A trio of retail sales reports from Britain and two countries that were formerly part of its empire—Australia and Canada—all show a lockdown-driven plunge in April followed by a sharp May rebound as virus-related restrictions started to lift. In our view, their experience contradicts worries of a prolonged spending slump delaying an economic recovery and illustrates the big difference economic reopenings can make.
First, the numbers:
Exhibit 1: Month-Over-Month % Change in UK, Australia and Canada Retail Sales
Sources: Office for National Statistics, Statistics Canada and the Australian Bureau of Statistics, as of 6/22/2020. *Statistics Canada provided May’s figure in a special “advance estimate … given the rapidly evolving economic situation.”
Divergent sales in various retail categories underscores COVID-related restrictions’ central role in determining where—and how much—consumers shopped. Lockdowns typically carve out exceptions for “essential” businesses like grocery stores, gas stations and pharmacies, while shuttering “nonessential” businesses like clothing, sporting and household goods stores. Consequently, the “nonessential” variety tended to plunge deeper in April and rebound more in May.
For example, in the UK, the ONS noted that “non-food stores provided the largest positive contribution to the monthly growth in May 2020, aided by a strong increase of 42.0% in household goods stores, with the opening of hardware, paints and glass stores reflected in this sector.”[i] Compare this to April, when UK household goods sales fell -45.6%.[ii] Conversely, sales at “predominantly food stores,” which include grocery stores, fell just -4.1% m/m in April, likely buoyed by consumers stocking their pantries as restaurants closed en masse.[iii] No surprise, then, that they remained negative (-0.2% m/m) in May.[iv]
Similarly, Australia’s Bureau of Statistics reported, “there were large increases in turnover [meaning sales] in Clothing, footwear and personal accessory retailing and Cafes, restaurants and takeaway food services, as restrictions eased throughout [May]… Turnover increased across all subgroups in the Household goods retailing industry.”[v] While Canada hasn’t released detailed May data yet, it noted “clothing and clothing accessories (-84.8%), sporting goods, hobby, book and music (-66.7%) and motor vehicle and parts dealers (-64.2%) stores reported the largest percentage declines from February to April.”[vi]
While May’s upturn is nice, retail sales haven’t returned to pre-lockdown levels in any of these countries—largely, in our view, because they haven’t fully reopened. In the UK, for example, only England and Northern Ireland have reopened thus far, and not all at once. In England, many “nonessential” retailers couldn’t open until June 15, and social distancing rules still limit foot traffic. Scotland and Wales still mandate closures of “nonessential” stores. Australia and Canada haven’t removed all restrictions, either.
Another caveat for retail sales’ strong May is the likely role of substitution. Governments allowed many goods retailers to reopen sooner than services selling access to similar products. For example, since gyms typically face tighter restrictions, consumers may choose to purchase exercise equipment instead of a gym membership. While complete data are scarce, there are anecdotal reports of surging sales at fitness equipment stores, kettlebell shortages and bidding wars on used exercise equipment. Likewise, judging by the huge volume of “personal care at home” how-to’s we have seen in major newspapers’ lifestyle sections, many people are compensating for salon closures by buying home hair coloring and trimming kits, nail polish, clippers and cuticle gel for at-home manicures, and the like. So, although consumers appear eager to shop where they can, as more competing services reopen, the pace of the spending rebound could slow somewhat—even as the economy returns to some form of normalcy.
That said, we think these data comport with other hints of pent-up demand and undercut fears that spending will remain tepid even after shops reopen. While consumers may be reducing shopping trips out of caution, May’s reports are an encouraging sign that as businesses reopen, customers are able and willing to open their pocketbooks. This makes sense to us, as consumer spending tends to be pretty stable, even in recessions. Plus, like the US government, the UK, Canada and Australia swiftly subsidized furloughed and laid off employees’ wages, giving them space to spend.
Retail sales data are backward-looking and may not continue their upward trajectory, particularly if broad shutdowns return—a political decision that defies forecasting. In our view, though, widespread fears of stagnant consumer spending suggest more positive surprise may be in store if continued reopenings let consumers return to their usual shopping habits.
[i] Source: Office for National Statistics, as of 6/22/2020.
[v] Source: Australian Bureau of Statistics, as of 6/22/2020.
[vi] Source: Statistics Canada, as of 6/22/2020.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.