Retail sales growth points to improved consumer situation

© Tomasz Zajda – za.fotolia.com

StatsSA vehicle sales numbers are published in nominal terms, and the growth rate in this number accelerated noticeably from -1.9% year-on-year in August to +8.8% in September.

Using a three-month moving average for smoothing purposes, for the three months to September, the year-on-year rate of change was also improved, from +0.7% in August to +3.4% in September. In real terms, using the most recent consumer price index (CPI) for new and used vehicle sales in September to adjust the sales value, this translates into a return to positive real year-on-year growth to the tune of +2.7%.

The mild improvement can possibly be attributed to:

• Slower than expected interest rate hikes. While interest rates have been rising, and this should normally subdue vehicle sales growth, it is possible that the extreme slow pace of rate hiking by the SA Reserve Bank (SARB) has brought some mild confidence improvement back into the vehicle market after the low base created by the initial negative surprise caused by January's first 50 basis point interest rate hike. Since January, the SARB has only hiked once more by a lesser 25 basis points. Vehicle sales are always sensitive to interest rate moves, given the credit dependency of many vehicle buyers.
  
• Affordability factors. In addition, the rand has behaved itself a little better in recent months, causing imported inflation to subside somewhat. The result has been some mild decline in vehicle price inflation in September, which may have also contributed in a mildly positive way. After a noticeable acceleration in the CPI inflation rate for vehicles from late 2013 and early 2014, which may have led to further vehicle affordability deterioration in the second quarter of 2014, this inflation rate started to decline in September, from 6.4% year-on-year in August to 5.9%.
  
• Economic growth recovery of sorts. However, the slight vehicle sales improvement is perhaps more likely a reflection of a mildly improved real economic growth rate. We saw a first quarter gross domestic product (GDP) contraction turn to slightly positive growth in the second quarter of 2014. Given slightly more subdued strike action in the third quarter, there may well have been a further GDP growth improvement.

While the total third quarter real value of vehicle sales was not yet out of negative territory, the year-on-year decline of -3.4% for the entire quarter was less of a decline than the second quarter's -8% decline, and this diminishing in the rate of decline appears to have tracked the SARB Leading Business Cycle Indicator's direction back up nearer to zero in the third quarter.

Related retail sales

Also pointing towards an improved economic and consumer financial situation is the September data for garage convenience store sales. During September, convenience store nominal sales value growth accelerated to 9% year-on-year, from a previous 8%, with the three-month moving average recording an improved 7.6%. In real terms, this may well represent a return to positive growth territory, given consumer price inflation of 5.9% in that month.

The situation now also appears improved in the area of vehicle workshop income, which also showed a noticeably improved year-on-year growth rate of 18.1% (three-month average = 10.2%). Accessories sales grew 14.7% year-on-year, up from August's 4%, and the three-month average was a solid 7.1%.

According to StatsSA, growth in total vehicle-related and convenience store retail sales, excluding fuel sales, accelerated strongly in September to 10.9% year-on-year, compared with 0.6% in August, while the three month moving average was also improved at 4.4% for the three months to September.

Improved household sector

The moderate three-monthly acceleration, when read along with a slightly improved third quarter mainstream retail sales figure, points to an improved third quarter household sector financial situation.

This improvement is likely the result of some improvement in economic growth in the third quarter, after a strike disrupted first half of 2014, while a more stable rand in recent months has allowed for some slowing in consumer price inflation, including in the area of vehicle prices.

Given that the vehicle sector is usually a good leading indicator, the sector's numbers point to an improving consumer period, albeit still a mediocre situation. We expect overall real consumer spending growth to bottom in 2014 at 1.9%, and show some small strengthening in 2015 to 2.3%.