Consumer spend drops massively during lockdown – index

NOMPU SIZIBA: BankservAfrica has released a report on consumer spending during the initial five-week lockdown. With South African household consumers accounting for around 60% of expenditure in the economy, it makes for worrying reading – although things are expected to improve as the various levels of eased lockdown come into play.

Well, to take us through the report, I’m joined on the line by Mike Schüssler. He’s involved in the compilation of the report and is chief economist at economists.co.za. Thanks very much, Mike, for joining us. Before we get into the detail of the report, just remind us how BankservAfrica is able to measure transactions or spending.

MIKE SCHÜSSLER: Well, BankservAfrica basically gets all the inter-bank details. So, for instance, when you bank with Standard Bank and are shopping at a shop which is serviced by Absa, they would see that transaction. And the same with the ATMs, because of the Saswitch system. So, if you are not drawing at your own ATM, we get a very good picture as to what’s happening. This is cards and cash.

NOMPU SIZIBA: Right. The report has taken a very granular look at household spending patterns just before and during the five-week lockdown, even reflecting the spike in spending that took place when people were doing a bit of panic buying. Just take us through those observations.

MIKE SCHÜSSLER: Our spending was doing quite well in the beginning of March, and then we had our first Corona case in South Africa. That slowed everything, as the President announced the first lot of restrictions that were taking place on March 17. I think he announced that on the 15^th.

That led to a little bit of panic buying – not much. But before the next lockdown obviously spending dropped to about 80% of usual. And then, as the lockdown got implemented, for three days the average was 148%. And then we dropped like a stone, and we didn’t see any form of spending back to sort of normal levels. There was a little bit of a spike when the Sassa payments happened. But ultimately on a same-day basis, for the whole 38-day period that we are looking at here, it is only 51% of our usual spending volume, or transaction volume in the retail space. This shows you how big the lockdown is.

NOMPU SIZIBA: Absolutely. So when the likes of the hardware stores were allowed to sell stuff – maybe that was the third or fourth week into lockdown – was there a discernible spike in spending, as many were complaining that they were sitting at home but not able to attend to their properties.

MIKE SCHÜSSLER: No, we didn’t we didn’t see much. We saw a little bit on May 1 – from there onwards. It has never gone back to the former experience, and we’ve been between most of the time between 45 and 65%-odd. But in the first few days of May there was a bit of a pickup, and we think it might last and this month it won’t get to, say, a 51%-of-normal but that we’ll end up with 60%-something of normal in Level 4.

NOMPU SIZIBA: Yes.

MIKE SCHÜSSLER: But obviously we also saw some spikes to the bottom, because before the end of the month we could see how people’s money was running out and the UIF not coming out as quickly, and spending dropped to around 23% of normal, which is a bit scary.

NOMPU SIZIBA: Much of the spending you will have observed will have been around grocery shopping. But you obviously won’t have seen expenditure on things like white goods and other high-ticket items. Of course, a lot is changing in the economy, especially on the jobs front. But do you think that, as things begin to “normalise”, there may be evidence of pent-up demand for those very items that couldn’t be bought during the lockdown phase?

MIKE SCHÜSSLER: To a certain extent I think there will be problems with certain items. For example, I think when you look at durable goods like cars and houses, that might take a lot longer to recover. I mean, we are looking at Chinese data at the moment. And if you look [back to], I think, about 1930, the real estate transactions are still quite a lot lower than [the] last year, even sort of 95 days after the event occurred. So we’re looking at a situation where I think certain goods will see a pent-up demand, maybe things like TVs and microwaves that may have broken, and where people just feel that they’ve got that.

But the other thing that we’ve got to remember here is that certain items are going to be a long-term problem. For example, we know about 12% or so of sales are to fleet owners of motor cars, and most of those fleet owners are in the tourism business. So we don’t think we are going to see normal car sales for quite a number of months – and I think it’s going to be a problem in that area. Where I do think we don’t have much information on right now is what that pent-up demand in certain areas will be. I think we’ll have to take that as it comes.

But at the moment, if you say 50% of retail sales are everyday items, which more or less they are, then we’ve got 50% of that here. So that says to you that, even without the car sales not taking place, and home sales and furniture and the like, this is a 25% drop in consumer spending so far this quarter. That doesn’t bode well for the economic data that we expect this quarter. I would think, if you look just two or three days ahead, and Level 4 continues, and then we go to Level 3, say, from Monday next week, we’re already looking at probably around a ‑40% seasonally adjusted household consumption expenditure. So, if you’ve got that sort of shrinkage in the biggest sector of the economy, there are going to be very, very painful numbers that we can look forward to, or actually fear, in the GDP data for this quarter. So I think we are very likely to see a very big double-digit decline.

