21 Jul 2017
Retail sales update: May retail sales lift mainly on improved growth in retailers of non-discretionary items
In contrast to market expectations of a contraction in retail sales of 0.3% y/y in May, sales grew 1.7% y/y. This follows a lift of 2.0% y/y (revised from 1.5% y/y) in April.
In May, the largest positive combined contribution, of 1.4%, to the headline outcome stemmed from food and pharmaceutical retailers which registered sales growth of 14.5% y/y and 5.7% y/y respectively (see figure 3).
This performance in May is an extension of the sales dynamics in the year to date (January – May). In contrast, general dealers and sales in the semi-durable goods (clothing) and durable goods (furniture and hardware) categories have underperformed compared to the same period last year (see figure 2).
This would suggest that consumers are diverting spending away from the more discretionary (non-essential) items, as consumer confidence remains depressed, real disposable income growth has contracted and credit extension to households is negative in real terms.
In May, the three month rolling seasonally adjusted measure rose to 1.6% from 0.1% in April. As this measure is used to calculate GDP it therefore indicates that the sector is on track to make a positive contribution to Q2.17 GDP, after having detracted from Q1.17 GDP.
However, a meaningfully stronger growth path in the subsequent quarters is unlikely to be sustained in view of the confidence and financial pressures on the consumer.
Indeed, survey evidence derived from the Q2.17 BER retail confidence survey showed that “tough trading conditions” were expected to prevail throughout Q2.17 and into Q3.17.
The May retail sales update also confirmed that implied retail inflation moderated to 4.9% y/y from 5.0% y/y in April and from a recent peak of 7.4% y/y in December 2016 (see figure 4). As recent trading updates from major retailers have shown, the consumer environment remains particularly weak and is likely restricting the extent to which retailers can raise selling prices, especially if protecting sales volumes is a consideration.