Durables recover unexpectedly

  • In our research piece “Is growth rebalancing?” (10 November, 2014), we outlined our expectation that this week’s data releases may provide signs of post-strike rebalancing of GDP growth, such that consumption underperforms production, aiding in a narrowing of the current account deficit in Q4:14. Our forecasts were above consensus for manufacturing and mining, and below consensus for retail. Thus far, the manufacturing and retail releases are supportive of a rebalancing view, with manufacturing growing 4.0% m/m in September, from 2.2%m/m in August, and retail contracting 0.8% m/m from a revised 0.5% m/m in August.

  • Although the release was in line with our month-on-month expectation, retail sales accelerated from a revised 2.0% y/y in August to 2.3% y/y in September, mainly due to an unexpected recovery in durables (fig.1). The 2.3% y/y increase was below the consensus median estimate of 2.8%. YTD retail sales growth remains lower in 2014 compared to 2013.

  • On a year-on-year basis, durables and non-durables accelerated in September, whereas semi-durables continued to slow:

    • We have used furniture and hardware as a proxy for durable goods. Growth in durable goods accelerated from 2.5% y/y in August to 5.1% y/y in September. Retailers in hardware; paint and glass increased from 3.6% y/y in August to 6.1% y/y in September. Furniture and appliances also accelerated from 1.1% y/y in August to 3.6% y/y in September.

    • Non-durables (dealers + food + pharmaceuticals) accelerated, albeit slightly, from 2.3% y/y in August to 2.4% y/y in September. Although general dealers slowed from 3.4% y/y in August to 1.9% y/y in September (fig.6), food retailers and pharmaceuticals retailers performed much better. Food rebounded strongly from -1.6% y/y in August to 3.0% y/y in September. Pharmaceuticals grew from 1.2% y/y in August to 4.6% y/y in September.

    • Using textiles and other retailers as a proxy for semi-durable goods, y/y growth in semi-durable goods sales slowed from 1.1% in August to 0.8% in September. Textiles declined from 0.3% y/y in August to a 0.6% y/y contraction in September. Other retailers grew from 2.8% y/y in August to 3.6% y/y in September.

  • Retail sales inflation slowed and is likely to be supportive of retail sales growth (fig.4). Even though household credit extension increased from 3.6% y/y in August to 3.7% y/y in September, the increase was not broad based. Credit conditions remain unsupportive of consumer expenditure which is likely to hinder growth in retail sales.

  • Although this week’s data indicates that growth may be rebalancing, future growth in retail sales is likely to be hindered by sustained deceleration in household disposable income, lower consumer confidence and tighter household credit conditions.

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