Source: CSO |
The volume of Irish retail sales (i.e. excluding price effects) increased by 3.0% in year to February 2010 compared to February 2009 and there was a monthly increase of 14.9%, boosted by motor vehicle trade. This increase in the volume of retail sales is the first recorded year on year growth in retail sales since January 2008 according to the Central Statistics Office (CSO).
The year on year increase is primarily explained by the 30.5% year on year growth recorded in Motor Trades in February 2010. If Motor Trades are excluded the volume of retail sales decreased by 3.1% in February 2010 compared to February 2009 and the monthly change was +1.2%.
A number of sectors show year on year volume increases with the most significant being: 1) Department Stores up 10.9% 2) Pharmaceuticals Medical & Cosmetic Articles up 1.2% 3) Clothing, Footwear & Textiles up 1.8% 4) Electrical Goods up 3.5% 5) Other Retail Sales up 2.8%. The majority of sectors also showed month on month increases in the volume of sales, however the largest sector Non Specialised stores, which includes supermarkets, show a year on year decrease of 1.7% and a month on month decline of 1.9%.
The value of retail sales decreased by 1.3% in February 2010 compared to February 2009 and there was a monthly increase of 12.9%.
However, if Motor Trades are excluded, the decrease in the value of retail sales was 7.4% and the monthly change was +0.1%. With the exception of the Motor Trades and Fuel sectors most sectors continue to show year on year decreases in the value of retail sales however a number of sectors show monthly increases in the value of retail sales in comparison to January 2010.
NCB Stockbrokers economist Brian Devine commented: "Retail sales make up approximately 45% of consumption and the positive momentum generated from sales would be a boost for q/q consumption growth in Q2. When the data is combined with the NCB manufacturing PMI (Purchasing Managers' Index) , which breached 50 in March, the services PMI which nearly breached 50 and the slow down in Live Register additions it points to an economy that bottomed in Dec/January and we expect it to post positive q/q growth in Q2 2010.
More generally, the global economic data of late has been encouraging with the manufacturing and services PMIs in the US, Europe and UK all continuing to advance. Another significant event was the fact that the US decided to delay by a number of months a report due for mid-April, in which it was likely that China would have been labelled a 'currency manipulator.' The delay of this report averts prospects of a trade war and is likely to see China revalue the renminbi gradually over the coming year. All-in all the data and events should be positive for world trade and hence Ireland, as one of the most open economies in the world."
Goodbody economist, Deirdre Ryan, commented:
All about car sales so far...- Retail sales volumes were up 3% yoy in February (-3.8% yoy in January), the first time in over two years that the annual rate of sales growth has not been negative. This outturn is almost completely owing to the performance of car sales, which were up 31% yoy in the month. Indeed, we can expect car sales to have a further positive influence on the retail sales aggregates in the near term given that new car registrations were up 77% yoy in March according to the SIMI, while for Q1 overall car registrations are up 32% yoy.
...but core spending continues to weaken and base effects playing a role - Excluding cars, retail sales remain in decline, with spending outside of this area down 3.1% yoy in February (-4.5% yoy in January). While today’s performance is, at a headline level, quite encouraging we would be reluctant nonetheless, to see this as the turning point in consumer spending trends. Base effects are playing a role (consumption fell 10% yoy in Q1 09), while more importantly the labour market continues to contract (employment decline of 4.3% forecast for 2010). The full year impact of last years tax increases is a further constraint on spending. In all there are many headwinds facing the consumer sector in the current year and we remain of the view that spending will decline further in 2010, by -2%.
Davy chief economist, Rossa White, commented:
'Core' sales up for two consecutive months for first time in two-and-a-half years; retail sales have bottomed
Irish retail sales have bottomed
- 'Core' retail sales (i.e. ex-garages) increased by 1.2% in February compared with January. That followed a 0.4% rise in January. For the first time since October 2007, the volume of 'core' retail sales has increased for two consecutive months. It looks like retail sales bottomed at the end of 2009.
