Consumer confidence marginally up in 4Q2011

• The FNB/BER CCI increased by one index point to +5 in 4Q2011.

• Rises in the own finances and time to buy durable goods sub-indices were countered by a decline in the economic outlook sub-index.

• Consumer confidence remains above average supportive of consumer spending. However, accelerating inflation will likely dent the growth in real disposable income over the short term. This will probably lead to lower growth in consumer spending given the limited access to bank credit.

After falling by 7 index points in 3Q2011, the FNB/BER consumer confidence index (CCI) increased by one index point from +4 in 3Q2011 to +5 in 4Q2011. The one index point change is so small that for all practical purposes one could say that consumer confidence remained unchanged in 4Q2011.

The FNB/BER CCI combines the results of three questions posed to adults in South Africa between 6 to 24 October 2011, namely the expected performance of the economy, the expected financial position of households and the rating of the appropriateness of the present time to buy durable goods, such as furniture, appliances and electronic equipment.

Consumer confidence increased in 4Q2011, because a slightly higher percentage of consumers expect an improvement in their household finances and a slightly lower percentage rated the present as the wrong time to buy durable goods relative to 3Q2011. However, these increases were partially countered by a slightly further decline in the percentage of consumers that expect the economic situation in South Africa to improve over the next 12 months.

News reports about the fall in share markets and low economic growth scared many consumers in 3Q2011. As a result, the percentage of consumers expecting the economy to improve fell sharply and some also expect these factors to adversely affect their own finances.

In 4Q2011 consumers became even more pessimistic about the economy, but slightly more optimistic about their own finances relative to 3Q2011. Consumers therefore assess the developments of the past six months (such as the economic problems of the Euro area and on the local front, the sharp fall in the rand and rise in inflation) as bad for primarily the economy, but not for their own finances, said Cees Bruggemans, chief economist of FNB. In 4Q2011 they concluded that they overestimated the adverse impact of these developments on their own finances in 3Q2011 and consequently revised their expectations about their own finances upwards.

The revisions were mainly concentrated in specific sub-groups.

• The confidence of white consumers increased by 5 index points to -5 after they revised their expectations about especially their own finances sharply upwards. In contrast, the confidence of black consumers remained unchanged at +12 in 4Q2011. Their more favourable rating of the present time for the purchase of durable goods was countered by lower optimism about the prospects for the economy.

• High (earning more than R10 000 per month) and lower middle income earners (R2 000 – R5 000) revised their expectations upwards after they fell sharply in 3Q2011. In contrast, the confidence of lower middle income earners (R5 000 – R10 000) declined after remaining unchanged in 3Q2011.

A long-term view reveals that not since the height of the international financial crisis in 2008 have consumers had such subdued expectations about the prospects for the economy. From 2009 until 2Q2011 the percentage expecting the economy to improve in the next 12 months continuously exceeded by far the percentage expecting it to deteriorate. However since 3Q2011, these percentages merely balanced each other out.

In contrast to the expected economic performance, the majority of consumers continue to expect their own finances to improve in the next 12 months. The positive net majority regarding own finances is only one third down from 2010.

The level of the time to buy durable goods sub-index in 2011 remained on par with that of 2010, but is still more than three quarters up from that of 2009.

In conclusion: Viewed on the surface, the lower level of the FNB/BER CCI during the second half of 2011 compared to the one over the period 1Q2010 to 2Q2011 seems to indicate that consumers’ willingness to spend has receded.

However, a more in-depth analysis indicates that the case for weaker consumer spending based on lower consumer confidence alone is not certain, given that

1. the level of the FNB/BER CCI is currently still higher than the long-term average (+2) and

2. the decline was primarily due to a sharp downward revision of the prospects for the economy and not of the prospects for own finances and the rating of the present time to buy durable goods.

In all, consumer confidence remains above average supportive of consumer spending. This means that consumers will spend the bulk of any increases in real disposable income.

However, accelerating inflation will likely dent the growth in real disposable income over the short term. This will probably lead to lower growth in consumer spending given the limited access to bank credit.

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