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. 

27/7/2012: June 2012 Retail Sales for Ireland - Massive Disappointment

This is a second post on irish retail sales for June 2012. Digging through the numbers, the results released today by the CSO are just short of horrific.

Look at the following two charts:

So Q1 and Q2 2012 have witnessed some of the deepest falls in value and volume since Q1 2010. 

Monthly changes for June were equally bad:

To sum up:

• Value of sales is now at the lowest point since January 2010, m/m decline is the sharpest in 5 months and y/y decline is the steepest since January 2010.
• Volume of sales is at the lowest point since January 2010, and y/y decline is the steepest since December 2009.
• Ex-motor sales, value of sales index is now at the lowest point on record, m/m decline is the sharpest on record.
• Ex-motor sales, volume of sales are at the lowest point on record, m/m decline is sharpest in 5 months.

Not good!

27/7/2012: Irish Retail Sales June 2012 and 'Confidence Fairy Tales'

Irish Retail sales data is out for June 2012. Here are the updates to charts:

In the above:

• The volume of retail sales (i.e. excluding price effects) decreased by 0.7% in June 2012 when compared with May 2012 and there was an annual decrease of 5.5%. 
• If Motor Trades are excluded, the volume of core retail sales decreased by 1.51% in June 2012 when compared with May 2012, while there was also an annual decrease of 1.71% when compared to June 2011.
• The sectors with the largest month on month volume decreases are Food beverages & Tobacco (-9.7%), Hardware Paints & Glass (-4.8%), Fuel (-3.9%). 
• A monthly increase was seen in Electrical Goods (2.9%), and in Books, Newspapers and Stationery (2.6%).
• The value of retail sales decreased by 1.3% in June 2012 when compared with May 2012 and there was an annual decrease of 4.9%. 
• If Motor Trades are excluded, there was a monthly decrease of 2.08% in the value of retail sales and an annual decrease of 0.95%.
• Do note two sub-trend lines showing the complete detachment of Consumer Confidence trend from the Retail Sales trend. That (discussed more below) is probably the real illustration of the so-called 'confidence trick' not working in the real world.

Adding a bit more definition to core sales changes:

• Value of core retail sales (the index I prefer to consider in this environment, as opposed to CSO focus on volume of sales, which tells me preciously nothing about the revenues and employment in the sector) is down 1.57% in June compared to March 2012. 6mo average is now running at 95.4 against previous 6mo average of 95.2. This means that last 12 months we are running below 2010-2011 average of 96.6. 
• Compared to 2005 levels, we are now 5.72% below in value terms.
• Volume is down 0.91% on March 2012 level and 6mo MA is now at 98.65 against previous 6mo MA of 99.5 and 2010-2011 average reading of 101.23.
• Compared to 2005 levels, volume of retail sales is down 2.02%.
• Despite these deep falls, consumer confidence (I should start calling it La-La-La Index) from the ESRI came in up-beat at 62.3 in June up on 61.0. Relative to March 2012, Consumer Confidence apparently rose 2.81% and y/y June Consumer Confidence is up 10.66%. Wow, things are really hotting up, folks. 6mo MA through June is boisterous 60, up on previous 6mo MA of 56.3 and ahead of 2010-2011 average of 57.3. 
• Compared to 2005 average, current Consumer Confidence is up 23.06%.
• To summarize: actual retail sales are down in volume (-2.02%) and value (-5.72%) on 2005 average readings in June 2012, but Consumer Confidence is up 23.06%. 

Unlike ESRI's Consumer Confidence indicator, my own Retail Sales Activity Index posted contraction in June, in line with twin fall-off in retail sales in volumes and value:

28/6/2012: Retail Sector Activity Index for May 2012

Updating my own Retail Sector Activity Index for May 2012 on the foot of the latest CSO data:

Courtesy of the ESRI Consumer Confidence Index staying above 60 in May (the index dipped from 62.5 in April to 61 in May, marking the third consecutive month of readings above 60 despite continued gloom in actual retail sales), my overall Retail Sector Activity Index - a forward-looking indicator for the sector - remained relatively flat at 108.2 against 108.4 in May despite rises, m/m in core retail sales in volume (98.4 in April to 99.2 in May) and value (95.5 in April to 96.2 in May) terms.

