GB: Retail Sales

January 20, 2017 03:30 CST

Consensus Actual Previous Revised
Month over Month -0.4% -1.9% 0.2% -0.1%
Year over Year 6.6% 4.3% 5.9% 5.7%

Retail sales closed out 2016 on a surprisingly weak note. Having seen November's modest monthly gain revised to a 0.2 percent decline, volumes dropped a much steeper than expected 1.9 percent, their worst performance since May 2011. Despite positive base effects, annual growth slowed from 5.7 percent to 4.3 percent, a 3-month low.

Excluding auto fuel the picture was much the same with purchases decreasing fully 2.0 percent on the month after a weaker revised 0.2 percent advance last time. Compared with December 2015, sales were up 4.9 percent, a 1.5 percentage point fall from November's rate.

December's monthly slide was broad-based, and since food was off only 0.5 percent, even more marked in underlying terms. Indeed, excluding auto fuel, non-food volumes were down some 2.6 percent, led by a 7.3 percent nosedive in household goods and a 5.3 percent slump in non-store retailing. With clothing and footwear sliding 3.7 percent and specialised stores off 1.2 percent, the only category posting a rise was other stores (0.5 percent). Auto fuel fell 1.1 percent.

The sharpness of the headline decline may reflect higher prices, and if so, there could well be further bad news around the corner as the effects of sterling's depreciation feeds through. The total sales deflator rose a monthly 0.4 percent (ex-auto fuel 0.3 percent), its fifth consecutive increase, to lift the annual inflation rate from 0.1 percent to 0.9 percent, its strongest posting since December 2013. More of the same will squeeze real disposable incomes going forward.

Courtesy of December's downturn, quarterly growth of overall sales slowed from 2.0 percent in September-November to 1.2 percent, respectable enough but still the weakest rate since the second quarter. On the same basis, excluding auto fuel purchases were up 1.4 percent after a 2.1 percent gain last time. The trend in retail sales remains up, but January's figures will now be watched all the more closely for signs that the post-Brexit vote honeymoon is now over.

Retail sales measure the total receipts at stores that sell durable and nondurable goods. The data include all internet business whose primary function is retailing and also cover internet sales by other British retailers, such as online sales by supermarkets, department stores and catalogue companies. Headline UK retail sales are reported in volume, not cash, terms but are available in both forms. The data are derived from a monthly survey of 5,000 businesses in Great Britain. The sample represents the whole retail sector and includes the 900 largest retailers and a representative panel of smaller businesses, including internet sales. Collectively, all of these businesses cover approximately 90 percent of the retail industry in terms of turnover.

With consumer spending a large part of the economy, market players continually monitor spending patterns. The monthly retail sales report contains sales data in both pounds sterling and volume. UK retail sales data exclude auto sales.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps apparel sales are showing exceptional weakness but electronics sales are soaring. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.