Consumer confidence well anchored in 4Q2011

The FNB/BER consumer confidence index for 4Q2011 barely moved, slightly up from +4 in 3Q2011 to +5 now.

Still, this maintains the step-like decline that abruptly occurred from very high confidence levels after Easter 2011, but to a level which is comfortably positive and far removed from recessionary conditions.

So the consumer remains “in good nick”, even if slightly nicked in the course of this year by rising inflation (now 5.7%) eroding real income gains, and paring household consumption gains accordingly.

Consumption spending continues to grow and remains the anchor tenant of this cyclical expansion now entering its third full year.

This latest FNB/BER confidence survey suggests that for some consumers, perhaps fearing the worst around mid-2011, the worst did not in fact happen, restoring some strength to the positive convictions still driving consumer spending onward.

Overall, consumers eroded their outlook for the economy by another two points to 0 from +18 a year ago, a clearly poor view of what is happening to the economy and possibly will still happen (fully in tune with the daily news flow).

Meanwhile, the own financial outlook overall staged a minor recovery after the major decline in 3Q2011 to +15, now ticking back up to +17 and getting back nearer the +20 plus levels prevailing earlier in the economic recovery, at the time suggesting extreme optimism about own finances.

This is in a minor way confirmed by whether now is an appropriate time to buy durable goods, improving to -2 from -4, but not really escaping the 50/50 no-man’s land around the zero-line of the past two years.

There is thus today a slightly better tone to confidence reflecting comfortable personal circumstances, though the view of economic prospects has kept fading (in line with general economic commentary).

When we dig deeper into the data, we find White consumers making most of a confidence comeback, possibly indicating they overdid the 3Q2011 declines regarding economic outlook and own financial outlook.

White consumers were deeply negative about the economic outlook at midyear, but have now slightly corrected this by moving from -15 to -11.

Even stronger is their correction of the decline in own financial outlook. This had averaged +18 since mid-2010 (a very high confidence level) but dropped to +7 in 3Q2011. This confidence level is now back at +16. Whatever bad was going to happen to own finances didn’t happen or is no longer going to happen (and mirroring global market buoyancy).

Black consumers were less quirky about their views, maintaining their slightly lower (still very impressive) confidence about own finances at +19, though marking the economic outlook further down, from +10 to +7 (from +27 a year ago).

Black consumers did boost their confidence about now being a good time to buy durables, from +5 to +10. Whatever is going wrong in the economy, it isn’t really shifting their perception of their own realities.

These tendencies are also seen in high incomes (over R10000 monthly), with the economic outlook bouncing back from -2 to +3, and own financial prospects perking up from +21 to +24 (a very robust confidence level). They also in a minor way improved their view about buying durable goods from -6 to -2 (but not really escaping the range of the past two years).

High middle income (R5000 to R10000 monthly) and low incomes (below R2000 monthly) both recorded substantial drops in confidence about the economic outlook, but this wasn’t really collaborated by their views of own finances (which remained considerably more positive).

English-, Afrikaans- and Nguni-speakers boosted their confidence about own finances noticeably by six points in each instance to clearly comfortable levels, suggesting the early markdowns were overdone (the worst did not happen).

In contrast, Sotho-speakers faded a little, but as result that ALL consumers now differ very little regarding own financial confidence (between +14 and +19).

Retailers, motor dealers, financial services, telephone providers, hotels and leisure outlets can all take some comfort from these readings.

Across the board, consumer confidence readings remain in solid positive territory, and soundly so for nearly all categories of consumers when considering their own financial prospects. It provides a solid anchor to motor the ongoing business expansion.

It is true that regarding consumer durables the willingness to buy remains mostly neutral, still suggesting some delay in replacing ageing goods and also perhaps an unwillingness to add to indebtedness (preferring to reduce it, though one notices the strong growth in unsecured debt).

The view of economic prospects, though, is jaundiced and mostly getting more so, presumably reflecting general impressions and news flow.

Only certain classes of consumers have adjusted their views of the economy higher, possibly because earlier markdowns proved to be excessive relative to what actually transpired and is now expected.

The overall impression is a favourable one. Consumers are somewhat less exuberant than a year ago, but still show high levels of confidence, especially about their own finances, which augurs well for Christmas sales this year and ongoing household consumption spending in 2012.

Have a good one!

Cees Bruggemans
Chief Economist FNB