It is perhaps interesting to note in the data in the first chart above that according to the ESRI surveys, Irish consumers do not lack any confidence. In fact, they appear to be lacking realism. Current 6mo average of the ESRI index reads 57.8 which is actually above the previous 6mo average of 57.5. One has to assume things had improved in the latest six months period on previous six months, alas both retail sales volumes (remained flat) and values (declined) do not confirm this. Year on year, Consumer Confidence is up 2.7% while core sales are up only 1.6% in value and just 0.8% in volume.

11/3/2012: New Car Sales - no sign of improving demand

Recently released data for new vehicles registrations for February 2012 shows continued lack of demand for durable / large-ticket items in Ireland. Here are the summaries - all data refers to the cumulative January-February sales for each year referenced (note, CSO does not provide seasonal adjustments, to yoy comparatives is all we have to go here on):

Pretty abysmal. The uptick in demand in 2011 is now appearing to be exhausted, despite the fact that many in the industry have expected a rise in 2012 registrations due to 2013 license plate effects.

Please, note - this flies in the face of the anecdotal claims that there are thousands of wealthy cash buyers holding back on domestic investment, as large ticket items demand is usually strongly correlated with domestic investment. In January 2012, car prices fell 2.4% yoy in Ireland, following a 2.6% annual decline in prices in December 2011 and 3.5% drop in November 2011. In other words, prices are going down, and demand is going down as well. Not exactly 'thousands waiting to pounce' on better deals, then...

17/2/2012: Struggling Households

Last week we saw the release of the special module from QNHS on Response of Households to the Economic Downturn – Pilot module Quarter 2 2011. This is undoubtedly a topic of much interest to economists, but also to the general public. The results are mixed - some surprises, and some 'I've told you' moments.

Summary of the findings as follows (via CSO):

• Overall, 79% of households cut back their spending on at least one of the listed items as a result of the economic climate in the two years before the survey. Which is not surprising, given the duration and the depth of the recession. In every economy there are always those (not necessarily the rich) who have relatively stable incomes even during the downturns.
• More than half (56% of all) households cut back their spending on groceries.
• More than half (57%) cut back spending on going out.
• Similarity in the two cut backs above suggest that much of these impacted the same households which were forced to cut on both - highly discretionary (going out) and necessary (food) items.
• Almost two thirds (64%) of households cut back their spending on clothing and footwear.
• Spending on health insurance was reduced by 15% of households and 11% of households cut back spending on pension contributions. This highlights the dangers for the Exchequer from the current course of Irish policy to continue increasing indirect tax charges and semi-state charges. Health and Pension Levies are undoubtedly likely to have the adverse impact on both expenditures, thus increasing the Exchequer exposure to health and pensions liabilities in the future. Note, the results of the survey do not cover changes in demand since June 2011.
• One fifth of households delayed or missed paying their bills (21%) in order to meet their outgoings on basic goods and services. 
• One in ten delayed or missed loan repayments and a further one in ten delayed or missed paying their credit card bill.
• In the two years prior to the survey 45% of households spent some or all of their savings to pay for BASIC goods and services over the last 2 years. And this in the environment of the elevated 'savings' across the nation.
• 62% of households reduced the amount being saved.
• The most financially impacted are families with 2 adults and children, which highlights the plight of the middle classes in Ireland.
• One in ten households borrowed money from family or friends to pay for basic goods and services in the two years prior to the survey. Unfortunately, we have no idea how many received transfers from the family members in kind or in cash, not in form of debt.

There were some clear differences in the behaviour of households depending on the age of the household reference person, whether or not they were working and whether or not there were children in the house.

• Cutbacks were far more likely in a household where the reference person was aged less than 55 years. Among households where the reference person was aged less than 35 or between 35 and 54 years, three quarters had cut back on clothing and footwear, compared with half of households where the reference person was aged 55 or older.
• While 64% of households where the reference person was younger than 35 had cut back spending on groceries, this compares with 42% of those where the reference person was 55 or more.
• Some 81% of households where the reference person was unemployed reported that they had cut back their spending on groceries in the previous two years, compared with 57% of households where the reference person was working.
• Households with children were more likely than those without children to cut back their spending on groceries, clothing and footwear, going out, and lessons or classes

The above age- and household- related results are not surprising. Older households tend to have lower unemployment rates, higher security or stability of income, greater savings cushions to offset cutbacks. Families with children face far smaller share of their income in the form discretionary spending, which means they generally will be forced to make more painful cuts. Families with children also have smaller savings cushions.

