Consumer confidence up

17 Mar 2010

The FNB/BER consumer confidence index (CCI) for 1Q2010 (conducted 5-19 February 2010) shows a rise in confidence of a further 9 index points to a level of +15 from the +6 at the end of last year. This is the single biggest increase between two consecutive quarters in five years. It is now at a slightly higher level compared to the one that prevailed before it plunged two years ago. However, the current level is still lower than the levels of +20 and above prevalent during 2006 and 2007.

The CCI is based on three questions, namely the expected performance of the economy, the expected financial situation of households and the rating of the appropriateness of the present time to buy durable goods (such as furniture, appliances, electronic equipment and motor vehicles).

In terms of these components, the increase was caused by even more (on a net basis) consumers expecting the economy and their own finances to improve during the next 12 months, as well as even fewer (on a net basis) rating the present as an inappropriate time to buy durable goods compared to the 4Q2009 survey.

Survey responses

Of the three questions, the biggest change since 4Q2009 occurred in the case of the rating to buy durable goods. The net percentage rating the present as an inappropriate time to buy durable goods improved by a considerable 11 index points, from -15 during 4Q2009 to -4 during 1Q2010;
In contrast, both the net percentage of consumers expecting an improvement in the economic performance and in their own finances increased by a slightly more modest 7 index points.

The substantial improvement in consumers' willingness to buy durable goods is impressive; however, it needs to be put in perspective.

Cees Bruggemans, chief economist of First National Bank, says, “Although consumers' unease about the appropriateness of the present time to buy durable goods is considerably smaller than during 2008 and 2009, consumers remained cautious relative to the heydays of 2006 and 2007”. In contrast, consumers' optimism about improvements in the economic performance and their own finances in 12 months' time is currently close to the high points of 2006 and 2007.

Middle-income groups drive results

Confidence of the higher (earning between R5000 and R10 000) and the lower middle income groups (R2000-R5000) increased by 12 index points;
Confidence of the high (R10 000+) increased by 6 index points;
Low income groups (less than R2000) increased by 4 index points;
The big increase of the middle income groups, in turn, can primarily be attributed to a sharp decline in the net percentages rating the present as an inappropriate time to buy durable goods.

A low interest rate, greater affordability, pent-up demand, as well as a degree of stability returning to the labour market could all have played a role in convincing more (on a net basis) consumers to re-evaluate the appropriateness of the present time to buy durable goods.

“The rise in consumer confidence indicates an increased willingness to spend. This will only translate to a more widespread and sustainable recovery in consumer spending if households' ability to spend improves”, says Bruggemans. This, in turn, depends on a turnaround in household income - specifically employment - and credit availability.

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