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Johannesburg - After a surprise spike in January, a slower February real retail sales growth number more realistically reflects the weak economic situation, according to John Loos, household and property sector strategist at FNB.
"After a surprise 6.4% year-on-year growth 'spike' in real retail sales in January, a sharply slower 2.2% growth rate for February is arguably a better reflection of mediocre economic times and, of course, rising interest rates," Loos said on Wednesday.
"Monthly data can be volatile, and for this reason we also like to focus on the three-month moving average to analyse the trend."
For the three months up to and including February, the real year-on-year growth rate in retail sales was 3.6%, down from the January average of 4.2%.
"To get a longer term perspective, the February level of real retail sales brings the cumulative real growth since the post-recession low of April 2009 to +24.9%, so it has been a good post-recession run," said Loos.
To him the 2.2% real growth in February does not come as a surprise after the high rate of January.
"Rather, January was seen as abnormal and the February growth rate is seen as very much in line with weak economic fundamentals," said Loos.
"Economic growth battles to reach 2% year-on-year, fourth quarter 2013 real disposable income growth was 2.1% year-on-year and the first interest rate hike came at the end of January.
Things to come in near term
FNB expects that real retail sales growth will settle into an average range between 1.5-2.5%, slower than the average 2.7% for 2013.
"Instead of often exceeding real economic growth for much of the last three years, we expect real retail sales growth to come down more into line with economic growth, and possible even slightly below it," said Loos.
Key reasons
He lists some key reasons for expecting real retail sales, and indeed real consumer demand overall, to show slower average growth in 2014 compared to 2013.
- Real disposable income growth should slow further after exceeding economic growth for some years.
- The effect of a slower economic growth rate, too, in recent times has started to have an impact in terms of slowing disposable income growth via the negative effect on employment and the wage bill.
- Consumer-related credit is having less of an impact in driving consumption, it would appear, as the focus switches to housing and mortgage demand.
- The attractiveness of household credit as a source for consumption funding is expected to be further curbed by the expected interest rate hiking period into which SA is most likely headed.
"The future of retail and consumer price inflation is crucial," said Loos.
"Real retail sales growth has been supported by low retail price inflation in recent years, inflation that has been significantly lower than overall consumer price inflation."
"After a surprise 6.4% year-on-year growth 'spike' in real retail sales in January, a sharply slower 2.2% growth rate for February is arguably a better reflection of mediocre economic times and, of course, rising interest rates," Loos said on Wednesday.
"Monthly data can be volatile, and for this reason we also like to focus on the three-month moving average to analyse the trend."
For the three months up to and including February, the real year-on-year growth rate in retail sales was 3.6%, down from the January average of 4.2%.
"To get a longer term perspective, the February level of real retail sales brings the cumulative real growth since the post-recession low of April 2009 to +24.9%, so it has been a good post-recession run," said Loos.
To him the 2.2% real growth in February does not come as a surprise after the high rate of January.
"Rather, January was seen as abnormal and the February growth rate is seen as very much in line with weak economic fundamentals," said Loos.
"Economic growth battles to reach 2% year-on-year, fourth quarter 2013 real disposable income growth was 2.1% year-on-year and the first interest rate hike came at the end of January.
Things to come in near term
FNB expects that real retail sales growth will settle into an average range between 1.5-2.5%, slower than the average 2.7% for 2013.
"Instead of often exceeding real economic growth for much of the last three years, we expect real retail sales growth to come down more into line with economic growth, and possible even slightly below it," said Loos.
Key reasons
He lists some key reasons for expecting real retail sales, and indeed real consumer demand overall, to show slower average growth in 2014 compared to 2013.
- Real disposable income growth should slow further after exceeding economic growth for some years.
- The effect of a slower economic growth rate, too, in recent times has started to have an impact in terms of slowing disposable income growth via the negative effect on employment and the wage bill.
- Consumer-related credit is having less of an impact in driving consumption, it would appear, as the focus switches to housing and mortgage demand.
- The attractiveness of household credit as a source for consumption funding is expected to be further curbed by the expected interest rate hiking period into which SA is most likely headed.
"The future of retail and consumer price inflation is crucial," said Loos.
"Real retail sales growth has been supported by low retail price inflation in recent years, inflation that has been significantly lower than overall consumer price inflation."
