Author: Mike Schussler Source: BankservAfrica
Both consumers and retailers can look forward to some Christmas cheer over the coming festive season, since indications from the latest BankservAfrica Disposable Salary Index (BDSI) are that those in formal employment have more cash in their pockets than generally assumed.
Despite strikes, the total wages paid out in the economy are still rising – even in real terms.
“According to the BDSI, disposable salaries have increased nominally by 7.6% for the year up to September 2013,” says Mike Schüssler, chief economist at economists.co.za.
"This is probably due to various factors, including growth in gross salaries, small growth in private pension payments, slightly higher employment numbers, and probably fewer man days lost due to strikes, compared to the same period last year," he explains.
However, loan conditions remain tight. This means that the bulk of consumers' spending will probably go to either having a decent holiday, or buying smaller items.
An unusual increase in real terms
"For the third month in a row, disposable salaries have increased in real terms. This may be a bit surprising, but could be explained by the fact that the platinum miners’ strike in the 3rd quarter of 2012 probably involved more people than the motor industry strike of 2013," says Schüssler.
The increased disposable income will probably lead to relatively strong retail sales overall, as most consumer spending comes from salaried employees. It is important to remember that consumer spending still remains the strongest sector in the South African economy and that disposable salaries should be one of the main drivers of this.
"After ten months of mainly declining real incomes of the South African work force, the increase in disposable salaries over the last three months is probably very good news for the overall consumer sector," Schüssler continues.
"Our July 2013 BDSI indicated that retail sales could come in stronger than expected, and they certainly did. While this may not continue at a 3% rate, one can certainly expect an average monthly increase of 2% or more over the next few months in retail sales."
The average salary approaches R11 000
Brad Gillis, CEO for regulated products at BankservAfrica advises that the average disposable salary was R10 907 in September, which was slightly down from August 2013. “This is the fourteenth month that the average disposable salary has been over R10 000. The median salary remains around R8 000 and only about 35% of employees took home more than R10 000 in September,” he says.
The total salary payout (including pensions and those earning over R100 000, although these categories are excluded from the BDSI figures) increased by 8.2% in September 2013 against September 2012.
"This is once again higher than consumer inflation and probably indicates that the main part of the consumer is not as stressed as is often thought," says Schüssler.
Expecting record sales in the retail sector
He expects retailers, the clothing sector and fast food sellers to see record sales.
"Record sales may come in slower, but they will be there, as employees in the formal sector continue to get real salary increases.”
"One must also remember that consumer spending is more than just retail sales – it also includes tourism spending, petrol sales, and services such as cellular phones and movies. On the whole we expect consumer demand to continue to increase, but at a slower rate than the last two years.”
According to Schüssler, durable items such as car sales may remain flat due to tighter loan conditions, but the consumer (without the need for borrowing) will be able to sustain the purchase of smaller items without loans.
Contact Gerian Miller for more information: GerianM@bankservafrica.com or (011) 497 4067
Note to the editor:
The BDSI data is smoothed on a three month moving average basis and adjusted for both weekly payments and pension payments. The average pension payments are only about 60% of those of people in employ, so the BDSI focuses on the employed and their salary payouts. We therefore adjusted the monthly numbers to take this into account. The average disposable salary is adjusted on a constant basis for these two factors. December is a very high payout month and somewhat distorts monthly averages, but we believe that the year-on-year trends remain intact.