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
Background The impact of the recession on consumer income and spending: According to the Quarterly Labour Force Survey, the SA economy shed 870 000 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?
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
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 www.saarf.co.za
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
The impact of the recession on the living standards of South Africans, as measured by SAARF s LSM groupings
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 9-10 06 07 08 09 10
% of adult population AMPS data on proportion of population in each LSM group confirms that upward migration still continuing... 55 50 45 40 35 30 Households migrating from lower LSM groups into higher LSM groups, suggesting an improvement in living standards 30.9 50.8 48.1 48.9 45.6 42.8 25 15 24.7 21.3 18.7 15.1 19.0 17.3 16.016.3 13.5 15.1 15.1 13.714.3 12.8 10 5 LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 Source: AMPS 06 07 08 09 10
% of adult population But upward momentum slowed during 09 recession, particularly for lower LSM groups 55 50 45 40 35 30 25 15 10 5 30.9 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 24.7 21.3 18.7 15.1 42.8 45.6 50.8 48.1 48.9 Rate of contraction increased again in 10 (to 3.6% points), suggesting upward momentum increased again after the recession 13.5 19.0 17.3 16.016.3 15.1 15.1 13.714.3 12.8 LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 06 07 08 09 10
% of adult population LSM 4-6 in particular grew at a much slower rate during 09 compared to preceding years 55 50 45 40 42.8 45.6 50.8 48.1 48.9 Rate of increase accelerated again in 10 (to 1.9% points), suggesting upward momentum increased again after the recession 35 30 25 15 30.9 24.7 21.3 18.7 15.1 % 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 19.0 17.3 16.016.3 13.5 15.1 15.1 13.714.3 12.8 10 5 LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 Source: AMPS 06 07 08 09 10
% 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 55 50 45 42.8 45.6 50.8 48.1 48.9 40 35 30 25 15 30.9 24.7 21.3 18.7 15.1 Rate of upward migration into LSM 7-8 already slowed in 08 13.5 19.0 17.3 16.016.3 Rate of upward migration into LSM 9-10 continued during recession, but halted in 10 15.1 15.1 13.714.3 12.8 10 5 LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 Source: AMPS 06 07 08 09 10
% of population Household income groupings from AMPS also suggest a slowdown in upward migration for middle income groups 60 50 40 30 10 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 0 05 06 07 08 09 10 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 R11 000 per month Proportion of population earning more than R11 000 per month Source: AMPS earning between R2 500 R11 000 % of population earning more than R11 000 per month relatively unaffected by recession
Upward migration into higher income groups slowed/halted during 09 05 06 07 08 09 10 Up to R 799 6683795 5714794 2630854 22414 1904487 1433692 % of total population 22.0 18.0 8.0 7.0 6.0 4.0 R 800 - R 1399 4924312 5186505 6093698 54306 5323285 4176839 % of total population 16.0 17.0.0 17.0 16.0 12.0 R 1 400 - R 2 499 5700822 5838153 5495025 50990 4747425 4561223 % of total population 19.0 19.0 18.0 16.0 15.0 13.0 R 2 500 - R 4 999 5494419 5367328 5715771 6065464 6167019 6995821 % of total population 18.0 17.0 18.0 19.0 19.0 21.0 R 5 000 - R 7 999 3030514 3295157 3645199 4086591 4516742 5308083 % of total population 10.0 11.0 12.0 13.0 14.0 16.0 R 8 000 - R 10 999 1974623 2221010 2940031 3077349 3242758 3795173 % of total population 6.0 7.0 9.0 10.0 10.0 11.0 R 11 000 - R 19 999 1871711 60950 2798919 3211188 3389838 4029301 % of total population 6.0 7.0 9.0 10.0 10.0 12.0 R 000 + 975501 1219109 1789575 2365614 36509 3719527 % of total population 3.0 4.0 6.0 8.0 10.0 11.0 Total adult population 30655697 30903006 31109072 31305016 32498063 34019659 Source: AMPS
Why did the recession not lead to an outright deterioration in living standards as measured by the LSM groupings?
