Stats SA released the retail sales data for February 2016 . According to this latest survey, retail sales rose by a surprise 0.5%m/m in February, in real terms (seasonally adjusted). The month-on-month sales performance was better than expected, which was an increase of 0.3%m/m. In comparison, the January retail sales declined by a revised -0.7%m/m. In the past three months retail sales have risen by a solid 0.5%q/q. This, together with better than expected manufacturing production data for February, should help to strengthen the Q1 2016 GDP estimate.
On an annual basis, retail spending rose by a very respectable 4.1%y/y (real) in February 2016. This is up from a revised annual growth rate of 3.6%y/y in January 2016, and well above market expectations for growth of 2.6%y/y. The 12-month moving average rate of annual growth has trended meaningfully higher over the past 6 to 9 months and was recorded at 3.5%y/y in February 2016 (see chart attached).
A breakdown of retail spending by major category reveals that the highest annual growth rates were recorded for pharmaceuticals and medical goods, cosmetics and toiletries (7.8%), general dealers (5.5%), and retailers in textiles, clothing, footwear and leather goods (4.2%). More importantly, only furniture and appliance retailers recorded a decline in sales over the past year (in real terms), dropping -0.1%y/y.
A number of factors appear to explain the relatively resilience of retail sales despite low consumer confidence and rising interest rates. Firstly, salaries increases have risen significantly faster than inflation over the past year (see our previous emails on retail sales), secondly, higher income earners have managed to deleverage their balance sheets over the past couple of years which has led to lower debt servicing costs despite slightly higher interest rates. Thirdly, some consumers may have decided to increases purchases ahead of possible prices increases resulting from the weaker exchange rate. Fourthly, February 2016 was a leap year, which means one extra trading-day relative to last year, which would have boosted the rate of increase in retail sales during the month. Lastly, there has been a modest pick-up in unsecured credit in recent months (including store credit and credit card debt), which could have supported stronger growth in retail sales.
Despite the most recent improvement in retail sales, our overall perspective on retail spending remains essentially unchanged. In particular, we remain concerned about the negative impact of a sharp upward move in inflation during 2016, especially in the second half of 2016 and into early 2017, coupled with higher interest rates and weak consumer confidence. Together, these factors will most likely slow retail spending meaningfully during 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. At this stage of the business cycle the labour market appears to be relatively resilient.
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