Consumers' rating of the prospects for the national economy, the outlook for their own finances and the appropriateness of the present time to buy durable goods all improved slightly during 3Q 2012.
While the CCI recovered some lost ground during 3Q 2012, consumer confidence remains at levels last witnessed at the onset of the global financial crisis in the second half of 2008. Coupled with a projected slowdown in household income growth, low consumer confidence levels foreshadow a further deceleration in the growth in consumer spending during the remainder of 2012.
The CCI had been edging lower ever since reaching a peak of +15 around the time of the 2010 Soccer World cup tournament, but the 2Q 2012 drop was particularly large. At the time, the alarming escalation in the Euro zone debt crisis and concomitant deterioration in the outlook for domestic economic growth led to substantial declines in business and consumer confidence levels alike.
However, it now appears as though the fall in confidence levels was greater than what was justified by the slowdown in domestic economic activity and hence consumer (and business) confidence levels recovered somewhat during 3Q 2012.
Nevertheless, with the average reading for the CCI at +6 since 1994, the latest reading of -1 implies that consumer confidence remains low and not supportive of strong growth in consumer spending.
The index combines the results of three questions posed to adults in South Africa in 8-21 August 2012, 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 3Q 2012, consumers' rating of the prospects for their own finances and the appropriateness of the present time to buy durable goods each improved by 3 index points, but the economic outlook sub-index of the CCI only edged up by one index point. All three sub-indices of the CCI remain well below the levels that prevailed during 2010 and 2011 when solid growth in consumer spending led the domestic economic recovery.
The economic outlook sub-index of the CCI remained negative (-4) during 3Q 2012, indicating that most consumers continue to expect the economic situation in South Africa to worsen over the next 12 months. The relapse in global economic growth and deterioration in the domestic political climate, among other things, caused the economic outlook sub-index of the CCI to remain low in 3Q 2012.
The violent and prolonged strikes in the mining sector in particular have increased uncertainty, which may well impair fixed investment and employment growth prospects in the country. In fact, most of the fieldwork for the latest consumer confidence survey was conducted before the deadly clashes between the police and striking workers at the Lonmin Marikana platinum mine on 16 August, implying that this factor could continue to weigh on consumer sentiment during 4Q 2012.
The 'financial position' and 'time to buy durable goods' sub-indices of the CCI improved more notably during 3Q 2012. The partial recovery in the financial position sub-index of the CCI may well be tied to a slight decline in meat, grain and fruit prices during the third quarter, coupled with the 50 basis point cut in the prime interest rate in July.
Although a sizeable majority of +11 of consumers are expecting their financial position to improve over the next 12 months, this index remains near a four- year low (+8 reached in 2Q 2012).
Moderating wage inflation, lacklustre job creation and rising household tax burdens will continue to erode household income growth; and the 93 cents per litre increase in the petrol price in September and rising grain prices in the face of the worst US drought in 50 years will only put added strain on household budgets.
Although consumers have also become more cautious about purchasing durable goods compared to the 2010-2011 period, the decline in the time to buy durable goods sub-index of the CCI over the last year has been much less pronounced. Sustained strong growth in vehicle financing, credit card debt and other forms of unsecured lending, coupled with price discounting and historically low interest rates, have bolstered the durable goods sub-index and durable goods sales volumes.
Economic conditions in the Euro zone remain tenuous, while domestic political tensions have escalated notably in recent months. Although the July interest rate cut brought some relief to heavily indebted households, petrol and food prices are once again on the rise and will erode the purchasing power of households going forward. In addition, employment growth is expected to slow in tandem with weaker global and domestic economic growth. Coupled with low consumer confidence levels, the growth in household consumption expenditure is likely to be rather subdued during the final quarter of 2012.
In conclusion: The 2 index point increase in consumer confidence during 3Q 2012 represents a slight correction following the 8 index point drop in the CCI in 2Q 2012, but not a reversal of the downward trend witnessed over the last year and a half. At -1, consumer confidence remains weak and not supportive of robust growth in consumer spending.
