DIY and Gardening Lead The Way ...
Retail Sales bounced back in June. DIY and Gardening were the best performing sectors, along with household electrical stores and dispensing chemists.
Overall retail sales were up by 1.7% excluding fuel. This compares to a fall of 19% and 10% in April and May. Food sales were up by over 5% in the quarter. Binge drinking in April eased. Alcohol sales, up by 40% in April, fell by over 4% in the latest month available.
Overall non food sales were down by 17%. Clothing and footwear sales were down by over 30%. Open and they will come the message to retail. The figures represent a dramatic improvement on the period of lock down. Internet developments continue to dominate. Online sales were 32% of all transactions in June and 32% for the quarter as a whole.
Food sales on line have doubled during lock down, accounting for 11% of total sales. Non food sales on line eased back slightly as stores reopened. 33%, that's one in three transactions, of non food sales, were secured online. Clothing sales lead the way. The impact on high street and shopping centres, an irreversible trend of shrinking retail footprints and slowing consumer footfall.
Output Gathers Momentum in July ...
"The UK economy started on a strong footing" according to Chris Williamson Chief Business Economist at IHS Markit "as business continued to reopen doors after the Covid lock down". July data indicated a marked improvement in business conditions. The latest survey data indicated a return to growth for the service sector and a much faster rise in manufacturing production than seen in prior months.
The manufacturing index increased to 53.6 in July from 50.1 in June. The service sector index, increased to 56.6 in the month, from 47.1 prior month. The overall composite index increased to 57.1 from 47.7 in June.
"The momentum was fueled by the release of pent up demand as clients and customers returned to spending. Businesses were able to open their operations as staff returned." according to Duncan Brock Group Director at CIPS.
The overall picture suggests a rapid bounce back as the economy reopens. The data supports the prospect of a V shaped recovery. Just as well. The economy appears to have contracted by 24% in the second quarter. We expect a steady improvement in the third quarter, with output still down by around 8% in the final three months of the year.
Three million jobs could be at risk unless the furlough scheme is extended to the end of the year. Government borrowing in the first three months of the financial year was £128 billion. The Office For Budget Responsibility expect borrowing for the full year to be over £300 billion for the financial year as a whole. Time yet to determine the shape and speed of the recovery. Time yet to determine, the shape and speed of the jobs recovery specifically ... before spending just a little bit more ...
The consulates are closing in Houston and Chengdu. China has ordered the closure on the US consulate in Sichuan province. A retaliation measure for the enforced closure of the US consulate in Houston Texas.
Federal agents entered the Chinese consulate on Friday. The US had given China 72 hours to "cease all operations and events". The Chinese foreign ministry call the move an "unprecedented escalation" amid ongoing tensions.
Mike Pompeo has been unleashed by the President as the China attack dog. This week Pompeo was in London to meet with the Prime Minister. Support for American foreign policy was on the agenda. Support for the campaign against Huawei and TikTok part of the commitment. The World Health Organisation and the administration in Beijing were part of a new axis of evil preparing weapons of mass infection, presumably.
This week, Pompeo, gave a provocative speech, calling on all Chinese citizens to work with Uncle Sam to change the direction of the ruling Chinese Communist Party. "Today China is increasingly authoritarian at home, and more aggressive in its hostility to freedom everywhere else".
Freedom everywhere did not appear to include Portland, Oregon. Federal agents acting under the direction of the White House used tear gas and rubber bullets to suppress demonstrators in the city. The Mayor of Portland was teargassed in the process. Demonstrations against racism and police brutality have morphed into demonstrations about the presence of federal agents in the city. Both the Mayor of Portland and the Governor of Oregon have said the agents are not welcome. Videos have emerged of protestors taken away by camouflaged troops in unmarked vehicles.
Trump has threatened to send a "surge" of federal troops to other "Democrat" led cities to "help" combat crime. This is election year. 100 days to the polling date. Trump is trailing Joe Biden by over ten points. The President needs an external enemy to close ranks within the GOP and an internal enemy to galvanise the right. China is easy to blame for the Covid crisis, as the case load hits four million in the USA.
The White House is challenging the authenticity of the postal ballot. The President is suggesting he may not accept the result in November, if Biden wins. Scenes from Washington and Portland were reminiscent of the Reichstag fire and Blackshirts on the streets of Berlin.
