U.K. Retail sales grow at fastest rate in nine years, U.S. consumers pessimistic

The pound rallies against the U.S. dollar and the euro after U.K. Retail sales rise by 2.6% m/m in December, smashing the forecasts of 0.5% increase and much stronger that the 0.1% reading in November. U.S. consumer confidence drops…

 


Powered by Guardian.co.ukThis article titled “Retail sales grow at fastest rate for nine years – business live” was written by Jennifer Rankin and Nick Fletcher, for theguardian.com on Friday 17th January 2014 15.14 UTC

More US data has just come out, with an unexpected drop in consumer confidence.

Worries about employment and income growth sent the Thomson Reuter/University of Michigan’s consumer sentiment index down from 82.5 in December to 80.4 so far this month. This compares to forecasts of an increase to 83.5. Rob Carnell at ING said:

There is no compelling explanation for this, unless perhaps respondents have been influenced by weakness in some other surveys – payrolls for example – though most observers believe that these are anomalous and weather affected.

With the labour market probably in far better shape than the latest labour report suggested, the stock market remaining robust, house prices rising strongly and gasoline prices relatively low, there is no good reason for the dip, which may turn out to be nothing more than noise. At any rate, 80.4 is not a bad level, and consistent with spending growth remaining at the sort of levels seen in recent quarters.

Updated

A lacklustre opening for US markets this morning, following industrial data and housing starts broadly in line with expectations.

There is plenty else for investors to chew on. Morgan Stanley reported a 72% decline in income for Q4, partly related to legal costs related to the credit crunch. General Electric, another corporate bellwether, posted a 4.8% rise in revenue.

  • The Dow Jones Industrial average dipped slightly, falling 0.1% to 16,397.16 points.
  • The S&P500 lost a similar amount leaving it at 1843.50 points.
  • The Nasdaq composite fell 0.34% to 4203.428.

On that note I am handing over to Nick Fletcher. Thanks for following and all the comments so far. JR

From the US production lines, to an underwear factory in Manchester. Kinky Knickers, the label championed by retail guru Mary Portas, has seen parent firm Headen and Quarmby fall into administration, threatening 33 jobs.

It is another blow to the self-styled Queen of Shops, who is battling to rescue the British high street. Read the full story from the Guardian’s retail correspondent Sarah Butler here.

Joseph Brusuelas, an economist at Bloomberg, has some interesting first-takes on those US numbers.

Here are more details on the US industrial production data from the US Federal Reserve Board.

  • Manufacturing output rose 0.4% in December, compared to 0.6% in November
  • Mining output was up 0.8% compared to 1.9% in Nov.
  • Utilities output was down 1.4% compared to a 3% rise in Nov.
  • Industrial output excluding cars and parts was up 0.2% compared to 0.9% in Nov.

Via Reuters

Breaking news: US industrial production rose 0.3% in December, in line with economists’ forecasts.

Should the Bank of England beware of the “nasty scissor movement?” Not a an outlandish stationery cult, but what happens when growth is caught between a decline in real wages and stagnant business investment.

Ben Broadbent, external member of the Monetary Policy Committee, has been looking at whether this view holds water, in a speech at the London School of Economics today.

The full text is on the Bank of England website, but here is a flavour of his argument:

….concerns about the absence of growth have been replaced with worries about its composition: too much consumer-led spending, too little investment and trade. In particular, it is argued, the recovery will run out of steam without a rise in investment because of an ongoing contraction in real wages. The suggestion is that proceeds of growth are being diverted to unspent corporate profits. Growth is therefore caught in a nasty scissor movement between a decline in real wages, which limits the room for further growth in household spending, and perpetually stagnant business investment. As a result it is destined to subside. My aim today is to ask whether this view holds up to scrutiny.

I will make three points. The first is that real pay is weak not because firms are taking (and hoarding) the lion’s share of the proceeds of growth – in fact, the opposite is true: wages have grown faster than profits during this recovery – but because the prices we pay for consumption have risen much faster than those firms receive for their output.

