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Consumer Sentiment Weakens in Q4 2013

12.13.2013

Consumer Outlook 

Consumer outlook weakened in Q4 2013 based on the Consumer Expectations Survey that was conducted by the Bangko Sentral ng Pilipinas during the period 1-12 October 2013.  The overall confidence index (CI) fell to -21.3 percent from -7.9 percent in Q3 2013. Respondent households cited the following reasons for their bearish outlook in the current quarter: (a) higher prices of commodities (e.g., rice and fish) as adverse weather conditions resulted in poor harvests of palay, tuba, copra, coconut, fish and other sea products, (b) weak public governance particularly issues relating to the Philippine Development Assistance Fund (PDAF), and (c) concerns over the peace and order situation in Mindanao.  For the next quarter and the year ahead, consumer sentiment remained favorable as the CI stayed in the positive territory although lower compared to the readings of the previous quarter. Consumers attributed their less optimistic outlook to expectations of lower income due to poor harvests and damages to crops and irrigation systems caused by poor weather conditions in October 2013 as well as to higher household spending during the holiday season and graduation events in the quarter ahead.

The overall consumer confidence is measured using three indicators–economic conditions of the country, family financial situation and family income.   For the current quarter, respondents’ outlook on the country’s economic condition declined to a 10-quarter low on concerns over the PDAF issue while the outlook on family finances and income weakened moderately.  For the next quarter, the positive perception on family finances and income held steady while the outlook on the country’s economic condition turned from positive to negative compared to the previous quarter’s survey results. For the year ahead, consumers remained optimistic based on the three measures of confidence even as their views on the country’s economy and their family finances turned less favorable.  Consumers were most bullish on their family income.

By income group, consumer sentiment was mixed in Q4 2013. The outlook on family finances and income declined among the middle- and low-income groups in contrast to the more optimistic outlook of the high-income group.  With regard to their views on the economic condition of the country, confidence declined across income groups.  For the near term and the year ahead, the low-income group was more optimistic on family income but more pessimistic on family finances. The middle-income group had higher optimism regarding their financial conditions while the high-income group continued to have a favorable outlook on both their family finances and income. The decline in confidence on the economic condition of the country across income groups was carried to the next quarter and the year ahead.

The percentage of respondents that considered the current quarter as a favorable time to buy big-ticket items was broadly steady.  The outlook on buying conditions was most upbeat for real estate, followed by consumer durables while a decline for motor vehicles was observed. Respondents considered real property to be a good investment.  They also considered stepping up their purchases of consumer durables, particularly for entertainment and convenience. Meanwhile, buying intentions for the year ahead turned upbeat for all big-ticket items, consistent with the expected improvement in family income across income groups for the year ahead.

Saving Behavior

Survey results showed that the number of households with savings continued to increase in Q4 2013. The increase in the percentage of surveyed households with savings was observed among the middle- and low-income groups.   The reasons for savings that were cited by the respondents were the following:  (a) emergency fund, (b) health and hospitalization, (c)  retirement, (d) business capital and investment (e.g., real estate), and (e) education. Among respondents with savings, majority have bank deposit accounts.

The percentage of respondents that expected to save money in Q4 2013 edged higher to 34.6 percent from 32.4 percent in Q3 2013. Four in ten (40.4 percent) expected to save at least 10 percent of their income.

Expectations on Selected Economic Indicators

Consumers anticipated lower inflation in the year ahead, and they expected the rate to settle at 7 percent compared to 7.9 percent in Q3 2013.  This is consistent with inflation expectations based on forecast surveys of the BSP and by Consensus Economics, indicating that inflation expectations continued to remain well anchored.  Consumers’ lower inflation expectations underpins the BSP’s outlook of a manageable inflation environment in the year ahead. Interest rates were expected to edge higher while unemployment is also expected to rise in the next 12 months. Respondents are also of the view that the peso would continue to appreciate against the US dollar in line with expectations of continued foreign investment inflows and sustained overseas Filipino (OF) remittances.

Expenditures of Overseas Filipino Workers (OFWs)

OFW households that were included in the survey indicated that they used the remittances they received to purchase food, for education, medical payments and debt payments. The percentage of OFW households that utilized their remittances for savings rose to 41.6 percent (from 34.3 percent in Q3 2013) while those that allocated their remittances for investment increased to 11.2 percent from 4.8 percent in Q3 2013, recording the highest percentage since Q1 2007. Those that apportioned part of their remittances for the purchase of consumer durables, property and motor vehicles likewise went up compared to the previous quarter’s results.

About the survey

The Consumer Expectations Survey (CES) started in Q3 2004 covering NCR only. Beginning Q1 2007, the BSP expanded the survey’s scope to cover the whole country.  The Q4 2013 CES was conducted during the period 1-12 October 2013. 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 CES sample households were generated using a stratified multi-stage probability sampling scheme. It has a total sample size of 5,512 households, of which 2,747 (49.8 percent) were from the NCR and 2,765 (50.2 percent) from the AONCR. The nationwide survey response rate for Q4 2013 was 97.6 percent (from 98.1 percent in the last quarter’s survey). By area, the response rate was 99.1 percent (from 99.3 percent) in NCR and 96.2 percent (from 97.1 percent) in AONCR.

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