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Last year, consumer durable purchases for private consumption only rose by a real 1.7% compared with an overall gross domestic product (GDP) growth rate of 3.0%.
Furthermore, July new car sales had a monthly rise of 3 123 units or 15.7% on June, which followed June's fairly sharp improvement of 2 484 units or 14.3% compared with the 17 380 sales recorded in May.
The change from May is therefore a substantial 32.3% improvement and is largely due to the 150 basis points reduction in interest rates in the middle of June and the expectation of a further 350 basis points cut by the middle of next year.
July new car sales were the highest monthly total since November 1996, when 23 677 units were sold, but far fewer than the record 32 384 units sold in June 1984, when total new vehicle sales also peaked at 47 942 units.
Sales of new light commercial vehicles, bakkies and minibuses increased by 4.7% y/y to 9 726 units and were 10.8% higher than June's sales.
Heavy commercial vehicle sales of 955 in July were the highest since November 1988 and were up 39.8% y/y.
The recent highest annual real GDP growth rates were 4.3% in 1996 and 4.2% in 1988, and the correlation of high new car sales with strong GDP growth has led some economists to question the prevailing wisdom that growth this year will be closer to 2% rather than the 3.3% the government is projecting.
Prospects for the South African trucking industry continued to look good and sales should continue to receive support from positive investment sentiment and replacement demand, Naamsa commented.
Apart from interest rate cuts, the other three main factors supporting consumer demand are rising real personal disposable income, relatively low debt levels and rising employment.
Data released last week by the South African Reserve Bank (SARB) shows that concerns about a slowing in growth in the economy may be overdone as consumers become more confident about the future and take on more debt to fund purchases of consumer durables.
Claims on the private sector, excluding investments and bills discounted, rose to 12.68% y/y in June from 11.74% y/y in May and only 7.84% y/y in December.
The rise is even more impressive if the y/y growth rate is deflated by the y/y consumer inflation rate, which was 6.7% in June, 7.8% in May and 12.4% in December. The real y/y growth rate is then 5.98% y/y in June from 3.94% y/y in May and -4.56% y/y in December.
The South African consumer is having his/her spending power boosted by a cut in taxes, as well as an easing in inflation. Consequently, real personal disposable income is likely to grow by a near-double-digit rate in the third quarter after growing by only 3.5% last year.
This greater consumer spending is reflected in the growth rate of installment sales, which grew by 18.3% y/y in June. By contrast, leasing finance, which is predominately utilised by companies, only grew by 7.0% y/y in June.
The greater confidence about the future is also reflected in the willingness of consumers to take on debt. The household debt to disposable income ratio rose to 52.9% in the first quarter from a recent low of 51.0% in the fourth quarter and is likely to have exceeded 53% in the second quarter. This is still well below the peak of 61.2% reached in the first quarter 1998.
This relatively low debt level means that debt servicing only absorbs some 7% of personal disposable income, whereas in the developed world, debt-servicing levels are frequently double this amount.
An additional boost comes from growth in formal employment, which bottomed in the first quarter 2002 after more than a decade of labour shedding and in less than a year has risen by 1.5% to the fourth quarter 2002, which is the latest available data.
When the great economist, Lord John Maynard Keynes, First Baron of Tilton, was asked why he kept on changing his policy prescriptions in response to changed circumstances, Keynes replied: "I change my mind when the facts change. What do you do, Sir?"
This question must now be addressed to economists forecasting slow growth for the South African economy.
