SA retail sales much worse than expected in Sep 2015

Stats SA released the retail sales data for September 2015 today. According to this latest survey, retail sales fell by a very disappointing 1.9%m/m, in real terms, during September 2015 (seasonally adjusted), after growing by an impressive and upwardly revised 1.8%m/m in August 2015. The month-on-month sales performance in September was well below market expectations, which was for a rise of 0.5%m/m; although as usual the market consensus for retail spending was based on a very small sample size.

On a short-term trend basis (Q3 2015) retail spending rose by 1.0%q/q, which together with the better than expected Q3 2015 manufacturing data, should provide some welcome support to the Q3 2015 GDP growth rate, and suggests that although consumer activity remains relatively subdued and a little volatile, spending has been able to avoid outright recession conditions. On an annual basis, retail spending was up 2.7%y/y (real) in September 2015. This compares with growth of 4.0%y/y in August 2015 and an average annual growth rate of 3.1% (real) in the first nine months of the year. The 12-month moving average rate of annual growth is trending at around 2.5% to 3.0% (see chart attached), which is the 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 despite the disappointing decline in sales during September. It is clear that the growth in consumer spending has slowed noticeably 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 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 and achieved around 2.0% to 2.5% annual growth.

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