Bit less glum, but we’re still in no mood to shop
LAST month we learnt that household sentiment improved slightly during the first quarter of 2016. This was mainly due to the resilience in consumers’ rating of their own financial prospects and an improvement in consumers’ rating of South Africa’s economic prospects, from near record lows to a level that is slightly less bearish.
However, households still view the present as an inappropriate time to make big discretionary purchases.
The resilience in personal financial positions continues to be driven by higher-income households. In fact, in the past five years — characterised by low consumer confidence — highincome households have been the most confident.
By contrast, low-income households have recorded the lowest levels of confidence with respect to the outlook for the economy and their own finances. This points to pervasive income inequality.
The low rating that consumers are attaching to South Africa’s economic prospects is consistent with an economy in the grip of stagflation.
However, there were some positive developments in recent months that help to explain the improvement in first-quarter consumer sentiment. These include the significant decline in load-shedding so far this year, an 87c/litre drop in the petrol price between October 2015 and March 2016, and the respite in student protests over tuition fees that weighed heavily on consumer confidence late last year.
The re-appointment of Pravin Gordhan as the finance minister, followed by a well-crafted national budget in February, may have also prevented consumer sentiment from deteriorating further.
Last year, the marginal income tax rate for all individuals earning more than R181 900 a year was raised by one percentage point. This year, expectations of further significant tax hikes in 2016 did not come to pass, which is likely to have heartened some taxpayers.
The recovery in the JSE All Share index (from around 47 000 index points in mid-January to 53 000 during mid-March) and the appreciation in the rand exchange rate against the US dollar may also have bolstered confidence levels, particularly those of high-income consumers.
In contrast, the “time to buy durable goods” sub-index of the consumer confidence index slumped to -22 index points during the first quarter of this year — the lowest level since the 2008-09 recession. With interest rate hikes announced in the past three consecutive Reserve Bank monetary policy committee meetings (in November, January and March), the prime interest rate has increased by a full percentage point over the past fourand-a-half months.
Coupled with great uncertainty about South Africa’s economic prospects in the medium term, higher debt financing costs in all likelihood persuaded many consumers to postpone their durable goods purchases.
This is reflected in the sharp contraction in new vehicle sales over the past year, which declined by 5.7% in 2015 and another 8.5% year on year during the first quarter of this year.
Consumer confidence remains exceedingly depressed, pointing to a low willingness to spend and use credit among households. Indeed, consumer confidence levels remained in negative territory across all income and race groups during the first quarter.
In addition, in the weeks since the fieldwork for the first-quarter survey was completed (after March 22), the petrol price has been hiked by 83c and the JSE All Share index has lost ground. Further, food prices are set to rise much more, which will adversely affect the purchasing power of low- and middle-income households in particular.
Given that the heydays of easy access to unsecured credit, extraordinarily low interest rates and strong growth in public sector employment and wages are behind us, we expect the growth in real consumer spending to slow further during 2016.