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Data just released by Stats SA shows that retail sales climbed at an annual rate of 8.3% in June. Keynesian economists expected a reading of 4.7%. On a monthly basis, retail sales grew 1.9%, or 25% annualised. The growth rates for May were also revised higher.
I have written on many occasions that the acceleration of broad money growth in the second half of 2011 will first boost the capital goods sectors of the economy (real estate, vehicle manufacturing and sales, industrial output, etc.), before this money makes its way back to the consumer sectors, boosting retail sales.
In September 2011 I wrote to clients that they
should already be looking to the next mini-cycle, and that is being driven now by weakening price pressures and resurgent money growth. If this persists then it would be unwise to get too bearish on SA growth on a forward-looking basis.
2011 growth data is unlikely to be too good at all, but if credit keeps picking up and price pressure dissipates (which we expect it will), Q4 and then Q1 2012 growth data is likely to outperform expectations.
Watch out for an improvement in headline economic data during this period, particularly of PMI and capital intensive manufacturing data. Retail spending should also find some support into year-end after a few more disappointing data readings still to come.
With the kind of credit growth we are seeing one should also expect to see a stronger round of bank earnings starting to emerge.
On April 18, I wrote that
New money and credit is working its way through the economy, doing its usual thing of boosting prices in the higher order sectors (capital goods sectors) first.
Following the increase of residential property prices comes more credit extension at the household level, higher retail sales, as well as a reallocation of capital toward the retail sector. That means price inflation momentum is higher looking into 2013.
On the same day I doubled up on this view, communicating what we at ETM Analytics had sent out to clients following a disappointing downside surprise retail sales figure in January, saying that
In summary, reading into the Jan 2012 Stats SA retail data that an SA retail slump is upon us would be inappropriate. The series has been far too volatile to take one highly dubious month of data seriously. Conservatively a rebound back up to 6-8% y/y in Feb/Mar is on the cards, and this could comfortably top 8%. A real sales environment that grows between 5-10% is far more in line with the body of cyclical evidence and SA’s business cycle positioning in our view. The Stats SA release presents thin and shaky evidence for a new spending down-cycle to hit us soon.
In mid-July, my colleague Russell Lamberti wrote to clients that
We maintain our view of a moderating rather than crashing retail sales environment. Consumer inflation just doesn’t seem to be high enough to make a large enough dent in real sales volumes given the extent of money supply growth SA has experienced since mid-2011. With 4-month MA annualised CPI inflation falling from 8.2% in April to 5.5% in June, and with petrol prices sharply reduced in June and July, expect retail to remain surprisingly resilient.
The strength of retail sales are not a surprise to people with an understanding of the distortions caused in the economy by the interest rate manipulations of the Reserve Bank.
Does the Reserve Bank even understand the consequences of its interest rate interventions on the economy? When Gill Marcus cut short-term interest rates again in July, she was super bearish of the economic outlook. The Reserve Bank did not see the strengh of retail sales, a full month after it had happened!
I said it before and I will say it again: the Reserve Bank is fuelling enormous imbalances in this economy by driving interest rates way below where they should be. The Reserve Bank is setting up the South African economy to end up being as much of an economic basket case as Greece in the next one or two decades.