Friday, October 26, 2012

26/10/2012: Retail Sales in September

In the last few days we have been treated to a barrage of the 'sell-side research notes' extolling the virtues of Ireland's economic 'comeback'. Property markets are now, allegedly, on the mend (never mind, the 'mending' bit is just about sizable enough to matter statistically and economically returns property valuations to... err... April 2012 levels). Unmeasurable 'investor confidence' is back at play - never mind that 'investors' are really a handful of buyers of the Irish Government bonds, usually with maturity range well within the cover by the Troika / ESM. Latest twist - cheerful analysis of the Retail Sales data. One note I received on today's Retail Sales figures for September 2012 was issued minutes after CSO published the data, suggesting that the author had absolutely no referencing to actual data published, but simply plucked headlines and strung them up into an analysis.

Having done some more sober analysis of the house prices data (see here), let's take a look at the Retail Sales data.

Value Index:

Core retail sales (ex-motors) value index rose (preliminary estimate - so subject to future revisions) in September to 96.5 from 96 in August. The index is now 2.88% ahead of where it was three months ago in June 2012. Month on month the index is up 0.52%, or statistically indifferent from zero increase. Current level of activity is comparable to May 2012 hen the index stood at 96.4. Year on year index is up 2.22%.

More dynamics in Value Index:

  • Q3 2012 average index reading was 96.0 against the previous quarter average of 95.1 (+0.91%).
  • In September, rate of growth in retails sales value actually declined: in June m/m rate of growth was -2.7% due to poor weather, this was reversed partially in July with a m/m rise of 1.8%. Since July, growth rate fell to 0.6% m/m in August and to 0.5% in September. This is hardly the 'good news'. 
  • Y/y growth rate in September (+2.2%) was robust, but it is driven more by a contraction in sales in August and September 2011 than by an expansion of sales in September this year.
  • Overall, core driver for July performance that determined Q3 results is the rapid fall off in Value of sales in June, not a robust growth in August and September.
  • 6mo average through September is now at 95.6 which is only 0.7% ahead of 6mo average through March 2012. September reading is below 2010-2011 average by 0.13% and is down on crisis period average by 4.9%.
Volume Index:

Core retail sales Volume Index rose from 99.2 in August to 99.8 in September, up 0.6% m/m and 1.42% y/y. The index is now 1.84% ahead of where it was at the end of Q2 2012.

Dynamics in  Volume Index:
  • Q3 2012 average index was 99.4 up on 98.6 for Q2 (+0.81%), so volume performance here is even less impressive than already underwhelming performance for Value index.
  • 6mo average through September is 99.0 against 99.3 in 6 months through March, meaning that on half-yearly basis we are still under water.
  • In 2010-2011 the Volume index averaged 101.24 against Q3 2012 average of 99.4. Make your own conclusions here. During the whole crisis, the index averaged 103.66, which means that September index is 3.73% below the crisis period average.

Now charts:

Now, onto my own index: the Retail Sector Activity Index:

Driven by a combination of weak increases in actual volume and value indices and a substantial drop off in consumer confidence (which fell from 70.0 in August to 60.2 in September), the RSA Index has fallen from 110.11 in August to 106.8 in September. During the current crisis, my RSA Index lagged 1 month actually has much stronger correlation (and positive) with retail sales volume and value (ca 83-84%) than consumer confidence (which has a negative and weak correlation with both value and volume indices - ca -30-34%). Hence it acts as a better predictor of the forthcoming activity. The RSAI is now down m/m, but is up y/y and Q3 average is up on Q2 average. 

This means that I can't call the new trend confirmation on the basis of positive monthly rises in Q3 2012 nor can I call the return of the downward trend. Put differently, real data suggests that things are bouncing along flat trend so far. Unlike the claims by some Irish 'analysts' who see "solid retail sales" data.

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