By Cees Bruggemans, Chief Economist FNB
16 November 2010


The FNB/BER CCI held steady at a high level during 4Q2010.

The two most noticeable aspects were the further improvement in sentiment about now being a good time to buy durable goods and the widening gap in confidence between high (over R10 000 monthly) and low income earners (below R2 000).

The FNB/BER consumer confidence index (CCI) remained virtually unchanged during 4Q2010. An index number of +14 was registered compared to +15 during 3Q2010.

The FNB/BER CCI has now held steady at this 14/15 level for a whole year, which is the longest consecutive period that the index registered no change. Furthermore, at this level the index is high, especially in historical terms, given a long term average of +2.

Although the FNB/BER CCI showed little movement, the constituent parts show more change.

The FNB/BER CCI combines the results of three questions posed to 2 500 mainly urban adults, namely the anticipated performance of the economy 12 months hence, the expected household financial position in 12 months' time and the rating of the suitability of the present time to buy durable goods, such as furniture, appliances and electronic goods.

All three sub-indices fell sharply during the first half of 2008, as high inflation and the global financial crisis led consumers to expect the economy and their own finances to deteriorate in 12 months time and made them rate the present as the wrong time to buy durable goods. Whilst consumers' expectations about the economy and their own finances recovered after a year, they became even more negative about the time to buy durable goods. Only towards late last year and the beginning of this year did consumers become less dismissive about the present time to buy durable goods.

After holding steady for three quarters, this pattern changed during 4Q2010. Consumers became slightly less optimistic about the prospects for the economy and simultaneously more approving of the present time to buy durable goods, while maintaining high confidence about own finances.

While the FNB/BER CCI remained steady, the decline in the economic prospects sub-index from +23 in the third quarter to +18 in the fourth quarter was countered by a simultaneous increase in the time to buy durable goods sub-index from -4 to zero.

Continued job losses and the difficult financial situation of many businesses may have dented consumers' expectations about the economy's prospects.

In contrast, household expectations about own finances barely changed and remained a very high +24.

This probably boosted consumption prospects. Also, the further decline in the prime lending rate and the minimal increase in the price of durable goods probably persuaded more consumers that the present is a good time to buy durable goods.

There was, however, also a widening gap between the high and low income groups, those earning above R10 000 and below R2 000 per month respectively. The confidence of the high income earners now stands at +23 compared to zero in the case of low income earners.

The high income earners, who are also mostly highly skilled, probably have been affected proportionally less severely by the retrenchments. Those with secure jobs also benefited from generous salary increases. This made the present a good time to buy durable goods, especially for higher income earners. The time to buy durable goods of the high income group moved up from +2 in the third quarter to +6 in the fourth quarter.

The low income earners, who are also generally less skilled, may have borne the brunt of the job shedding. Their expected economic performance sub-index fell from +12 in 3Q2010 to +2 in 4Q2010 and their time to buy durable goods from -5 to -13.

In sum: The 4Q2010 FNB/BER CCI indicates a sustained increase in the willingness of high income earners (i.e. those earning more than R10 000 per month) to spend.

Retailers of durable goods (such as furniture, appliances, electronic goods and motor cars) will benefit, but also retailers of other goods and service providers should notice a steady improvement in the sales of their higher value added (and more profitable) items.

Whilst the confidence of the higher middle income earners (i.e. those earning between R10 000 and R5 000 per month) remained steady, those of the lower middle (between R5 000 and R2 000) and the low income earners (below R2 000) declined. Sales to consumers earning less than R5 000 per month may therefore come under some pressure.

On balance these results indicate an ongoing consumption revival in 2011 with strong support from especially high income earners.

View graphs