5/3/2013: Another Consumer Confidence Report Goes Off-Road

To the 'turning around' reports from the Eastern Front ca 1943... err... 2013... per KBC Ireland/ESRI Consumer Sentiment Index, consumer sentiment in Ireland fell in February to 59.4 compared to January reading of blistering 64.2. The report gets 'serious' on dynamics: "The three-month moving average also decreased from 59.3 to 57.8. The index fell below the average for the last 12 months (61.9)."

Let me add some more dynamics to this. First, let's look at January 2012 data (since we do not have Retail Sales Indices for February yet):

• Current 3mo average for Retail Sales Value Index is 96.8, down from 96.9 for 3mo average through October 2012, Volume is up from 100.3 to 100.5. Overall, indices are basically flat (+/-0.1% is not a significant change by anyone's standards, even for this Government);
• 3mo average of Consumer Confidence index through January 2013 was 59.3 down on 63.7 for the 3 months though October 2012.
• 6mo average, however, shows a slightly different story: Value of sales is up from 95.3 average reading for 6 months through June 2012 to 96.8 average for 6 months through December 2012; Volume is up from 98.8 to 100.4 over the same period, and Consumer Confidence is up from 105.8 to 107.7.

KBC/ESRI Consumer Sentiment Index is about as good of a gauge for retail sector activity here as the elephants' herd gate tempo is of use for timing the Swan Lake pas de deux. If you don't believe me, here's a chart:

In the nutshell, consumer confidence hit the bottom in July 2008 and since then things were, apparently improving. So much so that by June 2012 Value of Retail sales has hit the absolute record low, whilst Volume of sales did same in October 2011. There is a gentle uptrend in consumer confidence since mid-2008 against a downtrend in both Volume and Value of core retail sales.

Taken on 3mo average basis (to cut down on volatility), Confidence indicator has virtually nothing to do with Retail Sales, except for high sounding press release comments from the experts:

Per ESRI: "The promissory note deal was announced roughly half way through the survey period. The announcement of the deal would appear to have had some positive impact, with a preliminary analysis of responses showing an improvement in sentiment after the deal. We await the March results to see if the impact on sentiment is sustained.”

Indeed, we await... eagerly. 


In addition, Austin Hughes, KBC Bank Ireland, noted that [comments are mine] “A disappointing aspect of the sentiment data for February was that the decline was broadly based. Consumer spending power remains under pressure and there is little to suggest a dramatic improvement in Irish economic circumstances that would cause a ‘feel good’ factor to emerge anytime soon. [A revelation of most profound nature] 

"About the best that can be expected is a slow easing in the ‘fear factor’ that would encourage a gradual increase in spending. This may not be spectacular but it still represents significant progress. [What progress he might have in mind beats me, as Retail Sales figures continue to show little signs of reviving from already abysmally low levels]
 

"...The Irish consumer is seeing an improvement in ‘macro’ conditions across the economy but their personal finances remain under pressure. [In other words, we are in that ESRI & KBC-lauded 'exports-led recovery' boom, folks, where you and I get screwed, while MNCs get to report greater 'sales'] 

"It may be that some consumers had unrealistic expectations as to what a deal could achieve. [Did Government enthusiasm in over-selling the potential impact propelled enthusiasm of consumers for the 'deal'?] 

"More generally, it remains the case that consumers face significant further austerity in the next two Budgets. [Doh! We'd be discovering new Solar Systems, next] 

"The deal may ease the pain somewhat but it doesn’t entirely remove it. So, we shouldn’t expect a surge in confidence. That said, the fragile situation of Irish consumers means they are sensitised to bad news. So, failure to reach a deal could have seen sentiment deteriorate quite sharply.” [In other words, we were saved from an apocalyptic collapse of consumer confidence by the wisdom and the heroic efforts of the Government... and ATMs are still working!]

Irony has it, the same 'positive newsflow' that went along with the index slide this time around also supported (according to the authors) index surge in January - see here for January release comments: http://www.kbc.ie/media/CSI.Jan20131.pdf Who says you can't have a cake and eat it at the same time?

