Consumers across all income groups are worried about rising inflation, the prospect of further increases in lending rates, and looming fuel price hikes. The latest survey of consumer attitudes and expectations, released this week, has revealed an alarming drop in consumer confidence in the year ahead.
High-income households — those earning more than R20,000 — anticipate a deterioration in their household finances particularly as a result of the country’s low economic growth rate.
This is according to the FNB/Bureau of Economic Research Consumer Confidence Index (CCI) which found that while consumer confidence fell across all income groups in the second quarter of 2022, high-income confidence had “soured” more than low-income confidence since the end of 2021.
According to the survey, confidence among high-income households plunged to -30 in the second quarter of 2022, only three index points higher than the historic low of -33 recorded for this subindex in the second quarter of 2020.
For middle-income households earning an income of between R2,500 and R20,000, confidence crashed from -11 to -23, while low-income confidence (consumers earning less than R2,500 a month) declined from -6 to -16 index points.
“Though consumer sentiment is now very depressed across all three income groups, affluent consumers are considerably more downbeat compared with low-income households,” said the index.
The index merges the results of three questions posed to adults living in predominantly urban areas in SA; the expected financial position of households; the outlook for the economy; and the rating of whether it was suitable to buy durable goods, including furniture, appliances and electronic equipment.
Overall it plunged to -25 points in the second quarter, reflecting the lowest reading in 35 years bar the CCI reading of -33 in the second quarter of 2020 when the national shutdown due to the pandemic was implemented.
Though consumer sentiment is now very depressed across all three income groups, affluent consumers are considerably more downbeat compared with low-income households
— FNB/Bureau of Economic Research Consumer Confidence Index
The consumer price inflation rate for May breached the 6% upper range of the central bank’s target of 3%-6% for the first time in five years and the prime interest rate has been hiked by 75 basis points since the start of the year.
FNB economist Mamello Matikinca-Ngwenya said the nonpayment of the R350 monthly social relief of distress (SRD) grant to 10.6-million South Africans in April and May in all likelihood also weighed on the confidence levels of many low-income households.
“However, a substantial improvement in job creation in recent months and Sassa’s commitment to resume the SRD grant payments at the end of June — as well as to catch up all missed payments from July — probably prevented an even more pronounced decline in low-income confidence during the second quarter.”
Matikinca-Ngwenya expected the scrapping of all remaining Covid regulations — including the wearing of masks — and the back payment of missed SRD grants to counter some of the mounting inflationary and interest-rate pressures.
Annabel Bishop, chief economist at Investec, agreed that consumers were likely cutting back on non-essentials to deal with higher living costs where salary and wage increases failed to match the prevailing inflation rate and with CPI inflation likely rising above 7% year-on-year in the third quarter of 2022.
“Consumers are concerned about high inflation cutting into real disposable incomes, as will higher interest rates, with the latter already rising 1.25% and expected to rise by another 1.75% by 2024, 3% in total”.
The low consumer confidence comes as quarterly employment statistics for the first quarter showed a 0.4% quarter-on-quarter increase in total employment representing 42,000, while producer price inflation accelerated to 14.7% year-on-year in May from 13.1% in April.
Construction Industry Development Board CEO Bongani Dladla said according to the Quarterly Employment Statistics, a year-on-year decline of -5.4% was recorded in the number of people employed in the construction industry formal sector.
“The effect of the downturn, the lockdown restrictions and a lack of demand in the sector are illustrated by the decline in employment or job losses that have occurred in the sector.”
Dladla said the construction industry was one of the sectors that had not been performing well over the past couple of years. He added the construction sector now accounted for about 3% of GDP, a decline from 4%.
He said while other sectors had been improving, construction continues to lag and is still performing below its pre-Covid levels.
“The job losses recorded by the Quarterly Employment Statistics reflect the pressure that the construction industry is under, which is also reflected by the Stats SA GDP statistics that recorded that the construction industry has been experiencing a decline for the past four consecutive quarters.”
Dladla said underspending by government departments was a significant contributor to the lack of demand, which in turn results in lost employment opportunities: “At the end of the 2020/21 public sector financial year, it was reported by National Treasury that actual expenditure was reduced to R183bn, which was 19% lower than the estimates.”
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