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Stark contrast in US, UK retail sales data

US and UK retail sales data just released shows two very different markets in January.

In the UK, industry watchers were stunned by a 0.3 per cent decline in month-on-month sales in January reported by the Office for National Statistics – somewhat different to the 0.9 per cent increase broadly expected by analysts. Worse, the ONS said that while year-on-year sales were up 1.5 per cent, the data indicated the first signs of a fall in the underlying trend since December 2013.

“We have seen falls in month-on-month seasonally adjusted retail sales, both in conventional stores and online, and the evidence suggests that increased prices in fuel and food are significant factors in this slowdown,” said Kate Davies, senior statistician with the ONS.

Across the Atlantic, retail sales in the US rose by 4.9 per cent year-on-year – well above the average monthly growth rate of 3.3 per cent through 2016.

In the UK, the decline appears driven by inflation which has particularly hit fuel and food costs.

Samuel Tombs at Pantheon Economics told the BBC that UK consumers were starting to “crumble” in the face of inflation pressure.

Ruth Gregory, from Capital Economics, fears the January retail sales data suggests the recent run of resilient economic news in the UK has come to an abrupt end.

“And the rest of the year is shaping up to be tough on the high street, given the expected squeeze on consumers’ real pay growth.”

“Red flags” in US data

However, across the Atlantic, Neil Saunders, MD of GlobalData Retail, warned the strong monthly US retail sales figure shrouded a few “red flags” for the retail sector.

“The underlying performance, while reasonable, is not quite as robust as it first seems. Retailers would be advised to take heed of this as it indicates the sector is in for another choppy year.”

Saunders said part of the elevated growth rate is down to the fact that last year’s comparatives were soft.

“January 2016 was a weak month for retail, partly thanks to Winter Storm Jonas which disrupted consumers’ regular shopping behavior. The weather was more cooperative this year and most of January went smoothly as far as consumer spending is concerned.

“The overall growth rate was also boosted by a sharp rise in sales at gas stations, which were up by 13.9 per cent over the prior year. This is the fastest pace of growth in just under five years, and signals that the era of continuously falling gas prices – which characterised the past two years – is now firmly over. Although the uplift is heavy, it comes off the back of a low base and, as such, gas prices are not at levels which are causing consumers too much pain. Even so, further rises will be generally unhelpful to retail as they will inevitably bite into consumer incomes.”

Saunders said “pure retail” data, which excludes foodservice, auto, and gas sales, shows many of the bigger ticket sectors – including furniture and electricals – recorded a deterioration in sales over the prior year.

“Given that our own data shows consumer confidence started to wane partway through January, this could be an indication of nervousness among shoppers. While we do not expect the declines to persist across the entire year, we do believe that continued uncertainty among shoppers will lead to a very changeable retail environment in which large purchases are carefully considered.”

Within retail, some sectors performed better, he said.

“Clothing was one, and although sales only rose by 0.4 per cent, it marks a change from the declines that were a hallmark of the sector across a large part of 2016. This is mostly down to lower discounting rates across January 2017, which is the result of better inventory control, and fewer overstocks of items such as coats thanks to a much colder end to 2016.

“We believe that the year ahead will be a reasonable one for retail, and nothing in this month’s numbers changes that assessment. However, growth will undoubtedly be variable across 2017, and it remains insufficient to benefit all players. The environment will continue to be one of winners and losers.”

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