26/4/2013: Another indicator turns South: Irish Retail Sales March 2014

Off the start, let me say I am sorry that I have to bring one set of bad news after another. Living, working, raising kids and building my family future in Ireland means that I have as much 'skin in the game' of seeing Irish economy recover from this crisis as any one of us.

With that in mind, here are the latest statistics from the CSO on Irish retail services activity in March 2013. These make for ugly reading.

First, quoting CSO own release:

"The volume of retail sales (i.e. excluding price effects) decreased by 1.9% in March 2013 when compared with February 2013 and there was a decrease of 3.6% in the annual figure.  If Motor Trades are excluded, the volume of retail sales decreased by 1.8% in March 2013 when compared with February 2013 and there was an annual decrease of 1.6%.

There was a decrease in the value of retail sales in March 2013 when compared with February 2013 of 1.9% and there was an annual decrease of 4.1% when compared with March 2012.  If Motor Trades are excluded, there was a monthly decrease of 1.8% in the value of retail sales and an annual decrease of 1.7%."

So, both volumes and values of sales, both core (ex-Motors) and overall have tanked in m/m and y/y terms. This is outright ugly.

Details of dynamics, all for ex-Motors sales:

• Value Index for core retail sales 3mo MA through March 2013 stood at 95.7 down from 3mo MA through December 2012 which read 97.1 (a 3mo back decline of 2.38%). 6mo MA stood at 96.4 against 6mo MA through August 2012 at 95.8. Which means deterioration set in over the last 3 months. Volumes of sales is now down 5.2% on 2005 average levels and 6.42% down on crisis period average activity levels.
• Volume Index for core retail sales 3mo MA through March 2013 stood at 99.0 down from 3mo MA through December 2012 which read 100.9 (a 3mo back decline of 3.07%). 6mo MA stood at 100.0 against 6mo MA through August 2012 at 99.4. Which means deterioration in value of sales also set in over the last 3 months. Values of sales are now down 2.2% on 2005 average levels and 5.35% down on crisis period average activity levels.
• Meanwhile, ESRI-reported Consumer Confidence Index rose to 60.0 in March 2013 against 59.4 in February, with 1.01% m/m rise and down only 0.99% on March 2012. 
• On 3mo MA basis - while both Volume and Value of core activities fell, Consumer Confidence index rose at a massive 20.5% rate. Bizarre stuff.
• Both Volume and Value of sales in March 2013 stood below 2005 average, while Consumer Confidence stood 18.5% above! Both measures of retails sales have dropped in march 2013 compared to crisis period average, but Consumer Confidence rose 8.3%. Even more bizarre stuff.
• My Retail Sales Activity Index fared much better than the ESRI Consumer Confidence Indicator - down m/m 1.22% and down 1.46% y/y, while up only slightly (+0.20%) on 2005 average and down 3.11% on crisis period average.

Charts:

Core Conclusions: Latest retail sales figures are outright ugly. These signal continued downside pressure on the domestic economy and, given the dynamics in personal income and earnings, this momentum appears to be driven by the overall consumer sentiment and lack of confidence in future income dynamics, related to Government policy (property tax and personal insolvency regime reforms) and to banks' interest rates policies (consumers expecting rises in the rates, confirmed by this week's ARM rate hikes by AIB & its subsidiaries). The economy is once again putting us on warning: turn downward in economic activity can be expected as a major risk.

30/3/2013: Retail Sales in February: Deadman Still Walking

With all the Cypriot Meltdown excitement as the newsflow, Irish data releases slipped into 'noise background' this week, so time to fix that.

March 28th we saw the release of the retail sales data for Ireland for February 2013. The headline from CSO read: "Retail Sales Volume increased 0.3% in February 2013" which obviously is the good news. Except, in reality, reading below headline we discover that:

"The volume of retail sales (i.e. excluding price effects) increased by 0.3% in February 2013 when compared with January 2013 while there was no change in the annual figure.  If Motor Trades are excluded, the volume of retail sales decreased by 0.2% in February 2013 when compared with January 2013 and there was an annual increase of 1.0%."

Wait a second, ex-motors, retail sales fell 0.2% in volume in m/m terms, but were still up 1.0% y/y. Oh, and durable goods (e.g. Electrical Goods) sales were down again.

