3 Numbers To Watch: DE retail sales, EU CPI, UK consumer credit
• January boost in German retail sales unsustainable
• Consumer spending remains a critical driver for the UK’s recovery
• Encouraging signs in EU, but inflation data could disappoint
Retail sales in Germany will kick off Monday's trading day in Europe, followed by an update on consumer credit in the UK. Later, we’ll see a report that could be a major news event in macro for the week ahead: the flash estimate of Eurozone consumer price inflation for March. Keep in mind, too, that the Bank of England releases new money supply data (08:30 GMT).
Germany Retail Sales (06:00 GMT) The sharp improvement in economic sentiment in the Eurozone last month offers another tantalising number for wondering if the Continent’s macro trend is finally poised for better days. The jury’s still out and probably will be for several more months. Meantime, there’s a growing collection of numbers that leave a bit more room for upbeat forecasts. That includes Friday’s update of the European Commission's Economic Sentiment Indicator, which increased to the highest level in nearly three years. Indeed, the five-biggest economies in the Eurozone reported higher levels of optimism, according to this benchmark.
Deciding if there’s a genuine improvement requires looking for confirmation in the hard data. That’s going to take time, although it starts with today’s update on retail spending in Germany for February. It’s interesting to note that consumption in Europe’s largest economy surged in January by 2.5 percent over the previous month — the most since 2007. Some of this is attributable to a snapback from December’s unusually steep decline and so the January pop is unsustainable. Research firm Gfk projects only a “slight” increase for retail spending this year in Germany. But to the extent that Europe’s growth engine can maintain forward momentum in the all-important consumer sector, improving confidence generally will translate into stronger odds for thinking that the worst may really be over this time.
The main risk, of course, is the potential for macro blowback via the Russia-Ukraine crisis. It’s unclear how this plays out at this point and so good news on the economic front could be subject to change for geopolitical reasons. Otherwise, we’re still at the point when much depends on Germany and so today’s release will set the tone for looking ahead.
UK Consumer Credit (08:30 GMT) Consumer spending remains a critical driver for the UK’s recovery, as last week’s better-than-expected report on retail sales for February reminds. Economists were looking for a moderate rise of 0.4 percent in the monthly comparison. Instead, the Office for National Statistics reported a sizzling 1.7 percent surge, which pushed the annual change up to a 3.7 percent advance.
“The UK consumer is powering on, helped by improving pay growth, subsiding inflation and very low interest rates,” Berenberg’s chief UK economist told Reuters after the data was released. “Even the rain during February did not appear to dampen spirits on the high street.”
Some analysts worry that Britain’s recovery is overly dependent on the consumer and too little on business investment. That may be a problem for the longer run, but for now the retail momentum looks set to dominate. Indeed, there are new projections in some quarters for a substantial improvement in the growth of real wages, which has been soft lately. If so, February’s impressive gain in retail sales may be a sign of things to come for the rest of 2014. In turn, we may see a substantial rise in today’s monthly update on consumer credit from the Bank of England. Credit-card debt has been stuck in a range for much of the past year with a ceiling of about GBP 300 million to GBP 320m. A breakout above that level in today’s February release would be taken as another signal that consumer spending will continue to rise in the months ahead.
A buying binge may worry some analysts, but increased demand for credit will be seen as a bullish sign for the near term. Consumers certainly aren’t worried. Gfk’s UK Consumer Confidence Index in March posted a strong increase. “Over the last year the overall index has risen by a massive 22 points — the biggest single-year rise since November 2008-October 2009 and there hasn’t been a bigger one-year rise since July 1977-June 1978,” a Gfk analyst said during last week’s release.
EU Consumer Price Index (09:00 GMT) There are some encouraging signs in Europe’s economic reports these days, but if there’s a spoiler waiting in the wings it may show up in today's inflation data. In the previous release, the February estimate of consumer prices was a stark reminder that there’s still a strong whiff of disinflation in the Eurozone. The harmonised consumer price index (CPI) slipped to a 0.7 percent year-over-year increase through last month, matching a low point in October's data. The previous dip to 0.7 percent moved the European Central Bank (ECB) to cut interest rates and reassure the market that monetary policy would remain focused on keeping the disinflation/deflation risk from gaining momentum. It’s debatable if falling prices are still a viable threat, although one can argue that the European Central Bank has at least stabilised the growth rate for the money supply, or so last week’s M3 numbers suggest.
In any case, there are no illusions about what’s at stake in today’s flash CPI estimate for March. With inflation bumping along at unusually low levels, the central bank can’t afford to let the pace sink any further. But it’s too soon to rule out that possibility, as implied by last week’s unexpectedly soft numbers on March consumer inflation numbers for Germany and Spain. Some analysts are already saying that the ECB will be forced to roll out a new phase of monetary stimulus at this Thursday’s policy announcement. The odds will certainly rise for expecting more ECB action later this week if today’s annual CPI number falls again.