26/5/20: COVID19 Impact on Travel and Consumer Demand

Some dire numbers from Factset on changes in consumer preferences / sentiment through March-April 2020:

• "According to The Conference Board, consumer confidence has weakened significantly with the overall index falling from 118.8 in March to 86.9 in April, the lowest reading since June 2014." 
• "... older Americans (aged 55 and over) are much less optimistic than survey respondents under 55. This poses a problem as we look to economic recovery... [as] households in which the head of household is 65 years old or older represent 22% of total household expenditures in the U.S. In addition, this age group dominates spending at full-service restaurants and travel and lodging."

Things are getting worse in travel and transport sectors:

• "According to the International Air Transport Association, global air travel was down 52.9% in March compared to a year earlier, hitting its lowest level since the Global Financial Crisis."
• "In the U.S., jobs in air transportation fell by 27.4% in April."
• "The four major U.S. airlines—American, Delta, United, and Southwest—are prohibited from laying off or furloughing workers until after September 30 as a condition of receiving billions in payroll assistance as part of the CARES Act. But these carriers have been asking employees to take voluntary unpaid or lower-paying leaves, reduced hours, and early retirement."

On travel sector:

• "The April consumer confidence survey shows that just 31.9% of respondents intend to take a vacation within the next six months. This down from 54.9% in February and is the lowest reading ever in the 42-year history of this survey question."
• "We only have monthly personal consumption data through March... In March, consumption on accommodations was down 43.3% compared to February while air transportation had dipped by 53.5%." 

12/9/17: Partisan Gap in Consumers' Perception of the U.S. Economy Explodes

A quick post, H/T @profsufi. Here is a chart from the U of Michigan consumer survey showing an explosion in partisan gap between Democrats and Republicans when it comes to self-reported consumer sentiment:

As Sufi stated in his tweet, "Rise in partisan bias in economic expectations according to Michigan Survey of Consumers data". Notably,

1. Democrats negative perceptions are not at extraordinarily low levels. Similar applied for the Republicans during Obama 1 Administration and Carter Administration, and for Democrats in Carter Administration and Bush W2 Administration. So negative perceptions are not the key driver of the gap dramatic rise.
2. Republican's optimism during the Trump Administration [short so far] tenure is the main driver of the partisan gap. 
3. Current partisan gap reflects data that barely touches Trump Administration, with majority of economic performance figures still impacted heavily by the inertia inherent from the Obama Administration days. 

This has to fly in the face of anyone presenting Trump Presidency as the 'minority Republican' thing. Adjusting for the lags in data is impossible without looking at specific monthly series and down weighing observations closer to Obama tenure (I suggest authors do that), but it is clear that the true extent of Trump-specific gap has to reflect also some share of the Republican's perceptions of Obama 2 economic conditions. Which will most likely make the current gap even larger. 

Another point worth making is that the data above clearly shows just how subjective and unreliable (from the point of view of revealing actual quality of underlying economic conditions) the measures of Consumer Confidence are. 

18/2/16: Is the U.S. About to Slip into a Recession?

This is an unedited version of my article for Manning Financial. Final version is available here: https://issuu.com/publicationire/docs/mf_magazine_spring_2016_17022016_ne?e=16572344/33514016

In almost every sharp downshift in economic activity, and more frequently than that, in almost every economic recession, there are several regular predictors or leading indicators of tougher times ahead. These include sharp drops in corporate profits, and acceleration in yields on lower rated corporate bonds, usually followed by significant declines in industrial production indices and subsequent downward corrections in stock markets and services activities indices.

While these sequences of events repeat with regularity, in many cases, forward signals of recessions can involve a slight variation in timing and permutations of these shocks.

Another regularity that happens when it comes to business cycles is that, traditionally, the U.S. leads Europe into the downturn.

Trouble is, judging by all factors mentioned above, the U.S. is currently heading into a recession. Fast. And with some vengeance.

The Bad News

Let’s start with corporate profits. The latest data from the U.S. Federal Reserve shows that year-on-year 3Q 2015 growth in corporate profits for non-financial corporations was sharply negative - at -4.26 percent. Furthermore, corporate profits growth slowed down from 7.72 percent in 1Q 2015 to 1.83 percent in 2Q 2015. The rate of decline in corporate profits growth in the U.S. is now sharper than during the last GDP wobble in 1Q 2014 and sharper than in 3Q 2008. The latest growth figure also marks the fastest rate of decline in profits since 3Q 2009.

CHART 1: Non-Financial Corporate Profits and Nominal GDP

Growth Rates, Percent per annum

Source: Author own calculations based on data from the Federal Reserve Bank

Chart above shows clear pattern of correlation between corporate profits growth rates and subsequent growth rate in nominal GDP. It also shows that U.S. corporate profits growth rates have been on a declining trend since 3Q 2010.

