Unexpected jump in retail trade sales fails to dispel gloom

RETAIL trade sales rose much more than expected in August, confounding experts’ predictions of a rise of just more than 1% but doing little to lift the gloom over a key sector of the economy.

Statistics SA figures released yesterday suggest resilience in consumer spending despite administered price increases that are eroding disposable incomes. Electricity, food and transport costs are weighing on households.

Retail trade sales, a key gauge of consumer spending patterns, rose despite consumer confidence having slumped to a 10-year low of minus eight in the third quarter. Figures showed spending was still predominantly on socalled low-ticket items such as clothing and general goods.

Retail trade sales rose 3% in August compared with a year earlier against a BDlive median consensus forecast of 1.3%, and were up 1.1% on the month.

Investec chief economist Annabel Bishop said it was possible the higher level of real spending in August was not purely reflecting increased demand.

She said in a research note that retail inflation rose to 4.3% in August compared to a year ago and from 3.9% year on year in July, reflecting the higher operating costs retailers faced due to a rapid escalation in electricity and water tariffs, and property rates and taxes.

There is also a lot of volatility surrounding retail sales because of base effects such as the timing of public holidays, and the number of public holidays in one year compared to another. Factors like these make data collection

“erratic”, according to Stanlib chief economist Kevin Lings, who suggested that retail sales be analysed on a trend basis rather than “placing a huge amount of emphasis” on monthly data.

The 3% increase in retail sales is still welcome despite the technicalities involved, as it bodes well for the sector to contribute positively to gross domestic product in the third quarter. Retail sales have been growing at lower rates compared to last year and 2011, which supports views that the economy will grow at a lower rate than it did last year.

Although retail sales improved more than expected, the 3% growth rates are well below those seen last year and in 2011, signalling weak consumption spending. Spending by households in particular has been a main driver of economic activity in the past few years.

“The economy is so dependent on consumption and with retail sales hovering around these levels, there is little scope for gross domestic product to gain meaningful traction,” said ETM Analytics economist Jana le Roux.

The last three months of this year could offer some relief for consumer spending and retail activity.

An expectation that inflation will trend slightly lower in the coming months, higher wages granted during the latest round of wage negotiations and the government’s credit amnesty could boost spend- ing, according to Citi SA economist Gina Schoeman. “If the credit amnesty frees up a million to a million-and-a-half consumers it could support consumption. People could also be employed for elections next year through the IEC (Independent Electoral Commission) which could boost short-term spending,” Ms Schoeman said.

Sales of household furniture, appliances and equipment continued to be weak, reflecting a lack of consumer appetite for big-ticket items.

Growth in unsecured loans, which have funded most of the retail spending, continues to slow, reducing the ability to spend.

The 3% increase in retail trade sales was driven by clothing, footwear and leather goods retailers and general dealers.

Ms Schoeman said they had been surprised by the strong performance by general dealers as they had expected sales to be flat.