Treat the official retail sales data with caution (Sep 08)

The surprising strength of the official retail sales data in recent months continues to contrast with the much more downbeat tone of the survey evidence and the trading reports from retailers themselves. What’s more, it seems unlikely that consumers are spending freely at a time when unemployment is rising, real incomes are declining and house prices are falling. Accordingly, we would warn against placing too much weight on the official sales data and would not be surprised to see them weaken in the coming months. One glimmer of hope for consumers comes from growing signs that inflation is near a peak and that the Monetary Policy Committee is moving closer towards cutting interest rates. But even that won’t prevent real household spending from falling outright next year.