Stats SA have released the much anticipated retail sales data for June 2010. According to this latest survey, retail sales rose by a robust 1.8%m/m in real terms, seasonally adjusted. On an annual basis retail sales are now up 7.4%y/y, which is the strongest annual growth rate since early 2007, and the sixth consecutive month in which retail sales have been positive on an annual basis.
The June 2010 annual growth rate in retail activity was essentially in line with market expectations, although there were one or two odd forecasts included in the consensus especially on the low side, which is strange considering the reality of the World Cup.
The strong pick-up in retail activity during both May 2010 (1.3%m/m) and June 2010 (1.8%m/m) was partially driven by the World Cup. This implies that retail data for July 2010 will also be fairly robust, although the boost from sales of TV sets was probably more evident in May and June 2010 and far less significant in July 2010. It is then likely that retail activity in August to October 2010 will appear to soften relative to the base that is currently being established.
In the three months to June 2010 (Q2 2010), retail sales were up a very encouraging 1.2%q/q, seasonally adjusted (but not annualised), highlighting that the SA consumer spending has slowly started to improve, albeit boosted by the World Cup. This, together with the recent better-than-expected manufacturing data will provide a welcome boost to the Q2 2010 estimate of GDP; helping to more than offset the weakness in mining activity. On a trend basis, SA retail sales are clearly improving, but will soften in the second half of the year.
Most categories of consumer spending appear to be on the mend. There was a very noticeable further surge in sales of appliances in June 2010 (possibly TV’s, etc ahead of the soccer World Cup), continued strong sales in cosmetics and pharmaceutical goods as well as clothing. A key area of sustained weakness is undoubtedly spending on hardware, paint and glass, which has been struggling for the last year off a high base of activity that was established in the period from 2004 to early 2008.
While consumers remain under pressure, there is a sense or expectation that the pressure will systematically ease during the course of 2010/2011. This expectation is based on the current low interest rate environment being sustained for all of 2010 and much of 2011, a further moderation in inflation (at least in the short-term), wage increases that are now rising above inflation (leading to a real increase in consumer income), and less job losses as domestic and world growth improves. Additionally, there has been a more positive wealth effect this year, with house prices moving firmly higher. Growth in consumer bank credit also seems to be improving, albeit very slowly.
This does not imply that the consumer will be able to affect a significant increase in discretionary spending during 2010/2011. Instead the substantial increase in administered prices, such as electricity, water, health costs, insurance, education, petrol and toll fees - all combined - means that discretionary spending power will remain under pressure, unless there is a more meaningful increase in general consumer credit and or employment conditions.
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