Economy grows but households’ sentiment hit in November; consumers face a double whammy

The double whammy of fall in employment and household incomes have together hit the consumer sentiments in the month of November 2020. While employment fell by 0.9 per cent or 35 lakh during the month, only 4.3 per cent of the households reported an increase in their nominal incomes compared to a year ago, according to the Centre for Monitoring Indian Economy (CMIE). Higher inflation is believed to be one of the major reasons behind the shrinking household income. Lesser income has restricted households from buying consumer durables. The fall in income has also hit another nail in the household conditions while there was a resurgence of coronavirus infections in the month. 

About 30 per cent of the households, before the lockdown, had expressed confidence that their incomes would improve in a year. However, during the lockdown, this optimism nosedived. While it saw an uptick in August, it dropped back to nearly pre-August levels again in November. An increase in perceptions of a deterioration of household incomes is accompanied by an increase in a lack of confidence in the future too. The proportion of households that believed that their incomes would be better a year later fell from 6.6 per cent in October to 5.2 per cent in November 2020.

One of the major parameters of asses consumers’ buying behavior is to gauge the sales trend of automobiles. All major producers of two-wheelers saw a fall in sales in November 2020,  compared to that in October. The sales of the top six producers in the month were lower than in September and October.

Meanwhile, the household perceptions about their incomes and future prospects indicate a very different picture compared to that of a perception of a V-shaped recovery in the economy. CMIE underlined that the high-frequency economic indicators that are improving, belong to the supply side, however, there is a disconnect from the demand side from households.