28/05/11: Retail sales for April 2011

As promised in the previous post, here's the analysis of retail sales for April 2011.

Headline figures:

• The volume of retail sales (i.e. excluding price effects - which in effect means excluding the revenue factor or margin factor for retail services providers) was down by 3.9% in April 2011 year on year (for the third month in a row).
  
• There was a monthly decrease of 0.8% for the first month after two consecutive months of increases (retail sales volume was up 3.1% in February and 0.8% in March with both increases attributed to the correction on big contractions in December 2010 (-1.5%) and January (-3.4%).
  
• Over the last 6 months, therefore, volume of retail sales was down cumulative 3.07%. since January 2008 the volume of retail sales has fallen total of 20.92%.
• The value of retail sales decreased by 3.5% in April 2011 year on year, marking a third consecutive month of annual decreases.
  
• There was a month-on-month decline of -0.7%. The wedge between value and volume decrease can be interpreted as being driven by inflation, suggesting modest inflation in retail sales sector. The monthly pattern of retail sales value is virtually identical to volume with April decrease coming after two months of moderate increases which compensated for the poor weather (and poor Christmas sales) in December-January.
• Over the last 6 months value of retail sales has declined by 2.56% held above the decline in volume index solely by rising prices. Since January 2008 Irish retail sector activity as measured by value of retail sales (turnover and margins being best reflected by this metric, rather than CSO-preferred volume index) has fallen by a cumulative of 26.1%.

Charts to illustrate:

• Excluding Motor Trades there was an annual decrease of 2.4% in the value of retail sales in April. This was the 34th consecutive month of annual decreases.
  
• Ex-Motors retail sales posted a monthly decrease of 0.3% in April, continuing up-down monthly cycle that started in August 2010.
• Over the last 6 months, value of ex-motor retail sales has increased by 0.1% and since January 2008 the value of core retail sales is down 18.3%.
  
• The data on value suggest that inflation is starting to pick up in core retail sales.
• Ex-Motors volume of retail sales fell a massive 5.0% yoy in April (again, supporting the assertion that the end of sales season saw price increases across core retail sales in 2011 relative to 2010, which means that with lower disposable incomes Irish consumers are now facing rising cost of living once again). This marked 12th consecutive month of volume decreases in annual terms.
  
• Month-on-month core retail sales were down 1.0% in April, after posting zero change in March and contracting 0.3% in February.
• Over the last six months, core retail sales volumes have declined by 2.16% and since January 2008 they are down 14.25%.
  

Charts to illustrate:
Sources of core declines were:

• In terms of volume: Fuel (-11.9), Pharmaceuticals Medical and Cosmetic Articles (-7.4%) and Furniture & Lighting (-16.2%) were among the ten categories that posted year-on-year decreases in the volume of sales in April. Books, newspapers & stationery fell 14.9%, Bars -6.0%, Food, beverages & tobacco were down 5.7%.
  
• In terms of value: largest annual declines were posted in Food, beverages & tobacco (-5.2%), Pharmaceuticals Medical & Cosmetic Articles (-6.2%), Furniture and Lighting (-19%), Electrical Goods (-8.5%), Books, Newspapers and Stationery (-14.4%), and Bars (-4.7%).
• The list of heaviest-hit sub-categories of retail sales in annual terms suggests that these might signal renewed push for shopping in Northern Ireland. In particular, large ticket items and higher cost items might be now more efficiently purchased outside ROI given the strength of the Euro. Another possibility might be continued drive by consumers into on-line sales channels which come from outside Ireland.
  

Lastly, some anecdotal evidence - reports by retail shop owners I had communications with - suggest that May might be another bad month for the sector already virtually decimated by the crisis.

27/05/11: Retail sales and consumer confidence

Updated chart for retail sales (see analysis of today's release to follow) and consumer confidence:
ESRI's Consumer Confidence index for April was down from 59.5 in March to 57.9. This decline was not marginal, but it does come at the end of three months of increases, so can be seen as at least in part a technical correction. Three month moving average continued to increase simply due to the momentum - a point that was missed by those observers who made much of hay out of this increase.