And in value terms? The stuff that makes retail businesses actually hire or fire workers and pay or not pay taxes?.. Much the same:

"The volume of retail sales (i.e. excluding price effects) increased by 0.3% in February 2013 when compared with January 2013 while there was no change in the annual figure.  If Motor Trades are excluded, the volume of retail sales decreased by 0.2% in February 2013 when compared with January 2013 and there was an annual increase of 1.0%."

Let's see some dynamics:

• Value of sales ex-motors averaged 96.6 in 3mo through February 2013 against 97.0 in previous 3mo period. 6mo average through February 2013 was 96.8 (virtually identical to 3mo average), implying effectively zero growth over 6 months period, although previous 6mo period average was 95.5.
• Over longer horizons: 2006-2007 average of the index stands at 112.1, which was down to 2010-2011 average of 96.6 and 2012 full year average of 96.0, and January-February 2013 average of 96.5. You can tell the that whole volume 'activity' is just a flat trend since January 2011 with some volatility around it.
• Volume of activity slipped on 3mo average through February 2013 to 100.1 from 100.6 in 3 months through November 2012. The rate of decline on 3mo averages basis in volume was more pronounced than for value index, which is a story consistent with pretty much the entire crisis - retailers are only able to shift volumes at the expense of revenues they get. Consumers are getting better deals, but this also means employment in the sector is unlikely to increase.
• 2012 average of 99.6 is pretty much matched by january-February 2013 average of 99.7 - again, flat line growth trend. And as before that one runs from January 2011.

I keep tracking Consumer Confidence here, to show that the whole idea of 'confidence' when not underpinned by supportive fundamentals is not a reasonable concept for anchoring one's expectations about real economic performance.

Here, per usual, updated charts linking (or rather showing the lack of links) confidence to retail sales indices:

Lastly, recall that I run my own index of Retail Sector Activity (RSAI) that is a much stronger correlative for retail sector indices:

Two things jump out from the chart above:

1. The overall flat-line trend in activity in the retail sector over January 2009-present period, showing that, in principle, there is no recovery and there is no sustained signal of one coming so far in the short term future.
2. Forward-looking RSAI has slipped (on 3mo average basis) from 107.9 in 3 months through November 2012 to 106.0 in 3 months through February 2013. M/m RSAI is down 1.83% and y/y it is up 1.84%, tracking correctly the overall dynamics in the CSO indices.

Hence, my expectation is for more of the same in the next 3 months, with retail sales slipping slightly in volume and value, posting closer to zero growth in y/y terms over Q2 2013. The deadman is still walking, for now... and the 'turning point' is still some corridors away...

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. 

26/1/2012: Rip-off Ireland - Sunday Times, 22 January 2012

This is an edited version of my Sunday Times column from January 22, 2012.

Back in 2004, with much fanfare, Fine Gael launched its ripoff.ie campaign that highlighted a large number of cases where policy-related or regulated price structures and practices have resulted in our cost of living falling well out of line with other Euro area economies. In 2009, Fine Gael launched a policy paper that was supposed to end Rip-off culture, including in state controlled sectors, once and for all.

Fast-forward to today. Since elections, having abandoned its pro-consumer agenda, Fine Gael has done marvellously in playing a ‘responsible’ possum to Irish vested interests.

According to the CSO, year on year, consumer prices in Ireland rose 2.5% through December 2011. The range of these price changes across sectors, however, was dramatic.

Clothing and footware prices were up 0.4% in 12 months through December, Furnishings, Household Equipment and Routine Household Maintenance prices fell 1.9%, Recreation and Culture deflated by 0.6% and Restaurants and Hotels costs fell 0.9%. Health costs rose 2.6%, Transport by 1.6%, Education by 8.9%.

Majority of these price hikes have nothing to do with private firms ‘profiteering’. Per Purchasing Manager Indices, tracking the changes in input and output prices for goods and services, Irish firms and MNCs have experienced sustained shrinking of the profit margins since the beginning of the crisis, as consistent with deflation. Instead, the largest price increases, and ever expanding profit margins, took place in the sectors that, in the past, Fine Gael have correctly identified as being state-controlled parts of the Rip-off Ireland.

