Consumer confidence ticks up this quarter
AFTER a hefty decline of 8 index points to minus 3 in the second quarter, the FNB/BER consumer confidence index (CCI) has edged up to minus 1 in the current quarter.
However, the index remains at levels last seen at the onset of the global financial crisis in the second half of 2008, according to FNB, which released the index yesterday.
The CCI combines the results of three questions posed to adults in South Africa between August 8 and August 21. The questions relate to the expected performance of the economy, the expected financial position of households and the rating of the appropriateness of the present time to buy durable goods, such as furniture, appliances and electronic equipment.
“The 2 index point increase in consumer confidence during the third quarter represents a slight correction but not a reversal of the downward trend witnessed over the last year and a half. At minus 1, consumer confidence remains weak and not supportive of robust growth in consumer spending,” FNB said.
FNB chief economist Cees Bruggemans said the “violent and prolonged strikes in the mining sector in particular have increased uncertainty”. He expressed concern about the potential impact of the disruption of the mining sector on fixed investment and employment growth prospects.
Barclays Capital also attributed the low levels of confidence to the mining unrest that started last month.
“While predominantly concentrated in the platinum sector, some strike action is occurring in the gold sector (Gold Fields’ KDC mine) as well as in the chrome sector. It was reported that workers at Samancor’s chrome mine are demanding hefty pay rises, and threatening strike action this coming Friday,” Barclays said.
FNB noted the CCI had been slipping since reaching a peak of +15 around the time of the 2010 World Cup, but said the second quarter drop was particularly large. Coupled with a projected slowdown in household income growth, low consumer confidence levels foreshadow a further deceleration in the growth in consumer spending during the remainder of the year, according to FNB. Other data suggest non-residents are equally disenchanted with the domestic outlook.
Citi strategist Leon Myburgh said bond outflows continued as foreigners sold a net R1.5 billion worth of local bonds on Monday.
Recent sales followed earlier strong inflows after South Africa qualified for inclusion in Citi’s World Global Bond index starting next month.
Falling investor confidence has been reflected in the currency market. “The rand certainly underperformed its peers over the last week,” Myburgh said. “The Marikana incident and continued labour unrest are keeping foreign investors cautious.”
But he noted appetite for local bonds had been affected by the sharply higher yields on US treasuries.
IT IS doubtful whether a further reduction in interest rates this week by the Reserve Bank’s monetary policy committee would be the right thing to do for the longer-term financial health of the household sector, according to FNB.
John Loos, a household sector strategist at FNB, said a further interest rate cut could be justified from a narrow inflation-targeting viewpoint, but the Reserve Bank had probably “given over enough” in terms of lowering the cost of household debt and stimulating the housing market.
Loos said the Reserve Bank had already greatly improved housing affordability through the massive interest rate cuts since late 2008 despite these reductions only resulting in a moderate response by the housing market.
Before the housing market moved to sustainably stronger levels, the level of household indebtedness related to income had to decline, savings rates had to improve significantly and big adjustments had to be made to accommodate the sharp increase in housing-related rates and utilities tariffs, he said.
“These financial health improvements probably won’t be achieved by further interest rate reductions, should they occur,” he said.
He also questioned whether the performance of the housing market was as mediocre as suggested by some people.
He said many were still benchmarking the current performance of the housing market with the property boom in the last decade, which was the biggest boom in the country’s recorded history and probably would not be repeated soon.
“Perhaps the current market is more ‘normal’ than we think for the low growth economy that South Africa is.”
Loos argued that the Reserve Bank had “done its bit” to stimulate the residential property market despite consumer inflation and not house price inflation being its official focus. He admitted there were some constraining factors hampering further improvements in housing affordability, but stressed some lay outside the bank’s sphere of influence.
He added that the affordability of housing was also impacted by “home-running costs”, such as municipal rates and utilities tariffs.
He said the ratio between average house prices and average remuneration had dropped by 24.4 percent in the past four years, but the ratio of rates and tariffs to remuneration had risen by 6.54 percent in the same period.