UPDATE 2: Q3 Consumer confidence drops to -26%

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Q4 outlook dims; turns positive for 2015

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(Updates with more details from the Consumer Expectations Survey)

Consumer sentiment weakened in the third quarter as families expressed concerns about food and basic commodity prices, political controversies, higher household expenses, and uncertainty about employment and income prospects, results of the central bank’s latest Consumer Expectations Survey (CES) showed on Friday.

In a press briefing on Friday, the Bangko Sentral ng Pilipinas (BSP) announced that the overall confidence index (CI) in the third quarter of 2014 dropped to -26.3 percent from -17.3 percent in the second quarter of 2014.

The CI is computed as a percentage of households that answered in the affirmative minus the percentage of those that answered in the negative with respect to their views on a given indicator. A negative percentage indicates pessimists outnumber optimists.

Q4 outlook dims; brighter next year
The CES indicated consumer sentiment was more pessimistic for Q4 compared with the outlook expressed when the survey was conducted in the second quarter, slipping from a neutral 0 percent to -1 percent.

The BSP reported, however, that despite declining consumer sentiment for this quarter and next, consumer expectations for the next 12 months remained broadly favorable, though diminishing slightly because of a negative outlook toward the country’s economy among lower-income households.

Expectations for more jobs, improvement in the peace and order situation, and more investors in the country otherwise kept consumer sentiment for the year ahead in positive territory.

The overall consumer confidence is measured using three indicators: Economic conditions of the country, family financial situation and family income. For the current quarter and the year ahead, consumer outlook on the economic condition of the country registered the biggest decline across income groups as respondents’ sentiments were affected by higher commodity prices and political controversies such as the issues involving the Priority Development Assistance Fund (PDAF) and Disbursement Acceleration Program (DAP).

With regard to family finances and income, consumer outlook improved for the fourth quarter across income groups in anticipation of good harvests, business upturns and additional benefits during the Christmas season, such as holiday bonuses and 13th month pay.

For the year ahead, consumer outlook on all three indicators continued to be positive across income groups, except for the outlook on the country’s economy by the lower income group, which reverted to negative territory after posting positive CIs for the past eight quarters. The favorable outlook was driven by households’ expectations of more job opportunities, improvements in the peace and order situation, and more investors in the country.

Buying sentiment steady at 42.2%
On buying sentiment, respondents’ spending outlook on basic goods and services held broadly steady at 42.2 percent for the fourth quarter of 2014 from 41.6 percent for the current quarter.

The sustained spending outlook could be due to respondents’ more upbeat sentiment on family finances and income in the next quarter, the BSP said.

Across commodity groups, more respondents expected an increase in expenditures on food, fuel, communication, restaurants and cafes, and personal care and effects while fewer respondents anticipated an increase in expenditures on clothing and footwear as well as on education. Meanwhile, the spending outlook was steady for house rent, water, electricity, medical care, and transportation.

The BSP also reported that survey respondents considered the current quarter as a favorable time to buy big-ticket items. The percentage of respondents that said so was recorded at an all-time high level at 24.9 percent, the central bank statement added.

Property buyers most optimistic
The outlook on buying conditions for real estate was the most optimistic at 32.6 percent, the highest level since the first quarter of 2007. Meanwhile, a stable outlook was observed for buying conditions for consumer durables and motor vehicles. Similarly, buying intentions of respondents for all big-ticket items for the year ahead remained broadly unchanged at 9.3 percent.

Saving behavior
Consistent with the less favorable outlook in the third quarter, the number of households with outstanding savings fell to 26.9 percent from 30.3 percent in the previous quarter. Households with outstanding savings declined among the middle-income group, remained steady for the low-income group, and increased for the high-income group.

According to respondents, they save money for the following reasons: (a) for emergencies, (b) retirement, (c) health and hospitalization, (d) education, and (e) business capital and investment. Two-thirds (66.7 percent) of household savers have bank deposit accounts while 23.3 percent kept their savings at home and 10 percent put their money in cooperatives and other credit/loan associations.

Although the number of households with outstanding savings dropped, the percentage of respondents who reported that they could set aside money for savings during the current quarter was broadly stable at 34.9 percent (from 35.7 percent in Q2 2014). Moreover, the proportion of those that could save 10 percent or more of their monthly gross family income was almost unchanged at 35.6 percent (from 36.3 percent in Q2 2014).

Expenditures of overseas Filipino workers (OFWs)
Of the 592 households included in the survey that received OFW remittances in Q3 2014, 95.9 percent used the remittances that they received to purchase food. More than two-thirds (67.1 percent) of the OFW households allocated part of their remittances for education, 56.3 percent for medical expenses and 42.7 percent for debt payments. The percentage of OFW households that utilized their remittances for savings remained strong at 39.7 percent, albeit lower than the 46.6 percent recorded in Q2 2014. Similarly, those that allocated their remittances for investment and for the purchase of consumer durables and house declined.

Meanwhile, those that apportioned part of their remittances to purchase cars/motor vehicles remained steady.

Expectations on economic indicators
Respondents anticipated inflation to remain steady at 6.1 percent, reflecting their outlook of stable inflation for the year ahead. This indicates that inflationary expectations are likely to remain well-anchored in the next 12 months as the number of respondents with views of higher inflation was almost unchanged compared with a quarter ago.

Meanwhile, more respondents expected interest rates to increase as the CI edged higher for this quarter’s survey. Respondents are of the view that the peso would continue to depreciate against the US dollar in the next 12 months, although fewer respondents have indicated so compared with the previous quarter survey.

More respondents expected unemployment to rise over the next 12 months as the CI increased to 59 percent from 54.5 percent in the last quarter’s survey.

The survey was conducted from July 1 to July 12, and collected responses from 5,948 households nationwide.

The CES is conducted quarterly by the BSP using a sample of households drawn from the Philippine Statistics Authority-National Statistics Office (PSA-NSO) Master List of Households, and is divided approximately equally between households inside and outside the National Capital Region. The survey asks households about their expectations about economic indicators for the current and future quarters, as well as questions about spending habits, planned expenditures, and savings.

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