SIZWE NXEDLANA: Few signs of sunshine in long winter of consumer discontent
After improving from -10 in the fourth quarter of last year to -5 in the first quarter of this year, the FNB/BER consumer confidence index fell back to -9 in the second quarter. A reading of -9 indicates that consumer confidence remained relatively low given that it has averaged +4 since 1994. However, it remained above the most recent low of -15 registered in the second quarter of 2015. Nevertheless, the latest data mark the longest streak during which consumer confidence has been at or below zero since the survey started in 1982 — 12 consecutive quarters.
In the first quarter, consumers expected the economy to perform better in 12 months' time. This was, in part, supported by the actual improvement in agriculture production in the summer rainfall areas, a moderation in inflation and tentative signs of an economic upturn taking hold in advanced economies.
However, consumers reversed their view on the prospects for the economy in the second quarter. The "economic outlook" subindex fell from -1 to -22, a reading consistent with that at the end of last year. This U-turn could mainly be attributed to the confidence shock in the wake of the sovereign credit downgrades following the cabinet reshuffle at the end of March, and news that the South African economy has entered a recession.
During the first six months of this year, on average, fewer consumers expected their own household finances to improve in the next 12 months compared to the first nine months of last year.
The "household financial outlook" subindex declined slightly from +6 in the fourth quarter to +3 in the first quarter, and then edged up back to +6 in the second quarter of 2017.
Consumer spending islikely to remaindepressed
Usually, a decline in inflation boosts households' spending power in real terms, as salaries and wages typically increase by more than inflation on such occasions. However, this time around, the increase in salaries and wages was not only modest by historical standards, but the increase in personal taxation in the second quarter also almost fully offset what modest real increase remained.
The weak state of the economy and the related poorer financial performance of many private firms not only limited salary and wage increases, but also led to a reduction — if not the full scrapping — of overtime and bonuses for many. Uncertainty increased further, as more consumers worried about their job security and new employment opportunities became even scarcer.
In the past, easy credit from retailers and banks has tided households over during such difficult times, but credit extension has not been as forthcoming this time.
As a result, households have now been forced to adjust their spending to match their reduced real spending power over and above servicing past debt.
Most consumers continued to regard the present time as unsuitable to buy durable goods, such as new vehicles, furniture, appliances and other non-essential and typically more expensive goods.
The "time to buy durable goods" subindex moved broadly sideways from -13 in the fourth quarter of 2016 to -12 in the second quarter of 2017, but this reading has now been at or below zero for the past nine years (37 consecutive quarters).
Of all the income groups, low-income households, which typically include social-grant recipients and those relying on intermittent low-paying jobs, struggled the most. Despite the recent deceleration in food inflation, food prices remain very high and will continue to dampen the real purchasing power of consumers, especially for low-income households.
Furthermore, per capita real disposable income is set to deteriorate further on the back of exceedingly poor economic growth, little to no job creation, and substantial increases in personal income taxes for middle- and high-income earners.
Bar a swift confidence-inspiring change to South Africa's political landscape, consumer spending is likely to remain depressed during the remainder of this year.