May sales have increased, but analysts are concerned

Picture: David Ritchie

JOHANNESBURG – While May trade sales, released yesterday, increased by 1.9 percent year on year, economists were cautious as the recent VAT increase and surging fuel prices could hold back consumer spending in coming months. 

The May trade data was above market expectations of 0.8 percent. On a quarteron-quarter seasonally adjusted annualised basis, which is the measure used to calculate gross domestic product (GDP), retail sales fell by 0.4 percent in May. 
Statistics South Africa said yesterday that the general dealers category, which accounts for nearly half the retail basket, contracted by 1.1 percent yearon-year.  
Retail sales in household furniture, appliances and equipment increased 14.4 percent, while textiles, clothing, footwear and leather goods increased 4.1 percent. Retail inflation fell from 2 percent year on year in April to 1.8 percent year-on-year. 
Jason Muscat, a senior economic analyst at FNB, yesterday singled out as a source of concern the three-month percentage change which contracted by 0.1 percent, which he said suggested a weak second-quarter contribution to GDP from the sector. “While a post-VAT implementation rebound was anticipated, the data is still extremely weak against the backdrop of high wage settlements and well-contained inflation, and it seems hopes of a consumption-led economic recovery are fading,” said Muscat.
Transport costs 
He said the data suggested that consumers were reining-in expenditure, most likely in order to divert funds to rapidly rising transport costs. 
“The weak retail sales print and better-than-expected June inflation number support our view that the South African Reserve Bank will keep rates on hold tomorrow (today),” he said. Stefan Salzer, partner and managing director at Boston Consulting Group, said yesterday that while the 1.9 percent growth in retail sales appeared positive at first glance, the data pointed to a muted development.  
Salzer said that the country was still feeling the effects of the VAT increase on consumer spending power. 
“The figures also showed that retailers selling household furniture, appliances and equipment achieved among the highest annual growth rates at 14.4 percent. Retailers in textiles, clothing, footwear and leather goods also managed to deliver positive growth at 4.1 percent,” said Salzer. 
“As a result of the pressure on consumers, Boston Consulting Group’s forecasted outlook for the retail industry for the rest of the year remains slightly negative,” he said. Investec economist Lara Hodes said yesterday that notwithstanding the elevated consumer sentiment, consumers were still under pressure. “Employment levels remain unsatisfactory and household debt as a percentage of disposable income has lifted, from 71.2 percent to 71.7 percent,” Hodes said.
– BUSINESS REPORT 

Source: iol.co.za