The First National Bank/Bureau for Economic Research Consumer Confidence Index (CCI) edged up slightly, from -10 to -9 index points, during the fourth quarter of 2021. After an initial strong rebound, the onset of the third Covid-19 wave and the expiration of the social relief of distress grant saw the CCI slipping from -9 to -13 during the second quarter of 2021, but the CCI recovered to -10 in the third quarter of 2021. The latest reading of -9 brings the CCI back to the level recorded in the first quarter of 2021, and also equals the last reading that was recorded just prior to the onset of the Covid-19 pandemic in South Africa (in the first quarter of 2020). However, at -9, the CCI remains well below the average CCI reading (of +2 since 1994) and therefore still points to low levels of consumer confidence in South Africa.
It should be noted that most of the fieldwork for the consumer confidence survey was completed by the time South Africa announced the discovery of a new Covid-19 variant. Given the subsequent reintroduction of travel bans against South Africans and fears that existing Covid-19 vaccines could be less effective against this highly mutated Omicron variant, this development may well dent consumer confidence in coming months.
The marginal increase in the CCI during the fourth quarter of 2021 can be ascribed to small improvements in the economic outlook (from -14 to -12) and household financial position (from +12 to +14) sub-indices of the CCI. However, consumers remained pessimistic about the appropriateness of the present time to buy durable goods (e.g. vehicles, furniture, household appliances and electronic goods), with this index slipping from -29 to -30 index points.
A breakdown of the CCI per household income group shows that the confidence levels of high-income households (earning more than R20 000 per month) remained unchanged at -11 during the fourth quarter, but middle- and low-income confidence edged up slightly. The confidence level of middle-income households (earning between R2 500 and R20 000 per month) increased by one index point, while the low-income confidence index (consumers earning less than R2 500 per month) extended its recovery from -12 to -9. Heading into the festive season, the confidence levels of all three income groups are at broadly similar (negative) levels
FNB Senior Economist Siphamandla Mkhwanazi said: "Faced with a welter of conflicting signals, consumer sentiment remained relatively flat during the fourth quarter of 2021. Encouragingly, in the first half of November, Covid-19 infection rates dropped to the lowest levels in nearly 18 months, and economic activity – particularly in the hospitality sector – continued to recover. However, adverse developments such as soaring fuel prices, increased load-shedding, strikes, supply chain disruptions and stock shortages have started to weigh on SA's economic growth prospects and are preventing a stronger rebound in sentiment. The latest consumer confidence reading corresponds with the RMB/BER Business Confidence Index, which also remained flat during the fourth quarter."
At -9 index points, the CCI has clawed back most of the ground lost since the outbreak of the Covid-19 pandemic in the first quarter of 2020. Even so, consumer sentiment remains quite negative, and the uncertainty surrounding Omicron, ensuing travel bans and the looming fourth coronavirus wave will likely depress consumer confidence even further. "Whereas international travel restrictions typically affect the sentiment of affluent consumers, low- and middle-income households will arguably suffer the most in terms of job creation and income prospects if the expected bumper tourist season does not materialize and lockdown restrictions once again hammer the hospitality sector during the holidays. With confidence levels already fairly deep in negative terrain, the shift in consumer spending away from retail goods towards the services sector will likely slow, and grocery and furniture retailers will continue to win out over tourism, restaurants and entertainment services," said Mkhwanazi.
Consumer confidence surveys provide regular assessments of consumer attitudes and expectations and are used to evaluate economic trends and prospects. The surveys are designed to explore why changes in consumer expectations occur and how these changes influence consumer spending and saving decisions.
The FNB/BER CCI combines the results of three questions posed to adults in South Africa, 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.
Until the second quarter of 2019, the CCI was based on face-to-face interviews of between 2 000 and 2 500 urban adults. Due to weak demand, the three service providers in South Africa – Nielsen, Ipsos Markinor and TNS Kantar – could not always guarantee surveys with a quarterly frequency between 2016 and 2019. Internationally, the majority of CCIs are based on telephone call surveys. As a result, the BER switched to telephone call surveys in the third quarter of 2019. The 500 respondents are representative of the racial and household income composition of the urban adult population of South Africa.
Consumer confidence is expressed as a net balance. The net balance is derived as the percentage of respondents expecting an improvement / good time to buy durable goods less the percentage expecting a deterioration / bad time to buy durable goods.
A low level of confidence indicates that consumers are concerned about the future. They may be worried about job security, pay raises and bonuses. With such a frame of mind, consumers tend to cut spending to basic necessities (e.g. food and services) to free up income for debt repayment. If confidence is high, consumers tend to incur debt (or reduce savings) and increase spending on discretionary items, such as furniture, household equipment, motor vehicles, clothing and footwear. Some of these items are often financed on credit. Spending on these items declines when confidence is low, as households can generally delay their purchase without experiencing an immediate deterioration in living conditions.
A rise in consumer confidence reflects an increased willingness of consumers to spend. However, this willingness only translates into actual sales if consumers’ ability to spend improves. Their ability to spend depends on their inflation adjusted after-tax income and the availability of credit. A rise in consumer confidence could therefore result in an upturn in household consumption spending in general and retail and motor vehicle sales in particular. The opposite applies when the level of consumer confidence declines.