Relatively weak shopping activity seen in 2Q23
Retail sales volumes declined by 0.9% y/y in June, although at a slower pace compared to the downwardly revised decline of 1.6% in the previous month (revised from -1.4%). Once again, this outcome was worse than the Reuters consensus expectation of -0.2% and marks a seventh consecutive month of annual decline in sales volumes. On a month- on-month basis, however, seasonally adjusted volumes recovered somewhat, by 0.2%, following a decline of 0.9% m/m in May (revised lower from -0.7%). The marginal lift was likely supported by the unexpected load-shedding reprieve and the near R1 fuel price relief in June. Nevertheless, volumes contracted by 1% compared to the previous quarter, signifying that the retail industry will detract from 2Q23 GDP growth, in contrast to the energy-intensive mining and manufacturing sectors, that will likely contribute positively to growth in that quarter. This underscores the challenging consumer backdrop, characterised by high debt and living costs, as well as suppressed consumer sentiment.
Retail sales outlet performance
Once again, the weak performance was relatively broad-based, with five out of seven categories recording a decline in annual volumes. The largest declines were recorded among General dealers (-2.7% y/y, contributing -1.2ppts), Hardware material (-4.4% y/y, -0.4ppts) and Other retailers (-1.6%, contributing -0.2ppts). Household furniture and Pharmaceutical retailers declined by 1.5% and 1.4% respectively, each detracting 0.1ppts from the headline number. On the opposite end, a stronger performance by Clothing and footwear retailers persisted, with 5.8% y/y growth in volumes, contributing 0.9ppts, supported by Food and beverages retailers with 1.0% growth, and 0.1ppts contribution.
Outlook
Credit data suggests that consumers are still accumulating consumption credit at a relatively faster pace, though the trend has plateaued in the last few months. National Credit Regulator data further reveals a strong increase in the issuance of store and credit cards in non-bank sectors- both geared towards consumption. However, we expect that lending standards will tighten further, as the cumulative impact of past interest rate decisions filters through, suggesting less support for shopping activity. These factors, combined with depressed consumer confidence, corroborate our view of subdued growth in household consumption expenditure.
