Last week, the Bangko Sentral ng Pilipinas released its 3Q consumer expectations survey which was mostly morose (CES): [bold mine]
After eight quarters of positive consumer reading, the overall confidence index (CI)2 reverted to negative territory at -7.1 percent from 3.8 percent for Q2 2018. The negative index indicates that the pessimists outnumbered the optimists for Q3 2018. According to respondents, their negative outlook for Q3 2018 was mainly brought about by their expectations of: (a) an increase in commodity prices, (b) low salary/income, (c) higher household expenses, (d) high unemployment rate, and (e) no increase in income. Respondents also noted concerns on higher educational expenses3 and higher transportation expenses4 as reasons behind their gloomy prospects.
The sentiment of consumers in the Philippines for Q3 2018 mirrored the weakened confidence of consumers in Australia, Indonesia, Japan, South Korea, Switzerland, Taiwan, and United Kingdom but was in contrast to the more favorable views of those in Thailand and the United States, as well as the steady outlook in Euro Area and France.5
Interesting to note that b, c, d, and e have contradicted most of the government’s data. Also, external forces have had little to do with domestic factors affecting consumer perception
Figure 1
It is likewise interesting to note that the BSP’s CES (next quarter and next 12 months) appears to have coincided with the PSA’s real per capita household consumption data. (see figure 1) Both peaked in 2Q 2016.
Since this pinnacle, both the per capita data and all three CES surveys went into a decline. Though the contours may not be similar, the general trend has been down.
Figure 2
The following real-world events demonstrate the relevance of BSP CES survey and per capita consumption:
-Payroll or salary loans climaxed in 2016 and have since turned lower. Payroll/Salary loans contracted in July (uppermost window figure 2)
-Auto sales growth likewise culminated in 2Q 2016 have declined since. The downtrend had been magnified by TRAIN 1.0’s excise tax. Auto sales trend has reinforced the BSP’s CES survey. (middle window figure 2)
-Aggregate retail sales of major retailers, namely Puregold, Robinsons Retail, SSI Group, Metro Retail, and Philippine Seven have also likely hit a turning point in 2016. However, income tax cuts from TRAIN 1.0 have boosted the top line of these firms in the 1H. (lowest pane figure 3)
Retail sales, in general, haven’t validated the BSP’s CES in the 1H of 2018.
However, in the 2Q the sales boost from TRAIN 1.0 on 24/7s appears to have been negated partly by the elevated CPI, as well as, the sharp downturn in payroll loans. Sales for this sector may turn significantly lower in the 3Q.
Figure 3
Now of course, if the BSP’s CES will have any relevance to the real world, the trade industry which has expanded massively, financed by the debt, will be faced with substantially weakening consumers. (figure 3)
Even the high-end group has supported consumption with an increasing use of leverage (See figure 3 and FSR explanation below). The high-end group comprised 39.4% of household loans in 2015
Guess what will be the result?
Side notes: The household share of the GDP has been trending down while trade as a share of the GDP has risen.
Trade credit growth has recently exploded signifying massive investments while consumer credit growth continues to head south.
Aside from consumer loans, the 2014 BSP Consumer Finance Survey (CFS) indicates that less than 14 percent of the households were borrowing from banks to finance the purchase of a residential real estate, motor vehicle or household appliance (p.22)
(FSR Figure 3.6)
More affluent households, on the other hand, had higher exposures to more expensive long-term debt, such as real estate and vehicle loans. These loans make them more vulnerable to movements in interest and FX rates, and are thus, subject to higher repayment, refinancing and repricing risks.
A decomposition of debt data among income quintiles showed that more affluent households (i.e., fifth quintile) had higher debt participation and, as anticipated, higher average debt compared to their counterparts (Figure E). Said biased access poses a measurement challenge in capturing total household debt since the underrepresentation of wealthy households in the FIES sampling design results in underestimation of household expenditures and debt. ( p.23)
Post Script:
Figure 4
How relevant has been financial health with populist politics? Though per capita GDP and consumption has dropped since 2016, this hasn’t affected the voting public’s perception of the leadership.
The President remained very popular, well, that’s until the 1H of 2018. So there is an invisible threshold point of pain. That is if the surveys are believable.
No wonder the President will address the public tomorrow.
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