The latest business indicators provide a mixed bag of evidence for those trying to determine whether a sharp downturn in consumer spending, the main driver of recent economic growth, is in progress. Other uncertainties remain about the housing market, inflation, productivity, wages and the global economy.
The CBI reports a gloomy picture from retailers, and Nationwide says house prices fell in March by the largest monthly percentage for a decade. But consumer confidence picked up, at least according to one survey. And while overall consumer borrowing slowed, it was higher than a year earlier.
Official figures suggest that household disposable income fell 0.5% in the final quarter of last year. Other data shows that household spending growth slowed to 0.2% in the fourth quarter, from 0.7% in the third quarter, mainly due to reduced purchases of domestic furnishings.
In the high street the retail price of furniture soared by 7.9% in March and was 5.6% higher than in the same month last year. This followed an annual rise of 1.8% in January and a 6.3% jump in December. Shop prices of non-food goods fell by 1.1% overall in the year to March, according to the British Retail Consortium (BRC), helped by price promotions on garden furniture and DIY goods.
Furniture sales
Separately, the BRC says that March was another difficult month for furniture sales, particularly big-ticket items such as beds, sofas and fitted furniture. The CBI confirms plummeting demand for furniture, with a net 72% of retailers saying sales volumes were lower than in March 2004. And sales plunged for the majority of retail businesses, with a net 9% reporting lower demand.
Meanwhile, in March construction of homes fell for the first time in over six years. A survey of purchasing managers by the Chartered Institute of Purchasing and Supply (CIPS) found that housing was the weak spot in an otherwise robust construction sector. Several housebuilders have confirmed they will reduce their volume growth this year.
Official data shows that the volume of new construction orders placed with contractors in the three months to February rose 1% compared with the previous three months, but there were falls in all areas except commercial buildings. The volume of orders overall was 1% lower than a year earlier.
Private sector housing orders fell by 2% in the three months to February over the previous three months, but were 1% higher than at the same time in 2003/04. Public sector housing orders fell by 37% in the latest three months and by 7% annually.
Housing output
Looking ahead, private-sector housing output is forecast to rise 44% between 2004 and 2009. Market and Business Development predicts that at 2004 prices, annual increases will take output to a level of £25.2bn by 2009. Public sector housing is forecast to rise by 65% in real terms between 2004-2009, while completions are expected to rise from 19,000 in 2004, to 26,000 in 2009.
On costs, the CIPS survey indicates that increases in construction material prices eased in March, to the weakest in 15 months, but the annual rate of inflation remains strong.
The price of wood and wood products leaving British factories rose overall by an average 0.2% in March and by 4.4% year-on-year. A surge in manufacturers’ input costs – up 11% during March – was again driven by higher crude oil prices.
Separately published official figures indicate that output of builders’ carpentry and joinery products rose by 5.4% in the year to February. But manufacturing output overall fell during the month and posted an increase of just 0.9% over the year.
The National Institute of Economic and Social Research predicts that growth will have been below the trend rate of 0.6% in the first quarter of this year, compared with 0.7% in the fourth quarter of 2004. However, the leading indicator of the UK economy, published by the Bank of Scotland, suggests that growth will remain above the long-term trend throughout 2005.