Retail sales statistics for September indicate that activity at retail level rebounded strongly in Q3 2011 from the slower pace recorded in Q2. On a seasonally adjusted basis quarter to quarter growth in sales volumes to September 2011 accelerated sharply to an annualized rate of over 15% from negative growth rates recorded in Q2. (See below)  

The retail sales cycle (Seasonally Adjusted Data)

Growth in Retail Volumes 2009-2011

Source; Stats SA and Investec Growth and Investment

This rebound is entirely consistent with the strong recovery in unit vehicle sales and in the demand for and supply of cash over the past three months, (to October 2011) as we show below.

Real Growth Rates (quarter to quarter growth seasonally adjusted and annualized)

Quarter to Quarter Growth Rates

Source; Stats SA and Investec Growth and Investment

These quarter to quarter growth rates in seasonally adjusted data have the great advantage of capturing changes in the underlying growth trend that might be under way. A year can be a very long time in economic life and year on year growth rates can easily miss an important change in trend under way. For example the influence of the World Cup in 2010 is still reflected in year on year growth numbers to September 2011. The World Cup temporarily stimulated retail volumes to June 2010 and then depressed them in the third quarter of last year. Thus year on year growth in June 2011 would have been lower for these higher June 2010 base effects while growth to September 2011- off a lower base would appear artificially stronger. Measuring growth over shorter periods of time, especially when annualized, are inevitably more variable than annual growth rates, as we have demonstrated. However there is little doubt that in the third quarter of 2011 the growth in retail volumes accelerated very strongly, as did  vehicle sales and the money base, and for most observers unexpectedly so.

We can represent the long term growth cycle by smoothing the underlying data and calculating the year on year growth rates in the smoothed data. As may be seen below these annual growth rates in real retail and vehicle sales, despite the strong growth recorded in Q3 2011, are still pointing down, while the growth rate in the real supply of cash is pointing up.

If the past is anything to go by, if the growth in the money base continues to point higher, retail and vehicle sales growth will also turn up in due course.  The cash supplied by the Reserve Bank to the banks and the public over the next two  months will provide us with a very helpful and very up to date indicator of the state of demand in the SA economy.

The real cash retail and vehicle growth cycles (to October 2011)

The real money base, retail and vehicle cycles

Source; Stats SA and Investec Growth and Investment