BER research note no. 2

Transcription

1 BER research note no. 2 The impact of the recession on the living standards and spending patterns of South Africans an analysis of the SAARF LSM groupings Lulama Mboji, Mamello Matikinca and Linette Ellis July 11

2 Background The impact of the recession on consumer income and spending: According to the Quarterly Labour Force Survey, the SA economy shed jobs (or 6.2% of total employment) between 08Q4 and 10Q3 Real disposable income of households declined by 1.4% during 09 the first annual contraction since 1991 The nominal growth in credit extension slowed from % 30% per annum between 04 and 08 to only 5.0% per annum in 09 and 10 Real consumer spending contracted by 2.0% in 09, while durable goods sales volumes plunged by 9.4% in 08 and a further 9.6% during 09 Did the recession also affect the living standards of people, as measured by the South African Advertising Research Foundation s living standard measure (LSM) groupings?

3 Outline Did the recession also affect the living standards of South Africans? According to the All Media and Products Survey (AMPS) by the South African Advertising Research Foundation (SAARF), upward migration into higher income and LSM groups continued, although it appears as though the upward momentum slowed between 08 and 09 How are households segmented into the different LSM groups? Helps to explain why the LSM measure does not show a notable decline in living standards during the recession Similar to official consumer income and spending data (e.g. from Statistics South Africa and the South African Reserve Bank), AMPS also shows a contraction in consumer spending on selected items during the recession In other words, while the living standards of households did not decline notably (as measured by the SAARF LSM groupings), the spending patterns of households within the different LSM groups changed meaningfully during the recession

4 SAARF s Living Standard Measure (LSM) defined LSM is a segmentation tool that is based on access to selected services, ownership of certain durable goods and degree of urbanization to determine the standard of living 29 variables (e.g. access to hot running water, MNet or DSTV subscription and access/ownership of durable goods such as a motor vehicle, TV set, washing machine and microwave oven) are used to segment the population into 10 LSM groups, with 10 being the group with the highest living standard and 1 being the lowest The LSM groupings are therefore not directly linked to income, nor expenditure, in any particular year

5 Current 29 LSM segmentation variables 1 Hot running water 16 Less than 2 radio sets in household 2 Fridge/freezer 17 Hi-fi/music centre 3 Microwave oven 18 Rural outside Gauteng/W.Cape 4 Flush toilet in/outside house 19 Built-in kitchen sink 5 No domestic in household Home security service 6 VCR 21 Deep freezer 7 Vacuum cleaner/floor polisher 22 Tap water in home/on plot 8 3 or more cell phones in household 23 2 cell phones in household 9 DVD player 24 Dishwasher 10 Washing machine 25 M-Net/DStv subscription 11 Computer in home 26 Home theatre system 12 Electric stove 27 House/cluster house/town house 13 TV set 28 Metropolitan dweller 14 Tumble dryer 29 Motor vehicle in household 15 Home telephone

6 The impact of the recession on the living standards of South Africans, as measured by SAARF s LSM groupings

7 number of adults Upward migration number of adults in lowest LSM groups declining and higher LSM groups increasing 18,000,000 15,000,000 12,000,000 9,000,000 But total number of adults in LSM groups increased from 30.9m in 06 to 34m in 10 (i.e. by 10.1%), so part of growth stems from growth in population therefore instructive to consider changes in the % of the population that falls in each LSM group 6,000,000 3,000,000 0 Source: AMPS LSM 1-3 LSM 4-6 LSM 7-8 LSM

8 % of adult population AMPS data on proportion of population in each LSM group confirms that upward migration still continuing Households migrating from lower LSM groups into higher LSM groups, suggesting an improvement in living standards LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 Source: AMPS

9 % of adult population But upward momentum slowed during 09 recession, particularly for lower LSM groups Source: AMPS % of households in LSM 1-3 dropped by only 2.6% points in 09, compared to declines of 3.4% and 6.2% points in the preceding two years Rate of contraction increased again in 10 (to 3.6% points), suggesting upward momentum increased again after the recession LSM 1-3 LSM 4-6 LSM 7-8 LSM

10 % of adult population LSM 4-6 in particular grew at a much slower rate during 09 compared to preceding years Rate of increase accelerated again in 10 (to 1.9% points), suggesting upward momentum increased again after the recession % of households in LSM 4-6 increased by only 0.8% points in 09, compared to increases of 2.5% and 2.8% in the preceding two years LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 Source: AMPS

