Retail sales were very weak in August. A 1.2 percent monthly fall was much steeper than the market consensus and the weakest performance so far in 2023. July's drop was trimmed to just 0.1 percent but volumes now stand at their lowest level since January 2021. Annual growth was minus 2.1 percent, down from minus 1.0 percent.

The overall monthly decline reflected broad-base losses with purchases of food, drink and tobacco also tumbling 1.2 percent and non-food sales (ex-auto fuel) decreasing 0.9 percent. Within the latter, mail order and internet fell a hefty 4.5 percent. Auto fuel was down 3.0 percent, its fourth drop in the last five months.

Regionally, it was again Germany (minus 1.2 percent) that did much of the monthly damage but weakness here was compounded by a an especially poor period for France (minus 2.8 percent). Spain (0.4 percent) posted a modest gain and elsewhere it was the usual mixed picture.

Today's update leaves average overall Eurozone volumes in July/August 0.6 percent below their average level in the second quarter. Absent any revisions, September will need an improbably sharp monthly rise of at least 2.4 percent just to keep the third quarter flat. As such today's update increases the likelihood of GDP contracting last quarter. However, with the region's RPI and RPI-P at minus 9 and 3 respectively, overall economic activity is still moving much as expected.

Retail sales volumes in August are expected to fall 0.2 percent on the month as they did in July. Spending on goods has been sluggish.

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.