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Economy in Brief

Viewpoints

U.K. Retail Sales Surge As Global Economy Steps Up
by Robert Brusca  July 23, 2021

U.K. retail sales are showing strength and building on a good history of strength. Although sales in June rose by 1.6% after a 0.8% drop in May, sales also exploded for a 9.5% gain in April. The 12-month to six-month to three-month trends in U.K. retail sales are explosively accelerating; much of that is due to the surge in April as the economy opened up.

When sales go viral instead of hospitalizations
Despite this explosive growth in sales, the U.K. is being swarmed by an outbreak of the Covid-D-variant. And in response, the economy is not locking up again. The U.K., in fact, has seen hospitalizations fall to very low levels as the proportion of D-variant infections has risen. Some consider this to be a grand experiment by the U.K. to stay open with the virus in circulation. But evidence of the U.K. outbreak so far indicates that, while the D-variant may be much more infectious than previous Covid strains, it is also less lethal as the dropping number of U.K. hospitalizations attests. Of course, the U.K. also has a relatively high incidence of vaccination to help it fight-off the effect of this new strain. But with this new approach, the U.K. seems prepared to run policy and not be held hostage by the virus. It is being rewarded by an economy that really is performing well.

Real sales are building the same crescendo. They are sequentially stronger with their growth rates surging ahead. Passenger car registrations are less linear in their growth but clearly have come a great way forward despite two monthly drops in a row. Autos have supply issues as well as demand questions. A shortage of chips has slowed auto sales/production globally.

In the just completed June quarter (quarter-to-date column), sales are rising at a 67.3% annualized rate; real sales are up at a 60.3% annualized rate and passenger car registrations are up at a 373.1% pace. If we rank each of these three flows on their year-on-year growth rates, each has a standing above its 95th queue percentiles on data back to 2001.

The bottom panel of the table provides some added data on retailing from the CBI survey. This survey corroborates the strength we see in the retail sales report itself. The survey data are presented in the table as changes over periods. These changes continue to build on past strength. The sequential changes are simple changes and nothing has been done to try to annualize them for momentum comparisons. So retail sales for time of year are up by 57 points year-over-year and are up by 60 points over just the last three months. The two CBI metrics evaluated on their survey level values have standings above their 95th percentiles. Consumer confidence is a departure from all the readings of strength as it has only a 53.7 percentile standing, above its historic median, but not by much.

Global perspective: Strong PMI reports
The Markit PMI data also were released today. They are showing revived strength in the EMU and in Germany. On their full lifetime of observations, they are at new historic highs. The table to the left ranks that data only back to early-2017. While Markit is trumpeting this all-time strength, we are forced to confront the paradox of the PMI data since economic activity is nowhere near historic maximums. These PMI data are useful and they are cyclically sensitive, but they are indicators of breadth not of strength and they simply tell how broad a pick up or decline is. Not surprisingly with everyone digging out from under virus restrictions, the breadth is expansive. But growth overall is still not strong and with the virus still in play not every country is taking the U.K. approach. Some are imposing new movement and other restrictions as the presence of variant-D spreads.

EMU overall, EMU services, Germany overall, and German services as well as U.S. manufacturing are logging their strongest PMI readings over the last four and half years. And nearly all the rankings in the table on that period show queue standings of 90% and higher, with French services at a 75.5 percentile standing the exception. There is no weakness per se. Everything is expanding and trying to get back to normalcy. But many businesses are shut for good. Labor supply is hampered by the need for someone to care for children at home or because of virus fear or because of other factors, like generous stay at home benefits that may still get paid. Getting back to where we were before Covid struck is not like following a trail of breadcrumbs in the forest.

For now the pulse of economic expansion seems very strong. But policy is trying to return to normalcy and getting all the way back to pre-covid metrics may be very difficult. National authorities globally are still trying to come to grips with how they should respond when third and fourth (or the nth) wave appears. Few elected officials have any taste to reimpose lockdowns. Meanwhile, in developing countries they are much less far along and the percentages that have been vaccinated are low; those countries remain more at risk as well as potentially a breeding ground for something worse to develop. So if you want to be scared, there it is. The U.K. has chosen to use a vaccination strategy and keep the economy open and to be optimistic and to embrace growth.

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