The Bureau for Economic Research (BER) consumer confidence index (CCI) registered -3 in the third quarter. Although still negative, it was a significant improvement, after slipping to -11 the previous quarter.
Nevertheless, the index remains well below its long-term average of 4 and has now been in negative territory for seven consecutive quarters.
The BER attributed the slight uptick in the quarter under review to a combination of slightly softer inflation in the quarter, alongside marginally better, although still negative, economic sentiment. Moreover, consumers feeling more confident about their financial positions in the next year, drove the bulk of the improvement.
The subindex, which probes consumers on whether they consider the present to be a suitable time to buy durable goods, slipped a further three index points to -21. This continues to be reflected in the higher-frequency new-vehicle sales statistics and is likely to show up clearly in Friday’s South African Reserve Bank’s quarterly bulletin, where a breakdown of household expenditure trends will be revealed.
Commenting on the recent consumer confidence statistics, financial services firm BNP Paribas Securities economist Jeffrey Schultz noted that a still-elevated domestic inflation environment, weak formal job prospects and political and economic uncertainty continued to weigh on consumer confidence.
“Interest rates are unlikely to rise again this cycle and inflation will slow sharply from mid-2017. However, we would expect to see some modest gains in consumer confidence next year.
“Still, with our expectation for the political environment to remain volatile next year and the economy unlikely to close its negative output gap until 2018, any gains in confidence are likely to be relatively modest,” stated Schultz.
Investec economist Kamilla Kaplan agreed, noting that there was less pessimism concerning the economic prospects over the next year and increased confidence with respect to the household financial position during the next 12 months.
“Most of this improvement was, however, derived from more confident . . . low-income households. Confidence among . . . high-middle-income households remained depressed,” she said.
Citing the survey, Kaplan further pointed out that “the successful completion and outcome of the municipal elections may have lifted consumers' expectations” but that this may “turn out to be fleeting”.
The results from the fourth-quarter CCI survey should signal whether the upward adjustment in consumer confidence, particularly for the lower-income groups that have been under severe pressure for the last two years, could be of a more lasting nature, she said.
High-income households turned more pessimistic than lower-income households. The translation to real economic data will stem mainly from high-income households, which spend proportionately more on durable goods than lower-income households.
These considerations, taken together with the downturn in retail confidence in the third quarter, suggests that retail sales growth will remain suppressed over the festive season.
“Consumers’ purchasing power, particularly at the lower-income levels, has been eroded by elevated fuel and food price inflation, as well as subdued household credit extension,” Kaplan pointed out.