Thomas Shik Acting Chief Economist thomasshik@hangseng.com Through the Lens of Retail Sales Retail sales have been slowing, influenced in significant part by tourist spending, which is a dominant factor in retail sales movements. Local consumers have also become more reluctant to spend, as reflected in the recent slowdown in sales of consumer durables. Slowing consumption will likely lead to it providing less support for overall economic growth this year compared with last year. We expect Hong Kong s economic growth to be 1.8% in 2016, down from 2.4% in 2015. March/April 2016
Private consumption expenditure (PCE) refers to the amount spent on goods and services by local consumers. It is a component of gross domestic product (GDP), which is officially calculated and released on a quarterly basis. Those looking for a more timely gauge of trends in consumer spending often refer to data on monthly retail sales, which has a high positive correlation with PCE (Exhibit 1). Exhibit 1: Retail Sales Volume vs PCE But using retail sales as a proxy for PCE does not provide the entire story. First, there are differences between the two indicators. Retail sales only covers spending on goods not services; it also includes spending on goods by overseas visitors, which itself is not considered in calculating PCE (Exhibit 2). In 2015, retail sales only accounted for about 30% of PCE. Second, although the two statistics have a positive correlation, the magnitude of change in retail sales has been higher than that of PCE in recent years. Retail sales growth was particularly strong in the period between 2010 and 2012 but has turned negative more recently. Mar/Apr 2016 2
Exhibit 2: Retail Sales Volume vs PCE Retail Sales PCE Goods Goods Services Visitors Local consumers Local consumers Source: Hang Seng Bank The increased volatility of retail sales growth over recent years has been linked with changes in tourist spending. The number of visitors to Hong Kong more than doubled from 29.6 million in 2009 to 60.8 million in 2014, with most of the rise accounted for by visitors from mainland China (Exhibit 3). Overall tourist spending was up by 150%, from HKD120,354 million to HKD300,792 million, over the same period. By our calculation, tourist spending on retail sales represented 42% of Hong Kong s retail sales in 2014. 1 Exhibit 3: Tourist Arrivals (annually) 1 Retail sales only covers consumer spending on goods and does not include spending on services such as entertainment and transport. In this regard, tourist spending on shopping is included in retail sales, but tourist spending on entertainment, tours and similar items is not. Mar/Apr 2016 3
The inbound tourism boom appears to have gone into reverse over the past year or so. Growth in the number of visitor arrivals dropped from 12.1% in the fourth quarter of 2014 to -4.3% in the fourth quarter of 2015, while retail sales volume growth showed a similar trend, down from 3.1% to -3.9% (Exhibit 4). Exhibit 4: Retail Sales Volume vs Tourist Arrivals (quarterly) Although tourist spending has been a dominant factor in retail sales movements in recent years, we can use retail sales as a reasonable lens to look through in the search for clues about trends in PCE (which does not include spending by visitor arrivals). Tourists visiting Hong Kong spend most of their money on items such as jewellery, garments and cosmetics (Exhibit 5). Excluding electrical and/or photographic goods, these items largely fall into the retail sales category of consumer nondurable goods (Exhibit 6). As such, growth trends in consumer durable goods sales can be considered a reasonable barometer for local consumer spending (Exhibit 7). Indeed, the correlation between consumer durable goods sales and PCE (Exhibit 7) is even higher than the correlation between total retail sales and PCE (Exhibit 1). Mar/Apr 2016 4
Exhibit 5: Breakdown of Visitor Spending on Shopping (HKD million) 2014 % share Jewellery and watch 48,218 23.1 Garments/fabrics 35,130 16.8 Cosmetics & skin care/perfume 31,011 14.8 Leather/synthetic goods 30,666 14.7 Electrical/photographic goods 23,831 11.4 Foodstuff, alcohol, and tobacco 21,095 10.1 Others 12,395 5.9 Personal care 6,536 3.1 Total 208,883 100.0 Note: figures for 2015 are not available yet Source: Hong Kong Tourism Board, Hang Seng Bank Exhibit 6: Breakdown of Retail Sales Value (HKD million) 2015 % share Durable goods including electrical goods and photographic equipment 88,097 18.5 Non-durable goods 387,059 81.5 - Other consumer goods including medicines and cosmetics - Jewellery, watches and clocks, and valuable gifts - Clothing, footwear, and allied products 88,266 18.6 86,213 18.1 61,117 12.9 - Supermarkets 52,036 11.0 - Department stores 50,123 10.5 - Food, alcoholic drinks & tobacco 40,356 8.5 - Fuels 8,950 1.9 Total 475,156 100.0 Source: Census & Statistics Department, Hang Seng Bank Mar/Apr 2016 5
