About Those Weak Retail Sales in the Commonwealth

Are consumers growing hesitant? UK and Canadian retail sales hit the wires Friday, followed by Aussie figures yesterday, and we read many articles expressing disappointment in all of it. But in context, we don’t think things are so bad. Weather, holidays and normal data variability seem at work here, which we find markets are good at seeing through. Thinking like markets is always key to keeping data in perspective, in our view.

UK April results were the most eye-popping to us, with sales volumes down -2.3% m/m.^[i] Canadian sales values fell -0.2% m/m in March (-0.4% in volume terms), but most coverage we saw dwelled on the -0.6% m/m drop in sales excluding autos (-0.8% in volume terms).^[ii] Australia notched a positive reading for April, rising 0.1% m/m, but that wasn’t enough to offset March’s -0.4% drop.^[iii] Coverage we saw of all three wasn’t full doom and gloom, but headlines we follow seem resigned to a lack of positive momentum.

That seems a tad too pessimistic to us. Our research shows data are usually messy this time of year due to Easter’s waffling between March and April—a muted Western version of East Asia’s skew from the Lunar New Year in January and February. Seasonal adjustments try to account for this, but shifting timing can confound. At any rate, all the chocolates, hams and eggs fell in March this year, likely skewing the month-over-month base a bit.

Weather also played a role in the UK. April was a washout, keeping shoppers away from the high street. Considering non-store sales volumes—primarily e-commerce—rose 1.1% m/m, we suspect demand is a lot firmer than headline sales suggest.^[iv]

At the same time, we don't think a single month is all telling. In our view, trends matter more. In all three, the trend has been choppily sideways for months. Hence, the UK’s rolling three-month growth figure is up 0.7% on the three months through January.^[v] Aussie sales are basically flat year to date.^[vi] Ditto Canadian sales.^[vii] With that context in mind, we wouldn’t get any more excited over these reports than we would over Canada’s preliminary April figure, which showed a 0.7% m/m jump.^[viii] That growth rate, whilst nice, will almost surely be revised, and we don’t yet have the underlying details. And, again, the trends appear bouncy.

Crucially, this is all widely known by stocks, in our view. We suspect they have seen sideways retail spending and headlines’ reaction to it. Yet all three countries’ markets are up nicely year to date (despite volatility in April) and hit fresh highs on a local currency basis this spring.^[ix] Whatever retail sales are doing, they are only part of consumer spending, which is only one part of the economy, which is only one set of fundamental factors our research finds stocks weigh.

Plus, markets are forward-looking, in our view. If they are up nicely despite sideways sales, it is probably a good indication that they are looking forward, to how earnings are likely to fare relative to expectations over the next 3 – 30 months. They are seemingly anticipating good things.

We like economic data. A lot! But sometimes we find it to be a backward-looking distraction that is more important to look through than dissect. We think that is especially true with narrow and often rocky data series like retail sales.