ELNA MOOLMAN: Drip by drip, relief is on the way for consumers

Signals from consumer-related indicators have been mixed of late, but last week’s data encouragingly showed a consistent improvement (albeit still weak) in recent outcomes.

Stats SA’s official retail data showed an increase in sales volumes of 0.5% in April compared with March — a third consecutive month of positive growth. This data series has shown some volatility in recent months, making it unusually tricky to pin down a trend. For example, April’s real (inflation-adjusted) sales have still not reverted to the level reached by a spike (after adjusting for seasonal factors, such as higher holiday sales) in December, though that spike then relapsed in January. Still, April’s sales volumes exceeded the 2023 average by 1%.

Furthermore, the Bureau for Economic Research’s survey of retailers last week reflected a notable increase in retailers’ perceptions of sales-order volumes in the second quarter of 2024, to well above the post-1994 trend. There was also a jump in surveyed retailers’ perceptions of their profitability in this survey, to the strongest since the third quarter of 2022, as well as exceeding the long-term average.

These recent positive developments for the second quarter come in the wake of the exceedingly weak data of the first quarter, when total household consumption expenditure in fact contracted (in inflation-adjusted terms, thus proxying volumes).

At that time, consumers faced headwinds ranging from high interest rates to fiscal restraint, pre-election uncertainty, severe load-shedding (which still exceeded, in the first quarter this year, the load-shedding of the final quarter of last year). Furthermore, Stats SA’s GDP data for the first quarter revealed a sharp slowdown in total wage income in the economy, while we believe that individuals’ investment income (notably dividends, a major source of income for the higher-income groups) too was weaker. This would be consistent with the weakness in the total income of Standard Bank clients at the time.

Notwithstanding the obvious headwinds to consumers, we still foresee an improvement in the state of consumers over the course of this year, supported by lower inflation and the recovery in employment in 2023 — as well as the interest-rate relief in the offing later this year.

The coming week’s data releases should provide further clarity on the state of the consumer. Two of these upcoming releases — the Quarterly Employment Statistics and the South African Reserve Bank’s Quarterly Bulletin — are somewhat backward-looking insofar as they will comprise consumer data only up to, and including, the first quarter of this year. Still, there will be more detail on the weak national wage bill in the first quarter, which, if it persists, would pose a notable downside risk to the growth that we foresee in consumer spending this year.

The Quarterly Bulletin will also provide the first measure of individuals’ non-wage income, which we assume to be under pressure. Non-wage income comprises a sizeable portion of certain individuals’ total income — and is particularly important for the higher-income groups where this is often the dominant source of income. Indeed, the expected weakness in investment income is a key reason we expect high-income groups to come under increasing pressure this year. These groups may still be relatively resilient, supported by savings, but their income growth is likely to be listless. Indeed, the income data of Standard Bank clients displays the weakest trends among the high-income groups this year — in sharp contrast to the past few years during which such clients had benefited from strong investment income growth as well as resilient employment trends.

Consumer confidence data for the second quarter is also due in the coming week. The aggregate confidence measure will take the spotlight — but our particular interest is in the sub-indices. According to these surveys, in recent years consumers’ main concern has been the macroeconomic outlook rather than their own finances. Indeed, the index proxying their views on their own finances was nudging its long-term average in the first quarter. In contrast, the index reflecting their views on the macroeconomic outlook was still around 66% below its long-term average.

Clearer signs of relief for consumers may transpire after the significant fuel price decline in June and likely decline in July, but so far the relief from lower inflation (at 5.2% year on year in May, from an average of 6% in 2023) has been modest, especially after taking into account the negative effects of fiscal drag (not adjusting income tax thresholds for inflation in the budget) on after-tax income.

Once the Bank kicks off with interest rate cuts, most likely from September, we would expect a noticeable improvement though, more likely just some relief rather than any material impetus — because we foresee a shallow cutting cycle comprising just four 0.25% cuts.

• Dr Moolman is head of South African macroeconomic research at Standard Bank Group.