Consumer Confidence Improves for Q1 2016 Amid More Jobs and Stable Prices

Manila—(PHStocks)—Bangko Sentral ng Pilipinas (BSP)—Consumers’ outlook continued to improve for Q1 2016, with the overall confidence index (CI) rising to -5.7 percent from -8.1 percent for Q4 2015.  The current quarter CI matched the all-time high recorded for Q2 2013 since the nationwide survey started in Q1 2007. The higher (but still negative) CI for Q1 2016 means that the number of households with optimistic views increased but continued to be less than those who think otherwise. The CI is computed as the percentage of households that answered in the affirmative less the percentage of households that answered in the negative with respect to their views on a given indicator. A positive CI indicates a favorable view, except for the inflation rate, the peso-borrowing rate, unemployment and change in prices, where a positive CI indicates the opposite. The overall consumer CI measures the average direction of change in three indicators – overall condition of the economy, household finances, and household income.

According to respondents, their higher optimism during the current quarter was due to the following reasons: (a) availability of more jobs; (b) stable prices of commodities; and (c) more investors in the country. The other factors cited by respondents that helped boost their confidence for the current quarter were oil price rollback, assistance from government such as the Pantawid Pamilyang Pilipino Program (4Ps), less corruption and anticipated election of new government officials.

For the next quarter (Q2 2016), consumer sentiment continued to be more favorable as the next quarter CI increased and remained in the positive territory at 9.1 percent (from 5.7 percent in the previous quarter’s survey), while the year ahead CI rose to 25.4 percent (from 18 percent for Q4 2015). This indicates that the number of consumers with favorable views increased and exceeded those with unfavorable views. Consumers were of the view that good governance and improvements in infrastructure and peace and order would continue over the next 12 months.  They also anticipated lesser household expenses as well as an increase in household income and savings which could translate to growth in real income and higher purchasing power of the household.

Consumer confidence is measured across three component indicators, namely, the country’s economic condition, family financial situation and family income. For Q1 2016, consumer confidence on the country’s economic condition and family financial situation improved while outlook on family income was steady. Notably, consumer perception on family financial situation registered the highest CI at -6.3 percent since Q1 2007. For the next quarter (Q2 2016) and the year ahead, consumers’ views on all three indicators turned more sanguine as consumers expected continuing improvements in the country’s economic condition due partly to the coming change in administration and better financial conditions.

By income group, the low-income group consistently reported improvements in consumer confidence across the three component indicators for the current and next quarters as well as for the year ahead. Interestingly, the current quarter outlook of the low-income group reached an all-time high CI at -15.3 percent since Q1 2007.  The outlook of the middle-income group on the country’s economic condition and family financial situation improved for the current and next quarters as well as for the year ahead but that on family income was less buoyant for the current quarter. Meanwhile, the sentiment of the high-income group generally weakened for the current and next quarters but turned more upbeat for the year ahead.  These show that the improvement in consumer outlook was driven primarily by the increase in confidence of the low-income group even as the high-income group remained to be the most optimistic.

Spending Outlook

The spending outlook index of households on basic goods and services remained positive but declined to a record low of 30 percent for Q2 2016 (from 34.2 percent in the previous quarter). Although more respondents continued to expect higher spending on basic goods and services, the number that said so declined compared to a quarter ago, indicating that growth in consumer spending could slow down in the near term. The spending outlook index declined across commodity groups, except for water and electricity. The biggest decreases were observed for transportation, fuel, personal care and effects, and clothing and footwear.

The percentage of respondents that considered the current quarter as a favorable time to buy big-ticket items was broadly steady at 29.6 percent.  The outlook on buying conditions improved for real estate, but weakened for consumer durables and motor vehicles.  Respondents cited lack of parking space, high registration fees and maintenance costs, and traffic as reasons for their less sanguine outlook on buying conditions for motor vehicles. The positive consumer sentiment extended to purchases of big-ticket items as buying intentions for the year ahead increased compared to the previous quarter’s survey results.

Saving Behavior

For Q1 2016, the percentage of households with savings increased to 32.7 percent from 30.2 percent a quarter ago. Households with savings increased across all income groups, with the high-income group posting the highest increment quarter-on-quarter, followed by the middle-income group. According to respondents, they save money for the following reasons: (a) emergencies, (b) retirement, (c) health and hospitalization, and (d) education. More than two-thirds (68.1 percent) of household savers had bank deposit accounts while 43 percent kept their savings at home and 26.1 percent put their money in cooperatives, paluwagan, other credit/loan associations.

Although the percentage of savers increased, the percentage of respondents who reported that they could set aside money for savings during the current quarter decreased to 38.9 percent (from 41.5 percent for Q4 2015). Meanwhile, the proportion of those that could set aside 10 percent or more of their monthly gross family income was higher at 38.9 percent (from 35.6 percent for Q4 2015).

Expectations on Selected Economic Indicators

Respondents anticipated inflation to decline to 3.3 percent from 4.2 percent for Q4 2015, reflecting their lower inflation outlook over the next 12 months. This indicates that inflationary expectations are likely to remain well-anchored over the next 12 months as the number of respondents with views of higher inflation declined compared to a quarter ago. Meanwhile, fewer respondents expected interest rates to increase as the CI edged lower for this quarter’s survey. Respondents are of the view that the peso would continue to depreciate against the US dollar over the next 12 months. Meanwhile, fewer respondents expected unemployment to rise for the year ahead as the CI declined to 31.1 percent from 36.9 percent in the last quarter’s survey.

Expenditures of Overseas Filipino Workers (OFWs)

Of the 553 households included in the survey that received OFW remittances for Q1 2016, 97.3 percent used the remittances that they received to purchase food and other household needs. The proportion of OFW households that said so as well as those that allotted part of their remittances for debt payments (46.5 percent), savings (43.4 percent), and for purchase of motor vehicles (8.7 percent) increased. Meanwhile, the percentage of OFW households that allocated part of their remittances for education (70 percent), purchase of consumer durables (21.9 percent), purchase of house (11 percent), investment (6.5 percent), and other miscellaneous expenses (4.5 percent) remained steady. Fewer OFW households, however, utilized their remittances for medical expenses at 56.1 percent (from 59.7 percent last quarter).