The FNB/BER consumer confidence index (CCI) remained virtually unchanged during 4Q2010. An index number of +14 was registered compared to +15 during 3Q2010.
The index has now held steady at this 14/15 level for a whole year, which is the longest consecutive period that the index registered no change. Furthermore, at this level the index is high, especially in historical terms, given a long term average of +2.
Although the index showed little movement, the constituent parts show more change.
The index combines the results of three questions posed to 2500 mainly urban adults, namely the anticipated performance of the economy 12 months hence, the expected household financial position in 12 months' time and the rating of the suitability of the present time to buy durable goods, such as furniture, appliances and electronic goods.
All three sub-indices fell sharply during the first half of 2008, as high inflation and the global financial crisis led consumers to expect the economy and their own finances to deteriorate in 12 months time and made them rate the present as the wrong time to buy durable goods.
Whilst consumers' expectations about the economy and their own finances recovered after a year, they became even more negative about the time to buy durable goods. Only towards late last year and the beginning of this year did consumers become less dismissive about the present time to buy durable goods.
After holding steady for three quarters, this pattern changed during 4Q2010. Consumers became slightly less optimistic about the prospects for the economy and simultaneously more approving of the present time to buy durable goods, while maintaining high confidence about own finances.
While the index remained steady, the decline in the economic prospects sub-index from +23 in the third quarter to +18 in the fourth quarter was countered by a simultaneous increase in the time to buy durable goods sub-index from -4 to zero.
Continued job losses and the difficult financial situation of many businesses may have dented consumers' expectations about the economy's prospects.
In contrast, household expectations about own finances barely changed and remained a very high +24.
This probably boosted consumption prospects. Also, "the further decline in the prime lending rate and the minimal increase in the price of durable goods probably persuaded more consumers that the present is a good time to buy durable goods", said Cees Bruggemans, chief economist of First National Bank.
There was, however, also a widening gap between the high and low income groups, those earning above R10 000 and below R2000 per month respectively. The confidence of the high income earners now stands at +23 compared to zero in the case of low income earners.
Bruggemans said: "The high income earners, who are also mostly highly skilled, probably have been affected proportionally less severely by the retrenchments. Those with secure jobs also benefited from generous salary increases". This made the present a good time to buy durable goods, especially for higher income earners. The time to buy durable goods of the high income group moved up from +2 in the third quarter to +6 in the fourth quarter.
The low income earners, who are also generally less skilled, may have borne the brunt of the job shedding. Their expected economic performance sub-index fell from +12 in 3Q2010 to +2 in 4Q2010 and their time to buy durable goods from -5 to -13.
The 4Q2010 FNB/BER CCI indicates a sustained increase in the willingness of high income earners (i.e. those earning more than R10 000 per month) to spend.
Bruggemans said, "Retailers of durable goods (such as furniture, appliances, electronic goods and motor cars) will benefit, but also retailers of other goods and service providers should notice a steady improvement in the sales of their higher value added (and more profitable) items".
Whilst the confidence of the higher middle income earners (i.e. those earning between R10 000 and R5000 per month) remained steady, those of the lower middle (between R5000 and R2000) and the low income earners (below R2000) declined. Sales to consumers earning less than R5000 per month may therefore come under some pressure.
On balance these results indicate an ongoing consumption revival in 2011 with strong support from especially high income earners.
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The FNB/BER consumer confidence index for 4Q2010 remained largely unchanged at +14, reflecting a historically large majority of consumers expressing themselves positively.
This has been the case throughout 2010, by itself rather unusual for an economy barely out of recession and at a time of much global turmoil.
This continues to suggest that despite much specific hardship, there were large pockets of South African consumers who recovered quickly from recession and crisis.
Whereas South African consumers made a strong step up in 1Q2010, with overall confidence rising from +6 to +15 and time to buy durables improved from -15 to -4, the next two quarters saw mostly stagnation in these readings.
By 4Q2010, however, with overall confidence still a high +14, we encounter a new step up in the 'time to buy durables' response, rising from -4 to zero.
Historically, such a level of response and its improvement is taken as a strong indication of positive sentiment regarding time to buy durables.
Not everyone shared equally in this step up in sentiment.
High incomes (over R10 000 monthly) moved up from +2 to +6, high middle incomes (R5000 to R10 000 monthly) moved from -6 to +2, and low middle incomes moved from -6 to -2 readings, all significant positive sentiment shifts.
In contrast, low incomes (below R2000 monthly) moved from -5 to -13.
Especially the encouraging prospects for own finances in the case of some consumers probably played an important role in the renewed upward shift in consumer sentiment regarding time to buy durables.
When it came to own financial prospects, especially high incomes (over R10 000) remained highly confident and even improved further from +35 to +36. Steady employment prospects and improved earnings potential as the economy recovers further were probably the main reasons.
Along with the interest rate cut in September and growing speculation since then about yet another rate cut to come, this was probably an important reason for the further increase in willingness to consider buying durable goods.
Also, the rising stock market will not have gone unnoticed, though the still strained property market will probably have remained a dampener for many.
In contrast, low incomes (below R2000) saw their time to buy durables drop from -5 to -13, indicating greater caution about committing to big purchases.
Given the distribution of purchasing power in the economy, however, retailers, wholesalers, motor dealers and many service providers have reason to expect increased sales in coming quarters as especially the ability (income) and willingness (confidence) of many high income earners, certainly those earning over R5000 monthly, should continue to progress supportively.
There should be less trading down, indeed a reversal back towards trading up, between product lines and possibly even between retailers.
Though low incomes may be more cautious in their big purchase decisions, it isn't as if their own finance prospects have deteriorated.
Those with monthly incomes below R2000 improved their sentiment about own finances from +8 to +11 in 4Q2010, still well below the levels of the other income groups, but on balance positive.
Still, those with incomes between R5000 and R2000, and those below R2000 reduced their overall confidence readings in 4Q2010, suggesting retail sales to them may come under some pressure.
Overall, these FNB/BER consumer confidence survey results suggest further good gains in consumer spending in 2011.
Cees Bruggemans is chief economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics.
