The volume of Irish retail sales (i.e. excluding price effects) increased by 3.5% in year to May 2010.

The Central Statistics Office reported today that when compared with May 2009, there was a monthly increase of 0.1% in retail sales volume. If Motor Trades are excluded the volume of retail sales increased by 0.1% in May 2010 when compared with May 2009 and the monthly change was 0.1%.

A majority of sectors showed year on year volume increases with the most significant being: 1) Motor Trades up 21.9%  2) Non Specialised stores up 3.1% 3) Clothing, Footwear and Textiles up 13.2%. 

The value of retail sales decreased by 0.1% in May 2010 when compared with May 2009 and there was a month-on-month change of +0.1%. However, if Motor Trades are excluded, there was an annual decrease of 3.4% in the value of retail sales and the month-on-month change was -0.4%.

IBEC unit Retail Ireland director Torlach Denihan said: "The volume of core retail sales, excluding car and bar sales, fell by 0.6% in May compared with April but increased by 1.9% when compared with May 2009. Unfortunately and more importantly the value of sales fell in May by 0.7% compared with April and by 1.7% when compared with May 2009. This means that the value of sales for the first five months of the year is below the corresponding 2009 figures due to price reductions.

"The retail sector is in survival-mode, dealing with a huge decline in sales and a very high cost base. The amount of money retailers are taking in at the tills has fallen by 25% on average over the last 30 months but rents, service charges, wages and commercial rates remain too high. Retailers have cut prices to survive, but more needs to be done. Government must take decisive action to get the Irish cost base back into line with the rest of Europe," concluded Denihan.

Davy chief economist, Rossa White, commented:

Retail sales growing at about 1% annualised

• Irish 'core' retail sales growing at c.1% annualised pace

• Retail sales increased by 0.1% for total and 'core' (ex-car) sales in May. So far, 'core' sales are tracking 1% annualised growth in Q2, following the 1.3% quarter-on-quarter gain in Q1.

• We expect that rate to accelerate towards 2% in H2.

• The split of retail sales is informative. Every sub-category of the index grew in March-May compared with the previous three months with the exception of bars. The strongest growth was seen in furniture and lighting (+8.7%), car sales (+7.1%) and clothing (+5.3%). Those increases are a positive sign that spending on bigger-ticket items is accelerating.

Consumer spending set to rise 1%;

• This year's average for the HICP may finish 1.9% lower than for 2009 (CPI -1.3%).

Goodbody economist, Deirdre Ryan, commented:

Core sales recovery still in early stages- The bounce in car sales in the opening months of the year coupled with very favourable base effects have been the main factors flattering the headline numbers in the year to date ( total sales up 3.5% yoy in May). The improvement in underlying spending trends is progressing at a slower pace. While core sales did increase monthly in four of the first five months of the year, May’s increase was minimal and came after a slight decline in April. Furthermore, annual core spending remained in negative territory up until March. We are still in the early stages of a recovery in underlying consumer spending.

Intense price competition easing -This trend of rapid falls in retail prices beginning to come to an end can be seen in the latest CPI data, also released this morning. The data show the annual rate of deflation slowed to just 0.9% yoy in June, the slowest since February 2009. Furthermore, the CPI has risen in four of the previous five months. Rising mortgage interest costs (+16.5% yoy) and household utility costs (+4% yoy) have been the main culprits in this regard. Extensive food price discounting has also ceased and food prices were down 5.3% yoy in May, relative to annual declines of 8% seen earlier this year. On current trends deflation will average c.1% for the full year.

Modest decline in spending likely for full year - We were disappointed in last weeks Q1 GDP data that consumer spending failed to show sequential growth in Q1 (-0.5% qoq) and subsequently revised downwards our spending forecast from flat to a 0.4% decline. Today retail spending numbers (which account for half of overall consumption) do little to alter that view. Spending momentum at a headline level has slowed and the recovery in core spending remains in its very early stages. Challenges remain, in particular the labour market backdrop. As such a modest full year consumption decline remains in prospect.

Commenting on the latest CSO retail sales figures, IBEC senior economist Fergal O'Brien said: "Following a fairly strong rebound in retail sales in the first quarter of the year, it now looks like the second quarter will disappoint. Core retail sales (excluding cars and bars) grew by just 0.2% in April and fell back by 0.6% in May. Price discounting is also continuing, although not as strongly as experienced during 2009, as evidenced by the fall in the value of core sales of 1.7% in May.

'"he average fall in turnover from peak to trough right across the retail sector is now in the region of 25% and this provides a very difficult trading environment for retail businesses. Costs have not fallen by anything close to this and the viability of many retail businesses will remain under threat until a commensurate cost adjustment takes place in areas such as rent, commercial rates and labour costs.

'"It is clear that although the Irish consumer is not as fearful as during 2009, the pace of consumption recovery will remain fairly modest until some headway is made in addressing the jobs crisis."