Siphamandla Mkhwanazi | Retail sales outperform in June

14-08-24 / Siphamandla Mkhwanazi

Siphamandla Mkhwanazi | Retail sales outperform in June

Retail sales continued their upward trajectory in June, surging to 4.1% y/y, from 1.1% in May (revised from 0.8%). This significantly outpaced Reuters expectations of a 1.1% expansion. On a month-on-month basis, volumes rebounded by 1.6% from the 0.2% decline in May (revised up from 0.7%). This outcome means that volume sales rebounded from -0.3 q/q in 1Q, to 1.5% q/q in 2Q, implying that the retail industry will contribute positively to 2Q24 GDP growth.

Retail sales outlet performance

Three out of seven categories recorded an increase in annual volumes. The general dealer category was largely responsible for the expansion, at 7.3% y/y, contributing 3.3ppts to the headline number, supported by clothing and footwear sales, which grew by 6.1%, adding 1.1ppts. Recent gains in household furniture sales volumes persisted, with 1.8% growth, adding a further 0.1ppt.

On the opposite end were food and beverages retailers with a 1.5% decline in volumes, detracting -0.1ppt. Volume sales in hardware and all other retailers declined by 1.1% respectively, each detracting 0.1ppt from the headline number. Meanwhile, shopping activity in pharmaceutical shops was unchanged compared to the same period last year.

Outlook

Year-to-date, retail sales are up by 0.9% compared to the same period last year. Data suggests that these gains have all come from the last three months. This coincides with load-shedding cessation since March, a substantial petrol price cut in June, as well as the post-election improvement in sentiment. While June figures are encouraging, the broader consumer environment remains challenging due to high living costs and unemployment, as well as tight credit conditions.

The upcoming two-pot pension system is expected to have a limited impact on consumer spending, given concerns about rising debt distress. However, there is potential for an improved consumer backdrop in the medium term as inflation eases and interest rates gradually decline.

*Siphamandla Mkhwanazi is FNB Senior Economist.