Economy in Brief: November 2022

The Bank of France retail survey fell by 3.7% in October showing a significant decline in sales volumes in the month. The decline interrupts a two-month string of sales volumes rising as volumes rose by 0.2% in August and by 2.5% in September.

Across the seven product categories for the month, all of them decline in addition to a decline in all industrial goods sales volume and then overall volume. October was a bad month for French consumers. Food purchases fell by 3.3% in October following declines in three of the four most recent months. Industrial goods sales volumes declined 3.9%, which is only their first to decline in the last three months but the third decline in the last five months.

Among other selected nonfood categories, textile sales volumes fell by 6.1% in October, footwear sales volumes fell by 8.2%, furniture volumes fell by 2.9%, household appliances saw sales volumes fall by 2.5%, electronics volumes fell by 7%, and new auto purchases fell by 9%. The declines across the various categories are relatively large declines for a single month.

According to sequential change calculations, sales volume changes over three months, six months and 12 months show declines in volume for overall sales on all three horizons but not a worsening trend. Total sales volumes fall by 5.4% over 12 months; that worsens to an 8.2% rate of decline over six months, but then the decline slows to a 4.4% decline over three months. Well, that's not a progressive worsening, but a 4.4% decline over three months is certainly not a walk in the park for real sales.

Food purchases are disturbingly weak Sequentially food purchases are weakening and weakening progressively. Food purchases fall by 7.9% over 12 months, decline at an 8.9% annual rate over six months and then fall at a 12.7% annual rate over three months. Such a progression for food, the most obvious consumer staple item, is certainly vexing. Food prices have been among some of the strongest rising and most persistent showing increases globally with the combination of international supply problems, drought, interruptions due to the war in Ukraine, and the lack of availability of fertilizer to help stimulate agricultural production. Food prices have been rising relentlessly globally.

Industrial goods sales For the category 'all industrial goods' the 12-month decline logged a -3.8% pace, the six-month decline is at a -8.3% annual rate, but over three months there's an increase in the growth of sales of 0.8% annualized. That's not much of an increase, but it does interrupt the string of negative numbers. Looking across the six nonfood categories over three months, there are declines in only two categories: household appliances and new auto sales. Household appliances show declines on all horizons at a pace that is somewhat unsettling although not a clear progressive deterioration. Household appliance sales fall 10% over 12 months and fall at a 7.6% annual rate over six months, but then they return to an even faster decline at 10.5% over months. Auto sales are somewhat more mixed with a 9.2% decline over 12 months, a 5.8% increase over six months and a decline at only a 0.4% annual rate over three months.

Other categories in the nonfood retail area show annual rate increases in sales over three months such as the 10.6% annual rate increase in textile sales, the 9.9% annual increase in electronics, the 1.6% increase in footwear sales, and the 0.8% increase in furniture sales. However, textiles and footwear show declines over six months and over 12 months and declines that are relatively steep. Only furniture sales and electronic sales show any progression that seems to have any life to it.

Sales growth rate rankings are low The ranking of the year-over-year sales figures shows abject weakness across all the categories. A ranking above the 50th percentile represents a growth rate in sales volumes that is more than its median increase. There are no such increases for any category as of October. In fact, the strongest year-over-year increase is from furniture sales with a 31.6 percentile standing, followed by a 21.1 percentile standing for new auto sales, a 20.6 percentile standing for electronics, an 18.7 percentile standing for footwear and an 18.2 percentile standing for textiles. The weakest category is household appliances with only a 6.7 percentile standing for its 12-month growth rate. For all industrial goods, the sales volume standing is in its 16.7 percentile. For food, the percentile standing is the weakest on this ranking. The data in the table are ranked over a period since June 2005. The food ranking therefore is the weakest ranking in year-over-year food volume sales in the last 17 years, an extremely significant development, especially recognizing that over that span there's been population growth.

The German PPI broke sharply lower in October with the PPI excluding construction falling by 4.2% month-to-month; it rose 2.4% in September and 7.9% in August. The sequential growth rates for this headline PPI show a 34.5% rise over 12 months, a rise at a 30% annual rate over six months, and a gain at a 25.4% annual rate over three months. The inflation process shows a clear slowdown but still very high rates of change in headline producer prices.

But there is a huge gap between the PPI and the PPI excluding energy. The PPI ex-energy did not move lower this month. It rose by 0.5% in October, the same as in September; in August it rose by 0.4% month-to-month. The German PPI excluding energy is up by 13.4% over 12 months; it's up at a 6.1% annual rate over six months, and that drops off to a 5.4% annual rate over three months. I have plotted the ex-energy PPI in the chart above.

Like the headline PPI, the PPI ex-energy shows a deceleration in progress despite the much lesser role of oil and the exclusion of energy prices from this index. Most interesting is the huge gap between the growth rates of the PPI excluding energy and the headline PPI. The PPI ex-energy rises 13.4% over 12 months while the headline PPI rises by 34.5%. That's close to three times faster. Obviously, energy and commodity prices have a lot to do with what's been going on with inflation.

The October reading marks the first observation in the fourth quarter. Fourth quarter-to-date inflation for the headline is falling by 1.3% at an annual rate, but for the core it's still rising at a 5.5% annual rate, in line with its sequential progression.

Monetary policy and prices Monetary policy of course is made at the European Monetary Union level by the European Central Bank not in Germany by the Bundesbank. However, Germany has a high weight in the monetary union and its price developments are important period; it's instructive to look at the difference between the German CPI and the PPI to see what's going on with different metrics for inflation. Through October the German CPI is rising at a 10.4% rate year-over-year, the same as over six months; the pace rises to a 15.8% annual rate increase over three months. The CPI does not show the same headline drop-off that the PPI does since it accelerates. The PPI gives energy and commodities a much greater weight and the services sector is substantially diminished. The CPI and PPI are quite different.

Likewise, the CPI excluding energy is up by 6.5% over 12 months; that pace accelerates to 7.8% over six months and accelerates further into double digits at an 11.3% annual rate over three months. One month into the fourth quarter, the CPI is rising at a 16.7% annual rate where the core is up and 11.5% annual rate.

Oil and OPEC Underlying these statistics is oil. Brent oil prices are up by 10.8% over 12 months; they fall at a 23.3% annual rate over six months and fall at a 38.3% annual rate over three months. Clearly the weakness in oil prices has been helping the headline prices to behave. However, oil prices fell by 7.2% in August and by a further 7.5% in September but then rose by 3.2% in October. OPEC is trying to put a floor under oil prices and that may make the progressive results for the PPI headline just a little bit less relevant.