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UK Retail Sales High Street Boom- The Truth Behind the Headlines

Economics / UK Economy Jun 19, 2008 - 06:27 PM GMT

By: Nadeem_Walayat

Economics Best Financial Markets Analysis ArticleIn the midst of the worst economic conditions in nearly 20 years, May saw retail sales soar by a surprising annualised rate of 8.1%, the highest rate in 20 years, up 3.4% for the month. The surge is more akin to that expected during boom times rather than the bust that the UK is fast heading towards. The mainstream media immediately seized on the headline rate to announce Britain is experiencing a mini high street spending boom. However looking behind the headline figures tells a different story.



  Retail sales Index Month on Month change
2008 01
139.4
+2.1
2008 02
140.7
+1.3
2008 03
140.3
-0.4
2008 04
139.9
-0.4
2008 05
144.7
+4.8

 

What is apparent from the retail sales figures is that the preceding 2 months experienced a contraction in sales volume, the actual average rate for the last 3 months is just 1.3, which equates to % change of just 0.9% on the month, therefore the monthly change can be put down to the under reporting of the true rate of retail sales for the months of March and April 2008, and thus resulting in the sharp jump for May 2008.

But that still does not explain the annualised rate of 8.1%, for that we need to take a look at the retail sales figures for 2007.

  Retail sales Index Month on Month change
2007 01
130.9
-2.5
2007 02
133.2
2.3
2007 03
134.4
1.2
2007 04
134.7
0.3
2007 05
133.8
-0.9
2007 06
135.1
1.3

 

Retail sales growth for April and May 2007 was extraordinarily low, and infact fell in May 2007, therefore when the current index is compared against May 2007 the resulting increase is a sharp and unrealistic 8.1%. To obtain an more accurate figure that irons out monthly inaccuracies the best strategy is to compare against an average of the 3 month retail sales figures i.e. March, April, May 2008, against March, April, May 2007. This results in a current retail sales index of 141.3 compared to 134.3 for the same period in 2007, resulting in an annualised rate of 5.5%. The next step is to subtract Retail Prices Index for the impact of inflation of 4.3% from the 5.5% rate which results in a real terms increase of retail sales of just 1.2% on an annualised basis.

Real retail sales on an inflation adjusted basis have been depressed for approaching 3 years which is reflected in the poor performance of retail stocks that have under performed the stock market as a whole. Far from the highest growth in retail sales since records began, the actual real retail sales index shows retailers just about managing to keep their heads above water.

Therefore a valuable lesson is not to take and run with the monthly headline figures as much of the mainstream media right from the BBC downwards mistakenly appears to have done so with May's retail sales figures.

The current real rate of 1.2% is still expansionary and implies that a UK recession is not imminent and thus in line with the Market Oracle forecast for UK GDP growth of 1.3% for 2008.The key to watch for in the coming months will be if real retail sales go negative on an annualised basis from the current rate of 1.2%, which will be a sign of major distress amongst high street retailers and reflected in share price performance regardless of the totally unrepresentative headline rate.

By Nadeem Walayat

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Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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