Meanwhile, corporate debt yields are shooting straight up. Added to this dynamic is another troublesome sign: yields volatility is also on the rise. In other words, the markets are not only nervous about individual issuers, but are appearing to be scared of the entire asset class. I wrote about this phenomena in previous newsletter, here. Behaviourally, international and U.S. investors have been running for the hills for some time now, despite the extremely risk-supportive monetary policies not just by the Fed, but also by major carry trade-sustaining central banks (Bank of Japan and ECB). In normal conditions, carry trade drivers should moderate risk aversion effects. Except they are not doing so today.

As noted in a recent research note by J.P. Morgan Cazenove in general, credit spreads lead equities and the former “are not giving a positive signal” to the latter (see: http://trueeconomics.blogspot.com/2016/01/24116-high-yield-bonds-flash-red-for.html).

So that puts two recession-beaconing stars into a perfect alignment.

What about the U.S. Industrial Production? From over 2015, U.S. industrial output posted declines, based on monthly growth rates, in ten months out of twelve, with December 2015 production levels down almost 2 percent on December 2014 peak. In annual growth terms, output growth rate started at a brisk 4.48 percent pace in January 2015 and ended the year with a contraction of 1.75 percent - the sharpest rate of decline since December 2009. That’s a swing of some 6.23 percentage points in 12 months.

CHART 2: U.S. Industrial Production Index

Monthly growth rates, percent

Source: Author own calculations based on data from the Federal Reserve Bank

Like with corporate bonds and profits, some of this is down to a combination of commodities recession and Emerging Markets woes.

The former is pretty apparent to all concerned. Between the start of 2014 and the end of 2015, the weighted average price of oil across three key grades (Brent, WTI and Fateh) fell 51.1 percent. Non-fuel commodities went down 21 percent.

The latter also was subject to my earlier contributions to this newsletter. To update you with the latest news, while Emerging Markets continued to contribute some 70 percent of overall global growth in 2015, the rate of growth in key BRICS economies (including Brazil, Russia, India, China and South Africa) has been tanking.Per latest IMF forecasts, released earlier this month, Emerging Markets are still expected to grow by 4.3 and 4.7 percent in 2016 and 2017. However, this puts their growth rates below the 2011-2014 average of 5.3 percent and the 2000-2007 average of 6.5 percent. Amongst the BRICS, all but China and India are either already in a recession or one quarter away from a recession. China is expected to post official growth of 6.9 percent in 2015, with forecast for 2016-2017 for 6.3 percent and 6.0 percent, respectively. Even if trust Chinese official statistics, this represents a big drop. For example, 2015 has been the slowest year in terms of GDP growth in 25 years, and the fourth slowest in 36 years.

But beyond these two factors, U.S. output growth is also being pushed down by stronger Dollar and collapsing global trade. Global trade has been tracking the declining fortunes of global demand since 2012. Over the last four years, global trade volumes growth underperformed post-crisis average and historical average, pushing growth rates to their lowest readings for any decade on record. In line with this, Baltic Dry Index – the cost indicator for hiring cargo vessels to ship goods around the world – has been hitting historical lows almost on a daily basis since the second part of December 2015.

All of the above factors, from falling profits, to falling production growth rates, to underlying commodities recession, global demand weaknesses and international currencies re-valuations, have undoubtedly contributed to falling equity prices. Since the start of 2016, some forty major equity markets around the world have entered bear territory. While on the corporate side of the U.S. economy, oil and commodities prices recession has been a dominant driver for aggregate equities indices movements, underlying equity price swings are much broader currents. For example, equities sell-offs around the world did not concentrate on commodities producing sectors and companies, or on highly leveraged corporates alone. Instead, the bear markets have been broad.

The Good News

Which brings us to last piece of a puzzle, yet to fall into its place: consumer demand. Or put into the above context – the good news bit.

Falling equity and bond prices, as well as rising retail interest rates are capable of triggering - if sustained over time - drops in consumer confidence, followed by households’ pulling back from consumption and investment. So far, stronger dollar (improving U.S. consumers’ purchasing power), lower energy prices (improving their disposable incomes) and falling unemployment (improving household pre-tax incomes) have sustained consumer confidence at healthy levels.

CHART 3: Index of the U.S. Consumer Sentiment

Source: University of Michigan

However, current levels of consumer confidence are barely touching pre-crisis averages and have declined since local peak in January 2015 through 3Q 2015. There is no crisis at the moment, but given the strength of household finances, 2015 index performance was hardly spectacular.

Whatever resilience we do see in consumer surveys, it is most likely underpinned by the positive jobs prints. Based on historical figures, over each recessionary episode in the U.S. history since the end of the World War II, employment was one of the key casualties, declining with every recession by at least 1 percentage point. U.S. added 2.597 million new private sector jobs over the course of 2015 and average weekly earnings are rising in both goods-producing and services-providing sectors.

