The retail surveys: leading or misleading? - Capital Economics
UK Economics

The retail surveys: leading or misleading?

UK Economics Update
Written by Ruth Gregory

The weakness in the retail surveys has led some to question whether the consumer sector will succumb to the malaise that has taken hold in the manufacturing sector. But we are sceptical the consumer sector will falter. In all our Brexit scenarios, we think households will remain the strongest part of the economy.

  • The weakness in the retail surveys has led some to question whether the consumer sector will succumb to the malaise that has taken hold in the manufacturing sector. But we are sceptical the consumer sector will falter. In all our Brexit scenarios, we think households will remain the strongest part of the economy.
  • In recent months, the CBI’s retail survey has painted a grim picture of spending on the high street. The “volume of sales for the time of year” balance for July is consistent on the basis of past form with no retail sales growth at all, well below the latest actual rate in June of 3.7%. (See Chart 1.) The BRC’s retail survey has been a little more upbeat, but it still points to sales growth of just 2%.
  • However, we are sceptical that the gloomy message of the various retail surveys will be fully reflected in the official consumer spending data. The surveys’ relatively small sample sizes mean that they can mislead from time to time. While the official data covers 93% of the retail industry, the BRC covers about 70% and the CBI less than 50%. The BRC survey in particular is tilted toward big retailers, whereas the official data is thought to be better at capturing spending on the internet. So if the BRC and CBI surveys are placing more emphasis on bricks and mortars retailers and less on internet retailers this could mean that the surveys are exaggerating the extent of the weakness in the consumer sector.
  • The qualitative nature of the CBI surveys’ questions (i.e. asking firms whether their output is higher, the same, or lower than it was a month ago) may also mean that they are not always a reliable indicator of spending. It could be that, at the moment, a large number of firms are reporting a fractional fall in sales growth. That would lead to a much lower survey balance but could be consistent with a small fall in spending growth.
  • What’s more, there has been a tendency for retailers responding to the CBI’s retail survey to report their sales values (i.e. including the effects of changes in their selling prices) rather than sales volumes. During periods of steady inflation, this won’t matter very much. But the recent deterioration in the “volume of sales for the time of year” balance may partly reflect the sharp fall in retail price inflation from 3.0% at the end of 2017 to 0.6% in June 2019. (See Chart 2.)
  • Given all this, there are reasons not to put too much weight on the weak survey readings. There have been persistent divergences between the CBI and BRC surveys and the retail sales figures in the past, most notably in 2008 and 2010, as indicated by the circles in Chart 1. And past divergences have more often than not been closed via a change in the tone of the surveys rather than the official data. In the 2008 episode, the gap was closed largely through a rise in the survey balances. And in 2010/11, the correction came mainly via a fall in the survey balances.
  • If nothing else, this gives us some comfort that the gap between the surveys and the official data will not close via a sharp weakening in the official data – rather that there might be an improvement in the CBI survey, either in the figures released on Thursday or in subsequent months. Admittedly, if there’s a no deal Brexit, consumer spending growth would probably fall, perhaps to 0.5% or so in 2020. But if there are further Brexit delays or a deal, we suspect that spending will continue to hold up well, remaining steady at its current rate of 1.8% in 2019 and 2020.

Chart 1: Official Retail Sales & CBI Retail Survey

Chart 2: Retail Inflation & Divergence between CBI Survey & Official Retail Sales Data

Source: Refinitiv

Sources: Refinitiv, Capital Economics


Ruth Gregory, Senior UK Economist, +44 20 7811 3913, ruth.gregory@capitaleconomics.com