About Those Weak Retail Sales in the Commonwealth

Are overseas consumers growing hesitant? UK and Canadian retail sales hit the wires Friday, followed by Aussie figures today, and disappointment was the universal reaction. But in context, we don’t think things are so bad. Weather, holidays and normal data variability seem at work here, which 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, with sales volumes down -2.3% m/m.^[i] Canadian sale values fell -0.2% m/m in March (-0.4% in volume terms), but most attention centered 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 of all three wasn’t full doom and gloom, but headlines seem resigned to a lack of positive momentum.

That seems a tad too pessimistic to us. Data are always 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 is a confounder. 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.

At the same time, no single month is all telling. 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. Aussie sales are basically flat year to date. Ditto Canadian sales. 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.^[iv] That growth rate, while nice, will almost surely be revised, and we don’t yet have the underlying details. And, again, the trends are bouncy.

Crucially, this is all widely known. 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.^[v] 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 stocks weigh.

Plus, markets are forward-looking. If they are up nicely despite sideways sales, it is 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 it is a backward-looking distraction that is more important to look through than dissect. That is especially true with narrow and often rocky data series like retail sales.