Consumer confidence slightly higher, but Omicron headache remains

Consumer confidence has increased marginally but stayed low in the fourth quarter and is presumed even lower now after the discovery of the Omicron variant.

The consumer confidence level of -9 equals the reading of the first quarter of 2021 and the time just before the pandemic hit in 2020.

The FNB/BER Consumer Confidence Index (CCI) increased slightly from -10 to -9 index points. After an initial strong rebound, the onset of the third Covid-19 wave and the end of the social relief of distress grant made the index decrease from -9 to -13 during the second quarter, but it recovered to -10 in the third quarter.

At -9, the index remains well below the average reading of +2 since 1994, making it clear that consumer confidence levels in South Africa remain low. Most of the fieldwork for the consumer confidence survey was completed by the time South Africa announced the discovery of the Omicron variant

This could negatively affect consumer confidence in coming months due to the reintroduction of travel bans and fears that existing Covid-19 vaccines could be less effective against this highly mutated variant.

The survey was conducted between 15 and 26 November 2021 with 500 respondents who are representative of the racial and household income composition of the urban adult population of South Africa.

ALSO READ: Perfect storm of bad news leads to another decline in business confidence

Why does consumer confidence matter?

Consumer confidence surveys matter because they are used to evaluate economic trends and prospects as they are designed to explore why consumer expectations change and how these changes influence consumer spending and saving decisions.

Participants in the survey were asked how they expect the economy to perform, what they expect their household’s financial position will be and if they think it is an appropriate time to buy durable goods.

A low level of confidence indicates that consumers are concerned about the future and may be worried about job security, pay increases and bonuses. In this frame of mind consumers tend to cut spending to basic necessities to free up income for debt repayment.

If consumer confidence is high, consumers tend to incur debt or reduce savings and increase spending on discretionary items, such as furniture, household equipment, motor vehicles, clothing and footwear, financing some on credit.

A rise in consumer confidence on the other hand reflects consumers’ increased willingness to spend, but only if this ability improves which depends on their inflation-adjusted after-tax income and the availability of credit.

ALSO READ: Business confidence unchanged after decline in third quarter

Marginal increase in consumer confidence

According to FNB the marginal increase can be ascribed to small improvements in the economic outlook, from -14 to -12 and household financial position, from +12 to +14. However, overall consumers remained pessimistic about how appropriate it would be now to buy durable goods, such as vehicles, furniture, household appliances and electronic goods, slipping from -29 to -30 index points.

The confidence levels of high-income households, earning more than R20,000 per month, remained unchanged at -11, but middle- and low-income confidence edged up slightly, with the confidence level of middle-income households earning between R2,500 and R20,000 per month increasing by 1 index point, while the low-income confidence index for consumers earning less than R2,500 per month extended its recovery from -12 to -9.

ALSO READ: SA’s middle class not as confident as the poor and the rich in Q3

Who suffers when consumer confidence is low?

Siphamandla Mkhwanazi, economist at FNB, says when Covid-19 infection rates dropped to the lowest levels in nearly 18 months, economic activity – particularly in the hospitality sector – continued to recover.

But adverse developments, such as soaring fuel prices, increased load-shedding, strikes, supply-chain disruptions and stock shortages started to weigh on economic growth prospects and prevented a stronger rebound in sentiment.

“Whereas international travel restrictions typically affect the sentiment of affluent consumers, low- and middle-income households will arguably suffer the most in terms of job creation and income prospects if the expected bumper tourist season does not materialise and lockdown restrictions once again hammer the hospitality sector during the holidays.

“With confidence levels already fairly deep in negative terrain, the shift in consumer spending away from retail goods towards the services sector will likely slow and grocery and furniture retailers will continue to win out over tourism, restaurants and entertainment services,” he says.