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Economy in Brief

UK Retail Sales Bounce As Consumer Confidence Sags
by Robert Brusca  November 17, 2011

Retail sales or retail therapy?

While Europe is weak and policies are contentious and the UK has been drawn into the backbiting as well...and as the UK consumer has been steadily losing confidence, perhaps as an observer of this process the UK consumerís idea of remedy for all the malaise is retail therapy?

UK retail sales volume is up by 0.6% on the heels of a 0.5% gain in September. These two gains, one in the new quarter and on the other at the end of the old, help to boost retail real sales to a 4.6% rate of expansion in the first month of Q4 over the base of Q3.

While higher sales are good news they contrast sharply with the UK consumerís feelings. The UK consumer, like the US consumer, is feeling worse and worse as he seems to be shopping more and more. Hence, I ask if this Ďretail therapy?í

I donít know if this notion of retail therapy should be taken as a serious proposition or not. We do see disconnects between what consumers say and what they do at least in the short run. In fact the chart shows that the current disconnect is a lot like a similar confidence/spending divergence we saw earlier this year. On the chart we plot Yr/Yr percentage changes in real retail sales against the level of the Nationwide consumer confidence index. The current divergence in the two trends is significant. Still, there is nothing unique in this episode.

We probably do not need any special reason to explain why confidence and spending are going in opposite directions right now. These things happen. We can see that we get disconnects and re-connects. But the level of the consumer confidence index does seem to point the way for what ultimately happens with retail sales. Thatís the bad news. The continued weakness- and new weakening- in confidence suggests that the spending splurge - whatever its cause - is not likely to last. Indeed, consumers are sometimes forced to spend money that they might not want to as the school year restarts or as long held durable goods wear out. Sometimes the consumer simply does not have much control over these things. The confidence reading does seem to shift to indicate real changes in the spending trend. What confidence is doing now is not encouraging for the future of spending despite the recent spending results.

As we look at the relationship between spending and confidence we do observe that sometimes the spending trends shift ahead of the confidence trend. In 2009 and in late 2010/early 2011 the spending trend turned ahead of the shift in the confidence metric. But we have to ask ourselves if given the rest of what we know about the UK economy and its connection to Europe is that sort of a shift likely to continue? Is that a reasonable expectation? I donít think you can answer Ďyesí to that question with any degree of authority. That leaves us with the weak trend in confidence to call the tune for the future.

UK Real and Nominal Retail Sales
Nominal Oct-11 Sep-11 Aug-11 3Mo 6Mo 12Mo YrAgo Q-2-D
Retail Total 0.7% 0.8% -0.1% 6.0% 2.2% 5.4% 2.2% 7.8%
MV and Parts
Food Bev & Tobacco 0.4% 0.6% 0.4% 5.5% 1.1% 5.4% 1.9% 5.5%
Clothing footwear 1.3% -0.2% -0.3% 3.3% -0.2% 2.6% 5.7% 6.6%
Real
Retail Volume:all 0.6% 0.5% -0.5% 2.4% -0.4% 0.9% -0.9% 4.6%
Memo:UK HICP 0.2% 0.9% 0.4% 6.0% 4.2% 5.0% 3.3% 5.6%
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