Painful January slump looms

2011-12-14 00:00

FOR all their optimism retail analysts and other stakeholders involved in the value chain are probably off the mark regarding their over-optimistic forecast for buoyant retail sales over the festive season.

Retail stakeholders, who expected real retail sales growth over the festive season to hit the 10% mark, could be in for disappointment.

Economists have taken a more realistic view, expecting a moderate growth.

The potential for a more painful than usual January slump remains.

Judging by the latest measure of debt servicing risk released by FNB, this fallout could be slightly worse than previously anticipated.

November’s 2011 Consumer Price Index, scheduled for release today, is likely to tell a story of further erosion of consumers’ purchasing power, although income growth has thus far managed to keep pace with, and even exceed, inflation.

The market expects a 6,3% rise in consumer inflation in November compared with October’s six percent. The Reserve Bank’s inflation target range is three to six percent.

The latest FNB household sector Debt Service Risk Index came in at a relatively high 6,03 (out of 10) in the third quarter of 2011. The 31-year average is 5,2.

The household sector’s ability to service its debt has improved in recent quarters, but the latest figure is a far cry from the cyclical high of 7,19 recorded in the second quarter of 2006.

FNB’s household sector strategist John Loos said he believed the sector was not out of the woods yet, particularly given that real interest rates had been declining.

“The one variable … that contributes negatively to the overall index is our measure of real interest rate, which continues to decline as the recent rise in consumer price inflation continues to push up the five-year average inflation rate, bringing it nearer to the currently static nine percent prime rate.

“This increases the risk that we are near the bottom of the interest rate cycle and the risk of future upward moves in interest rates. And the bottom of an interest rate cycle is generally the riskier period in which to lend or borrow, as compared to the peak of an interest rate cycle, something that is not always understood by lenders or borrowers,” Loos explained.

Nedbank’s Group Economic Unit agreed that positive but moderate growth from the household sector in 2012 should be expected.

It said: “The pace of spending will moderate off a higher base. Consumers are likely to become more careful as inflation increases and economic growth remains subdued. Wholesalers and retailers will benefit the most, but bankers and estate agents should also experience a modest improvement in trading conditions as consumers reduce debt and banks adjust to the tighter regulatory environment.”

TWO surveys released yesterday show that South African shoppers are feeling relatively generous this festive season, given the financial challenges they experience.

eBucks (FNB and RMB Private Bank’s reward programme) said 29% of respondents planned to spend between R500 and R1 000 per Christmas gift.

Almost half of the respondents planned to buy gifts for between one and five people, while 38% were planning to buy for between five and 10 people.

Just over half of those surveyed (53%) did their shopping three weeks before the holidays, while a minority began shopping in November.

For December 1 to 11 shoppers withdrew an average of R434 per ATM visit, said the indepen­dent ATM deployer, Spark ATM Systems, a modest 2,1% higher year on year.

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