By Lynn Bolin
The FNB/BER Consumer Confidence Index (CCI) for the fourth quarter of 2003 surged to +1 index points after plunging to -12 points in the third quarter of the year on the back of a major rise in willingness of top-end consumers to splash out on durable goods, according to First National Bank (FNB) and the Bureau for Economic Research (BER) at Stellenbosch University.
Announcing the CCI, FNB and the BER said the sharp improvement, to the highest level in four years of economic upswing, set the scene for bumper Christmas sales across the country.
Sales of interest-rate sensitive and/or imported durables such as new vehicles, furniture, appliances and electronic equipment were likely to benefit the most, as those earning more than R4,000 per month considered it a good time to buy.
However, the majority of lower income consumers (earning less than R4,000 per month) were more cautious, the research group noted, and still considered the present an inappropriate time to purchase durables. Despite higher disposable income, confidence amongst this segment was under pressure from rising unemployment.
According to Dr Cees Bruggemans, chief economist at FNB, the FNB/BER CCI was based on three survey factors, namely expected economic performance over 12 months, expected changes in household finances over 12 months and rating of the present time for people in general to buy durable goods.
He said the fourth quarter survey showed that a small majority of household heads expected an improvement in the economy over the coming year. This result agreed with most analysts' GDP growth forecasts for 2004. At the same time, consumers also continued to expect an improvement in their own financial position.
Finally, Bruggemans noted, the survey saw a sharp improvement in the number of people judging the present as an appropriate time to buy durable goods, recording the best reading since 1997.
Whereas a net 17% had rated the present as an inappropriate time during the first half of this year, this net percentage improved to just 3% during the fourth quarter.
The South African Reserve Bank (SARB)'s aggressive interest rate cuts totaling 5 percentage points between June and October - and expectations of a possible further cut in December - together with significant absolute declines in the prices of most appliances and electronic equipment on the back of a steadily firming rand, had most definitely made the present time more appropriate for people in general to buy such goods, the economist said.
Although consumers' rating of the present time to buy durables improved across all income groups, high-income consumers (earning more than 8,000 rand per month) were by far the most optimistic. The higher income groups had not been this optimistic with regard to the time to buy durables since the BER commenced with the survey per income group in 1995. In sharp contrast, the majority of lower income consumers still considered the present time as inappropriate to purchase durables.
"This deviance can largely be attributed to the different forms of credit used by the two groups," Bruggemans noted. "High-income consumers generally make use of credit with variable interest rates (such as overdraft cheque facilities, credit cards and mortgage advances), whereas low-income consumers largely utilise credit with fixed monthly installments (such as credit from retailers or loans from micro-lenders).
"Low-income earners, therefore, do not immediately benefit from the interest rate cuts, as their monthly installments on debt incurred in the past are in most cases fixed. However, low-income earners concluding new credit contracts will also benefit from the lower interest rates (as laid down by the usury act)".
Although the confidence levels of the lower income groups also improved during the fourth quarter, low-income consumers were still pessimistic about South Africa's economic prospects, their own financial positions and the present time to buy durable goods, observed the economist. Job shedding and the resultant deteriorating outlook for unskilled and semi-skilled workers -
which make up the majority of low-income earners - continued dampening confidence in this sector. For instance, the BER's business surveys indicated that employment had declined further in all sectors, except for the building sector, during the fourth quarter.
Bruggemans concluded: "Unit sales of goods directed at the now very optimistic top-end of the market could continue to perform well. Likewise, the demand for interest-sensitive consumer goods (for example, durable goods and certain semi-durable goods such as clothing, as well as the motor trade and property sector) will be stimulated by recent interest rate cuts, as well as a possible further cut in December 2003.
However, unit sales of goods directed at the mass-market could be less buoyant, as the confidence levels of lower income consumers remain under pressure from increasing unemployment".
Publisher: Business Day
Source: Business Day