Overall, the picture of the household financial and consumption patterns revealed in the report shows that Irish households are facing severe recession and that the economy is unlikely to benefit from significant increases in 'confidence'-related spending and investment for a long time, including in the first few quarters of any upturn in national income, as households will most likely only slowly return to higher levels of consumption, preferring to rebuild lost savings and to repay family loans.

Crucially, the above changes are taking place while majority of Irish households are still struggling under the massive debt overhang. Going forward, this implies that (1) any hikes in interest rates will drive households deeper into cutting spending and using savings for necessities, (2) any increases in future income are likely to be consumed by debt repayments, without benefiting national consumption.

5/2/2012: Irish Consumer Confidence - a bounce in January?

I have noticed that ESRI and KBC Bank are very enthusiastic about the latest reading for their consumer confidence barometer reading for January 2012. Absent the retail sales data for January, we can only speculate as to what the latest increase means. But here's a somewhat scientific method for doing this.

Chart below shows dynamics in Consumer Confidence index and historical and forecast values for two core retail sales indices. The forecasts are based on trend dynamics for each index from January 2008, accounting for the correlation between Consumer Confidence and specific retail sales index and accounting for the latest reading for Consumer Confidence index.

The chart above shows my own Retail Sector Activity Index with the forecast for January 2012 based on the above estimates shown in the first chart.

Here's what is clear from the above exercise. Assuming the Consumer Confidence index reading for January is to be trusted (see below on that), we can expect:

• Index of retail sales value to rise 7.4% qoq and 6.3% mom to the level of 101.8 or 4.1% ahead of where the index reading was 12 months ago. This would put the value index at the levels not seen since July 2009.
• Volume index of retail sales can be expected to rise 5.4% qoq and 3.4% mom. The index reading would reach 104.3 which is 2.6% ahead of where it was 12 months ago and the level not seen since April 2010.
• Of course, Consumer Confidence index now stands at 56.6 up on 49.2 in December 2011.
• My Retail Sector Activity Index, consistent with the current reading in the Consumer Confidence index would be around 110.5 - the level that is 1.6% ahead of where it was 3 months ago, 7.4% ahead of the previous month reading and 6.4% ahead of where the index stood 12 months ago. This reading - were it to materialise - will bring my index to the levels unseen since July 2010.

All of this, of course, is rather academic. The problem with the ESRI Consumer Confidence is that it has only weak relationship with both the Value Index of Retail Sales and the Volume Index of Retail Sales, as the charts below illustrates. Please note: this does not mean in any way that Consumer Confidence Index contains little relevant information, just that it is, in itself, a very weak predictor of the retail sales activity.

I wouldn't be holding my breath waiting for a big Retail Sales bounce in January-February this year.

29/08/2011: Retail Sales and Consumer Confidence: July 2011

In the previous post, we looked at the latest data on retail sales for Ireland for July 2011 (here). Now, let's update the data for retail sales and consumer confidence.

Per ESRI latest data, consumer confidence in Ireland dropped from 56.3 in June 2011 to 55.9 in July, with 3mo moving average down to 57.2 in July from 57.9 in June.
As charts below indicate, Irish retail sales continue to underperform historical trends, but, crucially, are running well below the levels that would be consistent with the consumer confidence readings (both contemporaneous, lagged 1 period and 3mo moving averages):
The above suggests that we are still in - both, structural (consumer confidence and sales lags signals to the left range of the trend) and cyclical (below trend) - weaknesses in terms of retails sales and consumer demand.

29/08/2011: Retail Sales for July - a mixed bag swinging in the headwinds

The volume of retail sales in Ireland declined by 0.6% in July 2011 yoy and there was a monthly change of -0.5%. The value of retail sales decreased by 0.5% yoy and there was a month-on-month change of -0.4%.

