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Cees Bruggemans on what can be expected in coming times
One frequently hears a speech extolling confidence in this beautiful country – willing it to be so, as if words alone could make this come true.
Yet, one need not only rely on the wish for it to be so, or hosting a World Cup for the evidence to shine through.
Less than three years ago, many urban South Africans were in the grip of a massive ‘prosperity wave’ – a psychological condition in which all kinds of things are possible which, under more sober circumstances, would perhaps not
be attempted.
Since then, we have encountered a recession, the politics became rather lively, the electricity was switched off once too often and, overseas, unspeakable things occurred in the financial sphere (and are still happening).
All this made our export markets, employment, house prices and equity market plunge.
This seemed enough of a killjoy to invite universal moroseness. Yet, that is not the pulse of the nation today or, for that matter, the past year.
There certainly were a few heart-stopping moments these past two years, and confidence surveys duly recorded these as deep pullbacks in sentiment. But it did not last.
Over the full decade, following the 1998 contagion shock, we have gone from slow-motion recovery in 1999-2003 to exhilarating turbo expansion in 2004-2007, temporarily back into economic shock for 12 months in late 2008 and early 2009, thereafter returning to the expansion trail.
This latest cyclical interruption did not disturb for very long the pervasive sense of confidence reflected in First National Bank/Bureau for Economic Research (FNB/BER) consumer surveys, even as many people clearly went through harsh times.
The harshness was taken by many to be universal. The surveys suggest it was the (large) exception.
The FNB/BER consumer confidence survey has a pedigree of decades of testing sentiment. Since last year,
survey results have suggested a sharp comeback in positive sentiment for the past three quarters, showing a majority of consumers to be confident.
The numbers today show levels of confidence as if the nation were already back into boom-time territory, which patently it is not.
The survey questions asking about the economic outlook and own financial prospects these next 12 months are even more positively answered than what the overall confidence index suggests.
A majority of urban South Africans were clearly not demolished by the recession or victims of the global financial crises. That does not mean, however, that there was not hardship.
Half a million good jobs were lost. Many, particularly managers in private businesses, lost bonuses. Many with variable income saw their circumstances heavily reduced.
Dividend payouts suffered. Businesses went under. Houses and cars were repossessed. Banks and other credit providers ran up huge bad debts.
Yet, many continued in employment and received good wage increases throughout these trying times, well above inflation. The dominant confidence has a solid origin.
But, importantly, the confidence was not universal. It never is. There is always a large group of consumers with whom it is not going well. It is merely that in recent times, the relative divide is favouring those who sense themselves to be well off.
So we remain, as always, a two-speed society, only the dividing line seems to have shifted, even as conditions on either side also seem to have become starker.
Do you have a good job, income or house? Expect a vote of confidence even as the daily news is filled with crime and grime of modern living.
But if one has lost some of these things, to a greater or lesser degree, expect that reality to dominate sentiment.
Yet, such negative sentiment has not been the dominant majority in recent quarters, at least when going by the quarterly
BER surveys.
But this is not quite the final word on the psychological condition of urban South African households. There remains one other dimension in which many more consumers express reservation, even today.
A small majority continues to signal that now is NOT a good time to buy consumer durables such as furniture and appliances.
And unlike the questions asked about the economic outlook and own financial prospects, where the detail does not throw up startling divergences in some niches – painting a remarkable uniform picture (relative narrow divergences) – it is different when probing the willingness to buy durable goods today.
That question, probing the willingness to buy consumer durables, continues to show important consumer segments recording large majorities of those who consider the time inappropriate.
Particularly white consumers, English-speaking consumers, Afrikaans-speaking consumers, and those aged 50 and over, still record historically very large majorities of -20 to -33, stating that now is NOT an appropriate time.
This brings into focus something requiring explanation, as each of these consumer segments shows positive to highly positive readings for economic outlook and own financial prospects.
Many of those expressing an unwillingness to buy consumer durables now are probably heavily indebted compared to historic levels (something borne out in the aggregate by South African Reserve Bank data).
Although interest rate levels have come down by a third, and prime has these past 18 months fallen from 15.5% to 10%, it apparently has not changed much the mind of many of these specific consumers about taking up new debt and replacing ageing durables or adding to their stock of durables.
Instead, debt de-leveraging remains the prime feature for many, also taking into account banking sources.
There can be various reasons:
• One could be that many households have experienced declines in perceived wealth, such as house values and equity investments.
• Another source of unease is probably simple uncertainty about their wealth prospects, and the enormous volatility in asset values seen in recent times, given what has taken place overseas and is still occurring.
Many consumers probably still feel overexposed and prefer for now to reduce their exposure further.
Another source of anxiety may be political, with many issues facing us still.
Only reduced uncertainty levels, and possibly lower levels of indebtedness compared to improving income and wealth levels, may see eventual easing in this wish to de-leverage. That may simply be a matter of time.
When it comes to business confidence, certain sectors (motor trade, manufacturing) did reach typical recessionary depths before rebounding. Retail trade did not, while the building trade has been late getting there.
The rebound so far is most pronounced in the motor trade, and to a limited degree in manufacturing – both in typical cyclical fashion (having much in common with 1999-2000).
In contrast, building confidence is still seeking a cyclical low, and retail confidence has also yet to start recovering.
Overall, however, the RMB/BER business confidence index at 36% is showing a fairly typical cyclical profile – up from the bottom, but as yet not in positive 50% plus territory.
Even so, there is not anything extraordinarily negative about this particular cyclical disruption. Gross domestic product recovery is nearly 12 months advanced and business confidence is also on the recovery trail, if yet to gain more impressive strength. That may also simply be a matter of time.
Provided there is no major relapse internationally, and locally there is no major (political) upset, the financial market recovery has (much) further to run, pulling economic recovery in its wake. On its broad back, consumer and business confidence should gain new cyclical highs during 2011-2012.
This business expansion has barely begun and has much further to run.
Potentially, it could last most of this coming decade, given the lows from where we and the world have started.
Cees Bruggemans
Chief economist: First National Bank
