Source: CSO

The CSO reported today that the annual volume of Irish retail sales (i.e. excluding price effects) fell 14.1% in 2009 when compared to 2008 and dipped 18.0% in value terms. There was a monthly increase in volume in December of 0.4%.

If Motor Trades are excluded the annual volume of retail sales decreased by 6.8% in 2009 and declined by 11.2% in value terms, indicating price falls. The annual sales volume fell 6.1% in 2008 and rose by 6.9% in 2007 and 7.3% in 2006. The decline in volume in December 2009 compared to December 2008 was 7.5% and the value of retail sales fell 12.5%. If Motor Trades are excluded the volume of retail sales decreased by 6.7% year on year and the monthly change was -0.9%.

All sectors showed year on year declines in both the value and volume indices in December. The most significant declines in the volume indices were in: Motor Trades down 15.1% and Non-Specialised Stores (includes supermarkets) down 3.5% while provisional estimates available for the final quarter of 2009 show the volume of retail sales declined by 8.2% year on year in the fourth quarter, with the value of retail sales declining by 13.1%

There was a quarter on quarter increase of 1.6% in the volume of retail sales and there was a quarterly decline of 0.6% in value terms.

If Motor Trades are excluded the volume of retail sales decreased by 6.4% year on year in the final quarter of 2009 and the value of retail sales declined by 11.6%.

There was a quarter on quarter decrease of 1.5% in the volume of retail sales and in value terms the decline was 3.4%. 

Davy Chief economist, Rossa White, comments:

Heavy price discounting continues

'Core' retail sales down 0.9% in volume in December

• Despite heavy discounting, 'core' retail sales (i.e. excluding car sales) fell 0.9% in volume in December month-on-month. In value terms, sales fell 1.5%. That was the sixth straight drop in the value of sales and the 14th decline in the past 15 months.
• The volume of 'core' sales has yet to bottom, albeit sales were down only 1.2% compared with April 2009. In Q4, sales dropped 1.5% quarter-on-quarter following growth of 0.2% in Q3. The data also provide enough evidence to suggest that the economy overall did not bottom at the end of 2009.
• Total sales have bottomed, only because of the intra-year recovery in car sales (seasonally adjusted) since the total collapse in Q1 2009. It is not a guide to trend.

Heavy price discounting persists across retail sector

• Prices are still being slashed by retailers. In December, the owners of car showrooms, supermarkets and convenience food stores, department stores, petrol stations, pharmacies, clothes shops, furniture outlets, DIY stores, electrical goods shops, bookstores and bars all cut prices. Only specialised food shops, which account for 3% of all retail sales, raised their prices.
• December's drop in 'core' sales volume was caused mainly by supermarkets. Sales at supermarkets, which account for 40% of the ex-garages index, fell by 2.4%.

Sales likely to bottom in volume in Q1, but cash value may keep falling until the summer of 2010

• We expect retail sales volume to bottom in Q1 and return to some modest growth in Q2. Precautionary savings may unwind somewhat as the peak in unemployment comes into sight and households realise that the public finances have stabilised.
• But the value of sales may keep slipping for a couple of quarters yet as retailers continue to cut prices.

Ulster Bank economist, Lynsey Clemenger, commented:

December retail sales weak at face value… The headline retail sales figures in December were disappointing. Total retail sales volumes rose at a modest monthly pace of 0.4%, which was largely attributable to a 8.3% rise in motor trades. The latter was the eleventh consecutive monthly rise following the massive collapse in car sales January of last year, with such trends distorting the total retail sales data for all of 2009.

So-called ‘core’ retail sales provide a better gauge of the underlying trend in retail sales, as motor trades are excluded. Sales according to this measure fell by 0.9% from November, the third consecutive monthly drop. Thus, following a 0.2% quarter-on-quarter rise in Q3, the first increase since Q4 2007, core retail sales volumes posted a quarterly decline of 1.5% in Q4. While this renewed weakness in core sales is somewhat discouraging, it was not totally unexpected given the signs from the monthly retail data in October and November.

However, the detail is not as bad as the headline numbers suggest, with some areas showing greater signs of stability…It was a 2.2% monthly fall in sales in food businesses that drove the decline in core retail sales in December.  This was somewhat surprising given that in the three months preceding December sales of food rose at average monthly pace of 0.1%. While there is no doubt that food sales were weak in the month, the extent of the weakness may reflect difficulties in capturing the seasonal nature of some purchases around the Christmas period.

However, the devil was not in all of the retail sales detail in December. Ten out of the thirteen retail categories actually recorded monthly increases, which backs up the anecdotal evidence from retailers of a less-weak retailing environment post the announcement of Budget 2010 in early December. Greater signs of stability were evident in sales of clothing and footwear, which rose by 1% from November, sales of hardware, paints and glass were up 4.6% and sales in bars increased by 2.5%. However, as food has a significant weighting of almost 40% in core retail sales, the monthly decline in sales in this sector exerted significant downward pressure on sales volumes in the month.

Further decline in total consumer spending on the cards for this year, albeit at a much slower pace than in 2009…It is the trend in total retail sales volumes that matters for the official consumer spending numbers contained in the Quarterly National Accounts. On this basis, retail sales rose at a quarterly pace of 1.6% in Q4. While this bodes well for consumer spending prospects in the fourth quarter, we do not have data on services spending which makes up roughly half of the total. We have factored in further weakness in services spending in Q4, which leaves total consumer spending on track for posting a modest quarterly decline.

In terms of the outlook, we take some encouragement from the fact that the index of total retail sales in December was some 0.6% ahead of the Q4 average. In addition, available consumer confidence and car sales data for January of this year have shown important signs of improvement. However, as employment and disposable incomes both have further to fall in the months ahead, we are factoring in another decrease in retail sales and consumer spending this year. In terms of the latter we anticipate this will be of the order of -1%, albeit that this represents a notable deceleration on the 7.5% decrease we expect took place last year.