The "Globes"-PwC Israel Consumer Confidence Index fell by 1.2 points in November, to 79.5 points (1996 = 100 points), after rising 5.3 points in October and 2.3 points in September. This brings to an end a three-month steady rise, totaling 10.4 points, although the November decline is fairly small. The index is based on a monthly survey of a representative sample of the population carried out by the Smith Institute.
Despite the decline, the trend figure, based on a three-month moving average, rose by 2.1 points in November, to 78.5 points, following rises of 3.4 points in October and 1.4 points in September. The trend figure has been rising consistently since August, and is back to the level it was at at the beginning of the year.
Still, there has been no change to an optimistic tack; the index has risen only moderately, and there has been no breakthrough of the level at the start of the year.
The monthly survey consists of three questions: What in your opinion is the state of the economy; What will be its state six months from now; What will your economic position be six months from now? For each question, we take the proportion of optimists and subtract the proportion of pessimists, to give the net balance. If, for example, 40% of respondents say that their position will be better in six months time, and 50% say that it will be worse, the net balance is minus ten percentage points.
The state of the economy
The survey on which the index is based was carried out at the same time as the Ministry of Finance made its announcement that the planned rise in income tax rates, which was meant to come into force in January 2014, would not take place, so that the effect of the announcement, if any, will only register in the index coming months.
The current figure for the net balance of responses to the first question (the present state of the economy) shows a fall of 3.9 percentage points in November to minus 35.5 percentage points, after rises of 2.3 points in October and 0.8 points in September. The fall in the net balance follows four months in which it rose by a cumulative 9.2 points.
The trend figure for this component, based, as mentioned, on a three-month moving average of the current monthly figures, fell by 0.8 percentage points in November, after rising 1.7 points in both October and September. The trend figure at the end of November was minus 33.7 points, 6.1 points below the level at the end of April 2013.
The decline in the trend figure, though small, is significant, because it means that, for the time being, the public sees no reason to revise more strongly its estimate of the state of the economy. In other words, even if there was no room for the notable pessimism registered over the summer months, there is no movement to the opposite, optimistic extreme.
The future of the economy
The component that measures the public's expectations of the state of the economy six months ahead posted a further improvement in November, this time a significant one. The net balance the proportion of optimistic responses minus the proportion of pessimistic ones rose by 3.2 percentage points to minus 18.2, after rises of 6.7 points in October and 1.5 points in September.
The trend figure for this item rose by 3.8 percentage points in November, after rising 4.4 points in October and falling 0.1 points in September. At the end of last month, the trend figure was 22.6 points, the lowest since June 2013. Here too there has been a return to the levels seen at the beginning of the summer.
This month too, it is hard to identify any single factor that would explain the improvement that has taken place since the end of the summer, and, as mentioned, the effect of the cancellation of the expected income tax hike will be seen only in the coming months.
It could be, however, that the news that preceded the Ministry of Finance's announcement, indicating an improvement in the fiscal situation, did have an effect, and led to more positive estimates of the economy's future performance. It should not be forgotten though that this item tends to be highly volatile, so that there could be a reverse movement next month.
Personal future
The net balance of consumers' expectations about their personal economic position in six months' time posted a fall in November after two months of rises. This component of the index fell 3 percentage points last month, after rises of 6.8 points in October and 6 points in September. As a result, this component stood at plus 6.5 points at the end of last month.
Despite the fall in the current figure, the trend figure rose 3.4 points in November to plus 6.2 points, after rising by 4.2 points in October and 2.3 points in September. Over the past four months there has been a cumulative rise of 13.1 points, indicating recovery in the public's expectations after the low values recorded in the summer. Again, for the time being this only represents a return to the level at the start of 2013, and nothing beyond that.
Although personal expectations show a positive trend, it should be pointed out that the proportion of respondents considering buying consumer durables fell to 25.6% of all respondents in November, compared with 28% in October and 29.8% in September.
For several months, this figure has been below 30%, and in November a low was recoded not seen since the summer of 2011. This indicates very slow expansion of this area of consumption, despite the improvement in the trend figures for personal economic expectations.
In sum, the index means that consumption will not rise substantially in the first half of 2014, among other things because the rate of intentions to buy consumer durables has been below the critical 30% of respondents level since March. If the improvement in the index that we have seen over recent months continues, particularly in people's expectations about their personal economic situations, then there may be a change after the first quarter of 2014.
Published by Globes [online], Israel business news - www.globes-online.com - on December 19, 2013
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