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Johannesburg - The drop in consumer confidence might have been exaggerated, according to the latest FNB [JSE:FSR] and BER Consumer Condifence Index (CCI).
"Although the first quarter fall in consumer confidence was to be expected, the extent of the drop may have been a bit of an overreaction, according to the CCI-report, which was released on Wednesday.
The latest CCI shows consumer confidence increased across all household income, population, age, gender and language groups.
The CCI offers a good indication of consumers' willingness to spend or utilize credit. The growth in their disposable income and their access to credit, however, determine their ability to spend.
Having slumped from -3 index points during the fourth quarter of 2012 to a nine year low of -7 in the first quarter of 2013, the FNB/BER CCI recovered to +1 in the second quarter this year.
During the height of the 2008 global recession it registered -4. The increase in the CCI during the second quarter of 2013 may therefore, in part, reflect a correction from an overly negative first quarter result.
During the second quarter consumers’ rating of the prospects for their household finances and the appropriateness of the present time to buy durable goods each improved by 9 index points.
The economic outlook sub-index of the CCI edged up by 6 index points.
"Economic conditions remained challenging during the second quarter, however, the worst case scenario has not transpired," said Sizwe Nxedlana, chief economist of FNB.
"Further, the improvement in consumer confidence does correlate with better growth in retail sales and new vehicles and resilience in the labour market in recent months."
Nxedlana noted that the absence of major power outages despite earlier Eskom warnings and the reprieve from large-scale violent strike action during the second quarter may have bolstered the confidence levels of consumers.
"The fact that consumer inflation has remained relatively contained up until now, in the face of the dramatic depreciation in the rand exchange rate over the last 18 months, has also been a positive development," said Nxedlana.
The rand has depreciated by close to 30% against the US dollar since the first quarter of 2012, while the CPI inflation rate still came in at 5.5% in June 2013.
However, Nxedlana pointed out that, despite the 8-index point increase in the CCI, the latest reading of +1 remains well below the average reading for the CCI (+6 index points since 1994).
This implies that consumer confidence is still low and not supportive of a sustained strong recovery in consumer spending.
The latest CCI shows that confidence levels remain higher for middle and high income consumers compared to the low income group (earning less than R2 000 per month).
"High unemployment levels and soaring fuel prices are weighing on the financial positions of low income consumers," Nxedlana said.
"Subdued global and domestic economic growth, a moderation in the growth of government spending on public sector wages and social grants and record high fuel prices will continue to erode real disposable income growth during the second half of 2013."
The deterioration in income growth, coupled with rising bad debt levels and a tightening of lending criteria by credit providers, will translate into weaker household credit growth.
"Although the first quarter fall in consumer confidence was to be expected, the extent of the drop may have been a bit of an overreaction, according to the CCI-report, which was released on Wednesday.
The latest CCI shows consumer confidence increased across all household income, population, age, gender and language groups.
The CCI offers a good indication of consumers' willingness to spend or utilize credit. The growth in their disposable income and their access to credit, however, determine their ability to spend.
Having slumped from -3 index points during the fourth quarter of 2012 to a nine year low of -7 in the first quarter of 2013, the FNB/BER CCI recovered to +1 in the second quarter this year.
During the height of the 2008 global recession it registered -4. The increase in the CCI during the second quarter of 2013 may therefore, in part, reflect a correction from an overly negative first quarter result.
During the second quarter consumers’ rating of the prospects for their household finances and the appropriateness of the present time to buy durable goods each improved by 9 index points.
The economic outlook sub-index of the CCI edged up by 6 index points.
"Economic conditions remained challenging during the second quarter, however, the worst case scenario has not transpired," said Sizwe Nxedlana, chief economist of FNB.
"Further, the improvement in consumer confidence does correlate with better growth in retail sales and new vehicles and resilience in the labour market in recent months."
Nxedlana noted that the absence of major power outages despite earlier Eskom warnings and the reprieve from large-scale violent strike action during the second quarter may have bolstered the confidence levels of consumers.
"The fact that consumer inflation has remained relatively contained up until now, in the face of the dramatic depreciation in the rand exchange rate over the last 18 months, has also been a positive development," said Nxedlana.
The rand has depreciated by close to 30% against the US dollar since the first quarter of 2012, while the CPI inflation rate still came in at 5.5% in June 2013.
However, Nxedlana pointed out that, despite the 8-index point increase in the CCI, the latest reading of +1 remains well below the average reading for the CCI (+6 index points since 1994).
This implies that consumer confidence is still low and not supportive of a sustained strong recovery in consumer spending.
The latest CCI shows that confidence levels remain higher for middle and high income consumers compared to the low income group (earning less than R2 000 per month).
"High unemployment levels and soaring fuel prices are weighing on the financial positions of low income consumers," Nxedlana said.
"Subdued global and domestic economic growth, a moderation in the growth of government spending on public sector wages and social grants and record high fuel prices will continue to erode real disposable income growth during the second half of 2013."
The deterioration in income growth, coupled with rising bad debt levels and a tightening of lending criteria by credit providers, will translate into weaker household credit growth.
