EDITORIAL: SA could still face 'consumer recession'
The latest retail sales figures from Statistics SA are better than the market expected, but that doesn’t make them good — and they don’t necessarily allay concerns that SA could face a "consumer recession".
Retail sales in May were up 1.7% in real terms compared to May 2016, below the 2% in April but still well ahead of the market’s consensus forecast, which was for a decline of 0.3%. Measured over the three months from March to May, sales were up 1.5% on the same period in 2016, which is an improvement on the first quarter, and should help the second-quarter GDP figures.
But these days it’s a case of welcoming even the smallest signs of good news. So for example Stanlib economist Kevin Lings points out that, importantly, the 12-month moving average growth rate remains positive at 0.7% "suggesting the retail sector is still managing to avoid a recession, albeit by a small margin".
Whether it will continue to do so is a question, in a year in which households face significant headwinds. Two years ago inflation was relatively low and wage increases were well above inflation, so households were still reasonably placed even though the economy was slowing. That started to turn in 2016, and could place even more pressure on households in 2017.
Already retail sales figures have been showing a distinct switch away from durable and even semidurable purchases towards essentials such as food and drink as well as low-budget vanity purchases such as cosmetics
Inflation may be coming down but wage increases have been slowing and tax increases are significantly affecting particularly middle-income households. Debt levels remain high — especially in lower-income households that depend heavily on expensive, unsecured lending while many higher-income households are working to cut debt rather than grow spending, especially at a time when jobs and bonuses are far from secure.
Lings expects consumer confidence will remain subdued in this economic and political environment and that will affect spending on big-ticket items such as houses, cars, furniture, appliances and jewellery.
Already retail sales figures have been showing a distinct switch away from durable and even semidurable purchases towards essentials such as food and drink as well as low-budget vanity purchases such as cosmetics. Recent results from retailers such as Clicks indicate the "lipstick effect" is very much in evidence — when times are hard, people spend on small luxuries as they can’t afford bigger ones.
That seems to include not just big-ticket items but even items such as clothing and household maintenance. Statistics SA numbers show that for the three months from March to May the biggest gain year on year was the 13.6% increase in food and drink at specialised grocery stores. Pharmaceuticals, medical goods and cosmetics did well too, with a 5% increase — reflecting the lipstick effect at least to some extent. By contrast, textiles, clothing and footwear sales were down 1.7% and there was a 1.1% decline too in hardware, paint and glass, as well as a decline in sales by "other" retailers.
Perhaps surprisingly, there was a 1.9% increase in household furniture and appliance sales. That may reflect a trend Citi economist Gina Schoeman points to — which is that the financial position of higher-income households, who have access to cheaper debt and have cut debt levels since 2008, is healthier than that of low and middle-income households.
But in an uncertain and ailing economy, everyone is taking strain. And just as some households will be better off than others to weather the storm, so too will some retailers. As the retail statistics suggest, those selling essentials could be expected to do better than those selling discretionary items, especially big-ticket ones, and there will be contrasts too between those relying on credit sales and those with cash businesses. With competition in the sector increasing, there will no doubt be casualties.