Rebound bodes well

AFTER A WEAK START to the second quarter, retail sales rebounded in May. This bodes well for gross domestic product growth for the second quarter, which will be released at end-August. Although expectations are that GDP growth will be lower than the 4,6% recorded in the first quarter, the retail sales figures boost hopes growth won’t fall too far.

Robust Comeback trend Retail sales rose by an encouraging 1,3% month-on-month, seasonally adjusted, in May after falling slightly in April. On an annual basis, retail sales are now up 4,6%, the strongest annual growth rate since February 2008 and the fifth consecutive month of positive year-on-year growth. Stanlib economist Kevin Lings believes the Soccer World Cup contributed to the rebound.

GROWTH (annual) There’s a long way to go before retail spending reaches the levels seen at the height of the boom in 2006. The annual rate of increase of 4,6% in May comes off a very low base in 2009, when retail spending for the year contracted. The graph shows spending growth in 2008 was also very weak.

SA household debt as % of disposable income Household debt in SA as a percentage of disposable income has stabilised at around 80% – still a very high level. That debt is a factor that could constrain future spending, although Stanlib economist Kevin Lings says the pressure on the consumer will ease this year. Low interest rates will be sustained, inflation is falling and wage increases are rising above inflation.

FURNITURE GAINS A Citigroup analysis of the breakdown of retail spending shows the strongest gain in retail sales in real terms was among specialised furniture and household appliances dealers – the sector that witnessed the largest drop last year but also the most cyclical. In nominal terms, the strongest year-on-year gain was seen in pharmaceutical stores, showing their greater pricing power.