11 % of adult population Mixed results for higher LSM groups, but in general it appears as though upward momentum also slowed towards the end of the decade Rate of upward migration into LSM 7-8 already slowed in Rate of upward migration into LSM 9-10 continued during recession, but halted in LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 Source: AMPS

12 % of population Household income groupings from AMPS also suggest a slowdown in upward migration for middle income groups Important to note that part of upward migration into higher income groups is purely an inflationary effect, making it difficult to draw firm conclusions on income data Nevertheless, data shows substantial slowdown in the upward momentum during 09 for those Proportion of population earning less than R2 500 per month Proportion of population earning between R2 500 and R per month Proportion of population earning more than R per month Source: AMPS earning between R2 500 R % of population earning more than R per month relatively unaffected by recession

13 Upward migration into higher income groups slowed/halted during Up to R % of total population R R % of total population R R % of total population R R % of total population R R % of total population R R % of total population R R % of total population R % of total population Total adult population Source: AMPS

14 Why did the recession not lead to an outright deterioration in living standards as measured by the LSM groupings?

15 Most households still had access to the same services and durable goods during the recession... For most variables used to segment households into the different LSM groups, the number of households with access to services and durable goods continued to increase for example, we saw strong growth in the number of households with a DSTV subscription (29.6% in 09), a tv set (11.3%) and a cell phone (12.3%). However, AMPS also showed particularly high growth in the total number of households during 09 (12.1%), so it is instructive to consider changes in the proportion of households with access to these products and services The proportion of households with access to goods and services such as an electrical stove, a TV, a microwave oven and a domestic worker remained very stable during the recession (although we saw growth in the absolute numbers) The proportion of households with access to DSTV and cell phones increased, while the proportion with home security declined during 09 (although the absolute number grew) The fact that households generally still had access to the same durable goods and services during the recession prevented them from slipping down the SAARF LSM scales

16 % of LSM group % of LSM group % of LSM group Results for selected LSM segmentation variables (1) Households with an electric stove LSM 4-6 LSM 7-8 LSM Proportion of households with access to an electrical stove, a TV set and a microwave oven remained fairly flat during recession But absolute number of people with access to these products and services continued to increase - i.e. LSM population grew at same rate as improvement in access Households with 1 or more TV sets Households with microwaves LSM 1-3 LSM 4-6 LSM 7-8 LSM Source: AMPS 0 LSM 4-6 LSM 7-8 LSM

17 % of LSM group % of LSM group % of LSM group Results for selected LSM segmentation variables (2) 100 Vehicle ownership Marginal decline in proportion of LSM 4-6 LSM 7-8 LSM households in LSM 4-6 and 7-8 with a vehicle in 09, but absolute number still increased Similarly, decline in proportion of households with home security services for LSM 9-10 during recession, but absolute number still increased 70 Households with 1 or more domestic helper 60 Home security services used LSM 4-6 LSM 7-8 LSM 9-10 LSM 4-6 LSM 7-8 LSM Source: AMPS

18 % of LSM group % of LSM group Results for selected LSM segmentation variables (3) 70 DSTV subscription The number (and proportion) of households with a DSTV subscription continued to increase throughout the recession The proportion of households in LSM LSM 4-6 LSM 7-8 LSM Households with 1 or more cellphones with one or more cell phones increased even during 09, but remained fairly flat for the other LSM groups (although the absolute numbers increased for all groups) LSM 1-3 LSM 4-6 LSM 7-8 LSM Source: AMPS

19 Results for selected LSM segmentation variables (4) Total number of households y-o-y % change 2.0% 1.4% 0.1% 12.1% 7.1% Access to hot water by geyser y-o-y % change 2.7% 10.2% 1.6% 8.9% 7.2% Access to elecricity in household y-o-y % change 1.6% 4.9% 0.3% 14.3% 8.0% Electrical stove y-o-y % change 2.9% 10.5% 5.1% 8.8% 12.0% Microwave oven in household y-o-y % change 10.9% 25.9% 8.9% 10.7% 16.2% Cellphone in household y-o-y % change 17.0%.0% 5.1% 12.3% 12.3% TV set in household NA y-o-y % change 10.9% 1.8% 11.3% 11.0% DSTV subscription y-o-y % change 22.8% 33.7% 41.5% 29.6% 22.6% Domestic servant y-o-y % change -0.6% 10.7% 2.3% 6.5% 12.0% Vehicle ownership y-o-y % change 3.2% 11.6% 3.2% 4.7% 11.3% Home security y-o-y % change 9.0% 19.8% 18.2% 0.7% 6.7% Source: AMPS

