Retail sales stasis bodes ill for economy

File picture: Denis Farrell

File picture: Denis Farrell

Published Aug 14, 2014

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No growth in retail sales for June further confirmed scepticism about economic growth, which was expected to come in below 2 percent this year, economists agreed yesterday.

Measured in real terms, retail trade sales were unchanged between June last year and June this year, Statistics SA data showed yesterday.

This came as surprise after a 2.6 percent increase in May and against an consensus forecast of economists for a 2 percent rise. Annual growth was pressured mainly by weak sales in the household furniture and equipment category, which fell by 9.2 percent year on year.

This was followed by food, beverages and tobacco, which declined by 3.7 percent year on year, and textiles, clothing, footwear and leather, with a 1.5 percent decline.

Seasonally adjusted retail sales decreased by 0.1 percent in the second quarter compared with the previous quarter.

“This does not bode well for the second-quarter gross domestic product (GDP) outcome as the second quarter reading to date for industrial production, including mining, electricity and manufacturing production, also show a contraction. This implies that the risk of a recession in [the] first half remains prominent,” Investec chief economist Annabel Bishop said.

She said the first quarter saw the economy shrink by 0.6 percent, adding that there were concerns that it would contract again, “resulting in a recorded recession”, she said.

Investec believed that retail sales growth of around 2 percent year on year was still likely this year, as households saw a marked deterioration in financial health even before the 75 basis points rise in interest rates this year.

“Real disposable income growth has slowed markedly, household debt to disposable income was relatively high and consumer finance lending conditions have tightened.”

Bishop was of the view that strike action, with workers not receiving salaries for prolonged periods of time, had also negatively affected retail sales, “although the impact is likely to be less than deterioration in the financial health of the household balance sheet that was already under way before the strike began”.

The Nedbank economic unit believed that the outlook for consumer spending remained poor in the short term, as underlying economic conditions remain depressed.

It said despite the latest FNB/Bureau for Economic Research survey indicating that consumer confidence rebounded in the second quarter, this was unlikely to underpin a sustained increase in consumer spending.

“Household disposable income growth will be contained by high inflation, which is expected to remain elevated during the remainder of this year and into the first half of 2015 mostly due to the fragile rand,” the unit said.

Additionally, household debt levels remained high, while the availability of credit was tight. The high unemployment rate would probably also contain consumers’ ability and willingness to spend, particularly on non-essential goods.

Yesterday’s data on the consumer financial vulnerability index (CFVI) conducted by MBD/Bureau of Market Research showed consumers were financially exposed with the state of consumers’ cash flow registering a reading of 50.2 points in the second quarter. This figure remained unchanged from the first quarter.

According to the CFVI measurement scale, this implies that consumers perceived their financial situation to be mildly exposed, with the index bordering on a “very exposed” state, which is below 50 points.

“Should macroeconomic conditions not improve in the third quarter, consumers’ state of vulnerability might deteriorate further.”

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