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Consumer Confidence Potpourri
From FNB
6 July 2006
The FNB/BER consumer confidence index dropped a very modest 1 point in 2Q2006 to +20, from an all-time high of +21 in 1Q2006.
A first interpretation of this still very high confidence level (now sustained for six executive quarters, itself unprecedented historically) is one of no surprise.
The survey was undertaken during May, before the 0.5% interest rate hike announcement by the SARB.
At the time consumers were being favoured by good employment gains (if we may ignore the Quarterly Employment Statistics and use our own judgement in this important matter), good real purchasing power gains (6.5% wage gains relative to 4% CPIX inflation), double-digit wealth gains (housing, equities) over a year, low nominal interest rates and gearing, and high credit usage.
The consumer remained on a roll. SARB data shows consumer spending increasing by 7% annualized during 1Q2006. That will not have slowed materially by May 2006 after a great Easter break. So hello, big spender, you have been enjoying yourself, so much so that the SARB Governor is of late starting to say 'enough'.
Few would probably quibble with this picture.
Great is therefore the surprise when we start trawling among the component details, where stark contrasts present themselves. That these just evened out, giving only a 1 point drop in the overall composite confidence index, may just be one of those coincidences. Meanwhile, the detail is pregnant with future meaning, depending on which force wins out in coming months.
The overall consumer confidence index is a composite of answers by 2500 adults to three questions. Two of these questions saw no change from the near record 1Q2006 readings.
Household own financial prospects these next 12 months was unchanged at +22, and is-it-now-a-time-to-buy-durables was an unchanged +13, both high readings. No sweat, baby, let the good times roll!
However, when asked to assess the country's economic prospects over the next 12 months, this reading fell from +28 to +24, entirely explaining the overall composite drop of 1 point.
It would seem most consumers felt by May that the economy's future had deteriorated a little. No big deal, really, only 4 points, with this reading still well ahead of 2005's confidence levels.
As to what could have contributed to this modest easing, the Zuma trial and outcome was disturbing to some (but not to others), the equity market and the Rand fell heavily from mid-May, and the petrol price had steadily been increased.
Write it off as an overdue correction of an overheated view of our rosy economic prospects. Why worry?
Yet go to the next level of detail, and see the widening spectrum of diverse trends.
White consumers expect to do well financially in the coming year. They upped their reading about own finances to a record +16 from +13.
At the same time they sharply curtailed their confidence about the country's economic prospects, down from +17 to +5. Overall, that made for a pessimistic note, with White confidence falling from +15 to +12.
Black consumers were much more balanced in their views, overall dropping only 1 point to +24, well spread among the three questions.
In contrast, Coloured and Indian consumers seemed to want to outdo each other in their positive views. Coloureds improved from +9 to +12 (mainly a more rosy view about buying durables now), and Indians improved from +2 to +13 (a strong upward revision across all three questions).
Whereas Black consumers conformed most to a relaxed interpretation (a minor easing from very high levels of confidence across all questions), White consumers clearly had seen one or more ghosts (possibly Zuma, the Rand and equity markets, with petrol thrown in as a special).
It is not quite clear what made Coloured and Indian consumers so exuberant, unless it was a belated catch-up with the other consumer groups at higher levels of general confidence.
These patterns repeat themselves in other dimensions, but often weirdly.
High income households (over R8000 monthly) recorded the biggest drop in confidence, to +25 from a record +31. They had this in common with Living Standard Measure 4 (LSM4) dropping 11 points, LSM5 (dropping -9 points) and 35-49 year-olds (dropping -8 points), a rather counterintuitive grouping.
It seemed the well-off and the not so well-off were fundamentally agreeing, in opposition to everyone else.
High-incomes fingered the country's prospects as bad news (down -12 points), as did the higher middle-incomes (down -9 points).
In contrast, low incomes (less than R800 monthly) were ecstatic (increasing from +7 to +12), as were LSM1-3 (rising from +4 to +16), with increased confidence well spread across the three questions.
Politically, Zuma could explain the observed euphoria as much as the heavyheartedness. Economically, higher incomes saw a coming threat in market developments (been there, done that, remembering prime 25% in 1998, and the Rand over 13:$ in 2001). In contrast, low incomes may have started to see the flow-through from another rich spending February budget, high on state spending and redistribution, with the higher petrol price apparently not pinching enough to register.
Interestingly, English-speakers heavily increased their own finance expectations by +9 points to a record reading of +27. In contrast, they were in the dumps about the country's prospects (falling from a record +26 to +13).
That is a pretty coherent picture, for both White and Black English-speaking consumers.
Nguni-speakers also edged up by +1 point to a record +19, but they showed no sharp contrasts.
Afrikaans-speakers eased back mildly, from +7 to +4. Their own financial outlook held mostly steady (things aren't looking that bad for them either), but they revised down the country's outlook and now-time-to-buy-durables, signaling concern.
Sotho-speakers came off most, but from very high record levels, falling from +36 to +28 (more in the nature of a correction spread evenly across all questions).
The provincial confidence readings in some respects added to the confusion.
Western Cape increased to a record +17. So much for the dire electricity outlook. But to what extent did politics play a role (the DA took Cape Town)? Or was the rationale mostly economic, concentrated among Coloured consumers?
Certainly own financial prospects jumped strongly in the Cape from +13 to +23 (a record). Time-to-buy-durables also improved. They must be enjoying themselves thoroughly down there, generally confirmed by BER staff.
Free State, Northern Province and Mpumalanga also improved (remarkably positive about the country's prospects). In contrast, KwaZulu-Natal and Eastern Cape dropped in confidence. Gauteng (the country's economic heart) stayed unchangingly high at +26.
What can be gleaned from this quarter's FNB/BER consumer confidence survey?
Instead of assuming everything to be fine, with the mildest of dips after a string of record high quarters, the survey detail shows much greater volatility.
Good news (to very good news) about own financial prospects, suggesting the economy will remain on a roll, backed up by an overall high reading for time-to-buy-durables. This expansion is only going to die with its boots on, or so it seems.
If politics did play a role in influencing consumers, it was highly divisive. That could point to more strain down the road, and a bigger job than ever for any compromise presidential candidate in 2007-2009 to bring people together again.
Economically, the low-income and lower ranked Living Standard Measure groups are doing well, probably job and pay-wise, and certainly benefiting from state spending.
Higher incomes are far more perturbed about what financial market turbulence may bring in the year ahead, a feature they also showed prominently in 2001 and again in 2003. For them there is always the fear of event shock and higher interest rates, as conditioned by numerous past such occurrences.
Although consumer confidence about financial prospects and their willingness to buy-durables-now may take time fading, promising continuing good momentum in the economy for now, a few danger signals are flashing.
Zuma will face another court trial in the second half of 2006, possibly going into 2007. That may again prove to be divisive, and further erode confidence overall in country prospects. Also, the ongoing global market turbulence, the sell-offs it has given rise to, and the interest rate increase that has resulted (with possibly more to come), may erode confidence in the country's prospects yet more, as well as putting a dent into confidence about own finances and time-to-buy-durables.
Thus, coming events may see a few quarters of eroding consumer confidence, and this may translate into a slower spending momentum as we roll into 2007, with the economy adjusting to these realities. As to the severity of any easing, it will mostly depend on events yet to come.
Original articles published at www.fnb.co.za.
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