Graeme Wearden 

UK retail sales surge; US business growth slows sharply – business live

Rolling coverage of the latest economic and financial news, including new healthchecks on the eurozone private sector
  
  

Buchanan Street in Glasgow.
Buchanan Street in Glasgow. Photograph: PJP_daily/Alamy Stock Photo/Alamy Stock Photo

It’s been another quiet day in London’s stock market, with the FTSE 100 closing down 11 points at 7,459.

David Madden of CMC Markets sums up the main movers:

Unilever announced a 1.6% drop in first-quarter sales to €12.4 billion, which topped analysts’ forecasts expectations of €12.3 billion. The disposal of the spreads business was responsible for the dip in sales. Prices ticked up by 1.9% while volumes edged higher by 1.2%, and that is a little concerning as a company can’t depend on higher price hikes forever. Well established markets like the Americans and Europe posted sales growth of 0.4% and 0.6% respectively, while emerging markets like Asia, Africa, the Middle East and Eastern Europe registered a 6% rise in sales.

Rentokil shares have reached another all-time high this morning after the group revealed a solid first-quarter update. Revenue for the first three months jumped by 8.9%, but a sizeable portion of that was down to acquisitions, and the organics growth rate was 4%, which was an improvement on the 3.2% achieved in the previous years.

Europe was stronger, with Germany’s Dax at a six-month high and France’s CAC nudging an 11-month peak. That follows this morning’s weak factory data, which pushed down the euro (helping exporters).

Pop! Pinterest shares have begun trading at nearly $24 per share.

That’s around 25% above their IPO price of $19.

So, a decent start. But we said the same about another tech unicorn, Lyft, last week - its early rally soon went into reverse....

Pinterest shares are expected to pop higher when trading begins later today...

An online picture board may seen an unlikely business, but Pinterest has managed to grow its revenue strongly in the last few years - narrowing its losses from $130m in 2017 to $63m last year.

Aaron Goldman, of marketing technology company 4C Insights explains why advertisers like it:

“Pinterest plays an important role in the media mix by helping brands reach audiences at key moments of inspiration. While other channels specialize in facilitating high-level brand awareness or direct-response purchase activity, Pinterest generates results across the entire marketing funnel.

We’ve seen continued increases in investment on Pinterest from advertisers using 4C to buy an array of formats including Promoted Pins, Video, and Shopping Ads.”

Now that Brexit has been delayed, the UK public are dashing to book their summer holidays.

Ferry bookings have surged in the last week, as families conclude that the risk of being stuck at the border after a no-deal Brexit has receded.

American business activity growth slows sharply to 31-month low

Ouch. Growth across America’s private sector companies has slowed sharply this month, to a 31-month low.

Data firm Markit has reported that its Flash US composite output index has fallen to 52.8 for April, down from 54.6 in March. That indicates that growth has weakened this month.

Companies reported that demand has softened, with total new business growth easing and exports only rising marginally.

This dragged down growth at America’s services companies, while factory growth was unchanged.

Here’s the details:

  • Flash U.S. Services Business Activity Index at 52.9 (55.3 in March). 25-month low.
  • Flash U.S. Manufacturing PMI at 52.4 (52.4 in March). Unchanged.

The slowdown means the US economy is some way shy of president Trump’s goal of 3% growth, says Markit’s Chris Williamson:

“The US economy started the second quarter with its weakest expansion since mid-2016 as businesses reported a marked slowing in output, new orders and hiring.

“The survey indicates that the manufacturing downturn seen in the first quarter has persisted into April, but growth in the service sector has now also slumped to a two-year low as the malaise showed further signs of spreading beyond the factory sector.

“The April surveys are consistent with GDP rising at an annualised rate of just under 2%, with the official measure of manufacturing production remaining in decline.

Over in New York, the US stock market has opened gently as traders watch attorney general William Barr discuss the Mueller Report (we’re live-blogging it here).

The Dow Jones industrial average gained 22 points in early trading, with the S&P 500 also up around 0.1%.

The pick-up in US retail sales has brought some comfort to Wall Street, where social platform Pinterest is floating today at $19 a share, higher than expected.

Updated

US retail sales also beat forecasts

American consumers, like the UK counterparts, also hit the shops with unexpected vigour last month.

