The retail sector reported another month of stronger than expected sales in October. Headline retail sales increased by 0.6% m/m (consensus: -0.2%, BarCap: 0.1% m/m) from a downwardly revised 0.5% m/m growth in September, supported by strong food, clothes and automotive fuel sales.

Core retail sales (excluding auto fuel) increased by 0.6% m/m (consensus: -0.3%, BarCap: -0.2%) from a downwardly revised 0.6% previously. Despite the slight downward revisions to the September data, retail sales have reported healthy growth for two consecutive months despite deteriorating consumer confidence. Nominal sales reported steady growth. On the value measure headline sales increased by 0.7% m/m and core retail sales increased by 0.8%.  
 
The retail sector has shown surprising strength in the last two months, given the downward news we have received about the rest of the economy. This resilience in the sector is particularly hard to square with the weakness in consumer sentiment as the GfK index has dropped to lows that are consistent with recession levels and the Nationwide confidence index dropped to its lowest level since record began in 2004. We would however point out that the retail sales data tend to be volatile so it is possible for the recent strength to be reversed in the coming months, especially as major retailers have been warning of very challenging trading conditions this Christmas. In addition, the strength of sales in some sectors, such as food, appears to have been driven in part by discounting. We continue to expect a depressed consumption outlook with households being buffeted by falling real wealth and incomes. We forecast household consumption to fall by 1.4% y/y in 2011 as a result and expect consumption to start providing stronger support to economic growth only towards the end of 2012.


source: BarCap