In Washington today, the President is now wearing a mask and the troops have better camouflage ...
The Prime Minister outlined plans to get Britain back to normal this week. The advice to work from home will be dropped next month. Employers will be offered greater discretion to determine, how and when, employees may return to the work place.
Civil servants will return to Whitehall. The use of public transport will be extended. Casinos and bowling alleys will reopen. Skating rinks will thrill, once again, to the sound of blades on ice.
Exhibitions halls will open. Business events will resume. Fans may be allowed to return to the sports stadiums in October, if all goes well. "Let's get Britain back to normal, in time for Christmas" the message from Boris Johnson. "Let's get business, back to normal, in time for Brexit" he should have added.
There is much to be done to avoid a significant setback this year. Latest ONS data suggests the economy fell by 24% in the second quarter. Construction output fell by 40%, manufacturing output fell by 25%. Retail, transport and storage sectors fell by over 30%. The leisure sector collapsed by 90%, to just 10% of prior output.
The latest jobs figures mask the underlying problem. The furlough scheme is providing much needed support to the jobs market. The u-rate held steady at 3.9%. The number of people officially unemployed ticked up slightly to 1.35 million.
Ominous signs abound. Underlying earnings growth slowed to 0.7%, bonus pay fell by 24%. The number of vacancies fell to 333,000 compared to 800,000 at the start of the year.The experimental ONS claimant count hit the 2.6 million level, compared to 1.4 million in March.
How back will it get? We now expect growth for the year as a whole to fall by just over 12%. Our detailed sector output model suggests a V shaped recovery, with output down by around 8% in the final quarter of the year.
The number of people unemployed by the end of the year will rise to over 2.5 million if the furlough scheme is ended in October. We would still expect a significant recovery by the Spring of next year if all goes well.
For a more detailed presentation, join us for The Saturday Economist Live on the 31st July or the Brabners Quarterly Economic Briefing on the 23rd July. We outline our forecasts by quarter and by sector.
China Avoids Recession ...
In China, GDP increased by 3.2% in the second quarter of the year, following a drop of 6.8% in the first quarter. The second largest economy in the world avoided a technical recession, defined as two consecutive quarters of negative growth.
Exports increased by 0.5%, imports increased by 2.7%. Manufacturing increased by over 4% in the quarter. Growth of 5% is expected in the second half of the year. China will be the first major economy to achieve positive economic growth as Europe, Japan and the US struggle to reopen their economies.
In the US, some states are pausing or reversing plans to reopen businesses. Nationally, 3.6 million Covid cases have now been reported. The fatality rate is set to hit 150,000 by the end of July. The daily death toll is rising. Texas, Arizona and South Carolina have seen death rates double. Significant spikes have been seen in California and Tennessee.
The White House is struggling to formulate an appropriate response. The President has been committing less of his time and energy to managing the pandemic. "He is not really working this anymore, he doesn't want to be distracted by it" the claim in the Washington Post this week-end.
In a latest poll, 64% do not trust what the President is saying about the pandemic. Just 33% approve of Trump's handling of the crisis. With just over 100 days to go to the election, Joe Biden is now 11 points ahead in the polls. Body bags and refrigerated trucks are heading to Florida. The swing state is faced with a real crisis as curfews are imposed in parts of the state.
The US economy will shrink by an estimated 6% this year. The unemployment rate is over 10%. 54% of voters say they approve of Trump's handling of the economy ... Joe Biden's personal rating is slipping ... the race is far from over yet ...
Rishi Sunak is now the most popular Chancellor of the Exchequer, since Gordon Brown, apparently. With over 9 million on the payroll and more supported by unemployment pay, the social media modelled Chancellor, is now tipped for the top job, if Boris Johnson slips up.
This week, the Chancellor announced his "Plan for Jobs in 2020". How the government will boost job creation in the UK and more importantly, stop the cash being splashed, on the extremely expensive furlough scheme.
The scheme is due to end in October. The Prime Minister has warned, it is a scheme which cannot go on forever. When it ends, the government fears a wave of redundancies, just before Christmas. Hence, the "Plan for Jobs". The plan includes a VAT cut for the hospitality sector, "eat out to help out" vouchers for families, a cut in stamp duty, a new job retention scheme, a grant for green home spending, plus bonuses for apprenticeships and youth work placement.
