Yesterday’s retail sales data left a question market over whether retail sales are staging a solid recovering after a prolonged period of weakness, or just another ‘dead cat bounce’. While a -0.4% fall in retail sales was recorded in March, sales over the prior two months had been strong, meaning that sales over the quarter grew by a respectable 1.6% and will make a decent contribution to first quarter GDP.
After bottoming through 2010 to 2011, retail sales have clearly rebounded, but with sales growth at 3.2% annually, they appear to be merely keeping up with both population growth and inflation – not a bad result, but not exactly strong either (see below chart).
The current rebound in retail sales following interest rate cuts also remains fairly weak from a historical perspective. The next chart shows the growth of retail sales following the past five rate-cutting cycles, specifically those beginning in: 1990; 1996; 2001; 2008 and 2011 (the current cycle).
As you can see, retail sales growth after rates were first cut in November 2011 is on par with the 1996 cycle, but well below the 2008, 1990 and 2001 cycles.
The situation is shown more clearly in the next chart, which tracks the current cycle’s sales growth against the average of the other four rate-cutting cycles, and reveals sales growth -3.4% lower this time around at the same stage of the cycle:
Another way to determine the underlying strength of the retail recovery is to examine the volume of retail sales versus population growth – i.e. real retail sales per capital. As shown in the next chart, sales volumes have trended upwards since mid-2011, but were roughly the same in the March quarter of 2013 as the December 2007 peak. Hence, while the retail sector has held its own since the onset of the Global Financial Crisis, sales growth is a long way shy of the strong credit-induced growth experienced in the 15 years to 2007.
