Consumer behaviour a good indicator of economic health

 

By Boniface Ngahu

In Summary

• Our day-to-day behaviours as consumers or investors are good indicators of the direction of the economy.

Some weeks ago Market Talk used the divorce statistics from the Milimani Law Courts to conclude that the Kenyan economy is slowing down.

There were mixed reactions from readers, one of them being Baba Tunde who argued that divorce rates and male underwear sales trends are foreign indicators that do not apply to Kenya. He argued that people in Kenya do not divorce officially; they just abandon their families.

This forced me to go back to my numbers and plot the 15-year data on a graph. Surprisingly, the trend line for GDP growth mirrored the one for Milimani Law Courts divorce cases.

One interesting observation was that during and immediately after the post-election violence period, both the GDP growth rate and divorce cases dropped significantly.

One of my analysts who was helping to interpret the data argued that it is possible that during such times security becomes a major reason to avoid divorce, given that the majority of cases are initiated by women.

Also because tourists avoid insecure areas, their numbers can probably predict divorce rates.

We also referred to the 1999 census data that found more than 200,000 divorcees in Kenya. Thus even if divorce may not be a Kenyan thing, the number of those who have the audacity to go there can tell us an economic story.

We also noted some known cases of a divorced governor and a senator as evidence of devolution, and “Pesa Mashinani” impact on divorce.

On the increased sale of male underwear, mascara and red ties as an indicator of an improving economy, Tunde argued that imports from China make it difficult to apply this theory to Kenya. What he missed was that we use the trends as behaviour indicators and this has less to do with whether the items are cheap or expensive.

Tunde also noted the high rate of infidelity given that sex and mipango ya kando (cheating) are the hottest topics in FM stations. This may mean that even if the economy is slowing not every person is feeling the pinch; others are thriving.

Last week the Kenya National Bureau of Statistics (KNBS) released the economic figures for the second quarter of the year. The April to June economic growth was at 5.5 per cent, a decline compared to six per cent at a similar period last year. It is, however, an improvement to the 4.9 per cent registered in the first quarter.

It appears that the link between divorce cases and economic growth is real and shouldn’t be wished away.

There is evidence that we respond to economic realities by adjusting our lives accordingly.

Another indicator I have picked recently is the stock price of Caterpillar at the NYSE as an indicator of global infrastructure spending, with a higher price suggesting a healthy global spending. Currently it is below $70 compared to $100 last year.

This seems to apply to Kenya in that quarter two data shows construction grew at a lower rate of 9.9 per cent compared to 16.6 per cent growth last year

Our day-to-day behaviours as consumers or investors are good indicators of the direction of the economy. Watching these trends can give us a good idea of how the economy is performing even before official numbers are released.The writer is the marketing director of SBO Research