Tag: disposable income

Disposable income has halved in South Africa

Source: Supermarket & Retailer

In a presentation ahead of finance minister Tito Mboweni’s Medium-Term Budget Policy Statement (MTBPS) next week, the PBO said that household consumption also dropped markedly by 49.8% in the second quarter of 2020, following a marginal increase of 0.2% in the first quarter.

The sharp decline reflected reduced outlays on all categories of goods, the PBO said. “Spending on durable and semi-durable goods contracted the most because most were classified as non-essential during the lockdown.

“Overall, consumer spending by households contracted by 7.5% from the first half of 2019 to the first half of 2020.”

The PBO said that this decline was consistent with the decline in both consumer confidence and credit extension to households.

This aligns with data from payments clearing house BankservAfrica which shows that the last few months have seen massive disruptions to the country’s average take-home pay, as a number of payments were either suspended, terminated or adjusted.

The average take-home pay in August was R14,008 in nominal terms and R11,893 in real terms. However, it is unlikely that the real average take-home pay will continue on this positive trend as the next two months had a relatively high average real take-home pay in 2019.

“A more meaningful indication of the real salary trend in South Africa at present is the average real take-home pay for the first eight months of 2019, which was R12,200 per month, indicating that the August 2020 number is nearly 2.5% lower than the same reporting period in 2019,” said economist Mike Schüssler.

Debt

The PBO’s presentation also shows that there has been a decrease in household debt in the second quarter of 2020 – its first decline since the third quarter of 2002

The ratio of household debt to disposable income increased significantly from 73.6% in the first quarter of 2020 to 85.3% in the second quarter.

“The quarter-to-quarter decline in nominal disposable income exceeded the decline in household debt.

“The outstanding balances of most categories of credit extended to households decreased during the national lockdown.

“This decline in credit extension was probably due to socioeconomic uncertainty about household saving and spending patterns.”

Data from the National Credit Regulator (NCR) from March 2020 to June 2020 shows that the number of credit agreements entered into decreased by 47.73% quarter-on-quarter from 3.93 million to 2.05 million.

In terms of credit granted for the quarter ended June 2020:

  • The value of new mortgages granted decreased by R25.95 billion (66.65%) quarter-on-quarter and by R27.20 billion (67.69%) year-on-year;
  • Secured credit which is dominated by vehicle finance, decreased by R18.57 billion (47.51%) quarter-on-quarter, and by R20.69 billion (50.22%) year-on-year;
  • Credit facilities decreased by R9.71 billion (50.53%) quarter-on-quarter and by R11.60 billion (54.97%) year-on-year;
  • Unsecured credit decreased by R15.10 billion (59.64%) quarter-on-quarter and by R18.42 billion (64.32%) year-on-year.
  • Meanwhile, credit bureaus held records for 26.96 million credit-active consumers, which showed a decrease of 3.69% when compared to the 27.99 million in the previous quarter.
  • Consumers classified in good standing decreased by 559,318 to 16.96 million consumers.

“This amounts to 62.90% of the total number of credit-active consumers, a decrease of 3.19% quarter-on-quarter and 3.65% year-on-year. The number of credit-active accounts decreased from 85.99 million to 85.23 million in the quarter ended June 2020.”

 

Source: Fin24

The purchasing power of South African households’ net wealth increased by R60.2bn over the period from the end of the first quarter of 2018 to the end of the second quarter despite the economy slumping into recession.

This is one of the findings of the Momentum-Unisa Household New Wealth Index.

The main reason for this improvement is given as an increase of R46.5bn in the real value of households’ assets. At the same time, the real value of households’ liabilities – mostly outstanding debt – decreased by R13.7bn.

The real value of household net wealth is obtained by subtracting the real value of their liabilities – mostly their outstanding credit and other debts – from the real value of their assets – mostly of the real values of their retirement funds, financial investments and residential properties.

The real value of household assets was boosted by an increase in the real value of households’ investments – specifically in retirement funds – which benefitted from an increase in share prices of the resources sector in particular.

These share prices received support from the rand exchange rate, which depreciated by almost 14% against the dollar over the period, offsetting declining commodity prices.

The real value of households’ residential assets did not receive much support over the quarter. House prices contracted in real terms, while real investments in the residential sector also declined.

According to FNB’s House Price Index, real house prices was 0.5% lower compared to a year ago, and virtually unchanged compared to the first quarter of 2018.

Furthermore, real fixed capital formation in the residential sector contracted by 6.5% in the second quarter of 2018 compared to the first quarter.

“The weak state of the economy and in consumer finances, as well as uncertainty about land reform, are factors that combined to the weak performance of real household residential assets,” says the report.

Households’ outstanding liabilities continued to increase at a slower pace than household consumption expenditure inflation.

This situation – whereby outstanding household debt increases at a slower pace than inflation – is indicative of consumer finances being under pressure, according to the report.

The report predicts that preliminary estimates point to a decline in the real value of household assets during the third quarter of 2018 as share prices tumbled over this quarter, while real house price growth remained negative.

Happier SA on a buying spree

Source: Supermarket & Retailer

Consumer confidence in South Africa surged to an all-time high in the first quarter of the year, indicating the willingness of consumers to spend more, following the election of Cyril Ramaphosa as head of state.

