Although the FNB/BER Consumer Confidence Index (CCI) recovered to -3 in 3Q2016, consumer sentiment remained well below the long-term average reading of +4 for the CCI.
According to Jason Muscat, Senior Economic Analyst at FNB, “A confluence of adverse economic developments over the last year and a half has put many South African households under financial strain and knocked consumer confidence levels to near record lows (-14 in 4Q2015).”
Negative territory
The improvement in consumer sentiment during 3Q2016 came on the back of a marked increase in the two forward looking sub-indices of the CCI, namely the expected performance of the SA economy and the financial prospects of households in 12 months’ time. The economic outlook index jumped by 13 index points to -4, while the expected financial position index increased by 12 index points to +16 in 3Q2016. In sharp contrast, the present time indicator that considers whether it is currently a good time to buy durable goods slumped from -19 to -21 3Q2016.
Furthermore, the peaceful, free and fair completion of the municipal elections in early August, as well as the final outcome, may also have bolstered the confidence levels – or expectations for the future – of some consumers. A breakdown of the survey results per province shows soaring consumer confidence levels in the Eastern Cape during 3Q2016 (from 0 to +29 index points), with confidence levels in Gauteng also rebounding strongly (from -6 to +5). Confidence levels in South Africa’s other two large provinces, KwaZulu-Natal and the Western Cape, also increased – but to a lesser extent, and remain deep in negative territory (with a reading of -18 in the Western Cape in 3Q2016 and -10 in KZN).
Considerable pressure
A breakdown of the survey results according to household income group reveals diverging results. The consumer confidence levels of low income consumers (earning less than R 7 000 per month) jumped from -15 to +6 index points (the highest level in 5 years), but high income confidence slumped further from -6 to -10 index points in 3Q2016. There was also great variance in the consumer confidence results across different age groups, with by far the largest improvement recorded for young people. The CCI sub-index for the 16-24 year old age group rocketed from -7 to +16 during 3Q2016, and this is currently the only age group with a positive consumer confidence reading.
The uptick in consumer sentiment during 3Q2016 points to an improved willingness of consumers to spend (from near record lows over the previous year), but consumers’ ability to spend (as measured by their household income and access to credit) remains under considerable pressure.
“Given that the confidence levels of consumers earning more than R7 000 per month – the income group with the greatest spending power – declined further, and the fact that the majority of consumers consider the present time as highly inappropriate to purchase durable goods, most domestic retailers will likely find little to cheer about this festive season,” said Muscat.
