Not a happy festival season

The cumulative fall in the index over five weeks is a substantial 7.7 per cent

Household consumer sentiment continues to fall. The week ended September 3 was a fifth consecutive week of fall in the CMIE-BSE-UMich Index of Consumer Sentiment. Following the persistent fall, the index was also at its lowest when compared to its level in any of the preceding 25 weeks.

The index fell by 2.5 per cent during the week ended September 3. While this is a sharp fall, it is not an exceptionally unusual drop. Weekly changes in the index of consumer sentiments do wobble quite a bit. While the average weekly change in the index is 0.06 per cent, the median change is -0.35 per cent. And, half the variations are between -1.9 per cent and +2.4 per cent. A 2.45 per cent fall is at the bottom quintile of the distribution. This is bad but, there is a 20 per cent chance that it could be worse.

What makes this fall worse is that it comes after four weeks of continuous fall. The cumulative fall in the index over these five weeks is a substantial 7.7 per cent. And, this fall precedes the beginning of the festival season in India.

The week ended September 3 was in the cusp of several festivals. While Maharashtra was celebrating Ganesh Chathurthi throughout the week, Kerala was celebrating Onam that was due on Monday. And Eid-al-Adah (Bakri Eid) fell on Saturday of the week.

Poor household consumer sentiments around these times does not bode very well for the economy. We have just seen that the first quarter saw a sharp fall in growth. Low growth and low employment are probably helping keep consumer sentiments muted.

Consumer sentiments are much worse in urban areas than in rural areas.

The urban index of consumer sentiments (base:100 in September-December 2015) during the week ended September 3 was at 89. This is lowest level since the launch of the index in January 2016. The index fell by 3.6 per cent during the week. Such a fall is exceptionally high. It is worse than the bottom tenth percentile value of week-over-week change in the index.

It is disconcerting that Ganesh Chathurthi celebrations in Maharashtra, Onam in Kerala and Eid across the country did not help improve the falling sentiments. In fact, urban sentiments fell unusually sharply during the week of festivals.

Unemployment has risen in urban India. During the week ended September 3, the unemployment rate rose to 4.9 per cent. Urban unemployment has been high at around nearly five per cent in recent weeks. However, while unemployment has risen, the labour participation rate has not shown any corresponding increase. While the labour participation rate did increase briefly during August, it quickly fell back and continues to remain well below 41 per cent. However, the unemployment rate has risen from less than 4 per cent to now nearly 5 per cent.

Lack of jobs is likely to be the single largest source of poor consumer sentiments in urban India.

It is also likely (although we have not measured it directly) that RBI's disclosure that demonetisation did not yield any significant destruction of ill-gotten wealth could have disappointed household across rural and urban regions. Remember, the bold decision to demonetise was hugely popular initially. The CMIE-BSE-UMich index of consumer sentiments had reflected this popularity in November and December. Obviously, this popularity was based on the expectation that black money would be destroyed. Now, with RBI's disclosures those hopes have been belied and this could have adversely impacted consumer sentiments.

While farm loan waivers have helped farmers repair their balance sheets, rains this year have not been very encouraging. The temporal and spatial distribution has been too volatile. While some regions are deficient on rains, other regions are ravaged by floods. This could have added to the woes of rural households.

At the end of three months of monsoon, precipitation was 3.4 per cent below the long period average. Kharif sowing was 0.6 per cent lower than it was in previous year. More importantly, the overall sowing is skewed by very high growth in acreage of cotton and sugarcane while sowing of foodgrain and oilseeds has fallen.

Expectations on the near future (about a year) are not very encouraging.

While the overall index of consumer sentiments declined by 7.7 per cent in the past five weeks, the index of consumer expectations declined by 8.2 per cent. This sharper fall in consumer expectations is a common theme in urban and rural areas.

This coming festive season is therefore, unlikely to see any pick-up in demand from rural or urban households.

 

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, June 25, July 2, July 10, July 16, July 23, July 30, August 7, August 14, August 21, August 27

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.