I don't know what to do - laugh or cry... cup of coffee is needed, however, as much as some serious improvements in survey to bring it closer to reality on the ground. It is needed because:

• While Consumer Confidence index through January 2013 (to take period consistent with data availability for both Retail Sales Indices and Consumer Confidence Index) was up 13.4% y/y, while actual retail sales rose just 0.94% in Value and 0.71% in Volume. 
• Compared to 2005 average, Retail Sales Value was down 3.42%, Volume was down 0.22% and Consumer Confidence was up 26.82%.
• Even with February 2013 moderation, Consumer Confidence is now up 17.33% on 2005 average.
• Worse than that, taking Crisis Period averages (January 2008-present), Value of Retail Sales is now running at 96.6 against the average of 101.17 (or 4.51% below average), Volume at 99.8 against the average of 103.49 (or 3.56% below average), whilst Consumer Confidence is running at 7.37% above the Crisis Period average of 55.32.

26/10/2012: Sectoral breakdown of Retail Sales

In the previous post I looked at the Retail Sales dynamics from the point of view of whether September and Q3 2012 data show any really exciting change in trend to warrant exceptionally upbeat headlines. There were, basically, none.

But what about all the 'sales increases' rumored and even discussed in the analysts' reports?

Let's take at annual growth rates for Q3 by broad categories of sales:

As chart above clearly shows, majority of the categories are under water when it comes to y/y comparatives for Q3 2012.

And the same applies for Volume of sales:

Now, let's take a look at each category individually:

• Books, Newspapers, Stationery & Other Goods: down 4.8% in Value and down 4.5% in Volume y/y in September, down 4.5% y/y in Q3 2012 in Value and down 4.3% y/y in Q3 2012 in Volume. No good news here.
• Hardware, Paints and Glass: down 3.8% y/y in Value and down 4.3% y/y in Volume in September 2012, also down 4.8% in Value and 5.3% in Volume for Q3 2012 compared to Q3 2011. No good news here.
• Other Retail Sales: down 3.3% in Value and down 3.1% in Volume, same down 4.2% in Q3 2012 y/y in Value and down 3.8% in Volume. No good news here.
• Furniture & Lighting: down 2.3% in Value and up 2% in Volume in September in y/y terms, which means that the sector is trading down on revenues amidst a deflation. In Q3 terms relative to Q3 2011: the sector is down 3% in Value and up 0.8% in Volume - again, deflation and falling revenues. I wouldn't call this a good news.
• Clothing, Footware and Textiles: down 1.7% in Value and down 0.6% in Volume in September, down 2.3% in Value and 1.4% in Volume in Q3 2012. No good news anywhere here.
• Food, beverages & Tobacco: down 0.3% in Value in September and down 0.9% in Volume. In Q3 terms the sector is down 0.9% and 1.5% in Value and Volume respectively. All signs are, therefore, flashing red. Alongside the trends in Food and Beverages (below), the above suggest significant contraction in legal sales of tobacco, possibly due to increased tax evasion and smuggling.
• Household Equipment: up 0.8% in Value and 5.6% in Volume, which means that deflation is erasing some 86% of the revenues out of the increased activity. In Q3 2011-Q3 2012 terms, the sector is up 0.1% in Value and up 5% in Volume. In effect, revenues standing still, while volumes of activity rising. Last time I checked, the revenues pay for staff, while volume sales pay for warehouses.
• Pharmaceuticals, Medical & Cosmetic Articles: the less elastic in demand category of goods saw September sales rise 1.2% in Value and 2.7% in Volume, while Q3 sales saw increases of 1.2% in Value and 2.3% in Volume. This is a sector that did well out the recent data both in terms of value and volume of sales rising. All of these sales are, however imports.
• Motors and Fuel sales rose 2.9% in Value and fell 0.5% in Volume in September. Q3 change y/y was -1.1% in Value and -4.1% in Volume. Here's an interesting thing: Fuel sales - the coincident indicator for economic activity - were up 3.5% in Value and down 5% in Volume in Q3 y/y, which means that once we strip the inflation (which goes to fund Irish Government and foreign producers at the expense of the real economy here), the sales are down and this does not bode well for Q3 economic activity.
• Food business: is booming, rising 3.8% in value and 2.4% in Volume (suggesting inflation in food sector) in September, rising 3.1% in Value and 1.9% in Volume (confirming inflation) in Q3 2012 y/y. Now, food sales, especially in rainy July-August, could be strongly influenced by people staying at home. The same is true for the expected effects of reduced travel during summer months as fewer of us can afford trips out of Ireland and those who still can taking shorter breaks.
• Bars had a cracking September on foot of a number of higher profile events - rising 3.9% in Value and 2.3% in Volume. However, Q3 figure confirms what is suggested by the food sector performance (above): sales are down 1.9% in Q3 y/y in Value and down 3.4% in Volume. In other words, controlling for one-offs, there is no good news in the sector.
• Lastly, Electrical Goods. Given the switch to digital TV this month, it can be expected that sales were up 5.5% in Value and 11.2% in Volume in September, while Q3 figures were up 6.7% in Value and 12.7% in Volume. Interestingly, these sales rose 4.9% y/y in Value in Q2 2012 and 11.3% in Volume. But in Q1 the same sales were down 5.3% y/y in Value and up only 1.6% y/y in Volume. Overall, during the Great Recession the sector did better than any other sector: in Q3 2012 the index for the Value of Sales in the sector stood at 76.3 (100=2005), which is the fourth highest in the overall sectors categories. For the Volume of sales, index stood at 141.1 - the best performance by far of all sectors. 

