Nedbank: Retail sales

20 Jul.

Nedbank Economic Commentary: Retail sales May 2011.

Retail sales slump in May.

• Retail sales for May came out much weaker than expected, falling by a seasonally adjusted 4,7% over the month, leaving total sales little changed from the levels recorded in May last year and down sharply from the 10% y-o-y increase recorded in April. Although April’s high base contributed, May’s figures were much weaker than market consensus forecast of a 7,2% y-o-y rise.
• The breakdown shows the major categories either declined or grew at a slower pace. The sharpest drops were recorded in the ‘food, beverages and tobacco in specialised stores’ and ‘hardware, paint and glass’ categories, which fell by 8,4% and 8,5% y-o-y respectively.
• Income growth should continue to support household spending during the year. However, consumer confidence will be hurt by a weak job market, rising cost pressures of basic goods and services and prospects of higher interest rates. This, together with last year’s high base effect, is likely to contain the growth rate in retail sales during the second half of the year.
• May’s weaker than expected retail sales numbers suggest that underlying consumer demand is losing momentum. This, combined with the latest weak production statistics points to a hesitant recovery. Despite rising inflation, we believe the MPC is likely to continue with its wait-and-see policy until there is greater evidence of “more generalised inflation”. Therefore, we expect the committee to leave the repo rate unchanged for the rest of the year.

Comment

After a seasonal boost in April, retail sales weakened in May, falling by 4,7% m-o-m on a seasonally adjusted basis and recording no growth on an unadjusted year-on-year basis. The breakdown shows that the major categories either declined or grew at a softer pace. The sharpest drops were recorded in the ‘food, beverages and tobacco in specialised stores’ and ‘hardware, paint and glass’ categories, which fell by 8,4% and 8,5% y-o-y respectively following 6,6% and 9,2% growth. Growth in the ‘pharmaceutical and medical goods, cosmetics and toiletries’ and ‘household furniture, appliances and equipment’ categories, which amounted to over 12% y-o-y in April slowed sharply to 3,8% and 6,3% respectively in May. Sales of general dealers, which have the biggest weight in the retail sales sample, moderated to 4% y-o-y from 7,9%, while that of ‘textiles, clothing and footwear’ fell by 2,2% yo- y following a strong 16,2% y-o-y rise in April.

Over the three month period to May, retail sales growth was 5% compared with the same period last year. …

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