Food and non-alcoholic beverages prices are up just 5.9% in the last 10 years, cumulatively. State-controlled Tobacco prices are up 69.6% and Alcohol 21.6%. Housing, Water, Electricity, Gas and Other Fuels – single largest category of consumer spending – is up 64.4% on December 2001, with 90% increase in Energy Products costs, 63.3% increase in Utilities and Local Charges, and 99.1% increase in Mortgage Interest costs. In the last five years, Rents have fallen 8%, while Mortgage Interest rose 11.3% despite the fact that ECB rates have dropped 2.5 percentage points over the period. Electricity prices are up 28.3% in 5 years and 11.5% in the last year alone, despite the fact that natural gas prices – the main generation source for Irish electricity – have declined worldwide.

While Fine Gael cannot be blamed for the full extent of price hikes since 2001 or 2006, the current Government bears responsibility for failing to address state-controlled inflation since taking the office.

The above sectors are indirectly controlled by the state via regulation, state ownership of banks and enterprises, and indirect tax measures. But what about those costs more directly set by the Government?

Health costs are up 56.5% on December 2001, Education is up 81.5%. In Health, the core drivers of inflation have been Hospital Services (up 40.2% since December 2001 and 9.8% in 2011), Dental Services (up 20.6% in 5 years, but down 0.3% in the last 12 months). Meanwhile, prescribed drugs prices are down 11.3% on 2006 and 4% in the last 12 months. Health insurance costs are up 75.7% and 22.9% since December 2006 and in the last 12 months, respectively. This in a country with younger population and well-established trends in terms of demand for healthcare. In contrast, vehicles insurance – privately provided and similar in predictability of total claims risks – inflation since December 2006 amounts to just 9% and 0.9% in the last 12 months.

Same story of the state-led rip-off is replicated in the Transport sector. Here, overall costs are up 9.3% in the last 5 years, but bus fares are up four times as much. Privately controlled costs of buying vehicles have declined 15.4%, while state-set motor tax rose 14.3%. Ditto in Communications, where telecoms services costs are up 5.8% in the last 5 years, but postal services up double that.

In two sub-sectors of education where the Government has least power to influence prices – Primary Education and Other education and training – inflation is the lowest. The highest price increases are in the third level education, with prices up 50.1% in just 5 years (13.4% in last 12 months alone).

The above clearly shows that the Government and the semi-state bodies and enterprises it owns, along with the banks are at the heart of the extortion racket that is our cost of living. Over the recent years, rapid deflation in prices and costs in the private economy has been offset by the rampant inflation in prices and costs in the state-controlled and regulated sectors. In majority of cases, this inflation was directly benefiting state and semi-state employment, management and Government coffers. In all cases, the costs were directly impacting Irish consumers who are left with no meaningful choice, but to comply with the pricing structures set in the markets.

CHARTS:

Sources: CSO database and author own calculations

Meanwhile, Budget 2012 clearly shows that the Government is hell-bent on extracting ever-higher rents out of consumers through taxes and charges.

For example, the Government has introduced increased mortgage interest relief that amounts to €52 million in help for most indebted-households. But the very same Government refuses to intervene in the banks’ internecine policies of shifting the burden of losses from trackers onto the adjustable rate mortgagees. The households that the Government finds in the need of increased mortgage interest relief will be liable for the new Household Charge. And, if Minister Noonan has his way, mortgagees who default on their loans will pass into outright debt slavery to the banks.

There are more direct inflation-linked or inflation-raising taxes, such as VAT. Increase in the VAT rate simultaneously pushes up the overall tax component of all goods and services sold in the state that are taxable at the higher rate (an increase in inflation of some 9.5% for those items) and increases the costs of all goods and services that are dependent on intermediate inputs. Excise tax on tobacco comes against the Revenue Commissioners’ analysis showing that tobacco taxes have reached, even before Budget 2012 measures are factored in, the point where higher taxes harm receipts and fuel black markets. And Carbon Tax quadrupling from €5 per ton to €20 per ton has been responsible for some 2% rise in inflation in fuel and related activities. Motor tax increases, accounting for double the share in an average household expenditure that accrues to bus fares, are going to directly drive up the cost of transport.

