Real Retail Sales growth for November 2016 surprised sharply to the upside, accelerating to 3.8% year-on-year, from a previous month’s -0.2% contraction. This was not anticipated, as consumer and retail times have been fairly constrained of late, and with little economic reason to expect this to have suddenly changed.
Two questions come to mind with regard to this surprise strength of November. Firstly, is it just the usual data volatility? It’s Possible. But secondly, has it to do with the apparent reported success of the country’s Black Friday specials in November 2016, Black Friday being a relatively new and growing phenomenon in South Africa?
Only the December retail sales figures will be able to shed some light on these questions. But for reasons of regular data volatility, FNB prefers to analyse growth using a 3-month moving average. Here too, they saw some increase in November growth, from 0.4% year-on-year for the 3 months to October, to 1.8% for the 3 months to November.
If indeed the sudden burst in growth in November was a Black Friday effect, this may mean that a portion of normal December shopping was brought forward for the November specials, or deferred from what turned out to be a very weak October. If this is the case, it could mean that December Retail Sales data turns out to be disappointing when released a month from now.
Black Friday or no Black Friday impact, FNB does not read too much into the surprisingly strong growth number. In their view, consumer conditions remain weak, and they would not expect such growth strength to last long at this stage of the economic cycle. Their forecast for 2016 real retail sales growth, with one month’s data left to go, is 2.2%, and for 2017 as a whole they project a lower 0.6%.
While their economic growth forecast is for a mild acceleration from nearer to zero in 2016, to 1% this year, FNB does not expect real retail sales growth to yet match this. Key to their reasoning is the feeling that employment growth trends can lag economic growth, and will likely still be in the doldrums this year, constraining both consumer income growth as well as consumer confidence. FNB may thus see a more conservative consumer, which could see the Household Sector’s Savings Rate increase a little, itself constraining consumer spending growth.
Retail Price Inflation
During November, it remained food price inflation that was most troublesome, still driven by 2016 drought conditions, and this was seen in the inflation rates of Specialised Food, Beverage and Tobacco Stores (7.7% year-on-year), and General Dealers (9.0% year-on-year).
On the low side, Hardware, Paint and Glass Retailers showed price inflation of a mere 0.9%, while Household Furniture, Appliances and Equipment Retailers showed 2.5% retail price inflation year-on-year for November.
Food Retail Growth Spikes, But the More Cyclical General Dealers Remain Weak
Food consumption is typically “non-cyclical”, and can typically be volatile. Recent months have demonstrated this, with Specialised Food, Beverage and Tobacco Store real sales growth of 6% for the 3 months to November.
By comparison, the more cyclical General Dealers remained in the doldrums, showing real growth of only 0.7% year-on-year for the 3 months to November.
Furniture and Appliances Retail Is A Good Cyclical Indicator, And It Isn’t Pretty Yet
Durable goods consumption is one of the best business cyclical indicators, leading the cycle both upwards and downwards. In the area of Mainstream Retail, the Household Furniture, Appliances and Equipment Retailers fall very much into the area of durables, and they are highly sensitive to the economic cycle. It is these retailers (along with Vehicle Retail), that we watch very closely in order to get an idea of where we may be headed in a consumer cycle.
In real terms, these retailers have seen negative real growth through much of 2016, and while the negative rate has been diminishing of late, it was still at a significant -3.7% year-on-year for the 3 months to November.
Interestingly, though, is that Hardware, Paint and Glass Products Real Retail growth was still positive at 5.8% year-on-year for the 3 months to November. In times of severe financial pressure this category can also dip very sharply as households defer maintenance and upgrades on homes. The fact that these are still positive suggests that, although the Household Sector is financially limited, it is not overly financially stressed (as it was back in 2009 for instance), and is thus by and large keeping up the home maintenance levels despite cutting back on less essential furniture and appliances.
‘Pharmaceuticals and Cosmetics’ VS. ‘Clothing, Textiles and Footwear’
Another non-cyclical sector, namely “Pharmaceuticals, Medical, Toiletries and Cosmetics” Retail, with 4.8% year-on-year growth for the 3 months to November still does well for the overall retail sales growth rate.
But once again, when FNB looks at another cyclical sector, namely Textiles, Clothing, Footwear and Leather Retailers, they see weakness to the tune of 0.7% growth year-on-year for the 3 months to November.
Conclusion
FNB tends not to read too much into a single sharp monthly move in real retail sales growth such as November’s acceleration to 3.8% year-on-year. December data will probably shed some light on whether this “spike” was an anomaly, possibly driven by a “Black Friday” impact. Whether it was this or mere data volatility, FNB does not believe that the Retail Sector is out of its broader growth weakness yet. Economic fundamentals, while pointing to near term improvement, still remain weak.
In addition, when they break down retail data into the key types of retailers, they see the 3 most cyclical categories, namely General Dealers, Household Furniture and Appliances, and Textiles Clothing and Footwear, all battling to grow at all. These 3 categories are normally good indicators of where South Africa is in the business and consumer cycle, and they don’t provide significant encouragement just yet.
Read more here: Consumer & Retail Barometer – November Retail Sales (18th of January 2017)
