There are incipient signs that retail sales growth and consumer confidence in SA are faltering. This is serious, as consumer spending accounts for over 60% of GDP.
Retail sales growth figures from Stats SA for May 2022 were released recently and few retail categories showed any positive growth in overall sales growth that averaged 0.1% year on year. Additionally, the consumer confidence indicator from FNB/BER for the second quarter of 2022 was also released recently and reveals consumer confidence at near record lows over the past 40 years.
There is also a visual inverse correlation between retail sales growth and interest rates. In other words, as interest rates rise, so retail sales growth declines and vice versa. So with the likelihood of further substantial interest rate rises in prospect in SA over the next couple of years, it is difficult to see how retail sales growth can be anything but negative.
For the year to May 2022, overall retail sales growth in SA was only 0.1%, compared with a figure of 4.3% in April, which was revised upwards from an original estimate of 3.7%.
The best-performing category was general dealers, which grew by 3.7% year on year, followed by the all other retailers category, which rose by 2.1%. General dealers includes retailers in non-specialised stores, with food, beverages & tobacco predominating, while the all other retailers category is a hodgepodge of stationers, jewellers, sports shops, second-hand goods, online and others. Stats SA does not give a granular breakdown of activity within this broad sector. Thus it is difficult to draw any meaningful conclusions about this category.
Most of the other categories in the Stats SA survey exhibited slightly negative year-on-year growth apart from hardware, paint and glass (effectively a DIY category) — which went backwards by 6.8% in May, after falls of 8% in April and 8.9% in March — and food, beverages & tobacco in speciality stores, which fell by 5.6% in May.
Hardware, paint and glass has been showing deeply negative growth for at least the past six months, an indication that the “homebody economy” that was apparent during the depths of the coronavirus pandemic has largely evaporated, as increasing numbers of people return to the office and stop working predominantly from home.
The big slump in growth in food, beverages and tobacco in specialised stores is more difficult to interpret, though it may just be that an increasing number of shoppers are returning to the larger shopping malls and not concentrating so much on smaller convenience stores, as they lose their fear of crowded shopping areas as coronavirus restrictions fall away. If that is the explanation, expect further weakness in this category in the next few months, as the full impact of all coronavirus restriction removals is felt.
The two most discretionary categories — clothing, footwear, textiles and leather and furniture and appliances — both showed negative growth in May. That has not happened in the past year and may be an early warning indicator that consumer spending if faltering.
The consumer confidence indicator from FNB/BER printed at -25 in the second quarter of this year. This is the third worst reading in the survey’s history, exceeded only during the depths of the pandemic in 2020 and the tumultuous political events of the mid-1980s. We should probably expect this indicator to sink even lower in the next quarter, reflecting the dampening impact on consumer confidence of the continuing situation with Eskom’s rotational power cuts.
And then finally, the SA Reserve Bank’s monetary policy committee (MPC) gives its repo rate decision on July 21. All indications are that the MPC will raise the repo rate by at least a further 50 basis points, putting further pressure on consumer spending.
It doesn’t seem to matter that SA’s inflation in largely caused by events way beyond the MPC’s control, in the form of much higher food and fuel prices. All that seems to matter to the MPC is that the upper limit of the 3% to 6% inflation target has been breached.
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