So the key summary: Non-food retail sales excluding motor trades, fuel and bars: down 0.6% in Value and up 1.5% in Volume in September - aka deflation and falling revenues. In Q3 2012 compared to Q3 2011: down 0.7% in Value and up 1% in Volume - again, deflation and shrinking revenues. Care to suggest this is 'good'? It is better than outright y/y drop of 3.3% in Q2 2012 in Value and a decline of 1.6% in Volume, and better than -5.6% in Value and -4.3% in Volume recorded in Q1 2012, but it is comparable in Value terms to Q4 2011 (down 0.6% y/y), although still better in Volume terms (-0.7% y/y). 

Still, getting worse at a slower rate is not equivalent to getting better. And it is most certainly not a 'solid retail sales in Q3' result that is being claimed by some analysts.

26/10/2012: Retail Sales in September

In the last few days we have been treated to a barrage of the 'sell-side research notes' extolling the virtues of Ireland's economic 'comeback'. Property markets are now, allegedly, on the mend (never mind, the 'mending' bit is just about sizable enough to matter statistically and economically returns property valuations to... err... April 2012 levels). Unmeasurable 'investor confidence' is back at play - never mind that 'investors' are really a handful of buyers of the Irish Government bonds, usually with maturity range well within the cover by the Troika / ESM. Latest twist - cheerful analysis of the Retail Sales data. One note I received on today's Retail Sales figures for September 2012 was issued minutes after CSO published the data, suggesting that the author had absolutely no referencing to actual data published, but simply plucked headlines and strung them up into an analysis.

Having done some more sober analysis of the house prices data (see here), let's take a look at the Retail Sales data.

Value Index:

Core retail sales (ex-motors) value index rose (preliminary estimate - so subject to future revisions) in September to 96.5 from 96 in August. The index is now 2.88% ahead of where it was three months ago in June 2012. Month on month the index is up 0.52%, or statistically indifferent from zero increase. Current level of activity is comparable to May 2012 hen the index stood at 96.4. Year on year index is up 2.22%.

More dynamics in Value Index:

• Q3 2012 average index reading was 96.0 against the previous quarter average of 95.1 (+0.91%).
• In September, rate of growth in retails sales value actually declined: in June m/m rate of growth was -2.7% due to poor weather, this was reversed partially in July with a m/m rise of 1.8%. Since July, growth rate fell to 0.6% m/m in August and to 0.5% in September. This is hardly the 'good news'. 
• Y/y growth rate in September (+2.2%) was robust, but it is driven more by a contraction in sales in August and September 2011 than by an expansion of sales in September this year.
• Overall, core driver for July performance that determined Q3 results is the rapid fall off in Value of sales in June, not a robust growth in August and September.
• 6mo average through September is now at 95.6 which is only 0.7% ahead of 6mo average through March 2012. September reading is below 2010-2011 average by 0.13% and is down on crisis period average by 4.9%.

