Having slumped from -3 index points during 4Q2012 to a nine-year low of -7 in 1Q2013, the FNB/BER Consumer Confidence Index (CCI) rebounded to +1 in 2Q2013. Consumer confidence levels improved across all income and population groups.
Consumer confidence increased across all household income, population, age, gender and language groups during 2Q2013. Although the first quarter fall in consumer confidence was to be expected given the significant deterioration in domestic economic prospects since the second half of 2012, the extent of the drop in confidence may have been a bit of an overreaction.

The CCI retreated to a 9-year low of -7, a level that was even more depressed compared to the low of -4 registered during the height of the 2008 global financial crisis. The increase in the CCI during 2Q2013 may therefore, in part, reflect a correction from an overly negative 1Q2013 result.

The FNB/BER CCI combines the results of three questions posed to adults in South Africa between 7 June and 8 July 2013, namely the expected performance of the economy, the expected financial position of households and the rating of the appropriateness of the present time to buy durable goods, such as furniture, appliances and electronic equipment.

During 2Q2013, consumers’ rating of the prospects for their household finances and the appropriateness of the present time to buy durable goods each improved by 9 index points, while the economic outlook sub-index of the CCI edged up by 6 index points.

“Economic conditions remained challenging during 2Q2013; however, the worst case scenario has not transpired. Further, the improvement in consumer confidence does correlate with better growth in retail sales and new vehicles and resilience in the labour market in recent months,” says Sizwe Nxedlana, chief economist of FNB.

According to the Department of Trade and Industry, the growth in new passenger car sales rebounded from 3,2% y-o-y during 1Q2013 to 8,6% y-o-y in 2Q2013. Similarly, retail sales volumes also surprised on the upside, with data from Statistics South Africa showing that the growth in retail sales volumes jumped to 6,2% y-o-y in May, up from 3% y-o-y in 1Q2013 and 2% in April 2013.

Nxedlana notes: “The absence of major power outages in recent months, following earlier warning signs that Eskom may need to resort to load shedding during winter, and the reprieve from large-scale violent strike action during the second quarter may have bolstered the confidence levels of consumers.
“The fact that consumer inflation has remained relatively contained up until now, in the face of the dramatic depreciation in the rand exchange rate over the last 18 months, has also been a positive development.”

The rand has depreciated by close to 30% against the US dollar since the first quarter of 2012, while the CPI inflation rate still came in at 5,5% in June 2013 (below the 6% upper edge of the SARB’s inflation target).

However, Nxedlana points out that, despite the 8-index point increase in the CCI, the latest reading of +1 remains well below the average reading for the CCI (of +6 index points since 1994). This implies that consumer confidence is still low and not supportive of a sustained strong recovery in consumer spending.

An analysis of the survey results by household income group shows that, although consumer confidence levels improved across the board during 2Q2013, the rise was larger and the actual levels remain higher for middle and high income consumers compared to the low income group (earning less than R2 000 per month).

Middle and high income consumers are notably more optimistic about the outlook for their household finances and less concerned about the appropriateness of the present time to buy durable goods compared to low income consumers.

Nxedlana comments: “High unemployment levels and soaring fuel prices are weighing on the financial positions of low income consumers in particular, implying that the deceleration in consumer spending could be more pronounced for low income households compared to the high income groups.

“Subdued global and domestic economic growth, a moderation in the growth of government spending on public sector wages and social grants and record high fuel prices will continue to erode real disposable income growth during the second half of 2013.

“The deterioration in income growth, coupled with rising bad debt levels and a tightening of lending criteria by credit providers, will translate into weaker household credit growth.”

He indicates that the combination of a slowdown in real disposable income growth and a moderation in credit extension will likely continue to weigh on consumer confidence levels and keep a firm lid on the growth in real consumer spending during 3Q2013.