Stats SA have released the retail sales data for April 2010 and revised the price deflator for the period January 2008 to April 2010. According to this latest survey, retail sales fell by a disappointing 0.2%m/m in real terms, seasonally adjusted. On an annual basis retail sales rose by 3.2%y/y, despite the monthly decline, mainly as a result of base effects (retail sales in April 2009 were especially weak). Using the revised price deflator, Stats SA, has indicated that April was the fourth consecutive month in which retail sales have been positive on an annual basis.
In the three months to April 2009, retail sales were up 1.8%q/q, seasonally adjusted (but not annualised), highlighting that the SA consumer spending has slowly started to improve;, despite the monthly decline in April. On a trend basis, SA retail sales are clearly improving (see chart attached), but the rate of improvement remains relatively sluggish.
Most categories of consumer spending appear to be on the mend. There was a very noticeable surge in sales of appliances in April (possibly TV’s etc ahead of the soccer World Cup), continued strong sales in cosmetics and pharmaceutical goods as well as clothing. A key area of sustained weakness is undoubtedly spending on hardware, paint and glass, which has been struggling for the last year off a high base of activity that was established in the period from 2004 to early 2008.
As mentioned in each of the last two months, while consumer’s remain under pressure, there is a sense/expectation that the pressure will systematically ease during the course of 2010. This expectation is based on the current low interest rate environment being sustained for all of 2010, a further moderation in inflation (at least in the short-term), wage increases that are now rising above inflation (leading to a real increase in consumer income), and less job losses as domestic and world growth improves. There is also a natural boost to employment and retail sales that is associated with hosting the Soccer World Cup. Additionally, there has been a more positive wealth effect this year, with house prices moving firmly higher. Growth in consumer bank credit also seems to be improving, albeit very slowly.
This does not imply that the consumer will be able to effect a significant increase in discretionary spending during 2010/2011. Instead the substantial increase in administered prices, such as electricity, water, health costs, insurance, education, petrol and toll fees - all combined - means that discretionary spending power will remain under pressure, unless there is a more meaningful increase in general consumer credit and or employment conditions.
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