Solid performance in retail sales growth in November
Y-o-y growth in retail sales at constant prices fell slightly in November, to 2.6%, from a downwardly revised 3.2% in October (previously reported as 3.4%). On a seasonally adjusted m-o-m basis, sales grew quite significantly, by 1.5%. The outcome was very much in line with our own expectations but above consensus forecasts, thus supporting the notion of a fairly solid month for Christmas sales.
There was a significant improvement in sales at the major retail stores, where y-o-y growth rose to 3.9% in November, from 2.4% in October and 1.8% in September. There was also a significant increase in growth of sales of builders’ merchants, endorsing the view that the residential housing market is in a positive phase. However, there was a fairly substantial decline in growth of sales of dealers in pharmaceutical, medical goods, cosmetics and toiletries and to some extent also in clothing and textiles. This suggests that spending seemed to shift towards foodstuffs and fast moving consumer goods away from goods that had previously enjoyed relatively more favourable growth. Location of stores may be playing a role.
November was probably too early to gauge the boost provided by falling fuel prices since the biggest decline took place in December and a further large reduction is anticipated for February. However, psychologically, some of the increase in disposable income brought about by the decline in fuel prices between September and November might have already come to be reflected in the November data. Importantly also, downward revisions of expectations of any hike in interest rates is also likely to have helped.
The relatively solid performance of retail sales has its counterpart in the form of an unexpected increase in the retail inflation rate, to 5.7% in November, from 5.4% in October.
The outlook for growth in consumer spending remains reasonably favourable in the short term given the outlook for fuel prices and interest rates, but one should bear in mind that there is a tail of bad debts that still needs to be neutralised before one can look for any major upswing. This is unlikely to occur for a number of years. Consequently, these latest figures do little to change our view that interest rates will be left unchanged in the first half of 2015.
Source: Extract from Engineering News 14/1/2015