Edgy consumers on the brink of outright despair

AFTER recovering slightly in the third quarter of 2015, the FNB/BER Consumer Confidence Index collapsed back to negative in the fourth quarter.

For the second time this year, the Consumer Confidence Index is far lower than the lowest reading recorded during the 2008-09 global financial crisis and recession.

It is also only the third time in post-apartheid South Africa that it has dropped to below -12 points.

The vast majority of consumers believe that South Africa’s economic prospects will deteriorate further over the next year and that now is not a good time to buy durable goods.

South African households have been confronted by several strong headwinds: higher personal income taxes, poor job creation, power outages, drought in large parts of the country, rising interest rates and an alarming depreciation in the rand exchange rate.

Combined, these factors have had an adverse impact on household income growth and consumer confidence levels this year.

The drop in petrol and paraffin prices and the respite in load-shedding did bolster consumer confidence somewhat in the third quarter.

However, the student protests over tuition fees and the chaos that erupted inside and outside parliament during the former finance minister’s interim budget speech, coupled with the intensification of the drought and the implementation of water restrictions in some of the worst-affected areas, probably weighed heavily on consumer sentiment in the fourth quarter.

In fact, with an 18 index-point drop to a 13-year-low level of -5 during the fourth quarter, the index for the 16- to 24-year-old age group booked by far the largest decline of all the age groups surveyed. The dramatic deterioration in the Consumer Confidence Index for this age group in all likelihood reflects, among others, the disruptive impact of the student riots and sometimes violent clashes with police that occurred during the #FeesMustFall campaign. In contrast, the index for the 50+ age group declined by only two points.

Nevertheless, at -24 index points — the lowest reading of all the age groups — consumer sentiment among the 50+ year age group is extremely negative.

Consumer confidence levels also declined sharply across all population and household income groups in the fourth quarter, but the fall was particularly large for highincome households. The confidence levels of high-income consumers — those who earn a monthly income greater than R14 000 — plunged by 15 index points to a 13-year low of -14, while confidence among higher middle-income consumers — those earning a monthly income between R7 000 and R14 000 — dropped by 14 index points to -12. Consumer sentiment among lower middleincome households — those earning between R3 000 and R7 000 a month — declined by 10 index points to -16. The confidence levels of low-income consumers — those earning less than R3 000 a month — remained unchanged at -13.

The confidence levels of higher middle-income and high-income consumers had been resilient until now. Higher-income households have for some time been negative about South Africa’s economic prospects, but were until recently relatively satisfied with their own finances. Bad things were happening, but they were happening to the neighbours. This has changed.

After showing a long period of resilience, higher-income consumers are now even more concerned about their financial prospects compared with the 2008-09 recession, when easy access to unsecured credit and strong growth in government employment and public sector wages still underpinned their spending.

The capitulation in consumer confidence among high- and higher middle-income consumers does not bode well for retail sales during the festive season, as these households have the greatest spending power. Also, when consumer confidence is low, households tend to postpone their durable goods purchases and cut their spending on luxury goods and discretionary items.

Coupled with the myriad adverse economic forces that have already been hammering household income growth and credit extension since the beginning of the year, low consumer confidence levels are likely to translate into weak retail sales growth during the Christmas holidays, and consumer spending is expected to come under even more pressure in the first half of 2016.