The bank said August marks the first time this year that spending has grown for two consecutive months.
While many South Africans are struggling to make ends meet, Absa says there has been growth in month-to-month consumer spending.
The bank’s latest Merchant Spend Analytics report for August 2024 shows a 1% spending increase and a 3% transaction volume increase. However, in July, the bank saw 3% growth in both categories.
Absa uses internal data to examine consumer spending patterns and trends. It helps businesses understand consumer preferences, behaviours, and spending power across various categories.
Growth for two consecutive months
Head of Consumer Goods and Services Sector Coverage at Absa CIB, Isana Cordier said August marks the first time this year that spending has grown for two consecutive months.
“The increase is minimal and not yet enough to celebrate a positive turn in economic sentiment or in household consumption recovery.”
The report reveals that there has been consumer spending growth of 6%, which outpaced the current inflation rate year-to-date, however, its growth was limited by the weak performance within the food (+3%) and clothing (+1%) categories.
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Limited growth in food and clothing
Cordier added the two categories accounted for 69% of the overall market share before the covid 19 pandemic.
“However, as at year-to-date August 2024, their combined share has dropped to 59%.”
Categories such as home and garden, and business and professional services represent 20% of the market, but they experienced significant growth, with increases of 14% and 16% respectively, driving the overall market’s upward momentum.
Drivers for the slower growth
She said they have noticed a shift in spending patterns, with the growth of township economies offering more affordable alternatives likely drawing consumers away from traditional retail channels.
“In clothing, economic pressures, the rise of fast fashion, and international online retailers have led to further declines for brick-and-mortar stores.”
They have noted how categories like business and professional services, which include companies like Fintech solutions continue to grow.
Absa attributes the growth to the increasing adoption of merchant machines by small businesses, which is driving more transactions in this space.
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Consumer preference
The report shows a growing consumer preference for credit cards to purchase goods and services, with usage increasing by 10% year-to-date. Debit card growth has on the other hand slowed to 4%.
The slow growth of debit cards being used has been attributed to the economic challenges consumers are facing.
“Meanwhile, online spending saw a modest increase of 19% as compared to last year, primarily driven by significant growth in categories such as home and garden (+35%), business and professional services (+23%), food (+15%), and clothing (+24%).”
The abovementioned sectors accounted for 81% of all online transactions.
Consumer behaviour
Cordier said they are seeing a clear shift in consumer behaviour as online shopping continues to grow.
“The online marketplace, particularly for food and clothing, has become increasingly competitive, with major retailers competing for market share.”
Despite the growth in online transactions, in-store purchases are the backbone of the retail sector, which shows that consumers value physical shopping experiences alongside the convenience of e-commerce.
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September’s forecast
“Looking forward, September 2024 marked the introduction of the highly awaited two-pot retirement system in South Africa.”
Absa anticipates a portion of the two-pot retirement system funds to settle short-term debt and stimulate household consumption.
“Our preliminary internal merchant data indicates a muted activity in consumer spending and transaction volumes for September 2024.”
“The bank’s preliminary internal merchant data suggests factors such as delayed payouts, the processing of tax directives, consumers channelling funds towards reducing debt and consumer uncertainty about withdrawing retirement funds may have contributed to a muted activity in consumer spending.”
Financial health of the consumer
Cordier added it is important to remember the financial health of consumers has been under pressure for a long period, which leads to adjusted expenditure patterns.
There will need to be an improvement in interest rates, inflation, and employment levels for a rebound in consumer spending.
“For the time being, we will wait and observe whether the two-pot retirement reform, combined with the current improving economic conditions, will bring positive changes to consumer spending.”
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