Consumer confidence gains steadily

The FNB/BER consumer confidence made yet again further gains into positive territory, rising by five points to +6 in 4Q2009, suggesting a small majority of urban South African adults feel confident at this time.

 

Even greater majorities continued to feel positive about the economy’s outlook (+16) and about their own finances these next twelve months (+18), in both instances also increasing the levels of expressed confidence.

 

But when it comes to asking whether now is a good time to buy consumer durable goods, a sizeable majority at -15 feel this still not to be the case. Even if this majority did shrink considerably this past quarter, by the biggest margin since 2Q2005, this was from heavily (excessively) depressed 3Q2009 levels. For at -15 this reading is basically back to average levels prevailing since 2Q2008.

 

Thus the big distinctions of the past 18 months remain. The overall consumer confidence index remains neutral to slightly up, with the two forward-looking components strongly positive, yet the current component remaining deeply cautious.

 

When analyzing other dimensions of the consumer confidence survey, more such finer distinctions can be found that should perhaps be carefully weighed.

 

For instance, the overall consumer confidence index has a long history of closely tracking the South African business cycle, leading turning points by one or more quarters.

 

But the last two lower turning points (in 1999 and now today in 2009) present scenes of confusion. The overall consumer confidence index only turned higher more than a year AFTER the economic upturn began in late 1999, and today it surprisingly is turning higher much more than a year BEFORE the general economy did.

 

It would seem that especially Black consumer confidence has deviated rather heavily from its own previous cyclical norms, in the late 1990s steadily normalizing a perhaps excessive political exuberance and expectation following 1994’s democratic election.

 

During 2008-2009 it may well be that much more widespread welfare allowances, strong union activity, the ongoing benefits of BEE and possibly political considerations all prevented a much deeper falloff in this consumer component’s confidence levels in what became clear and severe recessionary economic circumstances, surprisingly commencing recovery in sentiment well ahead of the general economy.

 

In contrast, White consumer confidence has shown throughout the past ten years a much more traditional reaction pattern to changing economic circumstances.

 

In late 1998 and early 1999, White consumer confidence reacted in shock to prime 25.5%, thereafter commencing recovery from depressed levels, three quarters ahead of the economic turn, giving a clear cyclical signal.

 

Similarly today, with White consumer confidence reaching its lower turning point of -15 in 1Q2009, two quarters ahead of the economic turning point in 3Q2009.

 

White consumer confidence distinguishes in another way, especially in 2009. Its turning is much more subdued than the other population groups, or from what one would gather from the income categories. This could be important, especially for the retail, motor and property trajectories that lie ahead (though not losing track of what high income groups signal on this score).

 

Even so, White consumer confidence in the 2009 trough never went as low as happened in 1999, and since 1Q2009’s low of -15 it has been tracking steadily less negative readings to -9 (2Q2009), -5 (3Q2009) and now -4 (4Q2009).

 

Perhaps more significantly, while the two forward-looking components for White consumers also register modest majorities, the current-component (is now a time to buy durable goods?) continues to register very negative readings throughout 2009 (-31 in 1Q2009, 2Q2009 and 4Q2009 and even -33 in 3Q2009).

 

With the ongoing changes in the structure of the South African economy, however, it is more than ever important to focus on income categories.

 

Here the high income group with the most buying power (those with monthly incomes over R10 000) never went much negative, effectively hugging the neutral line in 2008-2009, while remaining very positive about own income expectations, this reading climbing to +26 in 4Q2009.

 

The high income group, however, has had its moments of anxiety, with the time-to-buy-durables question reaching a very depressed -27 in 2Q2009, improving to -21 in 3Q2009 and now jumping to only -10 in 4Q2009.

 

High incomes certainly seem to be gradually stripping for action, if not immediately than probably later during 2010, with the low interest rates, recovering economy, booming stock market and property market turn probably main reasons.

 

Low incomes (below R2000 monthly) have seen tougher times before, but are also repositioning. Their low confidence readings mainly occurred in 2008, turning positive in 2009, with 3Q2009 the exception (-11) but that again being corrected in 4Q2009 (+4).

 

The impression one gains about low incomes is of a modest majority not feeling confident in 2008, but this situation changing to a small majority feeling confident in 2009. The main reason is probably the extensive social safety net of allowances created by government in recent years, and possibly politics.

 

This group also showed extreme reluctance to buy durable goods throughout 2009, reaching -30 in 3Q2009, but has since improved to -11 in 4Q2009.

 

High and low incomes alike therefore seem united in their sense that some kind of corner was turned in the economy in the course of 2009 and this at levels of confidence far removed from the traditionally depressed recessionary levels.

 

In contrast, the middle income groups (between R2000 and R10 000 monthly incomes) give the impression of being the ham in the sandwich. They have similar profiles as the other groups (small overall positive majority, big positive majorities regarding own financial prospects, large majorities not favouring buying durables), but they are not improving their readings much. This is probably where the income constraint remains most problematic.

 

These results lead to some strange, but also encouraging conclusions, though with qualifications:

• the strangest aspect is that there have been no great majorities of urban consumers mirroring the recessionary conditions of the past year.
• this doesn’t mean that the recession didn’t register. Rather, those that were hurt certainly fell into the camp not registering confidence, but there apparently remained a much larger grouping than usual signaling that the recession passed them by, maintaining large majorities feeling positive about own finances, and even about the economy (with 2Q2008 offering the biggest shock value following the lights being switched off, but by 2009 this response was back into deeply positive territory).
• Meanwhile there was overwhelming caution throughout, in the way large majorities of every kind through 2008-2009 did not want to buy durables.
• The encouraging signs are there, in many dimensions, that the South African urban consumer is coming back, especially in the way own financial prospects and the economy are seen.
• Yet the caution lingers regarding buying durables, perhaps less dire than in 3Q2009 and less dire still in crucial consumer dimensions such as high and low incomes, suggesting more of a consumer revival to be taking hold in 2010.
• But there are also segments, such as White consumers as a group and middle-income earners as a group, who indicate a very slow cyclical improvement to be underway.
• So some groups will lead (such as high income, low income, Black and 25-34 age groups) but others will probably lag in the coming revival.
• Coming quarters should show steady, if uneven, further improvement in consumer confidence as the consumption revival gradually takes hold and spreads yet wider.

 

Cees Bruggemans is Chief Economist of First National Bank.