Vijay Kumar Gaba: Consumer Confidence

Showing posts with label Consumer Confidence. Show all posts

Thursday, December 14, 2023

Growth momentum to sustain in FY25; no significant acceleration likely

RBI recently released the results of the latest surveys of consumer confidence, inflation expectations, and professional growth forecasts. The results generally show that consumer confidence is sustained at high levels, with respondents fairly optimistic about the prospects in the year forward period; inflationary expectations are stable and the growth momentum of FY24 is likely to be sustained in FY24 also.

Some key highlights of the surveys could be noted as follows:

Consumer confidence stable

· Consumer confidence for the current period is stable; the current situation index (CSI) remained unchanged from the previous round.

· Higher pessimism on the current general economic situation and employment was counterbalanced by a positive turnaround in sentiment on current income.

· Respondents were fairly optimistic about the year ahead prospects for the general economic situation, employment, income, and spending; even though the future expectations index (FEI) moderated marginally from the previous survey period.

· Households’ assessment of current earnings reached its highest level since July 2019 and expectations for future income also improved further.

Household inflation expectation

· Households’ perception on current inflation declined by 20 basis points (bps) from the previous survey round.

· Median inflation expectation remained stable for the three months ahead period at 9.1 per cent, but it increased for one year horizon by 20 bps to 10.1 per cent in November 2023.

· Larger share of households expects higher inflation for both three months and one year ahead periods.

· Households expect some rise in price and inflationary pressures across major product groups for the year ahead.

Professional Growth forecasts

· Median real GDP growth forecast for 2023-24 has been revised up by 20 basis points (bps) to 6.4 per cent; it is expected to grow by 6.3 per cent in 2024-25.

(In a follow up survey conducted in first week of December, after release of official growth data for 2QFY24, real GDP growth for 2023-24 has been revised up by 40 bps relative to the regular survey in November 2023, whereas the forecast for 2024-25 remained unchanged.)

· Forecasters have assigned highest probability to real GDP growth in the wider range 6.0-6.9 per cent for 2023-24 and 6.0-6.4 per cent for 2024-25.

· Annual growth in real private final consumption expenditure (PFCE) and real gross fixed capital formation (GFCF) for 2023-24 are expected at 6.0 per cent and 7.5 per cent, respectively.

· Merchandise exports and imports are projected to decline by (-)7.1 per cent and (-)5.4 per cent, respectively, in US dollar terms during 2023-24 and are expected to grow by 5.0 per cent and 6.2 per cent, respectively, during 2024-25.

· Current account deficit (CAD) is expected at 1.7 per cent (of GDP at current market prices) during 2023-24 and likely to improve marginally to 1.6 per cent during 2024-25.

Overall, the macroeconomic conditions are expected to remain stable with the current growth momentum sustaining. No significant acceleration is likely in GDP growth, consumption or investments.

Wednesday, August 23, 2023

State of Affairs - Consumers turning cautious

High vegetable, grocery, and energy prices have disrupted the budget of most Indian households. Besides, unaffordable housing costs (rentals & EMI) and education & healthcare costs have impacted many middle-class households. An analysis of 1QFY24 results of the consumer companies indicates that there was nothing particularly noteworthy in the overall performance of the consumer companies. Demand environment for both staples and durable consumer goods remained subdued; though some companies reported decent growth in margins primarily due to lower costs.

The current quarter (2QFY24) has witnessed disruptions due to challenging weather conditions. The southwest monsoon has been erratic both temporally and spatially. To date only about 43% of districts have received normal rainfall; whereas 40% of districts are deficient and 17% have received excess or large excess rainfall. Northern states have witnessed significant disruptions due to excess rains; impacting the logistics and crops. Besides, the festival season this year is pushed back by one month, pushing the festival demand to 3QFY24. Obviously, the outlook for consumer demand does not look exciting for the current quarter.

In this background, it is interesting to note the findings of the latest (July 2023) Consumer Confidence Survey (CCS) by the Reserve Bank of India (RBI). The key highlights of the survey are:

Present tense: After persistent recovery for almost two years, consumer confidence for the current period stood a shade lower than that witnessed in the previous survey round; improvement in respondents’ sentiment on income and spending was offset by somewhat higher pessimism on the general economic and employment situation.

Future hopeful: Going forward, households expect improvement in general economic, employment, and income conditions; they turned less pessimistic on one year ahead price situation vis-à-vis May 2023 round of the survey. The future expectation index (FEI) remained in optimistic terrain and recorded a marginal rise in the latest survey round.

Sentiments improving: Sentiments on current income improved further and moved to an optimistic zone for the first time in four years; future earnings expectations remain buoyant.

The current perception of the economic situation, employment, and inflation has worsened recently. It has persistently remained negative since July 2022.

The expectation for one year ahead regarding economic situation, employment, and spending has also worsened as compared to May 2023 survey. Though it still remains in positive territory, it has not shown any material improvement since July 2022.

It is fair to say that the future expectations of improvement are driven more by hopes rather than any substantive basis.

Thursday, May 5, 2022

Consumers struggling with stagflation

For the past two years, I have been highlighting to the readers of this blog that almost two third of the Indian population is experiencing conditions that qualify to be termed stagflationary. Their incomes have been stagnant or declining in many cases, while their cost of living has risen materially.

