On Retail Sales Trends in Europe and Asia

How are consumers faring after two years of elevated inflation?^[i] Financial publications we follow suggest households are struggling amidst higher prices, which we think is understandable—and we don’t dismiss those hardships and challenges. But as we showed last week, price pressures haven’t derailed American consumer spending. How about consumers in other major economies? A look at global retail sales measures isn’t clean, as many distortions from prices and calculation limitations muddy the water. But the data are overall mixed—a sign consumer activity looks more resilient than commentators we follow who anticipate recession (an economy-wide decline in activity and output) may realise, in our view.

First, note that many retail sales metrics aren’t inflation-adjusted. Those that are—volume measures—take into account price changes, but for those that aren’t, we think it is important to keep inflation trends in those nations front of mind, as we will show.

Starting with places that report sales volumes, April’s numbers brought some encouragement, in our view. In the UK, retail sales rose 0.5% m/m, rebounding from March’s -1.2% dip.^[ii] April’s read beat economists’ consensus estimates and reflected some pent-up demand from March, when historically wet weather kept shoppers home.^[iii] Hence, non-food stores sales volumes rose 1.0% m/m after March’s -1.8% fall.^[iv]

Looking more broadly, we have observed a well-publicised divergence between UK sales volumes and values since mid-2021—tied primarily to inflation.^[v] Total UK retail sales volumes are still 0.8% below February 2020’s pre-lockdown levels, whilst sales are 16.5% higher in value terms.^[vi] But volumes have stabilised somewhat lately, rising three of the past four months—which we think is a sign of resurgent spending despite stubbornly high inflation.^[vii]   

Canada also reports retail sales volumes, albeit the latest numbers are from March. Though they fell -1.0% m/m, motor vehicle and parts dealers (-4.0% m/m) and petrol stations (-1.3%) drove the decline.^[viii] Excluding auto and petrol station sales, March sales inched up 0.3% m/m. We caution against reading much into one month, but in our view, nations reporting sales on a volume basis suggest demand for goods has persisted despite fast-rising prices over the past two years.

Elsewhere, sales values have been more growthy this year, but it can be difficult to get a clean read on these figures—not just because of the lack of inflation adjustment, but because some nations don’t publish month-over-month numbers that are seasonally adjusted for repeat trends and shifting holidays, just year-over-year.^[ix] Where we do have month-over-month figures, sales hit a speedbump in April—albeit on the heels of some solid growth in recent months. For example, Japanese retail sales fell -1.2% m/m, the first such drop since November 2022, whilst South Korean sales (-2.3%) dipped on a monthly basis for the first time since January.^[x] In the Land Down Under, Australian retail sales were flat after rising the past three months, and the Australian Bureau of Statistics noted spending plateaued over the past six months due to cost-of-living pressures—though we would note softer spending is still spending.^[xi]

Now, we don’t have as clear a view of how demand is holding up since deflating retail sales by inflation measures like the Consumer Price Index (CPI, a government-produced measure of goods and services prices) isn’t a clean analysis due to the component weights differing in the gauges, but we think it is worth noting Asia hasn’t faced the same price pressures as the West. Japan and South Korea in particular have had much lower inflation rates than those in Western Europe, so households in the East haven’t necessarily faced the same inflation-driven challenges. (Exhibit 1)

Exhibit 1: Select CPIs in Developed Asia and Western Europe

Source: FactSet, as of 1/6/2023. UK CPI, Eurozone HICP, Japan CPI and South Korea CPI, year-over-year change, May 2022 – April 2023.

China is a unique case, in our view, since it reports its economic data on a year-over-year basis—common practice amongst many Emerging Markets. Year-over-year comparisons can introduce big skew due to temporary factors affecting the year-ago comparison point, and we think that played a role in April’s retail sales, which rose 18.4% y/y—a reflection of April 2022’s cratering sales due to Shanghai’s COVID lockdowns.^[xii] Still, even with that favourable comparison point, sales missed consensus expectations of 22.0% y/y, and that disappointment prompted many commentators we follow to warn of a slowing Chinese economic recovery, especially after March sales surged 10.6% y/y from Jan-Feb’s 3.5%.^[xiii]

But those concerns seem overstated to us. As we pointed out last week, recent Chinese economic data appear to be following a pattern we have seen repeatedly after easing COVID restrictions: a short boom of activity due to the release of pent-up demand, followed by a return to the longer-term trend. That boom also tends to get smaller in each subsequent lockdown/reopening cycle based on our observations. In our view, it is more likely retail sales growth slows than surges—which we think is consistent with China’s longer-term economic trajectory.^[xiv] (Exhibit 2)

Exhibit 2: Some Longer-Term Context for Chinese Retail Sales

Source: FactSet, as of 1/6/2023. Chinese retail sales, year-over-year change, May 2014 – April 2023. January and February figures are omitted due to Lunar New Year skew. 

Retail sales measures have their limits, as they tilt towards goods and won’t give a comprehensive look at spending since so many economies are services-heavy, especially in the developed world and late-stage Emerging Markets in Asia.^[xv] Even in China, services makes up the majority of GDP now.^[xvi] Still, we think retail sales indicate consumer spending in most major economies is resilient. Despite some soft patches, the data suggest there are plenty of ongoing (and overlooked) growthy spots, too.