REAL RETAIL SALES GROWTH SLOWS IN JUNE
Real Retail Sales growth for June 2016 slowed from 4.5% year-on-year in the previous month to 1.7%.
However, monthly figures are traditionally volatile, so FNB prefers to analyse the data using a 3-month moving average, which grew year-on-year by 2.6% for the 3 months to June 2016. This 2.6% growth in the 3-month moving average is down from the 3% for the 3-months to May, and now noticeably slower than the 3.9% high reached in the 3 months to February 2016. There does appear to have been some broad slowing in growth since early in 2016 therefore.
The slowing in the real year-on-year growth in the month of June was a combination of a de-celeration in Nominal Retail Sales Growth in that month to 8%, from 10.3% previous, and Retail Price Inflation accelerating from 5.6% in May to 6.2% year-on-year in June. The Retail Sector has for a long period been supported by low price inflation, below that of overall CPI (Consumer Price Index) inflation. That may be coming to an end for the time being.
RETAIL PRICE INFLATION
During June, General Dealer Retail Price Inflation at 7.8%, and Specialised Food retailer Inflation of 7.1% year-on-year remained the 2 troublesome areas of Retail from a price inflation point of view.
Drought conditions and earlier Rand weakness were still in the process of feeding into domestic food retail prices in the 2nd quarter of 2016.
On the low side, Hardware, Paint and Glass Retailers showed price inflation of a mere 0.5%, while Household Furniture, Appliances and Equipment Retailers showed 3.3% retail price inflation year-on-year for June.
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 year-on-year rate of +1.2% for the 3-months to June 2016. General Dealers were slightly better at 2.2% growth, but had slowed noticeable since prior months.
IS HOUSEHOLD FURNITURE, APPLIANCE AND EQUIPMENT RETAIL WEAKNESS A LEADING INDICATOR OF THINGS TO COME?
A potential “leading sector” is that of “Household Furniture, Appliances and Equipment” Retail. This area of retail is significantly credit dependent, and can be sensitive to interest rates. In addition, it consists of purchases which can often be postponed for lengthy periods when financial times get tougher.
Therefore, it is not too surprising to see the 3-month average for this Retail category declining sharply by -6.2% year-on-year for the 3 months to June 2016.
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.
But as yet FNB hasn’t seen a move into negative growth in the Hardware, Paint and Glass Product Retail category. To the contrary, its growth of 3.9% for the 3 months to June proved to be one of the 2nd quarter strong points for overall retail.
“PHARMACEUTICALS AND COSMETICS” WAS THE STAR PERFORMING CATEGORY OF RETAIL IN THE 2ND QUARTER
The star performing sector of mainstream retail for the 3 months to June was “Pharmaceuticals, Medical, Toiletries and Cosmetics” Retail with 7.3% year-on-year growth, and this category has been showing broadly accelerating growth through 2015/16..
But the more cycle-sensitive Textiles, Clothing and Footwear Retail appears to be beginning to feel the lagged impact of economic weakness, and while still showing a reasonably good growth rate of 2.6% year-on-year for the 3-months to June, the rate has slowed since the beginning of 2016.
CONCLUSION
FNB tends not to read too much into sharp monthly moves in real retail sales growth on a monthly basis. Monthly data can be volatile, and thus, they pay more attention to the 3-month moving average. Nevertheless, since early in 2016 the year-on-year growth rate in this 3-month moving average for real retail sales has slowed noticeably, from a high of 3.9% for the 3 months to February, to 2.6% for the 3 months to June. But given economic growth of nearer to zero early in the year, this 2.6% growth remains a solid rate under the circumstances.
However, FNB believes further slowing in growth to be the likely outcome, taking real retail sales growth more into line with Real Economic and Disposable Income growth. The slowing is expected due to weak consumer confidence levels in recent years, which points to consumers as a group living more cautiously and increasingly within their means, possibly even increasing their savings rate. Under such circumstance is unlikely that retail growth can continue to outpace economic growth indefinitely. Average year-on-year real retail sales growth for the 1st 6 months of 2016 was 3%, slightly below a 3.3% average growth rate for 2015 as a whole. For 2016 as a whole we expect a growth rate nearer to 1.9%, which remains a fairly good outcome given our Real GDP growth forecast of a mere 0.2%.
Read more here: Household Sector_June_Retail Sales Update_August_2016
