Difficult Summer For Shops

The CBI tell us that shops are still having a bad time in the High Street as retail falls again for the third month in a row. Their forecast for August is no better. The results are mitigated by saying that the fall is no greater than the rises we saw in May and June and a lot better than the falls between July 2008 and March 2009. That's better than expected by a lot of people.

Sales volumes are down but not as much as expected. Stocks are adequate to meet demand even though they are below average for the thrid succesive month. Orders fell again and the outlook for all of these figures is more of the same in August.

When looking at the individual sectors, grocers are seeing strong growth, as are footwear and leather with its best result since August 2007. Hardware, china & DIY, and furniture & carpets are reported falls while household durables fall is slower than last year. Wholesalers sales volumes fell in the year to July. In particular it was a difficult month for industrial materials and builders' merchants wholesalers. Food and drink wholesalers however reported another month of strong growth.

Estimates Show Decrease In GDP

The preliminary estimates of GDP published by the Office for National Statistics show that GDP has decreased by 0.8% in the second quarter of 2009 compared to Q1. The decline was due to noticeable decreases in all component aggregates. Manufacturing has decreased by 0.3% which is an improvement on the last few quarters and production in total is estimated to have decreased by 0.7%. Total services have decreased by 0.6%. The decrease in business services and finance was 0.7% compared with 2.5% in the last quarter. They contributed most to the decline in total output. Output in the construction industry decreased by 2.2% compared with 6.9% in the last quarter. Decreases in other measured sectors were in distribution, hotels and restaurants 0.5% this quarter compared with 1.5% in the last, transport, storage and communication 2.1% compared to 3%, government and other services decreased by 0.2% compared with an increase of 0.2% in the last quarter. The biggest contributor to the decrease was public administration and defence. The agricultural sector decreased by 2.3% compared to 0.1% in the last quarter.

Manufacturing Decline Slowing Down

The CBI quarterly Industrial Trends survey suggests the rate of decline in manufacturing may be slowing but a return to growth is not within sight for the next quarter at least. Firms are continuing to run down stocks and stocks of finished goods running down at the fastest rate for over 50 years. However, stock adequacy is such that firms are planning to continue to run them down at the same rate next quarter. Export demand also continues to fall despite the weakness of the pound and price cuts. Firms also reported employment continues to fall.

Growth In Retail Sales

The value of retail sales went up 2.5% and the volume by 2.9% in June 2009 on June 2008 according to the Office for National Statistics latest bulletin on retail sales. The value went up 1.4% and volume 1.3% over the quarter on the same quarter last year. The difference in value between May and June was 0.6% and in volume 1.2%. On the previous quarter the change was 0.8% in value and 0.7% in volume.

Monthly sales values for food stores was up by 6.5% and volume by 2.6% and non-food stores values were down by 1.6% but volumes up by 2.4%. The value of sales in household goods stores decreased 7.2%, others by 4.1%. The non-store retailing sector increased by 7.4% on last year. The largest increase in non-food stores was in textile, clothing and footwear stores at 11.3%. The largest decrease was in household goods stores at 5% driven by furniture and hardware stores. Non-store retailing and repair increased by 10.1% on last year.

The prices of retail sales, an implied price deflator, were 0.2% lower than June 2008. Internet retail sales average weekly value was £179.8m or 3.3% of the total. The value data report the value of sales at the till. The volume data are constructed to remove the effect of price changes. The CPI is the main source of data on price changes.

Debt Highest Proportion Of GDP Yet

The public sector current deficit was £9.9bn in June 2009 according to the Public Sector Finances bulletin from the Office for National Statistics and HM Treasury. Public sector net borrowing was £13bn. The net cash requirement was £19bn and the net debt £798.8bn or 56.6% GDP. The public sector net debt for June was £657.5bn. In the year 2009/10 April to June there was a current budget deficit of £34.1bn and net borrowing of £41.2bn. The public sector net cash requirement was £42.8bn. The Budget 2009 predicted public sector current budget of £132bn, public sector net borrowing of £175bn and public sector debt excluding financial sector interventions of 55.4% GDP at end March 2010. Financial sector interventions have had some effect on financial data. It has reduced the Central Government Net Cash Requirement (CGNCR) by about £2.5bn, mainly due to the disposal of company securities, but was neutral for the public sector as a whole.

