It would be nice to think that the increase in the February Retail Sales Index in value terms over the same month in 2011 is a harbinger of the long awaited economic recovery.
Sales rose by 0.2 percent in February, the first year over year increase since December 2008, which roughly marks the beginning of the recession. That in itself is good news, but care needs to be taken not to read too much into one month’s performance. First, the important number in the retail sales figures is not the value of sales, but the volume, and that declined by 2.1 percent after the 2.4 percent inflation rate was taken into account.
Within the inflation rate, food costs increased by 3.8 percent, which helps to explain why food sales rose by almost ten percent in February. The other impact on food sales was the addition of an extra discount sales day in the month due to the Leap Year.
The good news came in the rise in construction equipment sales compared to a year ago. This was attributed to demand from building projects and is very welcome since the sector has been in a sustained slump. But the rise is somewhat deceptive.
Sales in February, 2011 were the second lowest in the last two years, and sales this February were 55 percent of the average sales recorded in 2006. So that shows how far this sector has fallen. Even the February, 2012 sales were the lowest monthly sales in a year. If the same sales were recorded in March, that would mark a 12 percent decline year over year, so care should be taken with this figure.
Elsewhere, sales rose in liquor stores and service stations (where gas prices rose sharply), and all other sectors fell.
One bright spot lay in overseas purchases by returning residents, which fell for the fifth consecutive month and the 12th time in 13 months. That may be due to the hike in duties on returning residents, but the greater factor will be the general economic weakness which deters residents from travelling as frequently and spending when they are abroad. The fact purchases were down in the months preceding the duty hike suggests that this is the stronger factor.
One of the fundamental flaws in the retail sales index is its failure to record personal imports via courier. It is quite possible that overseas purchases are in fact rising, especially in the period between after the rise in duty at the airport, but there is no way of knowing that from these figures. This should be addressed.
One month does not a recovery make, and there are several factors that suggest that February’s sales were an anomaly and that the sales figures were very uneven. It’s too early to boost liquor store sales by buying champagne.
The 2.4 percent inflation rate recorded in February is welcome. Low inflation is partly a product of the recession since few businesses are brave enough to raise prices in the face of declining sales unless they have a monopoly or are forced to.
But the fact Bermuda’s inflation rate was lower than the US, Canada and the UK means the Island is becoming more competitive, which is essential to an economic recovery when it comes. There is one point with the regard to the Consumer Price Index which defies rational explanation and therefore throws the credibility of the Index into doubt, and that is the rent sector, which Government said rose by 0.1 percent in February by 0.3 percent compared to February, 2011.
Any rental agency or landlord will tell you that rents have fallen heavily in the last two years. So where does the Statistics Department get its numbers from?