Economy in Brief

Retail sales volumes in February in the euro area fell by 0.8% after rising 0.8% in January in the wake of a 1.5% drop in December. Food and beverage purchases fell after following the same pattern as overall sales in the previous two months.

However, sequential sales patterns show total retail sales volumes falling 3.1% over 12 months, improving to a 2.8% decline over six months and then falling sharply by 5.9% over three months.

Spending on food and beverages has been improving; sales fall at a 4.8% pace over 12 months but cut that pace of decline to a -3.9% pace over six months and then fall by just 2.7% at an annual rate over three months.

Motor vehicle sales in the EU rose by 0.8% in February after falling in each of the previous two months. Registrations of motor vehicles are slowing sequentially. They rise by 11.5% over 12 months; that slows to a 5.2% annual rate gain over six months, then motor vehicle registrations fall at a 16% annual rate over three months. Registrations of motor vehicles are clearly on a weakening trend.

Quarter-to-date sales With two months of data in hand, total retail volume is falling at a 1.9% annual rate in the first quarter. Sales of food and beverages are rising at a 0.3% pace and motor vehicle registrations are falling at a 10.8% annual rate.

Country level performance Erratic monthly results- Looking at sales by country, there are ten European countries that are early reporting countries in the table; of these, 7 show sales declines in February. However, this follows January when eight of them posted increases; January, in turn, follows December in which eight of them posted declines. Retail sales patterns have been choppy over the last few months. No country on the table has three straight months of month-to-month sales increases or three straight months of month-to-month declines.

Accelerators vs. decelerators- Growth rates show there are three countries Germany, Portugal, and Belgium where the 12-month to 6-month to 3-month sales trends are getting progressively weaker. There are also three countries Italy, Denmark, and the United Kingdom, where the progressive sales from 12-month to 6-month to 3-month are getting progressively stronger (FYI: I do not consider Italy’s ‘technical’ slowing to a 6.3% annualized rate over three months to be a real slowing; it is the same as the six month pace of 6.5%). The remaining trends are mixed.

Growth vs. shrinkage- Acceleration and deceleration aside only Italy and Spain have positive growth rates over all three periods. However, Germany, Belgium, Sweden, and Norway all display declines in retail sales over all three horizons. Clearly, declines are dominating the data for European retail sales.

QTD by Country- Although total retail sales volumes decline on a quarter-to-date basis fall, there are quarter-to-date declines in only four countries in the table Germany, Belgium, Sweden, and Norway. Of course, the table includes several countries that are not members of the European Monetary Union. However, among EMU members, only Belgium and Germany show QTD declines in retail sales.

Sales compared to Pre-COVID levels- This has not been a period of strength for retail sales in Europe. Among the 10 countries in the table, looking back over a three-year period, results are uneven. Compared to January 2020 before COVID struck, six countries as of February have sales lower than they were then. Countries with sales higher than they were in 2020 include Italy, where sales are up by 9.2%, Portugal where sales are up by 3%, the Netherlands where sales are up by 3%, and Norway where sales are up by 1.6%. Total retail sales volumes in the euro area are higher by 1.7% and motor vehicle registrations are lower by 18.5%.

Japan's Economy Watchers index for March moved up to 53.3 on the current index compared to 52.0 in February; February had moved up from 48.5 in January. The future index is also on the move and rising. The March value moved up to 54.1 from 50.8. And the February value of 50.8 moved up from 49.3 in January. Both the current and the future indexes moved from readings that suggested conditions were contractionary in January to showing expansion in February and further expansion and strength in March. The two readings are moving together; they're moving higher and this is a good sign.

Standings: current and future headlines The indexes have also moved to show relatively strong readings with the current index having a 92.9 percentile standing and the future index having a 93.3 percentile standing. Both the March readings are higher than they have been except for 7% to 8% of the past observations, indicating considerable strength in the report.

The current index: standings and diffusion readings The current index provides 9 separate sectors or functional readings and of these nine readings five of them have standings in their 90th percentile range. Only one reading, housing, has a standing below its 50th percentile. A standing below 50% suggests that the sector (housing) is performing worse than its median performance. Housing in the current index format also has a 45.9 diffusion reading. Housing has the only current standing that's below 50 in addition to being below 50 on diffusion, indicating that it is contracting as well. In February, housing, the corporation index and the manufacturing index all showed contraction in progress. In January, contraction was in progress for the current index overall and for all sectors except for services where activity was neutral and for employment which was marginally above 50 at a reading of 51.0.

Future index metrics The future index gives very similar results with only housing showing a contraction in March and with a contraction in February indicated in housing, by corporations, for manufacturers, and for nonmanufacturers as well. In January, the future index showed contractions for the overall reading as well as for all the sector and functional readings except for nonmanufacturers where the reading came in at 50.4, just barely indicating some expansion in that sector. Over the last several months, the interpretation of the Economy Watchers has shifted noticeably and not so much dramatically as significantly from contraction to expansion even though the previous contractionary readings were not particularly deep and the recent expansionary reading is not particularly strong. However, it's significant that it's moved from contraction to expansion for both the current and the future readings. The percentile standing for the future index shows a headline standing of 93.3% and 90th percentile range readings for five on the nine component readings; none with standings below their respective medians. Housing has the lowest standing at 54.5%.

Current momentum The table also shows momentum: look at the current index. These are sequential readings for changes point-to-point over three months, six months, and 12 months. For the current index over each of these horizons, all of the changes are positive. For each reading, the evaluation compared to the previous period (3-month compared to 6-month, 6-month compared to 12-month, and 12-month compared to 12-month ago) show an improvement. Over six months the changes decelerate across all categories, compared to the year-on-year changes reported over 12 months. But over 3 months all reading show an even larger increase over 3 month than over 6 months except for households and retail. Japan’s current Economy Watchers index shows not just improvement but acceleration.

Momentum for the future index The future index also shows nothing but positive readings on its sequential changes. Over 12 months, all increases are larger than their change of a year ago. But over 6 months, performance is spottier with the headline slowing its gain, and with six of nine categories showing less gain than over 12 months. The accelerating readings for 6-months are retailing, housing and employment. Over three months the sectors show acceleration with only two of nine changes weaker than their change over six months. The two lagging sectors are for corporations overall and for manufacturing.

Japan's leading economic index in February has risen to a four-month high. The index is still falling at a 3.4% annual rate over 12 months, and at a sharper, 7.5% annual rate over six months. But over three months the index is gaining, rising by 0.4% at an annual rate.

However, the OECD amplitude-adjusted index is slightly lower in February and the OECD index shows a decline of 0.6% over 12 months, a decline at a 1.1% annual rate over six months and a declined at a 1% annual rate over three months.

Four of the five available components for the leading economic index show increases over three months and over six months and three of five show increases over 12 months. Japan's LEI metric has reasonably broad support based on the performance of these five components that are available at this early date. The full index includes other components that are not available quite yet.

The chart shows us that the rebound on the month is not very vigorous and of course the data calculated in the table tend to reinforce that view. It is too early to say that Japan is having any kind of a revival because this is something that on the graph looks more like a flat spot in the index rather than an actual rebound because the rebound itself is so faint.