Itaú BBA - Stronger retail sales in early 2017

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Stronger retail sales in early 2017

April 12, 2017

New adjustment in the methodology led to stronger January and February readings

Census bureau IBGE implemented a new adjustment in the methodology applied to the monthly retail survey (see technical note), leading to a strong increase in sales volumes in January and higher-than-expected readings in February as well.

Core retail sales in January were revised upward by 6.2%. The revision led to a seasonally-adjusted increase of 5.5% for that month, followed by a slight decline of 0.2% in February. In year-over-year terms, core sales fell 1.2% in February, performing much better than the median of market expectations (-7.0%) and our estimate (-7.8%).

Broad retail sales (including vehicles and construction material) in January were revised upward by 5.1%. The revision led to a seasonally-adjusted increase of 2.8% for the month, followed by another gain of 1.4% in February.  In year-over-year terms, broad sales dropped 4.2% in February, also much better than the median of market expectations and our estimate (both at -7.0%).

Looking foward, we expect retail sales to continue showing some recover in next months, driven by the disinflation effect on consumer’s real income and by withdrawals allowed from inactive accounts held under employment protection program FGTS. In the second half, progress will depend on the stabilization of the labor market.

Methodology adjustment causes sharp revisions in January and higher levels in February

According to IBGE, the February survey enhanced estimates, with a new calculation for the survey’s base-year. That led to revisions of 6.2% in the volume of core retail sales and 5.1% in broad retail sales in January.

The table below shows revisions in gross volume series, with increases in 9 out of 10 categories:

Stronger path in early 2017

The methodology adjustment also led to stronger results in February.

Compared to February 2016, core retail sales dropped 1.2%, much better than the median of market estimates (-7.0%) and our forecast (-7.8%). The previous month’s revision distorted the seasonally-adjusted monthly change, but the 0.2% decline in February still supports improvement early in the year.

Compared to February 2016, broad retail sales slid 4.2%, also much better than the median of market forecasts and our call (both at -7.1%). After the previous month’s revision, the seasonally-adjusted monthly advance was somewhat disappointing (+1.4% vs. expectations around +2.0%), but marked a second consecutive monthly increase.

After a rebound in early 2017, retail sales will post a strong quarterly gain, contributing to positive GDP growth in 1Q17.

Artur Manoel Passos

 

 



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