The Latest Official Forecasts

This is precisely why despite the leading indicators flashing bright warning signs of the potential incoming recession, the IMF continues to forecast rather robust – by comparatives to the Euro area, UK and Japan – for the U.S. in 2016 and 2017. Per January update to its forecasts, the IMF now expects U.S. economy to grow at 2.6 percent in both 2016 and 2017. This comes against the Fund forecast for 2.2 percent growth in 2016 and 2017 in the UK, 1.7 percent real growth in the Euro area over the same period, and 1 percent and 0.3 percent growth in Japan in 2016 and 2017, respectively. However, IMF’s latest forecast represents a sizable downgrade for the U.S. compared to previous forecasts. Thus, compared to October 2015 outlook, IMF expectations for U.S. economic expansion are now 0.2 percentages lower for both 2016 and 2017.

Still, IMF references the U.S. as one of the four core risks to its global outlook for 2016. Specifically, the IMF cites the risk arising from “tighter global financing conditions as the United States exits from extraordinarily accommodative monetary policy”.

This risk, along side growing uncertainty about overall health of the U.S. economy, are material factors for Irish and European markets and investors. Ireland benefited significantly from the U.S. recovery and subsequent devaluation of the Euro vis-à-vis the U.S. dollar. These factors underpinned our exports of goods to the U.S. and Canada rising by EUR6.85 billion for the first eleven months of 2015 compared to the same period in 2012. This growth is more than double the rate of expansion in our trade in goods with the EU (including the UK). From Irish investors perspective, our domestic assets performance – across both equities and bonds – owes a lot to the resilience of the U.S. economy. Likewise, our investors’ access to diversified portfolios of internationally-listed and traded assets cannot be imagined absent the U.S. equity and debt markets.

All of this is currently at risk when it comes to the U.S. economic and markets performance forward. And more ominously, our own European economic and investment fortunes are tied closely to the North American economies. Whenever you hear any political leader – be it Enda Kenny or Jean-Claude Juncker – extoling the virtues of Ireland’s or Europe’s firewalls against international shocks, remember the old adage: when America sneezes, Europe catches the cold.

  

10/1/2015: Irish Retail Sales: November

Irish retail sales figures for November, published by the CSO earlier this week came in at the weaker end of the trend. Here is detailed analysis.

On seasonally-adjusted basis:

• Value of retail sales ex-motors fell 0.31% m/m in November having posted a 1.04% gain in October. 3mo MA through November was down 0.11% on 3mo MA through October, which itself was down 0.07% on 3mo MA through September.
• Volume of retail sales ex-motors was up 0.19% m/m in November, having posted a rise of 0.96% in October. 3mo MA through November was up 0.26% m/m  for the 3 months through November compared to 3mo MA through October, having previous posted identical increase in October, compared to 3mo MA through September.
• Meanwhile, Consumer Confidence was, for a change, more closely aligned with value of sales indicator. Consumer Confidence indicator was down0.23% m/m in November, having posted 0.68% decline in October.

Two charts to illustrate:

The first chart above plots longer-range series, showing two main insights:

1. Consumer confidence continues to vastly outpace actual retail sales performance in terms of both value and volume of sales, although we are starting to see de-acceleration in consumer confidence growth in terms of trend. Nonetheless, consumer confidence bottomed-out around July 2008. Actual retail sales did not bottom out until June 2012 (in Volume and Value of sales terms).
2. Since bottoming out, retail sales have been performing with virtually divergent dynamics. Trend in Volume of sales is relatively strong, upward. Meanwhile, trend in Value of sales is relatively flat, upward. In more recent months, this divergence is increasing once again.

The above is again confirmed in November data and in year-on-year comparatives too, as shown in the next chart.

Year on year (based on seasonally unadjusted data):

• Value of retail sales ex-motors rose 1.33% y/y in November having posted a 1.91% gain y/y in October. 3mo MA through November 2014 was up only 1.4% on 3mo MA through November 2013.
• Volume of retail sales ex-motors was up robust 3.92% y/y in November, having posted a rise of 4.40% in October. 3mo MA through November was up 3.7% y/y.

The above data clearly supports trends identified in previous months: Irish consumers are not striking, nor are they holding back consumption. Instead, they are willing to buy when they see value. Unfortunately for our retailers, that means more sales with lower profit margins. As the chart below shows, we now have 13 consecutive months of growth in volume of sales outstripping value of sales and out of the last 21 months, only one posted growth rate in value of sales in excess of volume of sales.

Using my Retail Sector Activity Index to plot underlying activity across the sector (note: the RSAI has much higher correlations with both indices of retail sales than consumer confidence), chart below shows that in 2014, growth rate in overall sector activity slowed down significantly compared to 2013.

The above, of course, is rather natural for the recovery that first produces a faster bounce up and then settles into more 'sustainable' over time rate of growth. The problem, however, is that current activity by value of retail sales is still 39.1% below the pre-crisis peak levels and for volume of sales it is 34% below peak. Even compared to the pre-crisis average (2005-2007), activity is down 11.2% in value terms and 3.2% lower in volume terms.

28/6/2014: Irish Retail Sales: Q2 data to-date confirms fragile recovery

In the previous post I covered detailed analysis of Core Retail Sales data for May 2014: here. Now, a quick look at Q2 averages (for 2014 we have average over April and May) for the period from 2005 through latest.

