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AMERICA’S CONSUMERS AREN’T THE ONLY ONES DELEVERAGING

A surprise decline in UK retail sales shocked European markets yesterday in what is a clear sign that the deleveraging occurring on consumer balance sheets is not simply an American phenomenon.   BBC reports:

Sales in UK stores unexpectedly dropped in May, driven by falls in clothing and footwear, official figures have shown.

Retail sales volumes in May were 0.6% lower than in April and 1.6% lower than in the same month a year ago, said the Office for National Statistics (ONS).

Sales in March to May were 0.3% up on the previous three months.

Retail sales have held up well so far this year, but wage freezes and the growth in unemployment were putting pressure on consumers, analysts said.

“We wouldn’t be surprised if this marked the start of a period of rather weaker sales growth than of late,” said Vicky Redwood of Capital Economics.

“The credit crunch-driven nature of the slowdown so far appears to have primarily hit spending off the High Street.

“But as the deteriorating labour market and future tax rises hit household incomes more generally, we expect a prolonged period of weakness in both retail and non-retail spending.”

The 1.6% decline was the largest one month decline since February.  The crux of the credit crisis remains a consumer driven balance sheet problem.  The global nature of the weakness in this downturn is certain to add to the very slow pace of recovery.

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