Jan wholesale trade sales growth revised downwards

Stronger growth in wholesale trade sales growth towards the end of 2010 reflected the strong rise in demand for consumer goods ahead of a buoyant Christmas season in December 2010.

In the event, January saw consumer demand normalising to more sustainable levels of demand: growth in wholesale trade sales of food, beverages and tobacco products declined to 6.6% y/y in the month, from 11.7% y/y in December, in clothing to 6.6% y/y from 13.2% and in jewellery, which tends to be boosted by Christmas buoyancy, to a -4.1% y/y contraction, from 2.4% y/y in December.

This should by no means put a dampener on the positive outlook for domestic consumption in the year ahead. The considerable decline in goods inflation that is still prevalent in the economy, lower interest rates and improving household balance sheets, point to continued growth in domestic consumption in the short to medium term. Nonetheless, as a result of the fact that household debt levels remain high, growth in consumption may not be as marked towards the end of the year.

January improvements

Unlike the subdued growth recorded in December 2010, wholesale trade sales growth in producer goods showed significant improvements in January. Growth in machinery sales increased to 4.6% y/y in the month, from 2% y/y in December, in metal ore sales to 4.6% y/y from 2% and in intermediary products to an impressive 14.6% y/y, from 3.5% y/y in December 2010.

Although boosted by a 10.4% y/y rise in the fuel price in the month, growth in gaseous and liquid fuel sales remained strong at 28.4% y/y in January, down marginally from 29.8% y/y in December 2010.

However, the most encouraging outcome was the rise in wholesale trade sales growth of building materials, which too remained firm at 22% y/y, despite declining from 26.5% y/y in December 2010. Encouragingly, this may suggest that residential building activity may have begun to pick up in the new year.

Revisions included

Upward revisions in the wholesale trade sales growth figures for the six-month period from July to December 2010 were included in the January data release today. The stronger growth reflected in the figures is more comparable to production growth levels in the mining and the manufacturing sectors in the latter half of 2010, which indicates that production activity had been stronger than initially anticipated by the earlier wholesale trade sales figures.

Given that much of the decline in growth in January is explained by the correction in demand for consumer goods, the continued rise in wholesale trade sales growth in producer goods points to an underlying positive trend in the demand for these. The improvement in the demand for production inputs is in line with the recent rise in purchasing managers' sentiments in the Purchasing Managers Index (PMI) and one anticipates a continued upward trend in domestic production activity in months to come.