The slowdown in retail sales growth to 1.8% y/y in July from 3.2% y/y (revised from 2.9% y/y) exceeded market expectations of a moderation to 2.5% y/y.
In the July update, Stats SA revised the historical retail sales data series, as a new sample was drawn in April 2017 that replaced the prior sample drawn in April 2016. This procedure usually affects the level of sales in both current and constant prices.
The disaggregation of the July retail sales update showed that the largest positive combined contribution, of 2.0%, to the headline outcome stemmed from food and ‘all other’ retailers which registered sales growth of 7.1% y/y and 12.4% y/y respectively (see figure 3).
On a year to date (January to July) 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 provides some indication that spending is being diverted away from the more discretionary (non-essential) items.
Retail sales underperformed in the first seven months of the year, with growth of 0.9% y/y, relative to the 2.6% y/y increase in the same period of 2016. Retail sector activity is likely to remain muted this year, in line with modest growth in household consumption expenditure that we project at 1.0% y/y versus 0.8% y/y in 2016.
Consumer spending is expected to be restrained by subdued private sector credit dynamics, subsiding wage growth pressures and persistently depressed consumer confidence.
The release of the business confidence survey also signals subdued momentum in the retail sector. Specifically, although retailer confidence rose marginally to 38 in Q3.17 from 35 in Q2.17, levels below 50 represent depressed confidence. According to the RMB/BER survey, the weak sentiment was reflective of “mediocre growth in trade volumes”.
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