Economy in Brief

The latest estimates from the CBI Distributive Trades Survey indicate a sharp contraction in retail sales volume. The sharp fall in the expectations component further suggests that this weakness could persist through the coming month, presenting a challenging landscape for the retail sector.
The key messages from today’s survey included:

• Headline sales volumes in the retail sector continued to decline for a third consecutive month. The balance of respondents suggesting comparing sales volumes with a year ago sales fell to -25% in July from -9% in June. The expectations balance in the meantime fell to -35% in July from a balance of zero in June.

• Forward-looking gauges, moreover, additionally hint that further weakness is to come. Underlying details of the survey, for example, revealed weakness in new orders and elevated finished inventory positions.

• Alongside this, the CBI Distributive Trade Survey reported a decline in wholesale sales volumes but at a slower pace in July (-9% from -15% in June). As for the expectation component, wholesalers anticipate volumes to fall at a similar pace next month.

• The balance for motor trade sales volumes also fell to -27% in July from -11% in June, with a modest decline in sales volume expected in August.

Money growth in the European Monetary Union continues to contract and the pace of contraction appears to be stabilized. Over 3 months the European Monetary Union M2 measure declines at a 1.8% annual rate; this compares to a decline of 1.9% at an annual rate over 6 months and to a decline of 0.2% over 12 months. The pace of decline has stepped up from 12-months to 6-months and then from 6-months to 3-months it has stabilized.

Credit metrics, however, continue to weaken at a faster pace. Credit to residents falls at a 1.3% annual rate over 3 months, compared to a drop at a 0.3% annual rate over 6 months and an increase at a 1.3% annual rate over 12 months. In comparison, of course, there has been much faster growth over the previous two and three years.

Private credit growth falls at a 1.1% annual rate over 3 months after logging flat performance over 6 months and rising by 1.5% over 12 months; it is more than twice that pace over the previous two- and three- years.

EMU money and credit growth assessments in real terms Money: Reassessing all these growth rates by incorporating inflation and calculating real rates of change that take out the inflation effect, leaves us with money supply growth falling at a 4.5% annual rate over 3 months, slowing from a 5.1% annual rate over 6 months, and that in turn slowed from a 5.4% annual rate over 12 months. These metrics continue the declines in real balances reported over two years and three years. However, over two years and three years, the rate of decline is at a slower pace than it has been recently. On balance, there is a slight slowing in real M2 growth; at this point, it's still only slight backing off and the 3-month growth rate is still -4.5%.

Credit: The profiles for credit growth are more mixed with credit to residents falling at a 4% annual rate over 3 months following a 3.5% annual decline rate over 6 months and falling at a 4.1% annual rate over 12 months. All of these are faster declining growth rates than the declines over two and three years. Private credit shows much the same kind of pattern with a 3.8% annual decline rate over 3 months, a slightly reduced 3.3% decline rate over 6 months but then a stepped-up 3.9% decline rate over 12 months. These compare to lesser rates of decline over the last two and three years.

The bottom line for the European Monetary Union is that money and credit growth is slow or slowing when recast in terms of real balances or real credit. Declines appear to be a little bit flatter and there appears to be some modest deceleration underway. However, in the big picture, we still have money and credit declining and so these are contractionary policy forces that add to the European Central Bank’s rate-hiking way.