The expenses on the critical services like education, healthcare, telecom, transportation and essential goods like food, energy, housing etc. have increased materially in the past 2 years. Besides, the proportion of aspirational (non-essential) spending in the overall consumption basket has also been increasing consistently. On the other hand, the household incomes have not kept pace with the rise in the cost of living. Wages for unskilled and semi-skilled labor have hardly changed. The employment opportunities for them have also diminished. The women participation in the labor force has reduced, pressuring the average household income. The wages for the highly skilled workers have seen sharp increases, but these workers form a very small part of the workforce in India.

As per the latest Consumer Confidence Survey (April 2022) published by the RBI shows that in the recent months the consumer confidence has shown some improvement, but it remains much below the pre pandemic levels. The key highlights of the survey, carried out to assess the current perceptions and one year ahead perception of the consumers, could be listed as follows:

· Over 70% of respondents expect that their spending will rise over the next one year; while only ~6% expect the spending to decrease. An overwhelming 78.6% of the respondents believe that their spending on essential items will be higher in the next one year; whereas only 29% believe that spending on non-essential items will be higher. This is not much different from the current perception.

· Only 53% of the respondents expect that their income will increase in next one year. This is a significant improvement from the current perception of 16%.

· About 84% of the respondents believe that the rate of inflation will increase in the next one year. This number is the highest in at least two years. This is actually worse than the current perception.

· Only about 53% of the respondents believe that the employment level will improve in the next one year. This number is better than the 48% recorded in March 2021, but remains much far away from the comfortable mark. The one year forward perception is significant improvement from the current perception of ~24%.

· Less than one half of the respondents believe that general economic conditions will improve over the next one year.

Clearly, the future expectations of the consumer are not very enthusiastic and mostly relying on hope of normalization. Unwinding of the pandemic stimulus may actually dampen consumer confidence. The household savings may not show any meaningful improvement in the near term.

The government will have a challenging balancing act to perform in FY23 and FY24 in the run up to the next general elections in 2024.

Wednesday, October 14, 2020

Stagflation dents consumer confidence to lowest ever

As per the latest survey conducted by RBI, the Consumer Confidence in India remained at an all-time low level in September with the general economic situation worsening during the month. This data read with the dismal IIP growth (-8%) and elevated consumer inflation (7.34% highest since January 2020) indicates that (i) the recovery from lockdown is slower and belies the enthusiasm shown by some of the analysts and economists; and (ii) we shall struggle to reach the pre lockdown level of economic activity for at least 2 more quarters and any improvement in the growth trajectory normalized for lockdown impact may still be far away. Remember, the economic growth in India was declining much before the pandemic forced a complete lockdown in March 2020.

The key highlights of the Consumer Confidence Survey (September 2020) are as follows:

· As per the survey, the consumer confidence (current situation) continued to slip for third successive month and is presently at all time low. Presently, the respondents perceive further worsening in general economic situation and employment scenario during the last one year. Though some improvement is expected a year later.

· 21% respondents reported curtailment in overall spending during the past one year, when compared with the last survey round. While 59.8% reported cut in non-essential spending.

· Even though consumers expect improvements in general economic situation, employment conditions and income scenario during the coming year; the discretionary spending is however expected to remain low in the near future.

· Households’ median inflation expectations remained elevated for both three months and one year ahead periods.

83% households reported rise in cost of living. 75.9% expect cost of living to rise further in next 12 months.
An astounding 81.7% household reported worsening of employment expectations in past one year. Though, 54.1% respondents hope that the employment conditions will improve in next one year. A significant 36.1% of respondents believe the employment conditions will worsen in next 12 months.

· 62.7% household indicated lower income in past one year; while only 8.9% reported higher income. 53.2% household expect income to rise in next one year, while 10% expect it to decrease further. Overall, 79.6% respondents felt that general economic conditions have worsened in past one year; while 34.8% respondents continue to believe that the conditions will worsen further in next 12 months. Only about 50% respondents believe the conditions to improve in next 12 months

Friday, February 14, 2020

Latest data reignites stagflation fears

Two data points released on Wednesday has again brought the specter of stagflation in India to the fore.

The rise in food prices and telecom tariffs pushed the retail inflation in January 2020 to 7.59%, the highest level seen since May 2014. At the same time the industrial production recorded a decline of 0.3% in December 2019.

I agree with the viewpoint that at macro level we may not be facing any threat of stagflation in near term. I also believe that (a) the headline CPI number may be close to peaking and may ease considerably post summer, as estimated by the monetary policy committee (MPC) of RBI; and (b) the headline growth number may be close to bottom and we may see a gradual recovery from 2HFY21 onwards.

Notwithstanding the macro viewpoint, it is pertinent to keep in mind that a large segment of the population may already be experiencing stagflationary conditions.

There is no denying that the employment conditions have worsened in past one decade and there is no hint available that this trend will reverse anytime soon. The labor participation rate in 2019 was lowest
The real wage rate growth for agriculture labor that forms a major part of overall workforce have been consistently declining since summer of 2017 and have seen de-growth in 2019. This could be due to significant rise in MSP of main crops over past two years. But nonetheless, the rural inflation has been consistently higher than the urban inflation while the rural wages have not seen commensurate growth.
Latest rounds of consumer confidence survey conducted by RBI clearly indicate that more households across major cities in India have seen their income decrease than increase in past one year. Moreover, majority of households perceive that employment outlook in India has sharply deteriorated. (for more details see here)

In my view therefore it would not be fair to assume that a large segment of Indian population is experiencing stagflationary conditions and this situation is likely to last for many quarters to come.