Low single digit growth in disposable salaries may be the ‘new normal’ as take-home salaries continue to decline

The latest BankservAfrica Disposable Salary Index (BDSI) data for January 2017 shows that average real disposable salaries continue to decline.

“For the first time since the BDSI began in 2013‚ the average real disposable salaries declined for eight consecutive months in a row on a year-on-year basis‚ according to the latest January 2017 data‚” said Dr Caroline Belrose‚ Head of Information Services at BankservAfrica.

Take-home pay remains under pressure due to the tax bracket increments‚ low salary increases and medical insurance costs.

However‚ total salary payouts did not decrease in real terms.

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There were 177‚000 additional small pay checks‚ mostly for part-time and weekly paid temps in the system which contributed to keeping the movement of salaries static in real terms.

In nominal terms‚ average salaries increased by 3.9% in January 2017 - below the actual cost of living increase.

The average nominal disposable salary‚ according to the BDSI‚ was R13‚752 for January 2017.

However‚ salary declines in real terms of 2.6% represented the biggest fall over the last year.

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“It is unlikely that consumer sentiment will recover soon with real salaries declining rapidly and for this length of time. Real retail sales will remain under pressure and consumers will think twice before taking on any new debt or making any durable purchase‚” said Mike Schüssler‚ Chief Economist at Economists dotcoza.

Disposable salaries reached a high in October 2015 in real terms owing to the slight increase in the number of individuals on the South African payment system. This can also be attributed to the increase in the number of small (part-time) employment growth.

“Nonetheless‚ the average take-home salary is constrained as observed in the retail‚ domestic tourism and vehicle sales‚ as well as for telecommunications services. All of these sectors combined reflect slower consumer spending‚” said Schüssler.

He added: “Clearly the heady days of 2011 and 2012 are now over and the ‘new normal’ seems to be for very low single digit growth in disposable salaries.”

A similar reality is reflecting in BankservAfrica’s Private Pensions Index (BPPI) for January 2017 – though for different reasons. The BPPI reflected a second consecutive month of annual declines in real terms. Besides the effects of the equity markets the strengthened rand has also resulted in foreign investment incomes being lower than before in real local terms to pension funds which are being placed in so-called rand hedge stocks.

Belrose said: “The BPPI showed a decline of 1.1% - the biggest drop for pensioners since the BankservAfrica data began just over four years ago in 2013. However‚ aggregate pension payments increased in real terms by 6.5% for the last three months on a year-on-year basis.”

In nominal terms‚ the average private pension increased by 5.4%. For the 26th consecutive month‚ private pensions paid into bank accounts has increased faster than salaries. Although pension income growth has slowed‚ pensions are still outperforming salaries. Total private pensions paid have moved from 9.1% of the total income payouts measured to 9.7% from January 2016 to January 2017.

Pension growth again helped to lift the total income from work and private pensions by 1.7% for the three months to January 2017 compared to the same period in January 2016. “While this increase is minor‚ it is better than the last few months and may represent a small recovery for the average individual‚” Schüssler said.