Consumers still cautious

Johannesburg - During the third quarter of this year, the FNB/BER consumer confidence index (CCI) decreased by three index points from +4 during in the second quarter to +1, it was announced on Wednesday.

According to the survey, the current level of the CCI can be described as a neutral level of confidence.

"Although a reading of +1 indicates that there are somewhat more optimists than pessimists, the latest reading is marginally below the long-term average CCI reading of +2," they said.

Although consumers' rating of all three sub-components of the CCI deteriorated, consumers can still be regarded as relatively optimistic about the outlook for the South African economy and their own household finances 12 months hence.

In contrast to the CCI question regarding the appropriateness of the present time to buy durable goods, the questions regarding the expected economic performance and outlook for household finances are forward-looking.

Cees Bruggemans, chief economist of First National Bank, says: "Consumers' expectations that the domestic economy and their own financial positions will improve in twelve months' time is compatible with those of most economists, many of who also expect an uptick in economic growth following a particularly sharp contraction during the first half of 2009."

Bruggemans said: "Although a number of leading indicators now suggest that the real economy probably bottomed during the second or third quarter of 2009, the latest consumer confidence survey results show that consumers are still in precautionary mode." This is evident both from the current level of the CCI (a reading of +1 has historically been associated with pedestrian growth in consumer spending) and the fact that the vast majority of consumers still consider the present time as inappropriate to purchase durable goods.

All time low

While the two forward-looking CCI sub-indices are quite positive, the "present time" indicator is at an all-time low. This suggests that, even if household income starts to improve, the recovery in consumer spending is likely to be slow, as some consumers are likely to favour saving rather than spending.

The FNB/BER CCI is based on three questions, namely the expected performance of the economy, the expected financial situation of households and the rating of the appropriateness of the present time to buy durable goods (such as furniture, appliances, electronic equipment, and motor vehicles).

During the the thrid quarter, all three of the CCI's sub-indices deteriorated.

The economic performance component of the CCI saw the largest decline, with the index falling by 6 index points to +11 during the third quarter of 2009. The net percentage of consumers' expecting their own finances to improve declined by two index points (+17 to +15) during the third quarter of 2009, while the net percentage of consumers' rating the present as an inappropriate time to buy durable goods increased by two index points (-21 to -23).