Economic Confidence Index (ECI) - October/November 2011

Modest rise in confidence

TNS South Africa, South Africa's leading marketing and social insights company, has released their Economic Confidence Index (ECI) results for metropolitan adults for October/November 2011. The overall ECI has risen three points to 131 from its two year low of 128 achieved in April 2011 (May 2002 = 100), but this is still well below the average of 136 for 2010, and well down on the 137 of this time last year.

More detailed analysis also shows that, compared with April 2011, there is a slight improvement in people's confidence in the economy amongst both the more wealthy as well as the less wealthy and both are of the same level of magnitude.

The Index is made up of two components: how people are feeling now about the economy and their financial circumstances, and their expectations for the next six months. The movement since April consists of two opposing trends.

The reading for the current component showed a large rise of 19 points from 134 in April 2011 to 153 in October/ November 2011 - this being its highest level since February 2008. This augurs well for the festive season and shows that the last half of 2011 overall should show buoyant retail sales.

The expectations component, however, dropped by three points from 126 to 123, continuing its decline from the end of 2010 (132). This is its lowest level since November 2008. This suggests that people have serious reservations about the economic outlook in 2012.

The latest figures are set against a backdrop of the CPI rising to the top of its target range: it has showed a steady rise from 3.7% at the start of the year to 6.0% in October. Interest rates have remained steady since the end of 2010. The petrol price, however, reached a new high of R10.37 per litre (inland) and R10.20 (coast) in October and continued its rise to R10.60 and R1043 respectively in November - a new all-time high.

What sentiments changed in the ECI?

Compared with April 2011, the rise in the current component was driven primarily by a strong improvement in sentiment around current business conditions. The expectations component declined because of much much poorer sentiment around the ease of finding jobs in the first half of next year as well as concerns about people's personal circumstances.

Compared with the same time last year, there has been a dramatic decline in sentiment concerning future business conditions, as well as inflation. It seems that people are seeing a much more hostile business environment in the first half of 2012 compared with this year. In addition, people are also very worried about their personal financial circumstances in 2012 as compared with 2011, as well as the prospects for inflation in 2012.

Our take-out

It seems that people are pleasantly surprised at the way 2011 has ended and that they are feeling more positive than they expected to feel earlier in the year, suggesting good retail sales figures for the latter part of 2011. However, there are very serious concerns about the economic environment going forward, this being centred on fears around inflation, personal financial circumstances and the business environment. Some of this may arise from the ongoing Eurozone crisis and the possible effect that this might have on South Africa.

Background to the ECI

Sentiment is said by many to be one of the key drivers in many markets - financial, consumer, durables, the stock market.  TNS Research Surveys (Pty) Ltd, South Africa's leading marketing and social insights company, has developed an economic confidence measure that examines people's confidence in the state of the economy - a key factor in how they manage their finances and make or put off buying decisions.

This index examines people's current and future perceptions of the economy in terms of job availability, business conditions, general economic conditions, prices and inflation, likely income, and the effects of AIDS and crime on the economy. These two constructs - "where are we now?" and "where are we going?" are then combined into an overall index. The future perceptions measure, in particular, can be a leading indicator of changes in people's spending patterns if it changes over time by any material amount. The index is calculated via a survey every two to three months of 2 000 metropolitan adults aged 18 years and over, sampled from the major metropolitan areas of South Africa. In the latest reading, 1 260 blacks, 385 whites, 240 coloureds and 115 Indians/Asians were questioned. The overall margin of error is less than 2.5%. The index was first measured in May/June 2002.

Technical note

2 000 metro adults were interviewed face-to-face in their homes. The study was conducted by TNS South Africa as part of their ongoing research into current social and political issues and was funded by TNS.

Statement issued by Neil Higgs, Senior Advisor and Head of innovation, TNS South Africa, December 5 2011

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