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Economy in Brief

UK Distributive Trades Still Weak- So Is Whole of UK Economy
by Robert Brusca  August 25, 2011

The UK distributive trades sector is still floundering. The sales metric for August compared to one year ago fell to -20 from +4 in July a huge month-to-month drop. Orders from one year ago fell to -15 from -7. Sales for "the time of year" fell to -18 from -12. Inventories continued to climb to 31 from 19. The sales reading lies in the lower fourteen percentile of the queue of historic values. The August report offers a very weak reading. Sales for the time of year and orders compared to a year ago are just as weak. The stock to sales ratio, however shows distress as it sits in the 78th percentile (top 22 percentile) of its range of values) so as sales have slipped inventories have been piling up.

The outlook parameters are more milquetoast-like and that might simply reflect confusion about the outlook rather than conviction. Or it could be suppressed optimism; with times this bad an ordinary outcome would be a "good" one. Except for inventories which again are high-valued relative to sales the expectations are clustered near the middle of the range. Sales are expected to be lower next month but orders are expected not to have slipped as much as they did this month. Yet, in the current month Sales and orders were worse year–over-year than had been expected last month. Firms are either not learning from events, are in denial, or have some reason to expect improvement. The last option is a hard case to make.

On the political front there is no solace. Labor is pushing for the sales tax increase which was raised to 20% to be rolled back to 17.5%. Prime Minister Cameron is under pressure from an underperforming economy. The decision to follow Germany in a mad dash to austerity before locking a real economic recovery in the aftermath of a severe recession is taking an extended toll on an already-stressed economy. At the same time the BOE is tolerating inflation that is skipping at levels well above its imagined ceiling. UK riots are just one recent ramification of how bad economic times can impact an economy. Consumer confidence and retail sales have weakened; distributive sale index is showing how much this stress permeates the economy.

Although not a member of the e-zone the UK is struggling. It is fortunate to have an independent currency and a central bank that can flex its policy more than would the ECB in the face of its pressures or the UK would surely be back in recession at this time. Imagine if the BOE were to be trying to push inflation back down to 2% in the midst of this austerity drive? The UK is facing a difficult dilemma but it is in a tough global environment and it is dealing with the problems of its own choosing since it squarely adopted the austerity plan as means to better growth. Not surprisingly it a very, very slow slog. The question at hand, is whether this economic program will pay dividends soon enough to keep the government in power or if the economic fraying around the edges will continue mushroom and take the government down before its policies bear fruit.

UK Distributive volume data CBI Survey
Reported Sep
%ile Max Min Range Rank
Sales/Yr Ago -20 4 -10 13 47% 40 -74 114 14.2%
Orders/Yr Ago -15 -7 -14 5 45% 38 -59 97 16.0%
Sales: Time/Yr -18 -12 -20 -2 44% 32 -57 89 13.5%
Stocks:Sales 31 19 22 19 92% 34 -3 37 78.4%
Expected Sep
Sales/Yr Ago -10 -8 -3 15 10 51% 33 -55 88 48.6%
Orders/Yr Ago -6 -13 -6 5 4 61% 26 -56 82 46.8%
Sales: Time/Yr -15 -17 -23 -1 -5 46% 28 -52 80 46.8%
Stocks:Sales 26 12 16 19 14 74% 35 1 34 81.9%
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