EMU Retail Sales Bounce in November. But bouncy, bouncy, will bump up against a central bank smack-down

Retail sales in the European Monetary Union (EMU) rose by 0.8% in November after falling by 1.5% in October and rising by 0.8% in September. Retail sales have been gradually digging themselves out of a hole as retail sales volumes fall at a 2.8% annual rate over 12 months, fall at a 1.9% annual rate over six months, then manage an increase at a 0.4% annual rate over three months. Still, quarter-to-date retail sales volume is falling at a 2.7% annual rate.

On the other hand, motor vehicle sales and the European Union (EU) area rose by 13.3% in November, after falling by 6.7% in October, and rising by 2.1% in September. There is not a clear pattern to the growth rate of motor vehicle sales in the European Union. However, there is a consistent picture of those sales rising on all the time horizons. EU motor vehicle sales rise at an 18.6% pace over 12-months, accelerate to a 72.3% annual rate over six-months, and then ‘ease back’ to a growth rate of 35.9% over 3-months. All of these are extremely strong growth rates and suggest some ongoing recovery in the sales of motor vehicles. And, in the quarter-to-date, motor vehicle sales in EU are rising at a 36.1% annual rate.

Among the key early-reporting European countries, some of them EMU members and some of them not, there are increases in sales reported in November in six of the seven presented in the table. The exception is a decline in November in UK sales volumes. Meanwhile, Spain leads the parade of month-to-month increases with a gain of 3.8%, followed by Sweden at 2.2%, Portugal at 1.6%, Germany at 1.1%, and Norway at 0.9%.

The sequential growth rates for these countries, however, paint a mixed picture for retail sales. Germany shows declines on all the horizons from 12-months to 6-months to 3-months as does Denmark, the UK, and Sweden. Portugal and Norway show declines in all the periods with the exception that each of them has an increase over the recent three months. Only three countries in the table are EMU members: Germany, Spain, and Portugal.

EMU Member Trends: In the case of Germany the weakness in sales is diminishing as sales fall at a 5.9% pace over 12-months, that's reduced to a 4.7% pace of decline over 6-months, and that decline slows further to a -1% annual rate over one month. Spain shows outright acceleration, with sales falling 0.6% over 12-months, then rising at an 8.1% pace over 6-months, and a faster gain at a 19.3% pace over 3-months Portugal also shows sales moving to a more positive direction as they fall at a 1.3% pace over 12-months, drop at a 0.2% annual rate over 6-months, then rise at a 0.6% pace over 3-months.

Non-EMU Trends: As for the rest of the European reporters, the same progression from weaker to less weak declines holds for the most part. We see that most strongly in Norway, the condition is present for the UK. Sweden shows less weakness over 3-months than over 12-months although it shows more severe weakness over 6-months. Denmark shows weakness abating from 12-months to 6-months but then more weakness over 3-months at nearly the same pace that sales fell over 12-months appears. On balance the progression towards more strength/less weakness is stronger for the European Monetary Union member countries than for the EMU non-members.

Retail and Auto Sales Trends: The chart of retail sales volumes and passenger car registrations underscores these developments with strength in passenger car sales clearly depicted although those sales are still quite weak when compared to what historic levels of sales had been and where trends were and where they were headed prior to Covid. If we extrapolate the past to see what we would have expected at this time prior to the strike of Covid, we would expect to see levels of auto sales far superior to the ones that are being posted now, despite their current strong gains. The same is true for retail sales volumes, although the retail sales volumes did recover from Covid and then moved to even higher levels; but, since 2021 sales volumes in the European Monetary Union have continued to work their way slightly lower.

Outlook and prospects: Central banks are raising rates and with ongoing angst over the war between Russia and Ukraine, consumer attitudes within Europe have been impacted and are adversely affecting retail sales trends. Consumers are wary of what central banks are planning as they are aware that inflation is well over the top of what's targeted and they expect central banks to continue to take actions to bring inflation back into line; there are clearly concerns about what that will do to the economy. The survey data on PMIs show that, globally, as well as in Europe, there's a slowdown in progress that is now affecting both the manufacturing and the nonmanufacturing sectors. New data from the US today- although showing weakness in the US PMI statistics- also shows ongoing strength in the US job market including a decline in the unemployment rate to its cycle low in December, a largely unexpected event. With such strength and with continued firmness in wages in the United States, it seems clear that the Federal Reserve will continue to raise rates and that will put pressure on other global central banks to follow suit. It's more likely that the period ahead brings more economic weakness than some sort of recovery as the trends in retail sales in the European Monetary Union might seem to suggest. At the moment, that is a trend that will have a tough time extending itself in 2023.