- Retail sales volumes disappointingly fell 0.6% month-on-month in November reducing year-on-year growth to just 1.0% - the lowest since April 2018. However, the year-on-year comparison was distorted downwards by the November 2018 retail performance including Black Friday sales while this year it did not.
- While this looks a very disappointing performance and worrying for fourth quarter growth prospects, which are already weak, the ONS’ reporting period for November retail sales was 23 October to 27 November and crucially did not include Black Friday, which occurred on 29 November and for many retailers carried on over the following weekend. Admittedly, some retailers did have Black Friday weeks and started promotions early but even this would have fallen outside the reporting period.
- It is notable that the annual increase in the retail sales price deflator rose to 0.3% in November from 0.1% in October, pointing to less discounting occurring over this November reporting period.
- The weakness of retail sales in November strongly suggests that consumers were waiting for the Black Friday sales and promotions. However they do appear to have been more careful in their spending recently amid elevated uncertainties which were at a peak in November (domestic political, Brexit, weak economy). Furthermore, the fundamentals for consumers have come off their mid-2019 highs – although they are still decent.
- Indeed, November marked the fourth successive month that retail sales volumes had either fallen or been flat – the first time this has happened since at least 1996.
- The expectation is that December will see a sharp rise in retail sales due to the Black Friday effect. Indeed, the strength of retail sales over Christmas can only be judged after all the data for November and December are available.
- However, retail sales volumes will have to rise 1.7% month-on-month in December just to be flat quarter-on-quarter over the fourth quarter. This suggests that consumer spending is unlikely to have made much of a contribution to fourth quarter GDP and fuels concern that the economy may stagnate over the quarter.
- The December CBI distributive trades survey (carried out 25 November – 12 December) shows modest improvement but is hardly a storming set of data and does not do much to inspire confidence of a sharp jump in December sales. The sales balance rose to an eight-month high but was still only flat while a balance of 31% of retailers said sales were poor for the time of year despite discounting in the run up to Black Friday and Cyber Monday (both of which fell within the survey period).
- The fundamentals for consumers probably got as good as they were going to get in the summer and they have since suffered some slippage – although they remain pretty decent. Employment has essentially flat-lined since mid-2019. Meanwhile, annual earnings growth fell back to 3.2% in the three months to October from an 11-year high of 3.9% in the three months to July. On the positive side for consumers, inflation is limited and looks likely to remain so.
- Other factors may limit the consumer spending. In particular, many consumers may be keen to avoid dissaving – especially given still appreciable uncertainties. Meanwhile, lenders have cut back on the availability of unsecured consumer credit and tightened their lending standards.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“Retail sales volumes fell 0.6% month-on-month in November as consumers likely held back on their purchases waiting for Black Friday. Crucially, Black Friday occurred on 29 February while the ONS reporting period for November retail sales was 27 October – 23 November.
“Nevertheless, it is notable that November marked the fourth successive month that retail sales volumes had either fallen or been flat – the first time this has happened since at least 1996. This includes a flat performance in October.
“Consequently, retail sales were down 0.4% in the three months to November compared to the three months to August.
“Year-on-year growth in retail sales volumes slumped to 1.0% in November from 3.1% in October, the lowest level since April 2018. This reflected the fact that sales had spiked 1.5% month-on-month in November 2018 when the data included Black Friday sales.
“Sales in non-food stores fell 0.2% month-on-month and were down 1.1% year-on-year in November. Sales at non-specialised stores fell 1.4% month-on-month while there was a drop of 0.4% in sales of clothing, footwear & textiles.
“Food sales fell 0.6% month-on-month and were up just 0.6% year-on-year in November.
“The annual retail sales deflator was up 0.3% year-on-year in November. It had been up just 0.1% in October, which was the lowest level since October 2016. It was down from 0.3% in September, 0.6% in August and 0.8% in July.
December CBI Distributive Trades Survey Modestly Stronger
“The December CBI distributive trades survey – which does include Black Friday sales (it was carried out 25 November – 12 December) – shows improvement but is hardly a storming set of data.
“Specifically, the balance of retailers reporting year-on-year growth in sales volumes rose to an 8-month high of 0% in December from -3% in November, -10% in October, -16% in September and -49% in August (which had been the lowest reading since December 2008 and the second lowest since the survey began in 1983).
“However, a balance of 31% of retailers said sales in December were below average for the time of year - despite discounting in the run up to Black Friday and Cyber Monday (both of which fell within the survey period this year).
“The CBI reported growth in internet sales slowed in December and was below-average.
“Retailers are hardly optimistic about sales prospects for January with a balance of just +1% expecting sales to be up year-on-year in the month.
Outlook for consumer spending
“For most of this year, consumers have clearly been more resilient than other sectors of the economy and have seemingly largely brushed off Brexit and other uncertainties – no doubt helped by the overall marked improvement in their spending power since mid-2018 as well as recent record high employment.
“Supportive to consumer spending, real earnings growth has picked up markedly since mid-2018 while employment reached a record high in the three months to June when it stood at 32.811 million. Specifically, annual real earnings growth reached 1.9% in the three months to July; this was the highest level since the three months to September 2015 and was up from 0.1% in the three months to June 2018. This was the consequence of annual earnings growth rising to an 11-year high of 3.9% in the three months to July while inflation was modest.
“Even allowing for the Black Friday effect weighing down on sales in November, – the recent softer retail sales data suggests that consumers have recently become more concerned by the combination of a struggling domestic economy, heightened domestic political and Brexit uncertainties and a deteriorating and more fractious global economic environment. Indeed, GfK reported consumer confidence weakened in October to be at its equal lowest level so far in 2019 (and since mid-2013) with a reduced willingness to make major purchases.
“Meanwhile, the fundamentals for consumers probably peaked around mid-2019 and have since showed some slippage although they remain pretty decent.
“Significantly, employment has essentially flat-lined overall in recent months, standing at 32.801 million in the three months to October compared to the record high of 32.811 million achieved in the three months to June. The labour market may well be subdued in the near-term at least as companies face a soft domestic economy and still significant uncertainties.
“Additionally, annual earnings growth slowed to 3.2% in the three months to October from the 11-year high of 3.9% in the three months to July. While this was negatively affected by lower bonus payments, it is notable that regular earnings growth has also moderated to 3.5% in the three months to October from a peak of 3.9%. We suspect that earnings growth will likely stabilise around current levels. With businesses still likely to be cautious over the outlook, we suspect that they will increasingly look to contain pay increases. Meanwhile, heightened consumer concerns and uncertainties may increasingly facilitate companies’ ability to limit earnings.
“On the positive side, inflation (stable at a three-year low of 1.5% in November) is limited and looks likely to remain so.
“There are other factors which may limit the consumer spending. In particular, with uncertainties still high and the outlook problematic, many consumers may be keen to avoid dissaving. Meanwhile, lenders have cut back on the availability of unsecured consumer credit and tightened lending standards.”