Retail sales rise in September

31 Oct 2018

Retail sales data for September, published by the CSO, show that headline sales were +1.5% m/m and +6.5% y/y in September on a volume basis. In cash terms, sales were +1.5% m/m and +5.9% y/y. Core sales, which exclude the volatile Motor Trades component, were +2.8% m/m and +6.3% in volume terms, with the value of sales +2.5% m/m and +5.5% y/y.

Analysis: Data for the 13 sub-indices of the retail sector show broad growth, with all segments recording an annual increase in volume terms and 12 of the 13 (the sole exception being Department Stores, a segment that is under particular pressure at this time) seeing an annual uptick in the value of sales. As before, we note that the consumer discretionary segment is posting the strongest gains – in volume terms sales of Electrical Goods were up by a remarkable 22.8% y/y, while sales of Hardware, Paints & Glass were +13.9% y/y. Other strong performances were recorded by Furniture & Lighting (+7.8% y/y, likely helped by imported ‘deflation’ from firms sourcing in the UK); Food, Beverages & Tobacco (+9.9% y/y, possibly due to “inventory management” by households fearing a hike in alcohol and/or cigarette taxes in October’s Budget); and Clothing & Footwear (+7.8% y/y, likely helped by the unusually dry weather in September)
 
One feature of the data is the modest gap between growth in volume terms and the increase in the value of sales, which reflects a strong consumer backdrop in Ireland, where the latest data show total employment +3.4% y/y in Q218 while average wages were +3.3% y/y in the same quarter.

Action: October’s Budget saw income tax reductions that will lift household disposable incomes by 0.34% in a full year, providing an uplift to the outlook for consumer spending in 2019. One fiscal change that will (modestly) lift near-term spending is the increase in the Christmas bonus to weekly social welfare recipients from 85% in 2017 to 100% this year. But the main driver of growth in consumer spending is rising employment and labour earnings. While growth in the former may moderate a little next year due to the more uncertain global outlook, this impact should be (at least partly) offset by rising wage inflation as labour market conditions continue to tighten (unemployment is at a 10 year low of 5.4%). 
 
Irish Banks: Mortgage drawdown data slips slightly behind expectations in Q3 
 
Data from the Banking Payments Federation of Ireland (BPFI) show new residential mortgage drawdowns totalling €2.37bn in Q318, +18% vs Q317 and +18% vs Q218, with the YTD total now €6.1bn, a 20% y/y increase on the same period last year. Total drawdowns by volume (number of loans) in the first nine months of the year increased by 15% y/y to just over 28k.

While the level of total drawdowns continues to grow strongly, it is slightly undershooting our prior expectations and in combination with management commentary from the main high street banks would suggest a slight slowdown in the previous level of growth within the market, caused mainly by difficulties with the Central Bank of Ireland’s macro-prudential mortgage lending rules, and a related moderation in house prices at the upper end of the prime Dublin market. The level of approvals granted in the market, also released this morning, suggests the growth in the pipeline of new mortgages has also moderated somewhat in recent months, with the September outturn of €822m in new approvals 4% higher than the same month last year, and the YTD level of approvals of €7.65bn 9.3% higher than the same period last year. 
 
US/China trade update
 
There is an increasing focus on the G20 meeting that takes place 30-Nov/ 1-Dec, especially the meeting between Presidents Trump and Xi. According to White House sources Donald Trump is readying plans to levy tariffs on all remaining Chinese imports that have not been covered by the previous rounds of tariffs announced this year, if there is no agreement between the two leaders over trade. These could be announced as soon as December. Although President Trump stated in a Fox news interview in the last few days that he thinks ‘there will be a great deal’, various sources have also suggested that expectations for any breakthrough are relatively low, suggesting there is a risk of an escalation in the current trade dispute. The yuan is weaker this morning with the USD/CNY rate reaching almost CNY 6.98 (10 year highs) earlier this morning and sharply closing in on the Chinese authorities reported line in the sand of USD/CNY 7.00. The Shanghai Composite (SHCOMP) has gained just over 2.5% since yesterday’s open.
 
EZ GDP disappoints
 
Yesterday’s Q3 ‘preliminary flash’ GDP figures for the Euro area disappointed against expectations rising by just 0.2% qoq against a market consensus of +0.4%, whilst on a year-over-year basis GDP growth came down to 1.7% from 2.2%.  This looks strangely weak to us; perhaps there is a sizeable drag from the volatile Irish GDP numbers, but we do not have the full breakdown by countries yet. Note that following a soft Q3 reading we are also facing a soft start to Q4, according the preliminary composite PMI which fell to a more than two-year low of 52.7 in October. The euro is a bit weaker after the numbers, with €:$ at $1.1360 from around $1.1375 beforehand.

GfK UK consumer confidence

The non-seasonally adjusted GfK UK Consumer Confidence Index fell to a three-month low of -10 in October from -9 in September, in line with both consensus and Investec expectations. Weighing on yesterday’s index release was households’ year-ahead outlook for the economy, which was the gloomiest since December. There was also a drop in the major purchases component, amid a slightly less optimistic for consumers’ personal financial situation over the next 12 months.
 
Economic Forecast

09.05 EC ECB’s Nouy speaks
10.00 EC Unemployment rate
10.00 EC CPI Core YoY
11.00 US MBA Mortgage Applications