SA retail confidence on a high
26 June 2007
South African retailers' confidence levels equalled record highs during the second quarter of 2007, while manufacturers' confidence remained unchanged, according to the latest Bureau for Economic Research (BER) surveys.
The Stellenbosch-based bureau's retailer confidence index rebounded from 87 to 91 index points in the second quarter – a record high reached for the first time during the fourth quarter of 2006.
BER economist Linette Ellis said in a statement last week that the "supreme" level of optimism could probably be attributed to high levels of activity among South Africa's retailers.
According to Statistics South Africa (Stats SA), retail sales volumes increased by an impressive 9.5% year-on-year during the first quarter of 2007, showing little sign of slowing from the 9.6% volume growth achieved during 2006.
The BER's latest survey suggests that, despite higher interest rates and rising price pressures, second quarter retail sales growth was as strong as that of the first quarter.
Though preliminary data released by Stats SA shows a decline in real retail sales (from 10.5% year-on-year in March to 5.4% in April), the bureau's results suggest that revised figures may show otherwise, with the bureau waiting for May and June's official figures before deciding if the retail boom is drawing to a close.
The survey shows that the sales of non-durable goods such as food and beverages performed well during the second quarter, while the sales of semi-durable goods regaining momentum.
However, growth in sales of durable goods such as furniture, household appliances and electronic goods slowed from earlier levels, as the category was most affected by the hike in interest rates.
"Further evidence that the retail boom is still continuing can be found in retailers' rating of employment numbers and the volume of orders placed," the BER said. "Both of these BER indices improved during the second quarter and are only a few points shy of their respective 10-year highs reached during the fourth quarter of 2006."
Inflationary pressures
Another trend visible in the bureau's survey is that the vast majority of retailers reported increases in their purchasing and selling prices, suggesting rising inflation.
These are similar views to those of Stats SA, which indicated that producer inflation rose to 11.1% year-on-year and consumer inflation to 6.3% year-on-year in March - the first time inflations has breached the South African Reserve Bank's 3% to 6% target since August 2003.
According to Ellis, increasing inflation and runaway growth in retail sales will put pressure on the Reserve Bank to hike interest rates by a further 50 basis points in August.
"Looking ahead, the impact of the new credit act and the lagged effect of the 2.5% point increase in the prime interest rate since the first quarter of 2006, as well as a possible further 50 basis point rate hike, should weigh more significantly on sales of passenger cars, durable goods and, to some extent, on semi-durable goods," Ellis said.
Conversely, sharp increases in food and fuel prices would have a negative effect on the budgets of lower income households and hurt the sales of non-durable goods in particular.
However, given the positive outlook for employment, the BER projected that the moderation in consumer spending on non-durable goods would be significantly smaller than the expected slowdown in the growth of durable and semi-durable goods.
Manufacturing
The BER's manufacturing confidence index, meanwhile, remaining unchanged at 78 index points in the second quarter.
"Domestic demand for locally manufactured products remained strong and manufacturers of consumer goods (particularly food) experienced large increases in domestic sales," BER economist Christelle Grobler said in a statement last week.
"Furthermore, manufacturers remain optimistic regarding the domestic market and forecast a slight pick-up in growth in sales and orders in the third quarter."
However, the survey indicated that exports continued to perform poorly overall, with only manufacturers of certain intermediary (paper and chemicals) and capital (machinery) goods reporting increased foreign sales and orders in the second quarter.
Growth in production volumes accelerated and a net majority of those surveyed increased production, though the pace of employment slowed notably during the survey period.
"The net majority of manufacturers who increased the number of factory workers declined to 6%, after reaching 27% in the fourth quarter of 2006 and staying at that level in the first quarter of 2007," the BER said.
Manufacturing fixed investment growth remained robust, with a net majority of 31% reporting to have increased fixed investment during the survey quarter.
Although fixed investment growth in manufacturing declined to 31% from 35% in the final quarter of 2006, the BER said that investment might increase, as surveys indicated that investment was being moved away from capital and intermediary goods sectors, where fixed investment growth has been strong, toward the consumer goods sector - where investment growth has been more moderate.
South Africa's shortage of skilled labour was again rated as the top constraint on manufacturing activity, with the percentage rating the shortage of skilled labour as a constraint on manufacturing activities increasing to a historical high of 47%.
The other most cited constraint was the availability of raw materials.
"In all, given that domestic as well as global economic growth is expected to continue, albeit at a more moderate pace, and the rand exchange rate should depreciate slightly towards the end of the year lessening import competition and possibly stimulating exports, the outlook for the manufacturing sector is rather positive," Grobler said.
SouthAfrica.info reporter
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