Retail sales show consumers under pressure

ANNUAL retail trade sales held up slightly better than expected in April but the sector is continuing to lose momentum on a quarterly basis as consumers tighten their belts amid the tough economic climate.

Retail sales increased by 1.8% year on year in April‚ slightly above a consensus expectation for a rise of 1.6% and better than the 0.8% growth rate achieved in March. Retail sales are an important gauge of the health of the South African consumer and of the overall state of domestic consumption which is a key demand-side driver of the economy.

According to the Reserve Bank's Quarterly Bulletin, also published yesterday, total household consumption growth slowed to 1.8% in the first quarter (quarter on quarter, seasonally adjusted and annualised) – the slowest rate of growth since the global financial crisis.

"Today's retail sales data continues to point towards a subdued trend in consumer spending‚" Nedbank's economics unit said. "Household financial conditions and consumer confidence remain weak.

"This will contain spending growth in the months ahead."

Consumers' disposable income is being eroded by high debt levels and rising inflation.

In addition‚ high unemployment‚ weak economic growth‚ tighter lending conditions and the prospect of rising interest rates are all weighing on spending.

Investec chief economist Annabel Bishop said that on a quarter on quarter, seasonally adjusted and annualised basis‚ retail sales fell by 3.1% in April‚ joining mining and manufacturing which were also contracting on the same measure.

"This does not bode well for the second quarter GDP outcome‚" Bishop, who expects economic growth to come in below 1% year on year for the first half of 2014, said. – BDLive