Consumer sentiment down as expectations falter

The index has been bobbing within a narrow range since May this year, almost unsure of itself

Consumer sentiment declined by nearly three per cent during the week ended June 25. Last week, the sentiment index had risen 5.7 per cent and before that it had fallen by a similar measure. The consumer sentiment index has been bobbing within a narrow range since May this year, almost unsure of itself. This is unlike big trends seen in the preceding four months.
 
The index rose for three consecutive months during October, November and December fuelled by a good kharif crop and great expectations from demonetisation. The cumulative rise was a massive 7.7 per cent, or a rate of 2.6 per cent per month. Then, the index fell for the following three consecutive months from January through March at the rate of 3 per cent per month.
 
Compared to these big trends, recent months have been docile. The index did spike in April because of the loan waiver announced in Uttar Pradesh. But, although many states have announced loan waivers following Uttar Pradesh, the index has weakened. It did not sustain its exuberance even till the end of April.
 
Something is amiss.
 
Consumers seem to be losing confidence that their future would be brighter than their current economic conditions. A greater expectation about the future has been a constant factor in Indian consumers. In the recent past we seem to have always believed that Acchhe Din Aane Wale Hain. But, this belief seems to be waning.
 
In the week ended June 25, the index of consumer expectations was 3.5 per cent lower than the index of current economic conditions. Since both indices have the same base period in September-December 2015, it is apparent that the expectations sentiments have worsened more than perceptions of current conditions.
 
During most of the past, expectations were higher than current conditions. But during the last two weeks the consumer sentiments index has remained below the current conditions index. While the Index of Consumer Expectations (ICE) was 3.5 per cent lower than the Index of Current Conditions (ICC) in the week of June 25, it was 2.2 per cent lower in the preceding week.
 
In four of the past eight weeks, the ICE has been lower than the ICC.
 
Besides, this current weakness of the ICE is across rural and urban regions.
 
Rural India is stressed as prices of agricultural commodities have been depressed in recent times. While several state governments have announced handsome loan waivers, prices of agricultural commodities have not improved. Since it is severely depressed prices that negated all the gains of a handsome kharif crop of 2016, farmers are reluctant to sow foodgrains enthusiastically during this kharif season.
 
Acreage was higher by 9.3 per cent by June 23, but the areas of stress are visible. Acreage under arhar is down by 70 per cent and moong is also down. Acreage under pulses is down by 33 per cent. The overall increase is largely because of sugarcane and cotton.
 
Cane acreage has improved in Maharashtra because of low base last year and because prices are good. Similarly, cotton sowing is up in response to good demand. Both, cane and cotton do not go through those dreaded cash-starved mandis that cannot pick-up the inflow from farms.
 
The monsoon was good during the first two weeks of the season but, the third week wasn't very good. The monsoon's onset into Kerala was well on time and its progress into the rest of the country has been slow. But, Kerala and Karnataka received less than satisfactory rains.
 
Understandably, given the loan waivers, farmers are happy about their current economic conditions, as their liabilities have been reduced. But, their outlook still does not look good.
 
In urban India, the labour participation has stopped falling. But, it has been so abysmally low at 40-41 per cent for such a long time, that it seems to have evolved into a severe sense of hopelessness in urban India. It is the summer months of April, May and June that witnesses a rush of new graduates into the labour force. During this time, we expect labour participation and unemployment to increase simultaneously.
 
But, we saw the LPR and the unemployment rate fall during April and May. The small variations of June are too insignificant to signal any change in reality.
 
The fall in the all-India Index of Consumer Expectations during the past two weeks seem to suggest that the Indian economy is unable to deliver and that expectations are belied.

Every Tuesday, Business Standard brings you CMIE’s Consumer Sentiments Index and Unemployment Rate, the only weekly estimates of such data. The sample size is bigger than that surveyed by the National Sample Survey Organisation. To read earlier reports on the weekly numbers, click on the dates:

November 21, November 28, December 4, December 11, December 18, December 25, January 1, January 8, January 15 , January 22, January 29, February 4 , February 12, February 19, February 27, March 5, March 13, March 19, March 26, April 02, April 10, April 17, April 23, May 1, May 8, May 15, May 21, May 28, June 4, June 11, June 18, 

Methodology

Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.

The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.

The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.

All estimations are made using Thomas Lumley's R package, survey. For full details on methodology, please visit CMIE India Unemployment data and CMIE India Consumer Sentiment.

The creation of these indices and their public dissemination is supported by BSE. University of Michigan is a partner in the creation of the consumer sentiment indices.