It’s the good life for some, but debt grows
Retail spend is helping the economy
CONSUMERS as a broad group are still living well and supporting the economy, but different categories are experiencing the economic climate in very different ways.
Data published by Stats SA this week showed that retail sales grew by an unexpected 6.2% year on year in May, compared with a revised 2% in April. The growth was largely led by a 12.9% increase in the sales of textiles, clothing, footwear and leather goods. Food and beverage sales grew by 2.9%. However, sales of durable goods such as household furniture, appliances and equipment have declined for four consecutive months.
Kamilla Kaplan, an economist at Investec, said the persistently weak performance of sales in household furniture and equipment was consistent with the results of the first quarter’s consumer confidence survey.
The survey, published by the Bureau for Economic Research and First National Bank, showed that consumer confidence had declined to a nineyear low in the first quarter and consumers did not deem it a good time to buy durable goods.
The results of the secondquarter survey are expected at the end of this month.
Despite the low levels of consumer confidence, spending by households still grew, albeit slower than before, and contributed the lion’s share to the total economy.
According to the Reserve Bank, final consumption expenditure by households grew by only 2.3% in the first quarter of the year, compared with growth of 4% in the first quarter of last year. Despite the slowdown in growth, consumption expenditure by households still accounted for 60.9% of total GDP in the first quarter, up from 60.3% in the first quarter of last year.
Maarten Ackerman, investment strategist at Citadel, said the consumer was an important contributor to the economy of any industrialised country. It was therefore important that consumers’ finances were doing well.
He said one of the positives for consumers was the growth in real disposable income, which was at about 4% and not only owing to public sector wage increases, but broadbased.
Low interest rates, which are not expected to go up in the next year, also support consumers.
However, low interest rates led to more consumers borrowing. According to the National Credit Regulator, South African consumers owe R1.45-trillion in the form of mortgages, vehicle finance, credit cards, store cards, personal loans, shortterm loans, developmental credit, pension and insurancebacked loans.
The regulator said this week that there were 20.08 million credit-active consumers in South Africa — consumers who are obligated to pay credit providers and/or service providers.
However, according to Stats SA, only 13.62 million adults were employed in the first quarter of the year. The unemployment rate edged up to 25.2% in the first quarter, which does nor bode well for consumer wealth
If you live in a low-income area, things are really bad for the consumer
and increases people’s dependancy on borrowed money.
The Reserve Bank’s quarterly bulletin shows that household debt stood at 75.4% of households’ disposable income in the first quarter. Debt-service costs, or the interest paid on housing and personal debt, amounted to 7.7% of the disposable income of households.
Although the Reserve Bank and Treasury still insist that unsecured lending is far from crisis levels, there are worries about the increase in unsecured debt among consumers.
According to the regulator, unsecured credit accounted for 11.34%, or R164.61-billion, of outstanding debt.
“It is easy credit and people are willing to borrow. But because it is unsecured, there is scope for trouble when the economy starts to struggle,” said Ackerman.
Jannie Rossouw, professor at the University of South Africa’s department of economics, said one had to take cognisance of the different categories of consumers.
“In the eastern suburbs of Pretoria, things are probably not too bad for the consumer. Consumers with a large discretionary income do not have it too bad, which is why you still see full coffee shops and restaurants and growth in vehicles sales,” he said.
“But if you live in a lower- to middle-income area, things are probably bad for the consumer. These are people who own a house and it is their primary asset. They feel school fees going up, medical costs and the petrol price increasing, and the discretionary part of their income is small.
“And if you live in a lowincome area, things are really bad for the consumer. Poor people in South Africa are very poor and there are a lot of people who really struggle.”
Aside from borrowing a lot, the financial position of many consumers also means that they do not save enough — or at all.
Savings by households as a percentage of households’ disposable income have been negative or at zero since 2006.
Old Mutual’s recent savings and investment monitor, which surveys the savings and investment behaviour of working metropolitan households, showed that 38% of respondents had neither a retirement annuity nor a pension or provident fund.
Rossouw said savings were under pressure because many consumers wanted to live in a “now society” in which they received instant gratification. They were no longer prepared to wait before they purchased something, he said.
“People even borrow to consume in South Africa. That is why we see the big increase in unsecured lending. A lot of that is not going into assets, but into consumption. That is a negative spiral that people struggle to break out of.”