StatsSA have released the retail sales data for February 2009. According to this latest survey, retail sales fell by a substantial 4.5%y/y in real terms in February. This compares with a revised increase of 1.2%y/y in January and a decline of 4.4%y/y in December 2008. (The market was expecting an increase of 0.6%y/y in February - although it is a very small survey sample. Furthermore it is difficult to deduce why the consensus would be expecting an increase given the fall-off in real disposable income, increased job losses, still weak confidence, high debt levels etc).
In the three months to February 2009, sales were down 1.0%y/y, in real terms, and down 2.2%y/y for 2008 as a whole. In 2007 as a whole, sales grew by an average of 5.1%.
There is clear evidence that most aspects of the economy are under enormous pressure, in particular the manufacturing sector and export activity; which are obviously linked and relate mostly to the dire global situation especially within developed economies. In addition, most aspects of consumer activity are now also in recession. In total SA consumer spending (as disclosed by the Reserve Bank recently) declined in both Q3 2008 and Q4 2008 on the back of a decline in real disposable income (see chart attached).
There is no doubt that SA consumers are under pressure and deleveraging, either willingly or because the banks have significantly tightened up their lending criteria. The prior increases in interest rates, the introduction of the NCA, a slump in disposable income growth, tighter lending criteria within the banking system, a slowdown in house price growth, increased job-losses and worsening consumer confidence have all had a measurable impact on overall consumer activity. This is expected to continue throughout 2009, although the pressure should ease during the course of the year as inflation falls and interest rate decline.
This slowdown in demand and deleveraging is reflected in the sluggish VAT tax receipts, which are well behind budget, as well as the slowdown in the rate of growth of consumer credit. The growth in all forms of consumer credit has slowed appreciably over the past couple of months, and are expected to slow further in the months ahead. A good example is the outstanding balance on consumer credit cards. On the whole, consumers have reduced their outstanding balance on credit cards in 4 of the last 5 months, including February 2009. As a result the rate of growth in credit card debt has slowed from 44%y/y in the middle of 2007 to a mere 1.0%y/y in February 2009.
While the December and January retail sales data were generally ahead of expectations, these two months were probably a little anomalous given the prevailing economic conditions. The latest retail sales data will heighten expectations a further large interest rate cut at the next MPC meeting at the end of April. STANLIB expects a reduction of a further 100bps in rates in April.
*Kevin Lings is an economist at Stanlib