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Weak retail sales data released by Statistics SA on Wednesday, plus a better-than-expected inflation rate in June, supports the view that the SA Reserve Bank (SARB) will likely opt to keep interest rates unchanged on Thursday, said FNB senior economic analyst Jason Muscat.
May real retail trade sales – in terms of constant 2015 prices – expanded 1.9% y/y and 1.1% m/m. This is something of an unwinding, given the very weak April print of just 0.5% y/y, Muscat said in a statement.
Muscat is concerned by the three-month percentage change that contracted by -0.1%. This suggests a weak second quarter contribution to the gross domestic product (GDP) from the sector, he argues.
"While a post-VAT implementation rebound was anticipated, the data is still extremely weak against the backdrop of high wage settlements and well contained inflation, and it seems hopes of a consumption-led economic recovery are fading," said Muscat.
"The data also suggests that consumers are reigning in expenditure, likely in order to divert funds to rapidly rising transport costs."
General dealers, food and beverage stores and hardware retailers contracted -1.1% y/y (-1.7% and -0.9% respectively), shaving a combined -0.7 percentage points (pps) off the headline number.
Pharma and cosmetic sales growth decelerated to 2.2% y/y from 6.1% in April. This category has averaged growth of 5.7% between January and April this year, Muscat said.
Clothing sales recovered from April’s -0.7% y/y contraction, printing at 4.1% in May, while furniture sales continue their rebound – although off an extremely low base, growing 14.4% y/y and adding 0.6 pps.
The highest annual growth rates were recorded for retailers in household furniture, appliances and equipment (14.4%); retailers in textiles, clothing, footwear and leather goods (4.1%); and all "other" retailers (9.7%).
Seasonally adjusted retail trade sales increased by 1.1% in May 2018 compared with April 2018. This followed month-on-month (m/m) changes of 1.1% in April 2018 and -0.2% in March 2018.
In the three months ended May 2018, seasonally adjusted retail trade sales decreased by 0.1%, compared with the previous three months.
Retail trade sales increased by 2.4% in the three months ended May 2018, compared with the three months ended May 2017.
The main contributors to this increase were retailers in textiles, clothing, footwear and leather goods (4.1%); retailers in household furniture, appliances and equipment (14.7%); and all "other" retailers (6.7%).
On a quarter-on-quarter, seasonally adjusted, annualised basis, retail sales fell by -0.4% in May.
Investec economist Lara Hodes said this indicated that the trade sector could risk again making a negative contribution to growth, this time in the second quarter of 2018, unless June’s forthcoming retail sales data counteracted this.
"Although consumer sentiment has improved markedly since 2017, reiterated by the still-elevated consumer confidence reading released for the second quarter of 2018, the consumer continues to face challenges, weighed down by lacklustre household credit growth, increased consumer taxes and surging fuel prices.
"Additionally, employment levels remain unsatisfactory, and household debt as a percentage of disposable income has lifted, from 71.2% to 71.7%," said Hodes.
Favourable
In the view of the Nedbank Group Economic Unit, the outlook for retail sales remains favourable.
"Consumer spending is expected to be supported by earlier interest rate cuts and generally improved confidence levels. However, the growth rate will be partly contained, as household incomes are likely to come under some pressure from the poor job market as well as higher taxes, rising food, fuel and other prices," Nedbank said in a statement.
It regards the improvement in retail sales as encouraging, particularly given that consumer spending accounts for just over 60% of GDP. The unit pointed out, however, that underlying economic activity remains subdued, which would tend to support either steady to lower interest rates. "Policy easing is unlikely in the medium term, as inflation is likely to pick up in the coming months on the back of higher fuel prices and a weaker rand," said Nedbank.
"These forces, against the backdrop of tighter monetary policies globally, have increased the risk of an early hike in interest rates.
"However, the SARB will probably try to keep rates unchanged for as long as possible, probably into the second half of 2019 before a mild upward cycle commences."
Stefan Salzer, partner and managing director at Boston Consulting Group (BCG), commented that the latest retail trade sales actually amount to quite a muted development. In his view, it still reflects some VAT-increase impact on consumers' spending power.
Consumers are still under pressure from fuel hikes and price increases among other factors. BCG’s forecast outlook for the retail industry for the rest of the year remains slightly negative.
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