Author: Mike Schussler Source: BankservAfrica
BankservAfrica index reveals why you feel like you have less in your wallet
Pressure on South Africa’s consumers is reaching an all-time high, with disposable salaries showing the same declining trend that preceded the 2008 recession. This is according to the latest BankservAfrica Disposable Salary Index (BDSI). Although chief economist at economists.co.za Mike Schüssler remains upbeat about our economic prospects, saying that we should be able to work our way through the pinch, he does expect the decline to be felt in the economy at large.
“Over the last two months of 2012 inflation managed to outpace the increase in disposable salaries, resulting in a drop in domestic travel and car sales, amongst other things. This may be the reason why so many people feel as if they had less in their pocket over December. Truth is, they did!
“In addition to declining bonus payments, the overall trend in the last few months seems to indicate a continuous slowdown in disposable salaries. This will certainly make itself felt in consumer spending over the next quarter or so,” he explains.
According to BankservAfrica’s CEO for regulated products Brad Gillis, in November 2012 the BDSI indicated that disposable salaries only increased by 1.7% on a year-on-year basis, while disposable salaries were up by 3.8% in December on a year ago. Inflation currently stands at 5.7%.
The end of high salary increases – for now
While salary increases remained fairly strong until August 2012 (with delayed government salary increases catching up in that month), Schüssler points out that the current downward trend actually already started in May and June 2012.
“Over the last two months the BDSI has shown that salary increases are negative in real terms (after taking consumer inflation into account). The November 2012 real percentage change was the biggest decline on record,” Schüssler says.
“In the end, neither government back-payments, nor the higher wages paid by the mining and transport industries could help the average disposable salary much, as other sectors were unable to increase salaries at the same rate.”
Schüssler also suspects that many employees have come into higher tax brackets and along with more garnishee orders and higher debt burdens, this has reduced disposable salaries.
“A repeat of the double digit salary increases that occurred at the end of 2011 is unlikely for the time being. With government finances under pressure, the budget vote later in February will probably also not offer much relief.”
What happened the last time disposable income came under pressure?
Gillis explains last year saw the largest number of months with year-on-year declines (four) after inflation in disposable salaries on a year-on-year basis since 2007 (five). “The 2007 decline in salaries was followed by a recession when retail sales declined, and borrowing requirements became more difficult in 2008.”
Schüssler says that while there is sometimes a disconnect between consumer spending and disposable salary increases, having less money to spend generally does catch up with consumers.
“They often borrow to make up the shortfall, hoping for higher salary increases in the future. The bigger picture reveals that consumer borrowing cannot continue unabated.”
The next step: expect pressure on the retail sector
According to Schüssler, disposable salaries are a leading indicator for retail sales.
“We suspect that the current weakness in the increase of disposable salaries is already starting to carry through to retail sales. This is also evident in the decrease of over 10% in domestic air travel over the year up to December. Travel is one of the first things consumers tend to cut out on when under financial pressure,” says Schüssler.
“Unfortunately, real retail sales increases are expected to be in the low single digits for the time being.”
Weak retail car sales growth in December is probably also an indication that the consumer is a little stretched, as 40 consecutive months of year-on-year petrol price increases will be reached in February.