The further rise in retail sales in August was particularly encouraging as we know non-retail spending picked up at the same time, suggesting that consumer spending has rebounded strongly.
Retail spending rises further above pre-pandemic levels
- The further rise in retail sales in August was particularly encouraging as we know non-retail spending picked up at the same time, suggesting that consumer spending has rebounded strongly.
- The 0.8% m/m rise in retail sales in August (consensus +0.7%) left sales 4.0% above their pre-virus level. August’s rise was driven by a 3.4% m/m rise in non-food store sales as discretionary spending continued to recover and a 3.3% m/m increase in petrol sales as driving returned to more normal levels. (See Table 1.) Within non-food store sales, clothing rose by 13.5% m/m and household goods increased by 1.9% m/m as the mini-boom in the housing market continued. Meanwhile, the strength of online sales continued to unwind. They fell by 2.5% m/m as shoppers started to return to physical stores.
- But while the changes in sales on the month show that spending patterns are starting to return to normal, the biggest boost to retail sales is still much higher non-store (i.e. online only retailer) sales than before the pandemic. Despite falling by 5.3% m/m in August, non-store sales are still up by 38.9% compared to their pre-virus level. And despite recording the largest monthly increase in August, clothing sales are still 15.9% below their pre-virus level. (See Chart 1.)
- The further rise in retail sales is particularly striking in a month when non-retail spending, particularly on restaurant meals due to the Eat Out to Help Out scheme, also picked up. And in the minutes of the September MPC meeting, the Bank of England revealed that its payments data suggest that overall consumer spending may have already made a full recovery.
- Consumer spending has undoubtedly rebounded strongly, but it feels a bit to early to say that it has recovered fully. And it may yet stutter as the furlough scheme is wound down and unemployment rises, weighing on household incomes and job security. Other parts of the economy, such as investment, are taking much longer to recover. That’s why we think it won’t be until around the start of 2022 that GDP recovers to its pre-virus level. And with virus case numbers accelerating, the risk is it takes longer.
Chart 1: Retail Sales Volumes (February 2020 = 100)
Table 1: Retail Sales Volumes
Retail ex petrol
Andrew Wishart, UK Economist, +44 (0)7427 682 411, firstname.lastname@example.org