EMU: Retail Sales

Tue Dec 05 04:00:00 CST 2017

Consensus Actual Previous Revised
Month over Month -0.7% -1.1% 0.7% 0.8%
Year over Year 1.5% 0.4% 3.7% 4.0%

Retailers had a poor October. Excluding autos, volume sales declined a monthly 1.1 percent, significantly steeper than expected and their worst performance since December 2013. September's gain was revised a little stronger to 0.8 percent but annual growth still slumped from 4.0 percent to just 0.4 percent.

Weakness was particularly apparent in textiles, clothing and footwear where purchases were 3.1 percent lower than at quarter-end. Electrical goods and furniture (minus 0.3 percent) and pharmaceuticals (minus 0.7 percent) similarly struggled while auto fuel purchases were off 0.1 percent. Excluding auto fuel, non-food sales matched the monthly headline decline while food, drink and tobacco dropped a sharper 1.3 percent.

Regionally, much of the damage was down to Germany which posted a 1.2 percent monthly contraction. France (minus 1.5 percent) was even worse and Spain (minus 1.1 percent) just minimally better. The majority of reporting countries recorded decreases.

As a result, Eurozone retail sales in October were 0.7 percent below their average level in the third quarter when they rose 0.5 percent from April-June. Inevitably this raises the risk of a slowdown in overall household consumption this quarter although the signs are that spending on services has held up rather better. Certainly, with consumer confidence at a post-Great Recession high and the labour market still tightening, prospects for the key Xmas period ought to be bright enough.

Retail sales measure goods that are sold to the consumer or end-user, generally in small quantities and in the state in which they were purchased by the retailer. Eurozone retail sales are reported monthly, in volume terms and exclude autos and motorcycles. A limited sector breakdown is presented in the first release but much more detail is available in the following period's release.

Retail sales are important indicators of domestic consumer demand and are monitored closely by analysts as an important input to GDP. If you know what consumers are up to, you will have a pretty good idea on where the economy is headed. Needless to say, that's a big advantage for investors. The data are available in both value and volume measures although the press release deals only with volume. In addition to the total, the initial report provides a limited breakdown that separately identifies food, drink and tobacco, and (excluding automotive fuel) non-food products. A more comprehensive dataset is only available with the following month’s release. Unlike the U.S. and Canada, auto sales are not included in the retail sales data.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.