Volume Index:

Core retail sales Volume Index rose from 99.2 in August to 99.8 in September, up 0.6% m/m and 1.42% y/y. The index is now 1.84% ahead of where it was at the end of Q2 2012.

Dynamics in  Volume Index:

• Q3 2012 average index was 99.4 up on 98.6 for Q2 (+0.81%), so volume performance here is even less impressive than already underwhelming performance for Value index.
• 6mo average through September is 99.0 against 99.3 in 6 months through March, meaning that on half-yearly basis we are still under water.
• In 2010-2011 the Volume index averaged 101.24 against Q3 2012 average of 99.4. Make your own conclusions here. During the whole crisis, the index averaged 103.66, which means that September index is 3.73% below the crisis period average.

Now charts:

Now, onto my own index: the Retail Sector Activity Index:

Driven by a combination of weak increases in actual volume and value indices and a substantial drop off in consumer confidence (which fell from 70.0 in August to 60.2 in September), the RSA Index has fallen from 110.11 in August to 106.8 in September. During the current crisis, my RSA Index lagged 1 month actually has much stronger correlation (and positive) with retail sales volume and value (ca 83-84%) than consumer confidence (which has a negative and weak correlation with both value and volume indices - ca -30-34%). Hence it acts as a better predictor of the forthcoming activity. The RSAI is now down m/m, but is up y/y and Q3 average is up on Q2 average. 

This means that I can't call the new trend confirmation on the basis of positive monthly rises in Q3 2012 nor can I call the return of the downward trend. Put differently, real data suggests that things are bouncing along flat trend so far. Unlike the claims by some Irish 'analysts' who see "solid retail sales" data.

30/9/2012: Retail Sales data for Ireland August 2012

Retail sales figures for August are out this week with some positive, if only fragile, news.

• Core retail sales Value Index rose to 96.0 from 95.3 in July, up 0.73% m/m. Value index is still down 0.31% on 3mo ago, but the index is up 1.48% y/y.
• 6mo MA is at 95.42, so August reading is slightly ahead of the longer-term average. Previous 6mo MA through February 2012 was at 95.3.
• August reading is still below the 2010-2011 average (96.63).
• August marked second consecutive rise in Value index, although the overall index still did not fully recover from June sharp drop.
• Core retail sales Volume index remained relatively unchanged in August at 99.2 after posting 99.1 reading in July. The index is up on 98.0 in July, but is still below May reading of 99.5.
• Volume index in August was at -0.30% below the reading 3 mo ago and is up 0.3% y/y. The gap between volume and value indices changes over the last 12 months suggests acceleration in inflation.

Charts below show overall trends, including the trends in consumer confidence:

As usual, my own Retail  Sector Activity Index (RSAI) based on the above series:

RSAI rose to 110.1 in August from 108.9 in July due to a combination of increases in the Value and Volume Indices and Consumer Confidence. RSAI is now 1.15% up m/m and 6% up y/y with core y/y driver being consumer confidence (+25.4% y/y in August). The problem is that on general, the Consumer Confidence indicator is largely irrelevant as a metric to the sector performance. For example, all indices set at 100=2005 level of activity. By this metric, Volume of activity is still down 0.82%, while the Value index is down 4.0% on 2005 levels of activity. Consumer Confidence is 38.3% up. 

So the positives are, at least through August, as follows:

1. Value Index of retail sector activity is up 2 months in a row, but at a weak rate of increases so far;
2. Volume index is basically flat (at least not declining)
3. Confidence is up, but I would advise serious caution in interpreting this.
4. RSAI is up and may be signaling some future firming up in sales, assuming confidence indicator is not going completely out of connection with the real economy.