Increases in State charges for hospital beds are expected to raise the cost of healthcare for middle class patients by some €268 million in full year terms. Health insurance levy hike further compounds this inflationary grab-and-run approach to policy. Secondary education ‘savings’ are likely to see parents being forced to cover much of the gap in funding out of their own pockets. Third level measures, while relatively modest in size, will compound massive inflation already accumulated in the sector over the last 5 years.

By the metrics of the Budget 2012, the current Government didn’t just mothball its pre-election ideas on reducing the reach of the State-sponsored Rip-off Ireland, it has actively moved to embrace the cost-of-living increases through indirect taxation and encouraging avarice of the semi-state commercial bodies and dominant near-monopolies. All of which means that the path to economic recovery we continue upon is the path of deflationary spiral in private sector economy, with mounting unemployment and businesses insolvencies, offset by the unabated cost increases when it comes to the meagre services the State does supply or control.

Box-out:

Following an almost 11% month on month decline in trade surplus in October, Irish exporters have posted a record-breaking return to health in November, bucking all expectations. The market consensus was for the Irish trade surplus (merchandise trade only) to decline marginally to ca €3.4 billion in November. Instead, the trade surplus rose – on seasonally adjusted basis – to €4.31 billion – the highest on record. In 11 months through November, cumulative merchandise trade surpluses now amount to €40.53 billion or 1.6% ahead of the same period in 2010. As before, the core drivers of trade surplus were exports increases in Organic Chemicals, and Medical and Pharmaceutical products, while indigenous exports rose significantly during the last year in Dairy products category. The latest data highlights the resilience of the Ireland-based MNCs’ exporting capabilities, providing continued contrast to the majority of our counterparts in the Euro area ‘periphery’ who have been posting dramatic slowdowns in exports and deepening trade deficits since the beginning of Q4 2011.

19/1/2012: December Inflation - State's Fingerprints all Over the Crime Scene

There will be a much more detailed analysis of the state-sanctioned rip-off that is revealed in the latest data from CSO on Irish consumer prices in my sunday Times article this weekend, so stay tuned for that, but here are some numbers from today's release.

First off - changes yoy for 2010 and 2011:

And next, cumulated changes in prices for 2007-2011 period:

Lighter blue are categories that have either full or significant share of prices set or influenced directly by Government policies.

One thing to note: mortgage interest costs which, per CSO data have fallen 10.7% in 2007-2011. Of course, this conceals the fact that since the Irish State took over most of the Irish banking sector, in 2010-2011, mortgage interest costs are up cumulated 28.11%. Over the same period of time, ECB rates have moved from 1.0% in January 2010-March 2011, to 1.25% in April-June 2011, to 1.50% in July-October 2011, to 1.25% in November and 1.0% back in December 2011. In other words, the average rate has gone DOWN from 1.23% in 12 months pre-January 2010 to 1.13% in  24 months since then. And yet, mortgage interest keeps on climbing... up whooping 20.4% in 2011 alone.

Yet another useful comparative that is concealed by the above data is that while mortgage interest costs might be down 11.7% on December 2007, they are up 7.7% on December 2006. Now, in December 2006, ECB rate was 3.5% or 2.5 percentage points above where it was in December 2011.

So let's take a look at slightly longer horizons. Chart below show cumulated price changes between December 2001 and present and December 2006 and present also courtesy of the good folks of CSO.

Again, the same story - the higher the price increases, the more likely we are dealing with directly regulated or state owned enterprises-dominated or state-controlled sector. 

More detailed analysis in my forthcoming Sunday Times piece this week.

22/12/2011: Retail Sector Activity Index: November 2011

I covered detailed retail sales for November data in the previous post (link here). Now is the time to update the Retail Sector Activity Index.


It is worth noting that my Retail Sector Activity Index for October has predicted November moderate uplift in sales - a nice surprise for the index just created:
"A large jump in consumer confidence in October (to 63.7 from September reading of 53.3) is the core driver of improvement in the overall Index od Retail Sector Activity, which now stands at 102.2 - above the expansion level of 100. This means that we can expect a small uplift in retail sector activity in months ahead, but this uplift can manifest itself through improved volumes of sales (value static, so margins declining) or improved value of sales (inflation) or both (more demand-driven uplift)."


