Economy in Brief

The distributive trades survey for the United Kingdom shows broad weakness in July for the retail sector and broad weakness for volumes in the wholesale sector as well. The expectations readings for both portions of the survey show weak current standings as well as a weakening outlook.

Retailing The retail sector in July shows a -4 reading for sales compared to one-year ago; that is a slight improvement from -5 in June, but it deteriorates from -1 in May. Orders, compared to one year ago, log a -13 reading in July, down from -8 in June and 2 in May. Sales evaluated for the time of year perform better with a - 9 reading in July compared to a -19 reading in June and a reading of zero in May. The stock sales relationship shows an increase to 29 in July from 12 in June and 11 in May. The standings for these four metrics show sales compared to a year ago with a 24.6 percentile standing, orders compared to a year ago with a 20.8 percentile standing, sales for the time of year at a 38.7 percentile standing, and the stock sales relationship at a very high 95.4 percentile standing indicating potentially that inventories are becoming overbuilt.

Looking ahead at expectations for retail performance, in August expected sales compared to a year ago dive to a -14 reading from -2 in July. Orders log a much weaker -28 compared to a -10 in July. Sales for the time of year log a -6 reading which is a significant improvement from -25 in July while the stock sales ratio climbs to 25 from 12 in July. Ranking these standings, expected sales compared to a year ago have a weak 11.6 percentile standing, expected orders for a year ago have a weak 6.3 percentile standing, sales for the time of year have a better, but still quite weak, 37.2 percentile standing; the expected stock sales ratio is very strong with a 97.2 percentile standing. On balance, retailing and its outlook remain quite weak.

Wholesaling The distributive trade assessment for wholesaling shows sales compared to a year ago at -13 in July, weaker than June’s rating and a sharp reversal from 30 in May. Orders compared to a year ago are up to an 11 reading in July, higher than a reading of 1 in June but well short of a reading of 19 in May. Sales for the time of year fell to a reading of 9 in July compared to 20 in June and 41 in May. The stock-sales relationship in July is at 10 which is up from -8 in June and is even with 10 in May. The percentile standings for wholesale sales data are generally firmer than they are for retailing in June but for the most part still weak with sales compared to a year ago at a 15.8 percentile standing, orders compared to a year ago have a 53.2 percentile standing; that is above the historic median. Sales for the time of year have a 43-percentile standing while the stock sales relationship has a 38-percentile standing.

Looking at expectations for wholesaling in August, expected sales fall sharply to a - 18 reading from 9 in July and stronger values in June and May. Orders compared to a year ago fall to zero in August compared to 8 in July and much stronger values in June and May. Sales for the time of year fall to a -11 reading from 12 in July and much stronger readings in June and in May. The stock sales relationship logs a 10 reading in August which is up sharply from -6 in July and readings close to zero in June and May. There is clear and sharp deterioration compared to May and June.

Neither the retailing nor the wholesaling portions of the survey are very reassuring. The best standing in the series apart from the stock sales relationship comes from a marginally above median reading for wholesaling orders compared to a year ago. Everything else shows weakness compared to historic median standings. Given the situation for the economy and in Europe, this is not surprising.

Business optimism in the U.K. improved in the third quarter to a reading of -21 from a very low reading of -34 in the second quarter. Yet, the U.K. economy continues to be under a great deal of pressure and all the risk factors that had been in play remain in play from the Ukraine-Russia War to the ongoing COVID issues, to the central bank raising interest rates. But optimism is not as negative in the third quarter as it was in Q2. Its standing has improved to a lower 23 percentile level from a lower 9 percentile level previously. While there is considerable improvement month-to-month, it's still a very weak report.

Export optimism improved in the third quarter compared to the second quarter although expectations for capital expenditures for buildings remained at the same reading as in Q3; assessments of capital expenditures for equipment moved higher. Capital expenditure expectations for both categories are quite high with 85-percentile standings for buildings and with a 91-percentile standing for equipment.

The number employed over the last three months backtracked slightly in Q3 but still has a 94.5 percentile standing with the trend still and a 96-percentile standing although it also backed off in the third quarter. New orders from three months ago fell back to a +11 reading from +22 in the second quarter marking a 73-percentile standing, but the volume of orders expected three months ahead improved; that response has only a 57-percentile standing. Domestic orders versus expectations show a stronger standing for current orders compared to expectations; the same is true for foreign orders over the last three months versus expectations for three months ahead. Expectations for domestic and foreign orders each show sub-median readings for three months ahead.

The output metric fell back in the third quarter to a +6 reading from +19 to a standing at its 55th percentile; expectations for output for the period ahead also fell to a reading of +6 from +17 in the second quarter but that yields a low standing in its 39th percentile below its historic median.

Finished stocks record a little assessment change between quarters with the standing in the 90th percentile while the three-month-ahead assessment for stocks drops to a -10 reading from +1 to a below-median 42.5 percentile standing.

Next is series of readings on the cost of output: domestic orders and foreign orders show extremely high readings for both the current and the expected values over the past three months as well as for the next three months. All these metrics have high 90th percentile standings. Clearly inflation is expected to be engaged.

On balance, the quarterly CBI series shows an improvement in expectations although still a great deal of weakness and clear expectations that inflation is going to continue to be a factor in the period ahead.