consumer spending – the _

[2764] Will there be a spending spree before the GST?

I think the general consensus is that there will be a spending spree before the GST, which will be implemented on April 1. The idea is that a lot of consumers would expect price hikes of various degrees on or after April Fools’ Day. So, people would rush on to capitalize on current cheaper prices. This is much like how each time the government slashed petrol subsidies and hiked petrol prices previously, private vehicles would line up at the gas stations as consumers try to save the tiniest bits that they could.

I used to agree with that idea despite holding that the effects of GST would not be the same across all goods. A hike sounds likely for new homes but for some others, it does sound like a price reduction. In fact, I am unsure about a lot of stuff.

But in the end, it is expectations that affect current behavior and not actual future prices. The expectations might be wrong, but it will be wrong on the day consumers see the actual price, not before. So until then, expectations would still drive the spending spree. But of course, I am forming an expectation about people’s expectations, which can be problematic.

I am unsure about that spending spree now because I saw a piece of data from a survey at my workplace. I cannot reveal it because it is proprietary data. I would probably get into trouble for this (haha) but the result is quite different from my earlier expectation. I think all I can say is that more respondents expected to spend less instead of more before the GST!

The implications can be big. If you believe the consensus story, growth would be relatively strong in the first quarter and weak for the rest of the year. They spend first and spend less later.

Now, the survey result sounds like a straight up Ricardian equivalence, or at least close to it where consumers save to fund their near future spending (Ricardian is actually more than this but the saving story is similar). So, if the survey is right, there will be no spike in spending this quarter. Maybe even a slump.

[2287] Of a not so surprising consumer spending trend

There is an article in the New Straits Times about consumer spending in Malaysia. It reports that spending of the so-called affluent individuals was not affected by the recession in 2009. The managing director of Synovate, the firm responsible for the survey, was surprised.^[1] Is the trend a surprise?

It would be a surprise if the affluent workers were affected by the recession but I do not think they were, or at least were not badly affected.

The recession that hit Malaysia in 2009 came through the trade channel and in the trade channel, the manufacturing industry dominated it. A majority that worked in industry are blue-collar workers, who did not earn high salary. The high-salary individuals were likely those with college degree and they were up in the chain of command or in the service industry. At the height of the recession, news of blue-collar workers suffering retrenchment were aplenty; Freescale, Western Digital, Seagate, etc. The same was not true for the white-collar workers; we did not hear too much of CIMB, Citibank, Ernst & Young, (or, McKinsey and gang. If any, they probably increased their intake given the kind of dealings they have with the bloated Malaysian government! Okay, okay. Unfair jibe), etc, in the news in the same context as the blue-collar workers.

So, are you surprised that those with salary of over RM5,000 per month did not cut their spending in 2009?

I do not understand why anybody should be surprised in hindsight. In fact, if a person believes in Friedman’s permanent income hypothesis, there is no room for surprise.

Mohd Hafiz Noor Shams. Some rights reserved

^[1] — Affluent Malaysians show no sign of cutting purchases in good times and bad.

MALAYSIANS are big spenders, splurging on high-end technology items like flat
screen, plasma or LCD televisions, and smartphones, last year, ”defying expectations”, a survey has revealed.

Nearly half of consumers who earn more than RM5,000 a month own a flat screen,
plasma or LCD television, and over the last year, smartphone ownership among them rose by about a third.

A recent Synovate survey, comprising 1,708 respondents in Kuala Lumpur, revealed that “affluent” residents — those who earn more than RM5,000 a month or have a combined household income of more than RM6,500 — are splurging on these gadgets and gizmos, and the trend is set to continue.

The survey was also conducted in 10 other countries, including Hong Kong, Singapore, South Korea, Taiwan, Thailand, India, Indonesia, the Philippines, Japan and Australia.

Synovate Malaysia managing director Ben Llewellyn believes that this defied expectations given the fact that the greater Malaysian economy was impacted by the global financial crisis during the period surveyed. [Our elite flaunt success with big spending. Audrey Vijaindren. New Straits Times. December 12 2010]

Mohd Hafiz Noor Shams. Some rights reserved

p/s – hat-tip to @ctchoo, who is also the owner of de minimis. I first spotted the New Straits Times report at his/her Twitter account. Yes, I spend an insanely large amount of time on Twitter.