Methodological changes impact retail trade sales

While Stats SA announced a contraction of 4.5% in February’s real retail sales compared to a year ago, it is difficult to analyse this number in the context of methodological changes effected in order to calculate a new index at constant prices.

The impact of these changes has a profound effect on the trend of real retail sales growth/contraction. As the Table 1 below demonstrates, real contractions in some months (March, June, July and October of 2008) are now real growth months. The impact thereof means that real retail sales grew by 0.1% in 2008 compared to the previously announced contraction of 2.2%.

Not questioning the new method as it seems sound, it however poses several questions, such as whether retail sales grew or contracted in 2008; and whether the GDP numbers for previous years will be adjusted upward in order to comply with the new numbers.

The numbers indicate that the economy is in much deeper trouble than envisaged by especially the national treasury. The national treasury expects household consumption expenditure to contract by 0.2% this year, but that government consumption expenditure will grow 4%. In all, the national treasury projects an economic growth rate of 1.2% for 2009. The new numbers however indicate that the economy might not experience economic growth at all. In fact, it points to the first contraction in the economy since 1992 when the contraction was 2.1%.

Table 1: Old and New Real Retail Sales

By analysing the impact on the different categories of retailers (again assuming the new numbers are correct), it is clear that retailers in hardware, paint and glass are affected most by the economic downturn. Their real sales contracted by 21.5% in February compared to February 2008. However, compared to January, their real sales expanded by 4.5%.

Other retailers feeling the pinch are those trading in pharmaceuticals and medical goods, cosmetics and toiletries. According to the numbers these retailers’ year-over-year real sales contracted by 7.9% in February from a growth rate of 0.7% in January. On a month-over-month basis, their real sales contracted 2.3%

Table 2: Real % change in specific retail categories: Year-over-Year

The sudden about turn in real retail sales from a growth rate of 1.2% in January to a contraction of 4.5% in February can partly be explained by the electricity problems experienced in January last year. It created a low base of calculation thus creating an “artificial” growth rate in January this year. The contraction in February’s numbers finally shows the impact of enormous job losses on spending in the economy, consumers’ behavioural change toward necessities from non-essential goods and a lowering of living standards by purchasing less of a product.

These numbers point to another reduction of 100 basis points in the repo rate at the end of this month.