NOMPU SIZIBA: And this creates a huge imbalance, doesn’t it, in terms of the supply side. It makes it very difficult for the production side to know just how much to produce because, as well, they don’t know what the knock-on effect of this whole lockdown is going to be for the rest of the year.

MIKE SCHÜSSLER: No, they don’t. And that is a part of the problem. The other part of the problem is that the supply chains in South Africa and around the world are really in a mess. We’ve got warehouses – not just Transnet telling us, but the Road Freight Association guys will tell you the same thing – that our warehouses are getting full of goods that we can’t sell now. They are waiting, whereas the goods we are getting in now are just going to add to that space problem. So it’s very much like the oil story that we saw, that there was just too much oil around and it was difficult to store it. South Africa, because we are far away from other big markets, when we import, we import quite a bit; we don’t import on a daily basis. So if you are going to import TVs, you import 20 containers worth of TVs. That is the problem. Now, where do you store the stuff? That’s becoming a major problem in the supply chain.

But, if I may just say one thing, what I would expect is that we will have to start gearing up the economy pretty soon, because some of the goods already on the shelves are running out. You hear stories of chocolate, for example, that’s no longer always there; certain makes of milk and other food products are not always readily available. I saw that there were no Diet Cokes or Coke Zeros in many of the shops in my area.

So the problem is that this whole process needs other places to open, and open pretty quickly. Otherwise the coming back of the economy is also going to be stretched out, even in the retail sector, which we are monitoring now. And that retail sector is much broader than just the shops. We’re thinking retail garages, we are thinking the hardware stores, we’re thinking airtime that people buy. So ultimately we’re looking at a situation where this is going to be quite a conundrum – with maybe the exception of airtime – when this economy gets going. There are going to be a lot of supply and demand problems.

NOMPU SIZIBA: Look, there have been many people coming out to say, look, we need to ramp up economic activity as soon as possible. But then how do we then balance that against the health risks?

MIKE SCHÜSSLER: Well, the health risk is one case. Has that been balanced against the unemployment risk? We’ve heard a lot from the experts, and we see that the range for South Africans death [numbers] is between 20 000 and 351 000, which is virtually unbelievable, because the whole world in six months doesn’t come to that 351 000. Ultimately, if that is the case, then it says to me that a lot of these cases are also a bit of guesswork, whereas we know from the UIF numbers that at least a large part of temporary unemployment has already started occurring, and we’re seeing those numbers at over two million right now. So you have to weigh up the fact that there are two million extra unemployed people against either 350 000 potential deaths, or 20 000 potential deaths. And some of those deaths are not going to go away, even if we flatten the curve; they will stay.

So it is a conundrum that we are facing, but it is a conundrum of lives versus lives, because poorer people don’t always get poor men’s diseases like TB, like malaria, like HIV. We don’t like saying this, but the fact of the matter is that there are other diseases and stuff that are now not being treated, and people, when they get poorer, will get sicker, and you do take life expectancy away.

So I think we need to model the economic side and the other health risks, and not just the pandemic. We have to be very, very clear in our thinking and our communications about that.

NOMPU SIZIBA: If we don’t do that, Mike, and this lockdown continues a bit longer, how long is it going to take South Africa to recover economically?

MIKE SCHÜSSLER: That’s a very difficult question. I’ve been trying to play around [it], because, as you know, a lockdown is not something in a normal economic model. But we’ve got to look at this whole situation and say to ourselves, the longer this takes, the more the growth goes away. It’s very simple. Now 12% of the year has gone in this lockdown. We’ve been locked down for 12% of the year. So we are likely to see about an 8 or 9% decline in GDP already. It’s very unlikely that we’re going to make that up in the next two or three years. Add population growth of roughly 1.5% for each of the years going forward, and I think it’s quite clear that we’re not getting back to the same level as 2019 before 2025, and we’re not getting back to the same level as our high point, which was 2014, before probably 2013.

So ultimately this is a very long road that we have to travel, and it is very, very scary. And the longer this continues, if you’ve got a 10% decline, the per capita decline becomes closer to 12% and it becomes evermore difficult to come back from that, depending on how long some restrictions last.

If you look at tourism today, it’s 4.5% percent of our GDP. That’s bigger than mining of gold and platinum combined. And, if that doesn’t come back before the end of the year, that is the part of the economy that’s lost because you didn’t get those tourists, they didn’t come to the Kruger Park or Table Mountain or the wine farms – they are just lost. They are just not coming. It’s a permanent loss.

NOMPU SIZIBA: Many thanks for your time this evening, Mike.

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