Economists tend to be sniffy about the CBI’s distributive trades survey – the one that this week reported the “steepest drop” in retail sales since the depths of the recession in 2009. The report describes only a two-week snapshot of trading, they say, and thus is volatile and unreliable. The size of the sample is too small, they also argue, because only 49 retailers participate and half of them employ fewer than 100 people.
These are fair points, and economists are paid to be fussy. But sometimes even a statistically dodgy survey chimes with common sense and the mood music from the front line. The overwhelming evidence suggests a storm is gathering over the retail sector.
Exhibit A is John Lewis, almost the definition of a high street bellwether. Sales fell by 4.7% in the week before last. Warm autumn weather isn’t helping, of course, because clothing rails are stocked with winter fashions, but this weak run is looking alarmingly long. Over three weeks, same-store sales at John Lewis are estimated to be 4.5% behind last year. And that’s hefty.
Then there is last week’s profits warning from Pendragon, the car dealer behind the Evan Halshaw and Stratstone brands. Again, it may be that special factors are at work, in this case the slump in sales of diesel cars and overproduction by car manufacturers. But neither of those pressures is new. The bottom line is that, at the beginning of August, Pendragon expected to make a £75m profit in 2017; now it thinks the figure will be £60m. Perhaps nervous consumers are deciding this is not the moment to make a big-ticket commitment like a new car.
That would fit with earnings data from the Office for National Statistics. Latest estimates show that, when inflation is taken into account, average real wages for employees fell by 0.4% in the period from June to August compared with the previous year. And the squeeze on incomes has probably intensified since then. Inflation, as measured by the retail prices index, rose to 3.9% in September.
The strain is showing in consumers’ wallets. UK Finance, a trade body for banks and credit card issuers, said borrowing on credit cards from high street banks was 5.5% higher than a year ago. Meanwhile, applications for individual voluntary arrangements – a means of managing personal debt – are soaring. The picture of maxed-out consumers struggling to save, and running on more credit, is clear.
So is the influence of Brexit – or, more strictly, of a weaker pound – on disposable incomes. In the months immediately after the June 2016 referendum, nothing happened. Prices in shops didn’t change and supermarkets could defer price rises on imported foods because they had locked in supplies at the old exchange rate. Now those financial hedges have finished and prices of basic goods in shops are rising. Another exchange rate effect may also be at work: retailers suspect consumers who took a summer holiday in the eurozone were surprised by the size of the credit card bill and have taken an autumn pledge of austerity.
The question for retailers is whether Christmas will improve matters. Predictions of dire pre-Christmas trading have been confounded many times in recent years. The bleak October may turn out to be a blip, and the picture may be distorted by the shift to online shopping. The script could yet come good for shopkeepers, especially food retailers, if consumers decide a quick way to save is to avoid restaurants.
Yet things feel different. Real incomes have fallen for the first time since 2014, confidence in house prices stands at a five-year low, and next week the Bank of England is likely to raise interest rates for the first time in a decade. Yes, the CBI survey, which showed a dramatic swing from boom to gloom between September and October, may be an exaggeration. But the direction of travel seems correct: 16 months after the fall in sterling, consumers feel poorer because they are poorer.
Barclays stuck with Staley’s strategy
The first time Barclays wanted Jes Staley it got scared off. Appointing the American investment banker as chief executive in 2012 would have been too racy at a time when the bank was mired in the Libor rate-rigging scandal. Instead, the internal candidate Antony Jenkins got the job, until he was fired for being just a bit too safe. So, Barclays got Staley the second time around in 2015 – and he came with a big promise. John McFarlane, the loose-tongued chairman, let it be known that the ousting of Jenkins would give the bank a chance to double its share price in three years.
That was July 2015 and the share price was 260p. If McFarlane does not rue the day he made that promise, Staley must. More than two years later, the shares are at 180p after taking a pounding following disappointing nine-month results last week.
Staley cannot get momentum behind his vision for a transatlantic bank with centres in London and New York, and now freed from its once-prized African operations. True, he cannot be blamed for the Brexit-induced shock that rocked the markets last year. Yet that does not explain the malaise surrounding the bank.
Anxiety looms large about Staley’s strategy to expand the investment bank, which has been through numerous incarnations in recent years. The business is cyclical – and currently in the wrong part of the cycle to support his case to plough resources into an operation so hated by his predecessor.
There is also uncertainty about Staley himself. Weighing heavily on the stock is an investigation by regulators on both sides of the Atlantic into his attempts to unmask a whistleblower weigh heavily on the stock. A damning finding could force Staley out – and leave Barclays looking for yet another chief executive.
Yet here’s the rub. A new boss is probably not what Barclays needs as it implements the Vickers reforms to ringfence its high street arm from its investment bank, or braces for Brexit. Staley’s strategy may be unproven but it’s the only one on the table.
Dammit, Janet is set to survive
President Donald Trump is expected to announce who will chair the US central bank for the next four years in the coming week. But after months of speculation involving various potential new appointees to run the Federal Reserve, analysts now expect he will give the incumbent, Janet Yellen, another term.
No one should be surprised when a senior official who was once derided suddenly becomes the president’s new best friend. It seems to happen to so many.
In the summer, Trump said he was minded to replace Yellen, and put forward the names of five economists. Later he narrowed the field to two: Jerome Powell, a Fed official with a voting record that mimics Yellen’s, and John Taylor, a Stanford University economist who ranks among the Fed’s fiercest critics.
One of Trump’s concerns was that savers were being short-changed by low interest rates. But now that Yellen is raising rates, she is back in favour and he has moved on to other battles, giving monetary policy some much-needed stability.