20 How does the other consumer income and spending data from AMPS compare with official statistics?

21 Comparison of AMPS and official data Unemployment Despite different definitions of unemployment, both the Quarterly Labour Force Survey by Statistics South Africa and AMPS shows a sharp increase in unemployment between 08 and 10, particularly if discouraged workers are also considered Credit purchases The SARB shows a dramatic slowdown in credit growth towards the end of the decade, which is mirrored by the AMPS data on credit purchases of durable goods Consumer spending The SARB shows that real consumer spending declined during 09, with durable goods sales volumes showing the largest contraction - AMPS data also show that a substantially smaller proportion of the population purchased large appliances such as refrigerators and electric stoves during the recession, or conducted home improvements The AMPS data on consumer income and spending therefore shows similar trends to that of the official data sources (i.e. Statistics South Africa and the SARB)

22 thousands percent SA economy shed jobs between 08Q4 peak and 10Q3 trough, and unemployment rate increased notably (QLFS data) Annual data Quarterly data If discouraged workers are also counted as unemployed, the expanded unemployment rate would have increased from 26.7% in 08Q4 to 33.9% in 11Q2 (an increase of 1.7 million people) Q1 08Q3 09Q1 09Q3 10Q1 10Q3 11Q1 22 total employment Unemployment rate

23 % of LSM group that is unemployed AMPS data shows that unemployment increased across all LSM groups LSM 1-3 LSM 4-6 LSM 7-8 LSM Source: AMPS Unemployment rose more in absolute terms for the lower and middle LSM groups (these groups are larger in size) LSM 4-6: Unemployment increased from 5.1 million to 6.4 million between 08 and 10 LSM 7-10: 1 million to 1.8 million between 08 and 10 AMPS data seems to suggest a larger increase in and a larger absolute number of unemployed compared to the QLFS different definitions of unemployed

24 percent The growth in household credit extension slowed notably during the recession (SARB) Credit growth qoq annualized % change yoy % change

25 % of LSM group AMPS data also shows a marked decline in the proportion of the population that bought durable goods on credit 14 Durable items bought on credit Source: AMPS LSM 1-3 LSM 4-6 LSM 7-8 LSM

26 percent Real consumer spending contracted by 2.0% during 09, the largest contraction since 1991 (SARB) F 12F Real HCE Forecast qoq annualized % change yoy % change

27 percent Durable goods showed the largest contraction of the different spending categories during (SARB) F 12F Volume growth Forecast qoq annualized % change yoy % change

28 % of LSM group AMPS data also show that a substantially smaller proportion of the population purchased large appliances such as refrigerators and electric stoves during the recession 6.0 Large appliances purchased: Refrigerator or electric stove Source: AMPS LSM 1-3 LSM 4-6 LSM 7-8 LSM

29 % of LSM group The proportion of the population conducting home improvements also declined notably towards the end of the decade (AMPS) Conducted home improvements LSM 1-3 LSM 4-6 LSM 7-8 LSM Source: AMPS

30 Concluding remarks (1) Official macro-economic data shows that real consumer income and spending declined notably during 09 AMPS data on the spending patterns of the different LSM groups confirms this trend However, according to SAARF s living standard measure (LSM), households continued to migrate into higher LSM groups, suggesting that the living standards of most South Africans continued to improve (albeit at a slower rate compared to the boom years) LSM groupings determined by access to services and selected durable goods, not by new purchases or level of income - this explains why we did not see a deterioration in living standards of households, as measured by SAARF, during the recession If the recession continued for a longer time and some households had to return/sell some of their appliances or cancel some of their services (e.g. home security or DSTV), we may have seen households slip down the LSM scale

31 Concluding remarks (2) Although living standards of households as defined by SAARF did not deteriorate, household spending patterns did change household expenditure, particularly credit purchases and expenditure on durable goods (which are more easily postponed), contracted Given how households are segmented into the different LSM groups (i.e. based on level of urbanization and access to services and durable goods), upward migration through the LSM groups is likely to continue When considering the outlook for consumer spending/retail sales, the absolute number of households in a LSM group may therefore be less important than the rate of upward migration, or the spending patterns within an LSM group at the time Consumers willingness (i.e. consumer confidence) and ability to spend (i.e. income and access to credit) remain key determinants of household consumption expenditure, despite their LSM status

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