South African consumer confidence remained depressed despite picking up modestly in the third quarter of this year (Q3.22) as it was supported by a lift in confidence in the lower income segment of the market, according to Investec Bank’s economist and research analyst Lara Hodes.
Reacting to the retail trade sales for July this year, released by Statistics South Africa(Stats SA) on Wednesday, she said that the subdued sentiment undermined the consumer’s willingness to spend. Accordingly, as the Household Consumption Expenditure(HCE) made up around two thirds of GDP, she said the near-term growth outlook remained subdued.
The data from the government agency showed that retail trade sales increased by 8.6 percent year-on-year in July this year.
The largest positive annual growth rates were recorded for retailers in food, beverages and tobacco in specialised stores at 28.5 percent, retailers in textiles, clothing, footwear and leather goods at 13.9 percent and general dealers at 8.2 percent.
The largest positive contributors to this increase were general dealers that contributed 3.5 percentage points, followed by retailers in textiles, clothing, footwear and leather goods who contributed 2.2 percentage points) while retailers in food, beverages and tobacco in specialised stores contributed 2.1 percentage points.
Seasonally adjusted retail trade sales decreased by 0.1 percent in July this year compared with June this year.
This followed month-on-month changes of -0.4 percent in June this year and -1.6 percent in May this year. In the three months ended July, seasonally adjusted retail trade sales decreased by 1.3 percent compared with the previous three months.
Retail trade sales increased by 1.8 percent in the three months ended July compared with the three months ended July 2021. The largest positive contributors to this increase were retailers in textiles, clothing, footwear and leather goods at 5.1 percent and contributing 0.8 of a percentage point and general dealers at 1.8 percent and contributing 0.8 of a percentage point.
Siphamandla Mkhwanazi, FNB Senior Economist said the retail sales volumes kicked-off 3Q22 on a positive note, jumping by 8.6 percent y/y in July, following a decline of 2.3 percent y/y in June (revised up from -2.5 percent).
He said that the large annual increase in sales volumes was primarily due to base effects, induced by the July 2021 riots.
“On a month-on-month basis, seasonally adjusted volume sales declined marginally by 0.1 percent, following a decline of 0.4 percent in June and -1.6 percent in May,” Mkhwanazi said.
The senior economist said that the loss of momentum in monthly sales volumes, which was more informative given the base effects, was consistent with mounting pressure on consumer discretionary incomes due to rising interest rates and a higher cost of living.
He said that the month of July saw fuel prices increasing by R2.57, the biggest margin on record.
“This would have adversely affected consumer sentiment and their ability to spend on other goods. Nevertheless, year-to-date retail sales volumes are still 2.9 percent higher compared to the same period in 2021,” he said.
The bank said that while the annual growth uptick in sales volumes was broad-based, the spike was largely driven by Food and Beverages, Clothing and Footwear and General dealers.
On the opposite end, it said that hardware material sales continued to slide, recording -3.0 percent y/y, in line with the waning home-improvement drive. It added that this was the only category that registered an annual decline.
Mkhwanazi said that resilience in consumer spending had been underpinned by robust growth in non-labour income, a continued drawdown on savings accumulated during lockdown, as well as a lift in consumption credit uptake.
“Nevertheless, consumers are confronted by higher prices, rising interest rates, and slow growth in employment, which could ultimately dampen the recent spending resilience,” Mkhwanazi said.
BUSINESS REPORT