As shown in my detailed analysis (linked above), the retail sales did indeed improve in November, and the improvement took place across all three possible drivers (depending on specific areas of sales):
" Only notable increases yoy are in Non-specialized stores ex-Department Stores (where inflationary pressures drove value up 1.4% while volume was up only 0.5%), Fuel (where inflation was so rampant that value of sales rose 10.3% while volume of sales fell 3.7%) and Electrical goods (where season sales started early and cuts were running deep with value +0.5% and volume up 7.5% yoy). Everything else was either down or flat."

So now to that data update:

• Retail sales (core) volume index rose to 100.6 in November from 98.8 in October. 
• Retail sales (core) value index rose from 94.6 in October to 95.6 in November
• Consumer confidence, however, declined from 63.7 in October to 60.1 in November.

The above implies that RSAI have dropped slightly from 108.64 in October to 107.96 in November. Dynamics however remain encouraging for continued firming up of sales:

• RSAI November reading is 3% ahead of 3mo ago, and 5.33% above the reading a year ago.
• 6mo MA now stands at 105.94, ahead of previous 6mo MA of 104.91, signaling what can be a moderate uplift.
• For comparison, 2006-2007 average is 125.41.

Charts to illustrate:

Medium-term, however, the indices remain below historical trends, with more firm confidence still failing to drive up retail volumes and values:

In other words, structural weakness in the sector remains unchanged. It will take couple of months of solid gains in retail sales (annual gains of 1.5-2% minimum per month) to deliver signs of real structural improvement.

29/11/2011: Retail Sector Activity Index: October 2011, Ireland

In the previous post I detailed the latests retail sales stats for Ireland. Here, I am updating my own Index of Retail Sector Activity - a weighted average of value of sales, volume of slaes and leading consumer confidence indicator. The index reflects changes in employment and profit margins conditions in the sector.

Table below summarizes the changes in all three components, and charts below illustrate:

A large jump ion consumer confidence in October (to 63.7 from September reading of 53.3) is the core driver of improvement in the  overall Index od Retail Sector Activity, which now stands at 102.2 - above the expansion level of 100. This means that we can expect a small uplift in retail sector activity in months ahead, but this uplift can manifest itself through improved volumes of sales (value static, so margins declining) or improved value of sales (inflation) or both (more demand-driven uplift).

As charts below show, RSAI still remains consistent with actual retail sales volume and value performance at below the levels consistent with medium-term consumer confidence reading:

28/10/2011: Retail Sector Activity Index & Consumer Confidence: September

Retail sales data for September, released by CSO today allows us to update the series for consumer confidence and my own retail sector activity index which is a weighted average of Volume and Value of Sales and Consumer Confidence, normalized to 100=January 2005.

Here are the charts and some data trends:

The Retail Sales Activity Index has now broken through the previous moderation range and surprised to the downside with a sharper downturn in September 2011. Index reading currently stands at 97.1 or 2.9 percentage points below January 2005. Compared to Q2 2011, Q3 2011 reading is 3.4% down and mom the index is down 1.7%. Year on year, RSAI is down 1.9%. 

This is a new index, so some data 'bugs' can be expected, but the index weights are based on long-term multi-factor model relating activity in the sector as measured by Volume and Value of retail sales, linked to employment and consumer confidence.

For pre-crisis 2006-2007, RSAI averaged 125.3, while in the last 6 months the average was 99.6.

Speaking of consumer confidence, chart below shows that current readings for both Value and Volume of retail sales are still below their long-term equilibrium relationship consistent with consumer confidence. In other words, for as bad as the latest retail sales activity is, Consumer Confidence Index continues to provide relatively upbeat sentiment reflection.

 Consumer Confidence (ESRI) indicator is now at 53.3 for September 2011, down from 55.8 in August and the lowest reading since February 2011.

Consumer Confidence indicator for September was 4.5% below August reading, but 1.7% above September 2010 reading. 6mo average for CCI now stands at 56.4 against 2006-2007 average of 72.5. Q3 CCI was 5.3% below Q2 CCI.