Take a look at the chart plotting declines (as of April-May average) in retail sales activity compared to peak for Q2 data:

This data shows the following:

1. The only two sub-categories of goods and services where retail sales indices in Value terms are in shallower decline than in Volume terms (in other words inflation is positive and feeding through to consumers) are: Automotive Fuel and Bars - in other words two sectors where prices for inputs are largely controlled/set by the state.
2. No category has recovered pre-crisis levels of retail sales by both value and volume, while only one category (Food) recovered sales in volume, relative to pre-crisis activity.

This puts into perspective the extent to which the recovery we are experiencing so far is fragile. 

28/6/2014: Irish Retail Sales Activity: May 2014

There is a lot of hoopla about Irish retail sales stats released today by CSO. Irish and foreign media and even some analysts are quick to point to the headline numbers showing high rates of growth and some are going as far as describing Ireland's miraculous recovery. So what, really, is going on?

First of all, let's consider top level numbers: removing motor trades and fuel, Core Retail Sales:

• In Value Index terms, things have improved, which is a positive - so far in the crisis, value of sales trended well flatter than volume of sales primarily due to deflation in the sector. This was good for consumers, but bad for businesses as profit margins shrunk and with them, employment declined too. In May 2014, value of retail sales index rose to 94.6, up 1.39% y/y. Good news for retailers. Even better news: 3mo MA through April 2014 is up 1.7% y/y and 6mo MA is up 1.4% y/y. All in, we are seeing some fragile gains here.
• Also in Value index terms, this time around based on seasonally-adjusted data: month on month things are not so good: index is down 0.31% on April. So short-term, things are not better this time around. Not to panic, of course, as they are volatile and as trend remains up, albeit gently and unconvincingly so far (see first chart). We are bang-on on the trend now.

• In Volume index terms, the index is under performing recent trend, but is still pointing up on average. Although m/m index is down 0.48%, year-on-year volume of sales is up 3.33%.
• 3mo MA through May 2014 compared to 3mo MA through February 2014 is up 3.7%, stronger than Value index, implying potentially lower margins. Year on year 3mo MA is up 3.33% a notch slower than 3.36% 6mo MA on previous 6mo MA.

My Retail Sector Activity Index (RSAI) capturing simultaneously Value and Volume Indices, plus Consumer Confidence, reported by the ESRI has moderated from 111.0 in April 2014 to 110.6 in May 2014. Year on year, the RSAI is up strongly, from 101.4 back in May 2013, but on shorter-run horizon, the index is just about at the levels set in February-March 2014.

Top conclusions: All of the above are good readings, suggesting that while deflationary pressures remain a challenge, core retail sales have been improving. In previous months' posts, I noted that in my view, we are now on an upward trend in terms of Volume and at the start of a more cautious upward trend in Value terms. May data confirms this, as does the chart below showing current y/y growth compared to pre-crisis historical averages.

April 2014 reading for Volume touched just above the pre-crisis average growth rate (not the levels), this moderated back in May. Value index growth rates remain disappointingly below those recorded before the Great Recession.

In terms of levels, Value index (3mo average through May 2014) is currently 41% lower than historical peak levels and 13.8% below pre-crisis average. Volume index is 37.5% below its historical peak and 8.6% down on pre-crisis average.

9/6/2014: ESRI Consumer Confidence Indicator Moderates in May

Some hopium going out of the market in Ireland: ESRI Consumer confidence for May moderated from sky-high 87.2 in April to 79.4 in May, bringing the series slightly closer to reality mapped by Retail Sales data on the ground:

3mo MA for the series is now at 83.2, virtually flat on 3mo MA through February 2014, and on 6mo MA of 83.3. In other words, the series trending flat over 6 months, and are sitting at still sky-high levels. Meanwhile, volumes of retail trade (core, ex-motors) are rising along a decent trend, but value of retail sales is showing barely perceptible upward momentum.

Note, seasonally, for May, there is no established momentum in the series either up or down.

30/5/2014: Detailed Analysis of Retail Sales for Ireland: April 2014

In the previous post on Retail Sales data, I covered Q2 comparatives across the years (http://trueeconomics.blogspot.ie/2014/05/3052014-that-state-sanctioned-inflation.html). As promised, here is April data taken on a monthly frequency.

There are several very interesting developments in terms of core retail sales data released earlier this week by CSO. Stay patient as I cover it.

Firstly, from the top level:

• Current 3mo average for Retail Sales by Value index is at 96.7, which is below 96.9 average for the 3mo period through January 2014. Bad news. However, a ray of sunshine: Value Index did rise on seasonally-adjusted basis to 97.3 in April compared to 95.9 in March.
• Current 3mo average for Retail Sales by Volume index is at 102.5, which is virtually unchanged on 102.4 average for the 3mo period through January 2014. Neither bad not good news. However, another ray of sunshine: Volume Index did rise on seasonally-adjusted basis to 103.3 in April compared to 101.7 in March.
• Meanwhile, Consumer Confidence index reported by ESRI averaged 85.3 in 3 months though April 2014, which is blisteringly higher than 78.5 reading recorded across 3 months through January 2014. Bad news: on shorter 3mo average basis, Consumer Confidence continues to go boisterously where actual retail sales are not daring to move.

