28/8/15: Core Retail Sales for July: Less of a Cheer, More of a Smile

With much of hullabaloo around it, the Retail Sales figures for July were published today. The CSO headline on the matter read: "Retail Sales Volume increased by 11.6% in July 2015". Which is, of course, correct... to a point. The figure references sales inclusive of automotive sales. And it references volumes of sales.

So here are the actual retail sales figures, for retail sales excluding motors.

First, consider seasonally-adjusted sales allowing m/m comparatives:

• Value of core (ex-motors) retail sales increased 0.3% m/m in July and this only partially (albeit substantially) corrects for 0.3% decline m/m in June. Compared to 2005 average level, value of sales today is only 1.09% higher, which is... before inflation is factored in. 3mo MA of Value indices in July was down 0.03% on 3mo MA average through June, while a month ago the same was 0.7% higher. In other words, there is nothing 'convincing' in the value of sales data. And this is concerning, because retailers don't get their revenues and profits from volumes of sales. They get them from value of sales.
• Volume of retail sales (ex-motors) was up 0.64% m/m in July, having previously posted a decline of 0.12% in June. So July volumes of sales significantly over-compensated for June decline. Which is good news. Compared to 2005 average, July figure is 12.1% higher for the volume of sales, which means that deflation has resulted in more sales by volume, but barely any change in value: selling more stuff but getting less per unit sold is the retailers' margin nightmare and it has been going on for some years now. But the good news on Volume run out when you consider 3mo MA: 3mo MA through July was down 0.12% compared to 3mo MA through June, having previously been up 0.7%. So on 3mo MA basis (smoothing a bit volatility) value and volume of retail sales both fell in July.
• Meanwhile, the never-ending exuberance of Irish consumers, as measured by Consumer Confidence Index posted some moderation in July, falling 3% m/m. Still Consumer Confidence in July 2015 is 97% (that's right - 97%) higher than the 2005 average. You really gotta wonder...

Two charts to illustrate the above trends:

As can be seen from the chart above, there is now divergence in the series for Value (rising slower) and Volume (rising faster) of core retail sales. This, with Value of sales running now persistently above the trend (suggesting risk of downward correction in the future), whilst Volume series running along the trend. Volume is converging with Consumer Confidence, while Value is diverging. Closer look at the latter next:

 And now to y/y data based on unadjusted series:

Per data charted above y/y changes were:

• Value of core retail sales rose 3.40% y/y - which is a good performance, but not exactly stellar. In June, y/y increase was 2.0% and in July 2014 y/y rise was 1.2% which means this July growth was stronger. However, pre-crisis average y/y growth rate in Value of retail sales was 6.93% and this means that current rate of increase is just under 1/2 the rate of average rise in pre-crisis years. Smoothing out some volatility, 3mo average through July was 99.3 which is stronger than 3mo average through April 2015 (93.6) and is up 3% on 3mo average through July 2014. These are good figures, no arguing there.
• Volume of retail sales, predictably, was up 6.7% y/y in July - double the rate of growth in Value of sales and above the pre-crisis average rate of growth of 6.2%. Volume of sales gained in July in annual rate of growth compared to June (4.7%) and compared to July 2014 (3.2%). And on 3mo average basis, the index was up 6% y/y for 3mo through July - double the rate of growth in Value.
• Hence, overall we have the same picture in unadjusted data: rates of growth in Value of sales are healthy, but not spectacular, while rates of growth in Volume are strong. Volume is diverging from Value and there is nothing new here - it has been thus since the end of 2013.

Good news is that on 3mo average basis, May-July 2015 figures were

• Positive in y/y terms for majority sub-sectors in value terms (excluding Food, Beverages & Tobacco and Motor Fuel) and for all sub-sectors in volume terms
• The picture was a bit more fragmented for 3mo change through July compared to 3mo change through April, as shown in the table below.

Thus, overall, there are some good news in the retail sales figures. Do they warrant a huge wave of congratulatory backslapping exercises in the media? No. Do they warrant much of optimism that the sector is experiencing a big revival? Not exactly. 

2/4/15: Irish Consumer Sentiment and Expectations: March 2015

In recent months, Irish Consumer Confidence Index (officially known as Consumer Sentiment Index and prepared and published by the ESRI) has been re-establishing sufficiently strong positive correlation with retail sales data, which warrants its re-inclusion in my coverage of the Irish economy as a stand alone series to track.

Hence, this more in-depth than usual analysis of dynamics in the Consumer Sentiment data.

March 2015 reading for the headline Consumer Sentiment Index came in at 97.8 up on 96.1 in February, but still below 101.1 registered in January. January reading was the highest since February 2006 (109 months high) and March reading is the second highest reading since May 2006. So by all measures, consumer confidence is booming in Ireland.

