Consumer confidence rebounds during 4Q2009

During 4Q2009, the during 3Q2009 to +6 during 4Q2009. The current reading of +6 is the highest since 1Q2008, and also higher than the long-term average CCI reading of +2.
 
Thus a small but growing majority of urban South African adults expressedthemselves as confident in 4Q2009.
 
The FNB/BER CCI is based on three questions, namely the expected performance of the economy, the expected financial situation of households and the rating of the appropriateness of the present time to buy durable goods (such as furniture, appliances, electronic equipment, and motor vehicles).
 
During 4Q2009, all three of the CCI’s sub-indices improved.
 
Consumers’ rating of the present time to purchase durable goods saw the largest improvement, with the net percentage of consumers’ rating the present as an inappropriate time to buy durable goods decreasing by eight index points (from a nine year low of -23 to -15). This in itself constituted the biggest such quarterly improvement since 2Q2005, and mirrors the recent gains in the confidence levels of durable goods retailers as also surveyed by the BER.
 
The net percentage of consumers’ expecting an improvement in South Africa’s economic performance during the next 12 months increased by five index points (from +11 to +16), while the net percentage expecting their own finances to improve increased by three index points (from +15 to +18) during 4Q2009.
 
Consumers can be regarded as considerably optimistic about the outlook for the two forward-looking indicators, namely the expected economic performance and outlook for household finances, even if they are still quite pessimistic about the appropriateness of the present time to buy durable consumer goods.
 
These latest results for the is-now-a-good-time-to-buy-durable-goods sub-index correspond with the BER’s 4Q2009 retail survey results, which suggest that durable goods sales volumes are still contracting, albeit at a slightly slower rate compared to 3Q2009.FNB/BER consumer confidence index (CCI) increased by 5 index points, from +1
 
Looking at a breakdown of the survey results in terms of race and language, the improvement was broad based – consumer confidence increased across all racial and language groups.
 
In terms of income groups, the results differed somewhat. The confidence levels of the highest1 and the lowest2 income groups increased significantly, but middle income confidence remained more or less the same compared to 3Q2009.
 
After increasing from -2 to +7 during 3Q2009, the confidence levels of high income earners improved further to +13 during 4Q2009. This is the highest reading for this income group since 1Q2008.
 
High income earners are probably taking heart from the rebound in world economic growth, resurging share prices (the JSE all share index is currently almost 50% higher compared to its March 2009 low), a strong rand exchange rate and house prices edging higher. Furthermore, most South African retail banks have started to relax their lending criteria (albeit only slightly), while interest rates have been cut by a cumulative 500 basis points in response to the global financial crisis.
 
At +13 index points, high income confidence is now well above the long-term average reading for the high income CCI of +1. However, similar to the results for the overall CCI, high income earners are still pessimistic about the present time to buy durable goods and can only be considered optimistic about the forward looking indicators, namely the outlook for the economy and their own finances 12 months hence.
 
While the confidence levels of low income consumers also improved during 4Q2009, the increase in low income CCI confidence (from -11 to +4) can probably not be ascribed to rising share and house prices or decreasing interest rates3, as these factors have little, if any, impact on the lives of low income consumers.
 
Although lower food inflation, the further roll-out of social grants4 and the new phase of the expanded public works programme5 announced in the medium term budget policy statement (MTBPS) may have boosted low income confidence, the sharp increase in the low income CCI is probably, at least partly, a correction following a likely overreaction during 3Q2009 (when the low income CCI fell from +5 to -11).
 
The confidence levels of middle6 income earners remained largely unchanged at +4 index points during 4Q2009. Although positive developments such as high wage increases, a slowdown in food inflation and low interest rates also impact favourably on the middle income group, these factors are clearly still being counterbalanced by the adverse effects of job losses and soaring electricity prices.
 
According to the latest Quarterly Labour Force Survey (QLFS) by Statistics South Africa, some 959 000 South Africans lost their jobs during the first three quarters of 2009. The job shedding7 was particularly severe in the sectors that employ large numbers of semi- and unskilled workers (i.e. low and middle income earners), namely the manufacturing, agriculture and informal sectors.
 
In addition to large scale job losses, Statistics South Africa also noted a dramatic (39.7% or 464 000 individuals) increase in the number of discouraged workers – people who have given up hope of finding a job and are no longer actively seeking employment.

In conclusion:

The BER’s 4Q2009 retail survey results suggested that non-durable (e.g. food, beverages and groceries) and semi-durable goods (e.g. clothing and footwear) sales volumes will only be slightly lower this festive season compared to 4Q2008.
 
However, while durable goods sales improved compared to 3Q2009, sales volumes in this category are substantially lower compared to 4Q2008.
 
The 4Q2009 CCI survey results corroborate the findings of the BER’s latest retail survey results. The fact that a notably smaller percentage of consumers rated the present as an inappropriate time to purchase durable goods supports the view that the worst of the recession is behind us. However, consumers are clearly still in precautionary mode and therefore allocating a significantly smaller proportion of their budgets to big-ticket items compared to previous festive seasons.
 
In all, the uptick in consumer confidence during 4Q2009 denotes an increased willingness to spend among consumers - particularly among the high income group. However, for this to translate into an actual increase in household spending, consumers’ ability to spend must also improve.
 
In this regard, real disposable incomes and credit extension probably showed little, if any, improvement yet during 4Q2009. A more substantial recovery in household incomes and credit growth, and hence consumer spending, is expected from mid 2010.
 
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Cees Bruggemans | Chief Economist FNB | 01 December 2009