Chart to illustrate:

Notice the following from the chart above:

1. Bottoming out on trend in Consumer Confidence took place around Q1 2011. Bottoming out in Volume Index of Retail Sales took place around Q2-Q3 2012. Bottoming out in Value Index of Retail Sales is yet to be established, though it appears that it might have happened around Q4 2013. Thus, Consumer Confidence can at best be a weak indicator for changes in Volume and counter-predictor to changes in Value of Retail Sales
2. Consumer Confidence is rising much faster, over sustained period of time, than Volume of Retail Sales which itself is outpacing Value of Retail Sales. In other words, even massive and sustained reductions in the retail sector margins are not being able to explain in full the boisterous dynamics in Consumer Confidence.

Now onto my own Retail Sector Activity Index (RSAI), which is a weighted average of 3mo MAs for Volume and Value of Retail Sales Indices and Consumer Confidence:

Couple of things worth noting:

1. RSAI shows, finally, a breakaway from the flat trend that held the sector down between 2009 and much of 2013. This is good news. The RSAI is now at 111.0 up on 110.6 in March 2014 and on 3mo MA basis it is up from 107.7 over 3 months through January 2014 to 110.7 currently.
2. RSAI in most recent two months has been visibly slowing down in the rate of growth, despite massive rises in Consumer Confidence. This can signal some weakness coming down the road. Or it might signal temporary slowdown (remember, this is seasonally-adjusted data).

Lastly, let's revisit correlations between various indices. Three tables below summarise:

Core takeaways from the above tables:

• Consumer Confidence Index (CCI) has now moved into correlation range with Volume of sales that is similar to the one observed prior to the crisis: 0.757 vs 0.741 and this correlation is no longer negative. This confirms what I said above in the analysis of the first chart. And this is potentially good news, as it suggests firming up of the upward trend in the Volume of sales.
• Consumer Confidence Index remains weakly correlated with Value of Sales (0.393) as compared to pre-crisis (0.720), but it is now also positive as opposed to crisis period readings. This means, as I said above, that it is probably too early to call growth trend in Value series, but it is now time to watch the series closely for confirmation of denial of such trend.
• Much of the RSAI index performance is skewed by the CCI presence in the series computation. Still, the index tracks much better the Value and Volume activity in the Retail Sector than the CCI.

9/1/2014: New vehicles licenses in 2013

New vehicles licenses for December 2013 were published yesterday, so we can now update figures for full year 2013.

In 2013, number of all vehicles (new and used) licensed in the state rose 13.12% compared to 2012. 2012 marked the trough of the crisis period licensing and 2013 marked the best year for the Motor Trade since 2008. However, compared to peak, all vehicles licenses were still down 50.88% in 2013.

Of the above, new private cars licenses declined 6.44% y/y, although these were up 31.1% on crisis period trough. New private cars licensed in the State posted their second worst year since the onset of the crisis in 2013 and are currently down 68.3% on peak.

New goods vehicles licenses rose 1.56% in 12 months through December 2013 compared to full year 2012, potentially signalling some improvement in the business activity in the economy. These are now 9.68% above their crisis period trough, but are still down 76.1% on pre-crisis peak.

Chart to illustrate:

8/1/2014: Weakness in Retail Sales extended into November 2013

Retail sales data was out for November 2013 today. Here's the top of the line analysis:

• On seasonally-adjusted basis, core retail sales (ex-motors) posted a slight rise in value of sales from 95.5 in October to 96 in November. 
• Year-on-year value of retail sales (ex-motors) are down 0.1%.
• Core retail sales in volume terms stood at 101.4 in November, up of 100.1 in October.
• Year-on-year volume of retail sales index rose 1.6%
• Meanwhile, the ESRI Consumer Confidence indicator declined to (still massively optimistic) 71.0 in November from 76.2 in October. A year ago, the CCI was at 63.8.

3mo period through November 2013 compared to 3mo period through August 2013:

• Value index marginally down at 95.6 against 96.1 prior;
• Volume index marginally up at 100.5 against 100.4;
• Consumer confidence index up robustly at 73.4 against 68.5 prior

Thus, in the nutshell, Consumer Confidence rose over the year, while retail sales  basically stagnated. 

My own Retail Sales Activity Index:

• On 3mo basis up at 105.6 in September-November 2013 against 103.9 in June-August 2013;
• Up 0.54% mom - in line with 0.52% rise in Value index and up 2.75% y/y

It is worth noting that stripping out motor trade, automotive fuels and bars,

• Value of retail sales fell 0.98% in the 3mo through November compared to 3mo through August
• Volume of retail sales rose 0.06% in the 3mo through November compared to 3mo through August

The above suggests that p[rice reductions in there entail sector in September-November 2013 had no effect on increasing retail sales, compered to the 3 months of June-August 2013.

