29/4/15: Irish Retail Sales 1Q 2015

As I mentioned in a related post (http://trueeconomics.blogspot.ie/2015/04/28415-irish-retail-sales-march-2015.html), covering monthly data for Irish retail sales, last night, we can take a look at Q1 data comparatives for the sector based on 3mo averages for each corresponding quarter.

Here are the results y/y:

Good news is that overall only two sectors posted declines in Value of retail sales index in 1Q 2015 compared to 1Q 2014. These are both related to the decline in prices of fuel and wholesale prices declines for the Department Stores sales. All categories posted increases in volume of sales.

Large y/y increase in sales were recorded in 1Q 2015 in:

• Motor Trades: up 22.7% in volume and up 20.6% in value of sales
• 'Other sales': up 15.8% y/y in volume and up 6.8% in value
• Books, newspapers, stationery & other: up 13.8% y/y in volume and up 5.7% in value
• Household equipment: up 11.8% in volume and up 7.1% in value
• Electrical goods up 11.8% in volume and 6.1% in value

As the result of this, Non food, ex-motors, auto fuel & bars sales rose 8.3% in volume and were up 3.6% in value terms compared to 1Q 2014. Food posted weaker sales growth at 4.2% y/y in volume and 2.3% in value.

Note: Retail Sales Activity Index is a simple average of Value and Volume indices

As chart above shows, in broader categories terms,

• All Retail sales index of value of sales rose 6.1% y/y in 1Q 2015, while volume of sales index was up 9.9%. Strong showing driven heavily by the motor sales.
• Core retails sales (ex-motors) were up 1.3% y/y in value terms and up 5.2% in volume terms in 1Q 2015.
• Stripping out motors, automotive fuel and bars, retails sales rose 2.8% in value terms and were up 6.0% in volume terms. Again, strong showing over the quarter.

Chart below presents 1Q 2015 index reading against pre-crisis peak for 1Q period:

As the chart above clearly shows, the problem of weak retail sales, compared to pre-crisis levels, remains. Only three categories of sales have regained their pre-crisis peaks as of the end of 1Q 2015 in volume of sales terms. No category of sales has managed to regain pre-crisis peaks in value terms.

In discretionary spending categories terms, relating to normal consumption (stripping out auto fuel, food and motors), things remain under water in both volume of sales and value of sales terms. So things are getting better, but remain ugly in the sector.

The picture for 1Q 2015 is consistent with weak, but improving demand side in the economy.

This positive side of the National Accounts story is at risk, as it reflects deflationary environment where households are experiencing improved real incomes on stagnant wages and disposable nominal incomes. Any uptick in inflation can easily derail the recovery in the sector in terms of volumes of sales, if consumers start withdrawing their demand on foot of reduced opportunities for value shopping. Any uptick in inflation coupled with a rise in interest rates will present a double squeeze on consumer demand through reduced real incomes and reduced incomes available to fund consumption after housing and debt financing costs are taken into account.