Johannesburg - The recession in the retail sector continues, with real retail sales falling 2.3% year-on-year in October - the sixth consecutive month of decline.
The figure, though negative, was better than expected, as the market had been anticipating a decline of around 5%. However, economists said the retail sector was still in very bad shape indeed, and that the data augured well for an interest rate cut on Thursday.
The Reserve Bank has raised the repo rate by five percentage points since June 2006, bringing the prime overdraft rate to 15,5%. Expectations are for a 50 basis points rate cut on Thursday in the light of data showing weakness in the economy.
Stanlib economist Kevin Lings said one shouldn't read anything into the fact that the retail sales figure was better than expected. "Monthly data can be erratic and one should look at this on a trend basis.
"It's clear that there's a very well established trend of declining retail sales. The retail sector is in recession and overall household consumption is heading towards recession."
Household consumption differs from retail spending in that it includes spending on services. This week's Reserve Bank Quarterly Bulletin showed negative growth in household consumption expenditure in the third quarter. A recession is usually defined as two consecutive quarters of decline.
The Statistics SA figures show real retail sales for the period January to October 2008 were down 2.2% compared with the same period a year ago. In 2007, retail sales grew 5.1% while growth in 2006 was a whopping 9.6%.
Unlike Lings, ETM economist Russell Lamberti was encouraged by the fact that the retail sales figure was better than expected. He said from a month-on-month perspective, October was the strongest month recorded since 2005.
Lamberti said this figure could signal that the effect of high interest rates was dissipating, while high wage growth and petrol price cuts might also be helping the consumer. However, the economy was still weak, and SA remained on track for interest rate cuts.
The retail sales figures followed the release earlier this week of the First National Bank/Bureau for Economic Research consumer confidence index (CCI), which fell further in the fourth quarter of this year to -4 from -1 in the third quarter.
This is the lowest level of consumer confidence since the first quarter of 2004. Lings pointed out that the confidence levels are below the long-term (25 years) average of 1.7 index points.
"The fall-off in confidence this year is hardly surprising, given the increased concerns about the global financial and economic crisis, high interest rates, relatively high food inflation, increased debt servicing costs, slowing house price growth and the intermittent electricity outages.
"Furthermore, we would expect confidence levels to fall further during the first half of 2009 considering the slowdown in the domestic economy and the worsening employment situation," Lings said.
The weakness in the consumer sector has had spillover effects into other divisions of the economy, such as the manufacturing sector. Figures released earlier this week showed that SA manufacturing production declined by 0.3% month-on-month (seasonally adjusted) in October, which was below expectations.
On an annual basis, the growth in production slumped to -1.6% year-on-year in October from an artificially high growth rate of 4.7% in September.
- Fin24.com