14/11/2013: New Vehicles Licensed: January-October 2013

So the car sales... they are booming, right? Confidence is up, consumers are back to spending, the worst of Budgetary cuts are behind us, the economy is growing, unemployment falling, etc, etc, etc... We've heard them all. So let's think about it... we are into sixth year of the crisis; cars are getting older and replacement pressure is rising. You would expect the 'turnaround economy' to produce a rise in car sales. To accommodate such, the Government changed license plates.

So here are the numbers for January-October new licenses issued:

The uptick in new licenses in 2013 is due to used cars sales. New car registrations are down 2.62% y/y for the period, down 12.8% of 2011 (same period), down 46% on 2000-present average. New Private cars registrations are down 6.3% y/y, down 18.3% on same period 2011, down 46.2% on 2000-present average.

Back to that Consumer Confidence for some sugar buzz... 

1/11/2013: Irish Consumer Confidence: Handle with Caution...

Having written just yesterday about Retail Sales for September 2013 (see here: http://trueeconomics.blogspot.ie/2013/10/31102013-i-am-sorry-but-retail-sales.html) I can now update the Consumer Confidence reading to October.

In October, Consumer Confidence indicator rose to 76.2 from 73.1 in September. This is the 10th highest reading for the index since April 2005 and the highest in 76 months since June 2007. If it were indicative of anything, we are sitting on a cusp of a consumer demand boom.

However, problem is that Consumer Confidence has a negative historical correlation with Retail Sales over the period of current crisis: correlation between Consumer Confidence and Value of Retail Sales since June 2008 is -0.663 and with Volume of Retail Sales it is -0.599. In other words, according to data, higher consumer confidence has been associated with lower retail sales (consumer demand).

Here's an illustration, updated to October for Consumer Confidence figure...

So caution, please, with interpreting Consumer Confidence.

31/10/2013: I am sorry, but Retail Sales did not get any better in September, again...

With some lag, time to update Irish Retail Sales stats to September data. Instead of going over the usual details of the dynamics, let's take a broader look at what is happening in the sector:

Starting with a chart:

As above clearly shows, both the Value and the Volume of core retail sales are going nowhere - the series are bouncing along the bottom, switching direction almost on month basis. This suggests that

1. Consumers are not going to the shops anymore than they absolutely need to; and
2. Consumers are running out of money to spend on things they need to purchase, while retailers are running out of margins to cut prices.

Of course, you would also notice in the above chart the absolutely bonkers behaviour of Consumer Confidence indicator. And you are right: as chart below clearly highlights, the Consumer Confidence has completely detached itself from Retail Sector realities:

Timing the start of the crisis to late the start of 2009 (if we take the start at mid-2008 things are even uglier for the Consumer Confidence), we have:

• Consumer confidence rising along an upward trend;
• Retail Sales in Volume and Value falling along declining trend;
• Consumer confidence being more volatile than Volume and Value indicators for Retail Sales

This implies that Consumers are claiming that which they do not practice. Why? I have no idea. Patriotic duty to be optimistic? By Consumer Confidence recent readings, we should observe retail sales activity around late 2006-2007 levels. Ooops... Value of Retail Sales is now below where they were back at the start of the series in 2005. Volume of Retail Sales is now around late 2005.

The same applies to more smooth 3mo MA series:

There are no statistically or economically meaningful links between 3mo MA for Consumer Confidence and either Value or Volume of Retail Sales. Worse, year on year, the disconnect between the series has grown wider for both, with the widening being steeper for Value index. Again, this potentially indicates that margins in the retail sales have been wiped out and that this is not enough to get consumers spending again.

Which raises one serious question: local authorities are planning to jack up their rates in 2014. How will retail businesses afford these when they are trading in the above conditions?

As you know, I run my own index of Retail Sector Activity - RSAI - and updating this to September shows the flatlining of the trend for Retail Sector activity overall. All in, we are now in 75 months-long period of declining or flat retail sales:

You can turn the numbers upside down and compute them sideways. You can listen to the Government spokespersons telling us about improving consumer confidence until the Halloween pyres consume the last tractor tyre. You can believe that we are in a turnaround.

And I wish I could do so alongside you... but the above figures are not showing this. Perhaps we can add 'not yet' to that statement to keep some hope alive.

29/9/2013: Irish Retail Sales: August 2013

Retail Sales Index data was out last week and this is an update on series through August 2013.

