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Economy in Brief

UK Retail Sales and the CBI Retail Survey Diverge
by Robert Brusca  October 26, 2021

Actual UK retail sales volumes and the CBI retail survey have moved more or less together historically. But UK retail volumes are now showing weakness as year-on-year gains have given way to decline in the past two months (Sales data are up to date through September). Meanwhile, the CBI survey continues to pump out strong readings for orders and sales and less so for sales for the time of year (TOY).

CBI Sales compared to year ago have a +30-survey reading that translates to an 80.4 percentile standing (higher only 20% of the time). This is a strong reading. It is a sharp turn higher from August that was an even sharper slowdown August (+60). The August reading is close to the high reading on this metric since January of 1997. At +30 in October the net diffusion reading is well above its 12-month average which is +2.

Compare this to actual retail sales that present as a 12-month percent change. Retail sales most topical reading is -1.3% in September (weaker than its -0.2% gain in August). The average 12-month gain for retail sales has been 6.8% which is quite solid for a real year-on-year percentage gain. But the September comparison does find actual retail sales much weaker than their past 12-month result rather than stronger as in the CBI Survey. However, the percentile standing of the latest retail sales change in its historic queue of such changes back to 1990 finds it at a percentile standing in its 8th percentile which is quite weak. Retail sales were pumped up to an extremely high level in April of this year and for the last five months retail sales volumes have been receding month-to-month although they have only fallen year-on-year for two months in a row.

Orders year-on-year have been strong. The survey reached a high in this cycle of 68 in August which is the same as the high since 1997 but in September orders fell back to a +20 reading. Now in October the order reading is back up to +48 and holds at a 98.7 percentile standing and is the fourth highest reading since January of 1997.

Sales for the time of year (TOY) are at a -1 diffusion value, an improvement from -11 in September which was a deterioration from +26 in August. The August reading was a this-cycle high and part of the ongoing process of repair after the coronavirus struck. Still, the August reading for TOY sales unlike sales and orders was not near its high value on this timeline.

Stocks continue to be depressed as demand has been strong and supply has not been able to generate enough output to rebuild inventories. At -23 in October, we are looking at the lowest reading on this timeline back to January of 1997.

Expectations are also upbeat with sales, orders, and TOY sales all logging values with firm to strong standings. The highest standing is for orders at 99% while the lowest standing (excluding stocks) is for TOY sales at a 79th percentile standing. The expectations data are for November. And sales orders and TOY sales of year each step up strongly in November compared to their October level, that was set last month. The expectations data generally began to get quite strong in July after readings had been net negative in March and in one case in April of this year. Those readings turned positive for the most part in May and June they became very strong in July and peaked in August. All three of these expectations series weakened in October but have recouped with strong gains for November. Stocks continue to post large negative readings as supply chain issues continue to prevent inventory-building.

The CBI survey is a lot more upbeat than actual retail sales trends. Retail sales volumes have been in a declining mode. Yet the merchants engaged in these survey find sales solid enough and expect them to stay that way. The UK is still impacted by supply chain and Brexit adjustment issues and the BOE is getting ready to remove some of its stimulus. So, there is a lot of change afoot.

One reason merchants may be happy with sales that are in state of decline may be that the year-on-year comparisons have been made harder in September and October. But those comparisons will break lower in November. Lower base effects could cause retail sales volumes to grow much more sharply in year-over-year comparisons. That is another way of saying that merchants who are looking ahead see that sales this year have a low hurdle to go over to do better than they did in November and December of last year. And that hurdle gets even lower in January and February but then it will rise in March and get much higher in April. Retail sales growth rates are going to be hard to make sense of in the coming months. Maybe the survey data will become more important and perhaps more reliable, too.

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