The Wilder View

Euro Area Retail Sales Portend Negative Quarter of Real Consumption

Today Eurostat released its June estimate of real retail sales for the Euro area. On a month/month basis, real retail sales increased at a rate of 0.1%. However, on a trended basis, the 3-month/3-month average growth rate was down 0.7% in the three months ending in June. Given that the 3-month trended pace of contraction quickened compared to Q1, real consumption is likely to detract from Q2 GDP growth (spending components released on August 23).

On a Y/Y growth basis, there’s a 96% correlation between real retail sales and real private consumption by households and non-profit institutions. Using a simple linear regression, the annual growth rate of consumption should stabilize somewhat in Q2 compared to Q1.

Across the region, real retail sales in Ireland, Estonia, and Germany are the only reported countries to see growth through Q2.

Note: the chart below illustrates the 3-Month/3-Month growth rate through June 2012 (Q2/Q1).

On balance, Q2 domestic consumption spending in the Euro area is expected to be buoyed by Germany through June. The problem is, German retail sales growth have just a 38% correlation with real consumption growth, so the bump in retail sales won’t necessarily feed through to consumption at the aggregate level.

Euro area real consumption is still contracting. The question then becomes: will the pace of consumption contraction increase or decrease in coming quarters? We’ll have to watch leading indicators such as retail and consumer confidence, both of which deteriorated in July.

Rebecca Wilder

One Response to “Euro Area Retail Sales Portend Negative Quarter of Real Consumption”

Patrick_VBAugust 8th, 2012 at 10:06 am

Belgium has had, up to now, a remarkably resilient economic growth. However, as the retail data show, the crisis seems to have now caught up with this country too. Belgian resilience was probably due to the strong trade links with Germany; as German economic growth is now weakening, one can now expect sharp revisions to GDP growth for Belgium too. And indeed, Belgium's GDP declined by 0.6% (qoq) in Q2, while it was still estimated at a positive 0.3% (qoq) in Q1. Expect more declines in the coming quarters…

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