Consumer confidence has recovered some lost ground, the First National Bank/Bureau for Economic Research consumer confidence index has found.

After plunging 28 index points in the first half of the year, it increased five index points to -1 in the third quarter of 2008, FNB said in releasing the figures on Tuesday.

"A reading of -1 indicates that consumers are neither optimistic nor pessimistic or that the optimists balance out the pessimists," it said.

FNB cautioned against getting "too excited" by the recovery.

At -1, consumer confidence was at its lowest level since the beginning of 2004, when -7 was registered in the first quarter.

"In my view, the (third quarter) rebound in the FNB/BER CCI does not signal the end of the slowdown in consumer spending," said FNB chief economist Cees Bruggemans.

Recovery an interim revival

"I interpret the recovery as an interim revival, a typical occurrence during the downturn phase of consumer confidence," he said.

Bruggemans said the prolonged high consumer confidence levels of 2005 to 2007, appeared to be something of the past, at least for the time being.

The third quarter rebound could be short-lived if it was a correction after the first half of the year overreaction and most likely did not usher in a return to the high levels of the past, he said.

However, the results indicated that the consumer should not yet be written off.

"At -1 consumer confidence is still relatively high despite the cumulative five percentage point interest rate increase since 2006, tightening credit standards, falling house prices, eroding real income (due to surging petrol and food prices) and increasing uncertainty about employment, South African politics and the international economy," said Bruggemans.

A level of -1 was close to the FNB/BER CCI's long-term average of +2, he said.

The CCI is based on the economy's expected performance, households' expected financial situation and the appropriateness of purchasing durable goods, such as furniture, appliances, electronic equipment, vehicles and jewellery.

Reversal in consumers' views

It found that the third quarter rise in confidence could be attributed to a reversal in consumers' views on the economy and their own finances.

However, they had further downgraded the present as an appropriate time to buy durable goods.

In all, 16 percent of consumers expected economic performance to improve in the next 12 months, and 13 percent expected an improvement in their household finances.

However, there was a nine percent increase, to 17 percent, in those rating the present as an inappropriate time to buy durable goods.

The confidence of high income consumers increased from -5 to +4 and that of low income consumers from -7 to -5.

"The fact that the (South African Reserve Bank) did not increase the interest rate in August and the petrol price is on its way down buoyed the confidence of the high income group," said Bruggemans.

In contrast, the financial situation of the low income group remained difficult.

High food prices impacted on finances

The high food price increases had a much bigger impact on their finances than on those of the high income group, and they had so far not benefited from the lower petrol price.

Both income groups faced higher debt service costs and access to new credit had become much tighter, if not impossible.

Bruggemans said consumer confidence would probably resume its downward trend should consumers' optimistic expectations about the economy and their own finances fail to materialise.

Such a development was most likely, given that the higher interest rate, tighter credit conditions, falling house prices and deteriorating international economy will dampen economic growth in South Africa with a lag in time.

Consumers would consequently face increased uncertainty about employment and lower real income growth during upcoming quarters, which would disappoint them and dent their confidence once more.