A look at South African consumer confidence

One frequently hears a speech extolling confidence in this beautiful country, willing it to be so, as if words alone can make this come true.

Yet one need not only rely on the wish for it to be so, or hosting a world cup for the evidence to shine through.

Less than three years ago many urban South Africans were in the grip of a massive ‘prosperity wave’, a psychological condition in which all kinds of things are possible that under more sober circumstances would perhaps not be attempted.

Since then we have encountered a recession, the politics got rather lively, the electricity was switched off once too often, and overseas unspeakable things happened in the financial sphere (and are still happening).

All of this made our export markets, employment, house prices and equity market plunge.

This seemed enough of a killjoy to invite universal moroseness. Yet that’s not the pulse of the nation today or for that matter the past year.

There certainly were a few heart-stopping moments these past two years, and confidence surveys duly recorded these as deep pullbacks in sentiment. But it didn’t last.

Over the full decade, following the 1998 contagion shock, we have gone from slow motion recovery in 1999-2003 to exhilarating turbo expansion in 2004-2007, temporarily back into economic shock for 12 months in late 2008 and early 2009, thereafter returning to the expansion trail.

This latest cyclical interruption did not for very long disturb the pervasive sense of confidence reflected in FNB/BER consumer surveys even as many people clearly went through harsh times.

The harshness was taken by many to be universal. The surveys suggest it was the (large) exception.

The FNB/BER consumer confidence survey has a pedigree of decades testing sentiment. Since last year survey results have suggested a sharp comeback in positive sentiment, for the past three quarters showing a majority of consumers to be confident.

The numbers today show levels of confidence as if the nation is already back into boom time territory, which patently it is not.

The survey questions asking about the economic outlook and own financial prospects these next twelve months are even more positively answered than what the overall confidence index suggests.

A majority of urban South Africans were clearly not demolished by the recession or victims of the global financial crises.

That doesn’t mean there wasn’t hardship.

Half a million good jobs were lost. Many, especially managers in private businesses, lost bonuses. Many with variable income saw their circumstances heavily reduced. Dividend payouts suffered. Businesses went under. Houses and cars were repossessed. Banks and other credit providers run up huge bad debts.

Yet many continued in employment and received good wage increases throughout these trying times, well above inflation. The dominant confidence has a solid origin.

But, importantly, the confidence wasn’t universal. It never is. There is always a large group of consumers with which it isn’t going well. It is just that in recent times the relative divide is favouring those who sense themselves to be well off.

So we remain, as always, a two-speed society, only the dividing line seems to have shifted, even as conditions on either side also seem to have become starker.

Do you have a good job, income, house? Expect a vote of confidence even as the daily news flow details the crime and grime of modern living.

But if one has lost some of these things, to a greater or lesser degree, expect that reality to dominate sentiment. Yet such negative sentiment hasn’t been the dominant majority in recent quarters, at least when going by the quarterly BER surveys.

But this isn’t quite the final word on the psychological condition of urban South African households.

There remains one other dimension in which many more consumers express reservation, even today. A small majority continues to signal now is NOT a good time to buy consumer durables such as furniture and appliances.

And unlike the questions asked about the economic outlook and own financial prospects, where the detail doesn’t throw up startling divergences in some niches, painting a remarkable uniform picture (relative narrow divergences), it is different when probing the willingness to buy durable goods today.

That question, probing the willingness to buy consumer durables, continues to show important consumer segments recording large majorities of those who consider the time inappropriate.

Especially white consumers, English-speaking consumers, Afrikaans-speaking consumers, and those aged 50 and over, still record historically very large majorities of -20 to -33 stating now is NOT an appropriate time.

This brings into focus something requiring explanation as each of these consumer segments show positive to highly positive readings for economic outlook and own financial prospects.

Many of those expressing an unwillingness to buy consumer durables now are probably heavily indebted compared to historic levels (something borne out in the aggregate by South African Reserve Bank data).

Although interest rate levels have come down by a third, prime these past 18 months falling from 15.5% to 10%, it apparently hasn’t changed much the mind of many of these specific consumers about taking up new debt and replacing ageing durables or adding to their stock of durables.

Instead, debt deleveraging remains the prime feature for many, also taking into account banking sources.

There can be various reasons.

One could be that many households have experienced declines in perceived wealth, such as house values and equity investments.

Another source of unease is probably simple uncertainty about their wealth prospects, and the enormous volatility in asset values seen in recent times, given what has taken place overseas and is still happening.

Many consumers probably still feel overexposed and prefer for now to reduce their exposure further.

Another source of anxiety may be political, with many issues facing us still.

Only reduced uncertainty levels, and possibly lower levels of indebtedness compared to improving income and wealth levels, may see eventual easing in this wish to deleverage.

That may just be a matter of time.

When it comes to business confidence, certain sectors (motor trade, manufacturing) did reach typical recessionary depths before rebounding. Retail trade did not while the building trade has been late getting there.

The rebound so far is most pronounced in the motor trade and to a limited degree in manufacturing, both in typical cyclical fashion (having much in common with 1999-2000).

In contrast, building confidence is still seeking a cyclical low and retail confidence has also yet to start recovering.

Overall, however, the RMB/BER business confidence index at 36% is showing a fairly typical cyclical profile, up from the bottom but as yet not in positive 50% plus territory.

Even so, there isn’t anything extraordinarily negative about this particular cyclical disruption. GDP recovery is nearly twelve months advanced and business confidence is also on the recovery trail, if yet to gain more impressive strength.

That may also just be a matter of time.

Provided there is no major relapse internationally, and locally there is no major (political) upset, the financial market recovery has (much) further to run, pulling in its wake economic recovery.

On its broad back consumer and business confidence should gain new cyclical highs during 2011-2012.

This business expansion has barely begun and has much further to run. Potentially it could last most of this coming decade, given the lows from where we and the world have started.

Cees Bruggemans is chief economist of First National Bank