US retail sales jumped by 1.6% month-on-month in March, the bigger jump in 18 month.

Sales of motor vehicles, petrol and clothing were all higher, indicating that shoppers were comfortable splashing out on new purchases.

This, along with the latest drop in jobless claims, suggests fears of an imminent US recession may be unfounded.

Newsflash: America’s employment market continues to show surprising strength.

The number of US citizens filing new claims for unemployment benefit has dropped to a 49-year low, of just 192,000 people.

That extends a long run of falling initial claims, since the end of the last recession.

Updated

Rising credit card default are a worrying sign for the UK economy, warns Professor Costas Milas of Liverpool University.

He’s plotted the Bank of England’s data against UK GDP growth, to show that that they have a very strong negative correlation (one goes up when the other goes down).

Professor Milas tells us that it could mean UK growth in the first quarter of 2019 will be weak:

Correlation does not indicate causality but we should assume that (big) rises in defaults coincide with lower GDP growth rates.

From the attached plot, a big rise in default danger occurs instantaneously with big dips in GDP growth. At face value, this seems to suggest that the big increase in the default danger in 2019 Q1 will coincide with a substantial drop in GDP growth for 2019 Q1.

Is this going to happen? We will have an answer on this in early May...

The pick-up in retail sales shows that Brexit worries are being shrugged aside by consumers, argues George Buckley, an economist at the Japanese bank Nomura.

He told clients:

Whichever way you cut the figures it is still the case that sales grew by 1.3% q-o-q in the first quarter of this year. And with annual retail sales growth having averaged 3.5% over the past year there is little evidence to suggest that Brexit is doing serious damage to the retail sector.

Rather, the combination of low unemployment, employment rising at a rate twice its long-run average, continued real wage growth and low interest rates is clearly providing significant support.

Updated

Here’s Bloomberg’s take on the increase in UK consumers defaulting on their borrowing:

UK credit card defaults have risen to the highest level in almost two years, according to figures from the Bank of England.

Its index of defaults rose to 22.9 in the first quarter, according to its Credit Conditions Survey. That’s up from 12.7 at the end of 2018 and, along with the second quarter of 2017, is the highest since the financial crisis.

It’s a further sign of strain on UK shoppers, who have had to deal with real-wage declines, forcing many to borrow to keep up spending.

Real wages are, on average, now rising – but there will be some workers who didn’t get an inflation-beating rise last year. Especially if they work in the public sector, where a long pay freeze has hurt workers.

Updated

Quite....

Worrying jump in UK credit card defaults

The latest credit figures are out, and they paint a more worrying picture.

Lenders have told the Bank of England that default rates on credit cards have jumped significantly in the first three months of 2019.

The BoE’s latest credit conditions report, released this morning, states:

Default rates increased significantly for total unsecured lending in Q1. This was driven by a significant increase in default rates on credit card loans. Lenders expected default rates for total unsecured lending to decrease slightly in Q2.

The balance between lenders reporting that credit card defaults had worsened, rather than improved, jumped to 22.9, the second-highest amount in the last five years.

Peter Briffett, CEO of Wagestream (an app that lets workers access their pay cheques early) says the data is a ‘big red flag’ for UK household finances:

The credit card balance default rate hasn’t been higher since the first half of 2017 and marks a return to rocky ground, far outpacing the deterioration seen with other forms of unsecured lending.

In fact the default rate for credit cards has nearly doubled as a percentage of net balances between the last quarter of 2018 and the first few months of 2019.

Updated

Full story

Our economics editor, Larry Elliott, writes:

Britain’s consumers ignored the turmoil at Westminster last month and splashed out in high street stores and online.

Despite fears that spending would plummet as a result of mounting Brexit uncertainty, figures from the Office for National Statistics showed retail sales were up 1.1% in March.

The ability of consumers to shrug off political events surprised the City, which had been predicting a 0.3% monthly drop in spending...

Updated

Britain’s retailers are keen to dampen the impression that all is rosy on the high street.

Anne Alexandre, RSM manager at the British Retail Consortium, says:

We welcome the improving sales figures. However, these numbers may not tell the whole story, as Easter distortions are notoriously hard to seasonally adjust. It is clear that retail is going through a tough year, with increasing store closures and job losses. This has been reflected in both the BRC’s Retail Sales Monitor, as well as Visa Consumer Spending Index, which both showed a slowdown in sales.

