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Cape Town - Having rebounded from -7 index points during the first quarter of 2013 to +1 in the second, the FNB/BER consumer confidence index (CCI) plunged to a decade low of -8 in the third quarter.
The latest FNB/BER CCI was released on Wednesday.
Consumers’ rating of the outlook for the national economy, their own financial prospects and the appropriateness of the present time to buy durable goods all deteriorated notably during the third quarter.
The fall in the CCI was more pronounced and consumer confidence levels much lower for low income consumers (earning less than R 7 000 per month) than for high income households.
The fact that more affluent households - accounting for the bulk of the spending power in the domestic economy - are not nearly as downbeat as low income consumers suggests that household spending will not collapse, according to FNB.
Nevertheless, combined with a slowdown in household income growth and credit extension, low consumer confidence levels signal that the growth in household consumption expenditure will remain modest during the second half of 2013.
The current consumer confidence level is comparable to the reading of -6 recorded in the first quarter of 2008, when an acute shortage of electricity led to a spate of power outages throughout the country.
During the third quarter consumers’ rating of the outlook for the national economy, their own financial prospects and the appropriateness of the present time to buy durable goods each deteriorated by 9 index points.
Consumers are especially pessimistic about the outlook for the national economy.
The economic outlook sub-index of the CCI slumped to a five-year low of -14 index points during the third quarter, indicating that even more consumers now expect the economic situation in South Africa to worsen over the next 12 months.
"While labour relations have been strained in the mining sector for the better part of the past year, the third quarter of 2013 saw labour turmoil extend to the vehicle manufacturing, construction and airline industries," said Sizwe Nxedlana, chief economist of FNB.
"Work stoppages do not only hamper production in the short run, they also have the potential to dent fixed investment and job creation prospects in the long run. Consumers are therefore understandably concerned about the outlook for the South African economy."
Thousands of workers in the construction industry downed tools for three weeks after wage talks became deadlocked at the end of August, while about 600 South African Airways' technical staff members - responsible for on-site repairs and the refuelling of aircraft - also began to strike.
Just as vehicle manufacturing employees returned to the assembly line following work stoppages of nearly three weeks, the motor industry was struck by further industrial action early in September, this time in the form of striking petrol attendants and workers at components retailers, panelbeaters and car and spare part dealers.
An analysis of the survey results by province reveals that consumer confidence improved in the Western Cape (although the index remains at a very low level), but deteriorated sharply in the Eastern Cape (the province hardest hit by the strikes in the vehicle manufacturing industry), Gauteng, Limpopo, Mpumalanga and KwaZulu-Natal (the provinces most affected by the construction/mining sector strikes).
Nxedlana noted that "violent confrontations at Eskom's Medupi power station in Limpopo, resulting in another two weeks of lost production during August, as well as drought conditions affecting crop and livestock farmers in the Eastern Cape, Limpopo, the Free State and the North West, may also have weighed on confidence levels during the third quarter".
Nxedlana said that "high unemployment levels, soaring fuel prices and lost income during times of industrial action are impairing the financial positions of low and middle income consumers in particular, suggesting that the deceleration in consumer spending could be more pronounced for lower income households compared to the more affluent".
While high income consumers remained positive about their financial prospects, high and low income households alike made substantial downward revisions to their rating of the present time to buy durable goods.
In fact, the majority of consumers across all income groups, population groups and provinces now consider the present time as inappropriate to purchase durable goods.
“Upward pressure on the prices for imported durable goods, on the back of a dramatic depreciation in the rand exchange rate over the last 18 months, coupled with increased uncertainty about the outlook for the domestic economy and a slowdown in credit growth, probably persuaded many consumers to postpone their durable goods purchases," said Nxedlana.
The deterioration in consumer sentiment in all likelihood also contributed to the substantial deceleration in car sales growth during the third quarter - according to the department of trade and industry, the growth in new passenger car sales slowed from 8.7% year-on-year (y/y) in 2Q2013 to only 1.4% y/y on average during July and August 2013.
"A moderation in both wage growth and government welfare spending, coupled with rising inflation and higher household tax burdens, has been eroding real disposable income growth, and hence consumers’ ability to spend," Nxedlana said.
The slump in consumer confidence implies that consumers’ willingness to spend or make use of credit has now also waned considerably.
"Although an easing in labour tensions may see the CCI recover some lost ground towards the end of the year, the growth in real consumer spending will in all likelihood remain subdued in the second half of 2013," he said.
