Consumer confidence recovered some lost ground in the third quarter, reflecting the effect lower inflation and sustained recovery in employment had on sentiment.
The FNB/BER consumer confidence index released on Thursday showed a rebound to -16 index points in the third quarter from -25 points in the second quarter, the second-lowest index reading on record since 1994.
But at -16 index points, the third quarter reading remains well below the long-run average of zero since 1994, signalling a low willingness to spend among consumers.
FNB chief economist Mamello Matikinca-Ngwenya said while the financial pulse of the nation remains weak, there appears to be some light at the end of the tunnel for consumers.
Matikinca-Ngwenya said the moderation of the inflation rate from 7.1% in March to 4.7% in July fuelled the hope that the Reserve Bank had reached the end of its interest rate hiking cycle.
“This, combined with a sustained recovery in employment [that saw] another 154,000 jobs added during the second quarter, should bolster the purchasing power of consumers somewhat towards the end of 2023,” Matikinca-Ngwenya said.
She said an unexpected and noticeable easing in load-shedding during the survey period, reduced dependency on Eskom by households that invested in alternative power supply sources and diminishing concerns around SA’s diplomatic relations with the West also probably heartened consumers.
“These positive developments seemed to outweigh the impacts of confidence-sapping events such as the torching of multiple trucks on the N3 transport corridor in July, the damaging week-long taxi strike in the Western Cape during August and the ongoing municipal worker strike in Tshwane,” she said.
The data shows the recovery in consumer confidence during the third quarter of 2023 can largely be ascribed to a strong rebound in the economic outlook subindex and an improvement in the time-to-buy durable goods subindex.
The economic outlook subindex jumped by 15 index points to -22, while the index measuring the appropriateness of the present time to buy durable goods such as vehicles, furniture, household appliances and electronic goods improved by nine index points to -26.
The household financial outlook subindex ticked up by one index point to -1.
But while all subindices improved, their current readings remain well below their long-term average, suggesting consumers remain more concerned about the outlook for the national economy than their own household finances, Matikinca-Ngwenya said.
The FNB/BER consumer index, compiled by the Bureau for Economic Research (BER) in partnership with FNB, provides regular assessments of consumer attitudes and expectations, and is used to evaluate economic trends and prospects.
It is designed to explore why changes in consumer expectations occur and how these changes influence consumer spending and saving decisions.
The BER said a low level of confidence indicates that consumers are concerned about the future. They may be worried about job security, pay raises and bonuses. While a rise in consumer confidence reflects the increased willingness of consumers to spend.
A more detailed breakdown of the index shows a remarkable rebound in the confidence levels of high-income households, measured as those earning more than R20,000/month.
“High-income confidence plunged to an all-time low of -40 in the second quarter, spooked by a dramatic escalation in load-shedding, a sharp depreciation in the rand exchange rate, successive interest rate hikes and the diplomatic fallout following the docking of a Russian ship in Simon’s Town as they became particularly alarmed about SA’s economic prospects,” Matikinca-Ngwenya said.
Confidence, however, rebounded to -17 in the third quarter amid this sector.
The data shows the confidence levels of middle-income households, those earning between R5,000/month and R20,000/month, also improved, increasing from -22 to -15.
Low-income confidence — of those earning less than R5,000/month — remained unchanged at -16 index points.
Matikinca-Ngwenya said the overall negative sentiment shows it is still unlikely real consumer spending growth, particularly on interest-rate sensitive goods and discretionary goods and services, will accelerate meaningfully during the third quarter.
“However, a sustained moderation in inflation — especially in food prices — should start to relieve some of the pressure on retail sales volumes from the fourth quarter, with projected interest rate cuts providing greater impetus to consumer spending by mid-2024.”
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