13/10/2011: CPI for Ireland: September 2011

Consumer prices inflation is now running above 2.5% in Ireland and the usual culprits are to be blamed.

Consumer Prices in September rose +0.3% mom against a decrease of 0.1% recorded in September 2010. As a result, per CSO, "the annual rate of inflation increased to 2.6%, up from 2.2% in August 2011". Annual inflation is now running above 2% target every month since January 2011.

The EU Harmonised Index of Consumer Prices (HICP) for Ireland rose +0.1% in the month, compared to a decrease of 0.2% recorded in September 2011. The annual rate of HICP was 1.3% higher in September compared with September 2010. Annual HICP was running at 1% increases in July and August - the lowest rate of HICP in Europe.

Chart below illustrates:

All Items CPI is now in annual expansion since August 2010. Moderate rates of under 1.7% CPI were exhausted in January 2011 and since then we have entered the period of excessive inflation, especially compared with the overall stagnant domestic demand activity. This means that accelerating price increases are no longer acting to support economic growth, but are compressing already strained household budgets and increasing future pressure on interest rates. It is worth noting that ECB decisions on rates are based on HICP, not CPI, which means that with Euro area HICP at 2.5% in August and July, against HICP rates at or above 2.5% every month since April 2011, the rates direction should be up.

Pert CSO, the most notable changes in the year were:

• Increases in Housing, Water, Electricity, Gas &Other Fuels (+8.9% in September 2011 which comes on top of 8.5% rise in a year to September 2010), Miscellaneous Goods &Services (+6.5%), Transport (+4.2%) and Health (+3.4% - unchanged mom but up yoy in September, against an annual rise of 0.5% in September 2010).
• Decreases in Furnishings, Household Equipment & Routine Household Maintenance (-2.3%) and Education (-1.6%).
• The annual rate of inflation for Services was 3.6% in the year to September, while Goods increased by 1.3%.

The most significant monthly price changes were:

• Increases in Clothing & Footwear (+5.4% - mostly due to seasonal effects) and Housing, Water, Electricity, Gas&Other Fuels (+1.7% - mostly due to mortgages interest costs rising +3.1%mom, liquid fuels (i.e. home heating oil) costs up +1.7%, electricity (+1.6%)).
• Decrease in Transport (-0.7% - primarily due to decreases in airfares which fell 16.9%. Increases were recorded in bus fares (+8.8%), bicycles (+0.4%) and petrol (+0.3%)).

Charts below illustrate:

Charts below detail the rising gap between state-controlled prices and overall CPI as well as the gap between state-controlled prices and private sector prices:

31/08/2011: Europe's economic, business & consumer confidence sink in August

Following a precipitous collapse of the US consumer confidence this month (see posts here and here for details), the EU has just posted a series of consumer, business and economic sentiment indicators that are showing a massive drop in overall economic activity across the board. Here are the details.

Starting with Economic Sentiment Indicator (ESI) first:

• August ESI reading for EU27 came in at 97.3 (contraction territory) down from July 102.3. 3mo MA for the index is now at 101.4 and yoy the index is down 5.7%.
• Euro area ESI is also in contraction zone at 98.3 for August, lowest since May 2010, down from 103.0 in July and off 3.8% yoy. 3mo MA of the series is now at 102.2.
• ESI for Germany is still in expansion at 107.0 in August, but down from 112.7 in July and down on 3mo MA of 111.4. The index is now down 3.1% yoy. This is the lowest reading since July 2010.
  
• ESI for Spain is showing deeper contraction in August, reaching 92.7, down from July 93.0 and registering uninterrupted contractionary performance since (oh, sh**t) September 2007. ESI, however is up in Spain yoy by 1.6%.
  
• ESI for France latest reading is at 105.9 for July, which was down from 107.4 in June.
• ESI for Italy signals recession at 94.1, down from 94.8 in July and off 4.8% yoy. 3mo MA is at 96.1 and the index has remained in contraction zone for consecutive May 2011.

