Consumer Confidence Improves Appreciably in Q3 2010; Sentiment Remains Strong over the Next 12 Months - BSP

Consumer sentiment improves considerably for the quarter and the year ahead in anticipation of brighter economic prospects, the Bangko Sentral ng Pilipinas (BSP) said in a media release on September 16, 2010.

With continuing sound macroeconomic fundamentals and brighter economic prospects expected to bring about improved household finances, consumer sentiment improved markedly in Q3 2010. While still in the negative territory, the confidence index (CI) increased from -28.7 percent in Q2 2010 to -14.0 percent, the highest reading since the nationwide survey started in 2007. Expectations of good governance was another major reason cited by respondents for their favorable outlook.

For the next 3 months and the year ahead, consumers expected that favorable macroeconomic conditions would generate better employment and business opportunities, resulting in improved family finances and higher family income. The expectations of Filipino consumers followed the trends observed in neighboring countries such as India, Indonesia, Singapore, China and Vietnam, as economic activity is expected to strengthen as global economic recovery gains traction and as concerns over the sovereign debt crisis in some parts of Europe have dissipated.

Consumers expect stronger economic conditions, higher family income and better family finances

Consumer perception rose to their highest levels in Q3 2010 on the three dimensions of the country’s economic condition, family financial situation and family income. For the next quarter and the year ahead, the optimists outnumbered the pessimists in all three dimensions, with consumers being most upbeat on the country’s economic condition.

High-income group is the most optimistic

Consumer sentiment across all income groups climbed to their highest levels. The high-income group registered the strongest consumer confidence on their family financial situation and family income. The middle-income group is the most optimistic about the economic condition of the country. Meanwhile, the consumer confidence of the low-income group was the weakest among the three groups, even as a significant improvement in its outlook was observed across time.

Spending on basic goods and services is expected to decline in Q4 2010 due to low inflation

While consumers expected to spend more on basic goods and services in Q4 2010, the number of respondents that anticipated their expenditures to rise declined compared to the previous quarter’s survey results. This development could be driven by the respondents’ expectations of subdued inflation over the course of the next 12 months.

Buying conditions improve

Consistent with their improved overall outlook, the percentage of households that considered the current quarter as a favorable time to buy big-ticket items rose relative to a quarter ago. The buoyant outlook was most pronounced on buying conditions for real estate.

Buying intentions for the next 12 months continue to rise

The positive outlook of consumers regarding buying conditions spilled over to their buying intentions for the next 12 months. This is in line with consumers’ expectations that inflation will be contained at lower levels over the course of the next 12 months. The highest increase in buying intention was for housing, followed by consumer durables.

Selected Economic Indicators: Outlook for the next 12 months

Consumers have a more positive view on the general direction of selected economic indicators. The most optimistic view of consumers was on the employment outlook. The index on unemployment dropped to 7.9 percent from 52.4 percent in Q2 2010, indicating that more consumers (relative to the previous quarter) believed that the unemployment rate will decline considerably in the next 12 months. Similarly, driven by the prevailing favorable inflation environment, respondents expected inflation and interest rates to remain low in the next 12 months. Consumers likewise anticipated that the peso will continue to appreciate against the US dollar in the year ahead, in line with expectations of continued strong inflows of foreign exchange, particularly from overseas Filipinos’ remittances, business process outsourcing services receipts and merchandise export revenues.

Expenditures of Overseas Filipino Workers in Q3 2010

Most OFW households used remittances in Q3 2010 for food (96.0 percent of the households). Nearly three-fourths of the households surveyed (71.7 percent) used their remittances for education expenses, 61.6 percent for medical expenses and 50.3 percent for debt payments. The percentage of households that allotted a portion of their remittances to savings continued to increase to 43.0 percent (from a low of 7.2 percent in at the start of the nation-wide survey in Q1 2007).The percentage of OFW households that utilized remittances to purchase consumer durables and motor vehicles also went up. Similarly, those that apportioned part of their remittances for the amortization or full payment of houses purchased increased to 15.5 percent (from 11.9 percent and in the previous quarter). On the other hand, the percentage of OFW households that allocated portion of their remittances to investment remained steady at 7.0 percent in Q3 2010.

About the survey

The BSP started the Consumer Expectations Survey (CES) in the National Capital Region in Q3 2004. The coverage of the CES was expanded beginning Q1 2007 to encompass the whole country. The CES samples were drawn from the National Statistics Office’s (NSO) Master Sample List of Households, which is considered a representative sample of households nationwide. The said master sample was generated using a stratified multi-stage probability sampling scheme. For Q3 2010, the CES was conducted during the period 1-15 July 2010 with a total sample size of 5,774 households, of which 3,101 (53.7 percent) were from the NCR and 2,673 (46.3 percent) from the AONCR. The nationwide total survey response rate for Q3 2010 was 96.6 percent (from 96.0 percent in the last quarter’s survey).

The overall consumer confidence index is the average confidence index (CI) across 3 dimensions, namely, macroeconomic conditions - general economic condition of the country, family financial situation - status of family finances such as income, savings, outstanding debts, investments and assets; and family income - receipts from all sources received by all family members as participants in any economic activity or as recipients of transfers, pensions and grants.

The CI, which is computed for each of the 3 dimensions as well as for other indicators in the survey, is the percentage of respondents that answered in the affirmative less the percentage of respondents that answered negative for a given indicator. A positive CI indicates that respondents with favorable views outnumber those with unfavorable views, except for unemployment, change in prices and interest rate for borrowing money, where a positive CI indicates the opposite.