From the top (excluding motor sales), 

• Retail sales activity by value declined from 97.4 in July to 96.0 in August 2013. Current 3mo MA is 96.1 which is still ahead of the 3mo MA through May 2013 at 95.2. Year on year August 2013 reading was down 0.21%. 6mo MA is a 95.7 which is lower than 6mo MA through February 2013 at 96.7. 
• Value reading in August 2013 stood at exactly the 12mo average for 2012 and 3.47% below annual average for 2005. Crisis period average is 100.6 which is significantly higher than the August reading and 3mo MA reading through August and 6mo MA arcading through August.
• Retail sales activity by volume remained largely unchanged (statistically) between July (100.9) and August (100.7). Current 3mo MA is 100.3 which is ahead of 99.1 3mo MA through May 2013. Year on year the index is up 1.31%. However, 6mo MA through August at 99.7 was lower than 6mo MA through february 2013 (100.4).
• Volume reading in August 2013 was 2.22% below crisis period average and 2.22% ahead of 2005 average.

The above figures illustrate the extent of deflation in the sector, where volume activity stayed more buoyant than value activity. Which means retailers have been burning through margins for a good part of five years now. There is severe doubt as to whether there are any profit margins left in the sector. 

Meanwhile, Consumer Confidence indicator is moving sideways, as ever detached from reality. ESRI's Consumer Confidence Index in August 2013 stood at 66.8, only slightly catching up to the downside with the overall retail trade stats, declining from 68.2 in July. CCI is now at blistering 68.5 3mo MA which is massively up on 60.0 3mo MA through May 2013. Year on year the CCI is down 4.6% signalling the index desperate attempt to claw back toward reflecting the trends in the sector.

However, as the chart below clearly shows, the Consumer Confidence Index continues to show no signs of coinciding with the broader retail sector trends.

To remind you, crisis-period correlations between CCI and retail sales are negative: -0.70 for correlation with Value of sales and -0.59 for correlation with Volume of sales. The CCI used to perform better in pre-crisis period, when strong trend in sales was evident. 

My own Retail Sales Activity Index (a composite of there measures weighted by relevance to employment and revenue generation) dipped slightly to 109.4 in August from 110.7 in July. The index is down 0.75% y/y. 3mo MA is at 110.0 in August and this is above 105.9 3mo MA through May 2013. RSAI has modest positive correlation with crisis-period data: value at 0.59 and volume at 0.63.

Overall: weak data for August, despite the fact that pre-school season was running at the time when weather did not impede shopping and given that overseas travel for summer breaks was low this year once again. September will be more important to watch to see how the sales and confidence are moving in advance of key shopping season in November-December.

30/8/2013: Retail Sales Dynamics: July 2013

Retails sales stats for July 2013 were released yesterday amidst a torrent of data releases for Ireland this week. With slight delay, here's my take on the core numbers. All referencing seasonally-adjusted data.

Core (ex-Motors) retail sales improved in value in July on seasonally-adjusted based, posting a rise of 2.32% m/m and 1.46% y/y.

• Current 3mo MA is at 95.9 - which means that value of sales is running at 4.1 percentage points below 2005 levels of activity. Previous 3mo MA was 95.5, which means the over the last 3 months there was virtually no growth in the value of retail sales compared to 3 months prior.
• Current 6mo MA is at 95.7 and this compares to higher 6mo MA for the previous period which stood at 96.8. In other words, last 6 months activity in retail sales, as measured by value, was lower than previous 6 months period.

Core (ex-Motors) retail sales improved in volume in July on seasonally-adjusted based, posting a rise of 1.31% m/m and the same y/y.

• Current 3mo MA is at 99.9 - which means that volume of sales is running at 0.1 percentage points below 2005 levels of activity. Previous 3mo MA was 99.2, which means the over the last 3 months there was some growth in the volume of retail sales compared to 3 months prior.
• Current 6mo MA is at 99.6 and this compares to higher 6mo MA reading for the previous period which stood at 100.5. In other words, last 6 months activity in retail sales, as measured by volume, was lower than previous 6 months period.

Meanwhile - a reminder - Consumer Confidence, measured by the ESRI has deteriorated m/m by 3.40% and there was a marginal rise of 0.74% y/y.

• Current 3mo MA is at 66.7 - which means that consumer confidence over the last 3 months period is running ahead of previous 3mo MA of 59.4. Broadly-speaking Consumer Confidence indicator moved in-line with core retail sales in value and volume over the 3mo periods.
• Current 6mo MA reading for Consumer Confidence is at 63.1 and this compares to lower 6mo MA reading for the previous period which stood at 59.8. In other words, Consumer Confidence continues to countermove vis-a-vis retail sales indices on 6mo average basis.

Couple of charts. First one illustrates three core indicators:

 
Chart above continues to show generally negative correlation between actual retail sales and Consumer Confidence indicator, as well as the general flat-line trend in the retail sales series for both indices over the last 20-21 months.

Next, relationship between Consumer Confidence and retail sales indices:

Lastly, my own Retail Sector Activity Index (RSAI) that take into the account dynamics and levels of all three indices: CSO's Retail Sales Indices (Value and Volume) and ESRI's Consumer Confidence index:

Per above, RSAI continues to run within the broad confines of the flat-trend average, with uptick in July being much flatter than in previous months.

