Consumer sentiments depressed in December

Labour markets and consumer sentiments seem to be subdued in December 2022. While there are six more days to go before the month ends and we get a clearer picture of the contours of the stress, trends in the weekly and the daily 30-day moving average estimations from CMIE’s Consumer Pyramids Household Survey indicate struggles in the labour markets and reservations about the current economic conditions among households.

Last week we had reported a rising trend in the unemployment rate in December. The increase began in October 2022 and continued into December. November 2022 had ended with a high unemployment rate of 8 per cent. This is seen rising further in December. Till the third week, December’s higher unemployment rate was accompanied by a sharp increase in the labour participation rate and more importantly, a healthy increase in the employment rate. The first three weeks that ended in December averaged an unemployment rate of 8.9 per cent. Now, in the fourth week that ended on December 25, the unemployment rate measured 8.4 per cent. This was again higher than the November rate. What is new and somewhat disturbing is not just the continued elevated unemployment rate, but also an accompanying fall in the labour participation rate and the employment rate. It is likely that the high unemployment rate of recent weeks has discouraged some potential workers to quit the labour markets at least temporarily.

The average unemployment rate during the four weeks that ended in December 2022 works out to 8.8 per cent compared to 8 per cent in November. The unemployment stress continues to be urban-centric. The urban unemployment rate in the week ended December 25 was 9.6 per cent while the rural unemployment rate was 7.8 per cent.

Consumer sentiments show a trend that is quite similar to the one seen in the labour markets. Sentiments have sobered in November and December 2022. As of December 25, 2022, the Index of Consumer Sentiments (ICS) was exactly where it was in October 2022. It fell 0.2 per cent in November and recovered 0.2 per cent in the 30 days ended December 25. These are small changes that, statistically, may not be significant. The ICS has, therefore, effectively stagnated after the festival season that ended in October.

The Index of Current Economic Conditions (ICC), which comprises household views on current incomes and their propensity to spend on non-durables, had declined by 1.6 per cent in November. As of December 25, the index lost a further 0.6 per cent compared to the depleted November level.

The fall in the ICC reflects an increase in the net per cent of households who stated that their incomes were lower than a year ago; and it also reflects an increase in the net per cent of households who believed that this wasn’t a better time to buy consumer durables than in the year-ago period. This deterioration was seen in November 2022 and also in the weeks of December 2022.

This deterioration in perceptions regarding household income and propensity to spend on durables is only partly offset by the Index of Consumer Expectations (ICE), which comprises futuristic indicators. The ICE rose by 0.7 per cent in November and another 0.7 per cent by December 25.

The ICE comprises three indicators. Of these, two reflect household perceptions regarding the financial and economic environment over the next one year and five years. Perceptions regarding these two have been improving. The third indicator is about households’ views regarding their own incomes over the next one year. On this count, the story is not very encouraging. The net per cent of households who believed that their incomes would decline over the next one year increased from 7.5 per cent in October to 8.6 per cent in November to 8.9 per cent by December 25. Pessimism on the economic environment is reducing but pessimism on households’ own income prospects over the next one year is increasing.

Like the labour market stress is concentrated in urban India, consumer sentiments have also soured essentially in urban India. The urban ICS fell 1.5 per cent in November. As of December 25, its 30-day moving average was 1.1 per cent lower than the November level. The urban ICS as of December 25 was lower than its level in October. A part of the gains made in the ICS during the 2022 festival season seems to have rolled back.

The biggest source of the souring of consumer sentiments in December is the pessimism of urban households regarding their current economic conditions. The ICC for urban India as of December 25 was 2.1 per cent lower than its level in November. An increasing proportion of urban households believe that their current incomes are worse than their incomes a year ago.

The rural ICS as of December 25 was 0.9 per cent higher than its level in November 2022. The rural ICS had also grown by 0.5 per cent in November.

While the unemployment rate has risen in December, the employment rate has also increased. This implies that employment has increased during December. But, it is the inadequacy of this increase and a possible fall in household incomes in spite of the rise in employment that is causing stress.