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Economy in Brief

U.K. Retail Survey Shows Extreme Weakness
by Robert Brusca  January 26, 2021

The U.K. retail volume survey conducted by the Confederation of British Industry (CBI) shows dramatically weakened data for January- and for the February outlook- as the U.K. implements what is still a severe economic lockdown. U.K. sales, orders and sales for ‘time of year’ all have queue standings in January in the bottom 2% of historic results back to 1990. With the virus raging and a new strain present, the U.K. infections rate and death tolls have mounted sharply during this period. Infections peaked on January 8, 2021. The daily death toll peaked on January 20. Recently the new virus variant, which we have known is more communicable, has also been assessed as more lethal as well perhaps as much as 30% more lethal. There is no uncertainty about why the U.K. has imposed such a severe lockdown as its death and infection rates soared and only now beginning to look like they may be turning the corner- but that is my own tentative assessment.

Economics is all about the virus
The virus permeates Europe. Norway has just cancelled a NATO exercise because of the virus. The Dutch are in their third day of rioting as people protest the curfew there to stop the spread. In Europe, some countries are pushing for people to wear better masks. France, Germany and Austria – are requiring citizens to upgrade from standard cloth masks to medical-grade coverings such as those similar in style and efficacy to the U.S. N95. Trying to understand economics continues to be an exercise in trying to understand the virus.

Economic assessments and outlook
However, economists are still having a go at it. The International Monetary Fund on Tuesday raised its forecast for global economic growth in 2021; it said the coronavirus-triggered downturn in 2020 would be less severe than previously expected. The IMF estimates a 3.5% contraction in global growth in 2020, which is better than the 4.4% shrinkage it saw in October. In its latest World Economic Outlook report, the IMF raised the global growth forecast for this year to 5.5% from the 5.2% seen in October. World economic growth is projected at 4.2% in 2022. The existence of multiple vaccine approvals and the launch of vaccinations in some countries have spurred some optimism. Still, the IMF warns of there still being ‘exceptional uncertainty.’

The U.K. is hard hit
In the U.K., not only are retail sales weak and expected to stay weak, but in the three months to November the U.K. unemployment rate rose 0.6 tenths of a percentage point over the previous quarter reaching 5%. The lockdown is having important and severe economic consequences. And that metric is only through November.

An extremely rapid implosion for retailing
The retail survey shows sharp declines to low levels of activity-among the lowest in the last 30 years. It is also the third largest monthly drop in sales (from year-ago) in the last 30 years and the fourth largest drop in orders (for time of year) in the last 30 years. The month-to-month drop in sales (for time of year) is the largest on record in the last 30 years.

Expectations clobbered too
Expectations weakened further in February as Sales (Yr Ago), Orders (Yr Ago) and Sales (Time of Year) all cluster in the lower 2% of their queue of data compiled back to 1990. However, the rapid drop in sales expectations occurred more in January. The one-month worsening is more severe for sales expectations (compared to a year ago) in January. But the decay is sharper in February than in January in the expectations of orders (Yr Ago) and for Sales (Time of Year).

The magnitude of the monthly drops is chilling
The sales drop (Yr Ago) was the fourth largest historically in January. Sales expectations (for Time of Year) was the fifth largest month-to-month drop in February. The drop in orders expectations (Yr Ago) ranks as the 13th largest in 30 years also in February.

Current and expected performance is trashed
The actual standings of these various metrics are not important; what is important is to see how weak conditions are across the board for expectations as well as performance on a variety of measures in terms of both the levels of the readings and in terms of the rapidity of the dropping. The weakness is really quite astonishing.

...and then there is Brexit
And- of course- the U.K. is still dealing with its adjustment to its post-Brexit trade arrangement, a shift that is giving some U.K. consumers sticker shock when they order goods from across the channel. U.K. data for January and February are going to continue to be quite weak and even tending to abysmal. And it is still unclear when the lockdown will be taken off and how quickly it will be eased. In the meantime, there is the ongoing transition to Brexit and the ongoing significant stifling border delays.

Commentaries are the opinions of the author and do not reflect the views of Haver Analytics.

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