Consumer confidence should lead to good retail results
The last quarter Economic Confidence Index (ECI), released by TNS Research Surveys on Monday 21 December 2010, shows both a return to a more normal, non-recessionary, pattern but also a strong improvement in how people are feeling about their current economic circumstances - reaching levels not seen since early 2008 and well up on the same time last year. This is even more marked in the upper income bands, suggesting that there is a high potential for good retail results in this final week before Christmas.
The ECI results for metropolitan adults for the last quarter of 2010 (the latest study was conducted in the first week of November) shows that the overall ECI has risen to 137, up from 133 in the third quarter of 2010 (May 2002 = 100), remaining at levels not seen for two years, since before the load-shedding of 2008.
More detailed analysis also shows that, compared with August 2010, there is improved confidence in the economy both amongst the more wealthy as well as the less wealthy. Further, there has been a marked improvement overall and especially amongst the more wealthy compared with November 2009, suggesting that retailers can expect good sales in this final week before Christmas, especially at the upper end of the market.
Current feelings, expectations
The index is made up of two components: how people are feeling about the economy now and their expectations for the next six months. The reading for the current component, after a major fall in the third quarter of 2009, when the effects of the recession began to be most strongly felt and when there was a major increase in the rate of job losses, continues to rise strongly to 151 (from 114 in November 2009 and 144 in August 2010), suggesting that people are continuing to shake off the effects of the recession. This reading of 151 is the highest since February 2008 and further suggests good retail sales.
The expectations component reversed its downward trend in the middle two quarters and rose somewhat from 129 in August to 132 in November. However, the relative positions of these two components have now returned to a pre-recession 'normal' pattern. Normally, the expectations component is lower than the current component but, for all of 2009, the reverse was the case - and as the graph shows, especially in the last six months of last year. That the three lines have now returned to their pre-recession positions indicates that, bar any black swan events, there is a good chance that South Africa will continue to climb out of the recession.
Other key statistics
The latest figures are set against a backdrop of the CPI remaining at the lower end of its target range - it showed increases of 3.2% in September, 3.4% in October and 3.6% in November. Interest rates dropped by 50 basis points in September and in November to the lowest point in 30 years. The petrol price, however, after four successive small drops since May, rose, also by small amounts in the months of October and November, despite the strength of the Rand, which has been growing steadily in recent months. Following the success of the 2010 FIFA World Cup in June/July, real consumption expenditure by households continued to rise in the latter part of 2010 but some constraints were imposed by industrial action in the public sector and the automotive industry, which caused growth in GDP to slow somewhat.
What sentiments changed?
Compared with the third quarter reading, the improvement in the current component was driven by positive sentiment around people's personal circumstances and bullish view on inflation. The expectations component rose because of better sentiment around the ease of finding jobs in 2011 and to a lesser extent positive expectations about the business environment next year, as well inflation being kept under control.
Compared with November 2009, there has been a dramatic improvement in sentiment concerning current business conditions and personal economic circumstances, as well as expectations about the future course of the CPI.
ECI inputs
The index examines people's current and future perceptions of the economy in terms of job availability, business conditions, general economic conditions, prices and inflation, likely income and the effects of AIDS and crime on the economy. These two constructs - "where are we now?" and "where are we going?" are then combined into an overall index. The future perceptions measure, in particular, can be a leading indicator of changes in people's spending patterns if it changes over time by any material amount. The index is calculated via a face to face survey every two to three months of 2 000 metropolitan adults aged 18 years and over, sampled from the major metropolitan areas of South Africa and conducted in their homes. In the latest reading, 1 260 blacks, 385 whites, 240 coloureds and 115 Indians/Asians were questioned. The overall margin of error is less than 2.5%. The index was first measured in May/June 2002.
For more details go to www.tnsresearchsurveys.co.za
