Business

Slow sales dim hopes of economic rebound in third quarter

Slow sales dim hopes of economic rebound in third quarter
JOHANNESBURG – Retail sales inched-up marginally in September, dimming hopes of an economic rebound in the third quarter.

Data from Statistics South Africa (StatsSA) on Wednesday showed that retail sales rose 0.2 percent in September compared with a revised 1 percent increase in the prior month, showing that growth was likely to remain flat in the third quarter as consumer sentiment remained negative.

The economy expanded 3.1 percent in the second quarter, following a 3.2 percent contraction in the first quarter – the largest in more than a decade.

StatsSA said seasonally adjusted volumes rose 0.5 percent month on month in September, from a decline of 1.1 percent in the prior month.

FNB economist Siphamandla Mkhwanazi said the softening continued to depict a muted demand environment.

Mkhwanazi said the relief that came after the SA Reserve Bank cut interest rates by 0.25 percentage points in July failed to reignite consumer spending as retail sales inflation remained higher.

“This suggests that the third quarter retail sales were flat on a quarter-on-quarter basis, and, as such, would have no contribution to the third-quarter gross domestic product growth,” Mkhwanazi said.

“A slowing trend in retail sales is consistent with the souring of consumer sentiment, as shown by the capitulation of the FNB/BER Consumer Confidence Index. This bolsters our view that consumers have become more price sensitive.”

Overall retail sales increased by 1.1 percent compared with the third quarter of 2018.

Investec economist Lara Hodes said the subdued data was largely underpinned by a substantial deterioration in the forward-looking sub-index of the consumer confidence index, which signalled expected economic performance.

“The restrained retail environment emphasises the plight of the South African consumer, which continues to face a myriad challenges, including structurally high unemployment rates amid a sluggish labour market, slowing wage growth and markedly higher administered prices,” Hodes said.

“This suggests a further drop in consumers’ willingness to spend, which does not bode well for household consumption expenditure and therefore economic growth in the near term.”

StatsSA said retailers in textiles, clothing, footwear and leather goods grew 3 percent, while general dealers fell 0.7 percent in September.

Mkhwanazi said the persistently low retail inflation readings, which remained below headline inflation level, demonstrated retailers’ inability to pass on price increases amid intensified bargain hunting by consumers.

“Looking ahead, while households’ appetite for credit remained reasonably strong, the persistent pressures on disposable incomes and the rapidly weakening credit scores meant a narrowing scope for consumers to take up more debt,” Mkhwanazi said.

“This, combined with the deterioration in consumer sentiment, suggests a relatively tepid medium- to longer-term household consumption prognosis. More immediate, however, we expect a transitory uptick in retail sales in heading into the festive season as consumers take advantage of discounted pricing.”

BUSINESS REPORT