Economy in Brief

Retail sales in the United Kingdom fell by 1.7% in August after rising 1.5% in July and 1% in June. Sequentially growth rates for nominal retail sales grow by 5.3% over 12 months, at the same 5.3% annual rate over six months, and slow to a 2.9% annual rate over three months.

However, that doesn't begin to tell the story since inflation is raging and driving the nominal numbers higher. Retail sales volumes fell by 1.6% in August, rose by 0.4% in July and fell by 0.2% in June. Retail sales volumes are falling by 5.3% over 12 months, falling at a 6.3% annual rate over six months and falling at a 5.4% annual rate over three months. In each of these sequential periods, retail volumes decline. They decline at a pace of 5% or somewhat greater in each period. While retail sales in the U.K. continue to deteriorate, the pace of deterioration remains more or less steady; it's not increasing and it's not diminishing. However, compared to a year ago, the decline in sales volumes is greater because the year-over year-volume decline of one year ago was at a 4.4% annual rate.

In the current quarter-to-date (QTD), retail sales are posting a strong-seeming gain at a 7.3% annualized rate. However, these are nominal sales and the inflation rate in the U.K. is high. Retail sales volumes QTD show a contrary 3.9% annual rate decline. These calculations are for the months of July and August taken over the second quarter base for sales. They reflect an ongoing contraction in retail sales volumes. Based on the two (of three months) quarterly data, there may be a slight let up in the pace of decline in retail sales in the third quarter.

Economists have an expression for nominal values particularly when inflation is high. The references to something called ‘money illusion.’ It's the illusion that because something costs a lot more money there's more of it. For example, the standings of the growth rate of nominal retail sales is in the 84.6 percentile. The gain in nominal retail sales would seem to be in the top 15% of all sales gains since August 2001 the period of overwatch these standings are calculated. That would be strong. However, if we apply the same ranking criteria to the growth in sales volume, retail sales volume has quite the opposite 2.4-percentile standing. It is real sales- sales once we account for the effects of inflation- that are weak. They have been weaker than this only about 2.4% of the time and they have been higher than this over 97% of the time.

Passenger car registrations have rebounded after a prolonged period of weakness they rose by 9% in August and 17.8% in July after falling by 5.9% in June. Past year car registrations are up by only 0.9% over 12 months; they're falling at a 23.9% annual rate over six months, and they are rising at a 113.3% annual rate over three months. Clearly there is a recent surge in registrations that still hasn't elevated the level of passenger car registrations materially.

The table also presents some survey data on U.K. retail sales. The survey data show retail sales for the time of year assessed as slightly stronger in August than in July; the volume of orders year-over-year has made a significant improvement compared to July showing a change of 14 compared to a change of -5. By comparison, consumer confidence in August fell by 3 points after being flat in July; these are calculations of month-to-month changes in underlying indexes.

Sequential data show simple changes over each period in the heading; for example, retail sales for the time of year show the index improved by 3 points over three months, while it fell by 13 points over six months and fell by 23 points over 12 months. The volume of orders year-over-year survey value fell by one-point over three months, compared to falling by 10 points over six months and 67 points over 12 months. Consumer confidence fell by 4 points over three months, by 18 points over six months, and by 36 points over 12 months. Clearly the year-over-year results show a great deal of weakness in each of these survey metrics. The quarter-to-date shows some increase in retail sales for the time of year as there is an 11.3-point change for the better, compared to the volume of orders series that declines by 1.7 points, and consumer confidence that decline by 2.8 points. The queue standings for the surveys are executed on level data, not on change data. Retail sales for the time of year has a standing at its 71.9 percentile. Volume of orders year-over-year are assessed at 49 percentiles standing, just below its historic median. The consumer confidence reading stands at an all-time low on data back to August 2001.

U.K. retail sales are weak. The nominal numbers dress up the results, but the volume numbers speak clearly to the reality of weakness and enduring weakness and U.K. retail sales. The series on passenger car registrations has been extremely weak but is undergone some significant rebound over the last two months. Inflation in the U.K. continues to run hot; that means there will be more rate hikes ahead and more weakness for the economy and for retail sales in the future.

Industrial sector performance in the European Monetary Union has turned decidedly dicey. In July total output excluding construction foundered, falling by 2.3%: manufacturing output fell by 2.1%, consumer goods output rose by 1.2%, with intermediate goods output falling by 0.8%, and capital goods output falling by a large 4.2% month-to-month. This is a lot of weakness. Within the consumer goods sector, durable goods output fell by 1.6% as nondurable goods output rose by 1.2%. Across these same sectors, output mostly fell in June while output rose uniformly in May. As a result of these comparisons, we don't have any clear trend, but we do have a lot of volatility in output with the best of strength in the oldest observations.

Divergent overall and manufacturing trends Turning to sequential growth rates, overall industrial output falls by 2.2% over 12 months. The fall is nearly the same at minus 2.3% annualized over six months while over three months the pace of decline is reduced to -0.4% at an annual rate. For manufacturing, output actually accelerates. Over 12 months output falls by 2.6%, over six months it falls at a 1.9% annual rate, and over three months it increases at a 1.1% annual rate.

Suspicious manufacturing trend However, the manufacturing results don't appear to be particularly robust. For example, over three months manufacturing output may be rising, but overall consumer goods output is falling. Within consumer goods, durables, and nondurables output both log output declines. Output falls for intermediate goods. The increase in industrial output comes entirely from an outsized rise in the output of capital goods of 5.7% in annual rate. As a result of those numbers, the manufacturing IP progression from weakness to strength is created by only one sector. Only capital goods output has a progression of accelerating growth among the three sectors (and the two consumer sub-sectors). Capital goods output falls by 3.5% over 12 months, falls at a 1.9% annual rate over six months and then rises at a 5.7% annual rate over three months.

Quarter-to-date trends indicate more pronounced weakness In the quarter-to-date (QTD) - a calculation that looks at the growth rate in July over the second quarter average calculating a true growth rate from the middle of that quarter - there's a decline in output overall at a 6.8% annual rate. There's a decline in manufacturing output at a 6.2% annual rate as well; there are declines in each manufacturing sector, and sub-sector, over the QTD period. This, of course, is different from the three-month calculation that you look only at output this month compared to the level of three-months ago. The QTD growth rate, calculated over the second quarter base, has the advantage that as further quarterly data come are released, each new observation compares output to that same base in Q2. As we add another month and then finally a third month of data and the change is driven by the new data not by a shift in the base. The QTD calculations give us a bit of a better idea how growth is evolving in the quarter per se.

The dispersion of growth Among the 13 early reporting European Monetary Union members, 8 show output the declines in July, 7 show output declines in June, and 5 show output declines in May. That's a clear progression toward worse results. Sequential data show 7 countries with output declining over three months, 6 with output declining over six months, and 6 with output declining over 12 months. However, as is the case for manufacturing output, the QTD calculations find more weakness with 9 countries showing declines in output on a QTD comparison. Here it's easiest to point to the exceptions. The exceptions are Malta with a 55% growth rate, output in Greece logs a 28% growth rate, and output in Belgium posts a 6.6% growth rate in output with Germany at a 0.2% growth rate of output growth. The median change in output for the quarter to date is minus 7.6% annualized. In the quarter-to-date calculations, 3 of the 4 largest EMU economies show declines for early Q3, with Germany, obviously, being the exception. Across all the monthly and sequential periods in the table, there are output declines persistently in two or three of the four largest EMU economies (Germany, France, Italy, and Spain)