Jake's View

'Slowing' retail sales growth still high by any historical measure

PUBLISHED : Sunday, 06 October, 2013, 12:00am
UPDATED : Sunday, 06 October, 2013, 12:17am

The city's retail sector looks set for challenging times, with sales growth in the traditional busy summer shopping season lower than expected.

Retail sales in August rose just 8.1 per cent year on year in value terms, the slowest for any month this year and down from 9.3 per cent in July and 13.4 per cent for the first eight months of the year.

South China Morning Post
October 4

I can easily make it look even worse. Just for starters, the figure falls from 8.1 per cent to 7.2 per cent if we measure it by volume of sales rather than value of sales. Let's not forget inflation.

Then we have the big oddity of these retail sales figures. They don't cover very much.

Consumer activity is actually best represented by personal consumption expenditure in the quarterly economic report and classically defined retail sales are only a small proportion of it.

The chart shows you just how small a part this is.

At its lowest, around the turn of the century, it was less than a quarter and this figure had steadily declined for at least two decades.

The reason it happened is that we spend ever more on consumer services than we do on consumer products, and services are not included in the retail sales figures.

We also increasingly buy consumer goods online or outside of classically defined shops located in Hong Kong.

In fact, when our statisticians release the retail sales figures every month, they warn people not take them as a proxy for consumer activity.

So why bother publishing them at all?

The answer is that government never stops doing anything if once it has started doing it.

But now notice from the chart that our ratio of retail sales to personal consumption expenditure is rising again.

This is all very well for classically defined shops, but it also tells us that the growth of overall consumer activity must then be rising at a slower pace.

We have these quarterly economic figures only up to June at the moment, but if the later trend of retail sales is any guide, and it generally is, then my guess from just eyeballing the figures is that the volume of consumer activity is now growing at no more than 4 per cent, which is quite a comedown from 8.1 per cent.

But let's try a different exercise with an 8.1 per cent growth rate. Let's go back 1,000 years to the year 1013 and assume that total world retail sales amounted to US$1,000.

People were mighty poor back then. It could not have been much more.

Now let's assume things then began to improve and retail sales growth for the next 1,000 years averaged 8.1 per cent a year. What would retail sales now be in the year 2013?

Your answer is 6.7 followed by 35 zeros. What would we call that? A ziggaquajillion? A bizarrabogglethemind-illion?

But to put it in perspective, world gross domestic product at the end of last year was about US$72 trillion.

That's 12 zeroes. We need another 24 zeros to get us to what average retail sales growth of 8.1 per cent a year over the last 1,000 years would produce.

To get US$72 trillion, our compound annual growth rate for these 1,000 years would be about 2.53 per cent. That would give us world GDP and retail sales is only part of GDP.

What is that line again about not looking a gift horse in the mouth? An annual growth rate of 8.1 per cent looks fine to me from the historical perspective.

May we keep getting it for a few more years.