EMU: Retail Sales

Thu Apr 05 04:00:00 CDT 2018

Consensus Actual Previous Revised
Month over Month 0.6% 0.1% -0.1% -0.3%
Year over Year 2.3% 1.8% 2.3% 1.5%

Retail sales (ex-autos) were again disappointingly soft in February. A minimal 0.1 percent monthly gain was well short of market expectations and that after a steeper revised 0.3 percent drop in January. Annual growth was a modest 1.8 percent, up from a sharply slower revised 1.5 percent at the start of the year.

In fact, February's underlying picture was poorer still as the monthly headline advance was wholly attributable to food, drink and tobacco where sales climbed a monthly 0.8 percent. Excluding auto fuel, non-food purchases followed a flat performance in January with a 0.5 percent decline. Within this, electrical goods and furniture (minus 0.7 percent), mail order and internet (minus 1.9 percent) and textiles, clothing and footwear (minus 0.2 percent) all had a poor period. Only pharmaceuticals (0.4 percent) made any real headway. Elsewhere, auto fuel was up 0.9 percent.

Regionally, much of the damage was done by Germany (minus 0.7 percent) where volumes decreased for a third successive month. France (0.7 percent) and Spain (0.5 percent) provided some offset while the smaller countries were mixed.

Today's report may have suffered some negative effects from unseasonably poor weather but the underlying trend in Eurozone retail sales looks sluggish. Average purchases in January/February were 0.3 percent below their fourth quarter mean leaving March requiring a 0.8 percent monthly jump just to keep the quarter flat. This does not bode well for first quarter GDP growth, nor does it argue in favour of any near-term pick-up in core inflation.

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.