Consumer confidence posts surprisingly strong rebound

Johannesburg - The FNB/BER Consumer Confidence Index (CCI) recovered from -20 to -8 index points during the fourth quarter of 2022, after plunging to -25 index points during the second quarter. The latest reading brings the CCI more or less in line with the level attained during the fourth quarter of last year (-9), as well as the fourth quarter of 2019 (-7, just before the COVID-19 pandemic struck).

Even though a reading of -8 still signifies depressed consumer sentiment, the scope of the rebound relative to the third quarter comes as a surprise given sustained high inflation, frequent loadshedding, successive large interest rate hikes and the worsening global economic backdrop.

Details

All three sub-indices of the CCI rebounded smartly during the fourth quarter. The economic outlook and time-to-buy durable goods sub-indices of the CCI improved by 12 and 11 index points respectively, but remain deep in negative territory. The majority of consumers therefore still expect a deterioration in South Africa’s economic prospects over the next 12 months and consider the present time as inappropriate to purchase durable goods (e.g. vehicles, furniture, household appliances and electronic goods).

The household financial outlook sub-index of the CCI jumped 15 index points to reach +13 during the fourth quarter, a similar reading compared to the +14 reached during the 2021 festive season. The majority of households therefore expect an improvement in their household finances over the next 12 months, despite being quite pessimistic about the outlook for the national economy.

A more detailed breakdown of the CCI shows that the confidence levels of high-income households (earning more than R20 000 per month) leapt from -27 to -10 index points during the fourth quarter, while that of middle-income households (earning between R2 500 and R20 000 p.m.) improved from -19 to -6. Low-income confidence (earning less than R2 500 p.m.) declined from -3 to -6 index points, bringing it in line with middle-income confidence.

Low-income households remain the most optimistic about the outlook for their household finances (+20), but middle- (+16) and high-income households (+8) now also expect an improvement in their household finances over the next 12 months. The uptick in the household finances sub-index of the CCI can largely be ascribed to a marked improvement (and positive expectations) among black households, as white households became even more concerned about their financial prospects during the fourth quarter. It is also instructive to note that young people (aged between 16 and 34 years) have turned much more optimistic about their financial prospects compared to the older generation.

The improvement in the household finances index for young adults points to increased job creation among this age group where unemployment is sky-high. However, since the older generation typically has greater spending power, negative consumer sentiment among this group serves to temper expectations for consumer spending growth over the festive season.

FNB Chief Economist Mamello Matikinca-Ngwenya said that "An uptick in employment growth, particularly in the now fast recovering services sector, and substantially lower petrol prices since the third quarter no doubt bolstered consumer sentiment in the run-up to the festive season. Nevertheless, given the backdrop of sustained high inflation, rapidly rising interest rates, frequent load-shedding and the generally bleak outlook for global economic growth, the 12-point rebound in consumer confidence surprised on the upside, pointing to a level of resilience among SA consumers.”

Bottom line

The FNB/BER Consumer Confidence Index has now recovered all the ground lost during the first half of 2022 to reach the same (relatively weak) level recorded during the 2021 festive season. This stands in contrast to the BER’s Retail Survey results, which show a marked decline in retailer confidence and sales volumes during the fourth quarter of 2022. However, the BER’s services survey does show a very smart uptick in confidence, business activity and employment levels, particularly in the restaurants & hotels and transport services categories.

The rebound in consumer sentiment shows an improved willingness to spend among consumers relative to the second and third quarters of 2022, but consumers’ ability to spend (i.e. real disposable income and access to credit) would also need to improve in order to translate into a significant increase in household consumption. In this regard, further sharp interest rate hikes and sustained high food inflation would have muted some of the positive impacts of higher employment growth and lower fuel prices during the fourth quarter.

Even so, Matikinca-Ngwenya pointed out that “The significant improvement in consumer sentiment is positive news for the economy and suggests that household consumption expenditure is holding up - or even expanding slightly - despite difficult economic conditions. However, this time around it seems likely that the services sector, particularly restaurants, transport, recreation and tourism related services, will be the main beneficiary, with the retail sector expected to underperform relative to the 2021 festive season."