The Consumer Confidence Index (CCI), released by FNB and Bureau of Economic Research (BER), declined from -3 index points in the fourth quarter of 2012 to a nine-year low of -7 index points in the first quarter of 2013. 
Having declined by two index points during 4Q2012 to -3, the FNB/BER consumer confidence index (CCI) slumped by another four points in 1Q2013. The CCI is currently at the lowest level since 1Q2004, when consumer confidence unexpectedly dropped to -7 index points.
The CCI is presently at an even more depressed level compared to the low of -4 registered during the 2008 global financial crisis (in 4Q2008), but at a similar level compared to the reading of -6 recorded in 1Q2008 when an acute shortage of electricity led to a spate of power outages throughout the country.
With the average reading for the CCI at +6 since 1994, the latest index number of -7 implies that consumer confidence is now very low and not supportive of growth in consumer spending.
The FNB/BER CCI combines the results of three questions posed to adults in South Africa between 13 March and 27 March 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 1Q2013, consumers’ rating of the outlook for the national economy, their own financial prospects and the appropriateness of the present time to buy durable goods all deteriorated significantly.
The economic outlook sub-index of the CCI fell from -7 to -11 during 1Q2013, indicating that even more consumers now expect the economic situation in South Africa to worsen over the next 12 months. Similarly, the financial position sub-index of the CCI deteriorated from +12 to +6.
In fact, both the economic outlook and financial position sub-indices are currently at lower levels compared to that which prevailed during the recession (between 4Q2008 to 2Q2009).
“Given the deterioration in the outlook for fixed investment and job creation on the back of the violent wildcat strikes in the mining, transport and agricultural sectors, as well as threats of power failures in coming months, consumers are understandably concerned about the outlook for the domestic economy,” says Sizwe Nxedlana, chief economist of FNB.
According to the Quarterly Labour Force Survey by Statistics South Africa, the South African economy shed 68 000 jobs during 4Q2012, bringing employment growth down to only 0,6% year on year. Apart from job losses, rising inflation and slower growth in credit extension have in all likelihood now also started to weigh on the financial positions of households.
Nxedlana note that: “Since July 2012, the price of unleaded petrol has increased by R2,38 per litre, or 22%, to a record high of R13,20 per litre in Gauteng, eroding the purchasing power of households.
“While the recent deceleration in food price inflation and the decision by the National Energy Regulator of South Africa to grant lower electricity price hikes than Eskom requested is good news for the consumer, it will not be enough to check the inflation tide in the short-term.”
Nxedlana points out that the rand exchange rate has depreciated by 20% against the US dollar since the first quarter of 2012, leading to upward pressure on the prices of imported goods, not to mention food and fuel prices.
“A weaker exchange rate and substantially higher transport and food costs are widely expected to see the CPI inflation rate breach the 6% upper end of the inflation target over the next couple of months, putting further strain on the financial positions of households,” says Nxedlana.
He also notes that: “While the personal income tax cuts announced in the 2013 National Budget will bring some relief to low and middle income households, it will not be enough to counter the adverse implications of waning employment growth, higher inflation and slower growth in social grants expenditure by the government.”
In addition, there are signs that the growth in unsecured lending has started to slow – particularly to low income consumers. With their financial position sub-index of the CCI at a five-year low of 0 index points, low income households (earning less than R 5 000 per month) are significantly more pessimistic about the outlook for their finances compared to high income households (with a reading of +9).
During 1Q2013, the time to buy durable goods index of the CCI declined from -12 to -15 index points, indicating that an even larger majority of consumers consider the present time as inappropriate to purchase durable goods.
“The combination of deteriorating real disposable income growth, slower credit extension and higher prices for imported durable goods probably persuaded many consumers to postpone their durable goods purchases,” says Nxedlana.
The report concludes that the slump in consumer sentiment during 1Q2013 corresponds with the deterioration in the business confidence levels of retailers and the substantial slowdown in retail sales growth recorded in recent months.
Apart from the decline in consumers’ willingness to spend (as measured by the CCI), their ability to spend will likely also be constrained by muted job creation, rising inflation, slower growth in unsecured lending and other credit facilities and the changes in government spending announced in the February 2013 budget.
Whereas the growth in household consumption expenditure was the mainstay behind the domestic economic recovery between 2010 and 2012, the growth in consumer spending is expected to be subdued and much less supportive of economic growth in 2013.