Consumer confidence soars

This follows a decline from +20 in the second quarter to +17 during the third quarter of 2006.

According to FNB and BER this is the highest level ever recorded in the 25-year existence of the index. The previous highest point was +21 attained during the first quarter of 2006.

FNB chief economist Cees Bruggemans said that the first quarter increase was on the back of significantly more consumers expecting that the economy, and especially their household finances, would improve.

Confidence readings improved in nearly every category (by population group, household income, language, age, gender and province). The gap between black and white consumer confidence narrowed further to only 10 points, the researchers noted.

Buying durables

The President's state of the nation address, the budget speech, the steady interest rate, the lower petrol price at the time of the survey and strong job creation generally made consumers more optimistic about the prospect for the economy and their own finances, the researchers pointed out.

In contrast, the percentage of respondents rating the present a good time to buy durable goods remained the same relative to the previous survey. Only high-income households (over R8 000 monthly) increased their confidence on this score. Middle and lower income households trimmed their confidence in this regard.

"One would have expected that more consumers would have rated the present the right time to buy durable goods, given their optimism about the economy, own finances and steady interest rates," said the researchers.

"At +9, the time to buy durables sub-index is below its peak of +13 reached during the first and second quarters of 2006," they added.

The researchers explained that the demand for many electronic equipment goods was probably starting to become temporarily saturated, as most potential consumers had upgraded to the new technology and had taken advantage of the lower prices.

"Some households have by now incurred the maximum debt they can afford.

High, low income earners upbeat

"Consequently there is less scope for further increases in credit absorption by them and the interest rate hikes of last year have probably started to hurt household cash flows," they said.

The researchers added that banks and retailers might also have become more selective in their credit extension and tightened their criteria for unsecured loans to purchase durable goods.

The first quarter rebound in the FNB/BER CCI could also be explained in terms of the developments per income group.

"The confidence of the high and low income earners rose sharply, whereas that of the middle income group remained virtually unchanged.

"The rise in share prices on the JSE (the fieldwork of the first quarter survey was completed before world equity markets fell at the end of February), no change in the interest rate and the personal income tax cuts announced as part of the national budget buoyed high income earners' confidence.

From strength to strength

"Continuous strong employment growth lifted low income earners' confidence. However, the sharp rise in food prices may have prevented confidence from increasing even further," the researchers said.

"The bottom line is the first quarter results indicate that consumers are going from strength to strength, encouraged by economic and financial developments," they pointed out.

The researchers said the rise in consumer confidence was in line with the BER's retail survey, which showed that - except for semi-durable goods and new vehicles - sales continued to do well during the first quarter of 2007.

"Real consumer spending increased by 7.3% during 2006. Although the growth in consumer spending is still expected to moderate this year, the jump in consumer confidence during the first quarter of 2007 indicates that the slowdown will probably be smaller than previously anticipated," concluded the researchers.