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Economy in Brief

UK Retail Sales Stuck in Low-Growth Land Bottom Gear Meets Thick as a Brick
by Robert Brusca  October 20, 2011

Sales flounder and appearing to swim - The UK saw retail sales rebound sharply in September rising by 0.8% month-to-month after a flat performance in August. The spurt is welcome relief to a still staggered economy. But there is less here than meets the eye. Retail sales in the UK, once inflation-adjusted, rose by 0.7% in September, that part is not so different, but after a 0.4% drop in August and another drop in July the net leaves little on the table. As result over three months the annual real growth rate of sales at the retail level is a puny 0.8%, about in line with what sales have been doing over 6-months and 12-months.

Bottom Gear - The UK is not getting its house in order; it is not getting things in gear. Call it Bottom Gear, not Top Gear and turn on the telly to watch the show to distract yourself.

In the quarter just completed (Q3) retail sales are up at a 2.4% nominal rate compared to a drop of 0.9% in real terms. The retail sector has its own special deflator but we print the growth rates for the broader HICP in the table for comparisons.

As nominal sales spurted in September so did inflation – although the retail deflator left a lot more life in the real sales figure than would have deflation by the HICP. The UK HICP inflation rate has been very steady at 5% across six- and twelve months; unfortunately it has accelerated over the 6% mark and is pushing the 7% figure over three-months.

From the centered 3-month average in February of 2008 to date real retail sales in the UK are up by less than a cumulative 0.4%. That is over a period of 44 months or three and two thirds years. That is a tiny, tiny, rise. It averages, of course, a gain in real sales of less than 0.1% per year which is undetectable to consumers for whom this is their real gain.

The UK economy remains under a great deal of pressure. The BOE has shifted to a program of greater quantitative easing (QE). Still, there is long way to go. Shackled to strong trade ties with the EMU, the UK is not getting much help from economic growth on the continent. The US, another important trading partner, has slowed as well. Meanwhile, UK inflation is stuck high and real trends are flat. UK money supply (M4) is still shrinking year/year. The government thought that austerity might be the right idea but its experiment is turning out as bad as the one by Dr. Frank N. Stein. The UK consumer is among the undead - not really alive and not quite dead. The question is whether Mr. Cameron can come up with a good ‘plan B’ before the political process overwhelms him.

Right now the odds of success do not look very good especially with the UK major trading partners about to come apart at the seams right next door. The Euro-Area has been following the very same German Prescription for growth that the UK swallowed hook, line, and sinker. Guess what? In the early stages of a business cycle ‘Less is not more.’ Read Keynes. While we might look upon the UK experiment as an example of the failed German policy prescription, in the US, Republicans do not see it that way and seem determined to go down that very same road - again.

Thick as a brick - I don’t get it. Is everyone asleep at the switch? Don’t we learn from our mistakes anymore? Or is the British accent too thick to be under stood here in America? Or is somebody just too thick to absorb the lesson? It’s not the LSE (London School of Economics); it’s real life.

UK Real and Nominal Retail Sales
Nominal Sep
3Mo 6Mo 12Mo YrAGo Q-2-D
Retail Total 0.8% 0.0% 0.7% 6.1% 4.0% 5.3% 2.1% 2.4%
MV and Parts
Food Bev & Tobacco 0.7% 0.5% 1.6% 12.2% 6.9% 5.7% 1.2% 6.0%
Clothing footwear -0.8% -0.4% 0.2% -4.0% 1.1% 0.4% 7.2% -2.4%
Retial Volume:all 0.7% -0.4% -0.1% 0.8% 1.2% 0.7% -0.8% -0.9%
Memo:UK HICP 0.9% 0.4% 0.4% 6.8% 5.2% 5.2% 3.1% 4.3%
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