Retail sales signal slower consumer activity

Services form the largest component of household expenditure.

Figures released by Statistics SA on Wednesday, 19 September 2012, showed that retail trade sales increased by 4.2% year on year at constant prices compared with an upwardly revised 8.6% (8.3%) rise in June.

On a monthly basis‚ sales were up by a marginal 0.1% on a seasonally adjusted basis in July following month-on-month changes of 2.5% in June and -1.0% in May.

Although an increase‚ the 4.2% was well below a market consensus forecast for a 7.2% rise in retail sales.

Textiles and clothing retailers as well as the retailers of pharmaceutical and medical goods‚ cosmetics‚ and toiletries contributed significantly to the year on year growth.

The results of the monthly retail trade sales survey are used to compile estimates of the gross domestic product (GDP)‚ while the sales figures are also a key measure of consumption expenditure levels.

The retail sales are also likely to get a platform during the Reserve Bank's monetary policy committee meeting‚ which ends on Thursday.

ETM Analytics economist Jana le Roux said they would not read too much into the slowdown in retail trade sales figures as the data had been "choppy" in recent months.

"We still think that activity in the retail sector remains fairly robust and would not justify another rate cut by the Reserve Bank‚" Le Roux said.

"Although we expect growth to moderate somewhat in the coming months‚ we don't see it crashing lower."

Emerging market economist at Nomura International‚ Peter Attard Montalto suggested that unsecured lending played a role in maintaining some level of growth in retail sales.

He noted that underlying retail sales were slowing but not overly fast as they were given a boost by unsecured credit growth and still decent real disposable income growth through the second quarter.

Strong and fast growth in unsecured lending has led to various institutions raising concern over its sustainability and its threat to the banking system. Authorities‚ including the Reserve Bank and banking sector leaders‚ have however reassured markets that unsecured credit could be managed.

The 4.2% would probably not trouble the Reserve Bank‚ Attard Montalto said‚ and would be in line with their view of a steady slowdown in consumption.

"The continuation of this trend will be enough to get a cut in November in our view when combined with World Government Bond Index-related inflows‚ eurozone crisis shocks and inflation also turning around and back below 5.0%‚" Attard Montalto said.

The Nedbank Group Economics Unit expected consumer spending to lose momentum in the months ahead as a poor global and domestic economic outlook weighed on consumer confidence‚ which remained weak.

An FNB/Bureau for Economic Research (BER) consumer confidence index released on Tuesday showed that consumer confidence improved two index points to -1 in the third quarter from -3 in the second quarter.