• Current value of sales index reading is 88.7, down from 89.1 in June and below the 3mo running average of 88.8. The index is still ahead of the January 2011-to-date average of 88.3.
• Value of sales index is now 25.65% below its peak in February 2008.
• Value of retail sales index now reads 93.2, down from 93.7 in June. The index is now slightly below its 3mo running average of 93.3 but slightly ahead of 6mo running average of 92.8. The volume index average for January 2011-to-date is 92.3.
• Volume of retail sales is now down 19.86% on its peak attained back in October 2007.
  

If Motor Trades are excluded, the volume of core retail sales fell by 2.3% in July 2011 against July 2010, while there was a monthly increase in sales volumes of 0.5%. There was an annual decrease of 1.2% in the value of retail sales and a monthly increase of 0.8%.

• Value of core retail sales now stands at 95.7, up from 94.9 a month ago and ahead of 3mo running average of 95.3, but still below 6mo running average of 95.9. In comparison, 2010 average was 97.6 and 2011 running average to-date is 96.2.
• Core retail sales in value are now 19.3% below their December 2007 peak.
• Volume of core retail sales is now reading 99.1, up from 98.6 a month ago, and against 98.8 average for the 3mo and 6mo running average of 99.3. 2010 annual average is 102.3, while January 2011-to-date average is 99.5.
  
• Volume of retail sales is now 15.3% below its November 2007 peak.
  

In July, Motor Trades (+7.1%) and Non-Specialised Stores (+0.4%) were the only two
categories that showed year-on-year increases in the volume of retail sales. Largest yoy drops were posted by Books, Newspapers and Stationery (-9.5%), Other Retail Sales (-6.9%) and
Pharmaceuticals Medical & Cosmetic Articles (-6.8%) in the volume of retail sales.

A follow up post will update on the data for consumer confidence and links to retail sales data.

30/07/2011: Detailed analysis of Retail Sales figures for June 2011

The volume of retail sales rose +0.2% in June 2011 compared with June 2010 and +1.1% mom. The 3mo average for the volume index is now at 93.07, while the 6 mo average is 92.3. Both below the current monthly reading. June reading marks the second consecutive monthly increase in the index. 2010 average is 93.3, while 2011 average to-date is 92.3, behind that of 2010.

The value of retail sales rose +0.4% in June 2011 when compared with June 2010 and there was a month-on-month increase of +0.7%. The value index now stands at 89.4 (marking the second consecutive month of increases) against 3mo average of 88.7 and 6mo average of 88.3. Compared to 2010 average of 88.9, the 2011 average to-date is now at 88.3.


Thus, the volume of retail sales in June 2011 stood at 94.1 down 16.73% relative to the peak. Current monthly reading for the value index is 23.59% below the peak for the series.
Couple of charts for quarterly changes:

Of course, the problem with the above data is that it is distorted by the motor sales volumes and values, especially pronounced due to the expiry of the Government incentive scheme for new motors purchases in June 2011. Hence, ex-motors data paints a dramatically different picture of continued deterioration in retail sales.

Excluding Motor Trades, the volume of retail sales fell 4.2% in June 2011 when compared with June 2010, while there was a monthly decrease of 0.1%. Thus, June marked a 5th consecutive month of declines in the colume of retail sales ex-motors. The index is now at 98.2, below 3mo average of 98.5 and 6mo average of 99.45 and well below 2010 average of 102.2.

Ex-Motor Trades there was an annual decrease of 3.2% in the value of retail sales and a
monthly decrease of 0.5%. Index reading of 94.6 in June 2011 stands below 3mo average of 95.3 and 6mo average of 96.2 as well as 2010 annual average of 97.6. The index has now declined (mom) for 3 months in a row.

In year on year terms, volume index retail sales ex-motors are now down 14 moths in a row and in terms of value index for 36 months in a row. In 2010, index of volume of retail sales ex-motors posted an average monthly decline of 0.28%, while in 2011 to-date the same figure is 0.03, while the latest 3mo average is 0.67% decline. For value of sales ex-motors, the average monthly decline was 0.24% in 2010, against 0.08% average monthly decline in 2011 to-date and 0.8% decline in 3 months to-date. So clearly, last 3 months suggest increased rate of deterioration on both 2010 and H1 2011 averages.


Relative to peak, the volume of retail sales ex-motors has now fallen 13.33%, while the value of retail sales ex-motors is down 19.42%. Both series continue their downward trajectory.


