In a Consumer-Driven Economy, Retail Sales Critical
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(eToro Blog) There are a number of consumer-based economic indicators which are important, such as CPI (which measures inflation) and the consumer confidence surveys. But retail sales figures are among the most critical not just in the U.S. but in the Eurozone and any consumer-driven economy. When you consider all of the various inputs into the production, distribution and sales of the goods that consumers use on a daily or regular basis, i.e. clothes, appliances, furniture, food, fuels, etc., it is easy to understand the impact a decline in sales can have on those inputs.
The more a consumer spends, the better an economy is able to flourish; in shops everywhere, empty shelves translate into new orders for replacement goods which itself translates into more purchases of raw materials and the need for labor. That cycle is like a well-tuned machine, except for when it’s broken, like now.
Earlier today, Eurostat released its retail sales data for August for the Eurozone; on a year-over-year basis retail sales declined to -1.3% against expectations of -2.0%, while July’s data was revised to -1.4% from the previous -1.7%. Despite the fact that the data was slightly better than expected, the fact remains that it is still the 16th consecutive decline.
With retail sales figures down, it’s no surprise that the Eurozone’s PMI data is also in poor shape. Markit Economics reported today that the Eurozone’s Composite PMI reading for September dropped once again to 46.1 from August’s 46.3. The Markit report further showed that new orders fell to its fast pace in years, while the pace of labor reduction also quickened.
In the Eurozone, for example, consumers are clearly worried about the direction that the economy might be moving in, and moreover what role they will be forced to play, especially given all of the various headwinds. Psychologically, they wonder whether or not they will have a job, if their taxes will be going up, if they will have to pay more for goods and services, and as a result they are holding on to their hard-earned currency.
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