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Retail sales point to tough times

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By Ethel Hazelhurst

Poor economic data readings continue to signal a bad fourth quarter for the economy.

Statistics SA reported yesterday that growth in retail sales decelerated sharply to 1 percent year on year in October, from 4.7 percent in September. The change is measured in constant 2008 prices. On a monthly basis, sales contracted 1.7 percent after shrinking 0.3 percent in September.

The annual number was below the Bloomberg consensus and a “negative surprise for the markets”, Citi analyst Gina Schoeman said.

The October outcome could point to a change in consumption patterns. Stats SA’s income and expenditure report, released last month, showed that between 2006 and last year, household income rose 16.7 percent while household spending grew 24.6 percent. In other words, credit funded a big portion of expenditure.

At some point, many consumers will have no further access to credit, reducing their spending power. As consumption normally makes up about 60 percent of gross domestic product (GDP), this will prove a drag on economic growth.

Schoeman said: “The downward surprise in the numbers comes from clothing and footwear. We expected a strong monthly rise in sales, which is typical for October, but this really disappointed with sales only rising 11.7 percent month on month.”

The figure compared with month-on-month growth in clothing and footwar of 19.8 percent in October last year.

As a result of the poor monthly performance, year-on-year growth in this category slowed to 1.5 percent from 8.9 percent in September. “The category makes up 22 percent of overall retail sales,” Schoeman noted.

She blamed rising inflation, particularly in food, which erodes household income, and a lack of consumer confidence for the reluctance to spend.

Calculated on a quarter-on-quarter seasonally adjusted basis, retail sales growth slowed to 6.4 percent in the three months to October, from 7.3 percent previously, Schoeman said. This implied a poor fourth-quarter outcome for GDP, she warned.

Annabel Bishop, the chief economist of the Investec group, suggested October’s retail sales “suffered due to the illegal strike action that became widespread in the mining sector in September, and resulted in increased usage of savings and credit in September. By October many households were suffering financially, which likely eventually prompted the return to work.”

Stats SA said: “The highest annual growth rates were recorded for retailers in: household furniture, appliances and equipment (3.9 percent); and pharmaceuticals and medical goods, cosmetics and toiletries (3.2 percent).”

Bishop said the trade expectations index of the SA Chamber of Commerce and Industry “indicates further moderation in retail sales growth in November”.

Looking on the bright side, the Nedbank economic unit noted: “Weak retail sales numbers suggest that demand pull inflation is likely to remain contained. We believe the Reserve Bank monetary policy committee will keep monetary policy neutral over an extended period…

“We therefore maintain our view that interest rates will remain unchanged for most of next year, and a reversal in policy easing is likely only late in the year or even in 2014.

“However, any deterioration in both the global and domestic economies would increase the chance of another cut.”

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