So overall, in June 2011, Motor Trades were up +21.9% yoy in volume. Alongside motor sales, sales of Electrical Goods (+5.2%) and Furniture & Lighting (+2.6%) were the only three categories that showed year-on-year increases in the volume of retail sales this month. Fuel (-12.0%), Hardware Paints & Glass (-10.4%) and Other Retail Sales (-8.1%) were amongst the ten categories out of 14 total that showed year-on-year decreases in the volume of retail sales this month.

In terms of value of retail sales, Motor Trades posted an annual increase of 18.3% - the only category of sales that posted an annual increase in value. Hardware & Paints (-10.9% yoy), Other Retail Sales (-6.0%), Bars (-5.8%) were the categories with largest (above 5%) declines in the value. Overall, 13 categories out of total 14 have posted yoy declines in value of retail sales.

My previous analysis of the Consumer Confidence indicator from the ESRI and high level dynamics in retail sales (see link here) shows that these trends toward continued pressures in the retail sector are expected to continue over coming months.

30/07/2011: High level data on Retail Sales & Consumer Confidence

Let's update the latest stats on retail sales in Ireland and consumer confidence - a separate, more detailed post will look on the specifics of the retail sales data.

The volume of retail sales rose 0.2% in June 2011 yoy and +1.1% mom. However, all of the increases were accounted for by motor sales.

The value of retail sales rose +0.4% in June 2011 yoy and +0.7% mom. Again, all effects are due to motor sales increases.

Provisional estimates for Q2 2011 show the volume of retail sales fell by 1.7% yoy and rose 1.8% qoq. Once again, the figures were dramatically improved by motor sales.

Consumer confidence, measured by the ESRI index have posted a dramatic drop in June from 59.4 in May to 56.3. Index is now 5.38% down qoq, 5.219% down mom and 17.084% down yoy.

So while overall retail sales indices signal some slight improvements in conditions, consumer confidence indicator shows that in months ahead there is likely to be renewed pressure on retail sales. In fact, of course, there is no divergence between the two sets of indicators, as retail sales continue to fall when taken on ex-motors basis.

Longer-term averages also suggest further softening in the retails sales
Three months moving averages are now:

• Index of Value of retail sales up 0.49% qoq, 0.189% up mom and 1.743% down yoy
• Index of Volume of retail sales up 1.276% qoq, 0.253% up mom and 2.218% down yoy
• Consumer confidence is up 23.291% qoq, 5.426% up mom and 8.299% down yoy.
  

Economics 24/12/10: Retail Sales for November

Retail sales stats were out this week, prompting the usual 'upbeat' comments from the official analysts.

Here's an example from one bank analyst (emphasis is mine):

"November retail sales figures show a second consecutive monthly increase in sales volumes. The 0.2% rise last month followed a 0.3% monthly gain in October, representing the first back-to-back monthly increases since March/April. This leaves total sales in October/November running some 0.4% above the average level seen in the third quarter."

Oh, Mighty Aphrodite, folks. Time to pull the crackers out and funny hats? Alas, no. The quote above is so full of spin, you get dizzy after the first two sentences and by the end of the second paragraph all systems collapse is virtually inevitable. For reality is nowhere to be seen in the claims made above.

Take a look at the full seasonally adjusted figures for sales:

First, levels of sales - volume and value
Few things are worth noting:

• November shows that we - consumers in Ireland - are purchasing 23.89% less today than in February 2008 - the peak of our retail sales volumes
• Same figures show that we are buying 17.45% less value relative to October 2007 - the peak point in the value of sales index
• We are now consuming some 9.2% less in terms of volume and 4% less in terms of value than in 2005
• November 2010 index of 90.8 seasonally adjusted volume of sales is below that in November 2009 (91.8) and November 2008 (109.1)
• November 2010 index of 96 seasonally adjusted value of sales is above that in November 2009 (95.1) but below November 2008 (106.5)

Chart above shows changes in two series mom and yoy. Three things are worth noting there:

• Mom - both series are pointing down, with alue index going from +0.6% in October to -0.1% in November, while volume index from +0.3% to +0.2%
• Yoy - value index going from -0.3% in October to -1.1% in November, while volume index moved from +1.9% in October to +0.9% in November
• Yoy there has not been a positive growth month in terms of value of sales since April 2010

Our friendly economist quoted above went on in his/her note:
"As has been the case for much of the year, the overall picture is being flattered somewhat by rising levels of car sales. This was a pattern that was again evident last month, according to the CSO, as the motor trade category posted a 0.4% monthly rise in sales volumes. While modest by the standards of the stronger increases in car sales earlier in the year, this was still enough to pull total sales higher in November as core sales (which strips out the motor trade) fell by 0.2% on the month. This 0.2% fall in underlying sales followed a flat reading in October to leave core sales running about 0.5% lower than their average level in the September quarter."

