Fact File: CONSUMERS AND THE ECONOMY

In spring cleaning our finances this year, it’s important to be aware of the state of the South African economy, in order to plan ahead. For example, if, as is expected, interest rates rise, your debt repayments will rise too, so it would be advisable not to take on more debt and reduce your existing debt if possible.

The FNB/Bureau of Economic Research Consumer Confidence Index (CCI), published quarterly, is a good indicator of how consumers are coping with respect to our economy.

The highlights of the 3rd-quarter report are as follows:

● The CCI recovered slightly from -25 to -20 points in the third quarter of 2022. The sub-index for expected economic performance recovered from -39 to -31; the subindex measuring how suitable consumers felt the current time was to buy durable goods rose from -32 to -28; while the sub-index measuring households’ confidence in their expected finances remained at -2.

● The high inflation and interest rate environment is eroding households’ disposable income, requiring consumers to spend a larger portion of their disposable income on non-durable goods (such as food and fuel) as opposed to durable goods (such as furniture and cars).

● Low-income households are showing signs of being more optimistic than medium- and high-income households. This may be because of government support for lower-income households, while higher mortgage rates are negatively affecting higher-income households.

● The number of jobs created for semi-skilled and non-skilled workers during the last three quarters grew by 1.9%. This has had a positive impact on income of low income households and boosted their confidence levels.

● Year-to-date retail trade figures indicate that consumers are in “necessity mode” and cutting back on discretionary spending (“nice-to-haves”).

● Household debt and debt repayment costs as a ratio of disposable income remained relatively low compared with the first quarter of the year. However, the anticipated interest rate hikes in September and November are expected to push up debt repayment costs for consumers.

● The CCI outcome remains weak, suggesting a negative outlook for consumption expenditure in the coming quarters. “We expect structurally high unemployment, higher inflation, a further increase in interest rates and lower asset price inflation to weigh negatively on consumer sentiment. Consequently, we expect growth in household consumption to slow next year,” say the compilers of the report.