Retail Resilience in the British Commonwealth

Economic doom and gloom have peppered financial headlines this year, but some underappreciated transatlantic rays of optimism keep shining. Following America’s report earlier last week, August retail sales out of the UK and Canada also pointed positively. While just one month, these figures are further evidence of economic resilience out of the developed world.

UK Retail Sales Warmed This Summer

UK retail sales volumes registered their third-straight positive month in August, climbing 0.5% m/m and doubling expectations of 0.25%.^[i] Clothing stores, butchers and bakers and non-store retailing contributed most, which some businesses attributed to good August weather.^[ii] Taking a step back, retail sales volumes were down -0.1% in the three months to August when compared to the same period through May.^[iii] Yes, that is a slight contraction, but it is also an improvement from the -0.7% in the three months to July compared to the same period through April.^[iv] From an even longer view, UK sales volumes rose 0.7% y/y.^[v] These results aren’t robust, but considering most presumed tariffs and payroll tax hikes would weigh on the UK economy, that fear has yet to manifest in data.

On Canada’s Retail Sales’ Summertime Swings

On Canada, we will start with the bad news: July retail sales fell -0.8% m/m (both in value and volume terms), the worst start to a Q3 in three years.^[vi] Of the nine subsectors, only motor vehicle and parts dealers contributed—the eight others, led by food and beverage retailers, detracted.^[vii] Positively, however, an advance estimate revealed August retail sales rose 1.0% m/m.^[viii] Granted, this release shares only the headline number—it lacks subsector details—and is based on about 50% of surveyed companies.^[ix] The average final response rate is close to 90%, so the next, more complete estimate may differ from this early report. But when taking July’s -0.8% slip with August’s apparent solid read—and June’s even stronger 1.6% m/m growth—Canadian retail sales volumes overall appear to have pointed positively this summer.^[x] 

Now, as with all datasets, UK and Canadian retail sales reveal useful information but also have shortcomings. Helpfully, Britain’s figures are all sales volumes, which account for inflation-related skew—making them an outlier among developed nations. Canada’s July and June figures do reflect volumes, but not the preliminary August figure. The monthly datasets are also subject to short-term volatility. The UK, for example, has long reported the weather’s effects on monthly reports—but over longer timeframes, that tends to fade. The UK has also had issues with data integrity recently, as the Office for National Statistics’ seasonal adjustment factors overstated retail sales’ volatility. Moreover, retail sales aren’t fully representative of consumer spending. They reflect “goods” purchases but not most services. Yet in both the UK and Canada, services accounts for around 60% of total spending.^[xi] And of course, all these data are backward-looking—confirming what forward-looking markets have long since digested and moved on from.

But backward-looking data can still have value for investors, and we think these reports illustrate the economic resilience stocks pre-priced in both these nations earlier in the spring and summer. Tariff concerns weighed on sentiment in both the UK and Canada—especially since America is the latter’s largest trading partner. The UK also faced questions about fallout from April’s employer tax hikes. We don’t dismiss those headwinds, but it is telling they haven’t caused domestic demand to shrink.

Keep that in mind as commentators across the developed world argue rate cuts are necessary to support growth. As demographics, labor market weakness and stubborn inflation weigh on moods, retail sales growth has continued trending upward—a sign things aren’t as poor as many fear.