Economy in Brief

UK nominal sales and sale volume trends create completely different pictures of reality. But surveys join the volume data in seeing pronounced weakness and even the potential for a gathering storm.

Volume vs value assessments - UK sales values increased by 0.2% in October, but sales volumes fell at the same time; sales volumes have fallen for two-months in a row by -0.3% in October and by -1% in September. Nominal retail sales increased by 2.3% over 12-months and are expanding at a 2.4% annual rate over 3-months, giving the appearance of steady, if somewhat slow, expansion in sales. But retail sales volumes, adjusted for the effects of inflation, show declines of 2.7% over 12-months and a decline at a 3.2% annual rate over 6-months followed by a decline at a 4.1% annual rate over 3-months. Sales volumes are contracting, and the degree of contraction is growing over more recent periods.

Quarter-to-date - Similarly on the quarter-to-date, nominal retail sales show a 1% increase as sales volumes are contracting at a 5.2% annual rate.

Turn signals from autos? - Passenger car registrations have fallen for two months in a row, falling by 0.2% in October and by 1.4% in September. The progression of passenger sales registration shows a rise of 11% over 12-months, that accelerates to a very strong 36.7% annual rate over 6-months but then registrations weaken and fall at a 5.6% annual rate over 3-months. In the quarter-to-date passenger car registrations are falling at a 6.4% annual rate.

Survey results: the CBI UK surveys on retail sales provide some additional perspective on how sales are performing and how merchants tend to view sales trends. -The Confederation of British Industry (CBI) shows retail sales for the time of year falling to a -15 index reading from a + 14 in September. The progression of changes for sales shows a decline of 30 points over 12-months, a decline of 31 points over 6-months, and a decline of 9-points over 3-months. Retail sales for the ‘time of year’ declined by 8 points in October compared to their Q3 average; their October value has a 39.7 percentile standing in its historic queue of responses. On balance these are weak retail signals.
-The CBI assessment of the volume of orders judging from year-on-year growth rates, plunges to a minus 18 response from plus 18 in September. However, the progression of changes shows this order metric lower by 36 points over 12-months and lower by 38 points over 6-months then higher by 2-points over three months.

Consumer Confidence - Consumer confidence (also plotted on the chart above) drops to -9 in October from +4 in September. Consumer confidence has been flat, over 3-months and 6-months but is up by 17 points over 12-months. Still, confidence is lower by 4.7 points in October compared to the Q3 average. And its queue standing is in the 15th percentile of its historic queue of results, quite weak.

Conclusion: Weak! Weak is the bottom line on UK retail sales in October. The nominal signals are copacetic but misleading. Passenger car registrations have a high queue standing in their 81st percentile but show some near-term weakening. Food and beverage spending is holding to high ground as well. But overall nominal sales, and total sales volumes, the CBI metrics, as well as consumer confidence, all score extremely weak readings. Fortunately, inflation in the UK is turning lower - still excessive - but moving in the 'right' direction. Still, there will be no 'relief' from monetary policy anytime soon and, in the meantime, retailing is weakening.

The year-on-year trends show that Japan’s nominal imports have weakened significantly since late 2022. Exports have slowed as well, but the import weakness has been more dramatic and has transited to a lasting series of negative year-on-year growth rates. Over the past several months imports have been weakening, shrinking, while exports are growing slowly and the deficit on+ the trade account for goods remains unchanged. Even with reasonably severe import weakens Japan is not making progress in reducing its trade deficit situation.

Inside the one-year mark looking at nominal export and import growth over six months and three-months we find both exports and imports are gathering pace but, of course, exports are growing faster than imports. Export growth ramps up from 1.5% over 12-months to a 6-month pace of 13.2% and a 3-month annualized pace of 17.4%. Imports that contract by 15.4% year-on-year also recover to a flat performance over 6-months and grow at a 10.8% annual rate over 3-months.

The yen has weakened over the last 12-months falling by 1.7% Vs the dollar over 12-months and concentrating its decline into the recent 6-months and 3-months when the annual rate of yen decline Vs the greenback is 26% or so. The broad, real effective yen index has also fallen by 2.5% over 12-months and at a faster 12% to 13% annual rate over 3-months and 6-months.

Real vs nominal trade data and trends And, as is often the case, the nominal and the real data tell very different stories of what is going on here. Export prices rise by 2.4% over 12-months in Japan while import prices drop by 11.6%. Then both export and import prices rising strongly over 6-months and 3-months with import prices rising at a 35.4% annual rate over 3-months and export prices up at a 23% annual rate over 3-months.

As a result of the divergences in export and import prices, the trends that impact real export and import flows cause the real and nominal flows to look quite different. Real exports and real imports both fall over 12-months with real exports falling by 0.9% and import volumes falling by 4.3%. The import declines step up to show drops at a 10.8% annual rate over 6-months and at 18.1% over 3-months. Export volumes also weakened progressively, but more mildly, falling at a 2.6% annual rate over 6-months and at a 4.7% annual rate over 3-months. Given the weakness in the real flows, the weakness in the yen over this period makes perfect sense to try to ameliorate these trends.

Of course, one difference between what the nominal and real data show involves the somewhat trivial differences over 12-months where nominal data show weak export growth and more severe import weakness. But then, both flows gain pace over shorter horizons. That’s where real differences emerge. The real flows show declines in both export and import volumes over 12-months and less draconian import weakness, with export volumes weakening mildly but progressively and import volume weakness increasing sharply over 6-months and 3-months. The implications for policy are quite different. Japan is looking like it is further weakening based on what import volumes tell us about domestic demand conditions in Japan. Japan’s economic conditions bear close watching if the real trade data are reliable barometers.