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Economy in Brief

Retail Sales Falter in Europe
by Robert Brusca  February 3, 2011

Retail sales in the Zone fell by 0.6% in December. They are lower over 12-months by 1% as well. German sales are lower Yr/Yr and UK sales are flat.

Nonfood retail sales fell in December and are lower by 1.3% Yr/Yr in the Zone.

The European consumer is not getting it in gear. Europe is of course under all this austerity pressure and for Ireland and the UK the pressure is stepping up this year. Spain, Portugal and Greece are under continued pressure from markets. Italy has a slightly different set of problems. Belgium is still trying to form a government...details, details... Germany voluntarily put its own 'austerity' program in place.

The ongoing plan to polish the European financial backstop plan has helped to reduce rate spreads among troubled Zone borrowers. These spread reductions enrich market participants not the borrowing countries. When these borrowers go to market again, if the fears remain restrained, they will reap the benefits of lower spreads. But for now this is in the background and is not help to financing costs.

The bottom line for 2011 is this: It's pretty hard to get growth going where austerity is spreading. It's hard to expect investment or capital goods to stimulate output when consumption is weak on a widespread basis. Developing economies largely are growing but most of them have an export-led growth strategy in which they export to the more industrialized countries. But these export-target countries are exactly the same ones feeling the pain of their debt and implementing austerity with the result that consumption has remained weak. The most highly industrialized countries can't depend on the continued 'strong growth' of the less developed countries unless they, in turn, can depend on the G10-countries to maintain strong domestic demand - and that simply is not happening.

Austerity might be good for the long run, but you have to survive its effects in the short run. There is also a certain FALLACY OF COMPOSITION in play. What is good for one country to do may not be good for all countries to the same time.

Euro-Area Retail Sales Volume
  Dec-10 Nov-10 Oct-10 3Mo 6MO 12Mo
Zone Total -0.6% -0.3% 0.0% -3.8% -2.3% -1.0%
NonFood -0.5% -0.3% 0.3% -1.6% -1.6% -1.3%
 Textiles #N/A -0.3% 0.2% -5.0% 5.4% 4.2%
 Books news, etc 1.1% 2.0% -2.0% 4.4% -3.9% -5.6%
Country detail Volume
Germany:VolxAuto -0.3% -1.9% 0.2% -8.0% -5.0% -1.2%
UK(EU):Vol -0.8% 0.4% 0.7% 0.7% 0.2% 0.0%
Shaded areas in grey is calculated on a one-month lag due to lagging data
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