Consumer confidence may be buoyant, but manufacturers, wholesalers and retailers are concerned that the credit spending spree will be short-lived. Lynda Loxton reports
While most economists are still bullish about the economy, the latest round of surveys by the University of Stellenbosch’s Bureau for Economic Research (BER) send out worrying signals about future growth.
Consumer confidence remains relatively buoyant, with many in a “spend-spend-spend” frame of mind; but manufacturers, wholesalers and retailers seem to be worried about whether this mainly credit-driven spending spree can continue much longer.
BER said consumer confidence remained high in the first quarter of this year, and more consumers rated the present as the right time to buy durable goods. Slightly more consumers expected their financial position to improve over the next 12 months, but remained hesitant about further improvements in the South African economy.
“The high level of consumer confidence implies consumers would rather spend the largest part of an increase in income than save it,” BER said.
Consumer confidence was highest among blacks, although it had fallen off somewhat against the end of 1995.
BER found that business confidence in the retail and wholesale sectors fell in the first quarter despite buoyant sales, which were expected to continue into the second quarter.
It said this apparent contradiction was owing to the fact that business confidence was measured both by sales and expectations about the economy and the political situation.
Business conditions improved in both the wholesale and retail sectors, surpassing expectations even though sales increased at a slower rate than in the fourth quarter of last year.
Retailers expected business conditions to continue improving in the second quarter, with a smaller increase in semi-durable sales and bigger increases in durable and non-durable sales.
Wholesalers expected business conditions to continue deteriorating in the second quarter, but at a slower rate. However, they still expected a large increase in the volume of sales and orders placed, possibly owing to good summer rainfalls which could lead to a rise in the demand for agricultural machinery and equipment.
Prices were expected to start rising more rapidly, mainly for consumer goods, because of higher wage costs and the sharp depreciation of the rand.
BER also found that business confidence in the manufacturing sector slumped in the first quarter of this year as sales volumes fell. Expectations for the second quarter remained positive, although they had been adjusted downwards and it was unlikely that the rapid growth in manufacturing value-added in 1995 would be repeated in 1996.
The bureau said the fall in business confidence from the all-time high in the previous quarter could be an over-reaction, “but a closer look reveals worrying indications”.
There had been a “substantial deterioration” in the growth of sales volumes and exports, but a “consoling factor” was expectations of better sales in the second quarter of this year.
BER said the slowdown in demand for manufactured goods could be a temporary phenomenon, but the drop in business confidence made this view tenuous. Although retail and wholesale sales were still buoyant in the first quarter, the fact that manufacturers received lower orders “could suggest that retailers are running down inventories in anticipation of lower sales,” BER said.
“If manufacturers’ expectations of an improvement do not materialise in the second quarter, we may be faced with still lower confidence and the confirmation that the economy is entering a downswing phase.
“This comes as a somewhat surprising result amid all the optimism of stronger economic growth in 1996.”