Retail sales update: Retail sales growth rebounds in August but underlying consumer activity expected to remain restrained

17 Oct 2017

Annabel Bishop

Chief Economist

Retail sales growth accelerated to 5.5% y/y in August from 1.6% y/y (revised from 1.8% y/y previously) in July.

Figure 1: Real retail sales and SACCI’s Trade Expectations Index (TEI)
  • Retail sales growth accelerated to 5.5% y/y in August from 1.6% y/y (revised from 1.8% y/y previously) in July. The outcome exceeded the consensus forecast of 2.7% y/y.
  • The August update presents the retail sales data at constant prices with 2015 instead of 2012 as the base year.
  • In August the highest growth rates were registered by all ‘other’ retailers (25.3% y/y), furniture, appliance and equipment retailers (9.0% y/y) and food retailers (5.7% y/y).
  • It is possible that the August retail sales dynamics to an extent reflect the effects of the 25bp interest rate cut in July and the slower rate of inflation. Lower base factors also contributed to lifting the y/y growth outcomes.
  • On a year to date basis food, pharmaceutical and ‘all other’ retail sales have outperformed sales in general dealers as well as sales in the semi-durable goods (clothing) and durable goods (furniture and hardware) categories (see figure 2). This would suggest that with consumer finances under pressure, spending has been diverted away from the more discretionary (non-essential) items.
  • In the year to date to August, retail sales have underperformed with growth of 1.5% y/y relative to the 2.2% y/y increase in the same period of 2016.
  • Although the expected renewed moderation in inflation into year-end should provide some relief to consumers, the growth in consumer spending is still expected to remain restrained by subdued private sector credit dynamics, slower growth in employee compensation and persistently depressed consumer confidence. Moreover, the SARB recently indicated that the easing cycle is likely to be shallow whilst fiscal policy is widely expected to remain restrictive. Indeed, survey evidence shows retailers expect “mediocre growth in trade volumes” in Q3.17 and Q4.17.
Figure 2: Year to date retail sales by type of retailer
Figure 3: Retail trade sales by type of retailer (at constant prices)
Figure 4: HCE (private sector spending) growth vs consumer confidence