SA consumer confidence improves slightly in first quarter of 2024

South African consumers were slightly more optimistic in the first quarter of 2024 after their confidence slipped from -16 to -17 index points in the fourth quarter of 2023. However, given a long-term average consumer confidence reading of zero since 1994, the latest reading still points to a consumer who is still very much under pressure.

According to the FNB/BER Consumer Confidence Index (CCI), consumer confidence is significantly higher compared to the -23 reading recorded during the first quarter of 2023 when stage 6 load shedding, surging food prices and successive interest rate hikes rocked consumer confidence.

Mamello Matikinca-Ngwenya, chief economist at FNB, says this suggests that retail sales volumes could gradually start to recover from its dismal performance during 2023. “The uptick in consumer confidence during the first quarter can be ascribed to a recovery in the economic outlook sub-index of the CCI after a slump in the fourth quarter and a (further) improvement in the household financial outlook sub-index.”

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Mixed bag of sub-indices in consumer confidence index

After declining from -22 to -28 in the fourth quarter, the economic outlook sub-index bounced back to -22 in the first quarter. The household finances sub-index, in turn, posted a third consecutive increase, rising from +3 to +8 in the first quarter.

However, the sub-index measuring the appropriateness of the present time to buy durable goods, such as vehicles, furniture, household appliances and electronic goods, retreated from -25 to -30, paring the gains on the overall CCI.

A breakdown of the CCI per household income group shows that the slight improvement in overall confidence was driven by an uptick in the confidence levels of high-income households earning more than R20 000 per month.

High-income confidence rose from -19 to -14 index points on the back of significant improvements in high-income consumers’ ratings of the outlook for the national economy and their own household finances.

In contrast, the confidence levels of middle-income households earning between R5 000 and R20 000 per month remained unchanged at -17 index points, while the confidence of low-income households earning less than R5 000 per month slipped back from -13 to -16.

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No consumer confidence to buy durable goods

All three income groups still consider the present time as highly inappropriate to purchase durable goods, even more so than during the previous quarter, but high-income households turned noticeably more optimistic about their financial prospects (+13) compared to middle- (+6) and low-income (+5) households.

“Significantly lower levels of load shedding and a deceleration in inflation, particularly on the food price front, likely supported consumer confidence during the first quarter. However, job losses in the fourth quarter and renewed fuel price hikes in February and March probably countered some of these positive developments, particularly for low-income households,” Matikinca-Ngwenya says.

The tightening in fiscal policy announced in the February Budget Review probably also clipped consumer confidence, she says. “No inflationary adjustments were made to personal income tax brackets in the February budget, implying that bracket creep through inflation-linked salary increases will erode the real disposable income of taxpayers.”

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SRD grant increase and consumer confidence

In addition, the Budget Review did not contain any increase in the R350 per month social relief of distress (SRD) grant, which would have translated into reduced purchasing power for the 9 million SRD grant recipients.

However, on 13 March, finance minister Enoch Gondwana announced that the SRD grant would indeed be increased by R20 (5.7%) from 1 April, adding approximately R2.2 billion per year to the spending power of poor households.

“It is interesting to note that, in contrast to the other two sub-indices of the CCI, consumers’ rating of the present time to buy durable goods deteriorated further in the first quarter. Above-inflation increases in vehicle prices, a very weak rand exchange rate at the time of the CCI fieldwork and the realisation that interest rates are unlikely to be cut during the first half of 2024 probably prompted consumers to postpone their durable goods purchases.”

According to Statistics South Africa, vehicle prices increased by 7.2% year-on-year in January, well above the CPI inflation rate of 5.3%. In addition, when the fieldwork for the CCI started, the rand traded at a very weak level, around R 19.30/$, likely triggering expectations of further price hikes for imported durable goods.

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High-income earners are more confident

Matikinca-Ngwenya says the uptick in the confidence of high-income consumers is good news for the retail sector, as affluent consumers have greater spending power than low- and middle-income consumers.

“Coupled with a deceleration in inflation, improved consumer sentiment should bolster retail sales volumes somewhat in coming months. The muted recovery in the FNB/CCI corresponds with the marginal increase in retail sales volumes reported in the BER’s Retail Survey during the first quarter of 2024,” she says.

“However, across the board, consumers remain wary about splurging on big-ticket items, suggesting that durable goods sales will underperform relative to the other consumption categories during the first half of 2024.”