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
% of LSM group % of LSM group % of LSM group Results for selected LSM segmentation variables (1) Households with an electric stove 100 80 60 40 0 LSM 4-6 LSM 7-8 LSM 9-10 05 06 07 08 09 10 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 100 100 80 60 40 80 60 40 0 LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 06 07 08 09 10 Source: AMPS 0 LSM 4-6 LSM 7-8 LSM 9-10 05 06 07 08 09 10
% of LSM group % of LSM group % of LSM group Results for selected LSM segmentation variables (2) 100 Vehicle ownership Marginal decline in proportion of 80 60 40 0 LSM 4-6 LSM 7-8 LSM 9-10 05 06 07 08 09 10 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 60 50 50 40 30 10 40 30 10 0 0 LSM 4-6 LSM 7-8 LSM 9-10 LSM 4-6 LSM 7-8 LSM 9-10 05 06 07 08 09 10 05 06 07 08 09 10 Source: AMPS
% of LSM group % of LSM group Results for selected LSM segmentation variables (3) 70 DSTV subscription The number (and proportion) of 60 50 40 30 households with a DSTV subscription continued to increase throughout the recession The proportion of households in LSM 1-3 10 0 100 LSM 4-6 LSM 7-8 LSM 9-10 05 06 07 08 09 10 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) 80 60 40 0 LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 05 06 07 08 09 10 Source: AMPS
Results for selected LSM segmentation variables (4) 05 06 07 08 09 10 Total number of households 10757368 10969226 11124478 11139019 12484438 13368649 y-o-y % change 2.0% 1.4% 0.1% 12.1% 7.1% Access to hot water by geyser 3915994 4022271 4431586 4503992 4905517 5258621 y-o-y % change 2.7% 10.2% 1.6% 8.9% 7.2% Access to elecricity in household 9233826 9377113 9836749 9869755 11279018 12176224 y-o-y % change 1.6% 4.9% 0.3% 14.3% 8.0% Electrical stove 5689659 5854186 6469401 68001 7399663 8288157 y-o-y % change 2.9% 10.5% 5.1% 8.8% 12.0% Microwave oven in household 3826296 4244801 5344072 5821764 6443954 7484912 y-o-y % change 10.9% 25.9% 8.9% 10.7% 16.2% Cellphone in household 6490879 7592842 9108577 9571919 10746850 167539 y-o-y % change 17.0%.0% 5.1% 12.3% 12.3% TV set in household NA 8056536 8935309 9097113 10121015 11230679 y-o-y % change 10.9% 1.8% 11.3% 11.0% DSTV subscription 723495 888322 1187502 1680414 2177770 2670376 y-o-y % change 22.8% 33.7% 41.5% 29.6% 22.6% Domestic servant 1248780 1241106 1373674 1405894 14979 1677101 y-o-y % change -0.6% 10.7% 2.3% 6.5% 12.0% Vehicle ownership 3252396 3357361 3746218 3864330 4046222 4502652 y-o-y % change 3.2% 11.6% 3.2% 4.7% 11.3% Home security 9663 1052806 1261608 1491377 1502368 1602482 y-o-y % change 9.0% 19.8% 18.2% 0.7% 6.7% Source: AMPS
How does the other consumer income and spending data from AMPS compare with official statistics?
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)
thousands percent SA economy shed 870 000 jobs between 08Q4 peak and 10Q3 trough, and unemployment rate increased notably (QLFS data) 14 000 13844 28 13 500 Annual data Quarterly data 13 000 12975 13125 26 12 500 24 12 000 11 500 11 000 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) 00 02 04 06 08Q1 08Q3 09Q1 09Q3 10Q1 10Q3 11Q1 22 total employment Unemployment rate
% of LSM group that is unemployed AMPS data shows that unemployment increased across all LSM groups 45 40 35 30 25 15 10 5 0 LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 06 07 08 09 10 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
percent The growth in household credit extension slowed notably during the recession (SARB) 35 30 06 07 08 09 10 Credit growth 26.4 21.8.4 5.0 4.9 25 15 10 5 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 qoq annualized % change yoy % change
% 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 12 10 8 6 4 2 0 Source: AMPS LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 05 06 07 08 09 10
percent Real consumer spending contracted by 2.0% during 09, the largest contraction since 1991 (SARB) 14 10 07 08 09 10 11F 12F Real HCE 5.5 2.2-2.0 4.4 4.5 4.1 Forecast 6 2-2 -6 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 qoq annualized % change yoy % change
percent Durable goods showed the largest contraction of the different spending categories during 08-09 (SARB) 50 40 07 08 09 10 11F 12F Volume growth 1.9-9.4-9.6 24.0 12.1 5.1 Forecast 30 10 0-10 - -30 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 qoq annualized % change yoy % change
% 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 5.0 4.0 3.0 2.0 1.0 0.0 Source: AMPS LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 05 06 07 08 09 10
% of LSM group The proportion of the population conducting home improvements also declined notably towards the end of the decade (AMPS) 40 35 Conducted home improvements 30 25 15 10 5 0 LSM 1-3 LSM 4-6 LSM 7-8 LSM 9-10 05 06 07 08 09 10 Source: AMPS
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
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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