- Retail sales volumes saw a robust gain in September, pointing to the consumer continuing to play a leading role in the economy’s Q3 bounce back.
- Retail sales volumes rose 1.5% month-on-month in September, the fifth successive monthly gain; they were up 4.7% year-on-year and 5.5% above pre-lockdown levels in February.
- Online sales remain significantly higher than they were before the pandemic, although the opening up of the retail sector has led to a fall back in online sales’ share of total sales from the record high seen in May. With COVID-related restrictions on activity rising, online sales may see a renewed pick up.
- Retail sales volumes rose a record 17.4% quarter-on-quarter over Q3. The full opening up of the retail sector in June released pent-up demand, while the opening up of the hospitality sector and other consumer services from early July further added to consumer spending. The EY ITEM Club now believes that the economy likely grew around 16% quarter-on-quarter in Q3 after the record contraction of 19.8% in the Q2.
- The outlook for retail sales and consumer spending looks more challenging in the near term at least, reflecting increased restrictions on activity, possible markedly rising unemployment, limited earnings and mounting consumer caution.
- Reinforcing this outlook, GfK has reported a fall in consumer confidence in October, while latest data from Springboard show shopper footfall across all retail destinations fell 3.1% in the week to 17 October – which was a fourth successive decline.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“Robust retail sales in September pointed to consumers continuing to play a leading role in the economy’s third quarter bounce back. Retail sales volumes increased 1.5% month-on-month in September, which was a fifth successive gain and followed increases of 0.8% in August and 3.9% in July. Consequently, retail sales volumes were up 4.7% year-on-year in September and were 5.5% above their February level, before they were affected in March and, especially, April by the lockdown.
“Retail sales volumes rose a record 17.4% quarter-on-quarter over the third quarter (after a fall of 9.7% in the first quarter). Even allowing for the fact that retail sales only account for some 31% of total consumer spending, this reinforces belief that the consumer spending played a leading role in the economy’s strong bounce back in the third quarter from the second quarter’s record contraction. The full opening up of the retail sector in June released pent-up demand, while the opening up of the hospitality sector and other consumer services from early July further fuelled consumer spending.
“The ONS reported that “fuel was the only main sector to remain below February's pre-pandemic level with volume sales 8.6% lower in September when compared with February 2020.””
Howard Archer continues: “Volumes of food sales were 3.7% higher in September than in February.
“Volumes of non-food sales were 1.7% higher in September than in February. Volume sales in household goods stores and “other” non-food stores were 11.0% and 10.7% above February, respectively. DIY and electrical product sales have done particularly well. However, clothing sales were down 12.7% in volume terms in September than in February, while department store sales were down 0.9%.”
“While the opening up of the retail sector has led to some decline in online sales’ share of total sales from the record high seen in May, they remain significantly above the levels seen before COVID-19, and the suspicion is that there will have been some permanent shift here.
“Online sales as a share of total retail sales dipped to 27.5% in September from 28.1% in August, 28.9% in July, 31.8% in June and a record high of 33.3% in May. Nevertheless, this is still well above a share of 20.0% in February. With COVID-related restrictions on activity rising, online sales may well see a renewed pick up.
“The annual retail sales deflator fell 1.4% year-on-year in September, with fuel prices down 10.0% year-on-year. Excluding fuel prices, the annual retail sales deflator was down 0.5% year-on-year in September.”
Howard Archer adds: “Following the strong third quarter bounce back, the outlook for retail sales and consumer spending looks more challenging in the near term at least. This reflects increased restrictions on activity, possible markedly rising unemployment, limited earnings and mounting consumer caution.
“Indeed, Gfk has reported that consumer confidence has fallen in October to be at its lowest level since June. Meanwhile, latest data from Springboard show shopper footfall across all retail destinations fell 3.1% in the week to 17 October, which was a fourth successive decline. Furthermore, it has since been announced that non-essential retailers in Wales will be closed until 9 November.
Howard Archer continues: “The fundamentals for consumers have taken a clear downturn as a result of COVID-19, and they are likely to remain under pressure in the near term at least. Many people have already lost their jobs despite the supportive government measures – as was highlighted by employment falling by 673,000 over April-September (according to Pay as You Earn Real Time Information data) – while others will be concerned that they may still end up losing their job as the furlough scheme ends this month.
“There is still a very real likelihood that unemployment will rise when the furlough scheme ends. While the Chancellor's new job support measures are more generous and should have a significant impact in stemming redundancies, many businesses, particularly in the hospitality sector, are finding life difficult amid rising COVID-19 case numbers and renewed restrictions on activity. Some businesses will still likely not take back many workers who are still furloughed.
“Additionally, many incomes have been affected: the latest ONS data show total average earnings were only flat year-on-year in the three months to August, although they moved back into positive territory in August itself as more workers came off furlough.
“The prospects for pay look limited. While workers coming off furlough should be restored to full pay, many companies are looking to freeze or cut pay, and to reduce bonuses. For example, the latest survey by XpertHR released in late September reported that pay deals in the three months to August offered a median annual pay rise of 0%.
“Furthermore, consumers may very well adopt a cautious approach to making major discretionary purchases given the uncertain economic environment.
“On a positive note, low inflation is supportive for purchasing power, while four months of net repayment of unsecured consumer debt totalling £15.7 billion over March-June improved many households’ balance sheets. Indeed, the household savings ratio increased to a record 29.1% in the second quarter from 9.6% in the first quarter.”