“The second quarter GDP data provided little in the way of surprises for this sector, as it went into its first quarter-on-quarter annualised contraction since the second quarter of 2009,” John Loos, household and property sector strategist at First National Bank, said in a statement.
“This is counter to the improved overall GDP growth rate, and its year-on-year growth rate also declined from the first quarter’s +2.1 per cent to +1.4 per cent, reflecting the continuation of a lengthy broad slowdown in year-on-year growth since late-2011.”
(READ MORE: S.Africa dodges recession as Q2 GDP grows 0.6%)
Loos added that the slower second quarter growth rate within the Retail and Wholesale Trade, Catering and Accommodation sector also reflected a drop in real household disposable income growth.
The Retail and Wholesale Trade, Catering and Accommodation sector, according to Loos, best reflects the financial state of the household and consumer sector.
“A further look at the GDP-related numbers reveal further slowing in the total domestic nominal wage bill growth from the first quarter’s 7.2 per cent to the second quarter’s 6.5 per cent year-on-year,” Loos explained.
“This, coupled with an elevated consumer inflation rate, also points to the likelihood of slower real disposable income growth in the second quarter, with the wage bill being by far the biggest single source of household income.”
In addition to the consumer inflation rate is the current poor level of GDP growth which, according to Loos, alongside the high Wage Bill to GDP Ratio, is not in an environment that could potentially have major employment growth but rather one that is closer to labour shedding.
The South African Reserve Bank’s non-agricultural formal sector employment index suggests that that the last period of major employment growth was between 2004 and 2007, as well as 2008.
(READ MORE: Modest gain in S.Africa's employment figures)
This was particularly during the economic boom years where real economic growth was often above 5 per cent, and the Wage Bill to GDP Ratio was generally below 50 per cent. This prosperity was sustained until 2008.
“Since 2009, this ratio has trended upward from around 49 per cent to the 52 per cent level. This elevated Wage Bill Cost relative to GDP looks unlikely to be aided lower by anaemic economic growth,” said Loos.
“The alternative appears to therefore be a lack of employment growth, as has been the case in recent years, and even possible labour shedding.”