Shoppers may by wary, but their purses are bulging
TIME TO CLAMBER back on an old warhorse. The latest retail sales statistics were published last week and while I am glad to see that they were quite rightly given little prominence in the news, their big failing has not yet been publicly recognised.
In case you did not notice them, the figures were actually mildly encouraging. Retail sales by value were down only 2.58 per cent year over year in October and by volume only 1.04 per cent. Barring anomalous figures during the Lunar New Year holiday, this was the lowest rate of decline since August last year.
But this is not the only source we have for statistics on consumer activity in Hong Kong. New figures on consumer spending in the domestic economy have also just been published in the quarterly report on gross domestic product and the two can easily be contrasted.
The first chart shows you what happens when this is done. The sum total of consumer spending as measured in the retail sales basket amounts to only 22.7 per cent of what those GDP figures show consumer spending to have been, 25 per cent if you exclude visitor spending here and I would not exclude it as it is not excluded in the retail sales basket. As the chart also shows, this figure has come steadily down over the years from 43 per cent at the beginning of 1982.
So, not only do we have here a retail sales figure that has become so unrepresentative as to be virtually meaningless but one that also consistently overstates the gloomy view. As more of what the consumer spends drops out of this basket, it gives a lower growth rate of sales than you would find if everything were included.
Why has this happened?
The one greatest reason becomes apparent from the second chart. We now spend more on consumer services (education, health care, entertainment, transport, personal care, etc) than we do on consumer goods, 2.3 times as much as on all the goods represented in the retail sales basket. None of this spending is included in the basket.
You will notice two other things from the chart. The first is that only 20 years ago we still spent less on services than on goods in this basket and the second is that consumer service spending has held up remarkably well since 1997 while consumer goods spending collapsed. Each of these tells its own obvious story.
I have discussed all this by e-mail with the government economist and the people at Census and Statistics Department on several occasions. Their response is that the retail sales figure is meant to be an indication of how classically defined retailers are doing, not of total consumer spending. This is all very well but it introduces two other obvious questions. Why bother with a classical definition of retailers if it no longer has much application? This data series should be revamped. And if Census and Statistics wishes to persist in publishing it, should we not be warned more strongly against taking it as a proxy for consumer activity?
For instance, where the volume of sales as shown in the retail sales basket showed a 3 per cent year over year decline in the third quarter, the comparable figure in the GDP report showed a 1.3 per cent increase and its services component a 4.1 per cent increase. We should have been told this was so.
There, now I can climb off this old warhorse and show you something else that looks encouraging. Ask around why people are spending less in the shops and the invariable answer you will get is that they have less money to spend. That answer, as you know, will be accompanied by one of those I-take-it-you-arrived-here-yesterday looks.
Here is a test of it. If they have less money to spend then you would naturally expect that they also have less money in the bank.
Now look at the third chart. It shows that in 1992 Hong Kong people held HK$1.30 in Hong Kong dollar deposits for every dollar of consumer goods and services they purchased that year. The latest figure is HK$2.60.
People in this town are not short of money to go shopping. They would just rather not do so while things are looking down for the economy. It is just a natural measure of precaution. When they do decide to go shopping again, however, it will be with bulging purses.