Retail sales rose 0.1% in May, well below expectations, but analysts don’t see the numbers too negative

Retail sales volume saw a positive 0.1% change in May 2022 compared to April, said Wednesday (13) the Brazilian Institute of Geography and Statistics (IBGE).

It was the fifth consecutive rate in the positive field – rising by 2.4% in January, 1.4% in February, 1.4% in March and 0.8% in April. As a result, the sector level is 6.0% above the lowest level in recent months, which was in December 2021. In the year, the retail sector has grown by 1.8% and in the past 12 months, it is down by 0.4%. On an annual basis, the decline was 0.2%.

The number was much lower than expected. Market expectations compiled by the Refinitiv Consensus forecast an increase of 1% month over month and 2.6% year over year.

This result shows the stability scenario from April to May. But even though it came from four positive results, the rates were declining. We have seen a resumption in retail, but this comes from a low base, December, and always with a less intense build-up during these months,” confirms Cristiano Santos, Director of PMC.

Of the eight activities surveyed, six had positive rates in May. The largest increase was in books, newspapers, magazines and stationery (5.5%). In terms of impact, the pharmaceutical, medical, orthopedic, and perfume sectors (3.6%) and textiles, clothing and footwear (3.5%) were on the positive side. Furniture and household appliances (-3.0%) and other goods for personal and home use (-2.2%) were the main negative factors.

“Furniture and appliances is a business that has not gone beyond the pre-pandemic level, which has experienced significant losses throughout 2021. During the pandemic, these items had significant gains due to the substitutions that people made due to the fact that they were more at home. After this exceptional demand, these products became Less important in the family budget, especially household appliances “, analyzes the director of the PMC.

He points out that in the pharmaceutical sector, volume growth has been centered on the pharmaceutical industry, and less so in the perfume sector. He explains that “this is already the second consecutive month of rise, and coincides with the sector adjustments, in April and May.” “In the case of apparel and footwear, we have seen growth for a few months specifically related to the athletic and athletic footwear segment, with positive variations every month,” Santos adds.

Inflation and its impact on trade

Other highlights are the sectors that have suffered from the impact of inflation. There was a 0.4% increase in revenue versus a 0.1% change in volume, a difference that really indicates retail inflation overall. However, the inflationary impact was more severe in some sectors.

The fuels and lubricants segment has seen revenue indicators well above volumes for a few months now. In the April-May period, segment revenue increased 3.5% while volume grew 2.1%. Other activities such as pharmaceutical, medical, orthopedic, and perfumery, revenue grew 5.0% and volume 3.6%, due to price adjustments. But the biggest example of this is the supermarket sector, which in the April-May period grew by 1% in volume and 4.1% in revenue, four times more, indicating above all food price inflation,” the PMC Director completed.

In expanded retail, which includes, in addition to retail, vehicles and building materials, both activities are also affected by inflation. Vehicles, motorcycles, parts and parts posted a -0.2% variance, while building materials recorded a 1.1% decrease from April to May 2022.

The scenario for all retail indicators is losing tempo. The margin index goes from 2.4% in January to 0.1% from April to May. Retail backlog grew from 1.6% in March to 2.3% in April and then declines to 1.8% in May, slowing the pace of growth in the year. The 12-month cumulative result, -0.4%, is the first negative result since September 2017. In this indicator, we went through the entire epidemic with positive or null results, as in May, June and July 2020. But it did not occur at a negative rate,” concludes Santos.

Regional results

From April to May, retail trade had positive results in 18 out of 27 federal units, focusing on: Minas Gerais (3.6%), Rio Grande do Sul (3.1%) and Roraima (3.1%). In the negative sphere are 9 of the 27 federations, mainly Rondônia (-2.8%), Rio Grande do Norte (-2.3%) and Tocantins (-2.1%).

For the same comparison, in Retail expansion, the difference between April and May 2022 was 0.2%, with positive results in 15 of 27 union units, focusing on: Tocantins (3.6%), Rio Grande do Sul (3.5%) and Sergipe (2.5%). On the other hand, with negative pressure, there are 12 of the 27 union units, mainly Ceará (-5.3%), Amazonas (-3.1%) and Rio Grande do Norte (-3.0%).

Really bad data? not exactly

Bradesco BBI highlights that at first glance, retail sales in May brought a very disappointing surprise, with a negative number compared to the previous year and showing a steady slowdown.

“In fact, while the result certainly wasn’t great, some aspects suggest it wasn’t the bad data that made the headlines. First, because seasonal adjustments have recently shown more outages than usual due to the need to deal with two years of lockdown. Second, there was a relatively significant decrease observed among most groups in the month,” the BBI indicates.

For the BBI, the financial measures to be approved may continue to assist the application in the short term. However, they still expect activity to continue to slow due to the end of fiscal stimulus measures and the effects of monetary tightening.

The XP Economic Analysis Team assesses that estimates of year-to-month differences (with seasonal adjustment) showed significant non-linearity, which requires caution in interpreting monthly results.

“The differences between our estimates and the observed results were largely due to sales that were significantly lower than expected in the following categories: Furniture & Appliances (-3.0% in May/April; -12.6% on May 22/21 May) and Building Materials (-1.1% in May/April; -7.7% on May 22/May 21) He explained that the tightening of credit conditions explains, albeit in part, the weak performance of these categories in the recent period.

XP also indicates that despite the disappointing numbers for May, the statistical carry-over effect of Q2 growth compared to Q1 remains very positive (+1.2% for the Expanded Retail Index and +2.2% for the Constrained Retail Index).

In addition, most retail activity advanced in May compared to April. Seven of the 10 groups monitored by the Brazilian Institute of Statistics (IBGE) showed growth in this period.

And while we are aware of some negative signs from retail sales for May, we are not changing the assessment of the increase in household consumption in the short term. It is estimated that the sharp increase in the mass of expanded disposable income is the main reason behind this scenario.

According to House estimates, this expanded income concept grew by about 7% in the first half of 2022 compared to the second half of 2021, after seasonal adjustment, in line with the strong recovery of employment combined with the government’s new social protection program (Auxílio-Brasil, with larger transfers of resources) as well as short-term financial incentives. In connection with the latter, XP draws attention to the release of the extraordinary FGTS draws and the forecast of the thirteenth salary for retirees and retired INSS.

Moreover, the Economic Analysis Team notes, the weakness in domestic activity during the second half of the year will be smoother than initially expected.

“We maintain the view that the Brazilian economy will lose steam in the coming months, mainly due to the tightening of financial conditions. However, the slowdown in activity must be mitigated by the new stimulus measures recently approved by Congress – particularly Supplementary Law 194 and its downward impact on Short-term inflation, as well as the so-called social benefit PEC, which allows more than R$40 billion in social spending, “he assesses.

Thus, extended retail sales are expected to grow by 2.7% in 2022, while restricted retail sales will increase by 2.3%.

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