FNB/BER consumer confidence stumbles

Events of recent months took a distinct toll on consumer sentiment, with the FNB/BER consumer confidence index falling by a whopping 10 points, from a still very high reading of +22 in 4Q2007 to +12 in 1Q2008.

 

The survey is based on a quarterly stratified sample among 2500 urban South African households and gives a good sense over time as to how our urban consumers see the economy and their own finances.

 

The outcome this month at +12 still suggests a majority of consumers to be net positive, but this has now clearly shrunk, breaking the four year pattern of unremittingly high levels of confidence.

 

The obvious explanations include the Eskom electricity crisis, but also the sharply higher CPIX inflation eroding real purchasing power, led by oil and food, worsened by a weaker Rand, with electricity price shocks still to be absorbed.

 

On the positive side for different groups of consumers, the SARB did not increase interest rates in January, and the Minister of Finance dollied out a lot more welfare money in his February budget.

 

If that is the overall context, the consumer confidence survey detail was again full of interesting twists and surprises.

 

The overall consumer confidence index fell so heavily, because consumers in nearly every dimension took a very negative attitude to the economy and whether now was a good time to buy durable goods.

 

Perceptions about the economy’s prospects over the next twelve months fell by 12 index points, from +25 to +13.

 

The view regarding now being a good time to buy durables deteriorated by 11 points, from a high +12 to only +1. This was still in positive territory, but only just and heavily shrunk.

 

The surprise, already the case for some quarters, came in personal finances. Asked how they see their household finances over the next twelve months, consumer optimism eroded only relatively mildly by 6 points, from +29 to +23, a still very high level of optimism.

 

Apparently, whatever bad is going to happen is mostly still going to happen to other South Africans. That remains a comforting thought, not so?

 

But there were more surprises in this manner.

 

The confidence of Black consumers eroded most, by 12 points from +30 to +18. This is a fairly abrupt change compared to the relentless rising tide of recent years. Everything in the economy is apparently not quite what it should be and is now so acknowledged.

 

In detail, Black consumers mirrored the overall pattern. Economic prospects deteriorated by 14 points, from +35 to +21. Whether durables should now be bought plunged 12 points, from +21 to +9. But interestingly, own financial prospects declined only by 8 points, from +33 to a still very high +25. Hardship apparently is still to arrive.

 

The surprise for me was the reaction from White consumers. Given the enormous complaining of recent months, about Eskom electricity interruptions and inflation (oil, food) racing ahead, but also widespread political concerns, not least with Zim’s example next door, one was ready for historic confidence plunging.

 

Nothing of the sort happened.

 

White consumer confidence eased a modest 7 points, from +6 to -1, which effectively now represents a 50/50 divide between optimism and pessimism. In other words, there remains a considerable residue of optimism even among White consumers, against the backdrop of what appear to be mostly momentous events.

 

The White profile, though, was starker than the average suggested. Economic prospects deteriorated by 7 points, from +6 to -1. But the willingness to buy durables now fell by 11 points, from -2 to -13, signaling a major switch-off in the eagerness to buy big ticket items.

 

Encouragingly, the steadily widening new divide between Black and White consumer confidence of the past three years narrowed by 5 points, from +24 in favour of Black consumers to +19. Both sets of consumers may again come to see events through roughly similar lenses ere long.

 

The real surprise came between English- and Afrikaans-speakers. Brace yourself. English-speaker confidence dropped by 11 points, in line with the overall average, from +14 to +3. But their willingness to buy durables plunged by 16 points, from -1 to -17.

 

In contrast, Afrikaans-speaker confidence fell by the lowest of any dimension, by a miniscule 3 points, from an already low -1 to -4. Given the enormous perceived dissatisfaction out there of late, one had expected more of a reaction, unless Afrikaans-speakers were effectively already there, and others played belated catch-up.

 

Interestingly, Afrikaans-speaker willingness to buy durables fell only 5 points, from -10 to -15, but this level now equates much more with English-speakers. Big ticket item purchases, it seems, remain very much in retreat for all groups of consumers. Indeed, this retreat seems to be accelerating and this despite interest rates staying unchanged in January.

 

When it came to income groups, the very high and the very low retreated by the same modest extent (8 points). A bigger squeeze took place in the middle (down 11 points).

 

High incomes (over R8000 monthly) fell from +22 to +14. Low incomes (below R800 monthly) fell from +17 to +9. Perceptions of these groups appear to be united in their relative deterioration.

 

In contrast, higher-middle incomes (R4000-R8000 monthly) fell from +24 to +14. Lower-middle incomes (R800-R4000 monthly) fell from +21 to +10.

 

Still, overall there is little to choose from here. All income groups retreated considerably in confidence, maintaining surprisingly similar levels, bearing in mind the stark differences in their socioeconomic realities.

 

Whereas higher incomes were probably more indebted and squeezed by the persisting high level of interest rates, low incomes were pummeled by the sharply higher inflation and the reduction in real purchasing power this is causing, though supported by greater welfare payments.

 

As to the detail, there were some surprises here as well.

 

All income groups deteriorated their view about economic prospects. It comes across mainly as an Eskom effect.

 

But whereas high incomes (over R8000 monthly) reduced their willingness to buy durables now by only 7 points, from +10 to +3, low incomes (below R800 monthly) plunged the most by 18 points, from an admittedly unrealistic +20 (going by preceding quarters) to +2 (a much more normal reading for this group).

 

Low incomes were the only ones to actually increase their confidence about their own financial prospects, increasing it by 2 points, from +13 to +15. Blame it mostly on Trevor? If so, that should come as a surprise to our political debate.

 

Other income groups, however, continued to enjoy much higher levels of confidence about their own financial prospects (+28 for those earning over R4000 monthly). That continues to signal a resilient economy out there. Not all wheels have apparently come off just as yet, at least not so far.

 

At provincial level, Gauteng remains robustly positive with a confidence level of +21, highlighting that the economic heart of the country keeps beating strongly despite all the disruption and anxiety.

 

In contrast, Western Cape at -3 and KwaZulu-Natal at -7 are giving evidence of being down in the dumps. Now why would that be? Sport again? Or politics? Or is it really only the regional economy or more specifically their mix of activities?

 

Perhaps a final word to the age cohorts.

 

Those aged 25-34 (our future) plunged their views of economic prospects by 17 points, from +40 to +23, while their own finances only deteriorated by 7 points to +32. Why me worry?

 

Those aged 35-49 (our present) are apparently even better ensconced, easing their own financial prospects by a miniscule 2 points, from +28 to +26. Life apparently remains sweet.

 

Those aged over 50 (our past and present leadership), traditionally most skeptic and pessimistic, decided to abstain wholesale, reducing their willingness to buy durable goods now from -7 to -19. But then presumably they already have most of the goodies they ever aspired to own. A tactical retreat?

 

Overall, there is no doubt about the abrupt downshifting in consumer confidence across every conceivable grouping of households. But the changed perception is most acute about economic prospects generally (sensing danger?), with much greater caution coming through on whether now to buy durables (no way, Jose).

 

As to own financial prospects, life apparently mostly remains a breeze, which comes as a surprise. But then employment is still expanding, the Minister of Finance has no end with his fiscal largesse, and, yes, interest rates stopped climbing in January. It doesn’t prevent recession in cars and other durable goods, and increasingly the property market and new house building as well, but that just shows a healthy caution among most consumers to pull back a bit and watch the passing show.

 

The good news must be that households by and large haven’t as yet been financially devastated by events, nor do they expect this to happen in the coming year.

 

Right on, baby!