Can we shop our way out of a recession?

The retail sales data for January from the Office for National Statistics is stunningly good. One analyst has even said that he thought it had to be a mistake when he first saw the 0.9% rise today. There’s a lot of positive talk, prompted by the healthy figures, about how we might now avoid another quarter of contraction, and thus a return to recession.

A couple of caveats though.

First, the ONS data is massively at odds with the most recent survey by the British Retail Consortium, which suggested this was the second worst January for the sector in 17 years.

There’s a debate about which data is a better indicator. Both the ONS and the BRC say it’s their own. Frankly, I’m not qualified to judge. But the disagreement should give pause to anyone preparing the bunting.

Second, the idea that a lot of shopping translates into a healthy economy is dubious. This chart from Allan Monks of JP Morgan shows that the relationship between consumption – still one of the main drivers of our economy – and retail sales is actually rather weak:

Monks notes that on three previous occasions when retail sales have been this strong, consumption was either falling or showing only modest growth at best.

This data shouldn’t be dismissed. But we should remember that there’s much more to economic life than the shops.

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