Thursday, September 1, 2011
Recently we saw retail sales figures come out of Spain, Germany, France, and Italy. Across Europe, the seasonally-adjusted pattern of real retail sales is diverging.
The chart above illustrates the real seasonally-adjusted and working-day-adjusted (for Europe) level of retail sales across key countries in Europe and the US (for comparison). The raw data is indexed to 2007 for comparison. Euro area retail sales closely track those of Germany, so I'll speak to Germany alone in this post. The final data point for sales in Italy, France, and the euro area is June 2011, while that for Spain, Germany, and the US is July 2011. Finally, Spain's retail sales are released on a working-day but not seasonally adjusted basis. I adjust the figures for seasonal factors using a simple Census X12 ARIMA algorithm in EViews.
German and French consumers are hitting the retailers, while Italian and Spanish consumers are cutting back. In this post, I argued that the timing of the second drop in Spanish retail sales (following the recession) eerily coincides with the outset of fiscal austerity in Europe. US retail trade has outperformed that in Italy and Spain since the 2009 trough.
Spanish and US consumers have something in common: household saving rates fell in order to support retail shopping. In contrast to US consumers, though, Spanish consumers were forced to cut back both on retail spending AND savings. In Spain, there's not enough income to increase retail spending and/or saving rates.
The chart illustrates household saving ratios (saving as a percentage of disposable income). Although the levels cannot be directly compared, since each are released in either gross or net form (net being gross ex depreciation), the trends are illustrative. Spanish saving plummeted since its peak in 2009. As of Q1 2011, the saving rate is already at the level forecasted by the OECD for all of 2011.
This is not going to end well. As the Spanish government struggles to meet its deficit target amid a battered economy, it does so at the cost of the domestic saving rate. Households will be forced to draw down saving further as a share of income in order to facilitate the government's deficit objectives.
This deflationary policy is NOT sustainable.