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Monday, March 03, 2008

German Retail Sales January and PMI February

A number of new data readings have come out from Germany during the last week, and these are leading me to some slight modification of the short term outlook I was painting in my most recent post, although my feeling is that in the mid term little has essentially changed.

It is clear that some slight easing in the downward process is Germany is now taking place, and the recent data are too consistent to ignore on this front. Perhaps the clearest indication of some sort of steadying as she goes can be found in the latest reading for Germany on the EU Economic Sentiment Indicator, with Germany reporting a slight increase in confidence, up to 103.7 in February from 103.1 in January.

The last IFO business sentiment index reading was also not as weak as might have been expected, the GFK consumer confidence reading remained stationary, unemployment continued to fall on a seasonally adjusted basis,and the January retail sales data and February PMI reading indicate an expansion in German retail sales for the first time in several months. Of course how long this will last, and how important the phenomenon will prove to be, is very hard to say at this point. Looking at the general economic environment I wouldn't be betting on any kind of very strong upswing, but the numbers are interesting, and I wouldn't be surprised at all to see some slight recovery in the export situation in January when we get the data. An Eastern Europe effect perhaps? Certainly several economies are still accelerating there, almost to overheating.

Then there is the retail sales data.

According to provisional results released by the Federal Statistical Office turnover in the German retail trade was up by 2.7% in nominal terms and 0.6% in real terms in January 2008 over January 2007. When adjusted for calendar and seasonal variations the January turnover was in 1.9% higher in nominal terms and 1.6% in real terms over December.

Now this is not an earth shattering change, but it is significant. If we add to these results the latest reading on the Bloomberg retail sales purchasing managers index, which rose to 52.1 in Feb from 44.2 in Jan (according to data released yesterday by NTC economics), then obviously we can see that the sales climate has improved somewhat. In fact this was the first time in almost a year that German retailers anticipated that future sales performance would exceed plans, while the retail sales rose for the first time in five months. The last time the retail PMI registered an expansion was in September 2007.

Clearly it is very hard to decide how to read all of this at this point, but I imagine things will become clearer as the days pass. Certainly the general direction of private domestic consumption does little to encourage us to expect that domestic consumption will be able to do much to sustain the current expansion if exports continue to slow, so the export data in the coming months will be crucial, and should tell us a lot about what is actually happening at the present time. Certainly according to Trichet, as reported in Bloomberg this morning, it is - as I tended to suspect - largely an East European driven exports story, and if this is the case we will all need to watch out if there is any sort of major "correction" in Eastern Europe.

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