The Institute for Fiscal Studies said the public finance figures may give some encouragement to the Government as tax receipts fell by only 5.7% in June relative to June last year. It is a smaller rate of decline than the 7.4% predicted for the whole of 2009/10. The figures may at first suggest slower spending growth but in fact without the financial sector intervention it can be seen that spending continues to grow. Fears about the use of public sector investment not being able to stimulate the economy quickly enough have not so far been borne out as investment has been £2.6bn higher than the same period last year.

Manufacturing Jobs Hit All Time Low

The number of people unemployed has risen to 2.38m up 281,000 in the three months to May giving an unemployment rate of 7.6% and 753,000 on the year. The claimant count has increased to 1.56m. The number of inactive people of working age has increased and the economic inactivity rate has risen to 20.9% in the quarter. There are fewer vacancies. The number of vacancies was 429,000 down 35,000 on the quarter and 222,000 on the year. The number of redundancies was up 31,000 to 301,000 in the three months to May and 182,000 on the year. There were 31.19m workforce jobs in March. That is 108,000 down on the quarter and 455,000 fewer over the year. The number of manufacturing jobs in the quarter was 2.68m, the lowest figure since 1978 and is 201,000 or 7% down on the year. There were a total of 918.8m hours worked in the quarter to May and the average weekly hours worked was unchanged at 31.7. Average earnings annual growth rate for the whole economy excluding bonuses was 2.6% and including bonuses was 2.3%.

Good Weather Good For Sales

Retail sales rose 1.4% on a like-for-like basis and 3.2% in total in June according to the British Retail Consortium-Nielsen Retail Sales Monitor. The good weather is said to be a contributory factor in the increase in sales, particularly food sales and outdoor goods. This time last year it was wet and cold. The uncertainty about jobs may be putting shoppers off spending on bigger items which has seen sales fall off slightly. The weather has not put people off the Internet and other non-food non-store sales which were up 16.8% on last year. The gap between like-for-like and total sales performance is narrowing reflecting the reduction in new store openings in the current environment.

Inflation Down To Below 2% In June

The Consumer Price Index was down to 1.8% in the month of June from 2.2% in May. The RPI fell by 1.6% over the year. Food and beverages were again the main downward contribution as with 'factory gate' prices. Furniture and household equipment were also a factor. Recreation and culture contributed a large upward pressure. As an internationally comparative measure the CPI shows that UK inflation in May was 2.2%. The provisional figure for the EU as a whole was 0.7%. The statistics are from the ONS.

Producer Price Inflation Down 1.2%

The output price index for home sales of manufactured products was down 1.2% in the year to June according to the ONS Producer Price Index bulletin. The ‘factory gate’ index reflects a fall in chemical prices of 3.0% between May and June partly offset by increases in petroleum products of 3.9%. Leaving out ‘volatile’ sectors, like food, beverages, tobacco and petroleum, the ‘narrow’ index increased 0.1%. Petroleum products actually fell by 19.9% over the year. Input prices for materials and fuels bought by the manufacturing industry fell 11.0% in the year to June but rose 1.5% in the month from May to June. The ‘narrow’ index fell 2.6%. The rise in the input index reflects mainly the change in the price of crude oil rising by 14.3% in May but falling by 36.8% over the year to June. The price of imports fell 0.3% between May and June.

Fresh Foods Help Keep Price Inflation Down

The British Retail Consortium (BRC) Shop Price Index (SPI) produced in collaboration with Nielsen reported annual inflation of 0.7% in June. It is down from 1.3% in May. The slowdown has continued since March. Food was the main driver with annual inflation of 5.6% from 6.4% in May. Fresh foods and particularly dairy products and some meats were largely responsible. Consumers will be seeing savings on their supermarket bills. Non-foods were up from 1.3% to 1.9%.

The month-on-month basis reported a prices increase of 0.2% in June compared with 0.5% in May. The increase in unemployment is affecting consumer confidence. Discounts and promotions are being offered at the expense of margins. Shopping conditions such as good weather help shoppers take advantage of promotional offers. The BRC maintain that the SPI is a more reliable indicator of shop price inflation than the RPI produced by the ONS.

