Forecasting Eye
Last week was week 19 in the John Lewis Partnership financial year. Week 19 is the trough between the two peak trading weeks of week 17 (Black Friday) and week 21 (just before Christmas). But it is still one of their 5 strongest weeks of the year with weekly sales around £300m compared with £200-220m in an ordinary non-Christmas week.
Week 19 sales were down 3.8% compared with last year. Allowing for inflation of about 2% this means that John Lewis customers are spending about 6 per cent less in volume terms than they were a year ago. Credit cards are maxed out. And our work with debt charities suggests that people are turning to their services in record numbers.
Now John Lewis is not the whole of the High Street. And with online sales the High Street is not the whole of retail. And consumers expenditure is not the whole economy. So what is happening elsewhere?
The world economy is at best slowing down, maybe worse. This is particularly so in Europe where a mini cycle induced by cheap money boosted growth in 2016 and 2017 and permitted complacent leaders to turn their attention away from the EU’s structural problems and, perhaps, to take an intransigent line on Brexit.
Investment maybe flat but is probably worse as businessmen sit on their hands until the politicians make up their minds on Brexit.
Inventories are receiving a temporary boost as contingency planning in case of a No Deal gathers pace. But this is borrowing from the future because items that are produced in advance in 2018 are items that do not need to made in 2019.
The biggest sector in the highly outsourced UK economy is the business to business sector, often ignored by both media and government because it doesn’t get the same statistical coverage as retail sales or industrial production. But it matters more than either. The latest input output figures confirm that intermediate consumption, which is the best measure of this, was 47.3% of the £3.3 trillion of gross output in 2016. And here the latest intentions data is worrying. The Purchasing Managers’ Index (PMI) for November for services dropped sharply to 50.4. Other than July 2016 immediately after Brexit, this is the lowest figure for 5 years.
It is true that government spending is rising quite sharply and this may take the edge off a downturn. And it is too early to say whether we are headed for stagnation or something much worse. Whether it is severe will depend on six factors – solving the Brexit crisis; solving the UK’s political crisis where none of the main parties can currently form a credible government; avoiding financial markets panic; the Chinese bailing themselves out; the US becoming governable with Democrats in Congress and Trump in the White House; and the EU managing Brexit, its Euro problem and dealing with the Italian crisis.
The UK economy is at full employment so a cyclical slowdown is inevitable. But the current situation feels much worse than a slowdown. Brexit and politics have distracted attention from this but at the same time have exacerbated it.
For businesses struggling to put together a plan for sales in 2019 it doesn’t look good.
Contact: Douglas McWilliams dmcwilliams@cebr.com Cebr: 0207 324 2850