The second point is about the typical sequencing of economic expansions. Business investment tends to lag, not lead, the cycle in output (the opposite is true for housing investment). One of the reasons firms’ capital spending has stagnated is that the recovery has so far been too weak to allow their profits to recover. But history, and a variety of indicators, suggests it is likely to accelerate through this year. Indeed, allowing for measurement error, it may already have started to do so.

The final and more general point is to caution against inferring too much about future growth from its current composition. Of course there’s a risk the recovery could falter. But, if it does, it will probably be because of more fundamental problems – a failure of productivity to respond to stronger demand, for example, or continuing stagnation in the euro area – not any imbalance in expenditure or income per se. These are outcomes, not determinants, of the economic cycle. As we shall see, they are poor predictors of future growth.

Shell’s profit warning wiped £6.5bn from the FTSE100 index this morning. But this could be small change compared to the trillions of overvalued assets oil and gas companies are sitting on – the so-called “carbon bubble”. Several commentators, including readers of this blog, argue that the “carbon bubble” and risks to the environment of runaway climate change, put a different perspective on today’s statement from Shell.

It is worth revisiting a warning from Lord (Nicholas) Stern, the author of the landmark 2006 report on climate change. Last May, Stern said the world risks a major economic crisis, because oil and gas companies are sitting on huge fossil fuel reserves that will have to remain underground, if the world has any hope of avoiding the threshold for ‘dangerous’ climate change. Essentially, major energy companies are seriously overvalued…

Smart investors can already see that most fossil fuel reserves are essentially unburnable because of the need to reduce emissions in line with [a climate change] global agreement. They can see that investing in companies that rely solely or heavily on constantly replenishing reserves of fossil fuels is becoming a very risky decision.

… much of the embedded risk from these potentially toxic carbon assets is not openly recognised through current reporting requirements. The financial crisis has shown what happens when risks accumulate unnoticed. So it is important that companies and regulators work together to openly declare and quantify these valuation risks associated
with carbon, allowing investors and shareholders to consider how best to manage them.

Updated

Breaking: US housing starts fell by 9.8% in December, the US Commerce Department has said. The figure is the largest percentage drop since April, but not quite the steep drop economists had been predicting.

Groundbreaking for single-family homes, the largest segment of the market fell by 7%.

Just in… the owner of the New York stock exchange and Euronext is taking over the running of Libor, the interest rate benchmark at the centre of a rigging scandal involving many major banks.

Intercontinental Exchange will take over running Libor from 1 February, having received the formal ok from the Financial Conduct Authority.

In his 2012 review, Martin Wheatley, now chief executive of the FCA, had recommended handing Libor to an independent organisation chosen via competitive tender. The British Bankers’ Association was stripped of its responsibility for Libor in the wake of the scandal.

The London Stock Exchange has removed itself from the dwindling club of companies with all male boards.

The LSE announced this morning that it had appointed two women to its board - one day after it was exposed by BoardWatch as being one of three FTSE100 companies with all make boards.

Sherry Coutu, who serves on Cambridge University finance board, and Joanna Shields, chairman of Tech City UK, become non-executive directors with immediate effect, the LSE said this morning.

This means the only companies in the FTSE100 left with all-male boards are Chilean copper mining company Antofagasta and commodities trader Glencore Xstrata.

Capital Economics has issued a cautionary note on this morning’s bumper retail sales figures.

 December’s strength does not translate into a strong Q4. Because of weakness in previous months, over the fourth quarter as a whole, retail sales were a mere 0.3% higher than in Q3. So spending on the high street will provide only a modest boost to economic growth in the final three months of the year.

 Nonetheless, with non-retail spending strong, December’s sales data provided further hope that Q4 should sustain the strong rate of GDP growth seen in Q2 and Q3. But it also points to a recovery that continues to display a distinct lack of balance.

In other words, whatever happened to ‘the march of the makers’?

