Economy in Brief: November 2023

European car registrations showed a solid 3.5% month-to-month gain in October; the 3-month moving average rose 3% as well, indicating that there is trend rather than volatility to the increase. Sales/registrations rose month-to-month in three of the five reporting countries. Registrations were up strongly by 9.7% in Spain, up 1.9% in Germany, and edging ahead by 0.2% month-to-month in Italy. Registrations did backdown by 0.2% in October in the United Kingdom and fell month-to-month by 1.5% in France.

Registrations had fallen in three of five reporting countries in September but had risen in all five of them in August. As always auto registrations data are hard to pin down and remain a volatile source of information on consumer spending.

Over three months the annual increase in auto registrations is higher in three of five reporting countries; the exceptions are Germany and the U.K. where in each case registrations fall by 5.6% at an annual rate. However, in Spain registrations rise at a 97.5% annual rate over three months; in Italy they rise at an 82.9% annual rate over 3 months; and in France they rise at a 6.5% annual rate. Over six months the annual rate of growth is positive in all five reporting countries and the same trend holds over 12 months. The pace of sales generally accelerates over six months compared to 12 months with France being the sole exception to that phenomenon.

Year-over-year registrations gain anywhere from 18.5% to 20.4% in Italy and Spain to as little as 5.6% in Germany. But there are increases all around. The growth in sales approach leads to a quite strong and relatively broad and durable assessment of registration trends based upon the growth statistics over 3 months, 6 months, and 12 months as well as the monthly data. And the results for the growth in sales are relatively durable.

Assessing the sales pace, instead of its growth- However, a broader look at the table begins to uncover some evidence of weakness, for example, looking at the selling pace in October 2023 compared to January 2020, there's a decline of 8.6% for total registrations. In fact, there are declines in four of the five reporting countries with only France showing an increase in the pace of sales as of October 2023 compared to the sales pace in January 2020 before Covid struck.

UK nominal sales and sale volume trends create completely different pictures of reality. But surveys join the volume data in seeing pronounced weakness and even the potential for a gathering storm.

Volume vs value assessments - UK sales values increased by 0.2% in October, but sales volumes fell at the same time; sales volumes have fallen for two-months in a row by -0.3% in October and by -1% in September. Nominal retail sales increased by 2.3% over 12-months and are expanding at a 2.4% annual rate over 3-months, giving the appearance of steady, if somewhat slow, expansion in sales. But retail sales volumes, adjusted for the effects of inflation, show declines of 2.7% over 12-months and a decline at a 3.2% annual rate over 6-months followed by a decline at a 4.1% annual rate over 3-months. Sales volumes are contracting, and the degree of contraction is growing over more recent periods.

Quarter-to-date - Similarly on the quarter-to-date, nominal retail sales show a 1% increase as sales volumes are contracting at a 5.2% annual rate.

Turn signals from autos? - Passenger car registrations have fallen for two months in a row, falling by 0.2% in October and by 1.4% in September. The progression of passenger sales registration shows a rise of 11% over 12-months, that accelerates to a very strong 36.7% annual rate over 6-months but then registrations weaken and fall at a 5.6% annual rate over 3-months. In the quarter-to-date passenger car registrations are falling at a 6.4% annual rate.

Survey results: the CBI UK surveys on retail sales provide some additional perspective on how sales are performing and how merchants tend to view sales trends. -The Confederation of British Industry (CBI) shows retail sales for the time of year falling to a -15 index reading from a + 14 in September. The progression of changes for sales shows a decline of 30 points over 12-months, a decline of 31 points over 6-months, and a decline of 9-points over 3-months. Retail sales for the ‘time of year’ declined by 8 points in October compared to their Q3 average; their October value has a 39.7 percentile standing in its historic queue of responses. On balance these are weak retail signals.
-The CBI assessment of the volume of orders judging from year-on-year growth rates, plunges to a minus 18 response from plus 18 in September. However, the progression of changes shows this order metric lower by 36 points over 12-months and lower by 38 points over 6-months then higher by 2-points over three months.

Consumer Confidence - Consumer confidence (also plotted on the chart above) drops to -9 in October from +4 in September. Consumer confidence has been flat, over 3-months and 6-months but is up by 17 points over 12-months. Still, confidence is lower by 4.7 points in October compared to the Q3 average. And its queue standing is in the 15th percentile of its historic queue of results, quite weak.

Conclusion: Weak! Weak is the bottom line on UK retail sales in October. The nominal signals are copacetic but misleading. Passenger car registrations have a high queue standing in their 81st percentile but show some near-term weakening. Food and beverage spending is holding to high ground as well. But overall nominal sales, and total sales volumes, the CBI metrics, as well as consumer confidence, all score extremely weak readings. Fortunately, inflation in the UK is turning lower - still excessive - but moving in the 'right' direction. Still, there will be no 'relief' from monetary policy anytime soon and, in the meantime, retailing is weakening.