Retail continued its good run in August with yet another solid set of numbers, albeit ones that were slightly down on the previous month when total sales grew by 3.9% and LFLs increased by 2.2%. While the slip in growth is relatively modest, it also needs to be set against a very weak comparative from August 2012. Taken in combination, these things suggest that the heady growth rates seen during July were something of a temporary boost, largely aided by the better weather. As such, we maintain our view that it is likely the growth rate will moderate still further as we move through the rest of 2013.

All that said, it is clear that there is a good level of underlying momentum in the retail sector and that it is now in a period of sustained recovery which is likely to continue up until Christmas and perhaps beyond.

One of the most notable signs of this recovery comes from the continued rise in big ticket sales, with furniture and floorcoverings performing strongly in this month’s results. This is underpinned by two main factors. The first is an increase in consumer confidence, something that is essential when it comes to major expenditure. Our own Consumer Sentiment Tracker shows that even over the past few months there has been a sharp increase in the number of people who feel it is now a good time to make a big ticket purchase. The second factor is the modest, but noticeable, recovery in the housing market. The latest data show that in July 2013 there were 18.5% more housing transactions than a year earlier; while this remains some way below the pre-recession peak, given the current affordability of mortgages it is likely to increase still further over the course of the next six months.

Outside of big ticket sectors, food performed less well this month mostly because it was up against some tough Olympic related comparatives from last year. Clothing continued its reasonable performance but, as we move into autumn, it will clearly rely on a snap of colder weather if it is to sustain momentum.

Much of retail’s near term future is intrinsically linked with the performance of the general economy. Our view here remains cautiously optimistic. The latest GDP revisions suggest that modest growth continues, with all sectors of the economy – including manufacturing, construction and exports – making a positive contribution. This broad based recovery is essential for retail as it will ultimately underpin increases in household income as well as drive continued increases in consumer confidence.

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