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Consumer Expectations Positive for the Next Twelve Months

10.01.2004

Improving consumer outlook: twelve months hence
(3rdQ 2004 - 3rdQ 2005) 

Results of the first Consumer Expectations Survey conducted by the BSP on 2425 households in Metro Manila last 1-7 July 2004 (Third Quarter 2004) showed consumer expectations for the next twelve months to be more optimistic than the current quarter (third quarter). This was captured by a positive diffusion index[1] of 7.6 percent. All the three components of consumer expectations namely, family financial situation,[2] level of family income and economic condition of the country registered positive diffusion indices

Within the next 12 months, under the new administration, respondents expected greater stability in prices, power cost, household income, jobs and investments.  Crime rate is expected to decline. 

For the fourth quarter of 2004, consumer expectations showed an improvement at –8.1 percent diffusion index from –40.5 percent in the third quarter.  One component of the index, the level of family income, became positive during the quarter, compared to the third quarter when all the three index components registered negative indices. 

Positive family income and expenditures outlook: next quarter
(4thQ 2004) and one year ahead (3rdQ 2005) 

For the fourth quarter of 2004, family income was estimated to increase by an average of 0.8 percent, increasing further to an average of 3.9 percent one year ahead.  This was in contrast to the third quarter when respondents estimated their family income to decrease given a weak consumer outlook. 

 With the expected increase in family income and the increase in prices of goods and services in the fourth quarter, respondents estimated that family expenditures for basic commodities could rise by an average of 4.5 percent during the period. Respondents expected food and electric bills to dominate their household expenditures.  

Based on these expectations, it is likely that the growth rate in personal consumption expenditures would increase modestly starting in the fourth quarter and will continue for the next 12 months. 

Negative expectation: present quarter (3rdQ 2004) 

Meanwhile, despite improving expectations for the fourth quarter and the next twelve months, consumers’ expectations in the third quarter of 2004 were weak. Half of the sample households rated their economic situation as worse, 40.5 percent stable, and 9.5 percent better now compared to a year ago. Respondents expected their family income  to decline by an average of 4.3 percent in the third quarter compared to a year ago. 

The major concerns of respondents with negative expectations were: no work or no permanent work, decrease in income, low salary, high cost of living, their own indebtedness and graft and corruption in the government. On the other hand, those with positive expectations during the quarter anticipated increases in domestic and overseas income, wages, employment and savings.

Cautious consumer spending 

With the expected decline in income in the third quarter of 2004, respondents were cautious in purchasing assets during the said period. Based on the buying conditions index, about three for every ten sample households thought that it was a good time to purchase assets like house and/or lot, consumer durables and motor vehicles.  

Anticipating a moderate increase in income in the next 12 months, respondents would remain prudent in their decision to purchase assets during the period. About two for every ten households either intended or were undecided whether   to buy a house and/or lot, consumer durable or motor vehicle in the next 12 months. More respondents intended to buy consumer durables than house and/or lot or motor vehicle. 

Those who thought favorably about buying conditions and intentions regarded prices of consumer durables, house and/or lot and motor vehicles as reasonable with good installment terms.  In addition, 67 percent of   those who planned to buy motor vehicles intended to use them for business, while 33 percent would use them as service vehicles for the convenience of their families. 

On the other hand, respondents who considered it a bad time to buy any of these assets, articulated that they had “no money, no savings, assets have high prices and basic needs like food and education are their priorities”.

Expectations on selected economic indicators

Respondents expected unemployment and interest rates to increase as well as the peso to weaken in the next 12 months. Prices of basic commodities were also expected to increase although still at single-digit rate, during the same period. Based on the survey results, the highest price increases could come from electric bills, fish and other seafood, as well as education and meat.

BSP completes coverage of business and household expectations 

With the initial launch of the CES to complement the Business Expectations Survey, the BSP has achieved a complete coverage of expectations of both business and households. 

The CES is being conducted by the BSP in collaboration with the National Statistics Office (NSO). The NSO collects the data on consumer expectations from half of the sample households of the Labor Force Survey (LFS) in the National Capital Region. The BSP Department of Economic Research (DER) prepares the analysis and report on the survey results.

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[1] Diffusion index (DI) - computed as the percentage share of households that answered in the affirmative less percentage share of households that answered in the negative in a given indicator; a positive DI indicates a favorable view except for unemployment, interest rate for borrowing money and inflation rate where a positive DI indicates the opposite.

[2] Family financial situation - refers to the over-all financial position of the household in terms of resources in cash and in kind, savings, outstanding debt, investment and assets; family income -  includes receipts in cash and kind received by all members of the family in a given calendar year; economic condition of the country - refers to overall economic situation of the country  in terms of key indicators such as level of production, prices, interest rates, employment and business opportunities.

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