The First National Bank (FNB)/Bureau for Economic Research (BER) consumer confidence sentiment index (CCI) raced to 26 points in the first quarter of 2018 from -8 points in last year’s fourth quarter.

The increase is the largest single quarter improvement since BER started publishing a composite index in 1982. It also dwarfed the previous record high of 23 index points reached in the first quarter of 2007.

FNB chief economist Mamello MatikincaCRT said the index indicated that most consumers were more optimistic about the outlook for the South African economy and their household finances.

“While the VAT hike to 15 percent would have weighed on consumer sentiment, the zero rating of basic food items such as maize meal‚ brown bread‚ dried beans and rice will mitigate the impact of this tax increase on low-income households,” Matikinca said.

“The extraordinary improvement in consumer sentiment during the first quarter of 2018 can largely be ascribed to the change in the country’s leadership, which triggered many positive economic developments.”

The BER said consumer confidence surged across all income and population groups during the first quarter of the year.

It said sentiment among those who take home R14 000-plus a month reached new record highs of 31 points while those who earn R3 000 a month improved their confidence to levels last seen in 1995.

FNB and BER said index among white consumers reached a level last seen in 1988, while confidence among their black counterparts also hit 34 index points, the second highest level since the all-time high of 38 points after the 1994-election.

Statistics South Africa said this month that retail sales, which best indicate consumer sentiment, increased 4.9 percent year-on-year in February and above market expectations of a 2.8 percent gain.

New car sales have also soared in the first three months of the year.

Citadel chief economist Maarten Ackerman said the buoyant mood among consumers bodes well for the future outlook for the economy.

“As consumer confidence acts as a leading indicator to the economy, the recent surge in consumer confidence in South Africa supports the idea that our economic growth in 2018 will likely be better than initially expected,” Ackerman said.

The BER, however, cautioned of a risk that the CCI overshot of the positive sentiment, charging that there could be a negative correction during the second quarter. All three sub-indices of the CCI saw substantial improvements.

The index, which gauges consumers’ perception of the economy in the next 12 months outlook, jumped from -2 points in the last quarter of last year to 34 points in the quarter under review.

The consumers’ assessment of their own financial position surged to 31 points from 2 points previously.

The number of individuals deeming it appropriate to purchase durable goods presently improved to 14 points from -24 points in the prior quarter.Lara Hodes, an economist at Investec said: “The waning of policy and political uncertainty following Ramaphosa’s election as president of the ANC and subsequently the Republic, together with the avoidance of a sovereign rating downgrade by Moody’s rating agency and a budget more orientated towards fiscal consolidation, boosted the outcome.”

Original article by Kabelo Khumalo for IOL

South Africa continues to experience slow growth in disposable salaries, according to the latest BankservAfrica Disposable Salaries Index (BDSI) released last week.

The nominal trend indicates further increases could be even smaller than currently seen, but remain above the inflation rate.

The trend in total payments of disposable salaries and pensions shows consumers will not be in a strong position this year, according to Mike Schüssler, chief economist at Economists dotcoza.

At the same time, he pointed out, pensioners are still not well off by any stretch of the imagination.

“Last month the increase in disposable salaries of 6,5% on a year ago barely beat inflation, which sits at 6,3%,” explains Dr Caroline Belrose, head of knowledge and risk services at BankservAfrica.

The average monthly take-home pay for March 2016 was R12 501. This still outpaced banked pensions, even though the BankservAfrica Private Pensions Index increased at a faster rate than salaries and was up by 7,4% for the year.

The average pension as paid via the payments system of BankservAfrica for March 2016 came in at R6 075.
Schüssler explained that the slowdown in disposable salary growth is also impacted by personal income taxes that were effectively raised again by not being compensated for inflation. This is called bracket creep and means that as people’s salaries or pensions go up to compensate for inflation, they enter a higher tax bracket. Therefore, in real terms they are taking home the same amount.

The salary of employees in the middle of the salary spectrum outpaced those at the higher end due to more people slowly moving up the employment ladder. The median salary shows a growth of 7.2%, which is again better than the average salary.

The typical pension increased by 13.4% on a year ago, and shows that many pensioners have kept up well with inflation. But pension payments are still less than half of salaries.

The typical salary came in at R9 282 for the month of March, while the typical pension was R4 259. The increases for both medians outpaced inflation in March 2016.

The total combined payments of salaries and pensions grew by a total of 7.2% over the year to March 2016. It is the seventh month that the total payments have been within 50 basis points of 7%.

This is slower than the period of July 2014 to March 2015, where only one month had a growth rate in single digits. While BankservAfrica still excludes payments to bank accounts that are over R100 000, the total averaged over R47,8-billion.

“The slowing trend in the total payments for salaries and pensions is probably the best indicator that the current growth in retail sales is coming from the falling sales of big ticket items such as cars,” explains Schüssler.

“There is likely to be a bit of extra consumer credit growth driving retail sales too. The faster increase of median and average pensions was unexpected. But as we do not have a long history of data, it is difficult to have foreseen this.”

He believes retail sales will no longer be growing at a real rate of 4% or even 3% within the next few months.

“Interest rate hikes and slower salary increases based on last year’s low inflation numbers will limit the employee’s ability to spend. This is bad news for large item sales like cars and furniture. It is likely that retailers will struggle for real growth in the next few months,” says Schüssler.

By Carin Smith for www.fin24.co.za

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