South African consumers have continued pausing buying furniture and appliances due to the weak state of household finances on the back of subdued economic growth, but purchases for clothes seems to be on the rise.
Data from Statistics South Africa (StatsSA) yesterday showed that retail trade fell by 0.5% from a year earlier in August, following a downwardly revised 1% decline in July and compared with market forecasts of a 1% fall.
This was the ninth consecutive month of decreases in retail activity, though the slowest in the sequence that began in December 2022.
StatsSA said lower sales were recorded for hardware, paint and glass; general dealers; household furniture, appliances and equipment; and pharmaceuticals and medical goods, cosmetics and toiletries.
The largest declines were recorded among general dealers at 3.8% year-on-year, and hardware material at 5.0% decline while household furniture and pharmaceutical retailers fell by 1.6% and 1.2% respectively,
However, sales rose faster for textiles, clothing, footwear and leather goods, while rebounding for food, beverages and tobacco and all other retailers.
Investec economist Lara Hodes said the semi-durables retail category which includes clothing and footwear appeared to be continuing the growth trend that had emerged since the lifting of lockdown restrictions.
Hodes said that despite a deceleration in consumer inflation from levels recorded earlier in the year, which has offered some reprieve, consumers remain financially constrained.
“Interest rates which are likely to remain at elevated rates for longer continue to weigh on the indebted, with many consumers relying on credit to fund the high cost of living, while the expanded unemployment rate is above 42.0%, demonstrating the extent of South Africa’s unemployment predicament,” Hodes said.
“While sentiment did pick up amongst retailers in the third quarter, it remains below the long-term average. Indeed, retailers continue to face a number of operational challenges, notably load shedding.”
On a monthly basis, retail sales increased by 0.2% in August, after an upwardly revised 0.4% rise in July.
At this stage, these outcomes suggest that the retail industry will contribute positively to the quarterly gross domestic product (GDP) growth in the third quarter.
Nevertheless, the year-to-date volumes are still 1.8% lower, compared to the same period last year, underscoring the challenging consumer backdrop.
FNB senior economist Siphamandla Mkhwanazi said credit data suggested that demand and supply for consumption credit, especially credit cards, remained strong, both in the bank and non-bank sectors.
In addition, Mkhwanazi said anecdotal evidence suggested that real wage growth might be turning marginally positive, for the first time since the second half of 2021, largely due to slower inflation.
“If sustained, these could provide marginal support to shopping activity in the near term,” Mkhwanazi said.
“However, these are counteracted by our expectation of a further tightening in lending standards, as the cumulative impact of past interest rate decisions filters through, as well as depressed consumer sentiment. As such, we maintain our view of subdued growth in household consumption expenditure for the remainder of the year.”