The FNB/BER CCI combines the responses of a representative sample of adults to three questions, namely the expected performance of the economy during the next 12 months, the expected change in household finances during the next 12 months and the suitability of the present time to buy durable goods such as household furniture and appliances.
During 08Q4 the FNB/BER CCI declined, because more (on a net basis) consumers expected the economy to deteriorate and fewer were of the opinion that their own finances would improve compared to 08Q3. The same high number (on a net basis) rate the present time as unsuitable to buy durable goods.
According to Cees Bruggemans, chief economist of FNB, the much more pessimistic economic outlook of primarily the high income earners led to the decline in the economic position sub-index. Whereas 4% net of high income earners previously expected the economic performance to improve, 8% net currently expect it to deteriorate. In contrast, low income earners (i.e. those with monthly household incomes of less than R5,000) have become pessimistic about the economy to a much lesser degree. Their net balance declined marginally from zero to -2%. The high and low income groups therefore hold different views on the implications of the financial turmoil and slowdown in business activity for the performance of the South African economy.
The financial position sub-index declined mainly due to a major fall in the net percentage of very high income earners (i.e. those with monthly household incomes of in excess of R10,000) expecting an improvement in their financial position. The net percentage dropped from +26 to +16. The other income groups did not change their expectations regarding their own finance by much since the previous survey.
Bruggemans said: “Plunging share prices, the falling rand and the slump in house prices may have weighed down the confidence of the very high income earners. The fall in the petrol price, the stable interest rate and a loss of momentum in food price increases supported the confidence of consumers with monthly household incomes of less than R10,000. However, the economic slowdown and weaker profits put the future wage increases and continued employment of this group at risk. Cutbacks in private sector employment will hurt the confidence of this group in particular.”
The majority of consumers continue rating the present as an inappropriate time to buy durable goods. The net majority rating the present time unsuitable barely changed between 08Q3 and 08Q4 - index points of -17 and -16 were registered respectively.
The financial market turmoil reduced the high income group's (R5,000+) confidence in the economy's ability to continue performing well and curbed the very high income group's (R10,000+) expectancy of further big improvements in their own financial positions. The confidence of consumers earning less than R10 000 per month remained steady, as the dampening effect of fears about job security on confidence was cancelled out by the enhancing effect of the decline in the petrol price. Both the high and low income group continue to appraise the present as an unsuitable time to buy durable goods.
The confidence of the top end of the market took a knock. Sales to this group face more difficult times, as this group has become less willing to buy than previously. The willingness to buy of the middle and lower end of the market remained steady. The decline in the petrol price boosted the ability to buy of the middle group. So, sales to these groups have thus far been sustained. However, sales to these groups could face a downward adjustment when private sector job cuts take their toll.
For more information, visit: www.fnb.co.za/economics
The fieldwork for the survey was done between 13 and 30 October and the results processed on 25 November 2008.
