Matt Quigley
Matt Quigley

The outlook for retail spending

Last week’s post looked at consumer confidence. This week we’ll look at the retail sector.

The retail sector consists of the businesses and individuals selling finished goods to you and me, the consumers. The sector is hugely important to the South African economy, a source of employment for scores of South Africans, tax revenues for government, the food we eat, the clothes we wear and the cars we drive.

Given the sector’s significance, Stats SA tracks and publishes retail sales data on a monthly basis. This data is followed closely by economists, investors and industry analysts for the insights it provides into the economy as a whole. The South African Reserve Bank also considers the performance of the retail sector, along with a host of other variables, in their monetary policy deliberations.

The data collected by government is extremely useful, but it has two limitations: it is backward-looking and it is old by the time we get it. It records what and how much consumers actually purchased. Wouldn’t be nice if someone could tell us something about how this important sector might perform in the future?

It turns out someone can. The Ernst & Young/Bureau for Economic Research’s Retail Survey is a great indicator of future retail sales. If the survey shows pessimism among retailers, decreased sales usually follow in the next few months’ data. This makes sense.

It stands to reason that no one is better situated to opine on the future of the sector than those within it, the retailers themselves. And this is precisely the group the BER surveys.

How does this indicator work?

Each quarter, the Bureau for Economic Research (BER) sends surveys to approximately 200 retailers in a wide range of sectors. “Results are obtained from questionnaires sent to retailers in the last month of each quarter,” explains Derek Engelbrecht, retail and consumer sector leader at Ernst & Young.

The completed surveys are processed and analysed by the BER and used to construct a retail confidence index, depicting the number of respondents that are satisfied with overall business conditions. The index ranges from zero, indicting extreme pessimism, to 100, indicating extreme optimism.

In addition to this headline number, the BER reports results for three retail sub-categories: non-durable, semi-durable and durable goods. Retailers of non-durable goods sell items like food, beverages, tobacco, cosmetics and pharmaceuticals to consumers. Semi-durable goods retailers sell products like clothing and footwear. Durable goods include hardware, paint, glass and appliances, for example.

For the overall index, and for each retail segment, the BER examines the factors driving changes in retailer sentiment. For example, respondents are asked to indicate how sales volumes from the quarter in question compare to sales volumes in the same quarter of the previous year. Similar year-over-year comparisons are constructed for employment levels and selling prices. Respondents are also asked to rate their “present stock in relation to expected demand”, allowing users of the index to assess whether or not retailers are carrying excessive stocks.

How do I use this indicator?

The retail survey can provide extremely useful clues to future economic patterns. The sales volume index constructed from survey questionnaires, for example, is a good leading indicator of the retail sales figures reported by Stats SA.

The first thing to look for is whether or not the index is rising, indicating an improved retail outlook, or falling, indicating pessimism. “The index is directionally accurate,” says Engelbrecht, “but don’t focus too much on the size of the movement.”

As with most of the indicators in this book, “you need to be careful of the base you compare it to”. Remember, this index looks at movement year-over-year. If something extraordinary happened the year before, the World Cup for example, the numbers you’re looking at may be misleading.

The second thing to look for is information on each sub-component of the retail market, what’s happening with non-durables, semi-durables and durables. “Segmentation is important,” notes Engelbrecht, “not all segments move at the same time.”

Generally speaking, improvement in the retail sector tends to flow through each of the segments in a fairly predictable way. There is a “clothing cycle, white goods cycle, then car and house cycle”.

“The very first thing you find,” Engelbrecht explains, “is that people start trading up on brands of the same product.” Next, consumers start spending more money on furniture and other pricier items and, finally, they start buying really big ticket items.

Non-durables, driven largely by changes in disposable income, tend to be more volatile than the other segments. “Broadly speaking,” explains Engelbrecht, “the relative movement in non-durables is far less dependent on interest rates.”

When and where do I find this indicator?

Retail survey findings are typically published in the third week of the last month of each quarter, so scan the newspapers in March, June, September and December. For an exact release schedule, visit the Bureau for Economic Research website ( For commentary on the survey’s findings, check out the Ernst & Young website (

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