I’m senior economist Jose Torres for Interactive Brokers, in this lesson I’ll be explaining one of the leading economic indicators of the European Union’s economy: Retail Trade.
The Retail Trade report measures the monthly change of retail sales volumes and turnover. The report provides details on sales activity by many business types. The major business types covered include non-food, mail and internet orders, automotive fuel, and food, drinks, and tobacco. The report is seasonally adjusted to adjust for seasonal spending trends like in the summer when folks tend to spend more on travel. Unlike the U.S.’s monthly retail sales report, the E.U.’s retail trade report adjusts for inflation. Retail Trade is calculated by Eurostat, the statistical office of the European Union. Eurostat collects retail trade data from the National Statistical Offices of each country and then aggregates and weighs them. In addition, the data release aggregates retail trade data for the E.A. 19 nations that use the Euro currency and separately aggregates data for the E.U. 27 nations to include the countries that don’t use the Euro currency like Hungary, Romania, Poland and others. The data release is published monthly, generally near the 4th day of the month, at 9:00 am London time. Eurostat’s mission is to provide high quality European statistics and data to support public and private sector decision making.
Retail trade is an essential indicator of the health of the economy. It reveals how consumers are thinking or reacting to a changing economy. In addition, retail trade statistics are used by the European Central Bank (ECB) to monitor and steer economic and monetary policies in the European Union. Europe, like many other regions depends on domestic consumers to spend their money to fuel the economy as their spending provides incomes for other establishments.
Lofty retail trade readings would indicate that consumers are feeling confident about the economy as they continue to spend. Readings that are weak may signal heightened caution among consumers and a potential slowdown in the economy. When retail trade is strong, it boosts firm revenues and helps businesses and the economy to continue expanding. As a result, there are more jobs, more investments, more loans, more taxes for governments and higher GDP. If retail trade in the E.U. declines, as it did during the 2008 financial crisis, the 2011 Euro recession, and the COVID-19 recession, the world economy will be negatively affected due to the great economic influence the E.U. and the ECB have.
To forecast retail trade, we can look at economic indicators such as the unemployment rate and employment expectations to see if layoffs risk hampering spending. Retail trade confidence and consumer confidence to get a gauge of how businesses and consumers feel about the present and future. Foot traffic, air passenger levels and fuel sales to see if consumers are moving around. In addition, we’d listen to the earnings calls and monitor the stock performance of some of the biggest consumer servicing companies for signs a consumer slowdown or expansion. Louis Vuitton, Adidas, Loreal, Richemont, Mercedes Benz, Nestle, Unilever and others are some to pay attention to.
When monetary policy tightens and interest rates rise, consumers are required to pay more for durable items such as automobiles, refrigerators, and furniture. It is important to monitor consumer behavior in response to changes in monetary policy by watching the Retail Trade report. Historically speaking, the tightening of monetary policy has resulted in weaker consumer spending and usually but not always, recession.
Market participants value the month-over-month and year-over-year percent changes in retail trade. Markets tend to drop more if retail trade is worse than expected and rise more if it’s better. Rising retail trade means increased economic activity and an environment that is likely to benefit global stocks.
Observing retail trade for signs of an economic slowdown or expansion is an essential aspect of economic analysis.
Disclosure: Interactive Brokers
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