LINDSAY WILLIAMS: Every sector of the economy seems to be buoyant, from investment managers, right down to consumers. Another thing that grabs me - there are so many surveys coming out. We’ve got John Loos from ABSA on the line. What is the SA Household Sector Econotrend survey?

JOHN LOOS: Well, it wasn’t a survey as such - just an analysis put out on my part ... the broad outlook for the SA Household sector. We’ve had talks of possible house price bubbles, we’ve had talks of - I guess you could even say - possible consumer bubbles, and the Reserve Bank may be getting just a little bit jittery about the status of domestic demand - and I just thought I’d put out some analysis to suggest that yes, we have strong household growth in both income and demand, consumer demand, and housing demand during the first half of the year - but I would suggest that it’s going to start cooling off. The growth is going to start cooling off - and that we will be in for some sort of soft landing, and not some sort of crash, as some may fear.

LINDSAY WILLIAMS: I was going to say that. So it is a soft landing, it will be manageable - it’s not a bubble that’s going to burst? It'll just deflate, maybe slightly?

JOHN LOOS: That’s correct. What we’ve had since late 2002 - due to declining inflation, and ... wage increases which stayed high - was very strong household income, disposable growth, in real terms. Coupled to that, we had aggressive interest rate cuts last year - and that combined to make a recipe for very strong household demand... So we’ve had all sorts of figures coming out. The most recent the FNB BER consumer confidence survey - suggesting that it was really high in the second quarter, and I think that it’s just necessary to point out that this is not an upward spiral. It’s going to continue - until households are over-indebted, and just living totally beyond their means.

LINDSAY WILLIAMS: Are we learning? Are we actually saving? Is the South African household saving more now?

JOHN LOOS: Saving is bad. Very low, in net terms, once you subtract the consumption of fixed capital. But certainly the debt levels, debt-to-disposable-income ratio, has been reduced quite substantially (when compared with figures) prior to the interest rates shocker - I sometimes call it the Chris Stals effect - but I think that interest rate shock of 1998 really sobered households up - and from about a ratio of 61% you saw the percentage of debt-to-GDP coming down to around about 50% by late 2002. It’s risen a bit now - with the low interest rates - to 54%, but very much under control, still.

LINDSAY WILLIAMS: So what’s going to trigger the slowdown? Is it going to be an interest rate rise and everyone suddenly saying: ‘now wait a minute, my credit card is full. I can’t spend any more.’ Is there another catalyst that might slow us down?

JOHN LOOS: Well, I think that what one’s got to realize, is that a series of interest rate cuts - such as last year - is a much stronger stimulus to growth and demand, than is interest rates going sideways. And we believe that interest rates will either go sideways, or slightly up, but at least - until late next year - we won’t see any interest rate cuts. So the stimulus from those cuts last year will begin to wear off. Coupled to that, we expect real disposable growth to slow down because wage increases, by and large, we expect to be similar to last year’s levels, somewhere in the 8%s, and inflation - we believe - is on a rising trend. So, in real terms, that slows your disposable income growth, and those two factors - we believe - will contrive to slow down your growth in consumer demand, and also slow down your growth in house prices, which - we believe - has been happening on a month-on-month basis, since January, incidentally.

LINDSAY WILLIAMS: You think that the market is already cooling off?

JOHN LOOS: The housing market - if you look at the ABSA housing index ... the house price index, month on month, the growth rates have been slowing from a peak of - if one annualises it - just to make it comparable with these year-on-year figures ... 36,5% in January. It’s cooled of to 17,3%. Five successive months of declining growth. Not in price levels, just remember that, but in growth. We’ve suggested that will lead to a slow down in the year-on-year prices, so we believe that its already starting to cool off a bit.

LINDSAY WILLIAMS: Do you think that’s where a lot of the money has come to fuel this consumer boom that we keep on hearing about, the rise in the property market? Because it’s certainly not the stock market, at the moment anyway.

JOHN LOOS: I don’t think that’s made the wealth effects, from the housing market, a major driver. We don’t use a securitised type of market, like the US, where people - in large scale - go out and refinance at a lower rate, take the profits, pay off their bond and use the rest to consume. South African banks don’t generally work like that. Although securitsation is starting - and we haven’t had the ... extremely low interest rates that the US has had, either. No, I don’t think that the property boom that we are having here is having the huge wealth effects that it may have had in a place like the US.

LINDSAY WILLIAMS: What about in the population itself? Are there any particular parts of the population that are doing better, or spending more than others?

JOHN LOOS: Difficult to say, given the limited statistics that we have. But I would suggest that in terms of disposable income growth, the previously disadvantage groups are probably the highest. Especially the middle to upper-income sections of those groups. Probably the lower income groups are suffering (most), because the employment equity measures are really targeting the more qualified, and more skilled sections, of those population groups, while - because of the modernization of the economy - a lot of people from previously disadvantaged groups, who are unskilled, are suffering job losses. So I would suggest that it is the higher income brackets, and previously disadvantaged groups in those brackets, that really probably experienced the strongest household disposable income growth, and therefore probably the strongest growth in consumption.

LINDSAY WILLIAMS: I’ve asked this question a couple of times with previous commentators. Are you seeing evidence of an emerging black middle class?

JOHN LOOS: I think there is anecdotal evidence of it. Again statistics (are) very difficult to come by, but certainly - if one looks around - I work in a very big company which employs 30 000 people, and I think it is transforming at a fairly significant pace. So yes, one does see evidence of it. Probably not as rapidly enough as government would like, but there is a skill shortage in previously disadvantaged communities, but yes, you do see evidence of it.