Italy's Retail Sales Begin to Show Signs of Life

Italian retail sales continue to make some progress but are still falling year-over-year. The chart makes it clear that advances in confidence have preceded improvements in retail sales. And Italian consumer confidence is on a roll again in early 2015.

Yet, retail sales are still lagging. The chart shows that sales gains do tend to follow after increases in confidence and that confidence tends to move up in waves with retail sales gains lagging and following in a much smoother pattern of improvement. The relationship that used to exist between levels of confidence and the growth rate for retail sales has shifted with retail sales still piggybacking on confidence gains but with less vigor than before.

The slippage in sales has been substantially trimmed. Sales are registering annual growth rates of from -0.5% to -0.2% over the past three months to 12 months. This is a very small amount of erosion compared to past trends.

But what is more encouraging is that in the quarter to date sales are actually showing gains. Retail sales less auto sales are up at a 0.3% annual rate. Food, beverage and tobacco sales are up in the quarter at a 1.3% annual rate. Clothing and furniture sales are up at a whopping 7.4% annual rate. In inflation-adjusted terms, retail sales ex-autos are rising at a 1.2% annual rate in the current quarter.

These are not growth rates indicating Italy is back to normal. But having sales rising in the current quarter is a big change from the past because retail sales have been slipping since 2011.

The rise of consumer confidence in Italy tracks well the new extraordinary moves being made by the ECB. Italy's PMI gauge has been improving, too, even if it is still weak. A series of Italian reports seem to be on the mend.

What we learn from retail sales is that the rise in consumer confidence has some basis in the actions of consumers on the hard economic data that matter for growth. And, that is a good development.