October retail sales growth recovers to 3.4% y/y, from 2.3% y/y in September

General dealer sales rose by 2.1% y/y, contributing 0.8 ppts

Retail sales growth increased to 3.4% y/y (0.4% m/m) in October, up from a revised 2.3% y/y (-0.7% m/m) in September (figs1&2), in part due to a 1) recovery in strike affected incomes of workers in the mining and manufacturing sectors; 2) a 67c/l drop in the fuel price in September and 3) a moderation of food inflation to 8.7% in September from an average of 9.3% y/y over the preceding 3 months. The increase in retail sales was in line with our expectation of a 3.2% y/y growth and well above the Bloomberg consensus estimate of a 2.2% y/y. YTD retail sales growth remains lower in 2014 compared to 2013 (fig7).
Splitting retail sales into durables, semi-durables and non-durables, we note that growth in sales of non-durables, which account for 57% of total retail sales, accelerated while growth in sales of durable goods (13% of total retail sales) slowed in October:
We use General dealers, food and pharmaceuticals as a proxy for non-durables. Driven by general dealers and specialised food, our measure of non-durables growth rose to 3.0% y/y in October (contributing 1.7 ppts) up from 2.4% y/y in September (fig 3). General dealers which account for 41.2% of total retail sales, increased to 2.1% y/y in October, up from 1.8% y/y in September, contributing 0.8 ppts to retail sales (figs 4&8). Sales of food, beverages and tobacco in specialised stores increased 6.6% y/y, up from 3.6% y/y, and contributed 0.6 ppts. Pharmaceuticals and medical goods sales slowed to 3.8% y/y in October, down from 4.6% y/y in September.
Semi- durables (textiles + other retailers, wt. 30%) increased to 3.5% y/y up from 0.9% y/y in September. Textiles rebounded strongly to 3.4% y/y in October from -0.5% y/y in September. Other retailers remained unchanged at 3.7% y/y (fig4).
Durables (furniture + hardware) slowed to 4.4% y/y in October down from 5.1% y/y in September. Retailers in hardware slowed to 4.3% y/y down from 5.9% y/y whereas retailers in household furniture, appliances and equipment increased to 4.6% y/y up from 3.9% y/y in September (fig4).
Retail sales inflation continues to slow and is likely to remain supportive of retail sales growth as oil remains lower for longer (fig5). Headline CPI slowed to 5.8% y/y in November down from 5.9% y/y in October. As noted in our weekly data preview published this week, we expect decelerating inflation to be positive for household’s real disposable income, and therefore retail sales, over the coming quarters. This should relieve downside risk to retail sales growth emanating from tighter household credit, particularly unsecured credit (fig6).

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