Christmas spending

It’s the season traditionally associated with consumer spending. In fact, companies look forward to this season for their annual sales spike. From clothes to electronic gadgets to cars, many Filipino consumers are spending on material things as if money will be out of fashion come January.

The reason is obvious. Employees receive their mandatory 13th-month pay and Christmas bonus starting November, and those working overseas increase the amount of money they send home in December for the customary Yuletide treat (a new pair of shoes, the latest smartphones and laptops, or new appliances for the house).

Filipinos are famous as much for their love of shopping as their optimism. For the past several years, Filipino consumers have been among the most optimistic in the world. According to the latest quarterly Survey of Consumer Confidence and Spending conducted by the New-York-based global information and measurement company Nielsen, the Philippines was third globally in the level of consumer confidence in the third quarter of 2015. In the second quarter, Filipinos were the most confident in Southeast Asia and the second most optimistic in the world. The Nielsen consumer confidence index measured perceptions on local job prospects, personal finance and immediate spending plans among 30,000 respondents with Internet access in 60 countries.

Locally, a survey by the Bangko Sentral ng Pilipinas from Oct. 1 to Nov. 16 showed that Filipino consumers were upbeat in the fourth quarter of 2015. Their overall confidence index was the highest since the third quarter of 2013. Their favorable outlook in the fourth quarter was due to expectations of more jobs and more family members finding work, the additional income with the release of the Christmas bonus and 13th-month pay, stable prices of basic goods, and improved business activity leading to higher household income. The survey also showed that consumer confidence in the country’s economic condition improved, while the outlook on the family’s financial situation and income remained generally steady.

The Bangko Sentral survey provided some insights on the sources of optimism for Filipino consumers. The respondents specifically cited, among others, the steady flow of overseas Filipinos’ remittances especially during the holiday season and election-related spending in the run-up to the 2016 national elections (although the official campaign period is months away). Their more upbeat outlook was further driven by the favorable economic conditions in the country, particularly the muted inflation, low interest rates and a stable peso.

Those were the expectations during the survey conducted before December. But the reality has been quite off the mark. Three items—the peso-dollar exchange rate, interest rates and inflation—particularly stand out. The local currency weakened to P47.29 to a dollar this week from P44.70 at the start of the year. Interest rates, on the other hand, are forecast to rise as a result of the recent decision of the US Federal Reserve Board to jack up rates for the first time in a decade. (Local interest rates must be competitive with those of other countries to avoid the outflow of capital, which naturally seeks the highest return possible anywhere in the world.) US interest rates are forecast to rise further in 2016 as the economic recovery in the world’s biggest economy firms up. Meanwhile, inflation unexpectedly rose to 1.1 percent last November from 0.4 percent in the previous month. Exceeding market expectations, it was the highest since June and was mainly due to a faster increase in the prices of food, nonalcoholic beverages and transportation.

What had been tempering a further drop in the value of the peso against the dollar and a sharper increase in inflation is the depressed price of crude oil due to a glut in global supply. But economists have forecast higher inflation next year due to other factors, such as the dry spell brought by El Niño.

Given that outlook for 2016, consumers will be better off holding on to their extra cash; they shouldn’t spend it on the latest gadgets or clothes that they don’t really need, although this warning may be too late for some. As the oft-repeated but seldom-heeded financial advice goes, it is best to save for a rainy day, for that unexpected time when the money might be needed. Better yet, make such savings grow by investing in stocks and government securities, or even starting a micro enterprise.