Retail sales rise, but shoppers are still under pressure

SA’s retail sector performance in June beat expectations, pointing to some recovery in consumer confidence and more willingness from shoppers to open their wallets.

However, even as inflation has started to cool slightly, households remain under pressure from high living costs and interest rates.

Stats SA said on Wednesday retail trade sales increased by 4.1% year on year in June, compared with 1.1% in May and 0.7% in April, and well ahead of economists’ forecasts of between 0.9% and 1.1%.

The growth achieved from May to June also beat expectations, with the June month-on-month reading coming in at 1.6%, ahead of May’s 0.2% contraction and exceeding expectations of a roughly 0.6% rise.

After contracting 0.3% during the first three months of the year, the favourable June reading contributed to retail trade sales increasing by 1.5% (seasonally adjusted) during the second quarter, which means the sector will make a positive contribution to overall GDP for the quarter.

Supermarkets

The largest positive contribution to the 4.1% rise in retail sales in June was from general dealers such as supermarkets, which saw sales increase 7.3%, contributing 3.3 percentage points to the overall reading. Retailers in textiles, clothing and footwear increased sales 6.1%, contributing 1.1 percentage points.

However, while June figures are encouraging, the broader consumer environment remains challenging due to high living costs and unemployment, as well as tight credit conditions, said FNB senior economist Siphamandla Mkhwanazi.

“Retail sales have been on a cautious upward trajectory in the last three months (April-June), with May and June particularly strong. This coincides with load-shedding cessation since March, a substantial petrol price cut in June, as well as the post-election improvement in sentiment. In addition, National Credit Regulator data for the first quarter also shows increased lending activity in the nonbank sector, particularly by retailers.

“Furthermore, Reserve Bank data reveals that the lending activity in the banking sector has increased reliance on credit cards. All these factors could be playing a role in the number that we are seeing,” Mkhwanazi said.

Consumer inflation slowed to its lowest level so far this year in June. As measured by the consumer price index, prices rose 5.1% in June, slowing from 5.2% in both May and April.

The Reserve Bank expects headline consumer inflation for 2024 to average 4.9%, down from 6% in 2023.

Business Day previously reported on a study by fintech company PayCurve, which showed 80% of SA employees were running out of cash mid-month and relied on short-term credit to cover living expenses such as transport and groceries.

Jee-A van der Linde, senior economist at Oxford Economics, told Business Day that consumers remained under pressure and were in some cases probably resorting to credit.

“In terms of the increase in June retail sales, I think it could be a combination of both debt and improved confidence,” Van der Linde said.

But Elna Moolman, head of SA macroeconomic research at Standard Bank, said that while it was difficult to isolate the factors that had a particular impact on a monthly data point such as retail sales, household credit growth trends generally remained quite subdued and presumably played a limited role in boosting consumption in June specifically.

“There may have been a positive impact from removing the election-related political uncertainty during June, though there was still considerable uncertainty ... while the government of national unity was finalised towards the latter part of the month,” she said.

“Sentiment may also have benefited from the persistent absence of load-shedding. We suspect there may have been a notable impact from the sizeable decline in fuel prices in June, while the general easing in inflation pressure may also have provided some relief.”

The growth in second-quarter retail sales should be seen in the context of the contraction in the first quarter of the year, Moolman added. On a year-to-date basis, growth was less than 1% year on year.

“We are moving in the right direction, but overall the first half of the year was still quite subdued from a consumer perspective. We think the outlook for retail sales in the second half of the year is stronger, supported by the ongoing decline in inflation pressure as well as interest rate cuts that we foresee from September.”

Investec economist Lara Hodes agreed, saying indebted consumers should start experiencing some relief from high interest rates later this year. They expect the Bank’s monetary policy committee to start cutting rates in September after keeping the repo rate steady at 8.25% at its last meeting.

“Moreover, we expect consumer confidence to pick up in the third quarter, underpinned by an improvement in political certainty and the continued suspension of load-shedding,” Hodes said.

Update: August 14 2024
This story contains additional comment from economists.

erasmusd@businesslive.co.za