Retail is under enormous pressure from both rising costs and Brexit uncertainty. Despite being 5% of the economy, retailers pay 10% of all business taxes and a staggering 25% of Business Rates. Unless the government want to see more closures on the high streets, and more jobs lost, they must act by reforming Britain’s broken business rates system.

Updated

Retailers may also be benefiting from the recent pick-up in pay.

UK earnings are rising at their fastest pace in a decade (or since 2016, once you adjust for inflation). That gives shoppers more disposable income.

Jeremy Thomson-Cook, chief economist at World First, says it’s a factor:

These figures are surprising – a late Easter and declining credit card spending would typically mean a softer retail environment. Stronger employment and higher wages are natural drivers of higher consumer sentiment, while the effect from last year’s ‘Beast from the East’ brightens the year-on-year comparison.

Updated

We often hear that Brexit has hit confidence in the British economy.

But economist Rupert Seggins points out that UK retail sales have been stronger than other G7 economies since the 2016 referendum.

Why might shoppers have shaken off the Brexit shock? One factor is that credit growth was strong in 2018, thanks to low interest rates.

Another factor is that more than 17 million people did vote to leave the EU in 2016, and Nigel Farage’s new Brexit party is already polling strongly. If leave voters still want to leave, the prospect is unlikely to make them rein in their spending...

Updated

Some snap reaction to the UK retail sales figures:

Internet shopping keeps rising

Britain’s love affair with internet shopping deepened last month (another reason that department stores are struggling).

The ONS says:

Internet sales increased by 12.4% for the amount spent in March 2019 when compared with March 2018, with all sectors showing growths except food stores and household goods stores. The month-on-month picture showed a similar trend with total growth of 8.0%.

Online sales as a total of all retailing increased to 18.6% in March 2019, increasing from the 18.1% reported in February 2019

Department stores under the cosh

At first glance, such strong retail sales figures don’t really chime with the tales of gloom on the high street.

But dig into the figures, and you can see the department stores are really struggling.

The amount bought at department stores shrunk by 0.3% year-on-year in March, even though total retail sales had surged by 6.7%.

No wonder Debenhams lurched into administration last week.....

The ONS’s head of retail sales, Rhian Murphy, says there has been “sustained growth” in the first three months of 2019.

March’s mild weather boosted sales, with food shops also recovering after a weak February.

Over the longer term, department stores were the only shop type to see their sales shrink.

Updated

UK retail sales surge as consumers ignore Brexit and keep shopping

Newsflash: UK retail sales jumped strongly last month, as consumers shrugged off the Brexit crisis.

Retail sales increased by 1.1% in March, the Office for National Statistics says, thanks to a surge in spending at food stores and at “non-store retailing” (such as internet sites).

That’s rather stronger than expected – economists had predicted retail sales would fall by around 0.3% last month.

On an annual basis, retail sales volumes rocketed by 6.7% compared with March 2018 – the strongest increase since October 2016.

Many stores reported that the milder spring weather had helped lure customers, compared with a year ago when the so-called Beast from the East forced shoppers to huddle at home for warmth instead.

Today’s report also shows that retail sales are up 1.6% over the first quarter of 2019 – a robust performance, given the uncertainty over Britain’s exit from the EU.

Updated

Neil Wilson of Markets.com says today’s PMI report will dampen hopes of a eurozone recovery:

April is the cruellest month, full of false hope - and so it is for the ECB and Mario Draghi they look in vain for signs of a recovery in the European economy. What’s clear from today’s PMI numbers is that there are as yet no green shoots of spring for the Eurozone. Manufacturing remains on the floor, offset to a degree by a healthier services sector which is now also showing signs of malady.

Services remains in expansion, with the Flash PMI at 52.5. However, this was a three-month low and signals that even here there is pressure. Suggestions that the wider slowdown is starting to ‘engulf’ the service sector is a big worry.

Manufacturing rose to a two-month high at 47.8, but remains deep in contraction territory. French manufacturing PMI was at a 13-month low. Manufacturing output fell for a third straight month.

We only have country-specific data for France and Germany today, but it’s clear that the smaller members of the eurozone are also finding April tough.

