The latest consumer confidence survey from GfK and the March retail sales figures from the ONS (office for National Statistics) have led to a wave of gloom washing across the market ahead of the weekend.
However, there are a few rays of light in the retail sales report even if the outlook isn’t all that great.
HIT TO SPENDING
Admittedly the consumer confidence figures aren’t pretty, with the overall index hitting a multi-year low of -38 points.
However, it seems Brits can be ‘glass-half-empty’ at the best of times as the headline index has been in negative territory for at least the last five years.
The GfK survey also asks consumers how confident they are about their financial position in 12 months’ time, which predictably drew a negative response in light of rising energy and food costs.
The ‘major purchase’ index, which measures consumers’ readiness to buy big-ticket items like flat-screen tv’s and sofas, also tanked to a multi-year low reading.
GFK’s commentary did little to lift morale: ‘This is dire news for consumer confidence and with little prospect of any economic relief on the horizon we can only forecast further falls in the index for the year ahead.’
NOT ALL DOOM AND GLOOM
The ONS consumer spending data paints a much more mixed picture on the other hand, with spending by value still rising.
While the headline figures show retail sales volumes falling by 1.4% between February and March, the annual change in retail sales by value - which to us is a much more meaningful measure as it reflects the amount of pounds actually being spent - is still pretty healthy with sales up by more than 10% compared with March 2021.
Admittedly the country was in lockdown for most of March last year, but sales were still positive especially for household goods.
This March, non-food sales were up almost 30% by value year on year with big increases in spending on clothing, footwear and leather goods and watches and jewellery.
That should mean decent first quarter earnings for fashion and accessories retailers including the big bricks and mortar operators.
Online sales were 12% lower by value but that is mostly due to the fact internet sales were growing at 40%-plus a year ago.
One area of weakness which particularly stands out is sales of DIY items such as paint, glass and hardware, which have fallen in value terms in seven of the last eight months suggesting the trend towards ‘doing up the house’ may be slowing.
AREAS TO WATCH
It’s hard not to agree with GfK's assessment that things are going to get worse in terms of consumer sentiment, and as far as retail sales go the April and May figures are likely to look a lot weaker given the strong growth rates in last year’s second quarter.
Although clothing and household goods retailers might post strong sales for the quarter just ended, investors should brace themselves for warnings as the year on year comparisons look extremely tough.
Sellers of footwear and leather goods, watches and jewellery and furniture and lighting are all likely to downplay expectations which could result in sharp falls in their share prices.
