Despite drop in consumer confidence, results remain high

The index combines the results of three questions posed to 2 500 predominantly urban adults in February 2011, 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 big ticket items, such as furniture, appliances and electronic equipment.

The main reasons for the decrease were expectations about improvements in household finances and the rating of the present as a good time to buy durable goods declined for the first time in three quarters optimism about the performance of the economy continued to fade confidence of high income earners followed that of low income earners down to a lower level.

Reason summary

• During 1Q2011, fewer consumers answered in the positive to all three questions compared to 4Q2010. Fewer consumers expect the economy and their own finances to improve over the next 12 months and also rated the present as the right time to buy durable goods.
  
• Consumer optimism about the performance of the South African economy has declined continuously since the 2Q2010 peak. It did so once more during 1Q2011.
  
• During the last half of 2010, rising optimism about their own financial positions and an increased willingness to buy durable goods countered consumers' declining confidence in South Africa's economic prospects.
  
• However, in 1Q2011 consumers' confidence in their own financial situation and their willingness to buy durable goods also declined and consequently did not make up for their further waning optimism about the economy.
  
• Fall in the confidence of high income earners (i.e. people with household incomes of R5 000 or more per month) from +19 in 4Q2010 to +11 in 1Q2010. In contrast, the confidence of low income earners (with less than R5 000 per month) remained almost unchanged - it edged marginally upwards from +5 in 4Q2010 to +6 in 1Q2011.

In perspective

• Despite the 1Q2011 fall, the confidence of high income earners remained relatively high. At +11, their confidence matches the level that prevailed at the end of 2009.
  
• The virtually unchanged confidence of low income earners must be seen against the backdrop of the fall from +10 in 3Q2010 to +5 in 4Q2010.
  
• Despite the 1Q2011 fall, the confidence of high income earners remained higher than that of low income earners.
  
• Consumer confidence tends to fluctuate between quarters. So, the fall in the high income earners' confidence may be reversed next quarter. Only when confidence settles at a certain level for at least two consecutive quarters will it become an apt time to search for additional reasons.

The decline in consumer confidence is consistent with the lower business confidence of retailers reported last week. Given the historical volatility of the index, too much should not be read into a single decline. However, observers are watching consumers closely for any new developments given their prominent role in the current economic upswing.