Week 24, 2011: Retail Sales Volatility

Summary: Data released this week showed that retail sales in both the US and UK dropped off in May. Further analysis reveals that the UK retail industry may be in for a period of high sales fluctuations.

What does the chart show? Both the red and blue lines (red for the UK, blue for the US) show the absolute month-on-month change in total retail sales, averaged over the past 6 months. This helps show how volatile sales have been, while evening out normal fluctuations (note that this is not the same meaning of "volatility" as used in financial markets). This chart does not show the direction of changes (whether sales have increased or decreased), just the magnitude of those changes. Although a high number here could, in theory, signify a period of very high retail growth, this has not been the case in either of these two economies, and generally stability is more desirable than high sensitivity.

Why is the chart interesting? The chart shows that since the recession in 2008, retail sales have fluctuated much more than previously (with the exception of the big spike in US retail sales, towards the end of 2001, which reflects the steep drop and then rapid recovery of retailing in the aftermath of the September 11 terrorist attacks). Retailers have had to get used to contrasting good periods and bad periods as sales figures vary wildly from month to month. In the UK at least, this does not look to be settling down quite yet as volatility heads up over 1% again.