Stats SA released the retail sales data for April 2015 today. According to this latest survey, retail sales rose by a very modest 0.2%m/m, in real terms, during April 2015 (seasonally adjusted), after declining by a revised -0.4%m/m in March 2015. The month-on-month sales performance in April was above market expectations, which was for a decline of 0.3%m/m; although as usual the market consensus for retail spending was based on a very small sample size. The better than expected retail data is surprising mainly because there was a substantial R1.62c/l increase in the petrol price at the beginning of April after an increase of 96c/l in March, which should have somewhat dampened retail activity. In addition consumer confidence weakened further in the first quarter of the year.
On a short-term trend basis (Feb-Apr 2015) retail spending rose by 1.3%q/q, which could provide some support to the Q2 2015 GDP growth rate, and suggests that although consumer activity remains relatively subdued, spending continues to avoid outright recession conditions. Looking forward there are some concerns about the negative impact of higher taxes, an upward drift in inflation, weak consumer confidence, the rising petrol price, an increase in user-charges (especially electricity) and a lack of job creation.
On an annual basis, retail spending was up 3.4%y/y (real) in April 2015. This compares with growth of 2.5%y/y in March 2015. The latest annual reading was above the longer-term trend rate of growth in consumer spending; but would have been distorted by the timing of public holidays. The 12-month moving average rate of annual growth is trending at around 2.0% to 2.3% (see chart attached).
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.
A breakdown of retail activity by major category reveals that sales of clothing and footwear continue to remain relatively subdued after being the star out-performer for a number of years (see chart attached). Sales of furniture and appliances improved a little in late 2014 but have since also lost momentum, declining sharply in the first quarter of 2015. Hardware sales remain the clear out-performer in the past year. This partly reflects a general improvement in housing activity. Lastly, food sales have been disappointing and unexciting, although the category had a solid Q1 2015 performance.
As we discussed last month, although the growth in consumer spending has slowed noticeably in the past two years, the sector remains relatively resilient, helped enormously by the fact that income growth regularly exceeds inflation by an average of 2% a year, and consumers are willing to embrace various forms of credit. The critical factor is the labour market. In other words, widespread job cuts would push consumer spending in recession, whereas maintaining the current level of employment would ensure that the consumer sector can avoid a recession.
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