The Consumer Confidence Index (CCI) is the latest data set pointing to the mother of all GDP contractions in the second quarter, which began with the hard lockdown and ended with a rebooting economy that is still hardly firing on all cylinders. 

“The sudden outbreak of the Covid-19 epidemic and subsequent severe restrictions to almost all non-essential economic activity in South Africa sent the FNB/BER Consumer Confidence Index plummeting from an already depressed level of -9 in the first quarter of 2020 to a shocking -33 during the second quarter. The latest CCI reading is now only 3 index points shy of the all-time lowest consumer confidence level of -36 recorded in 1985,” FNB said in a statement. 

“The majority of households across all income groups now expect their household finances to deteriorate over the next 12 months… Disconcertingly, the sub-index measuring the appropriateness of the present time to buy durable goods (e.g. vehicles, furniture, household appliances and electronic goods) fell off a cliff, with a massive 38-index-point drop to a historic low of -64,” it said. 

This means that consumers are not consuming and have little intention of buying big-ticket items, even though the prime lending rate at 7.25% is at a 55-year low after the South African Reserve Bank (SARB) slashed 275 basis points off its repo rate. 

“Not even the cut-price specials offered by durable goods retailers or the substantial interest rate cuts by the SARB seem to be enough to entice consumers to spend their money on durable goods or expensive luxuries,” FNB Chief Economist Mamello Matikinca-Ngwenya said. 

The index also highlights the rising plight of the poor in the face of the pandemic. Poor households generally have limited savings and government efforts to soften the blow by raising grant payments are clearly having a limited impact. 

“Looking at a breakdown of the CCI per household income group, low-income consumers (earning less than R2,500 per month), posted the largest decline in confidence during the second quarter. Low-income confidence slumped by a historic 37 index points, from +2 to -35, during the second quarter. 

“Sentiment among middle-income households (earning between R2,500 and R20,000 per month) fell by 26 index points to -30, while the confidence levels of high-income consumers (earning more than R20,000 per month) deteriorated by 16 index points to -33,” FNB said. 

This is distressing on a range of fronts. It bodes ill for the labour-intensive retail sector, suggesting that the jobs bloodbath is far from over. 

It also underscores the shredding of “confidence” – be it consumer or business – that is unfolding. This, in turn, is a bad omen for investment, the economy’s lifeblood, which is in sharp decline. And it adds to the mounting body of evidence that the second-quarter economic contraction was monstrous and in line with the SARB’s forecast of a shrinkage on a quarter-on-quarter basis of more than 30%. 

If there is one silver lining it might be that households that can afford to are saving, which is in line with historical trends from past pandemics. Yet one of the objectives of the SARB’s rate cutting has been to spur consumers to spend by lowering the cost of credit. 

There has been talk of “pent up demand” being unleashed as the economy opens up. That is clearly not happening, at least not yet. Consumer demand and confidence, it seems, remain locked down. DM/BM