It will be a good Christmas for the economy. Tomorrow is Black Friday in the US, the bridge between Thanksgiving today and the weekend, and the largest single day in the year for retail sales.
Online retailers, notably Amazon, have sought to export this shopping bug to the UK and they seem in some measure to be succeeding, although it is probably better to see Friday as an entry point into the first of the big weekends for sales rather than a great day in itself.
Still, as far as consumer demand is concerned, we are in good shape. Yesterday’s distributive trades’ survey from the CBI pointed to a likely 4 per cent increase in the volume of sales in the final quarter of this year.
That would fit in with the most recent retail sales figures, showing the volume of sales up 4.3 per cent in the year to October. It also fits in with growth running at about 3 per cent a year, maybe a little more.
Looking into next year there are some reasons, including political uncertainty, to expect some slowing in the increase in consumption, but there is not much evidence of it yet.
But in a way, more interesting than the changes in the level of sales are the changes in their nature – because these show the way our society is developing. There is, for example, one obvious shift: the move to online. According to the Office for National Statistics, that accounts for 11.2 per cent of retail sales, up from 10.7 per cent a year ago.
Actually the proportion may be even higher, if some calculations by the Centre for Retail Research are right. It estimates that 13.5 per cent of retail sales this year are online, compared with 11.6 per cent for the US, 9.7 per cent for Germany, 6.9 per cent for France, 3 per cent for Spain and only 2.1 per cent for Italy.
It expects the proportion to go on growing over the next four years, with an element of catch-up by the countries where online has yet to take off. It is interesting, isn’t it, that among the large economies the UK has the highest proportion of online shopping.
The shift to online has been widely noted, but it is relatively recent. There are two other trends, longer established, that have received less attention. One has been the way in which service-sector inflation has run ahead of goods inflation. Services, by and large, are labour intensive and have proved hard to automate without dropping quality.
By contrast, goods inflation has been more muted, partly because it has been easier to achieve increased productivity in manufacturing, and partly because many goods can be imported from lower-cost countries, whereas most services are made at the point of delivery (you can’t import a haircut).
The result of this change in differential pricing has been a gradual shift in consumption, away from spending money on things and towards spending money on services. In terms of the volume we consume there may have been little change; in terms of the amount we spend there has been a gradual and continuing shift.
The other shift is within different types of goods, between food and non-food items. You can see that in the two graphs, which come from the ONS and show retail sales.
On the top are sales of food in volume and value. As you can see, the red line has climbed steadily over the past nine years, although in recent months it has been steady. That is the price we pay for food. But the black line, the amount of food we buy, has been pretty stable, as you might expect.
On the bottom graph, the pattern is reversed. This shows non-food items. Inflation, the red line, has been pretty much zero overall and actually dipped a lot between 2008 and 2011. But the amount we have bought, shown in the black line, has risen a lot.
There was a sharp increase in 2006 and 2007, then a long flat period as the recession held down our living standards, and then from the beginning of last year onwards, sales (and living standards) have shot up again.
It has not, at least until the past few months, felt much like a boom. Part of the reason for that may be that we are not used to getting higher living standards in the form of lower prices rather than higher incomes. We are used to the idea that prices always go up, and taken overall they do – or least they have done, aside from a couple of blips, since the Second World War.
Overall prices are not falling and the most recent consumer price index is still up 1.3 per cent on the year. But the price of goods in the shops is down, on average by 1.5 per cent on a year ago, the greatest fall since 2002. That has been helped a great deal by falling fuel prices, which are not shown in the two graphs.
What does all this mean? Well, let’s wait and see how long the present muted inflation is maintained, but if it is, we will increasingly find ourselves improving our living standards as a result of lower prices as well as higher incomes. That is what has been happening in Japan for more than 20 years and is happening in parts of the eurozone now. It may be that the European Central Bank will be more effective in generating a bit of inflation than the Bank of Japan, but we don’t yet know.
From most British people’s point of view a bit of disinflation is rather welcome – who wants to spend more on filling the car at the pumps? – but from a macro-economic perspective it does create problems.
Meanwhile downward pressure on prices seems likely to continue, driven by, among other things, price-comparison sites and by the lower cost of distribution enjoyed by the online retailers. Behind the Black Friday rhetoric, retailing has become a tougher business and will become tougher yet.Reuse content