Germany's retail sector witnessed a modest 0.2 percent real growth in January compared to December, suggesting stable yet cautious consumer spending potentially influenced by inflationary pressures in food retail sales. However, the 2.9 percent year-over-year increase indicates a more robust recovery, likely driven by improved economic confidence.

Food retail sales outperformed the general market, with a 1.5 percent monthly rise. This suggests increased household spending on essentials, possibly linked to price adjustments. In contrast, non-food retail saw a marginal 0.2 percent decline, suggesting a hesitance in discretionary spending. The most striking trend is online retail's 4.2 percent monthly decline, despite an impressive 11.5 percent year-over-year growth. This signals a potential post-pandemic normalisation, where consumers return to physical stores while e-commerce remains structurally strong.

While short-term fluctuations highlight consumer caution, the year-over-year growth across all sectors points to a steady retail recovery, with food and e-commerce leading the way. The latest update takes the RPI to minus 16 and minus 12 for the RPI-P. This means that economic activities remain slightly behind market expectations of the German economy.

Sales expected up 0.9 percent on the month.

Retail sales measure the total receipts at stores that sell durable and nondurable goods. The data are compiled from about 27,000 retail businesses and are reported in both nominal and volume terms. Autos are excluded. A very limited breakdown of subsector performance is available in the initial report which is itself subject to sometimes sizeable revision but much greater detail is provided in the following month's release.

With consumer spending a large part of the economy, market players continually monitor spending patterns. Retail sales are a measure of consumer well-being. 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. However, by excluding the services sector, changes in retail sales data can differ significantly from those in total household spending.