Consumer Outlook Pessimistic for Q3 2018

After eight quarters of positive consumer reading, the overall confidence index (CI) reverted to negative territory at -7.1% in the third quarter of the year from 3.8% for the second quarter. The negative index indicates that the pessimists outnumbered the optimists for 3Q 2018.

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 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 expenses and higher transportation expenses as reasons behind their gloomy prospects.

For the next quarter and the year ahead, consumers’ optimism turned less positive, as the CIs decline approximately by half from previous quarter’s survey at 3.8% from 8.7% and at 13% from 23.1%, respectively. Similar to the current quarter, respondents cited expectations of high prices of goods, low salary or income, and rise in expenditures as reasons for their less upbeat outlook for the near term and the year ahead.

Consumer Sentiment Declines Across the Three Indicators and Across Income Groups for the Current Quarter

Consumer outlook is measured across three component indicators, namely, the country’s economic condition, family financial situation, and family income. The quarter-on-quarter decline in confidence was observed across these three component indicators of consumer confidence. Notably, the CIs for the country’s economic condition and family financial situation reverted to negative territory for the current quarter while family income remained positive but lower from a quarter ago. For the next quarter, outlook on economic condition of the country was pessimistic, broadly steady and positive on family financial situation, and more optimistic on family income. For the next 12 months, consumer confidence on the three component indicators was less upbeat.

Consumer outlook across income groups weakened for the current quarter, next quarter and year ahead. For 3Q 2018, the outlook of the low- and middle-income groups was pessimistic given their expectations of higher household expenditures and no increase in income. Meanwhile, the high-income group was less buoyant as they anticipated peace and order problems and peso depreciation. For the next quarter, the sentiment of consumers turned negative for the low-income group, but became less positive for the middle- and high-income groups. For the year ahead, consumer outlook was less upbeat across all income groups.

Consumers’ Spending Outlook Rises for the Next Quarter

On the back of expected increase in prices, the spending outlook index of households on basic goods and services rose to 45.7% for 4Q 2018 from 36.3% in the prior survey report. This indicates that the number of respondents who expect to spend more on goods and services increased compared to those who said otherwise. Households expected an acceleration of expenditures across commodity groups particularly on fuel, transportation, water, electricity, and food, non-alcoholic and alcoholic beverages.

The outlook on buying conditions was less upbeat across all big-ticket items as the percentage of households that considered the current quarter as a favorable time to buy big-ticket items declined to 26.4% from 30.7% for 2Q 2018. Respondents cited prioritization on food and other basic needs, high prices, and low or insufficient income as reasons for their less favorable outlook on buying conditions. The percentage of those who intend to buy big-ticket items slightly dropped to 10.2% from 11% for 2Q 2018. However, buying intentions for the year ahead remained broadly steady as intentions to buy motor vehicles and real estate remained steady but weakened for consumer durables.

The Percentage of Households with Savings Decreases for 3Q 2018

For 3Q 2018, the percentage of households with savings declined to 32.5% from 37.4% in the previous quarter. According to respondents, they save money for the following reasons: (a) emergencies, (b) health and hospitalization, (c) education, (d) retirement, (e) purchase of real estate, and (f) business capital and investment. Among households with savings, 66.2% of respondents have bank deposit accounts for 2Q 2018 (up from 61% for 2Q 2018). Moreover, 46.5% kept their savings at home, while 32.7% put their money in cooperatives, paluwagan, other credit/loan associations, and as investment (e.g., insurance).

Meanwhile, the percentage of respondents who reported that they could set aside money for savings during the current quarter declined to 37.3% (from 43.3% for 2Q 2018).

Consumers Expect Inflation and Interest Rates to Increase and the Exchange Rate to Depreciate for the Year Ahead

The survey results showed that consumers anticipated inflation to increase, interest rates to go up and the peso to depreciate in the next 12 months. The number of respondents with views of higher inflation increased compared to that a quarter ago, reflecting stronger inflationary expectations over the next 12 months. Respondents expected the rate of increase in commodity prices to be above the government’s 2 to 4% inflation target range for 2018, at 5%, over the course of the next 12 months (higher than the anticipated 4.2% in the 2Q 2018 survey). Similarly, more respondents expected interest and unemployment rates to increase and the peso to depreciate against the US dollar over the next 12 months compared to a quarter ago.

OFW Households that Utilize their Remittances for Savings and Investment Decline for 3Q 2018

Of the 449 households included in the survey that received OFW remittances for 3Q 2018, 94.4% used the remittances that they received to purchase food and other household needs. The percentage of OFW households who allotted part of their remittances for medical expenses (47.4%), debt payments (24.6%), purchase of house (11.8%), and purchase of car/motor vehicle (9.4%) increased. Meanwhile, the percentage of OFW households who allocated part of their remittances for education (63%), savings (32.7%), purchase of appliances/consumer durables (19.2%), investment (4.2%), and other miscellaneous expenses (3.5%) declined.

Debt-to-Income Ratio of Surveyed Respondents Rises to 43.4%

Almost one-third (31.7%) of the respondents declared that he/she and/or his/her spouse have an outstanding loan at present. For the current quarter, debt-to-income ratio of surveyed respondents rose to 43.4%, higher than the previous quarter’s survey results of 27%.

About the survey

The Q3 2018 CES was conducted during the period 1 – 14 July 2018. The CES samples were drawn from the Philippine Statistics Authority (PSA) Master Sample List of Households, which is considered a representative sample of households nationwide. The CES sample households were generated using a stratified multi-stage probability sampling scheme. It has a sample size of 5,580 households, of which 2,764 (49.5%) were from NCR and 2,816 (50.5%) from AONCR.

Of the sample size, 5,408 households responded to the survey, equivalent to a response rate of 96.9% (from 96.8% in the last quarter’s survey). The respondents consist of 2,683 households in NCR (with 97.1% response rate) and 2,725 households in AONCR (with 96.8% response rate). The majority of the respondents were from the middle-income group (44.5%) and the low-income group (39.6%) while 15.9% were from the high-income group.