Consumer sentiments to sustain elevated levels

The 2022 festive season in India is over. Usually the festive season, which begins around Ganesh Chaturthi and ends with Diwali, is expected to give a fillip to consumer sentiments. In 2022, Diwali fell at the end of October and signalled the end of the season.

November offers no props to consumer sentiments. What happens to consumer sentiments once the festoonery is pulled down, the scintillating glitter fades away and the compelling offers are withdrawn? In particular, what happens to the consumer’s appetite to spend on consumer durables? Do these intentions collapse, step down or sustain themselves?

CMIE’s fast-frequency consumer sentiment indices and their constituents provide some insights. In the week ended November 6, the Index of Consumer Sentiments (ICS) grew by 2.2 per cent. This was the first week after the festive season ended. But, in the following week the ICS fell by 3.4 per cent. Therefore, by around mid-November, the ICS had shed 0.65 per cent from its level during the festive month of October. The ICS had risen cumulatively by 11.9 per cent during September-October. This was the impact of the festive season. A fortnight after the season, the index had shed a modest 0.65 per cent.

Sentiments have neither collapsed, nor have they stepped down after the festive season. They seem to have sustained the elevated levels they had achieved during the festive season. This is reassuring. Consumer sentiments have not yet recovered to their pre-pandemic levels. But they are climbing steadily.

Reading just two weeks’ data to draw inferences may be a bit risky. Keeping this caveat in mind we may also recognise the advantage of fast-frequency measures to understand changes in the behaviour of the consumer during a change in the external environment — in the present case the end of the festival season in India.

Over the last two weeks, consumers have understandably played down their enthusiasm to buy consumer durables a bit. In October 2022, 18.4 per cent of the households were more enthusiastic to buy consumer durables than they were a year ago. In the last week of the month — the week of Diwali — this ratio climbed up to 19.9 per cent. Then, after the festive season during the first week of November this proportion was down to 19.5 per cent and then to 18.4 per cent in the second week. Even at this level, it was at the same level as it was in the month of October.

In October 2022, 18.7 per cent of the households stated that their incomes were higher than they were a year ago. By the end of the month, this proportion had risen to 19.9 per cent. By mid-November, this climbed down a bit to 19.4 per cent. This is much better than the position in October.

While there is an improvement in optimism, there is also an increase in pessimism. The proportion of households who believe that it is not a better time to buy consumer durables has increased and those who believe that their incomes have declined has also increased. Note that about half the households believe in no change. Of the remaining, around 20 per cent are optimistic and 30 per cent are pessimistic. We are studying the change in these proportions. And, we find that compared to the situation in October 2022, both optimism and pessimism on incomes and spending on consumer durables have increased, but the increase in pessimism is higher. As a result, the Index of Current Economic Conditions (ICC) as of the week ended November 13, 2022, was 1.6 per cent lower than it was in October 2022.

While the ICC has dropped, the Index of Consumer Expectations (ICE) has remained unchanged. This is significant. Deterioration in current economic conditions can adversely impact the outlook of households. But, this did not happen in the weeks immediately after the festival season ended. It is also important to note that a greater proportion of households believe that the economic environment in India will change for the better over the next 12-month period.

Compared to October 2022, expectations of an improvement in the financial and business conditions over the next 12 months improved significantly during the first two weeks of November 2022. This expectation had improved substantially during September 2022. This improvement was sustained during October and now in November it has gained further momentum. Nearly 20 per cent of the households now believe that the financial and business conditions in India would improve over the next 12 months. In August, only 10 per cent believed thus. Nearly a quarter still believe that conditions would deteriorate. But, this proportion has been falling.

Results for expectations of household incomes over a 12-month period were volatile during the first fortnight of November. While the first week saw a big jump in the proportion of households expecting an improvement, the next week saw a bit of a rollback.

It is likely that the rate of increase in the ICS may slow down in November 2022. The index had grown by 7.1 per cent in September and 4.6 per cent in October. The growth rate may come down substantially. It may even stagnate to its October level. But the substantial gains made in September and October are unlikely to roll back just because the festive season has ended.