Well, notice - there are no yoy references. Shall we take a look?
As above:

• Relative to the peak (February 2008) value of core retail sales today is down 19.09%
• Relative to the peak (October 2007) volume of core retail sales today is down 12.90%
• There are clearly two moments - around Q1-Q2 2010 when the volumes and values of retail sales ex-motors peaked locally - prompting the very same analysts to start trumpeting the recovery in retail sales, alas, all of these 'gains' were exhausted
• Ex-motor retail sales have reached another record lows in terms of both volume of sales and value in November 2010.
  

While the picture above confirms that there is little ground for optimistic reading of retail sales let's do justice to the quotes above:

• While celebrating the first consecutive two months rise in volume of retail sales since April,
• Keep in mind we also had (1) third consecutive month of declines in the value of core sales - the first time since December 2009, (2) 28th consecutive month of annual declines in the value of core sales, (3) 6th consecutive month of annual declines in the volume of core sales.

Looking at subcategories of sales, 7 out of 12 categories posted declines in volume mom and 8 out of 12 yoy. In value terms these figures were 7/12 and 9/12 respectively. In October 2010 we posted 9th worst performance in retail sales volumes in EU27 and 5th worst in Euro area 16.

Economics 14/10/10: Rip-off Ireland is roaring its ugly head

CPI for September is out... kinda out... it was sent out yesterday without an embargo, by mistake, and now it was re-released again.

So the headline figure is: +0.5% yoy gain in CPI and -1.0% yoy loss in HICP. Mixed bag, you'd say. By one measure (CPI) it looks like things are getting back to a (positive) normal, while by HICP reading we are still in the (crisis) normal.

But let's take a closer look at decomposition of price changes. Per CSO, the most notable changes in the year were:

• increases in Education (+9.5%),
  
• increases in Housing, Water, Electricity, Gas & Other Fuels (+8.5%) and Communications (+2.9%) [Note: monthly CPI ex mortgage interest decreased by 0.2% in the month and was down by 0.9% in the year], and
  
• decreases in Clothing & Footwear (-7.4%), Furnishings, Household Equipment & Routine Household Maintenance (-3.7%) and Alcoholic Beverages & Tobacco (-3.1%).
  

The annual rate of inflation for Services was 2.1% in the year to September, while Goods experienced continued deflation of -1.6%.

The most significant monthly price changes were:

• decreases in Transport (-1.6%) - driven by airfares drop (not by the state-controlled bus and train fares, mind you) and
  
• decreases in Miscellaneous Goods &Services (-0.4%) - primarily due to cuts in health insurance charges;
• increase in Clothing & Footwear (+4.5%).
  

Per CSO: "The CPI excluding tobacco index for September decreased by 0.2% in the month and was up by 0.4% in the year. The CPI excluding energy products fell by 0.2% in the month and decreased by 0.2% in the year. "

So good news then is that:

1. State services, such as Education (+9.5% ! in 12 months);
2. Banks payback to consumers for propping them up (CPI is up +0.5% yoy and ex-mortgages CPI is down -0.9% over the same period. So far, we have had, courtesy of our banks rescue plans: in a year to September 2009 mortgages costs fell 48%, in a year to September 2010 they rose 25.1%. All despite the fact that Irish banks are no longer facing higher costs of funding - instead they are simply borrowing from ECB using our bonds, for which you, me and our kids will be liable);
3. State-set charges on energy (+8% yoy);
4. State set health costs (+0.5%);
5. Largely state-set or influenced transport costs (+1.4%)

are all signaling that we are living in a public sector boom times, as the Government seemingly pushes forward with the agenda of beefing up semi-states revenues at our expense.