Tough times in Spain continue, with another sign that households and small companies are struggling to repay debts. Spanish banks’ bad loans as a percentage of total lending hit a record high of 13.08% in November, up from 12.99 % the previous month, according to Bank of Spain figures.

Here are the figures from the Bank of Spain:

And here is Reuters’ take on the data:

The [bad loans] ratio has been steadily climbing as households and small companies struggle with debts and as banks, fighting to improve their own capital quality ahead of Europe-wide stress tests, rein in lending. Bad debts rose month on month by €1.5 billion ($2.04 bn) to €192.5 bn euros in November. Total credit, meanwhile, rose slightly by €2.6 bn to €1.47 trillion euros, the data showed.

Updated

The Guardian’s politics live blog is covering Ed Miliband’s speech on breaking up the banks. Check out the sentiment tracker, where you can have your say on the speech minute by minute.

Back to Shell, which has seen its share price recover from this morning’s sell off. Shares are down 2.1%, an improvement on an earlier 4% fall.

Ishaq Siddiqi at ETX Capital, blames the management, but thinks that Shell is not alone in its problems

Worrying news from the oil major which is clearly suffering from management’s inability to get on top concerns regarding capital discipline. Shell warned of disappointing results from its upstream, downstream and corporate business divisions; higher exploration costs and softer oil prices are blamed for the poor numbers – this is unlikely to change this year leaving markets worried about the group’s outlook.

Shell is not an isolated case however, as weak industry conditions for downstream oil is likely to hit sector peers too. For Shell itself, management must now implement more aggressive targets for group strategy in order to turn a page and improve capital efficiency which would go some way in improving operational performance.

Louise Rouse at ShareAction wants Shell’s shareholders to challenge the company on its costly Arctic drilling plans.

A quick recap – last year Shell filed formal plans to drill in the Arctic above Alaska, raising environmental concerns about the potentially devastating impacts of a spill.

ShareAction is not convinced about the economics of the plans.

 There are huge question marks over the economic viability of Shell’s Arctic plans given the high costs involved. The fact that Shell’s profits are tumbling, in part because of high exploration costs, highlights further the need for investors to make sure that the sums add up in the case of the Arctic.

Oil companies’ approach to capital expenditure is almost Shakespearean – ‘there is money, spend it, spend it, spend more’. With flat share prices and falling profits shareholders should challenge this lack of capital discipline.

Updated

A snapshot of consumer behaviour in charts…

Consumers hit the shops in force in December, splashing out in the run-up to Christmas. Pundits are less convinced the spending splurge will continue in 2014. Here is a round-up of reaction on the UK’s retail sales data and what it means for the economy.

Alan Clarke, director of fixed income strategy, said the growth in sales was not the result of slashing prices.

Its a boom!! UK retail sales surged by 2.6% m/m in December – massively higher than expected. The breakdown showed strength in non-store, no surprise given we know the internet side of spending is booming. That saw a near 5% jump on the month. Meanwhile department stores flew. They had seen a 3.3% drop the prior month, so some payback was likely, but this was massive.

I would have expected to see a corresponding slashing in prices to have induced such strength but it didn’t show up – the deflator was fairly stable.

Jeremy Cook, chief economist at World First, thinks these figures could be “a last hurrah for retail” as consumers show more restraint in 2014.

Well, that was unexpected. Pre-Christmas discounting, combined with strong consumer confidence and a strengthening jobs market has driven sales through the tills at a rate that hasn’t been seen since May 2008.

This stands against the anecdotal evidence we’ve been getting from the high street, in what seemed to have been a very lacklustre Christmas trading period. Companies have issued profit warnings and retailers have been eager to warn shareholders that as long as wage growth remains subdued, in both nominal and real terms, that a positive outlook could be guaranteed. I’ll be eager to see just how much discounting is to blame for this number; revenue and profit are very different beasts.

Sterling has driven higher on the number with yields on UK debt moving upwards as well, as the market factors in further pressure on the Bank of England’s forward guidance plan. We still believe that the UK consumer will remain pressurised through 2014 and this number could easily be a ‘last hurrah’ for retail as move forward into 2014.

