Retail trade sales update – growth rises

15 May 2018

Annabel Bishop

Chief Economist

as consumers benefit from past deleveraging, rising real disposable income growth and weak retail inflation.

Figure 1: Retail sales vs Consumer Confidence
  • Real retail sales growth came out at 4.8% y/y in March, up on February’s figure of 4.2% y/y.
  • Consumers have steadily deleveraged since 2013, from a household debt to disposable income ratio of close to 80% (in 2013) to 71.2% in the most recent data (Q4.17) - with 77% for 2015 and 74% for 2017. Household debt has been incurred, but generally at a lessening rate of growth since 2013.
  • Indeed retail inflation is very low, at 1.6% y/y, as retailers have faced margin squeeze in the weak economic growth and very low confidence period of the last couple of years. In contrast, retail inflation was 4.0% in 2013 when economic growth averaged 2.5% y/y for the year.
  • Compensation of employees to GDP has risen to above 54% of GDP last year, from slightly above 51% in 2012, and around 50% in 2010. Real disposable income growth has picked up, from below 1.0% in 2013, to close to 3.0% y/y 2017. Marked household deleveraging since 2013, coupled with rising real disposable incomes indicates depressed consumer confidence (CCI) has been significant in counterbalancing the improvement in consumer fundamentals since 2012 and 2013.
  • Since 2013 consumer confidence has been depressed on average, mainly due to consumers’ depressed view of the outlook for the macro economy and household finances. The outlook for the latter two has shown a dramatic turnaround into significantly positive territory in the latest BER reading (Q1.18), lifting CCI to a record high, which will likely strengthen retail growth if sustained.
  • The historic average for real retail sales growth is just below 5% y/y in South Africa. Stats SA and IHS record real retail sales growth rates of around 14% y/y in boom periods and South Africa’s figure 4.8% y/y published today is closer to the historic average than any boom period.
Figure 2: Retail trade sales by type of retailer (at constant prices, %)
Figure 3: Real retail sales and retail inflation
  • Retail sales growth has picked up markedly in the second half of 2017 (averaging 4.8% y/y in real terms, from 1.4% y/y in the first half of 2017 and 2016), on the strengthening of a number of consumer fundamentals detailed on the first page. March’s retail number was consequently also lifted by some small base effect of weak growth from a year ago
  • As the prime rate has dropped slightly in 2017 and in 2018 so the cost of servicing household debt has moderated modestly, from 9.6% of disposable income for 2016 to 9.3% of disposable income for 2017. The unemployment rate dropped to 26.7% from close to 28% in early 2018.
  • However, the R1.21/litre hike in the petrol price over April and May this year will erode consumer spending power to some degree, (in addition a 72c/litre hike is currently scheduled for June), as will higher consumer taxes. Additionally, lending conditions have not eased substantially.
  • Despite the relatively good growth figures year on year, on a quarter on quarter, seasonally adjusted, annualised (qqsaa) basis retail sales has contacted by 5.2% qqsaa in Q1.18, after the heady qqsaa growth rate of above 8% (qqsaa) in Q4.17, while industrial production fell by 6.9% qqsaa in Q1.18.
  • The sharp contractions in both industrial production (manufacturing, mining and electricity production) and retail sales in Q1.18 on a qqsaa basis (the headline GDP measurement), indicates a weak outcome for Q1.18 GDP growth – possibly a contraction in GDP, after the marked recovery in GDP growth in the last three quarters of 2017 on the recovery from the drought, higher import prices and some base effects in Q2.17.
Figure 4: Real retail sales and SACCI’s Trade Expectations Index (TEI)