Real Retail Sales growth for May 2016 continued to surprise on the upside, accelerating to 4.5% year-on-year, from a previous month’s 1.6%. Some year-on-year growth acceleration had been expected, though, due to low base effects created by a dip in year-on-year growth in May a year ago.
However, monthly figures are traditionally volatile, so FNB prefers to analyse the data using a 3-month moving average, which rose year-on-year by 3% for the 3 months to May 2016. This 3% growth is similar to the April 3-month moving average of 2.8%, and down from the 3-year high of 3.9% year-on-year for the 3-months to February 2016.
Therefore, real retail sales growth remains solid, especially against the backdrop of a 1st quarter economic contraction, but when smoothing the numbers for the monthly volatility the growth remains a high of a few months prior.
The surge in the real year-on –year growth in the month of May was largely due to an acceleration in Nominal Retail Sales Growth in that month, with Retail Price Inflation providing only marginal assistance. Retail Price Inflation slowed only marginally from 6.1% year-on-year in April to 5.7% in May, so the 10.4% year-on-year growth rate in Nominal Retail sales, up from a prior month’s 7.7%, was the big driver of the real growth acceleration in May.
RETAIL PRICE INFLATION
During May, it remained food price inflation that was most troublesome, driven by Rand weakness and drought conditions earlier in the year, and this was seen in the inflation rates of Specialised Food, Beverage and Tobacco Stores (7.4% year-on-year), and General Dealers (7.2% year-on-year)
On the low side, Hardware, Paint and Glass Retailers showed price inflation of a mere 0.4%, while Household Furniture, Appliances and Equipment Retailers showed 2.5% retail price inflation year-on-year for May.
FOOD RETAIL GROWTH REMAINS SLOW
Food consumption is typically less cyclical than, say, durable and semi-durable consumer goods. However, food price surges do often constrain growth in real food spending and thus food-related retail on the specialized food retail side.
It is thus not surprising, given their higher than average retail inflation rates, to see specialised food retailers experiencing very weak real growth of late, with a negative year-on-year rate of -0.6% for the 3-months to May 2016.
STRONG HOME-RELATED PRODUCT BUYING NOT SO LONG AGO WAS A KEY SOURCE OF STRENGTH, BUT ITS NOT AS CLEAR THAT THIS IS THE CASE OF LATE
The FNB Estate Agent Surveys have pointed to “leveling out” and even some possible slowing in levels of home maintenance and upgrades in recent quarters.
This may have been reflected in a “lack of” growth since the 2nd half of 2015 in the area of hardware. Real growth in sales by the “Hardware, Glass and Paint Products” sector has strengthened in recent months, to measure 2.8% year-on-year for the 3 months to May 2016.
However, this category’s smoothed growth remains far slower than the 9.7% year-on-year peak for the 3 months to April of last year.
In line with other Durable consumer items such as motor vehicles, Household Furniture, Appliances and Equipment Retailers have experienced negative real growth recently, with a -4.4% real year-on-year decline for the 3 months to May 2016.
“PHARMACEUTICALS AND COSMETICS”, AND “CLOTHING, TEXTILES AND FOOTWEAR” ARE KEY DRIVERS OF RETAIL GROWTH
The 2 star performing sectors of mainstream retail for the 3 months to May were therefore Textiles, Clothing and Footwear Retail, growing by 4.5% year-on-year in real terms, and “Pharmaceuticals, Medical, Toiletries and Cosmetics” Retail with 5.3%.
CONCLUSION
FNB tends not to read too much into sharp monthly moves in real retail sales growth such as May’s acceleration to 4.5% year-on-year.
Monthly data can be volatile, and FNB thus pays more attention to the 3-month moving average of 3%. This 3% is a solid growth rate given the almost-recessionary economic conditions early in 2016, although there were some signs of a slightly better economic environment in the 2nd quarter of this year compared with the 1st quarter.
Nevertheless, when it is said that the 2nd quarter is believed to have been slightly better than the 1st economy-wise, FNB is still talking likely GDP (Gross Domestic Product) growth below 1%. Under such weak economic conditions, and their impact on employment and household income, it is tough to see such recent retail sales growth rates holding up.
FNB thus remains of the belief that Real retail sales growth is due for a significant slowing from the most recent rates down into the below 2% range, and indeed the 3% growth for the 3 months to May is below the earlier high of 3.9% for the 3 months to February of this year.
Read more here: Household Sector_May_Retail Sales Update_July_2016
