Household sector – GDP stats relating to South Africa's household/consumer sector
While there was some relief at the slight improvement in 2nd Quarter GDP growth, the detailed numbers still appeared to reflect further deterioration in the situation of the Household Sector
2nd quarter GDP stats provided little to yet cheer about for South Africa’s household sector.
While South Africa narrowly avoided a technical recession in the 1st half of 2014, given that 2nd quarter GDP (Gross Domestic Product) growth returned to positive growth territory, a closer look at the numbers still pointed to a deterioration in the situation for South Africa’s Household Sector.
The one economic sector that probably best reflects the financial state of the Household/Consumer sector is the sector called “Retail and Wholesale Trade, Catering and Accommodation”.
The 2nd quarter GDP data provided little in the way of surprises for this sector, as it went into its 1st quarter-on-quarter annualized decline/contraction since the 2nd quarter of 2009. This is counter to the improved overall GDP growth rate, and its year-on-year growth rate also declined from the 1st quarter’s +2.1% to +1.4%, reflecting the continuation of a lengthy broad slowdown in year-on-year growth since late-2011.
Given the Household Sector’s propensity to consume just about its entire disposable income, with a net savings rate of close to zero, a slower 2nd quarter growth rate in the Retail and Wholesale Trade sector probably reflects a drop in real Household disposable Income growth too.
Indeed, a further look at the GDP-related numbers reveal further slowing in the total domestic nominal wage bill growth from the 1st quarter’s 7.2% to the 2nd quarter’s 6.5% year-on-year. This, coupled with an elevated consumer inflation rate, also points to the likelihood of slower real disposable income growth in the 2nd quarter, with the wage bill being by far the biggest single source of household income.
In addition, the current poor level of GDP growth, along with the relatively high Wage Bill/GDP Ratio, does not appear to be an environment in which there will be major employment growth. More likely, it may still be one of labour shedding.
The Reserve Bank’s Non-Agricultural Formal Sector Employment Index suggests that the last period of major employment growth was back around 2004-2007/8 during the economic boom years, a period where real economic growth was often above 5%, and the Wage Bill/GDP Ratio was generally below 50% and on a declining trend up until 2008.
Since 2009, this ratio has trended upward from around 49% to the 52% level. This elevated Wage Bill Cost relative to GDP looks unlikely to be aided lower by anaemic economic growth. The alternative appears to therefore be a lack of employment growth, as has been the case in recent years, and even possible labour shedding.
In short, therefore, while yesterday’s overall GDP number pointed to a quarter-on-quarter growth improvement, and any improvement should be welcomed, a more detailed look at the numbers related more directly to the Household Sector/Consumer appeared to reveal a still-weaker 2nd quarter compared to the 1st quarter, a key risk in these times of heightened social tensions.
Photo Caption: John Loos, a household and property sector strategist. Photo sourced from www.financialmail.co.za
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