Surprise fall in retail sales show Eurozone consumers are still cautious

Eurozone retail sales suffered a surprise fall of 0.6 per cent month-on-month in September, after a rise of 0.5 per cent in August. A poll of analysts conducted by Reuters had expected a decline of 0.4 per cent. IHS Global Insight's Howard Archer comments that, despite a recent firming in retail sales (they rose 0.6 per cent in the third quarter), fundamentals in the euro zone remain weak, and the fall in Septembers retail sales suggests that consumers in the euro zone are remaining cautious and that consumer spending will rise only rise gradually.

Retail sales fell in Portugal by 6.2 per cent and fell in Spain by 2.5 per cent. Sales fell 0.4 per cent month-on-month in Germany and were flat in France. The overall rise in sales in the quarter, however, suggests that consumer spending picked up, and contributed to the second successive quarter of GDP growth.

Howard Archer, IHS Global Insight said:

The recent underlying firming in retail sales volumes suggests that improving consumer confidence, and the help to purchasing power coming from very low inflation across the Eurozone, has fed through to modestly lift consumer spending. Eurozone consumer confidence climbed to a 27-month high in October while consumer price inflation is at a 47-month low of just 0.7 per cent. Furthermore, Eurozone labour markets are showing some signs of stabilization. Meanwhile, there may well be an element of pent-up consumer demand across the Eurozone.

Although consumer confidence rose to a 27-month in October many underlying factors remain negative. Unemployment is still rampant across the euro area and unlikely to fall significantly in the near term, purchasing power has also been restrained by low wage growth and tighter fiscal policy.