Retail sales decline for seventh consecutive month

Retail trade sales decreased in June, falling for a seventh successive month in another sign of growing financial pressure on consumers as South Africans continue to suffer the brunt of growing borrowing costs in a high-price environment, compounded by weak economic activity and high unemployment.

Stats SA data on Wednesday showed retail sales fell 0.9% after an upwardly revised 1.6% drop in the prior month, and much lower than the market forecast of a 0.2% decline.

Retail trade sales decreased 1% quarter on quarter, rounding off the second-quarter releases for the sector and should detract from real GDP growth.

The strength of consumer spending is key for growth prospects given that consumer spending accounts for about 65% of GDP when viewed from the demand side.

The latest retail sales data shows that consumers kept their wallets shut in the second quarter, indicating that tighter monetary policy and higher prices are eroding disposable incomes and affecting discretionary spending.

Data from the National Credit Regulator also shows signs of worsening consumer debt strain. The credit regulator said fresh overdues — overdue credit repayment obligations of between one to three months but not yet formally classified as arrears — increased to 7.1% of the gross debtors’ book in rand terms in the first quarter, the highest level since the first quarter of 2010.

Moreover, economic research shows wage growth has been tracking below inflation for several quarters, though it now seems to be catching up slightly — all this as interest rates stand at more than a decade-high 8.25%, also weighing on households’ disposable incomes.

Confidence among retailers also remained depressed and fell by a notable 14% to 20% in the second quarter. The RMB/BER business confidence survey said respondents attributed the fall in sentiment to a deterioration in profitability on the back of soaring load-shedding related costs.

“Moreover, consumers remain financially constrained with real take-home pay remaining in negative territory in June,” Investec economist Lara Hodes said.

FNB senior economist Siphamandla Mkhwanazi said the most recent credit data suggests consumers are still accumulating consumption credit at a relatively faster pace, though the trend has plateaued in the past few months.

He said the data further reveals a strong increase in the issuance of store and credit cards in nonbank sectors — both geared towards consumption.

“However, we expect that lending standards will tighten further, as the cumulative effects of past interest rate decisions filters through, suggesting less support for shopping activity,” Mkhwanazi said. “These factors, combined with depressed consumer confidence, corroborate our view of subdued growth in household consumption expenditure.”

Senior economist at Oxford Economics Jee-A van der Linde said while the industry side of the economy performed better than expected in the second quarter — warranting minor upward adjustments to current GDP growth projections — the retail sales data shows the demand side of the economy is experiencing strain.

“It is likely that the SA economy will record modest quarterly growth,” he said. “That said, looking ahead, we do not see any meaningful improvement for the domestic economy in the near term as structural constraints together with a high-cost environment weigh on growth prospects.”

He added that a weak rand exchange rate and higher international oil prices in August point to sizeable domestic fuel price increases during the next cost setting for September.

Stats SA data shows the largest negative contributors to this decrease were the general dealers and the retailers in hardware, paint and glass categories.

Reduced sales were also observed for all other retailers — household furniture, appliances and equipment and pharmaceuticals and medical goods, cosmetics and toiletries.

Update: 16 August 2023. This article has been updated with new information and economist comment.

zwanet@businesslive.co.za