Contrary to the Sentiment momentum, of course, the Retail Sales fell in April:

• the volume of retail sales (i.e. excluding price effects) decreased by 3.9% in April 2011 when compared with April 2010 and there was a monthly decrease of 0.8%.
  
• ex-Motor Trades the volume of retail sales decreased by 5.0% in April 2011 yoy, while there was a monthly decrease of 1.0%.
• the value of retail sales fell 3.5% in April 2011 yoy and -0.7% mom.
  
• ex-Motor Trades annual series for value fell 2.4% and there was a monthly decrease of 0.3%.
  

Overall, it is believed that the 3mo MA is a better predictor of the general direction in the series. I am not so sure. Here's why. Both the contemporaneous (spot) indices and 3moMA are pretty much similar in tracking volume and value of retail sales. The charts below illustrate:
The 3moMA is somewhat better on both value and volume, but not by a massive margin.

Incidentally, the ESRI release on Consumer Sentiment index this month forgot (for some probably simple error reason) to update data tables from January 2011 through April 2011 (link here).

27/01/2011: Retail sales for December 2010

Retail sales stats are in. Given the weather conditions in December, the Budget 2011 pillaging the pockets of consumers, remaining uncertainty in the economy, and tanking consumer confidence (see here) it was not surprising to see the end results for the sales in December 2010.

Per CSO: “The volume of retail sales (i.e. excluding price effects) decreased by 3.1% in December 2010 when compared with December 2009 and there was a monthly decrease of 1.1%.” Worse than that: ex-Motor Trades, the volume of retail sales fell by 3.6% yoy in December 2010, and 2.5%mom.

• Motor Trades (-8.0%)
• Fuel (-21.7%)
• Furniture and Lighting (-21.5)
• Bars (-9.9%)

were “amongst the ten categories that showed year-on-year decreases in the volume of retail of retail sales this month”.

The value of retail sales has suffered even more than the volumes (and remember – it’s the value, not the volume that supports jobs in the sector) contracting by 4.1% yoy in December 2010 and falling 0.9% mom. Ex-Motor Trades annual decrease was 3.3% in the value and a monthly decrease of 1.3%.

Further per CSO: "Provisional estimates are now available for the final quarter of 2010… the volume of retail sales decreased by 0.6% year on year in Q4, with the value decreasing by 2.1%. If Motor Trades are excluded the volume of retail sales decreased by 1.8% year on year in the final quarter of 2010 and the value of retail sales decreased by 2.4%."

Let’s add to that the following observation: since 2007 through the end of 2010 Irish retail sales fell 23.3% in value and 18.6% in volume.

Weather effects, that undoubtedly contributed to the declines in retail activity in December should not give us comfort going into 2011. The trends in both RSI and Consumer Confidence are less than encouraging. But one does need to take into perspective that, for example, a massive decline in fuel (due to transport disruptions during the snow periods) and declines in 'Other' categories - mobiles, toys, jewelery etc - and clothing, footware & textiles clearly inidcate the disruptive nature of December weather.

Economics 03/03/2010: Live Register and Retail Sales

Live register and retail sales are out for today - and:

LR is down in seasonally adjusted terms. A whooping 2,300 down, driving implied unemployment rate from 12.7% in January to 12.6% in February. Sounds like a good deal at last. And, of course, it is, except:

• Actual Liver Register still rose by 20 new signees;
• The rise of 810 in over 25 year olds was offset by a fall of 790 for the under 25 year olds, which makes me wonder - was the former a real increase in unemployment, while the latter a sign of younger kids abandoning the workforce to join training schemes, social welfare (with unemployment benefits for the under-25 year olds being reduced in two budgets) or going off to greener pastures elsewhere (i.e emigrating);
• Whichever way you spin the numbers, 432,400 people on the LR is a sizable number and to me still constitutes a massive crisis. 348,100 of these are over-25 year olds - prime employment age workers (down just 800 on January in seasonally adjusted terms);
• Average net weekly change to the LR in February was a much more modest +5 relative to January's +2,668 - a good sign, if one stretches the term 'good'

Now, do recall - in September 2009 we took off the LR 3,785 people who were placed in various state-sponsored training programmes, so there is still plenty of cushion for LR to show real improvement.

