Stats SA have released the retail sales data for October 2011. According to this latest survey, retail sales rose by a reasonable 0.6%m/m in October, in real terms, seasonally adjusted. On an annual basis, retail sales recorded still very respectable growth of 7.4%y/y. While this is slightly down on the 7.7%y/y recorded in September 2011 (revised down from an initial estimate of 8.3%y/y) and also fractionally below the market consensus forecast of 7.5%y/y, it is still high by historical standards.
In the last months the SA retail sales data has been extremely erratic. This volatility reflects a combination of base effects, with annual comparisons distorted by the World Cup in 2010, as well as the timing of public holidays. However, using a moving average of retail sales, the pattern is far clearer (see chart attached). This pattern suggests that the rate of growth in retail sales is still holding up relatively well.
Looking forward, SA consumer 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 spending power. These include higher energy costs, transport costs, food 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 or take on additional debt.
During the first ten months of 2011, consumer credit has risen by a total of R50.2bn, which compares with R63.1bn during the corresponding period in 2010. The annual rate of growth in consumer credit is still extremely modest (+5.3%y/y), especially for this phase of the business cycle and the fact that interest rates are at their lowest level since 1974. Clearly, the NCA coupled with conservatism on the part of banks, have combined to keep household credit growth, most especially mortgage advances, well contained.
However, the growth is unsecured credit to households remains the clear exception – especially to the lower LSM groups. Based on the BA900 returns, the growth in unsecured credit rose by more than 30%y/y in September (data lags by one month) or R19.8bn. Clearly this is the fastest growing component of the credit market. The growth in unsecured credit is, at least partly, reflecting in the sustained relatively high growth of SA retail sales, especially retailers that are focused on the lower LSM groups.
The risks for the SA consumer are rising. 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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