Profit margins under pressure in SA trade sector - survey

Cape Town - There is pressure on profit margins in the trade environment, according to the SA Chamber of Commerce and Industry (Sacci).

Sacci has released its latest Trade Conditions Survey this week.

The seasonally adjusted Trade Activity Index (TAI) for February 2018 shows that the sales price sub-index measured 48 (out of a hundred) and the input price sub-index 61.

According to Sacci, survey respondents indicated that this is the first time since April 2009, therefore, after the global financial crisis, that sales prices were declining - in other words going below the 50 index mark.

Price expectations also declined, but remained at high levels of 65 and 72 for sales prices and input prices respectively.

Expected sales volumes and expected new orders were slightly lower at 64 and 63 respectively in January 2017, with six-month inventories levels up by 3 index points to 52.

Sacci explained that the difference between lower sales and higher input price expectations confirms the pressure on profit margins in the trade sector.

As for the latest survey results as a whole, Sacci said it indicates that, although the business climate remained on a relative improved level in February 2018 compared to January 2018 and February 2017, trade conditions slackened in February 2018 compared to December 2017 and January 2018.

The seasonally adjusted Trade Activity Index (TAI) for February 2018 measured 42 after the 51 in January 2018 and 48 in December 2017. The seasonally adjusted six-month Trade Expectations Index (TAI) was slightly down in February 2018 to 56 after a reading of 60 in December 2017 and 58 in January 2018.

All elements of trade - excluding backlog on orders - improved compared to January 2018, although marginally. Both the TAI and the TEI for February 2018 were about 4 index points below the levels of February 2017.

Tighter trade conditions

According to Sacci, the tighter trade conditions in February 2018 were impacted even more by the lack of growth, profit margins that are under pressure, limited cash-flow and a stronger rand that affects rand income from exports.

However, according to respondents to the survey, a positive vibe still prevails. The increased VAT rate, the higher fuel levy and high custom duties announced in Budget 2018 are, however, weighing negatively on trade expectations.   

Sales volumes were unchanged in February 2018 with the sub-index on 43 (in negative territory) and the new orders index marginally up from 40 to 41.

The employment sub-index remained on 46 in February 2018, while the employment outlook index for the next six months remained positive at 53 in February 2018, but declined by 3 index points.

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