Pick-up in retail sales not the full picture

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BR Retail 467[1] Independent Newspapers Customers shop at Makro. The consumer spending outlook is still poor despite a surprising increase in retail sales. Photo: Cindy Waxa

The surprising 2.4 percent increase in retail sales in May, against much lower projections, did not indicate that consumers were out of their misery yet, on the contrary, the risk of a recession was still high, economists said yesterday.

Against a meek consensus of 0.8 percent growth from economists, retail sales growth at constant prices shot up to 2.4 percent in May from 1.8 percent in April, Statistics SA data showed yesterday.

However, economists were quick to note that the outlook for consumer spending remained poor. “Household finances are weak and consumer confidence is still fragile,” Nedbank economic unit said yesterday.

“Household income, which is already growing at a slower rate, is eroded further by rising inflation and strikes in some industries.”

Annabel Bishop, the chief economist at Investec, said on a quarterly basis retail sales continued to contract by 3.1 percent in May after a 2.3 percent decline in April as consumer demand deteriorated markedly in the second quarter. She said this did not bode well for the gross domestic product (GDP) outcome in the second quarter, as the first quarter saw retail sales rise by 2.2 percent.

The economy shrank a seasonally adjusted annualised 0.6 percent in the first quarter.

Bishop stressed that other economic indicators such as the second-quarter figures for industrial production, which includes mining, electricity and manufacturing production, showed a contraction on a quarterly basis in May.

“This implies that the risk of a recession in the first half of this year remains prominent.”

The 2.4 percent increase in May was mainly driven by a rise in sales in the general dealers category, which rose by 2.6 percent year on year, contributing 1 percentage point.

This was followed by the textile, clothing, footwear and leather retailers which increased by 3.9 percent, adding 0.9 percentage point.

However, sales in the household furniture and appliances and hardware, paint and glass declined on an annual basis, each taking 0.1 percentage points off the total figure.

On a seasonally adjusted basis, retail sales grew by 0.8 percent month on month.

Bishop said that Investec continued to expect retail sales growth of about 2 percent year on year for this year.

This was in line with the bank’s current GDP growth forecast for the year of 1.9 percent year on year.

“Households have seen a marked deterioration in financial health even before the 50 basis point rise in the repo rate in January, and real disposable income growth has slowed markedly, to 1.7 percent in the first quarter from 6.3 percent on a quarterly basis in 2011.”

In addition to this, household debt to disposable income was relatively high, and lending conditions had tightened.

According to National Credit Regulator data, consumers’ impairments showed a sharp drop from 48.1 percent to 44.2 percent on the effects of the credit amnesty. “However, this does not imply consumers are better able to handle higher interest rates, but rather that many old records were removed from the system where payments were not being serviced,” Bishop said.

Growth in private sector credit extended to the household sector has declined to 4.3 percent year on year from 10 percent in 2012.

Nedbank’s economic unit said the Reserve Bank faced a dilemma of striking a balance between weak growth and rising inflation. It anticipated that the likelihood of an early rate hike was not possible, however further rand weakness and rising inflation could force some tightening later in the year. Bishop agreed, saying that she expected only one more rate hike this year, of 25 basis points in November.


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