Tuesday, April 13, 2010

Economics 13/04/2010: Retail sales

Lessons and Policy Implications from the Global Financial Crisis; <span class="blsp-spelling-error" id="SPELLING_ERROR_0">Stijn</span> <span class="blsp-spelling-error" id="SPELLING_ERROR_1">Claessens</span>, Giovanni Dell’<span class="blsp-spelling-error" id="SPELLING_ERROR_2">Ariccia</span>, <span class="blsp-spelling-error" id="SPELLING_ERROR_3">Deniz</span> <span class="blsp-spelling-error" id="SPELLING_ERROR_4">Igan</span>, and <span class="blsp-spelling-error" id="SPELLING_ERROR_5">Luc</span> <span class="blsp-spelling-error" id="SPELLING_ERROR_6">Laeven</span>; IMF Working Paper 10/44; February 1, 2010 Retail sales are out today for February – some singing of good news hymns is being heard. And the headlines do appear to be touchy: “The volume of retail sales (i.e. excluding price effects) increased by 3.0% in February 2010 compared to February 2009 and there was a monthly increase of 14.9%.” This was the first monthly increase in the volume in 25 months.

But, “the year on year increase is primarily explained by the 30.5% year on year growth recorded in Motor Trades in February 2010.” Tax breaks still work, folks, even in the economy mired in a recession. So much for all those Lefties who so ardently argued that taxes don’t change behavior. Apparently they do. Here is an interesting point - may be someone can document it later – a rebate of 1,500 on a tax bill is seemingly doing more to Motor trade than the steep price declines passed directly onto the purchase price itself. Why? Perhaps it is a behavioral issue.

The trouble is – motor purchases tend to be one-offs – we don’t exactly shop for a new car a month or a year after we purchased one. So motor trade pick up cannot be expected to continue into the second half of 2010. Once the Motor Trades are excluded “the volume of retail sales decreased
by 3.1% in February 2010 compared to February 2009 and the monthly change was +1.2%.” Ok, still a monthly rise, but remember – 12 months to February 2010 things were bad.

And no they are actually even worse. The impact of the yearly drop – indiscernible directly in monthly figures is that:
  • the volumes are down;
  • the value of sales is down; and
  • the retail price inflation is negative.
In other words, actual sales – as translated into revenue of retail sector businesses – are still going down.

There were, however some sectors with yoy volume increases:
  • Department Stores up 10.9%
  • Pharmaceuticals Medical & Cosmetic Articles up 1.2%
  • Clothing, Footwear & Textiles up 1.8%
  • Electrical Goods up 3.5%
  • Other Retail Sales up 2.8%
But the largest sector Non Specialised stores, inc. supermarkets, shows a year on year decrease of 1.7% and a month on month decline of 1.9%.

Much overlooked, the actual true indicator of health of the retail sector is the value of total sales achieved. In other words, we might book massive increases in the volume of sales, if we were to start giving stuff away for free. But that won’t restore any jobs lost in the sector. It is, really, the value of sales that we are after. And this has fallen (e-Motors) by 7.4% and the monthly change was only +0.1%.

With the exception of the Motors and Fuel sectors (where the Government collects lions share of the final price in taxes and charges) “most sectors continue to show year on year decreases in the value of retail sales however a number of sectors show monthly increases in the value of retail sales in comparison to January 2010.”

Not exactly a sign of a revival that we might be cheerful about.

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