Consumer confidence recovers from record lows, but remains deeply negative
The third quarter reading remains the lowest since 1993, a recessionary period of great uncertainty just before SA’s first democratic election, FNB says
Consumer confidence languished in negative territory during the third quarter of the year, despite a recovery from the historic lows reported during the worst of SA’s harsh Covid-19 lockdown.
The FNB/BER consumer confidence index (CCI) rose to -23 in the third quarter as economic restrictions eased, the bank said in a statement on Monday.
Though this was a come back from the 35-year lows recorded during the second quarter, when SA was in the grip of level 5 lockdown, the third quarter reading is still the lowest since 1993, a recessionary period of great uncertainty just before SA’s first democratic election, the bank said.
The third quarter uptick in the index was due to increases in the household finances and time-to-buy durable goods subindices — which both reported major declines in the second quarter.
The household financial outlook subindex, which reflects households’ views of their financial position in the coming 12 months, rose from -13 to -2 index points.
The time-to-buy durable goods subindices, a gauge of consumers’ views on when it is appropriate to buy goods such as cars, household appliance or furniture, improved from the historic low of -64 in the second quarter to -44 in the third quarter.
But the latest reading of is still “deeply depressed” and slightly below the previous record low of -42 for this subcomponent, reached in 1984, the bank said.
Though confidence lifted slightly across all household income groups, it remained in depressed territory.
The gradual lifting of restrictions to level 2 in August has finally allowed most consumers to go back to work and earn a living, FNB chief economist Mamello Matikinca-Ngwenya said in the statement.
“Low-income consumers who were largely unable to work from home would have been particularly relieved by this development,” she said.
Improved disbursements of social grants after initial glitches probably also bolstered the financial positions of low-income households, prompting an improvement in confidence levels.
The cumulative 300 basis point cut in interest rates in 2020 has also “significantly reduced the cost of credit and would have alleviated some of the budgetary pressures of indebted households”, she said.
Though restrictions on economic activity have eased and consumer confidence has recovered slightly, the just 10 index point improvement, indicated that the Covid-19 pandemic and related lockdowns “delivered a profound blow to consumers’ willingness and ability to spend — and it may take years for consumer confidence and household income to recover fully”, she said.
The consumer confidence index is a measure of households’ confidence in the economy and sentiment regarding their financial position. The neutral mark for the index is considered to be +2.
The confidence numbers come out ahead of GDP data from Stats SA on Tuesday, which is expected to show a 49% quarter-on-quarter annualised drop in growth according to a Bloomberg poll of 13 economists.
The bank warned that there is a “significant risk” that household finances in general could rebound by less, or take longer to recover, than consumers expect.
“Not only are the Covid-19 social grant top-ups and the new social relief of distress grant set to expire in October, but job losses are projected to rise further over the next six months. Furthermore, hours worked, overtime, commissions and bonuses may well disappoint amidst weak economic growth.”
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