Two charts to illustrate - one of complete historical series, and one of a more recent snapshot:
What the historical series show is a worrisome trend:

• Before January 2001, Euro area average ESI reading was 102.1, post-introduction of the Euro, the average reading is 98.9. This implies a swing from shallow expansionary optimism in pre-Euro period average, to a shallow pessimism in post-Euro introduction period.
• In Germany, prior to 2001, the average ESI was 103.9 and post January 2001 the average stands at 98.0
• In Spain, prior to 2001, the average ESI was 101.9 and post January 2001 the average stands at 98.7
• In France, prior to 2001, the average ESI was 99.4 and post January 2001 the average stands at 101.9 - the only major economy to buck the trend
• In Italy, prior to 2001, the average ESI was 101.5 and post January 2001 the average stands at 99.5

Next, consider the Consumer Confidence Indicator (CSI):

• CSI for the EU27 has fallen from -12 in July to -17 in August, the lowest reading since September 2009 and well below 3mo MA of -13.4. In August 2010 index stood at -11.
• CSI for Euro area is also at -17 in August, down from -11 in July.
  
• August reading is the lowest since June 2010, as Euro area consumers are generally less optimistic than the EU27 average. EU27 average historical reading is -11.1 and Euro area average historical reading is -12.0. Prior to January 2001 the historical averages were: -10.7 for EU27 and -11.3 for Euro area. post-introduction of the Euro, average historical readings are now at -11.7 for the EU 27 and -13.1 for the Euro area, suggesting that the Euro introduction was not exactly a boost to consumer confidence in either the EU27 or in the Euro area.
  
• Germany's CSI came in at +0.5 in August, down from 1.4 in July. The index is now well below 3mo MA of 1.1 but is well above -3 reading attained a year ago.
• Spain's CSI is now at -17, down from -13.4 in July and below 3mo MA of -14.1. In August 2010 the index stood at -19.8, so there has been a yoy improvement in the degree of consumer pessimism.
• France's CSI stands at -18.4 (recall that France is the only large Euro area economy with strong focus on consumer spending) in July (latest data), down from 17.60 in June and an improvement on -25.8 yoy.
• Italy's CSI is reading at -28.8 in August, down from -27.4 in July, down on -26.6 3moMA and well below August 2010 reading of -21.3.

Again, two charts to illustrate:

Some historical trends concerning the Consumer Confidence Index:

• As noted above, consumer confidence had shifted, on average, from cautious optimism in pre-Euro era to cautious pessimism since January 2001.
• In Germany, before January 2001, consumer pessimism (average) stood at -7.26. Post January 2001, the average pessimism became deeper at -10.83. In effect, then, that 'exports-led' economic growth model for Germany has meant the wholesale historical undermining of consumer interests.
• In Spain and Italy, the picture of long-term historical trends is identical to Germany, with levels of pessimism being higher than in Germany across entire history.
• In France, consumer pessimism in pre-2001 period stood, on average, at -19.36 - deeper than in other Big 4 EU economies. Post 2001, average pessimism actually declined to -16.94, still the heaviest level of pessimism (on average) across the Big 4 economies.

Lastly, consider Business Confidence Indicator (BCI):

• EU27 BCI has fallen from +0.1 in July to -2.50 in August, hitting the lowest reading since July 2010. The index is now down compared to +0.17 3mo MA and is below -2.10 reading in August 2010.
• Euro area BCI has declined from +0.90 in July to -2.90 in August, behind +0.5 3mo MA. A year ago, BCI reading was -2.60, making current reading the lowest since July 2010.
• Germany's BCI has declined from +9.60 in July to +4.60 in August, behind +8.67 3mo MA. A year ago, BCI reading was +3.80, making current reading the lowest since September 2010.
• Spain's BCI remained unchanged in August at -13.90, behind +-12.27 3mo MA. A year ago, BCI reading was -13.0, making current and previous month readings the lowest since June 2010.
• France's BCI has declined from +5.10 in June to +0.8 in July (latest data), making the latest reading the lowest since December 2010.
• Italy's BCI has declined from -4.50 in July to -4.80 in August, behind -3.93 3mo MA. A year ago, BCI reading was -7.0.

