U.K. Posts Weak Readings in Retailing

Bad weather is being cited for poor U.K. retail performance in July as sales compared to a year-ago in retailing fell to a net diffusion reading of -43 from -24 in June. However, expected sales are being marked down calling to question the notion that weakness is all weather-related.

Retailing Reported Sales- Orders compared to a year-ago dropped to a net reading of -40 in July from -14 in June. However, sales for time-of-year improved slightly to -36 in July from -39 in June. Stocks relative to sales moved sharply higher into a net +32 in July from a level of +3 in June. Stocks relative to sales showed a huge increase from June to July. The diffusion reading of +32 gives it a 97.5 percentile standing, a standing that has been its higher historically only about 2.5% of the time, marking it as quite unusual.

Sales Issues- An increase in stocks relative to sales like this would usually occur for unintended reasons and so this increase bolsters the argument that sales were unexpectedly weak in July. However, against this background, it’s also clear that sales compared to a year-ago, and orders compared to a year-ago, both have been weakening persistently from May, to June, to July; more than what can be explained by one-month’s bad weather. Sales for the time-of-year were also sharply weaker in June and July than they were in May despite the small improvement in July. The rank standings for both the sales measures and the orders show percentile standings in the bottom 10 percentile or lower by rank for all three of those metrics.

Expected Sales- However, with the July survey, we also get expectations for August. I would expect that if weather had been a primary factor causing conditions in July to be poor, we would expect some bounce back in August and that's not what we see in the survey. Instead for August, we see a sharp deterioration for expected sales compared to a year-ago and expected orders compared to a year-ago; both weaken in August compared to what had been posted for July. Once again sales for the time-of-year improved, this time in August to -21 from -29 in July. The expected stock-sales ratio is up sharply to 21 in August from zero in July and again to a 91.2 percentile standing. Meanwhile, the percentile standings for both the sales and the orders measures are weak in the bottom 15 percentile or lower.

Wholesaling Reported Sales- In wholesaling, we see a repeat of some of the dynamics that appear in retailing for July. Sales compared to a year-ago weakened sharply to -21 in July from -12 in June. Orders compared to a year-ago weakened to -11 in July from -6 in June. Sales for the time-of-year also weakened, and weakened more sharply, for wholesaling to -28 in July from +4 in June. The stock-sales balance for the time-of-year moved up modestly to +9 in July from +5 in June. The queue standings are still weak across the board, in wholesaling but quite different from what we observe for retail sales. Wholesale sales compared to a year-ago and sales for the time-of-year are both weak. But the year-ago measure has a 12.7 percentile standing and the time-of-year or seasonally-adjusted comparison is at a weaker 4.9 percentile standing. Orders compared to a year-ago have a 28.5 percentile standing, still weak, but not in the same dregs as those plumbed by sales measures. The stock-sales balance has a 36.3 percentile standing, elevated compared to the other measures, but again no comparison with the very high ranked standings that we see for inventories in retailing.

Expected Sales- Expected sales for August also show sharp deteriorations with sales compared with a year-ago falling to -19 in August from -4 in July. Orders compared to a year-ago fall to -11 in August from +2 in July. Sales adjusted for the time-of-year fall to -21 in August from -3 in July. The stock-sales ratio balance shows a rise to +9 in August from +4 in July. The ranked percentile standings once again produce the highest standings for the stock-sales ratio with a 39.6 percentile standing that is still below its median which resides at a standing at the 50-percentile mark. The two sales figures are quite weak with sales compared to a year-ago with the 13.3 percentile standing and sales for the time-of-year with a 9.8 percentile standing. Orders compared to a year-ago have a 27-percentile standing, still quite low and just above the lower quartile of its historic ranking of values.

Summing up While there appears to be an important weather contribution to these weak readings, especially because of the extreme strength we see for the inventory metrics in retailing, that still doesn't seem to be a complete picture. For retailing, we're looking at two months in a row of deterioration and then we're looking at expected figures that do not reflect any bounce back that would normally be expected with bad weather. Only in the case of something significant and enduring like a flood would we expect the bad weather in this period to carry over to the next period or beyond. The distributive trades also show two months of weakness in wholesaling but not as severe weakness as for retailing. That is followed by significant deterioration in August for expected sales and orders. It's possible that the bad weather and the impact on sales has also damped the mood and affected expectations even though with bad weather we might really expect there to be some bounce back in the following period. Since the U.K. economy has been struggling, there may be more concern and less confidence about the economy and particularly in its ability to bounce back from bad weather. However, for now I find the bad weather argument being leaned on a bit too heavily given the responses in the surveys for both current and expected sales. The recent shift on the political scene in the U.K. has likely also played into concerns about the future, policy, and economic performance.