Retail sales surge signals recovery gaining pace

Retail sales surge signals recovery gaining pace

FMCG SUPPLIER NEWS

Business Day - Nov 17th 2011, 11:03

Growth in retail sales surged unexpectedly in September, signalling that SA’s economic recovery was gathering momentum and quashing lingering expectations that interest rates could fall again 

Retail sales jumped 8,3% compared with the same month last year, accelerating from an upwardly revised 7,7% in August, Statistics SA said yesterday. Consensus forecasts had predicted growth would slow to 6,5%. At the same time, a consumer confidence index for the fourth quarter showed that sentiment improved slightly, albeit from a low level. Consumer spending is the economy’s main engine of growth.

"We are finally getting a better sense of the state of consumption ... an improvement is finally evident," said Razia Khan, Standard Chartered’s regional research head for Africa. "This, together with the latest inflation data, should further reinforce the expectation that the next move in South African rates will be a tightening rather than a cut."

Inflation rose by an annual rate of 5,7% in September, nearing the upper end of the government’s 3% to 6% target range.

After news that factory output rose strongly in September, the retail sales figures support the view that the economy accelerated in the third quarter, after expanding by a meagre 1,3% in the second quarter.

"We have been warning of the declining trend in retail sales growth for some time now," said Alec Abraham, senior equity analyst at Vunani Securities. "However, the retail sales statistics … certainly suggest that the downtrend may have been broken."

Retail sales rose 1,8% in September itself, up from 1% in August. Retail and wholesale trade make up about 12% of overall output in the economy, while manufacturing comprises more than 15%.

A survey from First National Bank (FNB) yesterday added to the upbeat message, showing that consumer confidence nudged up by one index point to +5 in the fourth quarter of this year. A slightly higher percentage of consumers expected an improvement in their household finances than in the third quarter, while a slightly lower percentage rated the present as the wrong time to buy durable goods.

This was partly offset by a fall in the number of consumers who expect SA’s economy to improve over the coming year, the index, compiled by the Bureau for Economic Research, showed.

The long-term average of the index is +2. The fact that it was holding up so well "leaves us confident that the consumption side of the economy remains the backbone of SA’s growth prospects", Absa Capital economist Jeffrey Schultz said in a research note.

Low interest rates, manageable inflation, high nominal income and a slightly more supportive labour market were all supporting consumption, he said.

Recent Statistics SA data also showed employment rose during the third quarter of this year.

The main drivers of the annual increase in retail sales were general dealers, which include big names like Mr Price and Makro, and account for 40% of overall sales. They rose by 7,7% and contributed 2,8 percentage points of the overall increase.

Sales of hardware, paint and glass rocketed by 19,9% compared to the same month last year. "This suggests a higher level of home maintenance returning to the residential property market after a huge slump in and around the 2008 -09 recession," said John Loos, household and property sector strategist at FNB.

Sales of food, beverages and tobacco were the weak spot in the data, remaining flat compared to the same month last year. This reflects a steady rise in food and beverage prices over the past few months.