Retail sales disappointed in July, backtracking on some of the ground recovered in the previous month, and underscoring the long road to recovery lying ahead for the sector.

Retail sales contracted 9% year on year in July, worse that the -5% expected in a Bloomberg poll of eight economists, and a sharper contraction than the revised 7.2% fall reported in June.

The figures come as consumer confidence is at its lowest levels since 1993, despite a partial recovery off the historic trough recorded in the second quarter, and highlighting the stresses households still face as they navigate the fallout from the Covid-19 lockdown.

“I think it’s quite reflective of weak consumer sentiment in SA,” said Sanisha Packirisamy, economist at Momentum Investments, adding that the drivers that typically support consumer spending, including income levels, employment and confidence, all face headwinds.

“Income levels are generally down, anecdotally we know there have been significant pay cuts in areas of the economy,” she told Business Day.

The most recent data from the BankservAfrica take-home pay index, for the month of June, suggested a 20.7% decline in monthly payments from a year ago.

Consumers face rising job losses and retrenchments, particularly among workers in the informal and small and medium enterprise (SME) sector, Packirisamy said, and though confidence has come back from its record lows, sentiment across all income groups is broadly negative.  

The sector is likely to experience some improvement in coming months as economic restrictions are eased. In addition, alternative information sources, such as mobility data from Google, showed an uptick in retail activity in recent months.

“But I would warn against sustained strength in retail sales,” Packirisamy said. “Going into next year there are big headwinds facing the consumer that are not necessarily going to be cleared up any time soon.”

These include the likelihood that individuals who had their incomes cut not recovering that lost income in the near future, and the difficulty the economy will have in reabsorbing those who have lost their jobs.

The retail segments that made the biggest contributions to the annual declines reported in July were all “other” retailers, and textiles, clothing, footwear and leather goods retailers, according to Stats SA.

July’s figures come after last week’s GDP data, also released by Stats SA, that showed household consumption spending declined 49.8% on a seasonally adjusted and annualised basis in the second quarter and contributed the most to the decline in GDP, when measured on an expenditure basis.

Though July’s figures were disappointing, historical trends suggest that July tends to be a weaker month for retail sales volumes compared to June, according to FNB senior economist Siphamandla Mkhwanazi. Only once in the past five years, during 2016, did July annual growth outpace that of June, he said in a note.

He expects shopping activity to normalise in the coming months, as more lockdown restrictions are lifted.

“The aggressively lower interest rates, muted goods inflation, as well as marginally lower income taxes, will continue to provide some auxiliary support to the financially strapped consumer,” Mkhwanazi said. “However, our expectation of a significant weakening in labour market conditions implies a greater downward pressure on household consumption in the medium term.”


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