retail sales shrink again

RETAIL sales shrunk 6,7percent in April compared with the same month a year ago, heightening the prospect of further interest rate cuts when the monetary policy committee meets next week.

Sales were under pressure partly because of the large number of public holidays in April.

Statistics South Africa said yesterday the drop in April compared with a revised 4,9percent decline in March. Retail sales contracted 5,4percent in real terms in the three months ended April compared with the same period the previous year.

The data shows that the retail sector is struggling and economists expect the economy will take longer to emerge from the recession.

"Hopefully the combination of further rate cuts and the increase in sporting events from May onwards is helping to at least partially offset the current decline," said Kevin Lings, an economist at Stanlib.

Lings said the latest decline in retail spending, together with the sharp decline in manufacturing activity in April, as well as the exceptionally weak motor vehicles sales in the same month will clearly have a negative impact on the second quarter estimate of the GDP.

"There is no doubt that consumers are under pressure and effectively deleveraging, either willingly or because the banks have significantly tightened up their lending criteria.

"This is expected to continue throughout most 2009, though the pressure should ease during the year as inflation falls and interest rates decline."

Nedbank economists said sales of durable and semi-durable goods continued to fall at an alarming pace.

Sales in the "hardware, paint and glass", "household furniture, appliances and equipment" and "textiles, clothing, footwear and leather goods" categories dropped by 25,8percent year-on-year, 13,8percent year-on-year and 7,3percent year-on-year respectively during the month.

Retail sales are expected to stay under pressure because of job losses and the recession and consumers are expected to take advantage of falling interest rates to repay debts rather than increase spending.