July Retail Sales Tick Higher in EMU: Trends Are Weak

Retail sales in the European Monetary Union (EMU) in July rose by 0.1% after falling 0.4% in June and rising 0.1% in May. The 0.1% uptick in retail sales volumes is, of course, quite marginal and it comes amid a cluster of other weak readings. The 12-month growth rate of sales volumes is zero. The annualized growth rate of volumes over six months is 0.6%; the annualized change in volumes over three months is -0.8%. EMU retail sales obviously are weak and have been weak for some time - the volume statistics are quite disappointing.

QTD sales volumes fall In the quarter-to-date, euro area retail sales volumes are falling at a 0.8% annual rate. Of course, it's early in the quarter as it's only July, but that figure represents the July growth rate over the Q2 centered average level of retail sales in the second quarter period - it's a poor start to the third quarter.

Food for thought; some for growth Food and beverage sales indicate slightly better results with still erratic sales over the last three months, but food and beverage volume sales from 12-months to six-months to three-months are transitioning into growth and even into acceleration. And the quarter-to-date food and beverage volume statistics are rising by 1.3% at an annual rate.

Motor vehicle registrations have run out of gas Motor vehicle registrations fell by 3.6% in July after rising by a robust 7.1% in June which followed a 10.8% plunge in May. These statistics have been quite choppy and once again are not reassuring. The sequential growth rates reveal motor vehicle sales to be even worse as they are decelerating and imploding. Motor vehicle registrations over 12 months are falling at a 0.3% annual rate, but over six months they're falling at a 13.8% annual rate and over three months they're falling at a 28.2% annual rate; these are far from reassuring trends. In the quarter-to-date, motor vehicle registrations are falling at a 16.7% annual rate.

European country-level sales look better Turning to retail sales volumes across the monetary union and other European countries, we find a proliferation of month-to-month sales increases in July. Eight countries are listed in the table, only one of them, Portugal, shows a volume decline in July while Denmark has unchanged results, and the rest show gains. However, these numbers are coming from June in which five of these countries showed declines month-to-month, while in May only one country showed a month-to-month decline, which was Spain.

Sequential growth across countries Over three months most of the countries in this table show sales increases; there's one exception over three months, Norway, with sales volumes declining 1.7% at an annual rate. Over six months all countries show increases except the Netherlands and Belgium. Over 12 months increases are posted in five of these reporting countries with three of them showing declines. The declines are logged by Belgium, which has a 4.6% decline over 12 months, by Sweden, which has a 0.8% decline over 12 months, and by Norway, which has a 0.5% decline over 12 months. Among the countries in the table, only Sweden’s sales volumes accelerate and there the acceleration is not very impressive, from -0.8% over 12 months to a growth rate of 0.2% over six months, to a pace of 0.9% at an annual rate over three months. While some European countries are showing more solid and consistent growth rates in retail sales such as Spain, Portugal, Denmark, and the United Kingdom - all of which show sales increases over each of the horizons - in general, sales growth has not been impressive. The year-over-year growth rates are strongest for Denmark at 3.9%, the Netherlands at 3.4%, followed by Portugal at 2%. These are all volume growth figures and so they are relatively impressive in their own right, but for the most part, acceleration in sales volumes is not underway.

Quarter-to-date trends In the quarter-to-date, only two of these countries showed declines in progress and that's Portugal the 0.9% annual rate decline in the quarter-to-date and Norway with a 7.1% annual rate decline in the quarter-to-date. The strongest growth percolating in the quarter-to-date is the Netherlands at 5.4%, Belgium at 4.6%, the U.K. at 4.2%, and Spain at 4.2%. So, there is some life in some of these reporting countries in retail sales, but the trick will be to see if these trends are able to hold up and extend themselves.

Very weak since COVID struck Putting these sales trends in a broader perspective, we look at their percentage changes since just prior to COVID's arrival. Calculating growth back from January 2020, we're looking at a period of about 4 1/2 years. Over that span, Belgian sales are still lower by 8.8%, Sweden’s sales are lower by 2%, in the U.K. sales are lower by 1.9%, in Norway they are lower by 2%. Sales are higher by 3.1% in the Netherlands, and by 3% in Spain; they're higher by 1.3% in Denmark. The data for Portugal don't extend back that far. However, these are poor results. For the euro area, sales volumes are up by 1.9% over this span - less than one-half of one-percentage point per year on average. Food and beverage volume sales are lower by 1.5%. In addition, auto registrations over this period for the EU-15 countries show a decline of 15.9%. The consumer has been a weak force for growth during this period. And it's not surprising since COVID struck, then there was the outbreak of war as Russia rolled into Ukraine.

Summing up In the early part of the period, inflation flared sharply, since then, inflation has come back down and the ECB, as well as the Bank of England, have begun to reduce interest rates. But the interest rate reduction has only been one step and neither of these central banks has taken a second step nor they're promising to take one anytime soon. Monetary policy remains a wild card depending on what happens with inflation; while inflation had declined sharply after its disappointing rise during the COVID, it did recede. For the time being, any follow-through on inflation reduction seems to have been stopped. In Europe and in the United States, central banks are waiting to see if inflation picks back up. For the period ahead, we are playing the waiting game by watching and waiting to see what central banks do.