Retail sales rose back to pre-pandemic levels in June. But since the sector has benefitted disproportionately from online spending and a switch away from other types of spending, this overstates the extent of the recovery in the wider economy.
Retail spending back to pre-pandemic levels
- Retail sales rose back to pre-pandemic levels in June. But since the sector has benefitted disproportionately from online spending and a switch away from other types of spending, this overstates the extent of the recovery in the wider economy.
- The 13.9% m/m gain in retail sales volumes in June (consensus 8.0%, CE 10.0%), coming after May’s upwardly revised 12.3% m/m increase, was large enough to eradicate most of the shortfall relative to the pre-pandemic level. Sales were down by 22% at the trough in April but are now 0.6% below the pre-pandemic level. Admittedly, this is a little worse than in the US where sales in June were 1.1% above their pre-virus levels. Even so, this is impressive given that in the UK non-essential retail stores had only been open for two of the four weeks of the survey in June (which ran from 31st May to 4th July).
- It was the more discretionary areas of spending that did best in June, with non-food sales up by 45.5% m/m. Within that category, household goods and clothing sales enjoyed big rebounds, rising by 66.8% m/m and 70.2% m/m respectively. But these big moves mask the fact that physical retailers have continued to struggle. In June, non-food store sales were still 15% lower than in February. Clothing sales were 34% lower, even after accounting for the business they do online. This reflects the fact that they were only open for the second half of the month. (See Chart 1.)
- By contrast, food sales are now 5.3% above their February peak. And the further 1.1% m/m rise in non-store (predominantly online) sales means they are now up a whopping 54% since February.
- Overall, with retail sales falling by 10.5% q/q over Q2 as a whole, the risks to our forecast of a 32% q/q drop in overall consumption appear to be tilted to the upside. But the retail figures overplay the speed of recovery as they capture a substitution away from non-retail spending (i.e. restaurants to supermarkets, bricks & mortar to online). And the recovery in non-retail spending has been much more muted. What’s more, the real-time CHAPS payment data suggests that spending has tailed off in July. So despite today’s data release, we still expect the pace of the recovery over the next year or so to be disappointing.
Chart 1: Retail Sales Volumes (February 2020 = 100)
Table 1: Retail Sales Volumes
Retail ex petrol
Ruth Gregory, Senior UK Economist, +44 7747 466 451, firstname.lastname@example.org