Consumer durables growth fell sharply in the second half of 2015, from 37.5% in the second quarter to 3.6% in the fourth quarter. PCE growth also experienced a significant fall over the same period from 6.2% to 3.2%. Indeed, in the first two months of 2016, consumer durables growth turned negative, suggesting that PCE growth may slow further in the first quarter this year. The figures above indicate that spending by both visitors and local consumers has slowed. Although spending on services by local consumers is also part of PCE, as shown in Exhibit 2, and growth of services consumption has historically been more stable than that of goods consumption, it has also weakened recently, to just 1.4% in the last quarter, the lowest growth in four years (Exhibit 8). In our view, uncertainty surrounding global economic prospects and financial market volatility have been weighing on consumer confidence and hence spending. With PCE accounting for about two-thirds of GDP, slowing consumption will likely lead to it providing less support for overall GDP growth this year compared with last year. We expect Hong Kong to record GDP growth of 1.8% in 2016, down from 2.4% in 2015. Exhibit 7: Consumer Durables vs PCE Exhibit 8: Services Consumption Mar/Apr 2016 6
Hong Kong Economic Monitor Statistics April 2016 GDP Retail sales Nominal Real Value Volume Exports Foreign trade HKD bn yoy (%) yoy (%) yoy (%) HKD bn yoy (%) HKD bn yoy (%) HKD bn (%) yoy (%) 2011 1,934 4.8 24.9 18.4 3,341 10.2 3,768 11.9-426.4 3.5 5.3 2012 2,037 1.7 9.8 7.2 3,437 2.9 3,915 3.9-477.7 3.3 4.1 2013 2,138 3.1 11.0 10.6 3,562 3.6 4,065 3.8-502.9 3.4 4.3 2014 2,258 2.6-0.2 0.6 3,675 3.2 4,225 3.9-550.0 3.2 4.4 2015 2,403 2.4-3.7-0.2 3,609-1.8 4,051-4.1-442.5 3.3 3.0 Imports Trade balance Unemployment rate (s.a.) Inflation Q2 2014 526 2.1-7.0-7.3 901 4.8 1,042 4.6-140.7 3.2 3.7 Q3 581 3.1 1.6 1.4 985 5.9 1,109 5.7-124.0 3.2 4.8 Q4 615 2.5 0.2 3.1 971 1.2 1,133 3.3-161.3 3.2 5.1 Q1 2015 574 2.4-2.3 0.0 836 2.3 955 1.4-119.1 3.3 4.4 Q2 567 2.9-0.9 3.9 883-2.0 1,008-3.2-125.1 3.3 3.0 Q3 616 2.2-4.8-0.4 945-4.1 1,035-6.7-89.9 3.3 2.3 Q4 646 1.9-6.6-3.9 944-2.8 1,053-7.1-108.4 3.3 2.4 Oct 2015 NA NA -3.0 1.2 320-3.7 349-8.5-30.0 3.3 2.4 Nov NA NA -7.8-6.0 315-3.5 348-8.1-33.1 3.3 2.4 Dec NA NA -8.5-6.1 309-1.1 355-4.6-45.7 3.3 2.5 Jan 2016 NA NA -6.6-5.2 300-3.8 317-9.0-17.4 3.3 2.7 Feb NA NA -20.6-19.5 204-10.4 238-10.1-33.1 3.3 3.1 YTD NA NA -13.6-12.4 504-6.6 555-9.5-50.6 3.3 2.9 Total deposit RMB deposit Total loan Money supply (M3) Residential property price Tourist arrivals HKD bn yoy (%) RMB bn yoy (%) HKD bn yoy (%) yoy (%) Index ytd (%) '000 yoy (%) 2011 7,591 10.6 589 86.9 5,081 20.2 12.9 181.1 11.1 41,921 16.4 2012 8,296 9.3 603 2.5 5,567 9.6 11.0 227.6 25.7 48,615 16.0 2013 9,180 10.7 861 42.7 6,457 16.0 12.4 245.1 7.7 54,299 11.7 2014 10,073 9.7 1,004 16.6 7,276 12.7 9.6 278.3 13.5 60,839 12.0 2015 10,750 6.7 851-15.2 7,535 3.5 5.5 285.3 2.5 59,913-1.5 Q2 2014 9,612 13.3 926 32.7 7,074 16.0 15.0 250.3 2.1 13,831 9.6 Q3 9,920 11.4 945 29.4 7,210 12.7 12.3 266.3 8.6 16,130 11.2 Q4 10,073 9.7 1,004 16.6 7,276 12.7 9.6 278.3 13.5 16,180 12.1 Q1 2015 10,403 13.2 952 0.7 7,627 11.7 11.8 291.5 4.7 15,421 4.9 Q2 10,552 9.8 993 7.2 7,676 8.5 7.9 301.3 8.3 13,907 0.5 Q3 10,659 7.5 895-5.2 7,560 4.9 4.9 306.1 10.0 15,097-6.4 Q4 10,750 6.7 851-15.2 7,535 3.5 5.5 285.3 2.5 15,489-4.3 Oct 2015 10,655 6.2 854-9.5 7,484 2.8 3.8 302.3 8.6 5,074-2.7 Nov 10,678 6.0 864-11.3 7,495 2.9 3.9 293.4 5.4 4,749-10.4 Dec 10,750 6.7 851-15.2 7,535 3.5 5.5 285.3 2.5 5,666-10.7 Jan 2016 10,926 7.3 852-13.2 7,531 2.2 5.7 278.9-2.2 5,226-6.8 Feb 10,845 6.9 804-17.4 7,470 1.4 4.8 272.8-4.4 4,296-20.5 YTD 10,845 6.9 804-17.4 7,470 1.4 4.8 272.8-4.4 9,521-13.6 NA: not available; yoy= year-on-year; ytd= year-to-date Source: Census & Statistics Dept., HKMA, Rating & Valuation Dept., Hong Kong Tourism Board, Macrobond, CEIC, Hang Seng Bank Mar/Apr 2016 7
GDP Growth Consumer Price Inflation Unemployment Rate (s.a.) Retail Sales Value Exports & Imports Residential Property Price Index Mar/Apr 2016 8
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