Fall in real wages hammers retail
Retail trade shrank in November in line with market expectations, reflecting the tough economic conditions households are experiencing as a result of high interest rates, weak confidence, and declining real income.
Stats SA data published on Wednesday shows retail trade, a key measure of local consumer health, shrank 0.9% in November 2023 from the previous November. October’s data was revised to a 2.3% fall from a 2.5% contraction initially.
November retail sales data is a key pulse check on the consumer. Trading Economics says this is the second successive month of declines in retail activity, due mainly to reduced sales of hardware, paint and glass and the textiles, clothing, footwear and leather goods categories.
On a monthly basis, retail sales gained 0.4% in November after an upwardly revised 1.4% fall in October. Stanlib chief economist Kevin Lings said while it was positive, the monthon-month data was worse than expected. A monthly rise of 1.1% was foreseen, suggesting 2023 Black Friday sales disappointed.
Lings said that it can be argued that retail performance in 2023 was more resilient than expected, especially from June to August 2023, helped by the social relief of distress (SRD) grant, strong growth in credit card debt and a resilient labour market.
But “household disposable income has declined in real terms during each of the past three quarters, which has systematically undermined retail activity”. It is highly likely the sector will record a decline of 1%-1.5% for 2023, more than was expected at the end of the third quarter, signalling an overall recession in retail activity.
Lings said that “without a meaningful and sustained increase in SA’s overall level of fixed investment and employment and consequent rise in household disposable income, SA retail sales activity will struggle to reflect outright vibrancy or sustain a more vigorous rate of expansion”.
Absa said household consumption has been on a downward trajectory, falling in the second and third quarters of 2023 as a result of the cumulative rise in interest rates.
The Reserve Bank increased rates by 475 basis points between November 2021 and May 2023, taking its benchmark repo rate to 8.25%.
FNB senior economist
Siphamandla Mkhwanazi said that the bank expects subdued consumer demand to persist in the near term, weighed down by sticky inflation, high rates and depressed consumer confidence.
Stats SA data shows the November decline was largely broad-based with five of the seven categories included in the retail index decreasing when measured year on year.
The hardware, paint and glass segment has been a key underperformer, falling by a further 5.3% year on year in November, from a 6.5% contraction previously, subtracting 0.4% points from the headline reading.
Additionally, the textiles, clothing, footwear and leather goods category, which recorded impressive annual growth of 11.2% year on year in August and 13.5% in September, contracted 2% in November, slicing a
THE EXPANDED UNEMPLOYMENT RATE … IS STILL ABOVE 40%, EVINCING THE EXTENT OF SA’S UNEMPLOYMENT PREDICAMENT
further 0.4% points off the top line result. The general dealers’ category, which has the largest share of the retail index at more than 40%, increased 0.4% year on year, adding 0.2 percentage points to the headline reading and preventing a larger annual decline.
Investec economist Lara Hodes said that the November outcome is in line with the Bureau for Economic Research’s (BER) quarter four retail survey results, in which some clothing and footwear retailers noted that congestion at SA ports had led to the late arrival of their summer ranges, adversely affecting sales in the run-up to the summer holidays.
“It is [also] in line with spending patterns observed during Black Friday 2023. Specifically, consumers stocked up on wellpriced goods, with spend at supermarkets in the lead, followed by department stores,” Hodes said.
Consumers remain largely constrained, grappling with a still elevated interest rate environment and lacklustre real incomes as inflation has ticked up, she said.
“Moreover, the expanded unemployment rate, which includes individuals who desire employment regardless of whether they are actively seeking work, is still above 40%, evincing the extent of SA’s unemployment predicament,” said Hodes.
Mkhwanazi said households are expected to experience less pressure in the medium to longer term. Consumers should
benefit from the slowing inflation trend, positive employment gains and extension of the SRD grant. The envisaged interest rate cutting cycle, albeit modest, should help support spending on
discretionary items, he said. “This should see household consumption expenditure lift from the estimated 0.8% year on year in 2023, to around 1.5% in 2024.”