Retail turnover growth insignificant in November; further development depends on household sentiments

According to the data published by the Central Statistical Agency (CSP), the retail turnover in November grew 0.2% month-on-month (seasonally adjusted data).

Turnover grew 0.9% in the non-food retail businesses, whereas in food retail businesses it dropped 1.3%. The working-day-adjusted annual growth reached 8.1%. Including the sales of cars (excluded from CSP data), the retail turnover grew 1.4% month-on-month and 17.4% year-on-year.

Confidence indicators collected by the European Commission pointed to a possible increase in retail turnover already earlier. In November, the trade confidence indicator increased 1.8 percentage points month-on-month, and consumer confidence grew as much as 4.4 percentage points, with the consumer views of the economic situation now and in the future as well as the situation in personal finances improving at a faster rate. The number of first-registered cars exceeded the respective number a year ago more than twofold and it is car sales that contribute the most to the annual growth in retail. The possible explanation here is that a part of households with a stable level of income during the crisis postponed making big purchases, forming accruals, which, as the economic situation gradually improves, are being spent on long-term merchandise. During the last months of the year this effect is augmented in view of the expected raising of the VAT as of 1 January 2011: i.e. households are trying to avoid postponing large purchases for the new year.

The above factors may affect the retail turnover dynamic in the coming months. To wit, the leap in retail in the second half of the year, which was based on purchases of merchandise of prolonged use, may abate next year as trade continues developing at a more moderate pace. That will be determined by gradual increases in employment and population income levels; changes in consumer moods will result in adjustments.

As far as the medium-term prospects of trade are concerned, the factor that affects them most is the amount of disposable income of households and consumer confidence in the future. The latest trend in the labour market points to stabilization and even a slight rise in household incomes – the unemployment rate is gradually going down and average salary is going up. Yet it is to be noted that in the confidence surveys conducted by the European Commission the views of their future income levels by consumers are not improving significantly. It may result from the background of negative information: the discussion of budget consolidation measures as well as the problems of Ireland and the entire euro area. That stimulates insecurity in consumers and their attempts to make savings for the future. As a result, retail will only receive a positive stimulus when a positive view of households regarding their future income is resumed and people start to spend more of their savings.

Another factor that may affect consumption in the medium term is a gradually increased access to consumer loans. In recent months several commercial banks have resumed granting consumer loans. Even though the demands of banks on the potential loan recipients are relatively strict, this change of approach may result in a positive effect on some retail sectors.