Together the schemes will cost a further £30 billion pounds, on top of the £120 billion of special measures already in place. Tucked away in the small print, the Treasury glossed over a further £33 billion of spending on the NHS, including £15 billion to be spent on PPE and £10 billion on "test and trace".
£30 billion here, £30 billion there, and soon you are spending real money. According to the IFS, government spending in the current financial year will be a staggering £350 billion. The deficit will push towards 20% of GDP before too long. But is the money all well spent?
The VAT cut is described as manna from heaven by the hospitality sector. At a cost of £4 billion, the cut may well be extended into Easter next year. The Stamp Duty cut is welcomed by the housing sector. Buyers will save an average £5,000 per transaction.
A boost to the green economy always welcome, a stimulus to apprenticeships and youth employment always a valiant effort. The voucher scheme, to boost the restaurant trade, comes at a time when most people are still uncomfortable about eating out. Jenny Harries, the Deputy Chief Medical Officer is uncomfortable when they do.
People should reduce the risk of dying, by slimming down and losing weight, the main medical message. The scheme is expected to cost about £500 million pounds. Chump change, crumbs from the Treasury table, in the grand scheme of things.
The main criticism is of the job retention scheme. Businesses who bring back workers from furlough will be paid a £1000 bonus per employee if they remain in work into next year. If all furloughed employees are brought back into work, this could cost the Treasury £9 billion.
Companies will receive the bonus, even if employees have already returned to work. Many will return to work with or without the scheme. For those set to lose their jobs, the bonus will be of little value. Economists call this a "dead weight scheme".
HMRC are unimpressed. Jim Harra, Chief Executive, in a written letter to the Chancellor, reports "I am unable to reach a view, this represents value for money, to the standards expected, by the "Managing Public Money" guidelines.
The scheme must have focus grouped well, especially among the Tory back benches. The money would have been better spent on extending the furlough scheme, to the end of the year, in sectors like hospitality which have been badly hit.
The Chancellor explained there is more to be announced in the Autumn Statement ... time enough to let the markets run and measure the return to work momentum in an economy badly damaged by shut down. Time then to ensure further spending plans represent value for money to the standards expected. The Chancellor's rating may have taken a hit on Instagram, the clock is Tik Toking on any leadership move ...
Joe Biden makes a move ...
Joe Biden emerged from the bunker this week. The candidate announced a $700 billion dollar plan to "build back better". The plan, to create jobs in the USA and invest in new technologies.
Battery technology, artificial intelligence, biotech and clean energy will feature. Digging for coal and lagging the roof will not.
Five million new jobs will be created by investing in domestic production and substitution of foreign supply chains. Corporation tax will increase to fund part of the spending plans. An increase in the minimum wage expected, an increase in union access will also form part of the plan.
"Trump has simply given up" says Biden, "American families are paying the price of White House incompetence."
Biden is ahead in the polls. Top voter concerns are Coronavirus, Racial Injustice and Foreign Policy. Hardly Trump strong points. Mike Pence is making the hard yards on campaigning at the moment. Speculation is rising Trump may quit the race.
In a piece in the Evening Standard this week, Jon Sopel North American Editor for the BBC writes ...
"It is striking, just how many well connected people have told me, that if the polls stay as bad as they are for Trump right now, then come Labour Day (September 7th), they wouldn’t be surprised if he quit the Presidential race."
Why would Trump quit? In the President’s limited lexicon, no word is more insulting than loser. The argument goes, that if he can’t win, he will find a way to extract himself from defeat. Supporters are becoming frustrated by his self defeating conduct. This week the President announced he has no interest in a phase two trade deal with China.
"I don't think about it now" Trump told reporters on Air Force One this week. "They could have stopped the plague, they could have stopped it, they didn't stop it."
Joe Biden is ahead in the polls. His campaign strategy is primarily, to do next to nothing and say next to nothing. His guidelines, part philosopher Boethius, “Stay silent and they will think you are wise” and part assassins code “There is no need to murder someone, who is committing suicide".
