Slowing retail sales dash hopes for strong recovery

Posted On Thursday, 14 October 2010 02:00 Published by
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Retail sales fell sharply in August, surprising markets and adding to evidence that the economy did not perform well in the third quarter

RETAIL sales fell sharply in August, surprising markets and adding to evidence that the economy did not perform well in the third quarter.

During the month itself, retail sales fell 1,4%, after edging up for two months in a row, data from Statistics SA showed yesterday.

Compared with the corresponding month last year, retail sales growth slowed abruptly to 4,6%, well below the 8% recorded in July, and disappointing forecasts for growth of 8,5%.

It was the slowest pace since May.

Citigroup economist Jean-Francois Mercier said it would be wrong to read too much into the retail sales data, which could be distorted by the effects of the World Cup and labour strikes.

“But nonetheless, it appears that the retail and wholesale sectors put together will not provide a major boost” to growth in the third quarter compared with the second, he said.

Part of the slowdown is being blamed on a loss of momentum after strong sales seen during the World Cup in June and July. The public service strike could also have had an effect.

But coming on the heels of weaker then expected manufacturing data for the same month, the figures will also reignite the debate on whether interest rates should fall further.

“The recent slowdown in retail sales growth, coupled with a moderation in manufacturing activity, continued uncertainty about the path of global growth, an improved domestic inflation projection and the still strong rand will re-energise the debate on the … outlook for domestic interest rates,” said Stanlib economist Kevin Lings.

Retail trade makes up about 12% of the economy’s output and is the second-biggest employer, providing 22% of jobs in the formal sector.

A breakdown of the data showed a deterioration in most components of the sales compared with the year- earlier month.

But furniture and appliance sales rose 21,1%, up from 13,9% in July, while sales in the hardware, paint and glass category rose 5,8% after a 6,6% decline in July.

Growth in cosmetics and pharmaceutical goods sales fell the most, dropping from 13,4% year on year in July of this year to 3,9% year on year in August.

Sales of food and beverages also took a knock, contracting by 2,9% in August compared with the same month last year. Year on year growth in July was 2,4%.

General dealers growth eased from 9,4% year on year in July to 3,7% year on year in August.

Separately, wholesale sales data for the month rose 1,3% after a fall of 1,5% in July.

One of the problems is that SA’s consumers remain heavily burdened by debt, which amounts to 78% of the disposable income of households.

This has put heavy pressure on consumer spending, the main growth engine in SA’s economy. Official data from the Reserve Bank showed that growth in household spending moderated to 4,8% in the second quarter of the year, from 5,1% in the first quarter.

Not all analysts believed the slowdown in manufacturing and retail activity would prompt the Bank to cut interest rates again.

“Going further into the year we still believe that retail activity will be the mainstay of the South African economic recovery,” said Monale Ratsoma, an economist at Thebe Securities.

“Trends in household borrowing suggest that retail activity is likely to continue its steady ascent,” he said.

Private sector borrowing increased for the fourth month in a row during August.

BUSINESS DAY


Publisher: I-Net Bridge
Source: I-Net Bridge

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