Macro Analysis /

Retail sales extend their upward trend for a tenth consecutive month in May

  • Retail sales rose 0.5% m/m (5.2% y/y), driven by positive seasonality and discounts, although limited by inflation

  • Sector dynamics were mainly positive, highlighting +2.4% in office and leisure items and +1.7% in glass and hardware

  • A deterioration in the balance of risks in June, with higher inflation and a gap in social transfers, may dampen sales

Juan Carlos Alderete Macal
Juan Carlos Alderete Macal

Director of Economic Research

Francisco Jose Flores Serrano
Francisco Jose Flores Serrano

Senior Economist, Mexico

21 July 2022
Published byBanorte
  • Retail sales (May): 5.2% y/y; Banorte: 4.8%; consensus: 4.3% (range: 2.5% to 5.4%); previous: 4.6% 

  • Retail sales grew 0.5% sequentially, stringing ten consecutive months higher. Overall, we think that progress continues to be driven by fundamentals, and to a lesser extent by some discounts in the period 

  • At the sector level, performance was skewed upwards. The most important increases were in office and leisure (2.4%) and glass and hardware shops (1.7%). Meanwhile, the only item down was appliances, computers, and interior decoration (-1.0%) 

  • Timely figures point to a slight moderation in economic activity towards the end of 2Q22. Along with other negative developments, this could result in a slight drop in sales. However, we do not rule out that dynamism in some consumption fundamentals could help offset for these factors

Retail sales grow 5.2% y/y in May. This was higher than the consensus (4.3%) but closer to our estimate (4.8%). It is worth mentioning that the period had an additional working day in the annual comparison, leading to a more modest result with seasonally adjusted figures (+4.9% y/y). In our opinion, the result was driven by sales related to Mother's Day and a week of discounts (Hot Sale campaign) towards the end of the month. An additional boost comes from better virus conditions –higher mobility and stability in contagions, remembering that the fifth wave began until June–. However, we still believe that further progress is being limited by higher inflation.

Sequential expansion continues. Retail sales increased 0.5% m/m, keeping the pace of the previous month (which was revised upwards). In our opinion, this is very positive considering accumulated gains of the past nine months. Based on our analysis of consumer fundamentals, we believe growth is justified by a solid inflow of remittances, an improvement in real wages, as well as progress in consumer credit. On the other hand, some factors may be limiting an acceleration, such as: (1) High inflation, especially in food items; (2) a drop in employment; and (3) an additional month without social programs’ payments (due to the electoral ban), set to resume in early July. By sectors, 8 out of 9 advanced. Specifically, strength centered on office and leisure (2.4%), glass and hardware (1.7%), and healthcare products (1.6%), with the latter rebounding after a strong fall in the previous month. Meanwhile, internet sales rose 1.3%, likely boosted by the Hot Sale campaign. On the contrary, the only sector lower was appliances, computers, and interior decoration at -1.0%. In vehicles and fuel (1.3%) we note a string of 15 months higher, with auto sales rising 3.4% –consistent with AMIA figures– but with a 1.1% contraction in gasoline sales –contrasting with Pemex data–. Lastly, supermarket and departmental stores rose 1.5%, with strength centered in the former (+4.3%).

Deterioration in the balance of risks in the short-term. At the end of the first half of the year, timely data signals an economic moderation which will likely impact domestic consumption. Regarding hard data, ANTAD sales in real terms were mixed, with total-sales at +2.1% (previous: 5.5%) but same-store sales at  -0.1% (previous: 3.4%), negative for the first time since August 2021. Similarly, AMIA reported that vehicle sales reached 90.4 thousand units, which translates to -2.6% m/m (calculated with an internal adjustment model). In addition, inflation kept climbing, reaching levels not seen since 2001, with large pressures still in the core component and higher risks of a larger contamination of expectations for coming periods. On the supply side, IMEF’s non-manufacturing PMI had a second month lower, noting weakness in ‘new orders’ and ‘production’ despite a drop in some commodity prices (e.g. energy and metals). Finally, an additional negative driver could be the increase in contagions (triggering a fifth wave), although in this case we anticipate a more modest impact on mobility and activity compared to previous waves.

Towards 2H22, we believe the outlook will remain challenging both locally and globally. Internally, the main risk continues to be price pressures. According to our estimates, the peak of this inflationary cycle could be reached around August. In this context, we expect Banxico to keep increasing its reference rate in the four remaining decisions of the year. These two factors may have implications on sales in the face of possible changes in household consumption patterns. Regarding external factors, we take the behavior of US domestic demand with caution given market fears of a possible recession or slowdown.

On the other hand, the intensification of lockdowns in some Chinese cities and the continuation of the war in Ukraine may translate into new disruptions for international trade and global production, involving shortages and/or increases in input prices that may be transferred to final consumers.

We do not rule out that retail sales will continue to grow, mainly driven by fundamentals. On one hand, employment managed to maintain a positive trend (despite a decline in May, but with positive signs for June). Meanwhile, consumer credit appears solid and shows no signs of slowing down. Finally, despite previously mentioned concerns about a possible US recession, employment remains be favorable, including for Mexican migrants, which could mean that remittances could keep contributing to domestic households’ income.