The February retail sales report had a more positive feel to it. Total retail sales volumes rose by a strong 14.9% on the month, an outcome that was buoyed by motor trades which were up 34.5% m/m.  Last month, we noted the January retail sales figures did not include the selling period in the final week of the month, in which industry sources noted an improvement in car sales following the period of unseasonably cold weather conditions. Therefore, some reversal of the 30.5% January decline in motor trades was expected. In the event, the February rise more than offset the January fall, with the latest SIMI new car registration figures pointing to an ongoing modest recovery in the sector in March. The continued pick-up in car sales has played a major role in transforming the trajectory in total retail sales. Annual sales growth on this measure is now back in positive territory for the first time in two years.

As the trend in total retail sales volumes is continuing to be heavily skewed by car sales, ‘core’ retail sales provide a better gauge of the underlying trend in spending, as motor trades are excluded. Encouragingly, core sales volumes rose by 1.2% from January, the second consecutive monthly rise. This represents the best performance in any month since the 1.6% rise in June of last year, with upward revisions to prior month’s data further adding to the positive tone of the report (the January level of sales was 0.5% higher than estimated a month ago for example).



Broad-based gains across retail categories outside of motors, as cash spend rises for the third month running…

 Importantly, the strength in core retail sales in February was broad-based, with eight out of the twelve retail categories outside of motors experiencing a rise in sales volumes. Areas of weakness included bars (down 2.7% m/m) and food, beverages and tobacco (down 2.3% m/m). However, the report documents a 14.9% rise in sales of furniture and lighting, a 4.8% rise in hardware, paints and glass and a 3.3% rise in electrical goods – three sectors with clear links to the beleaguered housing market. So-called “other” retail sales rose at an impressive monthly pace of 15.3%. This category includes items such as toys, mobile phones and jewellery. Given that the purchase of such goods tends to be of a discretionary nature, this provides some evidence of a pick-up in consumer confidence. Indeed, this tallies with the latest consumer sentiment data, which shows the level of confidence in Q1 2010 was at its highest in 2 years.

It is sales values that are of most importance from a retailer’s perspective. Retailers have seen a huge fall in revenues over the course of this downturn, as a result of the sharp fall in sales volumes and associated intense price deflation. However, retailers outside of motors have begun to see some rise in cash spend of late, with sales values posting modest gains for the third month running in February. Cash spending in core retail categories reached a low-point in November of last year and has since risen by 2.1%, a heartening indication that a greater willingness to spend is beginning to show through.

Irish consumers continue to face important headwinds, but spending is looking much more stable…

 While total retail sales are continuing to be boosted by an ongoing improvement in car sales from the extremely dressed levels in early 2009, it is important to note that core retail sales have also picked up lately. In particular, we take note of the fact that the average level of the core retail sales over the period Jan-Feb is some 0.7% higher than the average for the fourth quarter of 2009.



Consumer spending will continue to face strong headwinds in the quarters ahead. In particular, with employment expected to continue to fall for most of 2010, labour market dynamics will not be supportive of a strong rebound in spending. However, recent confidence and spending trends do offer important encouragement that the Irish consumer has entered a period of greater stability.


Lynsey Clemenger,
Economist, 
Ulster Bank Capital Markets,
3rd Floor,
Ulster Bank Group Centre,
George's Quay,
Dublin 2.

Tel:   +353 1 6431565
Fax:   +353 1 6431672
Email:      lynsey.clemenger@ulsterbankcm.com

Website:  http://www.ulsterbankcapitalmarkets.com/

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