Feb 03, 2010, 11.38 AM IST | Source: CNBC-TV18

Jan Consumer Confidence up 7.8% to 72.5: An analysis

After months of exhibiting volatility at a lower level, consumer confidence rises 7.8% to 72.5 from 67.2 in December.

Kimberly Luce , Boston Analytics

After months of exhibiting volatility at a lower level, consumer confidence rises 7.8% to 72.5 from 67.2 in December. The rise in sentiment relates to the nation's overall economic conditions, personal financial conditions, and consumer spending. Inflation, interest rates, and employment appear to be driving the composite upwards in January. The bottoming process has matured with the multi-month moving averages beginning to show trends of things looking up.

 

Kimberly Luce of Boston Analytics says, "After several months of seeing some volatility at the lower level in the Consumer Confidence index, we have seen an increase of 7.8%. This is due to a number of factors. We track about 25 different variables. Nearly all of them have shown some type of increase or improved sentiment over the last month. But the three in particular that are driving the improvement in sentiment are an improved sentiment towards inflation, an improved sentiment towards consumer spending and improved sentiment towards employment."

 

Future expectations:

The Current Situations Index is up 7.5% from 73.3 to 78.8 while the Future Expectations Confidence Index is up 2.6% from 63.8 to 65.5 in January. Luce sees some lingering uncertainty about the future that is tempering Indian sentiment about the future economy. "If you look at the current situation sub index, which is a measure of the country's feelings about the situation today versus 12 months ago, there are areas of uncertainty that Indians are feeling about the future even though they are recognising that today is better than what it was a year ago. In addition, we see the absolute numbers for our index for future expectation is lower than the current."

 

On inflation:

On inflation, there is a split in sentiment between Tier I, Tier II, and Tier III cities. Aggregate inflation sentiment on both observed and expected bases have registered moderate improvements in the metros and Tier I cities when compared to Tier II and Tier III cities and towns. The improvement sentiment in Tier I cities is driving the increase in inflation sentiment at a national aggregate level.

 

"What that means is that of the people interviewed each month, there are fewer people that are reporting that they see an increase in price levels -- both observed and what they expect. But most of this improvement in sentiment is coming from Tier I cities as opposed to Tier II and Tier III cities where the sentiment has not improved. So, the overall national sentiment towards inflation its really coming from the Tier 1 cities and metros," she explained.

 

On interest rates:

The sentiment continues to reflect pessimism. The Indian consumer has been expecting interest rates to rise for a while now. A hike in the cash reserve ratio is likely to result in a rise in interest rates seems to be affirming the pessimistic attitude.

 

On employment:

The improved pace of hiring activity has resulted in a marked improvement in employment sentiment. The Employment Index is up 9.1% from 45.1 in December to 49.2 in January. The sentiment relates to observed and expected change in unemployment and continues to signal pessimism. The level of unemployment pessimism had improved last month. The sentiment in relation to ease of creating alternative means of employment appears to have flattened out in the last three months.

 

Luce views the increase in the Employment Index from last month as very dramatic. "There are three factors we look at. We ask people their perceptions of general unemployment in India, their own personal job security. We also asked them about their confidence in the ability to find another means of employment should they lose their job. In those first two variables, we saw the greatest increase and improved sentiment. So, people feel that unemployment in general in India has gotten better. They also feel much better about their own job security. We saw just a marginal improvement in people's feelings about their confidence in finding another job should they lose their job. Overall, this is definitely a bright spot in this monthly survey."

 

On consumer spending:

The Consumer Spending Confidence Index is up 2.4% from 51.9 in December to 53.2 in January. The improved sentiment relates to change in expenditure on basic necessities and discretionary expenditure. There were also improved results from FMCG companies, automotive and durable goods manufacturers. For observed and expected change in expenditure on basic necessities, the sentiment from Tier II and Tier III cities was higher compared to metros and Tier I cities.  There is also an increase seen in the purchase plans for two wheelers, and homes.

 

"When we look at consumer spending as an index sub-component, we look at spending both observed and expected in relation to basic necessities like food and medicine, and discretionary items like air-conditioners, televisions, two-wheelers, four-wheelers, and homes. Overall, this index is up by 2%. There are two sub-stories here. One is the story related to basic necessities. We asked people about their observed and expected levels of spending on necessities and saw the greatest increase in sentiment in Tier II and Tier III cities. The other sub-story on discretionary items among those two areas, where we see a significant reported increase in spending plans, are with two wheelers and homes. We saw an overall decline at the national level with planned spending on durables," she stated.

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