Clearly, we've turned another corner, folks, and it's the 'Ugly Boulevard' ahead of us, consumers.

Economics 1/10/10: Retail sales data

Oh, let's cut the bull, folks. The retail sales data is making rounds the banks 'economists' notes with all the hoopla of the 'positive news' arguments. So things are turning corners?.. Actually, not really.

With motors:

• Value of sales rose 1.3% mom in August and a re down 1.7% yoy;
• Volume of sales was up 1.1% mom and 1.3% yoy

Conclusion, with motors included, we are still selling more stuff at ever-lower prices, though this time around declines in prices did not outpace increases in volume. Which means that no jobs are being created. If we take on board the fact that Euro remains relatively weak compared to last year vis-a-vis our main trading partners outside the Euro zone, implying we are buying imports at a higher price, the margins in retail sector gotta be shrinking even more than the volume/value gap above suggests. Which, in turn, implies that there aren't any new jobs being created in the retail sector on the back of the latest 'turnaround'. The whole thing about 'great news on retail sales front' is a damp squib.


And if you want to see even deeper into the official spin, take a look at ex-motors retailing:

• Value of core sales was flat mom in August and is down 3.6% yoy;
• Volume of core sales was up 0.2% mom and 1.4% yoy

So declines outpacing volume increases is clearly operative here.

Dig deeper and take a look at the breakdown of sales across main business lines.

• The largest increases in value took place in Books, Newspapers & Stationary (+4.7%). Given all the great news we've heard about Ireland in August, this is hardly surprising.
  
• Second largest value increase (ex-motors) mom took place in... errr... Fuel (+4.5%). That wouldn't be an indicator of our consumer confidence in the future, but the price increases in the sector where prices are controlled by the Government.
• Durables continued to tank: Electrical goods (-3.2% value and -2.5% volume mom), Furniture and Lighting (-1.% and -0.7% respectively) - again, not a great sign.

The worst part of this data is that it continues to show that there is no restart to household investment in sight. Before the households begin investing, they will usually start consuming more durable goods. This is clearly not happening.

Economics 12/8/10: Irish July CPI: Deflation is over, for the State sectors

“Consumer Prices in July, as measured by the CPI, remained unchanged in the month,” says CSO. Hurrah, the end of deflation then? “This compares to a decrease of 0.8% recorded in July of last year. As a result, prices on average, as measured by the CPI, were 0.1% lower in July compared with July 2009.”
Sounds like the good news. But… “The EU Harmonised Index of Consumer Prices (HICP) decreased by 0.1% in the month, compared to a decrease of 0.8% recorded in July of last year. As a result, prices on average, as measured by the HICP, were 1.2% lower in July compared with July 2009.”

Err, of course, HICP excludes the cost of housing. And the cost of housing has been going up in Ireland courtesy of the banks. So let me see:

• Deflation is bad, because it signals lower returns for businesses, induces consumers to save excessively and stops investment;
• Inflation is ok, then, as long as it reverses the three ‘bads’ caused by deflation.
  

So our ‘good news’ of the ending of deflation isn’t good at all, then. Why? Because, per CSO: most notable changes in the year were decreases in (see charts below)

• Clothing & Footwear (-8.5%) - competitive sector;
  
• Food & Non-Alcoholic Beverages (-3.8%) - relatively competitive sector; and
  
• Furnishings, Household Equipment & Routine Household Maintenance (-3.4%) - buyers' market.
  

There were increases in

• Education (+9.2%) - state controlled,
  
• Housing, Water, Electricity, Gas & Other Fuels (+5.5%) - state- and banks-controlled, and
  
• Transport (+2.7%) - state-controlled in terms of costs and charges.

Which of course means that prices have risen primarily in state- and banks- controlled sectors. These sectors inflation does not induce businesses to invest (as they are forced to pay higher costs and do not see increased revenue in their core activities), it does not induce people to consume (as they continue to save even more in anticipation of banks coming for their money through mortgages increases) and it does not result in increased returns to productive business activity (as higher costs shrink margins). The CPI excluding mortgage interest showed no change in the month and was down by 1.0% in the year.

Let’s plot that relationship between state-controlled prices and private sector prices, weighted by their respective weights in overall CPI basket:

No further comment needed, I presume.