Business confidence among retailers showed only a marginal decline in the first quarter of this year, despite monetary policy tightening by the Reserve Bank last year.

Moderate tax relief and interest rates left unchanged at the Bank’s first monetary policy committee meeting for the year have raised retailers’ confidence regarding the outlook for the sector, according to research by the Bureau for Economic Research.

Confidence among retailers slipped to 87 in the first quarter of this year, down from a record high of 91 in the fourth quarter of last year, said Bureau of Economic Research economist Hugo Pienaar.

“It remains puzzling why confidence remains high, even in the interest rate-sensitive sectors.

“Although tax relief is less than what it was last year, retailers remain confident, and expectations for the second quarter are that confidence will accelerate again.”

Pienaar said positive wealth effects from higher share prices and indications that the house price slowdown might have bottomed out also provided an optimistic macroeconomic environment for durable goods retailers.

This might give at least some explanation for the further rise in confidence in this sector, to 89 from 87 in the previous quarter, Pienaar said.

“This level is only two index points below the recent high of 91 recorded in the first quarter of 2004 and the second quarter of 2005, when the bank was still cutting interest rates.”

According to the survey, retailer profitability also came under some pressure in the first quarter.

Whereas 32% of retailers surveyed reported higher profits in the fourth quarter of last year, compared to the same time in 2005, this number came down to 22% during the first quarter.

“The lower profitability levels can be explained by the combination of the easing in sales volumes growth as well as the slower rate of increase for retailer selling prices.”

Pienaar said while the bureau expected to see some moderation in retail sales this year, sales volume growth was likely to remain well supported on the back of sustained employment growth.

Statistics SA will release retail sales data for January tomorrow.

“These data will not only show whether the rate hikes seen so far have started to restrain consumer spending, they will also provide an indication on SA’s structural imbalances,” said Rennies Bank chief currency dealer Ion de Vleeschauwer.

Recent economic growth figures show that sources of growth are starting to shift from the consumer demand-led side to the supply side of the economy, with sectors such as manufacturing improving on the back of a weaker rand. The economy grew at a seasonally adjusted and annualised rate of 5,6%, and at 5% for last year as a whole.

“The release will also contain some predictive value as to whether a rate hike can be expected from the (Reserve) Bank following governor Tito Mboweni’s warning to consumers last week to cut household debt,” said De Vleeschauwer.