Wholesale vs retail may herald SA growth switch

Real wholesale trade sales at constant (2000) prices for February 2012 grew by 13.9% year on year (y/y) compared with an upwardly revised 10.8% (9.2%) y/y increase in January, after a 6.2% rise in 2011, Statistics SA data showed on Thursday, 19 April 2012.

This compared with a 7.2% y/y rise in real retail sales in February after a 6.1% gain in 2011. The I-Net Bridge consensus forecast for real retail sales February was 5.0% with forecasts among the ten economists ranging from 2.3% to 7.5%.

Seasonally adjusted real wholesale trade sales increased by 2.7% in February compared with January. This followed month on month (m/m) changes of 2.8% in January and 0.6% in December 2011. By contrast, seasonally adjusted retail trade sales fell 2.2% in February compared with January. This followed m/m changes of a 1.0% decline in January and after a 1.1% rise in December 2011.

Wholesale trade sales are not directly correlated with real retail sales, as for example, a major component of wholesale sales are fuel sales, which are captured in motor trade sales not retail sales, but over the time the two series tend to move in the same direction.

Measured in nominal terms (current prices), wholesale trade sales increased by 18.5% in the three months ended February compared with the three months ended February 2011.

The three major contributors to this increase were: dealers in solid, liquid and gaseous fuels and related products (36.0% and contributing 7.8 percentage points); dealers in machinery, equipment and supplies (17.3% and contributing 2.6 percentage points); and dealers in other household goods except precious stones (18.5% and contributing 1.8 percentage points).

Nominal retail sales grew by 12.2% y/y in February led by a 16.0% y/y surge in general dealers (supermarkets).

In 2011 real gross domestic product growth of 4.0% as measured from the expenditure side was supported by real household consumption expenditure growth of 5.0%, government consumption expenditure of 4.5%, and gross fixed capital formation of 4.4%.

This year household and government consumption is expected to slow, but the hope is that fixed investment will rise.

The 50% y/y surge in Value-Added Tax (VAT) refunds to R11.8 billion in February could point to a surge in capital expenditure as VAT vendors can claim a refund for their capital equipment purchases.

VAT charged for capital equipment is a separate entry in the VAT return, but at this stage the South African Revenue Service (SARS) does not disclose how much capital equipment VAT was claimed. What they do provide is a domestic VAT, an import VAT and then refunds.

Confirmation as to whether the February VAT refund surge is due to capital equipment purchases must therefore be looked for in other places. One such source is the national government monthly expenditure account and that shows that there was a 44.6% y/y jump in February in payments for capital assets.

On April 1 Finance Minister Pravin Gordhan said that although government spending was R4 billion below budget, this was due to under-spending on goods and services, rather than capital assets.

The government announced in November 2010 its New Growth Path (NGP) which has as its central focus a massive investment in infrastructure as a critical driver of jobs across the economy. The framework identified investments in five key areas namely: energy, transport, communication, water and housing. Sustaining high levels of public investment in these areas will create jobs in construction, operation and maintenance of infrastructure. The NGP expected the infrastructure programme to trigger a local supplier industry boom. That was essentially what happened in 2003 to 2007 when fixed investment grew at double-digit rates pushing GDP growth above 5%.

In the fourth quarter 2011, the private sector fixed investment seasonally adjusted annualised quarterly growth rate rose to 6.2% from 5.4% in the third quarter, that of public corporations to 9.6% from 9.0% and general government to 7.8% from 3.4%.