Retail sales lower than expected as consumer confidence rips wind from economy’s sails
- Retail Sales fall further than expected as consumer confidence remains near all-time lows
- Pound non-plussed about Truss resignation
- Tech sell-off triggered by Snap’s worse than expected performance
- Deliveroo sees order numbers fall in third quarter and lowers expectations
- Oil prices settle at around $92 a barrel after volatile week
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said: “Retail sales fell 1.4% in September, considerably worse than the 0.5% drop expected. This is a disappointing but unsurprising latest instalment in the saga of the cost-of-living crisis. Food sales were especially affected, as customers make do without extra trolley treats or more expensive dining habits. Compared to pre-pandemic levels, total retail sales were 1.3% lower. The shift in consumer behaviour is likely a result of the upcoming Christmas season, which many will be approaching with caution this year.
This also coincides with a 1% drop in Deliveroo orders over the third quarter, which the group has said today was down to a difficult consumer environment. Whatever the cause, this is not the high-growth pace of things investors were promised during Deliveroo’s recent and very high-profile IPO. Gross transaction values were also only up 5%, with price inflation padding out this figure, rather than organic improvements.
As a result of these tough conditions, the group now expects gross transaction values to be 4-8%, which is the lower end of previous guidance. The path to improvement is very hard to map – the higher calibre, restaurant quality food that Deliveroo peddles is precisely the sort of luxury that its middle-income customers are going to scrap until economic conditions improve. Spending power is being hugely eroded, and what money is left each month is going on keeping the lights on, not a gourmet burger.
The drop in retail sales and Deliveroo’s tough results are natural symptoms of plummeting consumer confidence. The GfK Consumer Confidence indicator was -47 in September, which came as the mini budget and enormous economic activity was activated by the government, including the realisation that inflation has well and truly put its roots down in the UK.
That’s partially why the pound has held steady, though depressed by historical standards, at $1.12. Markets had largely baked in the fact that Truss was going to have to leave, and yesterday’s resignation has done little to upset the boat. Plenty of uncertainty still remains though until we have a clear idea of who the next leader is, or what their policies will be, which is why we haven’t seen a dramatic bounce in market fortunes.
US stock futures extended declines on Friday, with ad-based tech companies leading the losses. Snapchat’s parent company results disappointed markets by missing third quarter revenue expectations, and weak guidance for next quarter was given. Snap shares fell 26%. The demand patterns for advertising are front of mind for investors as we head into next week’s flurry of tech results. With the economic outlook so dreary, there are concerns that marketing budgets, and therefore ability to spend on ads, will be slashed. That’s why the likes of Alphabet and Meta have also lost some value overnight. The fact of the matter is though, some ad-based revenue streams are more stable than others. Certain platforms are an integral part of daily life, and therefore companies have little choice but to stump up to advertise there. There are going to be ups and downs next week, but the playing field is far from even.
Brent crude prices are ending the week little changed at $92 a barrel, following an unpredictable week where supply and demand concerns battled it out. The international oil benchmark is still down almost 30% on June, and there is scope for this to come down further as recessionary fears become heightened. This will depend on how aggressive global monetary tightening efforts are, as well as if we see further releases of oil from the likes of the US, which is another way the price of the black stuff will find itself slipping downwards.”