European Retail Sales Continue to Be Challenged

Retail sales volumes in February in the euro area fell by 0.8% after rising 0.8% in January in the wake of a 1.5% drop in December. Food and beverage purchases fell after following the same pattern as overall sales in the previous two months.

However, sequential sales patterns show total retail sales volumes falling 3.1% over 12 months, improving to a 2.8% decline over six months and then falling sharply by 5.9% over three months.

Spending on food and beverages has been improving; sales fall at a 4.8% pace over 12 months but cut that pace of decline to a -3.9% pace over six months and then fall by just 2.7% at an annual rate over three months.

Motor vehicle sales in the EU rose by 0.8% in February after falling in each of the previous two months. Registrations of motor vehicles are slowing sequentially. They rise by 11.5% over 12 months; that slows to a 5.2% annual rate gain over six months, then motor vehicle registrations fall at a 16% annual rate over three months. Registrations of motor vehicles are clearly on a weakening trend.

Quarter-to-date sales With two months of data in hand, total retail volume is falling at a 1.9% annual rate in the first quarter. Sales of food and beverages are rising at a 0.3% pace and motor vehicle registrations are falling at a 10.8% annual rate.

Country level performance Erratic monthly results- Looking at sales by country, there are ten European countries that are early reporting countries in the table; of these, 7 show sales declines in February. However, this follows January when eight of them posted increases; January, in turn, follows December in which eight of them posted declines. Retail sales patterns have been choppy over the last few months. No country on the table has three straight months of month-to-month sales increases or three straight months of month-to-month declines.

Accelerators vs. decelerators- Growth rates show there are three countries Germany, Portugal, and Belgium where the 12-month to 6-month to 3-month sales trends are getting progressively weaker. There are also three countries Italy, Denmark, and the United Kingdom, where the progressive sales from 12-month to 6-month to 3-month are getting progressively stronger (FYI: I do not consider Italy’s ‘technical’ slowing to a 6.3% annualized rate over three months to be a real slowing; it is the same as the six month pace of 6.5%). The remaining trends are mixed.

Growth vs. shrinkage- Acceleration and deceleration aside only Italy and Spain have positive growth rates over all three periods. However, Germany, Belgium, Sweden, and Norway all display declines in retail sales over all three horizons. Clearly, declines are dominating the data for European retail sales.

QTD by Country- Although total retail sales volumes decline on a quarter-to-date basis fall, there are quarter-to-date declines in only four countries in the table Germany, Belgium, Sweden, and Norway. Of course, the table includes several countries that are not members of the European Monetary Union. However, among EMU members, only Belgium and Germany show QTD declines in retail sales.

Sales compared to Pre-COVID levels- This has not been a period of strength for retail sales in Europe. Among the 10 countries in the table, looking back over a three-year period, results are uneven. Compared to January 2020 before COVID struck, six countries as of February have sales lower than they were then. Countries with sales higher than they were in 2020 include Italy, where sales are up by 9.2%, Portugal where sales are up by 3%, the Netherlands where sales are up by 3%, and Norway where sales are up by 1.6%. Total retail sales volumes in the euro area are higher by 1.7% and motor vehicle registrations are lower by 18.5%.

Summing up Current trends- Economic data for the euro area have been mixed. Recent PMI data from S&P Global have shown some strength, particularly stemming from performance of the services sector. However, manufacturing remains a problem and, as we can see, retail sales are not getting much traction. Consumer confidence remains one of the most impacted measures across all countries. Inflation continues to run hot. The European Central Bank and other European central banks continue to have to fight inflation and to raise interest rates. Current economic performance is largely negative even when pockets of strength emerge. The outlook is guarded.