Two signs that show South Africans are worried about the economy


FNB says it is seeing signs of a “deliberately” more conservative household/consumer in the residential property market emerging for some time.

And more recently, it would appear that household sector income, debt and consumption expenditure numbers are also starting to point to this, said John Loos, household and property sector strategist at FNB

“When we use the term “ deliberately more conservative”, we refer to a household sector that may be starting to intentionally curb its spending and borrowing habits as opposed to a situation where slower income growth merely forces this behavioral change upon households,” FNB said.

Two signs show that households are gradually becoming more cautious, or conservative, Loos said.

“Firstly, we have seen a gradual decline in the percentage of home sellers selling in order to upgrade to a better property. This is by and large the non-essential side of property trading, which in tougher times can normally be put on hold.

“Secondly, we have seen some shift in demand towards the lower end of the residential market, with the higher priced luxury home segment having seen its activity levels slow first of the major segments,” the analyst said.

Loos cautioned however, that these trends alone, do not point conclusively to a voluntary change in household sector mindsets.

“Such greater levels of conservatism could merely be forced upon households by a deteriorating economy of recent years, which has curbed employment and income growth.

“And, of course, there have been the gradual interest rate hikes since 2014 along with a steadily rising trend in Tax and Tariff rates coming from General Government and its Parastatals,” he said.

That said. consumers’ expectations for the economy over the next 12 months have become more negative than their experience of their own financial position at the time. “In other words, it is the broader environment, and the future, that concerns them more,” the analyst said.

FNB noted that real household sector disposable income growth has slowed. From 2.5% year-on-year in the 1st quarter of 2015, it has slowed to 1.5% year-on-year as at the 1st quarter of 2016.

However, real consumption expenditure growth has slowed even faster more recently, recording a mere 0.8% year-on-year in the 1st quarter of 2016, with the quarter-on-quarter annualized growth rate down by -1.3%.

The result is a further decline in household consumption expenditure when expressed as a percentage of household sector disposable income, to 100.8% of disposable income, FNB said.

This reflects some positive progress in returning household consumption to more sustainable levels relative to disposable income levels, from a 102.3% high around 2013, the financial institution said.

This translates into a further shrinking in the revised net dis-savings rate to -0.8% of disposable income, continuing the improving trend in the still-dismal net savings rate from a negative -2.3% of Disposable Income low point reached in 2012, it noted.

Net saving/dis-saving refers to gross saving net of depreciation on fixed assets owned by households, the bank pointed out. The net dis-savings rate means that what gross savings takes place is still insufficient to cover all depreciation in fixed assets owned by the household sector.

But this may soon be about to change as the net dis-savings rate heads nearer to zero, FNB’s Loos said.

“This savings rate improvement is typically what we would expect to see during tougher economic times and times of rising interest rates. The household sector has become less confident of the economic future, and by implication of its own future financial situation,” he said.

“The “natural” response should be to become more conservative in its spending habits.”

FNB said that the response appears justified if one examines household sector net wealth trends.

While at 385.3% of disposable income the household sector’s net wealth remains relatively high, its growth in value has slowed dramatically from 19.5% year-on-year in the 2nd quarter of 2014 to a mere 3.8% by the 1st quarter of 2016, FNB said.

“This growth rate has become negative in real terms (i.e. is below CPI inflation), with slowing in growth in various asset markets, so the expected response should be a higher savings rate in order to grow wealth where weak asset price growth falls short,” Loos said.

He said that leading real household consumption expenditure growth slower has been the durables category, declining by -8.9% year-on-year in real terms by the 1st quarter of 2016.

Durables are often expenditures which can be postponed in tougher times, or times of rising cost of credit, for instance the purchase of new vehicles or furniture.

What does all of this mean?

“On the positive side the sustained economic weakness, over a number of years to date, along with weak consumer expectations of the economic future, looks to be starting to drive an improving trend in savings behavior.

“We don’t regard a net – dis-saving rate as good or sustainable,” said Loos.

He said that a change is overdue, with FNB expecting a return to a positive net savings rate later in 2016 for the 1st time since 2005.


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