Output growth in the eurozone periphery sank to the lowest since November 2013, with new orders and jobs growth weakening.

The eurozone economy is at risk of stalling, warns Markit’s chief economist Chris Williamson.

The eurozone economy started the second quarter on a disappointing footing, with the flash PMI falling to one of the lowest levels seen since 2014. The data add to worries that the economy has failed to rebound with any conviction from one-off factors that dampened activity late last year, and continues to show only very modest growth in the face of headwinds from slower global demand growth and subdued economic sentiment.

The surveys indicate that quarterly eurozone GDP growth has slowed to just under 0.2%. A similar 0.2% rate of expansion is being signalled for Germany but France stagnated and the rest of the region has moved closer to stalling.

Updated

Eurozone growth slows as political uncertainty hits companies

Newsflash: The eurozone is still bogged down in its worst growth spell since 2014, as factories across the region keep struggling.

That’s according to Markit’s ‘flash’ eurozone PMI Composite Output Index, which shows that growth is slowing in April, for the second month running.

It has slipped from 51.6 in March to 51.3 in April, the third-weakest reading since November 2014, and closer to stagnation.

That’s based on this morning’s French and German PMIs, plus data from other eurozone members.

The report shows that the eurozone service sector grew at a slower rate (with a PMI of 52.5, down from 53.3), while manufacturing kept shrinking (with a PMI of 47.8, up from 47.5).

Such a weak reading implies that eurozone growth remains modest.

Companies reported that new exports are shrinking, for the seventh month in a row, employment growth is modest, and business expectations are weak.

Markit says:

Reduced optimism was often linked to the recent slowing in demand and lower sales enquiries, as well as downgraded forecasts for economic growth. Specific concerns focused on rising political uncertainty, including Brexit, trade wars and protectionism.

The weakness of the auto sector was also again often cited as an area of concern.

Updated

Currency analyst Marc-André Fongern is also concerned, telling us:

Disappointing German manufacturing data pretty much underlines the warnings from the ECB on economic growth in the Eurozone.

German manufacturing is the Achilles’ heel of Europe and unfortunately it’s still injured.

Economists and investors are disappointed to see factories in Europe’s largest economies still struggling.

Here’s some snap reaction:

Phil Smith, principal economist at IHS Markit, says Germany’s services companies are propping the economy up, while manufacturing struggles.

He explains:

Amid reports of a declining car industry, strong competition across Europe and generally subdued global demand, [today’s PMI] data showed another steep drop in German goods exports and the lowest confidence among manufacturers for six and a half years.

Updated

German factories hit by weak UK demand

Newsflash: German factories are also having another torrid month, and Brexit may be to blame.

The German manufacturing PMI, just released, has come in at 44.5, weaker than expected, and deep in ‘contraction territory’.

That’s only slightly higher than March’s 44.1, which was the weakest in six years.

Factory bosses reported that production is still falling, due to weaker export demand.

Data firm Markit explains:

The drop in manufacturing order books in April was led by a further steep decline in new export orders, which fell at the second-fastest rate in the past 10 years.

Anecdotal evidence highlighted weak demand across the automotive sector in particular, whilst also suggesting some hesitancy among UK based clients.

But, as in France, German service sector companies are doing better in April. They reported rising activity, pushing the Services PMI up to a seven-month PMI of 55.6.

Updated

Eliot Kerr, economist at IHS Markit, reckons the French economy is now recovering from the disruption on the streets of Paris in recent weeks, but remains weak.

Here’s his take on today’s PMI report.

The stabilisation of output in April is further evidence of the dwindling economic impact of the ‘gilets jaunes’ demonstrations. Protestor numbers have fallen to approximately 10% of their peak and the remaining disruption has been limited.

However, protests aside, an underlying slowdown in demand remains evident in the French PMI data. New orders fell for the fifth month in a row during April, partly driven by a sixth consecutive contraction in exports. Although the rate of deterioration in new business eased, many panellists mentioned a decline in activity at their clients.

More positively, firms were able to brush aside recruitment difficulties and increase staff numbers at a faster pace than in March. Although a mismatch between skills and open vacancies remains apparent, businesses continue to demonstrate the ability to overcome the adverse conditions.

