Retail sales up in December

The significant rise in tax revenues on goods and services from R15.6 billion in December 2008 to R19.4 billion in December 2009 was an indication that retail sales growth would show a notable improvement in the last month of 2009.

On a month-on-month (m/m) basis, sales in December 2009 rose by 33.7% versus by 29.7% in December 2008.

"While one had anticipated a lower rise in seasonal demand than in previous years for the 2009 Christmas season, the improvement in sales growth in December suggests that the rise in seasonal demand during this past season was largely concentrated in the month of December.

"Nevertheless, Q4 2009 saw a decline in y/y growth in retail sales from an average -4.1% y/y in Q2 to -5.5% y/y in Q4, highlighting the effects of a lower rise in seasonal demand during the last quarter of the year.

"However, it also points to the fact that the decline in seasonal demand was less than what might have been anticipated," analysts said.

Contributing factors

In line with festive buoyancy, they added, growth in specialised foods and beverages rose to -0.6% y/y in December from -3.2% in November.

However, after recording dramatic declines in sales growth in November, the major contributors to the rise in overall sales growth was growth in clothing and footwear sales (from -9.3% y/y in November to -2.3% in December), as well as growth in hardware, paint and glass sales (from -22.3% y/y in November to -8.7%).

Furniture sales growth surprised with a 2.3% y/y rise in sales in the month, following -3.6% y/y sales growth in November.

One suspects that the notable improvement in demand for semi-durable and durable good sales has been motivated by the temporary rise in household income during the month, due to Christmas bonuses.

"Encouragingly, credit growth continued to decline in the month on a y/y basis, despite the rise in demand. One hopes that this is an indication of a change in attitude towards credit use in the economy," the analysts said.

Decline

On a less positive note, they pointed out, two of the largest contributors to retail sales declined further in December.

Although the decline in sales growth for general dealers was a marginal 0.1 percentage points to -2.9%, the decrease in sales by other dealers was more steep, with a fall to -13.7% y/y from -10.3% in November.

"Overall, 2009 saw a -4.9% y/y decline in sales against a marginal 0.3% rise in 2008. This highlights the extent that the impact of high inflation and interest rates in 2008 had on consumption patterns in 2009.

Nevertheless, consumer demand is expected to show gradual improvement over the next few months, with the prime rates remaining at 10.5%, 500 basis points lower than it was a year ago, and consumer inflation expected to fall within the upper target bracket during the course of the year.

"Furthermore, employment numbers are beginning to rise as a result of improving business activity. The major resistance to a faster improvement in domestic demand remains the over-indebtedness of household balance sheets," the analysts said.