Angelo Taningco
Economist, Treasury Group

Consumer confidence for the current quarter, i.e., Q2 2017, soared to its highest level with its index rising to 13.1% from its previous quarter reading of 8.7%, according to the Bangko Sentral ng Pilipinas (BSP) latest Consumer Expectations Survey (CES) released on 9 June. We think this improvement in consumer sentiment will likely boost household spending for the second quarter, with its growth to be potentially stronger compared to the first quarter. Meanwhile, consumer outlook is mixed as confidence is down for the next quarter but upbeat in the next twelve months: this is evident in the consumers’ confidence index (CI) for the next quarter falling to 13.6% from the previous quarter’s survey result of 16.5% while the CI for the next twelve months climbing to 34.3% from 31.7% (Figure 1).

Figure 1: Consumer Confidence Indices
Q1 2007 – Q2 2017
(percent)

 
Consumer sentiment for Q2 2017 improved from Q1 2017 in both the National Capital Region and Areas Outside the NCR and across income groups as consumers are more upbeat in relation to the current quarter’s overall economic conditions and to their families’ present income and financial situation. In particular, consumers have attributed their greater optimism for the current quarter to higher family income, availability of jobs, better peace and order situation, and effective government policies. Meanwhile, the survey respondents’ lower (better) optimism for the next quarter (next twelve months) is based on their less (more) positive outlook on economic conditions and their families’ income and financial situation.

Spending of consumers is positively related to their confidence level. Related literature has provided empirical evidence depicting consumer confidence indices having predictive power on consumer spending. Our regression model that specifies the CI for the current quarter as the independent variable and the year-on-year (yoy) growth of real household consumption final expenditures (HCFE) as the dependent variable and using Philippine data spanning the Q1 2007 – Q1 2017 period confirms a highly statistically significant and positive relationship between the two indicators of consumer behavior (Figure 2). This validates our view of a potentially stronger household spending growth for Q2 2017 vis-à-vis Q1 2017 given the higher confidence level of consumers for the current quarter. Since household spending accounts for the bulk of economic size, with HCFE comprising about three-fourths of nominal gross domestic product (GDP), a more buoyant growth in household spending amid relatively high consumer confidence could also translate to more robust GDP growth this quarter.

Figure 2: Consumer Confidence & Household Spending Growth

 
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