With the winter fast approaching, consumers have already begun to stock up on warmer clothes. This has contributed towards consumer spending increasing faster in September than it has in the past 3 years. According to Visa Europe’s UK expenditure index, sales in August increased by 1.2pc, but in September they rose month-on-month by 3pc.
But whilst sales on the high-street increased, sales on-line and over the telephone declined. It seems that the recent decrease in temperature is just what the retail sector ordered, as people took to the high streets.
Furthermore, recent improvements in consumer income, together with lower inflation and rising employment have all contributed towards a growth in spending. However, as consumer confidence remains at a relatively low level, it is unlikely that the winter will bring much of a change to growth in the economy. The Chief Economist at Markit said:
However, consumer confidence remains historically low as uncertainty about the economy and job security persists, suggesting that the bounce in spending seen in the third quarter could be as good as it gets for the foreseeable future.
Although the lower temperature has caused a boost in consumption, once people have made their ‘investment’ in warmer clothes, retail spending may once again decline. Hence the above comment by Markit, which suggests that further sustained increases in consumer spending may still be some way off.
The following few articles look at the latest data on retail spending.
UK consumer spending ‘rose in September’ BBC News (5/10/12)
Consumer spending increases by 3pc The Telegraph (5/10/12)
Consumer spending increases by 3% The Press Association (5/10/12)
UK retail sales: what the analysts say Guardian (20/9/12)
Online sales and wet weather boost John Lewis Scotsman, Peter Ranscombe (5/10/12)
Questions
- Which factors typically affect consumer spending?
- Using a diagram, illustrate the impact of this increase in consumption on national output and the price level.
- Is it possible that a multiplier effect may occur with the August and September rise in retail sales?
- Why is consumer confidence remaining low? Which components of aggregate demand does it affect?
- Explain why (a) lower inflation, (b) the colder weather and (c) rising employment have caused consumer spending to rise.
With all the doom and gloom of recent economic data, including rising inflation and higher unemployment, there’s finally a small speck of light and that’s in the form UK retail sales. The latest data from the ONS suggests that sales in the UK in September were higher than previously forecast and reversed the 0.4% decline we saw in August. A big contributing factor to this positive data was a boost to online sales, but this small glimmer of hope is unlikely to be sufficient to keep the economy going – unless sales keep rising, we are unlikely to see any significant increase in economic growth.
The data, while positive, is still unlikely to have any impact on economic policy. The minutes from the Monetary Policy Committee showed that there was unanimous support for further quantitative easing, as the threat of weak growth and financial instability and uncertainty remains. An economist from Barclays Capital said:
‘We don’t think the recent strong growth in monthly sales is likely to be sustained…The environment for retailers is likely to remain challenging as consumer spending remains depressed driven by low confidence and slow earnings growth.’
The data from September is positive, but it does little to offset the decline in sales seen in August. It was revised down from 0.2% to 0.4% – some blame the hot weather, which discouraged consumers from hitting the high streets in preparation for the winter. The key data to look out for will be sales figures for the next few months. Only then will we have more of an indication about exactly which direction the economy is moving in. The following articles consider this latest economic data.
Retail sales in UK unexpectedly increase at fastest pace in five months Bloomberg, Scott Hamilton (20/10/11)
UK retail sales see stronger-than-expected rise BBC News (20/10/11)
Nothing expected from today’s UK retail sales figure FX-MM, Richard Driver (20/10/11)
Retail sales: what the economists say Guardian (20/10/11)
£1 in every £10 now spent online, says ONS Telegraph, Harry Wallop (20/10/11)
Retail sales rise more than expected Financial Times, Sarah O’Connor (20/10/11)
Retail sales up but good weather has a price Sky News (20/10/11)
Questions
- Which factors have contributed to the higher than expected sales figures for September?
- Why do economists not believe that the higher growth in sales means signs of recovery for the UK economy?
- How has higher inflation impacted UK households?
- To what extent do you think the warm weather held back retail sales?
- What could explain why there has been a significant growth in online sales?
With the winter fast approaching, consumers have already begun to stock up on warmer clothes. This has contributed towards consumer spending increasing faster in September than it has in the past 3 years. According to Visa Europe’s UK expenditure index, sales in August increased by 1.2pc, but in September they rose month-on-month by 3pc.
Although the lower temperature has caused a boost in consumption, once people have made their ‘investment’ in warmer clothes, retail spending may once again decline. Hence the above comment by Markit, which suggests that further sustained increases in consumer spending may still be some way off.