- It is important to concentrate on the ex-garages index because of the volatility caused by new car sales. The index has not recovered arithmetically since the collapse in car sales in January 2009. Without getting too technical, the seasonal adjustment is messed up. Evidence of that was shown by the ludicrous 14.9% month-on-month jump in total retail (including garages) in February, which followed a 16.1% collapse in January! Ignore that index and concentrate on 'core' sales for the true trend in the retail sector.
Rise in value suggests that price discounting is ending
- Crucially, the value of 'core' retail sales increased for a third straight month. Retail prices rose in both December and January. Although prices fell in February (the value of sales increased only 0.1% versus 1.2% for volume), it seems that shops are not discounting at the rate seen for most of last year. The pick-up in consumer demand has probably relieved some pressure on retailers to keep cutting prices.
- It is important to note too that demand for durable goods such as new cars, furniture and electrical equipment is recovering.
Consumer spending to grow modestly through 2010
- Retail sales are only half the story; spending on services accounts for the rest of consumption. We expect consumer spending to grow at a quarter-on-quarter annualised rate of about 2% from Q1 on
Ulster Bank economist, Lynsey Clemenger, commented:
Retail sales rise in February, reflecting pick-up in both car and non-car retailing… - The February retail sales report had a more positive feel to it. Total retail sales volumes rose by a strong 14.9% on the month, an outcome that was buoyed by motor trades which were up 34.5% m/m. Last month, we noted the January retail sales figures did not include the selling period in the final week of the month, in which industry sources noted an improvement in car sales following the period of unseasonably cold weather conditions. Therefore, some reversal of the 30.5% January decline in motor trades was expected. In the event, the February rise more than offset the January fall, with the latest SIMI new car registration figures pointing to an ongoing modest recovery in the sector in March. The continued pick-up in car sales has played a major role in transforming the trajectory in total retail sales. Annual sales growth on this measure is now back in positive territory for the first time in two years.
As the trend in total retail sales volumes is continuing to be heavily skewed by car sales, ‘core’ retail sales provide a better gauge of the underlying trend in spending, as motor trades are excluded. Encouragingly, core sales volumes rose by 1.2% from January, the second consecutive monthly rise. This represents the best performance in any month since the 1.6% rise in June of last year, with upward revisions to prior month’s data further adding to the positive tone of the report (the January level of sales was 0.5% higher than estimated a month ago for example).
Broad-based gains across retail categories outside of motors, as cash spend rises for the third month running…- Importantly, the strength in core retail sales in February was broad-based, with eight out of the twelve retail categories outside of motors experiencing a rise in sales volumes. Areas of weakness included bars (down 2.7% m/m) and food, beverages and tobacco (down 2.3% m/m). However, the report documents a 14.9% rise in sales of furniture and lighting, a 4.8% rise in hardware, paints and glass and a 3.3% rise in electrical goods – three sectors with clear links to the beleaguered housing market. So-called “other” retail sales rose at an impressive monthly pace of 15.3%. This category includes items such as toys, mobile phones and jewellery. Given that the purchase of such goods tends to be of a discretionary nature, this provides some evidence of a pick-up in consumer confidence. Indeed, this tallies with the latest consumer sentiment data, which shows the level of confidence in Q1 2010 was at its highest in 2 years.
It is sales values that are of most importance from a retailer’s perspective. Retailers have seen a huge fall in revenues over the course of this downturn, as a result of the sharp fall in sales volumes and associated intense price deflation. However, retailers outside of motors have begun to see some rise in cash spend of late, with sales values posting modest gains for the third month running in February. Cash spending in core retail categories reached a low-point in November of last year and has since risen by 2.1%, a heartening indication that a greater willingness to spend is beginning to show through.
Irish consumers continue to face important headwinds, but spending is looking much more stable… - Consumer spending will continue to face strong headwinds in the quarters ahead. In particular, with employment expected to continue to fall for most of 2010, labour market dynamics will not be supportive of a strong rebound in spending. However, recent confidence and spending trends do offer important encouragement that the Irish consumer has entered a period of greater stability.
While total retail sales are continuing to be boosted by an ongoing improvement in car sales from the extremely dressed levels in early 2009, it is important to note that core retail sales have also picked up lately. In particular, we take note of the fact that the average level of the core retail sales over the period Jan-Feb is some 0.7% higher than the average for the fourth quarter of 2009.