Recession persists for SA retailers

It notes that that real retail sales, a key gauge of consumer demand, plunged 7% in August from a year ago, the second largest drop since the recession began.

On a monthly basis, sales slumped 3.1% from July. The most recent Naamsa new vehicle sales figures tell a similar story: Sales in September came in 22.4% below year-ago levels, as hesitant consumers pulled back on big-ticket items.

"Despite lower inflation and the Reserve Bank's aggressive cuts totaling 500 basis points in its benchmark interest rate since December, households remain financially strained. Bleak near-term employment prospects are expected to power saving over spending. Earnings growth has also been severely curtailed by growing labour slack.

"Although some unions have secured wage increases above the rate of inflation, most firms are unlikely to boost salaries in the current weak business environment, suggesting income growth will remain tepid in the near term.

"In addition, though lending standards have reportedly eased somewhat, borrowing remains costly and is still difficult to obtain.

"This bodes poorly for retailers of big-ticket products," Moody's Economy.com points out.

Consumer sentiment also remains moribund, it says.

"Consumer confidence in the third quarter, as reported by the Bureau of Economic Research, fell back to the depressed level seen in the first quarter.

"More importantly, the divergence in confidence between high- and low-income consumers underscores the recession's uneven impact on South Africans. Rising stock prices and interest rate cuts helped lift the sentiment index among high-income earners from +1 to +5. At the same time, confidence among low-income earners plummeted from +7 to -4.

"This is not surprising, since low-income earners have borne a disproportionate share of job losses during the recession. These workers are among the most vulnerable and spend a greater proportion of their earnings on necessities," the analysts note.

Negative wealth effects from falling house prices have also battered consumer confidence and constrained spending during the recession, they say.

On the upside, the slump in the domestic housing market appears to be abating. House price deflation has eased, and transaction volumes have picked up as some lenders start to relax credit criteria.

Nevertheless, concerns about future income streams will continue to curb housing demand in the medium term, resulting in a slow and protracted recovery in the housing market.

"There are fewer signs of improvement in consumer conditions than in other key metrics of the economy; this reinforces the view that domestic consumption will be the principal drag on South Africa's recovery.

"Payroll cuts will ease, but job creation will not accelerate until early next year, ruling out a speedy recovery in consumer spending. Households will continue to retrench amid an ailing labour market and glum income trends, causing private consumption to trail the external sector en route to recovery," Moody's Economy.com adds.

Published courtesy of