Total disposable income of households still rising

The Altron-FinTech Household Resilience Index (AFHRI) for the first quarter of 2023 has predictably taken a dip as a result of financial pressures faced by South African households, but the index also contains some exceptionally good news on the continued resilience of several key indicators.

The AFHRI is based on real values and comprises 20 different indicators, all of which are related to household sources of income or asset values. After an initial strong recovery from the effects of the Covid pandemic, which took the AFHRI to a record high (in the 4th quarter of 2020), the index remained quite stable until the 4th quarter of 2021, coinciding with the Reserve Bank’s decision to start raising interest rates.

In the 1st quarter of 2023, the AFHRI recorded a value of 108.1, compared to 110.7 in the 4th quarter of 2022 and 110 in the 1st quarter of 2022. With a base level of 100 for the inception period of the index (1st quarter of 2014), this means that the average household’s financial disposition has improved by 8.1% in real terms over a period of nine years. Although this is nothing to get excited about, the effects of the Covid pandemic, state capture and, more recently, higher inflation and interest rates have taken their toll on the country’s economic performance over this period.

One of the shining starts in the ensemble of 20 indicators comprising the AFHRI is the new all-time record for total household disposable income, which also serves as one explanation for South Africa’s ability to avert a recession in the first quarter of the year. This key economic indicator is on course to hit the R1.1 trillion quarterly level before the end of 2023.

Another significant positive trend captured by the AFHRI is employment. On average, the financial resilience of households would have declined by a much larger margin in the absence of a welcome further increase in employment in both the private and public sectors, which represented one of the brightest spots in the first quarter reading of the index. The upward trend in new job creation continued in the 1st quarter of 2023, with 258,000 new jobs having been created during the first three months of the year and almost 1.3 million since the 1st quarter of last year.

An interesting feature contained in the index is the fact that significant positive employment growth has not been matched by rising salaries. The average monthly remuneration in all sectors of the economy declined by 4.4% over the past year (from R16,192 in the 1st quarter of 2022 to R15,473 in the 1st quarter of this year). This declining trend bodes well for the quest to lower inflationary pressures, as labour remuneration represents the single most important cost item for most businesses and economic sectors.

Other noteworthy findings of the latest AFHRI are:

• Surrenders of long-term insurance policies declined significantly since the 4th quarter of 2022, but remains almost 10% higher compared to the 1st quarter of 2022

• During the 1st quarter of 2023, a sharp decline occurred in the value of long-term insurance claims paid, which could signal the intention of many savers to put their retirement plans on hold, until such time as economic conditions start improving

• Although credit impairments by banks have negatively influenced the AFHRI over all four of the periods under review, this effect has diminished substantially over the past year