The Bureau of Economic Research’s (BER) quarterly Retail Trade Survey showed retailer confidence improved to 32% in the third quarter, up from 20% in the second three months of this year.
“While confidence remains below the long-term average, the index recovered most of the losses experienced in the second quarter,” the BER said.
The second quarter’s low confidence reading was likely affected by inflation that had not yet returned to within the SARB’s target band and cumulative repo rate hikes of 50bps over the same period.
“Expectations of severe load shedding during winter would also have impacted confidence. Although load shedding remains a harsh reality, inflation has moved to within the target band so far in quarter three,” the BER said yesterday.
The SA Reserve Bank also did not hike the interest rate policy rate at its July meeting for the first time since November 2021.
These factors likely contributed to the improvement in retail confidence.
There was a divergence in how different categories were trending. Sectors sensitive to the interest rate showed signs of strain.
The BER’s Retail Trade Survey suggested that dealers of new vehicles and retailers selling durable goods saw lower volumes.
In contrast, non-durable goods retailers were more optimistic about sales volumes in the third quarter than in quarter two.
“Tapering food price inflation is likely helping the sector: although it remains high - with a print of 10% in July - the monthly rate of change has come down substantially, and survey respondents seem increasingly confident the increase in retail inflation will continue to taper,” the BER said.
Semi-durable goods sales continued a growth trend that had emerged since the lifting of lockdown restrictions.
Explanations for this included a recovery in employment – 412 000 jobs were created in the first half of 2023, which would have bolstered clothing and footwear growth in particular.
In addition, clothing and footwear inflation was only 3% in the second quarter, below the CPI inflation rate.
The BER said there might be further improvement in retail sales in coming quarters if headline CPI continued to move towards the SA Reserve Bank’s target range, and the Bank maintained its pause in repo rate hikes.
Demand for apparel associated with the 2023 Rugby World Cup this quarter might likely also boost sales among sportswear retailers.
“We may see further improvement in retail sales during the coming quarters if headline CPI continues to move towards the middle of the SARB’s target range and the central bank maintains its pause in rate hikes. However, as long as load-shedding persists, it will continue to dampen consumer spending in the sector,” the BER said.
Data from Statistics SA last week showed retail trade sales decreased by 2.2% in the three months ended July 2023, compared to the same period in 2022.
The largest negative contributors to the decline were general dealers (-4.7%) and retailers in hardware, paint and glass (-7.2%). The only positive contributor in the data was retailers in textiles, clothing, footwear and leather goods (6.8%).
Retail sales in July continued to decline, falling by 1.8% year-on-year, with the biggest negative contributors to the decrease general dealers (-4.1%) and retailers in hardware, paint and glass (-6.8%).