March reading is almost on par with pre-crisis average (through December 2007) which stands at 99.2 and significantly above the average for the period from January 2012 through present (the recovery period) which stands at 71.8. Year on year, index is up 14.8 points.

Given January reading, the 3mo MA through March is now at 98.3 - the highest 3mo MA reading since March 2006.

These levels of sentiment are simply not consistent with the retail sales data, as I noted before, but are close to the longer-term trend and consistent with the recovery. In addition, volume of retail sales index is now co-trending with consumer Sentiment index as covered here: http://trueeconomics.blogspot.ie/2015/03/27315-irish-retail-sales-february-2015.html - a pattern that was established around July 2013.

The elevated level of y/y rises in Consumer Sentiment Index, set on from December 2013 is a positive indicator of firming up volume activity in consumer demand, although not as strong of an indicator, yet, of the value of consumer demand. If the value of retail sales starts to catch up with consumer confidence, we are going to see significant boost to the domestic demand side of the National Accounts in later quarters of the year, pushing economic growth away from the questionable external trade stats and in favour of more domestic growth.


Index of Current Economic Conditions meanwhile, rose to 110.0 in March from 107.2 in February. This marks the second highest reading for the index since March 2006, with the highest reading recorded in January 2015 at 112.8. Again, index reads boom-time territory. It is only 16.8 points below all-time high and just 2.9 points behind post 2006 high. Current reading is up 19.6 points year on year - strong growth - strongest since April 2014. And index 3mo average though March is at 110.0 which is also the second highest 3mo average for the index from March 2006.

Again, the recovery is clearly visible in y/y growth rates starting from December 2013 and index readings are now above pre-crisis average.


Index of Consumer Expectations is showing more subdued increases, rising to 89.6 in March from 88.6 in February. However, as with other two indices, Consumer expectations currently sit at the second highest reading from May 2006, with the highest reading recorded in January 2015 at 93.2. Year on year index is up 11.5 - the slowest increase in 3 months and second slowest rise in 8 months. Still, 3mo average though March 2015 is now at the highest level for 3mo average series since March 2006.

Consumer Expectations, for now, remain below pre-crisis average, but trending up strongly, with elevated y/y rises from December 2013. Slight issue is - per chart above, y/y increases, while remaining strong, are now trending down off Q3 2014 highs.


Overall, Consumer Confidence indicators discussed above suggest full reversion of consumer sentiment and expectations to pre-crisis conditions. Much of this will have to be tested in more normal inflation environment in the future and I am not sure this confidence will be sustained then (higher inflation is likely to cut back on consumer purchases and expectations, while associated higher interest rates are likely to severely impair demand).

In other words, stay tuned for more regular analysis of the series in the future.

16/9/2014: Allegedly, Irish Consumers Have Pulled Back Spending in August

It is with some puzzlement that I read the following tweet:

Being aware that there has not been any new data on retail sales or consumer demand issued today, I opened the link: http://www.independent.ie/business/irish/irish-households-pull-back-in-spending-last-month-new-figures-show-30590499.html

It turns out that the 'pulling back' of 'spending' is really a 'pulling back' of consumer confidence.

And indeed, as chart below shows, Consumer Confidence reported by the ESRI fell from a very high reading of 89.4 in July to 87.1 in August:

Now, we do not have August data for retail sales yet. And these may or may not have fallen. But Consumer Confidence decline has preciously little to say about the actual household spending or consumer demand or retail sales. Especially in the medium (3 months and over).

Take a look at data we do have:

• In January 2014, Consumer Confidence rose m/m strongly, but seasonally-adjusted retail sales barely rose in value terms and strongly shrunk in volume terms.
• In February 2014, Consumer Confidence rose again strongly, but seasonally-adjusted retail sales remained unchanged in volume terms and fell strongly in value terms.
• In March 2014, Consumer Confidence moderated significantly, and retail sales fell in volume and value terms.
• In April 2014, Confidence rose dramatically and both volume and value indices of retail sales rose as well. 
• In May 2014, Confidence indicator tracked both retails sales indices to the downside.
• In June 2014, Confidence tracked volume and value of retail sales to the upside.
• In July 2014, Confidence rose dramatically, but retail sales shrunk in both volume and value terms.

So in last 7 months, Consumer Confidence changes tracked changes in actual consumer demand in 4 and did not track demand in 3. That is hardly a record to base any conclusions on. But historically things are even worse.

The chart above shows that Consumer Confidence historically shows a weak relationship with the Volume of Retail Sales and a very weak relationship with the Value of Retail Sales. Worse, these weak relationships fall to nil - or vanish completely - for quarterly readings:

So whatever KBC lads might say, ESRI Consumer Confidence does not indicate that households pulled back their spending in August. It might, however, suggest that consumer are not expressing same levels of enthusiasm about their current prospects and this might mean they could have pulled back spending.