- Fin24
The latest FNB/BER CCI was released on Wednesday.
Consumers’ rating of the outlook for the national economy, their own financial prospects and the appropriateness of the present time to buy durable goods all deteriorated notably during the third quarter.
The fall in the CCI was more pronounced and consumer confidence levels much lower for low income consumers (earning less than R 7 000 per month) than for high income households.
The fact that more affluent households - accounting for the bulk of the spending power in the domestic economy - are not nearly as downbeat as low income consumers suggests that household spending will not collapse, according to FNB.
Nevertheless, combined with a slowdown in household income growth and credit extension, low consumer confidence levels signal that the growth in household consumption expenditure will remain modest during the second half of 2013.
The current consumer confidence level is comparable to the reading of -6 recorded in the first quarter of 2008, when an acute shortage of electricity led to a spate of power outages throughout the country.
During the third quarter consumers’ rating of the outlook for the national economy, their own financial prospects and the appropriateness of the present time to buy durable goods each deteriorated by 9 index points.
Consumers are especially pessimistic about the outlook for the national economy.
The economic outlook sub-index of the CCI slumped to a five-year low of -14 index points during the third quarter, indicating that even more consumers now expect the economic situation in South Africa to worsen over the next 12 months.
"While labour relations have been strained in the mining sector for the better part of the past year, the third quarter of 2013 saw labour turmoil extend to the vehicle manufacturing, construction and airline industries," said Sizwe Nxedlana, chief economist of FNB.
"Work stoppages do not only hamper production in the short run, they also have the potential to dent fixed investment and job creation prospects in the long run. Consumers are therefore understandably concerned about the outlook for the South African economy."
Thousands of workers in the construction industry downed tools for three weeks after wage talks became deadlocked at the end of August, while about 600 South African Airways' technical staff members - responsible for on-site repairs and the refuelling of aircraft - also began to strike.
Just as vehicle manufacturing employees returned to the assembly line following work stoppages of nearly three weeks, the motor industry was struck by further industrial action early in September, this time in the form of striking petrol attendants and workers at components retailers, panelbeaters and car and spare part dealers.
An analysis of the survey results by province reveals that consumer confidence improved in the Western Cape (although the index remains at a very low level), but deteriorated sharply in the Eastern Cape (the province hardest hit by the strikes in the vehicle manufacturing industry), Gauteng, Limpopo, Mpumalanga and KwaZulu-Natal (the provinces most affected by the construction/mining sector strikes).
Nxedlana noted that "violent confrontations at Eskom's Medupi power station in Limpopo, resulting in another two weeks of lost production during August, as well as drought conditions affecting crop and livestock farmers in the Eastern Cape, Limpopo, the Free State and the North West, may also have weighed on confidence levels during the third quarter".
Nxedlana said that "high unemployment levels, soaring fuel prices and lost income during times of industrial action are impairing the financial positions of low and middle income consumers in particular, suggesting that the deceleration in consumer spending could be more pronounced for lower income households compared to the more affluent".
While high income consumers remained positive about their financial prospects, high and low income households alike made substantial downward revisions to their rating of the present time to buy durable goods.
In fact, the majority of consumers across all income groups, population groups and provinces now consider the present time as inappropriate to purchase durable goods.
“Upward pressure on the prices for imported durable goods, on the back of a dramatic depreciation in the rand exchange rate over the last 18 months, coupled with increased uncertainty about the outlook for the domestic economy and a slowdown in credit growth, probably persuaded many consumers to postpone their durable goods purchases," said Nxedlana.
The deterioration in consumer sentiment in all likelihood also contributed to the substantial deceleration in car sales growth during the third quarter - according to the department of trade and industry, the growth in new passenger car sales slowed from 8.7% year-on-year (y/y) in 2Q2013 to only 1.4% y/y on average during July and August 2013.
"A moderation in both wage growth and government welfare spending, coupled with rising inflation and higher household tax burdens, has been eroding real disposable income growth, and hence consumers’ ability to spend," Nxedlana said.
The slump in consumer confidence implies that consumers’ willingness to spend or make use of credit has now also waned considerably.
"Although an easing in labour tensions may see the CCI recover some lost ground towards the end of the year, the growth in real consumer spending will in all likelihood remain subdued in the second half of 2013," he said.
- Fin24