A chart (courtesy of the Ulster Bank economics team) to illustrate:
One clearly needs a microscope to spot the improvements in the overall picture, although the trend in moderating LR growth rate is clearly visible. Another interesting sighting is the dead-cat-bounce in October 2009. Are we in the same pattern now? I don't know, but dynamically, the chart above suggests we are at the flat part of the U-trend. How long will it take before we get through that part? How steep will be the upward part of the U?

The key risk indicator at this moment is QNHS which, I would expect, will show further contraction in employment and more aggressive exits from the labour force.


Meanwhile, retail sales are also bumping up, limp, lifeless, but twitchy. Chart below - courtesy of the Ulster Bank economics team (I will do my analytics later tonight, so stay tuned) illustrates:
The volume of retail sales (i.e. ex effects of price changes) is down 4.8% in January 2010 compared to January 2009 and down a whooping 17.3% in monthly terms. There was a monthly decrease of 17.3%. Ex-motors, volumes are down 4.7% annually and up 0.1% monthly. would the natural (and man-made) disasters of January help here? Quite possibly - electrical goods, furniture, lighting and clothing are up as people had to counter adverse weather and replace those washers and dishwashers frozen in the cold spell.

The value of sales fell 8.4% in January 2010 in annual terms and 15.6% in monthly terms as deflation at retail level continued to bite, primarily at Motor Trade levels: ex-motors, monthly change was +0.6%.

My slight concern here is that the release of retail sales data covers December 27-January 23rd, which means that while it missed a slow-to-go last week on retail sales in January, it also over-states retail sales due to capturing December 27-30 - the busiest sales period in the entire year. And, due to inclement weather, fewer people were able to travel to the North, so more shoppers stayed in the Republic, although many of these stayed at home.

Economics 17/10/2009: WalMart/IKEA Effect, Bull Markets in Stocks

Scroll for IKEA Effect discussion and Retail Sales Data below...

A superb note on the current markets from Robert Lenzner on the links between the Bull run we are experiencing and economic fundamentals is available from Forbes (here). To sum it up: that which can't go on usually doesn't.

What are the implications for Ireland?

• Our exports are likely to suffer significant downward pressure in years to come - a combination of Obama Administration Healthcare Reform (driving down long-term returns to pharma sector and re-orienting US purchasing to more centralized and, more likely, heavily domestic-industry oriented purchasing will undermine majour pharma players - the dominant force in Irish exports) plus cyclical effects of patents expiration (Pfizer - Ireland's largest singular exporter - is facing tough times in coming up with new blockbusters as its existent ones are running out of patent protection) will act to depress future exports growth in the pharma and bio-phrama sector.
• Our indigenous exports will remain uncompetitive for years to come as a combination of strong euro (especially if the ECB continues to move toward 'exit strategies' and higher interest rates) and the legacy of the crisis (high debt levels and severe maturity mismatch in Irish sectors) will continue to weigh on future growth.
• Our domestic consumption will remain in doldrums for years to come under combined weight of higher taxation and stronger euro, with a resultant shift to imported substitutes (see IKEA effect below).
• Our trading and investment block - the EEC - will remain anaemic growth partner.
• Our internal investment will stay flat at low levels as a combination of higher investment costs (banks raising margins and engaging in wholesale capital destruction by re-drawing terms and conditions of existent loans to companies and households post-Nama) and precautionary savings (our households and corporates holding excessive cash reserves with demand-style access covenants on these holdings) will imply low returns to domestic investment, high cost of such investment all in the environment of subdued growth.

Can you see Bank of Ireland or AIB shares trading at Euro4.00-5.00 range with these prospects? I don't...