Production Index Down This Quarter

Production was down to 1.8% to 87.0 compared with the previous three months and down 12.3% on the year. Manufacturing output decreased by 1.2% , mining and quarrying by 2.7% and electricity, gas and water supply industries by 5.5% on the previous quarter according to the Office for National Statistics. The most significant falls in manufacturing were in basic metals and metal products, machinery and equipment and transport equipment industries. There were rises in food and drink and chemicals. Consumer durables and consumer non-durables were up, durables by 1.2% and non-durables by 1.7% on the last three months, both still down on a year ago. Over the last month durables increased output by 6.6% non-durables decreased by 0.9%. Both capital goods and intermediate goods and energy fell on the month, the quarter and the year. The production index has continued on a downward trend, with some fluctuations, since March 2008 when figures were new or started to be revised by the ONS.

Fall In Business Investment

Total business investment for the first quarter of 2009 was £3.4bn, down by £2.7bn on the previous quarter or 7.6%, compared with 9.7% on the previous year. The revised estimate for business investment for 2008 is up by 3.3% to £146.1bn on 2007. Total investment in manufacturing was £3,484m, construction £4,598m, services £24,177m and public corporations non-manufacturing £1,118m giving the total figure of £33,377m. The private sector spent a total of £1,519m on computer software and £1,543m on computer hardware which is a reflection of the increasing importance of that kind of investment.

A Narrowing In The Balance Of Payments

The ONS bulletin on the balance of payments showed a net current account deficit of £8.5bn from £8.8bn in the previous quarter. The income surplus increased by £3.4bn to £3.5bn, the deficit on trade in goods fell by £1.5bn to £20.8bn and the deficit on trade on current transfers increased by £1bn to £3.8bn. These were partly offset by the surplus on trade in services which fell £3.7bn to £12.6bn. The current account balance showed a £25.1bn deficit, or -1.7% of GDP in 2008 compared to -2.5% now. The deficit on trade in goods narrowed from £22.3bn to £20.8bn by £0.2bn in oil, fuels other than oil by £0.2bn and finished manufactured goods by £1bn. The surplus on trade in services was £12.6bn. It reflects a decrease in financial and insurance services. Direct investment income was up £3.7bn to £9.8bn, but portfolio investment showed a deficit of £1.4bn. The capital account was almost unchanged with a surplus of £0.8bn in Q1 2009. Net direct investment abroad was £32.4bn and in the UK £34.2bn. Net portfolio investment abroad was £38.3bn and in the UK £122.2bn, the highest on record. Debt securities accounted for £96.9bn in the first quarter.

GDP Down 1.9%

Preliminary estimates of GDP for the first quarter of 2009 from the Office for National Statistics on GDP by gross value added (GVA) suggest a decline of 1.9% on the last quarter compared with 1.6% the previous quarter. They also suggest it was 4.1% lower than 2008. The index for GDP at market prices was 108.1 and has been in decline for 5 successive quarters.

Production which represents about 18% of the UK economy was down 5.5%, a negative acceleration on 4.5%, driven by manufacturing. Agriculture, which now represents only 1% of the economy, actually grew by 0.3% in Q1 2009. It may only reflect the early estimated output from agriculture from DEFRA. Services, representing 75% of the UK economy, reported a fall of 1.2% drove the decline along with production and construction. It compares with a decline of 0.8% in the previous quarter. Of the total, distribution, hotels and restaurants (15% of the economy) also increased by 1.2% thanks mostly to wholesale and motor trades. Business services and finance, which represents about 30% of the economy, declined by 1.8% in Q1 2009. Five of the eight components of the category declined with 'other business services' (10% of GDP) making the biggest contribution. Government services increased by 0.5% on the quarter and 1% on the year.

The Quarterly National Accounts for Q1 2009 show a fall of 2.4% on the previous quarter revised down from 1.9%. It is 4.9% lower than Q1 2008. The index was 110.9 for GDP at market prices and 101.9 for chained volume measures. The household saving ration was 3% compared with 4% in previous quarter. Real household disposable income fell by 2.4% following a 2.4% rise last year. Household final consumption fell by 1.3% compared to a 1.1% fall in the previous quarter. The volume of spending is 3.1% lower than at the same time in 2008. Both government and households were net borrowers. Financial corporations, private non-financial corporations and public corporations were among the net lenders.