Stats SA have released the retail sales data for November 2011. According to this latest survey, retail sales fell by a disappointing 0.3%m/m in November, in real terms, seasonally adjusted. On an annual basis, retail sales recorded still very respectable growth of 6.8%y/y, but this is down on the 7.5%y/y recorded in October 2011 and below market expectations for growth of around 7.5%y/y (Bloomberg).
In the first half of 2011 SA retail data was strong, but also relatively erratic. The volatility reflected a combination of base effects - with annual comparisons distorted by the World Cup in 2010 - as well as the timing of various public holidays. However, during the five month period from June to October sales were more consistently robust, beating analyst’s expectations in most months.
This relatively strong phase in retail activity, which has been very evident in the economic data since late 2010 or early 2011, is partly explained by ongoing high wage increases (many workers secured well above inflation wage increases in 2010/2011), which led to a strong rise in real household disposable income. Because most SA households do not have a culture of savings, almost all of the rise in disposable income has been spend on a range of consumer goods and services. In addition, there has also been a surge in unsecured credit, which has helped to buoy retail spending. Over the past year, unsecured consumer credit has risen by 32%y/y (see charts attached).
It is fascinating to see the out-performance of retail activity vs domestic manufacturing activity (see chart attached). This not only illustrates the plight of the SA manufacturing sector, but also highlights the fact that stimulating consumer spending does not necessarily provide an equal or significant stimulus to SA manufacturing.
Looking forward, SA retail activity is likely to face increasing strain. This is due to a range of cost-push factors that are systematically eroding the household sector’s retail spending power. These include higher energy costs, transport costs, education fees, medical service costs and water costs. Households cannot avoid these increases, as they relate to necessities or essential goods, forcing consumers to either cut-back on non-essential purchases (including general retail activity) or take on additional debt. The situation is aggravated by the relatively high increase in food inflation.
The strains on the SA consumer are rising, despite historically low interest rates. Hopefully the labour market will keep improving, thereby alleviating some of the pressure on household income as well as the risk of a repeat of the recent spike in bad debts.
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