The confidence levels of retailers declined during the third quarter of 2007, according to the latest Bureau for Economic Research (BER) Retail Survey.
The BER’s retailer confidence index dipped from a record high of 91 index points in the second quarter of 2007 to a level of 84 during the third quarter.
The decline in retailer confidence was a result of slower sales growth in semi-durable goods (including clothing and footwear) and, in particular, the durable goods category (including furniture, household appliances and electronic goods), the BER said.
This was the third consecutive quarter in which retailers in durable goods reported a slowdown in sales growth.
”The marked deterioration in business conditions in the interest rate/credit sensitive durable and semi-durable goods categories can probably be ascribed to the cumulative impact of the 300 basis points increase in the interest rate since June 2006 and the implications of the National Credit Act [NCA],” the BER said.
The non-durable goods sector (e.g. food, beverages and pharmaceutical products) continued to flourish during the third quarter.
”The fact that the vast majority of retailers in non-durable goods reported a decline in their present stock in relation to expected demand suggests that retailers were again caught off guard by the strength of non-durable goods sales.”
This sector has been well supported by relatively strong employment growth and high real wage increases, not to mention the (still) rapid rate of growth in social grants from the government directed at poorer households.
An important feature of the BER’s third-quarter survey results was the fact that purchasing- and selling-price increases remained ”disturbingly” high, particularly in the non-durable goods sector.
Since April 2007, the CPIX (consumer inflation less mortgage costs) rate had consistently breached the South African Reserve Bank’s upper target of 6%, culminating thus far in the 6,5% y/y (year on year) acceleration in July 2007.
Accelerating food-price inflation was the main culprit, with food prices increasing by 9,4% y/y in June and 10,2% y/y in July.
The BER’s latest survey results suggest that food-price inflation had not yet turned the corner, which did not bode well for the near-term CPIX inflation picture, or the interest rate outlook.
The marked deterioration in the sales performance of the interest rate/credit sensitive categories such as furniture and appliances, and clothing and footwear, was likely only the beginning of a downward cycle that would extend well into next year.
Looking ahead, the growth in sales of semi-durable goods should continue to wane, while sales of durable goods were expected to contract further as the impact of the NCA and the lagged effect of the 300 basis points increase in the prime interest rate since June 2006, as well as a possible further 50 basis point rate hike in October, should weigh more significantly on these items, the BER said.
While high real-wage increases and employment growth should continue to bolster the sales of non-durable goods, high fuel prices and (still) increasing food prices posed a definite risk to the outlook.
Nevertheless, the BER expected the moderation in consumer spending on non-durable goods to be significantly smaller than the expected slowdown in the growth of durable and semi-durable goods. — Sapa