Momentum Investments have released their Consumer Pulse report for the third quarter of 2022 prepared by the Momentum Macro Research Team.
Herewith a summary of highlights from the team, as well as commentary from Sanisha Packirisamy, Economist at Momentum Investments, Tshiamo Masike, Economic Analyst at Momentum Investments and Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments.
The FNB/BER Consumer Confidence Index (CCI) recovered slightly from negative 25 to negative 20 points in the third quarter of 2022. This was driven by an improvement in all three main sub-indices, with the reading for expected economic performance recording the largest improvement of eight index points.
The high inflation and interest rate environment is eroding households’ disposable income which requires consumers to spend a larger portion of their disposable income on non-durable goods (for example, food and fuel) as opposed to durable goods (for example, furniture and vehicles).
Low-income households are showing signs of being more optimistic than medium- and high-income households. This is likely on the back of government support while higher mortgage rates are negatively affecting higher-income households.
The number of jobs created for semi-skilled and non-skilled individuals during the last three quarters recorded an average growth of 1.9%. This has had a positive impact on household income and the magnitude of low-income households’ confidence levels. However, in our view, structurally high unemployment will constrain confidence in the long run.
The year-to-date retail trade sales indicate that consumers are in necessity mode and cutting back on discretionary spending despite possible higher incomes from positive jobs growth and higher wages.
Household debt and debt service costs as a ratio of disposable income remained muted relative to post-global financial averages in the first quarter of the year. However, the anticipated interest rate hikes in September (75 basis points (bps) and November (50bps) are expected to push up the ratio of debt service costs to disposable income and dampen households expected financial position.
The CCI outcome remains weak relative to history, suggesting a negative outlook for consumption expenditure in the coming quarters. We expect structurally high unemployment, higher inflation, a further increase in interest rates and lower asset price inflation to weigh negatively on consumer sentiment. Consequently, we expect growth in household consumption to slow from an expected 1.9% this year to 1.5% next year.
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