Consumer confidence remains depressed as middle and high earners cut spending

Consumer confidence was up by only 5 points in the third quarter after the second quarter tumble and remains extremely depressed, signalling a substantial deceleration in real consumer spending growth compared to the robust rates recorded at the start of the year.

According to the FNB/BER Consumer Confidence Index (CCI), consumer confidence managed to claw back 5 index points to reach -20 in the third quarter, after plunging from -13 to -25 during the second quarter, the lowest recorded in 36 years excluding the alarming level 5 Covid-19 lockdown during the second quarter of 2020 when it nosedived to -33.

Although consumer sentiment recovered slightly during the third quarter, consumer confidence in general remains very low and not conducive to healthy growth in real consumer spending. Mamello Matikinca-Ngwenya, chief economist at FNB, says the fact that high and middle-income confidence levels remained extraordinarily depressed is especially alarming, as these affluent groups have far greater spending power than low-income households.

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Lower consumer confidence among people who earn more

The confidence levels of high-income households (earning more than R20 000 per month) and middle-income households (earning between R2 500 and R20 000 per month) only improved slightly after significant declines during the second quarter.

However, low-income confidence (earning less than R2 500 per month) rebounded strongly, from -16 to -3 index points, the highest reading since the first quarter of 2021. “The confidence levels of less affluent households recovered smartly during the third quarter of 2022, despite further sharp increases in food and transport costs,” says Mamello Matikinca-Ngwenya, chief economist at FNB.

Although fuel prices retreated somewhat from record highs in August, taxi fares remain very steep and added to food inflation soaring to 10.1% year-on-year in July, low-income households, who typically spend the bulk of their budget on food and transport, would have been expected to be distraught about their household finances.

However, Matikinca-Ngwenya points out that the expansion of the R350 Social Relief of Distress (SRD) Grant announced in August brought great relief to less affluent households, supporting their confidence levels in the face of significant budgetary pressure. In contrast, the 75-basis point hike in the prime interest rate in July weighed on the disposable income and confidence levels of indebted middle and high-income consumers.

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More grants and jobs create more confidence for low-income consumers

Matikinca-Ngwenya says changes to the income threshold required to qualify for the SRD grant caused a massive drop in beneficiary numbers from more than 10 million to around 5 million in the second quarter and coupled with the non-payment of SRD grants during April and May, it left a gaping hole in the budgets of most low-income households, which reflected in the sharp fall in low-income confidence during the second quarter.

“However, Sassa since resumed its SRD grant payments and amended the maximum income threshold to R624 per month, boosting the number of people who qualify for the SRD grant to an estimated 12 million. A noticeable improvement in employment, especially in the services sector, probably also bolstered the confidence levels of less affluent consumers.”

All three sub-indices of the CCI recovered some lost ground, with the economic outlook showing the greatest improvement from -39 to -31 although from an extraordinarily weak level. The household financial prospects edged up from -5 to -2, while the index measuring the appropriateness of the present time to buy durable goods such as vehicles, furniture, household appliances and electronic goods rebounded from -32 back to -28.

Matikinca-Ngwenya says the revival of the services sector following the scrapping of all remaining COVID-19 regulations and the last remaining savings accumulated by affluent consumers on the back of two years of low interest rates and curtailed spending should buffer household expenditure to some extent.

“However, mounting inflationary and interest rate pressures, coupled with dismal consumer confidence, point to a significant deterioration in especially durable goods spending by consumers.”

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More jobs and lower inflation?

Economic research group Oxford Economics Africa says unlike most advanced economies and although fresh global recession fears are mounting, emerging markets have proven somewhat more resilient than advanced economies in the face of recent global shocks.

“It is no different for South Africa, which saw its unemployment rate, although extremely high, come down in the second quarter while consumer price inflation has likely reached its maximum after the 7.8% year-on-year recorded in July.”

The group says power outages and external factors contributed to a slump in the second quarter gross domestic product (GDP), while the trade, transport and finance industries continued to grow on an annual basis.

“Global economic conditions deteriorated in recent months and the risk of loadshedding remains high and will continue to undermine the South African economy. High inflation and further interest rate hikes should also dampen economic growth.”

The group says although it is a distinct possibility, it believes that a recession will be avoided this year and it forecasts moderate growth of around 0.2% in the third quarter compared to the second, while also revising South Africa’s real GDP growth forecast slightly lower to 1.8% in 2022.