Ikea Effect: I wrote before on many occasions about the WalMart effect: give consumers better value for money (through more efficient purchasing, logistics, distribution, marketing and retailing) and they will vote for you in tens of thousands. Now we have a small glimpse at it in the form of IKEA.

Here it is - in this week's CSO data on retail sales: August retail sales down a massive 1.0% overall, after six months of shallow increases. Worse than that - core retail sales (ex-motors) down 1.8% on July breaking three months improvements pattern. Food sales were down 2.8% despite decent weather and more families staying at home instead of leaving for a vacation. But, Furniture & Lighting was up 26% - thanks to IKEA.

Few charts to illustrate trends.
So broader trends are dire. But look at what's happening in Furniture Sector (IKEA Effect):
Self-explanatory.

Now, per CSO CPI data: Furniture and Furnishings, plus Carpets & Floor Covering account for 1.0812% of total Household Expenditure in 2006, Household Textiles - for additional 0.2424%, Glassware, tableware & household utensils 0.2577%, so roughly 1.6% of household spending goes to items sold by IKEA. Per CSO data, 2008 personal consumption expenditure in Ireland was €93,863bn, so roughly speaking €1,500mln of this went to goods of the types sold by IKEA. If IKEA offers average savings on Irish-domestics in the sector of some 25-40% (and my own experience suggests it is actually greater than that, but let us be conservative), the savings potential due to IKEA Effect add up to some €375-600mln or some €133 per every person in this country.

Now, IKEA has been trying to get a store into Ireland since at least 2000, which implies that an average Irish household has lost up to €4,000 in savings that could have been achieved were the IKEA (or WalMart) effect present in this economy. All due to the corporatist and politicised nature of our planning and retail regulations. Some price to pay!

Of course, these savings would have been even greater as:

• IKEA (WalMart) effect could have had spillover effects to other sectors of Irish economy were our policymakers not engaged in actively restricting competition in retail sector;
• IKEA (WalMart) effect would have coincided with heavier purchasing of durable goods during the boom years of 2003-2007, thus offering greater level savings on more expensive items.

But let us not count 'small change' - after all, preserving a 'small town' character of retailing (with convenience shops littering every corner of our towns and gas-station shopping outside of Dublin instead of proper multiples retailing) is worth €4,000 per family. Isn't it?

A quick note on the WalMart effect in broader terms. Ireland is aiming to get its R&D spending (public and private) contribution up to 3% of GDP or in 2009 terms - roughly €5.1bn per annum. Now, assuming WalMart-type retail efficiencies can deliver a 10-15% savings on our retail spending, the gains from the WalMart effect will mean an addition to our GDP to the tune of €9-14bn per annum. Of these, some 30% will be accruing to the Exchequer in form of various taxes, so the second order increase in GDP will be €2.7-4.2bn. Total increase in GDP will, therefore exceed €11-18bn or 6.5-10.5% of GDP. (These are back of the envelope calculations, but you can see where it is going)...

Economics 18/09/2009: hard numbers for our delusional leaders

Retail sales for July gotta be hard read for our delusional leaders (here).

Per CSO release today: "The volume of retail sales (i.e. excluding price effects) decreased by 15.0% in July 2009 compared to July 2008. There was a monthly increase of 0.2%... partially explained by the increase in new motor sales in July 2008 that coincided with the introduction of the new VRT system." Ex Motor Trades retail sales decreased by 6.2% in July 2009 compared to July 2008 and fell -0.7% in monthly terms. Things are getting worse once again, after a short reprieve of June.

A good summary above (from Ulster Bank economics team). Food, Bars and Other Goods improved in monthly series, everything else is tanking. But all three categories of 'improved' goods are about people staying at home instead of leaving for a vacation, so here we go - have a sandwich and a pint instead of a break - Lenihanomics at work.

Few charts below (back to my favorite hobby):

It is worth noting that, of course, changes in our retail sales = changes in our VAT receipts. This said, can you spot where the 'No New Taxes' Lenihan's statement yesterday can be supported here?