Retail sales in May saw their biggest monthly rise since 1986.
Let’s run that past you again. House prices are in free fall, banks are announcing write-downs and rights issues with gay abandon, oil is shooting up, inflation is up; but our wages are not keeping pace, Mervyn King talks about real income falling, a credit crunch is supposedly strangling the life out of the economy, more and more economists are warning recession could be around the corner, and the High Street had its best month-on-month rise in 22 years.
The last time sales jumped that fast, Bobby Robson was manager of England, Jason Donovan and Kylie Minogue got married in Neighbours, and Tom Cruise was messing about with Migs in the film Top Gun.
How can this be?
“Sales by small and medium businesses show continued strength,” said the Office for National Statistics. “In March to May the value of sales for all retailing was 4.2 per cent higher than in the same period a year earlier; sales by predominantly food stores were 5.4 per cent higher; sales by predominantly non-food stores were 2.8 per cent higher and sales by the non-store retailing and repair sector were 7.4 per cent higher than a year earlier.”
The rise in sales was put down to the good weather in May. Good weather in May! Have you been outside much lately? Sure, May had a week or so of good weather, but it wasn’t that exceptional.. It wasn’t the warmest May since 1986. And it has rained a fair bit too.
The figures are at complete odds with findings from the CBI. Its Distributive Trade index showed a reading of minus 14 for May. Last month was worse than that, but April aside this was the worst reading since February 2006.
Then again, the British Retail Consortium was slightly more in line with the ONS data. It recorded a 1.9 per cent rise in like-for-like sales on last month and a 4.6 per cent rise on a year ago.
The Telegraph chose to focus this morning on how unbelievable these figures are. It quoted Philip Green as saying the data was bizarre. He said: “These figures in no way reflect the current trend. They are totally misleading. I have no idea where they collect this information from. I’d love to know. Can I join the club that is seven points up in May?”
The Telegraph also had a word with Sainsbury’s Justin King, who was equally perplexed: “The ONS doesn’t appear to understand how people shop…These figures are based on a small basket and exclude promotional activity.”
Even Charles Bean, the man being promoted to the post of deputy governor at the Bank of England, seemed puzzled, although he couched his words in econ speak. “The retail sales numbers do look somewhat stronger than really a raft of surveys,” he told the BBC.
Capital Economics said: “Given the backdrop of sharply rising inflation and plummeting confidence, we continue to think that the official sales figures should be taken with a pinch of salt. Indeed, the CBI retail sales survey and the official figures have recently diverged sharply.”
In complete contradiction to the reports saying the figures were unbelievable, others worried that they signified inflationary fears must be stronger than ever. Ian Kernohan, economist at Royal London Asset Management told the BBC: “Unfortunately this ’shop till we drop’ attitude will sow the seeds of its own demise. The risk of rate rises followed by a recession has just gone up.”
And the BRC’s Director General Stephen Robertson, perhaps with half an eye on the Bank of England and worried the data would prompt a rise in interest rates – the last thing BRC members want, said: “These official figures confirm our own findings that retail sales growth was lifted by the final arrival of warm weather in early May. As the sun came out so did shoppers, boosting sales of summer food and drink and particularly clothing which had been struggling.
“However, the economic fundamentals remain weak. Much of this sales growth is the result of discounts and promotions and people are still reluctant to buy more expensive items, such as furniture and electricals.
“Personal finances are under severe and mounting pressure. Customers are concerned about jobs and the housing market. So it remains to be seen whether this sun-driven boost is sustained over the coming months.”
The Bank of England, itself, seems more interested in surveys. And puts more credence on what the BRC and CBI are finding than the official data.
But how can the ONS have reported such sharp rises?
One possibility is that the data is wrong. Maybe it doesn’t place enough emphasis on the so called BOGOF deals – buy one get one free.
Others say sales and specials have encouraged shoppers to spend more. In other words, bargains were behind the May surge. If that is so, then explain these recent comments from the CBI: “The prices of goods in the year to May increased at their fastest rate in 16 years, as many retailers passed on the growing pressures of rising energy, food and raw material costs.”
Another possibility is that all the doom and gloom doing the rounds is wrong. The Bank of England is dead right, falling house prices don’t mean falling sales on the High Street. If that is right, then inflation really is a danger, and the Bank of E will need to up interest rates fast.
Here is another theory. Data from the Council of Mortgage Lenders, out yesterday, revealed that gross mortgage lending fell slightly from April. This is a surprise too, but is largely explained by the market for re-mortgaging still apparently in buoyant shape. A CML statement said: “The re-mortgage market remains on track to meet our forecast for growth this year, demonstrating the resilience of the market despite recent bad news. However, by comparison, the next few months will remain very weak for house purchase activity for the funding reasons which are now well rehearsed.”
In other words, if you want a loan to buy a house, that is tricky. But if you want to re-mortgage, that is not so bad.
Maybe consumers have been topping up their mortgages, and spending some of the money. If so, May saw no more than a kind of last hurrah, because, as house prices fall, this option will no longer exist.
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