Johannesburg - Retail sales were still under extreme pressure in November 2008, recording a fall of 4% in real terms from 2007 and providing further evidence that high interest rates have done their job in curbing consumer demand.
The drop in retail sales in November, which was broadly in line with market expectations, was the seventh monthly fall in a row. Economists said the figures would help the Reserve Bank build a case for a 50 basis-point cut in interest rates when it meets in February.
The figures followed the release of trading reports by some retailers, which were surprisingly upbeat about Christmas sales. Massmart reported that sales for the 26 weeks to December 28 2008 had climbed 13.2% above the same period in 2007, with in-store inflation at 9.9%.
Shoprite reported a stellar 27.3% increase in sales for the six months to December 2008, but that included sales outside SA. Shoprite's retail sales in the country were up 24.5%. Mr Price also had a good festive season.
Sales at Foschini and Truworths were a bit more muted. The figures for all the retailers are distorted by the fact that new store space boosted turnover.
Standard Bank economist Johan Botha cautioned against reading too much into the retailers' trading statements. "We have to wait for the official figures. It's possible that consumers held back in October and November so that they could spend a bit more in December. That still makes for a weak quarter."
The retail sector was in recession for most of 2008, meaning growth has been negative for two successive quarters. Third-quarter gross domestic product (GDP) figures show that retail sales fell 4% in the second quarter and 6.9% in the third quarter (quarter-on-quarter, seasonally adjusted and annualised).
The main reason for weak retail sales was monetary policy, with the Reserve Bank having raised the repo rate by five percentage points since June 2006 to a peak prime overdraft rate of 15.5%.
But the Reserve Bank in December started the rate-cutting cycle with a cut of 50 basis points. The size of the rate cut came as a disappointment to the markets, which had discounted a reduction of 100 basis points.
Petrol price hopes
Botha said Statistics SA figures showed the retail sector was still under severe pressure. This would be the case until deep into the second quarter of 2009. "Interest rates have to fall. We expect 50 basis points of cuts at each monetary policy committee meeting, until 250 basis points have been shaved off the prime rate."
Efficient Group economist Fanie Joubert said the November fall in retail sales was slightly worse than he had expected. "The retail sector is taking strain.
"The breakdown shows that consumers are cutting back on big-ticket items such as appliances. This is a good thing, as it shows they are managing their finances better."
He also expected a 50 basis-point cut in interest rates in February and a cumulative move of 250 basis points.
High petrol prices also curtailed consumers' spending power in 2008, but petrol prices started falling dramatically towards the end of last year, providing hope for retail sales.
Further factors constraining consumer spending in 2008 included negative wealth effects emanating from falling house prices and turmoil on the stock exchange. In addition, high food prices contributed to sending inflation upwards to a peak of 13.6% in August, constraining consumers' real incomes and their ability to spend on non-food items.
Weak retail sales caused overall household consumption spending - which differs from retail sales in that it includes services - to contract by 0.8% in the third quarter of 2008. This was the first contraction in about a decade.
Consumer confidence, as measured by the FNB/BER consumer confidence index, fell further in the fourth quarter of last year to -4 from -1 in the third quarter.
This is the lowest level of consumer confidence since the first quarter of 2004. The confidence level is below the long-term (25 years) average of 1.7 index points.
- Fin24.com