This morning has brought some news which will probably be welcome at the Bank of England if nowhere else.

Retail sales volumes are estimated to have fallen by 1.2% in July 2023 following a rise of 0.6% in June 2023 (revised from an increase of 0.7%).

From their point of view it provides a potential real world impact from tighter monetary policy and higher interest-rates. It also will fit with the part of their psyche which agrees with the head of the Kiwi central bank. After all they are pack animals.

RBNZ’S GOVERNOR ORR: A RECESSION IS THE BARE MINIMUM WE NEED TO SEE. ( @financialjuice )

Of course a weak retail sales number does not on its own mean recession as it is an erratic series. Also the pleasure will not be shared by the Bank of England forecasting department.

Bank staff expected a similar growth rate in the near term, reflecting more resilient household income and retail sales volumes,

They had some success with the resilient household income part with the real wages figures earlier this week but the link with retail sales did not work this time around. But the point here is that someone at the morning meeting will be telling Governor Bailey that his policy is bearing fruit.

The Numbers

We had the flip side of what we looked at for June.

Food stores sales volumes fell by 2.6% in July 2023, following a rise of 1.1% in June 2023. Supermarkets reported that some of the fall was because of the poor weather reducing summer clothing sales. However, food sales in supermarkets also fell back.

So what the weather gave in June it took away in July. I can see the logic in weaker clothing sales as everyone probably had umbrellas and waterproofs. Maybe that fits with the lower clothing prices we saw as stronger summer sales tried to catch ip some of the slack. I find it hard to blame the weather for lower food sales though as I do not know about you but getting wet tends to make me hungry.

Although there may be a simple answer in my theme that high inflation is bad for business.

Retailers also indicated that the increased cost of living and food prices continued to affect sales volumes. Our Consumer price inflation, July 2023 bulletin reported that the price of food and non-alcoholic beverages increased by 14.9% in the 12 months to July 2023.

In fact there has been something going on here for a while.

Food store sales volumes were 5.1% below their pre-coronavirus (COVID-19) February 2020 levels.

High Street

It was yet another rough month here.

Total non-food stores sales volumes (the total of department, clothing, household and other non-food stores) fell by 1.7% in July 2023, following a rise of 0.6% in June 2023.

Although the weather was likely a factor.

Feedback from retailers suggests that reduced footfall because of the poor weather in July 2023 affected sales volumes. The Met Office’s monthly climate summary (PDF, 4.8MB) reported that the UK had 170.0% of the average rainfall for the month, making this provisionally the wettest July since 2009 and the sixth wettest July on record since 1836.

In essence the UK was mostly singing along with Travis in July.

Why does it always rain on me?
Is it because I lied when I was seventeen?
Why does it always rain on me?
Even when the sun is shinning I can’t avoid the lightning

Actually that theme continues at the moment as it is raining in Battersea as I type this. Continuing it I gather there has been heavy rain in Argentina which will be welcome news for the drought in yesterday’s topic.

Some sectors saw particularly heavy falls.

Within non-food stores, household goods stores reported a monthly fall in sales volumes of 3.8% because of a fall in furniture and lighting stores.

Department stores sales volumes fell by 2.9% over the month, while clothing stores fell by 2.2%.

Although my neighbour who recently got a job at an art gallery may well be of good cheer.

The other non-food stores sub-sector rose by 0.7% over the month because of an increase in other retail sales of new goods, such as sales in art galleries and auction houses.

Online

This is something of a bright spot.

Non-store retailing sales volumes, which are predominantly online retailers, rose by 2.8% in July 2023, following a rise of 0.2% in June 2023.

Feedback from online retailers suggested that the wet weather and a range of promotions in July 2023 boosted sales.

Or if you want the numbers more explicitly.

The value of online spending rose, while the value of retail sales as a whole fell. Because of this the proportion of online sales rose to 27.4% in July 2023 from 26.0% in June 2023.

This is the highest proportion of retail sales taking place online since February 2022 (28.0%) and remains significantly above the pre-coronavirus (COVID-19) pandemic levels (19.6% in February 2020).

Perspective

The reality is that the Covid pandemic and the economic response were awful for retail sales volumes.

When compared with their pre-coronavirus (COVID-19) level in February 2020, total retail sales were 16.4% higher in value terms, but volumes were 1.8% lower.

That is a particular irony in that you would think that the initial impact of the cit in interest-rates to 0.1% and all the government spending and  stimulus would boost it. Where did it go wrong? Inflation. There is hope looking ahead as the inflationary burst id beginning to fade because the latest 3 months show it running at an annual rate of around 5% using my ersatz indicator and in July it was pretty much flat.

Comment

There is a generic issue here as we see retail sales being hit in many places.

After adjusting for inflation, US retail sales fell 1.3% over the last year, the 9th consecutive YoY decline. That’s the longest down streak since 2009. Nominal retail sales increased 2% YoY vs. a historical average of 4.7%. ( @charliebilello)

The UK position looks weaker than that because if we try to allow for the weather impact by looking back over 3 months we have a 2.4% fall. Actually if we stay with the US then we can continue with a theme of economic weakness today.

“The leading index continues to suggest that economic activity is likely to decelerate and descend into mild contraction in the months ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “The Conference Board now forecasts a short and shallow recession in the Q4 2023 to Q1 2024 timespan.” ( Reuters)

That would be quite a change because according to the Atlanta Fed GDP nowcast the US economy is charging along ( nearly 1.5% as we would measure it) in this quarter.

Let me finish with some better news from Cornwall Insight about the next move in domestic energy prices.

Based on our analysis, for a typical dual-fuel household³ we predict the Q4 2022 price cap to be:

£1,823 on the new lower TDCVs

£1,925 on the current TDCVs (like-for-like basis), which is a quarter-on-quarter percentage decrease of 7%.

The official cap announcement by Ofgem is scheduled for 25 August.

In case you are wondering about the lower TDCVs that is an attempt to reflect that the higher prices have led to lower consumption ( by around seven per cent per year for electricity and four per cent per year for gas.).