The First National Bank (FNB)/Bureau for Economic Research (BER) consumer confidence index (CCI) rebounded by 10 points from its lowest level in almost 15 years to a reading of -5 during Q3. While the rebound is a positive sign, consumer confidence is still trending well below the long-term average reading of +5. The report showed that the indices measuring consumers’ financial position, economic outlook and view on whether now is a good time to buy durable goods rose by 13, nine and 10 points, respectively. However, these improvements still left the latter two categories deep in negative territory with readings of -15 and -9, respectively.
Confidence rose across all income and demographic groups, but low-income households remain the most downbeat. Confidence levels of higher-middle-income (earning between R7,000 and R14,000 per month) and high-income (earning more than R14,000 per month) improved the most over the past quarter, edging into positive territory at +2 and +1 index points, respectively. In turn, confidence levels of lower-middle-income households (earning between R3,000 and R7,000 per month) and low-income consumers (earning below R3,000 per month) remained depressed at -6 and -13, respectively.
The second quarter of this year was an especially difficult period for South African consumers, and some improvement was widely expected as the frequency of power outages decreased and the price of fuel edged lower during the third quarter. That said, consumers are feeling pressure from all angles, exacerbated by the substantial household debt burden that has built up during the past decade. As such, we expect the CCI to remain in negative territory in coming quarters due to weak global demand, a rapidly-depreciating currency and expected interest rate increases.
Turning to the supply side, the BER’s seasonally adjusted Barclays Purchasing Managers’ Index (PMI) inched up from 48.9 in August to 49 points in September. The BER reported that while there was little movement in the headline index, the subcomponents moved in different directions. The new sales orders index rose for a second straight month to 51.9 and the employment index increased to 49.5. However, the improvement seen in new orders did not filter through to the output indicator, as the business activity index fell from 48.6 to 46.6 in September. Also weighing on the headline PMI was the 3.7-point decline in the suppliers’ performance index which took it to a six-year low. Worryingly, the index measuring expected business conditions in six months’ time fell to 49.3 in September, bringing the drop during the past two months to almost 14 points.
The Barclays PMI has averaged 49.6 so far this year, suggesting the manufacturing industry contracted during this period. The South African economy is facing headwinds from all directions. Specifically, the turmoil in China and domestic issues like electricity shortages will make it difficult for the mining and manufacturing sectors to rebound over the medium term. This was highlighted by the sharp drop in the expectations index over the past two months. In the meantime, manufacturers should take advantage of the weak exchange rate to weather the weak demand conditions.
Bart Stemmet (Economist)
