27/315: Irish Retail Sales: February 2015

Core retail sales for February 2015 (excluding motors):

• Value of core retail sales in Ireland rose 0.22% y/y in February, having posted 0.67% growth in January - a significant slowdown in growth. 3mo average index for retails sales in value has rise 1.1% y/y in December 2014-February 2015 period compared to the same period a year ago. 6mo average through February 2015 is up 1.23% y/y. This is weak growth at best, given the levels of activity in the sector: 3mo average through February 2015 is down 33.93% on peak and down 3.64% on pre-crisis average.
• Volume of core retail sales fared, as usual, better, boosted by extremely low inflation in prices. Volume index rose 4.52% y/y in February 2015, after posting 4.61% growth in January 2015 (a slight slowdown in the pace of growth). 3mo average through February 2015 is up 4.8% y/y, and 6mo average is up 4.3% y/y. Still, compared to peak, volume of sales is still 25.3% below pre-crisis highs, although it is up 9.3% compared to the pre-crisis average.

As chart above clearly shows, the divergence between the Consumer Confidence Index and Value of retail sales activity remains in place, while Volume index is co-moving with the Confidence indicator. (more on this below).

Based on links between reported Consumer confidence and actual retail sales, Volume of retail sales is currently trending at relatively average levels (see chart below, green dot marking current reading), while Value indicator is trending well below the average reading consistent with reported Consumer confidence (see light orange dot marking the current reading).

Overall activity in the retail sector, however, is still improving. The chart below shows my own Retail Sector Activities Index (RSAI) that takes into the account trends in volume and value indices, plus the trend in consumer confidence. Currently, the main drivers for this improvement are: deflationary dynamics boosting volumes of sales and still elevated readings for Consumer Confidence.

However, rates of growth in both Volume and Value indicators are weaker than pre-crisis averages and are worryingly weak in Value terms (remember, retail sector profits and employment levels are predominantly the functions of value of sales, not volume of sales):

Finally, onto correlations: table below sums up correlations for each index, showing negative correlations between Consumer Confidence Index and Value and Volume of Retail Sales indices for the period from June 2008 through present (from the start of the crisis). It is worth noting that correlations have moved into positive territory from around 2012 on, although the latest readings suggest some temporary weakening of these.

Conclusions: setting aside Consumer Confidence readings, value and volume of retail sales indices are rising. However, as in previous months, increases in volume of sales are not matched by increases in value of sales, suggesting that overall sector activity improvements are driven primarily by deflationary price dynamics and only in the second order by improving demand. According to Consumer Confidence, we have been back in 2007 levels of activity since the start of Q2 2014. This is simply not supported by the annualised growth rates recorded in both Volumes of sales and Values of sales. Meanwhile, the levels of sales indices remain deeply below their pre-crisis peak readings and in value of sales terms, below pre-crisis average.

I will look at sub-sector decomposition of the retail sales indices performance once we have data for March, so we can strip out monthly volatility and look at quarterly comparatives.