The further rise in retail sales in September means that retail sales are now 5.5% above their pre-virus level. But total consumer spending will probably start to stutter over the next few months as the furlough scheme ends and unemployment rises, despite the increased generosity of the Job Support Scheme.
Slowing recovery to weigh on spending
- The further rise in retail sales in September means that retail sales are now 5.5% above their pre-virus level. But total consumer spending will probably start to stutter over the next few months as the furlough scheme ends and unemployment rises, despite the increased generosity of the Job Support Scheme.
- The 1.5% m/m gain in retail sales volumes in September (consensus 0.4%, CE 1.5%), meant that retail sales volumes grew by 17.4% q/q in Q3, by far the largest quarterly rise on record. The end of the Eat Out to Help Out scheme in August helped to boost food sales volumes by 0.7% m/m. But the real driver in September was non-food sales. Department store sales rose by 2.3% m/m, while clothing store sale volumes were up by 3.6%. Given that clothing prices rose by 2.2% m/m in September, this wasn’t due to heavy discounting either. Household goods also recorded a rise, of 0.9% m/m, as the mini-boom in the housing market continued to provide a boost.
- Non-store sales fell by 1.9% m/m as consumers continued to shop more in physical stores, but they remain 37% above their pre-virus level. (See Chart 1.) And the proportion of all retail sales made online fell from 26.7% in August to 26.1% in September. That remains well above February’s 19.0%.
- Ironically, more restrictions on hospitality venues may give retail sales a further boost in the months ahead as people resort to cooking at home and ordering online again. But rather than indicating a robust recovery in consumer spending, a further rise in retail sales may just indicate that consumers are being forced to buy goods instead of services. Indeed, the GfK measure of consumer confidence dropped from
-28 in September to -31 in October, which left it only just above the -34 in April at the height of the lockdown. Consumers have an especially negative outlook for the economy over the next year. This balance fell from -38 to -50, which was only slightly better than the -57 nadir reached in May.
- We think that consumers are right to be worried. The recovery will almost certainly stall in Q4 and additional COVID-19 restrictions could easily cause consumer spending to reverse some of the gains it has made since April.
Chart 1: Retail Sales Volumes (February 2020 = 100)
Table 1: Retail Sales Volumes
Retail ex petrol
Thomas Pugh, UK Economist, +44 7568 378 042, email@example.com