Note: here are correlations between all four measures of retail sector activity health:

Summary conclusion: things are improving, but the sustainability of improvement is questionable, with 3mo averages divergent from 6mo averages. Consumer Confidence remains largely irrelevant to actual outcomes delivered by the sector. The base of activity remains low and we are now into 5 years-plus of effectively unchanging 'bouncing along the bottom' activity. 

31/7/2013: Retail Sales Dynamics: June 2013

Retail sales stats are out for June and anticipation (based on the booming Consumer Confidence index from ESRI) was for a significant uplift in sales. Alas, things turned out to be not what some expected. All data seasonally-adjusted.

• Value of core (ex-motors) sales fell 0.73% m/m in June and was up 1.28% y/y. 
• 3mo average through June 2013 stood at 95.1 down on 3mo average through March 2013 at 96.0.
• 6mo average through June was at 95.5, down on 96.8 6mo average through December 2012.
• Value of core sales in June 2013 was 5.75% below the average for the entire crisis period
• Volume of core (ex-motors) sales fell 0.50% m/m in June and was up 1.21% y/y.
• 3mo average through June 2013 stood at 99.2 down on 3mo average through March 2013 at 99.5, although the difference was minute.
• 6mo average through June was at 99.4, down on 100.4 6mo average through December 2012.
• Volume of core sales in June 2013 was 3.74% below the average for the entire crisis period.

Meanwhile, Consumer Confidence shot up 15.4% in June m/m and is up 13.3% y/y. 3mo average from consumer confidence is at 63.6 which is above 3mo average through March 2013 at 61.2. 6mo average is practically identical to 6mo average through December 2012.

Charts above show clear disconnect between retail sales (volume and value) and the reported consumer confidence index. The disconnect is bizarre. Firstly, neither current, nor lagged average consumer confidence has much to do with either volume or value of what consumers opt to purchase. Worse, since June 2008 through June 2013, Irish retail sales indices correlations with Consumer Confidence are -0.66 for value index and -0.60 for volume index. In other words, rising Consumer Confidence in Ireland tends to be associated with falling retail sales. It is worth noting that prior to the crisis - in January 2005 - December 2007 period, the above correlations were +0.72 and +0.74 respectively.

My own Retail Sector Activity Index has had a better fortune tracking overall activity in the retail sector:

 The above clearly shows the sustained 'flat at the bottom' period of retail sales overall activity (by weighted contributions of volume, value and forward confidence). The recent rise in the activity, driven so far solely by two factors: year-on-year dynamics still impacted by the losses made in May-June 2012  and by the bizarre rise in consumer confidence. It remains to be seen if the index can hold near a 14 months period high attained in June.

11/7/2013: Consumer Confidence Boost in June

ESRI/KBC Consumer Confidence indicator for Ireland posted a surprising jump in June compared to May, rising to 70.6 from 61.2. The index is now at the highest reading since October 2007. There are many caveats to this increase, as contained in the ESRI/KBC release, available here:
http://www.esri.ie/irish_economy/consumer_sentiment/latest_consumer_sentiment/PRJune_13.pdf

The chart below plots June reading for the indicator (vertical red line), as well as the latest (May 2013) pairings of Consumer Confidence against Volume and Value indices of retail sales (labeled as 'Current').

The chart below puts the time series for retail sales (through May) and Consumer Confidence (thorugh June):

The core points to add to the release (linked above) is that

1. Consumer Confidence has little direct connection to core (ex-motors) retail sales indices, with low R-squares for both relationships.
2. Consumer Confidence shows more volatility than the volume of retail sales across all time periods. Pre-January 2008, STDEV for Value of Retail Sales is at 7.0 and for Volume at 6.6, with Consumer Confidence at 14.8. Since January 2008, Consumer Confidence STDEV is at 7.9, against 4.5 for Volume and 7.4 for Value of core retail sales. Since January 2010, STDEV to Consumer Confidence is at 6.3, against that for Value of retail sales at 1.3 and Volume of 1.8.
3. Last chart above clearly shows divergent trends in retail sales and confidence series from July 2008 through June 2010 and from March 2011 through today.

This is not to criticise the Consumer Confidence Indicator quality, but to caution against any short-term calls to be based on indicator alone. To see serious change in the underlying consumer propensity to spend and to see any serious change in the underlying inputs into the national accounts, we have to wait for a confirmation over time of the stronger trend in all three series.

2/7/2013: Irish Retail Sales May 2013: A View from a Hurricane Shelter

Retail sales stats were relaxed few days back and I had no chance to update the series until now. So here's the headline analysis for May 2013.

Table below summarises the latest data:

The Retail Sales Activity Index is my own index based on volume and value of core retail sales and consumer confidence indicators, weighted to reflect both prices and volumes contributions to sector activity as measured by sector employment and contribution to the national accounts.

Charts below show dynamics:

You can see in the last chart above the flat (negative slope, but basically zero) trend that is prevailing in the series since January 2009. Same trends are basically present in ex-motors, automotive fuel and bars sales, although May 2013 data did come in at an upside, without breaking the overall trend. But the same is not true for the motor trades, which are heading South once again and along what appears to be a turning trend: