Strap in, there are... tough times ahead

2013-09-29 14:00

Times are getting tougher as consumers face rising living costs, high unemployment levels, soaring fuel prices and loss of income due to strikes. Neesa Moodley-Isaacs navigates the choppy seas

Two different indices that were recently released both show that as living costs continue to rise, consumer sentiment is at an all-time low.

The TransUnion Consumer Credit Index reflects deteriorating household cash flow as living costs rise and a weak job market takes its toll on income security. The TransUnion report also found the household cash flow situation may be as challenging currently as it was in early 2009, which was a recession year.

These results tie in with the First National Bank Consumer Confidence Index, which shows that your outlook for the national economy, your own financial prospects and the appropriateness of the current time to buy durable goods all deteriorated notably during the third quarter of this year.

Consumer-confidence levels for those earning less than R7?000 a month were much lower compared with higher-income households.

TransUnion chief executive Geoff Miller says that consumer loan defaults continue to rise, distressed borrowing has held steady, but credit card use nevertheless remains high, and household cash flow is deteriorating. “None of these trends are new or particularly surprising,” he says.

Although the index shows that distressed borrowing is not rising, there may be other evidence from the TransUnion database that suggests some segments of the market are trying to resort to this type of borrowing behaviour.

“The demand cycle for unsecured lending is extremely robust. With defaults clearly rising and household cash flow weak, this may suggest another form of distressed borrowing not accounted for when looking only at credit card use. This may point to lower-income groups experiencing the greatest debt distress,” Miller says.

Credit card use is currently just more than 50% of available credit card facilities, compared with an average of 47% between 2007 and 2011.

However, credit providers are becoming more cautious in their lending practices and approval rates have slowed. This means that it will be more difficult for you to get a loan from the bank as credit processes have tightened up.

What is inflation doing?

In August, the annual rate of inflation rose slightly to 6.4% year on year. The rise in inflation was largely due to the increased petrol price.

However, the petrol price fell by 5c a litre this month and economists believe that the petrol price could decline further next month, which should ease the burden on your pocket to some extent.

Provincial outlook

The FNB Consumer Confidence Survey shows that consumer confidence improved in the Western Cape, but deteriorated sharply in the Eastern Cape, which was the province hardest hit by strikes in the vehicle-manufacturing industry.

Other provinces that showed a decrease in consumer confidence were Gauteng, KwaZulu-Natal, Limpopo and Mpumalanga – all of which were affected by the strikes in the mining and construction sectors.

Employment outlook

According to the Quarterly Employment Statistics of Stats SA, 7 000 more people found employment in the nonagricultural sector between June 2012 and June 2013.

But over the same period, 23?000 people in the mining sector and 7?000 people in the manufacturing and construction sectors lost their jobs.

The property outlook

While at least 18% of property sales are attributed to people downscaling or selling due to financial pressures, this is balanced by the same percentage of people buying up or buying more expensive properties.

John Loos, property strategist at FNB, says in 2008, at the peak of the recession, downscaling topped out at 34% of total sales. Although property sales have slowed, he believes the fall in consumer confidence has yet to leave its mark on residential property sales.

This means if you are looking to sell your home, it may be tougher to do so in the months ahead.

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