The Samaritans guidelines tell us, the majority of people who feel suicidal, do not actually want to die, they do not want to live the life they have. It may well be the President no longer wishes to live life in the White House. Hopes of a Nobel peace prize dashed, defeat in the polls in November best avoided, political suicide offers a plausible way out ...
That's all for this week! Have a great, safe, week-end, eat out, help out, work out, wear a mask, with a smile ...
"Eat Out to Help Out" the message from the Chancellor this weekend. The pubs are open, the restaurants ready for action. Britain needs to start spending again. If not, a generation of young people will become "out of work" victims, of the economic crisis. "We must learn what it is like to go out again. It is the nation's duty to get out there and spend, to save jobs at risk", says Rishi Sunak
The hospitality industry is worth £130 billion per annum. It generates almost £40 billion in tax revenues for the exchequer. It is the third largest private sector employer accounting for ten per cent of total employment and five percent of GDP.
The Treasury are anxious to get the economy back to work. In the first two months of the financial year, Tax Revenues fell by 20%, the VAT take fell by over 30%. Government borrowing was £110 million. The Debt Management Office will issue over £300 billion of new gilts in the first six months of the financial year, to fund the crisis.
The Prime Minister said he would drink a pint of beer. Jacob Rees-Mogg recommended a yard of ale to facilitate social distancing. Chris Whitty the chief medical officer warned of alcohol abuse, from extensive consumption by the yard.
"Pubs could become super-spreading environments, if social distancing measures are ignored", said Chris Whitty. Cricket will be allowed later this month. Good news for cricket lovers dashed. The Chief Medical Officer warned, of players hugging bowlers, when they take a wicket!
The opening will come too late for some. This week, Bella Italia, Cafe Rouge and Las Iguanas went into administration. Carluccio's and Frankie and Benny's have already made the trip.
The Prime Minister launched his "New Deal" with a commitment to build, build, build. More hospitals, more schools, more police. The largesse will be limited. Both the Prime Minister and the Chancellor warned this week, the furlough scheme cannot go on forever.
Hopefully it may not have to. Andy Haldane Chief Economist at the Bank of England suggested the economy would be rapid and V shaped. The latest data from the IHS Markit PMI surveys on manufacturing and services, suggested a recovery in June, from the output lows of April and May.
Don't get too excited. In the service sector, new orders are still falling but at a much lower rate ...
China Recovery on track ...
The latest data from the Caixin China Composite Index suggest the recovery continues in China. The service sector expanded at the fastest rate for over ten years in June.
In the service sector, business confidence increased to a three year high. Both activity and new orders increased. The headline index increased to 58.4 in June, compared to 55.0 in May. The upturn was attributed to the easing of virus related restrictions and stronger demand conditions both at home and in export markets.
The broader composite index increased to 55.7 from 54.5 in May, indicating a sharp and accelerating increase in overall activity. Businesses are highly confident about the economic outlook, the epidemic is under control, restrictions have been lifted and the economy is recovering at a faster rate.
In the USA, the jobs data for June provided some relief. Almost 5 million jobs returned, as bars, restaurants and other businesses reopened. The leisure and hospitality sector increased payrolls by 2.1 million. Other jobs were added in retail (740,000) and manufacturing (356.000). The unemployment rate fell from 13.3% to 11.1%. The country has recovered about a fifth of the 22 million jobs lost to the shut down.The Congressional Budget Office suggests the unemployment rate is likely to remain in double figures through until the end of the year. The economy is expected to shrink by 5.9%.
Covid cases are rising rapidly in Arizona, Florida and Texas. The daily case load is increasing nationally. Almost 350,000 cases were recorded last week. 2.7 million cases have now been registered overall. The death toll has risen to 128,000.
The President was in sombre mood this week. Just four months to go to the election. The President is behind in the polls. In a "dark" speech at Mount Rushmore President Trump focused on the "left wing cultural revolution" that aims to rewrite U.S. history and wipe out U.S. heritage. Trump is in a battle against a new far-left fascism.
"Angry mobs are trying to tear down our statues, deface our most sacred memorials and unleash a wave of violent crime in our cities." "Four more years", the crowd chanted, four more months the hope for many ...
That's all for this week! Have a great, safe, week-end, eat out, help out ...
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.