Retail trade in the euro area started 2025 on a mixed note, with a slight monthly contraction but a steady annual gain. January saw a 0.3 percent dip in retail trade volume compared to December 2024, signalling a sluggish start to the year. This decline followed a stagnant December based on the revisions, suggesting cautious consumer spending amid economic uncertainty.

On a sectoral level, food, drinks, and tobacco were the only bright spots, rising 0.6 percent month-over-month as essential goods remained resilient. However, non-food products (excluding automotive fuel) fell by 0.7 percent, reflecting weakened discretionary spending. Automotive fuel sales declined slightly (minus 0.3 percent), possibly due to fluctuating fuel prices or shifting mobility patterns. However, the retail sector painted a more positive picture year-over-year, expanding 1.5 percent compared to January 2024. Notably, non-food products led the growth (1.8 percent), indicating a long-term recovery in consumer demand. Food, drinks, and tobacco (1.4 percent) remained steady, while automotive fuel sales barely moved (0.1 percent).

Regionally, retail sales in Germany was up (0.1 percent after minus 0.8 percent), while France (minus 0.1 percent after minus 0.7 percent) and Italy (minus 0.4 percent after 0.4 percent) recorded falls over the month. While short-term figures suggest caution, the broader trend hints at resilience. The sector now looks to wage growth, inflation trends, and consumer confidence to determine if this modest momentum can translate into sustained growth. The latest update leaves the RPI at 24 and the RPI-P at 30. This means that economic activities are way ahead of market expectations in the Euro Area.

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.