by the substantial rise in German gross domestic product (GDP)  in the second quarter of this year. Falling unemployment and the decrease in the use of reduced working hours have probably also contributed to a positive trend in the consumer mood. On the other hand, factors of uncertainty for consumers include possible austerity measures by the government and the expiration of stimulus programs.

Expectations for the overall economy: Continued increase: Expectations for the overall economy did not develop as dynamically in August as they had done in July. However, the indicator still shows a further significant increase of 9.8 points to 46.6 points. This represents the highest value since August 2007 and a 54.1 point rise as compared to August 2009.

In the second quarter of 2010, the German economy saw its strongest growth since 1987. Following this, in August experts anticipate that the economy in Germany will continue to recover. Deutsche Bundesbank recently raised its forecast for GDP growth for the year as a whole to 3.0%. Gfk says consumers clearly do not believe the recovery of the German economy to be a flash in the pan, but rather expect it to continue. Companies share the consumers’ optimism. In August, the ifo Business Climate Index index again rose.

Expectations for personal income: Significant rise: The strong recovery in July was followed in August by a further increase in expectations for income. After 29.1 points in July, the indicator rose to 36.0 points in August. This represents growth of 27.2 points as against July 2009.

Current expectations for income are probably benefiting considerably from growth optimism among the population. In addition to the prevailing positive mood, a moderate inflation rate and the continuing improvement on the labor market are also leading consumers to hope for increasing income.

Propensity to buy: Stable at high level: Following a slight decrease in the previous month, propensity to buy remains stable at 27.9 points in August. The indicator was 3.2 points higher at the same point last year, but propensity to buy is still considerably higher than the long-time average of 0 points.

With the special business cycle of the football World Cup is now definitively over, the stable high level of propensity to buy seems to be a good sign of sustained positive consumer sentiment. There have been no significant measurable decreases in this indicator so far. However, Gfk says the uncertainties mentioned above with regard to planned austerity measures and the expiration of stimulus programs are evidently preventing a more substantial upward trend.

The survey: The results are an excerpt from the "GfK Consumer Climate MAXX” survey, based on approximately 2,000 consumer interviews per month which are carried out on behalf of the EU Commission. The GfK consumer climate survey has been conducted since 1980.