Retail sales declined at the fastest pace on record in the year to January due to a sharp deterioration in the number of new cars sold, according to data released this morning by the Central Statistics Office (CSO).
According to the CSO’s retail sales index the volume of goods bought by consumers declined 20.4 per cent in January compared with the same month in 2008, the biggest decline since records began in 1974. In the month of January the volume of retail sales declined 9.4 per cent.
Behind the fall in retail sales is a 42.2 per cent drop in the number of new cars sold in January compared with the same month in 2008.
Car sales data collected by the CSO includes sales of petrol and other items on garage forecourts. Figures from the Society of the Irish Motor Industry (SIMI) indicate new car sales fell 67 per cent in annual terms in January and by 63 per cent in February.
If the impact of car sales are excluded, the value of retail sales was 8.1 per cent lower in the year to January and 0.1 per cent lower in the month.
Weak retail sales result in reduced tax revenues for the Exchequer through lower VRT and excise duties and today's data comes as the Government is framing its supplementary budget to be delivered on April 7th.
Rossa White, chief economist with Davy stockbrokers said the decline in car sales was not surprising as a new car was the most discretionary item for most consumers. He added that contributory factors behind the fall may be difficulties securing financing and the glut of second-hard cars on the market.
Alan McQuaid, senior economist with Bloxham stockbrokers said while the decline in retail sales mainly reflected the weakness of new car sales factors contributing to declining consumer expenditure were likely to persist this year.
“Although declining interest rates and lower inflation should boost disposable income this year, these positive factors are likely to be more than offset by the negative impact of declining employment, lower pay increases and a rise in direct taxes.”
He added that the high degree of uncertainty regarding economic prospects both domestically and internationally means consumers are likely to remain cautious and were more likely save than spend.
“All the evidence is that consumer spending will remain extremely muted at least in the short-term and the risks are that the fall off in expenditure will be a lot greater than the Government or indeed private sector analysts are expecting”.
Mr McQuaid said unless the April budget includes stimulus measures to boost consumer spending, such as lower VAT, lower VRT or lower stamp duty “it is hard to see anything but a further contraction in personal expenditure in the months ahead”.
When retail sales are measured by value the decrease over the 12 months to January was 19.9 per cent, the sharpest decrease on record.
Ulster Bank economist Lynsey Clemenger said the decline in retail sales came against a backdrop of rapidly falling prices.
Sales of household goods such as furniture and lighting dropped by over a third in the year to January and by 10.6 per cent in the month. Other sectors exposed to the weakening property sector such as hardware, paints and glass products were 21.7 per cent over the year while electrical goods were down by almost 25 per cent.
Sales of clothing and footwear held up reasonably well in January and were essentially unchanged from December, helped by the annual post-Christmas discounts.
