SA retail sales much worse than expected in Sep 2015

Stats SA released the retail sales data for October 2015 today. According to this latest survey, retail sales rose by 0.2%m/m, in real terms, during October 2015 (seasonally adjusted), after declining by 1.7%m/m in September. On a short-term trend basis (Q3 2015) retail spending rose by a further 1.0%q/q, which should provide some welcome support to the Q4 2015 GDP growth rate, and suggests that although consumer activity remains volatile, spending has been able to avoid recession conditions.

On an annual basis, retail spending was up a 3.3%y/y (real) in October 2015. This compares with growth of 4.0%y/y in August 2015 and 3.0 in September. In fact, retail sales have risen by 3.0%y/y or more in each of the past five months.

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 despite the increase in sales during October. It is clear that the growth in consumer spending has slowed during the past two years, however the sector remains relatively resilient, helped enormously by the fact that household income growth consistently exceeds inflation due to above inflation wage increases in the public sector, mining and other key economic sectors. Looking forward there are growing concerns about the negative impact of potentially higher taxes in the February 2016 budget, an upward drift in inflation (especially in the second half of 2016), weak consumer confidence, an increase in user-charges (especially electricity, and water), and somewhat higher interest rates. The critical factor, however, that will determine the performance of the retail sector in 2016 is the labour market. Widespread job cuts would, obviously, push consumer spending into recession, whereas if the economy could at least maintain the current level of employment this would ensure that the consumer sector can avoid a recession and achieve around 2.0% to 2.5% annual growth. In this regard, recent developments in the mining sector needs to closely monitored.

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