James Knightley at ING Bank thinks the chances for an interest-rate rise have gone up.

UK retail sales jumped a massive 2.6%MoM in December, way beyond any expectation in the market, leaving sales 5.3% higher than a year ago. Given that this figure is measured in volumes rather than values it adds weight to the view that GDP growth will be very strong in 4Q13 (close to 1%QoQ) with 1Q14 GDP likely to be robust too thanks to base effects….
Overall, a very strong set of numbers that suggest the UK economy is gaining speed with spare capacity really starting to be eaten into. As such, the chances of an interest rate hike this year are rising, but we suspect the [Bank of England] will start with macroprudential tools to cool certain hot spots first.

Howard Archer, chief UK and Europe economist at IHS, thinks consumers could “take a breather” after splashing out at Christmas.

December’s strong retail sales performance provides a major boost to hopes that GDP growth in the fourth quarter of 2013 remained up around the 0.8% quarter-on-quarter rate achieved in both the third and second quarters.

Even so, it should be noted that because of lacklustre overall sales in November and October, retail sales volumes growth in the fourth quarter of 2013 was limited to 0.4%, which was down substantially from growth of 1.6% quarter-on-quarter in the third quarter.

Looking ahead, there is some uncertainty as to how robust consumer spending will be in the early months of 2014. It is very possible that consumers could take a breather after finally splashing out for Christmas and in the sales, given that inflation is currently still running at double the rate of earnings growth. It is also notable that consumer confidence edged back for a third month running in December, although these small dips were from a near six-year high in September.

The good news for growth prospects is that the squeeze on purchasing power now seems to be progressively if gradually easing with consumer price inflation falling to a four-year low of 2.0% in December. Average earnings growth is also showing signs of edging up although it was still only up by 1.1% year-on-year in October itself and by 0.9% year-on-year in the three months to October.

In addition, markedly rising employment is supportive to consumer spending, as is the improving housing market.

Here is a flavour of the insta-reaction on Twitter to those surprising retail sales figures.

Here are the highlights from the Office for National Statistics data on retail sales.

  • The UK retail industry grew by 5.3% in December 2013 compared with December 2012. Retail sales were up 2.6% in December, compared to the previous month, far outstripping economists’ calls for growth of just 0.3% or 0.4%.
  • Department stores – the likes of John Lewis and House of Fraser – did especially well in December, with a month-on-month increase of 8.7%.
  • Internet sales increased by 11.8% in December 2013 compared with December 2012 and by 1.8% compared with November 2013.
  •  But it wasn’t just big bricks and clicks. Small stores (<100 employees) saw the amount of spending go up by 8.1% compared with 2.6% in large stores.
  • Growth was in non-food stores, helping to offset declines in sales in food stores and petrol stations.

Just in…UK retail sales rose 2.6% in December compared to November, the fastest growth in 9 years and smashing expectations.

A smidgen of good news for Portugal, which is hoping to leave its €78bn euro bailout programme later this year. Ratings agency Standard & Poors has removed Portugal from its “Creditwatch” list. Being on Creditwatch is the precursor to an imminent downgrade, so this is a an improvement, albeit a very small one.

Portugal’s BB credit rating and negative outlook was reaffirmed, leaving it stuck just two notches above “junk” status.

S&P said the move reflects its expectation that Portugal will achieve its 5.5% of GDP budget deficit target in 2013 and approach its 4.0% target in 2014.

We base this expectation partly on indications that the economy has been showing signs of stabilisation since mid-2013.

Stronger-than-expected export performance, and an expected bottoming out of private consumption, amid a modest decline in unemployment should support Portugal’s fiscal performance in 2014.

S&P said a key risk was the possibility the Constitutional Court may reject more austerity measures, although the ratings agency expects the government to muddle through find alternatives, as it has in the past.

