Economy in Brief

Motor vehicle registrations in January fell by 6.1%, while overall retail sales volume, a separate category, fell by 0.1%. Motor vehicle registrations are notoriously volatile; they increased by 1.8% in December and fell by 3.3% in November. Retail sales, however, have been more chronically flat, with no change in November, a 0.2% increase in December, and now a 0.1% decline in January. These numbers are quite weak because they're already inflation-adjusted, expressed in volume terms.

Sequentially volume sales are weakening in the EMU, with the growth rate slipping from 2.1% over 12 months to a 1.4% pace over six months to just a 0.4% annual rate gain over three months. Food sales have been more stable but have been somewhat more erratically weakened over this same period. Motor vehicle registrations have been imploding, falling by 3% over 12 months, dropping to a 12.4% annual rate over six months and plunging at a 27.1% annual rate over three months.

In the unfolding quarter to date, with one month's data in hand, first quarter retail sales are rising at a 0.2% annual rate; food sales are rising at a 2.7% annual rate. Motor vehicle registrations are declining at a 31.3% annual rate.

We can also inspect these data on a country by country basis. We have Germany and the Netherlands from the European Monetary Union, Sweden and Norway representing Northern Europe, the United Kingdom as a nonaligned former monetary union member, and lastly Denmark as an EU member.

Germany is the largest economy in Europe, and its sales fell in January. More disconcerting, sales in Germany are generally on a decelerating path, growing at a 1.2% pace over 12 months, at a 0.5% pace over six months, and contracting at a 1% annual rate pace over three months. The Netherlands, another monetary union member, is experiencing a very different trend, with sales rising by 3.3% in January and then accelerating from 12 months to six months to three months as growth rates have progressed from 1.4% to 6.1% to 8.8%, respectively. In Denmark, a European Union member but not a monetary union member, sales rose by 0.7% in January, while its sequential sales show growth rates of 3.7% over 12 months and 3.8% over six months, and then suddenly weaken to 0.4% over three months.

The United Kingdom is showing a progression of sales that is fairly firm. In January, sales rose by 1.9%. The annual growth rate is at 4.5% over 12 months, easing slightly to 3% over six months, and then jumping to 7.7% over three months.

Sweden and Norway are fellow Northern European economies but do not share the same trends in retail sales. In January, Swedish sales rose by 0.1%, while Norwegian sales rose by 1.1%. The progression of growth rates in Sweden shows sales over 4% over six months and 12 months, with the growth rate decelerating to 2.1% at an annual rate over three months. In Norway, 12-month and 6-month growth rates for sales are at 3% to 4% and then jump to a 7.3% annual rate over three months.

Monthly data on sales volume growth have been irregular. January was the most consistently strong month of the most recent three, albeit with Germany posting a significantly large drop in retail sales, which is disconcerting for the largest economy in the euro area.

The sequential data show sales accelerations in the Netherlands and in Norway juxtaposed once again to Germany, where sales growth rates are decelerating and culminate in declining growth over the most recent three months. Sequential data also show a clear deceleration in sales volumes for the euro area as a whole. In addition, there is a significant sales implosion for motor vehicle registrations on the same timeline.

The quarter-to-date data for the euro area show weak sales growth, while the country level data show sales increasing for all the countries in the table except Germany in the quarter to date, which is a nascent calculation at this point.

The composite PMIs showed modest increases on their full sample average and a modest step-back in the full sample median calculation in February. However, the number of areas below 50 fell to 4 in February; that count was only 5 in January, and there were none showing declines in December, so there's a great sense of progress in place. The proportion of reporters in February that were getting worse was only 40%, compared to 44% in January and 76% in December. So there has been a change for the better in terms of the proportion of these 25 reporters who are registering better growth month to month in the last two months, in particular.

Inflation in the European Monetary Union picked up in February, ahead of the beginning of new hostilities in the Middle East. The increase in the harmonized index of consumer prices moved up to 0.3% in February from 0.1% to January. Progression on the annual rate of price increase moved up to 1.9% over 12 months, to a 2.1% annual rate over six months, and to a 2.4% annual rate over three months.

This is a modest acceleration and not something to get particularly excited about, except that with new hostilities in the Middle East, oil prices have begun to rise significantly, and there will be apprehension about how much more there is to come. However, the initial oil price reaction was muted, and the follow-up price reaction has also been relatively muted so these will translate into a nontrivial impact on inflation and in the harmonized index for consumer prices in the monetary union, as well as in the key prices watched by central banks globally.

Big Four Economies The Big Four economies in the monetary union produced scattered results in February. Germany produced no increase in its February HICP. The HICP for France jumped by 0.4% month-to-month. Spain showed an increase of 0.2%; Italy reported an outsized increase of 0.7% in February. Still, the January and February data for this group of countries show prices mostly very well behaved. If we simply multiply these 12 increases (four countries over three months) together we get prices rising at a 2.2% annual rate across all the countries over the three months. That is close to target.

Annual and Sequential Big Four Inflation Inflation for the Big Four economies ranges from a top pace of 2.4% in Spain to the lowest pace of 1.1% in France with Italy's 1.6% and Germany's on-target 2% making up middle cases. Even the biggest price increase from Spain at 2.4% is not particularly frightening. Inside of 12 months looking at the six- and 3-month trends, Germany's trends move up to 2.6% over six months and then down to 1.2%. France's 6-month inflation remains at 1.1% over six months but then moves up to a 1.9% annual rate over three months. Italy's 12-month pace of 1.6% holds in place over six months, but then the 3-month inflation rate jumps to a 4.1% annual rate. For Spain, the 2.4% 12 month rate rises to a 3% annual rate over six months and then falls sharply to a 1.6% annual rate over three months.

Headline vs. Core Inflation Headline inflation rates, of course, are mercurial because of the impact of oil prices on them. Two early reporters gave us core inflation or ex-energy inflation rates. In the case of Spain, core inflation is stuck at 2.7% on all horizons. Germany's index excluding energy is at 2.4% over 12 months, but then Germany’s six-month pace falls to 2.2%, and its three-month pace falls again to 1.7%. In the case of Germany, 12-month ex-energy inflation is mildly acceptable, but progressing to the three-month horizon, the inflation rate drops back well into place. For Spain, the 2.7% 12-month inflation rate persists across all horizons and is unacceptably high.

Longer Trends Inflation is generally behaving and riding downtrends in the monetary union, with 12- month inflation generally lower than 12-month inflation was a year ago. That is true for all the major metrics in the table except two. The first exception is France when the 12-month inflation rate is 1.1% compared to 0.9% over 12 months a year ago (still, obviously very well behaved). In the case of Spain, core inflation moves up to 2.7% over 12 months after being at 2.2% just a year ago.