Retailers’ business confidence dipped during the first quarter of 2024, emphasising the effect high borrowing costs continue to have on consumers.
The Bureau for Economic Research (BER) retail survey released on Monday slumped back to 34 in the first quarter of 2024, after jumping from 32 to 47 during the 2023 festive season, suggesting consumers are still shying away from big-ticket purchases.
BER chief economist Lisette IJssel de Schepper said lower levels of load-shedding, moderating food inflation and interest rate cuts, with which the BER expects the Reserve Bank to start its rate-cutting cycle in July, should spark a recovery in retail trade.
The cuts were expected “from the third quarter of 2024 onwards but first the political and economic risks about the May 29 national election loom large”, IJssel de Schepper said.
The decline in retailer confidence can probably be ascribed to profitability remaining poor in the sector but the perceived risks about the upcoming national election may also be weighing on sentiment.
She said the drop in retailer confidence implied only a third of the retailers surveyed by the BER were satisfied with prevailing business conditions similar to the business confidence reading at the start of 2023.
A closer look at the data shows that dip in confidence comes despite a slight improvement in seasonally adjusted retail sales volumes relative to the previous quarter with the BER’s survey results pointing to low positive year-on-year growth in retail sales in the first quarter.
IJssel de Schepper said the decline in retailer confidence could probably be ascribed to the fact that profitability remained poor in the sector, but the perceived risks regarding the upcoming national election could have also weighed on sentiment.
“Bar hardware retailers, all other retail categories surveyed by the bureau reported somewhat better sales volumes during the first quarter,” she said. “Non-durable goods retailers registered the largest uptick in volume growth, no doubt supported by a further deceleration in food inflation and slower growth in restaurant and takeaway spending.”
Food inflation
According to Stats SA food inflation decelerated to 7.2% year-on-year in January, down from a peak of 14% in March 2023, and 8.7% in the final quarter of last year.
IJssel de Schepper said growth in restaurant and takeaway sales volumes slowed from 7.9% year on year in the first quarter of 2023 to 1.5% by the fourth quarter, easing some of the downward pressure on food sales at the retail level.
Survey data shows textiles, clothing and footwear retailers reported sales volumes re-accelerated during the first quarter after suffering from some post-Rugby World Cup blues and underwhelming Black Friday sales in the fourth quarter.
“The fact that semidurable goods retailers are still reporting robust volume growth — in the face of challenging economic conditions, and on top of two years of impressive growth — is a positive surprise,” IJssel de Schepper said.
The data shows on the durable goods front, furniture and household appliances sales edged up slightly, despite the sector remaining under pressure from anaemic real disposable income and credit growth.
IJssel de Schepper said alarmingly after a dismal festive season the BER’s survey results suggested that hardware sales volumes plunged even further during the first quarter of 2024.
“Weak hardware sales correspond with the deterioration in residential construction activity in the building sector in recent months and ties back to high interest rates, cost-of-living pressures and low consumer confidence levels,” she said.
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