The negative outlook reflects our opinion that there is at least a one-in-three possibility that we could lower our ratings on Portugal during 2014.

Even Super Mario has his work cut out.

Nintendo has issued a profits warning, after its Wii U console failed to capture the public imagination. The Japanese games maker expects to sell just 2.8m consoles in the 12 months to the end of March, down from previous expectations of 9m. It also halved the number of games that it expects to sell for the Wii U, from 38m to 19m.

Nintendo blamed disappointing sales of its consoles over Christmas:

Software sales with a relatively high margins were significantly lower than our original forecasts, mainly due to the fact that hardware sales did not reach their expected level.

Charles Arthur, the Guardian’s technology editor, has the story here.

Updated

Labour’s shadow business secretary Chuka Umunna has been defending the party’s bank reform plans on BBC Radio 4′s Today programme.

He suggested that a short-term fall in the share price of Lloyds and RBS, both partly state-owned, was a price worth paying to create a more stable economy.

 I’m not denying in the short term that you may see a hit on the share price of these banks – it’s probably happening as we speak now. But the reason we are doing this is so that we can grow our small businesses, which not only create in and of themselves more middle-income jobs – so we actually get people earning more – but also are very important feeders in the supply chain for our larger businesses.
“If we solve that problem – because our economy is too low-wage and too low-skill – and we get more people earning more money, then we will see higher income tax receipts coming into the Exchequer, our businesses will do better because people will be spending more, so we will see higher corporation tax receipts, and therefore we will actually have a better economy.

Overall, the banking crisis caused by the banks cost our country about £1.2 to £1.3 trillion in the wake of 2008/09. In that context, actually, we believe that the costs involved of the reform that we are proposing will in the longer term be in the public interest.
“The reason we are doing this is essentially because we’ve got the biggest cost-of-living crisis in a generation.”

Mr Umunna declined to estimate the level of the cap which Labour would place on banks’ market share.

The quotes are from the Press Association.

Things could have been worse for Shell, suggests Bloomberg correspondent Jonathan Ferro.

Shell has seen 3.9% wiped off its share price since markets opened a few minutes ago.

This hasn’t done much for the FTSE 100, although it hasn’t harmed it either. The overall index is up 0.1%.

Shell is the largest company on the FTSE 100, worth around 7.5% – number courtesy of Mike van Dulken, head of research at Accendo Markets.

On European markets, it’s a pretty unexciting start to the day: Germany’s DAX is up 0.1%, France’s CAC 40 up 0.2% and Spain’s IBEX up 0.1%. Italy’s FTSE MIB is flat.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and the business world.

To start the day, we have a surprise profits warning from the world’s second largest oil company, Royal Dutch Shell. The company has said that its fourth quarter 2013 results are likely to be “significantly lower” than recent levels of profitability.

Earnings for the fourth quarter of 2013 are expected to be $2.9 billion (£1.8bn), compared to analysts’ expectations of $4bn.

Shell is blaming “weak industry conditions in downstream oil products, higher exploration expenses and lower upstream volumes”.

‘Not good enough’ is the message from Ben van Beurden, Shell’s chief executive who took over two weeks ago.

Our 2013 performance was not what I expect from Shell. Our focus will be on improving Shell’s financial results, achieving better capital efficiency and on continuing to strengthen
our operational performance and project delivery.

Although analysts are expecting UK markets to open up, Shell is the largest company on the FTSE 100, so could weigh the rest down.

Elsewhere, we have Labour leader Ed Miliband’s speech calling for the UK’s five largest banks to sell off branches – covered in the Guardian here and here.

At 9.30 we are expecting UK retail sales figures. Although shoppers might have been spending big on tablet computers and Christmas jumpers, market watchers are braced for some disappointing numbers. The consensus is for a rise of 0.3% for Q4 2013, which would be a significant drop on the rest of the year.

From the US, we are also expecting industrial and manufacturing production data for December.

I’ll be tracking that and the rest of the economic and financial news throughout the day…

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.


USA 
  • trade online

Join the discussion