Over To The Rain Gods To Lift Consumer Mood

The 6.7% growth in Index of Consumer Sentiments in July 2022 is the highest since September 2021, explains Mahesh Vyas.

Consumer sentiments improved dramatically in July 2022.

Fast frequency indicator -- the 30-day moving average -- had indicated acceleration in the Index of Consumer Sentiments (ICS) by mid-July.

Gains made during the second and third weeks of July were largely sustained through the end of the month although there was some weakening of sentiments in the last week.

Consumer sentiments were weak in the first week of August, too. Nevertheless, the overall performance in July was remarkable.

July 2022 saw a turnaround in consumer sentiments after four months of substantial weakening of the pace of its growth. The ICS grew by 6.7 per cent in July 2022.

The significance of this recovery can be seen when it is compared with growth rates in the preceding five months. These were 5 per cent in February followed by 3.7 per cent, 3 per cent, 0.8 per cent and then 1 per cent in June.

The 6.7 per cent growth in July 2022 is the highest since September 2021.

The July recovery was led by rural India where the ICS grew by a handsome 7.3 per cent. These hinterlands have not seen such growth in the ICS for a long time.

The growth in ICS in urban India was relatively modest but still a respectable 4.8 per cent.

The Reserve Bank of India's consumer confidence index and CMIE's consumer sentiments index show similar trends. Both comprise a current conditions index and a future expectations index.

The RBI's Current Situation Index had risen by 1.8 per cent in July 2022 and the Future Expectations Index was higher by 0.3 per cent compared to their respective levels in May.

RBI's consumer confidence index is based on responses from a sample of about 6,000 respondents from 19 urban centres.

Compared to a year ago, RBI's Current Situation Index was up by 56.2 per cent, which is comparable to the 54.6 per cent y-o-y growth in CMIE's Index of Current Economic Conditions for urban India.

The difference in the two indices is in expectations of the future.

The RBI's Future Expectations Index in July 2022 was 8.1 per cent higher than it was in July 2021. CMIE's Index of Consumer Expectations for urban India was up by 29.2 per cent y-o-y in July 2022. CMIE's monthly urban sample is of the order of 28,500 households from about 100 towns.

Rural India's consumer sentiments bounced back smartly in July. Its growth had been systematically lower than in urban regions for four consecutive months, from March through June 2022. The order flipped in July. A recovery of monsoon is likely to have helped.

The recovery of consumer sentiments in rural India in July is likely largely a reflection of the improved economic prospects of the agricultural sector.

The southwest monsoon's progress during June was patchy. But there was substantial improvement during July. This has helped improve sentiments among farmers and daily wage labourers. The latter include agricultural labourers.

The ICS for farmers jumped by 8.5 per cent after having shrunk by 3.1 per cent in June. The ICS for small traders and daily wage labourers grew by 7.2 per cent in July after a relatively tepid growth of 1.8 per cent in June.

However, farmers like other respondents continue to remain somewhat reticent about the future.

The Index of Current Economic Conditions (ICC) for farmers rose by 9 per cent in July. In contrast, the Index of Consumer Expectations (ICE) for farmers rose by a smaller 8.1 per cent.

The contrast is much greater in the case of small traders and daily wage labourers. Their ICC grew by a handsome 10.7 per cent but the ICE grew by a far more modest 5 per cent.

Compared to the robust increase in consumer sentiments among farmers and daily wage labourers, the improvement in sentiments among business persons and salaried employees was modest.

While the ICS for farmers and daily wage labourers grew by 7-8 per cent in July, business persons and salaried employees saw a growth of 4-4.5 per cent.

Households populated largely by the retired and aged have a small representation in the overall sample. It is interesting to note their sentiments rise as well. The ICS for this group grew by 7.5 per cent. This group is particularly hopeful of a better future.

While their ICC grew by 6 per cent, their ICE grew by a much better 8.5 per cent. Rising interest rates work in their favour and offset at least some of the pain of rising inflation.

While the smart improvement in consumer sentiments in July is encouraging, the fall in the index in recent weeks is somewhat disconcerting. This is because the fall in the last two weeks -- one that ended on July 31 and another ended on August 7 -- were steep.

The ICS fell by 6.7 per cent in the last week of July and then by another 5 per cent in the first week of August.

All components of consumer sentiments in rural and urban India declined sharply during these two weeks. The decline was more pronounced in rural India than in urban regions and the ICC suffered more than the ICE.

Rains, for now, seem to hold the key to sustaining the improvement in consumer sentiments that was seen in July.

Mahesh Vyas is MD & CEO, CMIE P Ltd, and you can read his earlier columns here.