Economy in Brief

Canada’s nominal sales show some overall resilience; however, when adjusted for inflation, sales show deepening weakness in August.

Headline nominal trends are resilient- Canadian retail sales declined in August, falling by 0.1% after rising by 0.4% in July and gaining 0.1% in June. The progression of retail sales growth from 12-months to six-months to three-months shows gains across all horizons with no clear trend. The 12-month growth rate of 1.6% is the same as the annualized 3-month growth rate with a pickup to 3% over six-month horizon in between.

Industry trends show mixed nominal results- Looking at industry level sales, new car dealers show a steady slowdown in nominal sales from 7.2% over 12 months to 2.9% annualized over six months to less than 1% annualized pace over three months. Supermarket sales show a general slowdown with growth rates at 4% or more over six months and 12 months before contracting at a 2.3% annual rate over three months. Clothing store sales gained 5.7% over 12 months and then declined at a rate of 1% or less over six months and three months.

Nominal sales excluding motor vehicles- Taking motor vehicles out of total nominal retail sales leave sales tending towards slightly stronger growth with a gain of only 0.3% over 12 months, rising to 3% over six months and settling back to 2.2% at an annual rate over three months.

Real sales show a clear declining trend- The industry trends for nominal Canadian retail sales are not particularly clear; however, when we take the inflation out of the picture, the overall results clarify themselves. Over 12 months real retail sales rise 1.2%, over six months real retail sales fall at a 0.1% annual rate, and over three months real retail sales fall at a 3.4% annual rate. Moreover, real retail sales fall by 0.6% in August, fall by 0.1% in July, and fall by 0.1% in June. The recent monthly picture is unambiguously weak as monthly reports show that the real retail sales continue to contract.

The real thing... As always, during times when inflation is high and particularly when the inflation rates are changing, it's important to look at the inflation adjusted data instead of just the nominal data. But nominal data can sometimes provide a bit more detail sooner that adds to the flavor of the real signal. Canada's nominal data show unevenness on their own but not real clarity. The real retail sales data show substantial clarity.

Canadian sales quarter-to-date- On a quarter-to-date basis, Canadian retail sales rise by 1.8% in an annual rate with two months data in from the third quarter; excluding motor vehicles, that growth rate rises to 3.4% at an annual rate. However, including motor vehicles but then adjusting for inflation leaves quarter-to-date real retail sales for Canada falling at a 3.6% annual rate with two months of data in hand. In addition, nominal sector sales show that new car dealer sales fall 2% at an annual rate, the quarter-to-date supermarket sales fall by 0.2% at an annual rate, and clothing store sales fall at a 1.2% annual rate.

We shift our focus back on China in light of last week’s Q3 GDP print and monthly readings for September. That latest flurry of data releases has spurred further hope that the Chinese economy has entered a stabilization phase, following a protracted period of underwhelming growth. There is still reason for caution, however, given persistent weakness in the property sector, among other economic drags. Also, continued reliance on fiscal stimulus via local government infrastructure spending warrants continued monitoring, given how this spending is straining China’s debt arithmetic. Furthermore, there is the added financial stability concern arising from growing off-balance sheet local government debt, although we have already seen some regions beginning to address such problems. All told, while the stabilization in the economy is encouraging and may bring positive spillovers if sustained, property sector woes and signs of increasing indebtedness justify some unease.

U.K. retail sales fell by 0.2% in September. Monthly sales have been erratic, rising by 0.9% in August after falling by 0.8% in July.

Nominal trends- Sequentially retail sales have weakened, rising by 4.7% over 12 months and at a similar 5.1% pace over 6 months then running dead flat over 3 months. Industry sales of food, beverages & tobacco as well as clothing & footwear also have slowed, 12-months to 3-months.

In the quarter-to-date, U.K. retail sales are rising at a 1.2% annual rate. The nominal year-on-year growth rate ranked on data back to 2002 has a 75.1 percentile standing in its historic queue of data.

U.K. sales volumes- U.K. retail sales adjusted for inflation show more weakness as well as contraction in the quarter-to-date. U.K. real retail sales (sales volume) fell in September and in July just as they do for nominal sales. Sequentially retail volumes contract by 0.9% over 12 months, at a -0.8% pace over six months, and at a -6% annual rate over three months. Real retail sales are falling at a 3.1% annual rate in the just completed third quarter. The queue standing for the nominal growth rate is much stronger than the queue standing for the real growth rate; the latter stands at its 18.8 percentile, a far cry from the 75.1 percentile standing for nominal growth. Sales volumes in the U.K. are weak.

Passenger cars- Passenger car sales/registrations have been rising year-on-year for over 14 months. Even so, monthly setbacks have occurred but have been sporadic. Registrations are up at a 20% pace over three months, six months and 12 months despite weakness elsewhere in retail sales.

Survey results for retailing The CBI surveys show sales and orders rebounded in September. While both series are declining in the third quarter, the rankings are mixed. Sales for this time of year have a 77-percentile standing. However, the volume of orders year-over-year has only an 18.8 percentile standing.

Consumer confidence in the U.K. on the GfK measure edged lower in September (it has since fallen harder in October) and it has a September standing at its 31st percentile, a lower-one-third standing in its ordered queue of historic data.