U.K. Distributive Trades Show Improved Retailing and Sagging Wholesaling

The U.K. distributive trades picture in September shows sales compared to a year ago moving into a positive reading of +4 in September after logging a -27 reading in August – a sharp turnaround. For wholesale trades, September continues to deteriorate with the September reading on sales compared to a year ago at -8, slightly weaker than the -7 reading in August. Other retail readings are also on an improving trend in September compared to August while for wholesale trades the evidence is of deterioration in September compared to August. These two key distributive trades sectors are not moving in tandem. And that phenomenon also holds for the look-ahead survey that samples expectations for October. Expected sales volumes in retailing in October compared to September have moved up to a +5 in October compared to -17 for September; for wholesaling, the October expectation for sales compared to a year ago is -6 compared with September's expectation of +6. Other expectations for October compared to September show improvements in retailing compared to further deterioration in wholesaling, further underscoring that these two sectors are experiencing very different trends. If there is incipient strength coming to retail, it has not percolated down to wholesaling yet.

Retailing The retail readings since September show improvement in sales compared to a year ago, orders compared to a year ago, and for sales evaluated for the time of year. The stock-sales ratio also moves up in September compared to August. The rankings for these September values show that sales compared to a year ago have a 44.4 percentile standing, orders compared to a year ago have a 24.6 percentile standing, and sales for the time of year have a 36.6 percentile standing. All of these are below the 50-percentile mark and therefore all reside below their historic medians. The stock-sales ratio has 66.2 percentile standing and is above its historic median. While showing monthly improvement, retail remains weak.

Expectations for October find sales compared to a year ago, orders compared to a year ago, and sales for ‘the time of year’ all improved compared to what had been expected in September. However, only sales compared to a year ago have a net positive reading. Again, the stock-sales ratio has a positive value that moves up to a reading of 20 in October from 18 in September. The rankings for these expectations are similar to the rankings for the currently reported counterparts of these indicators. Expected sales compared to a year ago have a 40-percentile standing, expected orders compared to a year ago have a 29.1 percentile standing, and expected sales for the time of year compared to a year ago have a 29.8 percentile standing. The expected stock-sales ratio has a very high 89.5 percentile standing. The readings are not strong, but they do show improvements in September and expected improvements for October and therefore they do represent some progress. However, the absolute readings for sales and expectations both are subpar.

Wholesaling Wholesaling shows deterioration in September compared to August for sales compared to a year ago, for orders compared to a year ago, and for sales for the time of year; the stock sales ratio moves up and has a positive reading. With all negative readings up and down the line, the stock-sales ratio would seem to be indicating an undesired increase in stocks relative to sales. The rankings for these measures are weaker than the counterpart rankings for retailing. And like the retailing rankings, the rankings for the stock-sales ratio was the highest.

Looking at expectations for October, again we see deterioration for all the metrics for wholesale sales compared to a year ago, for expected orders compared to a year ago, and for expected sales for the time of year. While they all deteriorate in October compared to September, they're roughly in line with or better than the surveyed numbers that had been reported for August. Once again, the stock-sales ratio is positive and moves up in October compared to September and once again the rankings for these expected readings are weaker than the retail sales counterpart expectations for the same measures.

Summing up On balance, retail sales appear to be stabilizing to some extent, possibly even turning up to show some improvement- but that evidence is thin. And the evidence has not been strong enough to percolate through the distribution chain to positively impact the wholesale sector. The Bank of England bypassed an opportunity to reduce rates and to assist the economy because the inflation progress is less than it would like to see. Clearly the U.K. economy continues to struggle, and inflation continues to be an impediment to getting help from the central bank. But with the change in government having just been completed the outlook for policy in the U.K. is uncertain. Economic performance has not turned the corner to better times and inflation progress continues to be nettlesome.