Stats SA released the retail sales data for November 2015 today. According to this latest survey, retail sales rose by a very impressive 2.5%m/m, in real terms, during November 2015 (seasonally adjusted). The month-on-month sales performance was well above market expectations, which was for a rise of 0.7%m/m. Furthermore, the early indications for December retail spending suggest that the holiday shopping season was relatively buoyant. It is possible that some consumers undertook pre-emptive buying ahead of currency induced price increases.
On a short-term trend basis (3 months from September to November 2015) retail spending rose by a solid 0.9%q/q, which should provide some welcome support to the Q4 2015 GDP growth rate, and suggests that although consumer activity remains somewhat subdued, consumers have been able to avoid outright recession conditions. On an annual basis, retail spending was up 3.9%y/y (real) in November 2015. This compares with growth of 3.4%y/y in October 2015 and an average annual growth rate of 3.2% (real) in the first eleven months of the year. The 12-month moving average rate of annual growth is trending at around 3.0% (see chart attached), which is at the upper end of our earlier forecast range for retail sales during 2015 as a whole.
The SA retail sales data remains relatively erratic. This volatility is partly due to base effects that reflect the distortion created by, for example, the timing of public holidays, as well as strike activity. In general, retail sales should be analysed on a trend basis, rather than placing a huge amount of emphasis on any specific monthly sales report.
Our overall perspective on retail spending remains essentially unchanged. Firstly, it is clear that although the growth in consumer spending has slowed noticeably during the past two years, the sector remains relatively resilient, helped enormously by the fact that household income growth consistently exceeds inflation due to above inflation wage increases in key sectors of the economy. Secondly, the consumer sector has also been helped by the fact that SA inflation averaged a mere 4.6% in 2015, reaching a low of 3.9%y/y during the year. This boosted real income growth. Thirdly, there are growing concerns about the negative impact of a sharp upward move in inflation during 2016, especially in the second half of 2016, potentially higher taxes in the February 2016 budget, weakening consumer confidence, an increase in user-charges (especially electricity, and water), and somewhat higher interest rates. Together, all of these will most likely slow retail spending to well than 1% growth in 2016. Lastly, the critical factor that will determine whether the retail sector experiences an outright recession in 2016 as opposed to modest growth, is the performance of the labour market. Widespread job cuts would, most likely, push consumer spending in recession, whereas if the economy can at least maintain the current level of employment this would ensure that the consumer sector can avoid a recession in 2016.
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