Updated

This chart shows how France’s private sector clawed its way back to stagnation this month (the light blue line)

French economy stagnating as factory output slumps

Newsflash: France’s economy is stagnating, as its factories continue to suffer from falling output.

Data firm IHS Markit has just reported that French manufacturing output is declining, at the fastest rate in four years. Firms reported that new orders continue to fall, with export demand still weak. That’s a worrying signal for the health of the global economy.

But French service sector companies reported stronger growth. So in balance, the flash ‘composite’ PMI has risen to exactly 50.0 – showing stagnation. That’s up from 48.9 in March, which showed a contraction.

Markit reckons that the French economy is recovering from the disruption caused by the ‘gilet jaunes’ protests, which rocked Paris for several weeks.

Here’s the key findings:

  • Flash France Composite Output Index at 50.0 in April from 48.9 in March (two-month high)
  • Flash France Services Activity Index at 50.5 in April (49.1 in March), five-month high
  • Flash France Manufacturing Output Index at 47.4 in April (48.1 in March), four-year low
  • Flash France Manufacturing PMI at 49.6 in April (49.7 in March), 32-month low

More to follow...

Updated

Japan hit by export gloom

New economic data from Japan is already out, showing a worrying drop in exports.

Japan’s factory sector is shrinking this month, extending a contraction that began in February, according to Nikkei-Markit’s new survey of purchasing managers.

The flash Japanese manufacturing PMI came in at 49.5 in April, up from 49.2, but crucially below the 50-point mark separating expansion from contraction. Exports are falling again this month, at a faster rate than in March.

Joe Hayes, economist at IHS Markit, blames the US-China trade war:

Japan’s manufacturing sector remained stuck in its rut at the start of Q2, with the factors which have prohibited any growth such as US-Sino relations, growth fears in China and the turn in the global trade cycle, all remaining prominent risks.

A separate survey from Reuters shows that business confidence in Japan has hit a two-and-a-half-year low.

Updated

Introduction: Eurozone PMI reports and UK retail sales

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Is Europe’s economy still stuck in a rut, or turning a corner? Investors will get fresh clues today when data firm IHS Markit releases its ‘flash’ surveys of purchasing managers in France, Germany, and the rest of the eurozone for this month.

March was pretty grim, with eurozone factories suffering their biggest drop in output in six years as trade conflicts between the US and China caused global ripples.

These new PMI reports, due by 9am, may show that activity is picking up in April. That would be a welcome sign, especially after China posted stronger growth than expected yesterday (6.4% in the first quarter of 2019).

Germany’s manufacturing PMI is expected to rise to 45.2 from 44.1 -- that’s still a low figures, indicating factories kept contracting. But its services sector will probably keep growing (with a PMI of around 55, down from 55.4 in March)

The French data isn’t expected to sparkle. France’s factory PMI is tipped to rise from 49.7 to 50 -- which would show stagnation. The services PMI could rise from 49.1 to 49.8 (a small contraction).

Jasper Lawler of London Capital Group explains why investors will be watching:

There is a feeling in the markets that the global economy is just starting to stabilise. Traders will pay particular attention to Germany’s manufacturing sector, which suffered a sharp contraction across recent months.

Investors are slowly starting to believe that the second quarter could be an improvement on the first, economically. However, more economic data is needed to confirm these suspicions. Today’s eurozone and US PMI data could go a long way to confirming or disproving such beliefs.

Also coming up today

The latest UK retail sales figures are released. They’re expected to show that British consumers spend less in the shops in March, with retail sales (excluding fuel) down by 0.3%.

Konstantinos Anthis, head of research at ADSS, explains:

Brexit uncertainty during the past month, as the UK was scrambling to get an extension from the EU, should be reflected on the consumer spending figures.

In the City, consumer good giant Unilever and pest control firm Rentokil are releasing financial results. They’ve both posted solid sales growth.

The board of pizza chain Domino faces a shareholder revolt over its pay policies at its AGM today.

Plus, Pinterest will be floating on Wall Street.

The agenda

  • 9am BST: Eurozone ‘flash’ PMIs for manufacturing and services in April
  • 9.30am BST: Bank of England credit conditions survey
  • 9.30am BST: UK retail sales for March
  • 1.30pm BST: US retail sales for March

Updated

 

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