Historically:

• Business confidence readings averaged -5.62 across the EU27 in pre-2001 period, and have since then fallen to -6.77 average reading for the period post-2001. BCI for the Euro area averaged -5.60 in pre-2001 period and -6.23 in post-2001 period. This, again, shows that the introduction of the Euro did not have a positive effect on business confidence.
• In Germany and Italy, pre-2001 BCI averages were better than post-2001 averages, while in Spain there was an improvement in the levels of business pessimism post-2001. In France, pre-2001 average BCI was -6.59 and post-2001 average BCI is -6.41 - implying statistically identical readings.
  

11/08/2011: CPI for July 2011

CSO reported Consumer Prices for July today. Here are some headline numbers and updated charts:

• As measured by the CPI, remained unchanged in the month of July relative to June. There was also no mom change in July of last year. CPI index stood at 103.9 in June and July 2011 relative to December 2006 base and 122.7-122.7 relative to December 2001 base. This compares to index readings of 101.2 in June and July 2010 (2006 base) and 119.4 (2001 base).
  
• As a result of the above monthly movements, the annual rate of inflation remained unchanged at 2.7%.
• The EU Harmonised Index of Consumer Prices (HICP) decreased by 0.2% in the month, compared to a decrease of 0.1% recorded in July of last year. July 2011 HICP index stood at 106.5, down from 106.7 in June, while July 2010 index was 105.4, down from June 2010 reading of 105.5.
  
• The annual HICP inflation was 1.0% in July 2011 relative to July 2010.

• All items CPI, therefore is now running at 2.7% for the third month in a row, down from 3.2% in April 2011. A year ago, All items CPI was showing deflation of -0.1% and July 2010 was the last month of annual deflation in the current crisis period.
  

The most notable changes in the year were increases in

• Housing, Water, Electricity, Gas &Other Fuels (+10.3%) - with significant (over 10%) weight in household spending basket. Increases in this category were led by mortgage interest cost hikes which are now 25.2 up on last year and were 2.3% higher than a month ago (please note, our Financial Regulator and the Gov are not making any concerned statements about mortgages interest costs, while talking about the need to restore lending to the corporate sector). In addition, Electricity is up 4.6% annual, while liquid fuels are up 20.1%. Once again, no concern from the Government, whatsoever, on the issue of these costs increases.
  
• Miscellaneous Goods &Services (+7.2%), driven primarily by hikes in Health Insurance (+21.4% yoy and 0.1% mom). Overall Insurance services costs are now 14.5% up yoy, but down 0.3% mom.
  
• Transport (+3.5%) - also with >10% weight in expenditure basket. Transport costs were primarily driven by 12.8 annual inflation in Fuels & lubricants sub-category (led by 12.6% annual hike in Petrol and 13.7% hike in Diesel), and Transport services (+7.7% yoy and 3.8% mom) where Air transport prices were up 25.0% yoy (+11.8% mom) and Sea transport (+12.5% yoy and 13.3% mom)
  
• Health (+3.4% annual, although there was a decline of 0.1% mom). In this category, Medical products, appliance and equipment sub-category was up 1.4% yoy and down 0.2% mom, while Outpatient services declined 1.1% yoy and 0.1 mom. The real inflation here comes from the Hospital services, where costs are up a massive 9.8% yoy although there was no change mom. Again, I am yet to hear any real concern from the Government on this matter.
  

There were decreases in:

• Furnishings, Household Equipment & Routine Household Maintenance (-2.9% - marking 43rd month of annual decreases in prices in this category, starting from January 2008)
  
• Education (-1.3% - 10th consecutive monthly negative annual reading, by no change in mom inflation), although Primary education costs were up 1.3% yoy, while Secondary education costs were up 0.8% yoy
  
• Clothing & Footware (-0.7% - marking 43rd month of annual decreases in prices in this category, starting from January 2008) and
• Restaurants and Hotels (-0.7% - 26th consecutive monthly negative reading).

Inflation in the state-controlled sectors (sectors with either significant presence of regulated semi-state companies and/or state providers - e.g. education - or with significant shares of taxation measures relative to prices of goods and services - e.g. Alcohol Beverages & Tobacco) was running still ahead of private sectors inflation, with state-controlled inflation running at 1.02% annually, against private sectors inflation running at 0.53% in July. Both measures are down on June readings of 1.04% and 0.57% respectively.

Per CSO, "The annual rate of inflation for Services was 4.0% in the year to July, while Goods increased by 1.0%."