IDEX Online Research: Euro-Zone Retail Sales Jump in April

June 11, 06 by Ken Gassman

Retail sales in the Euro-Zone were surprisingly robust for the month of April, reflecting the improving economic conditions in the region. The picture is even brighter when the numbers are adjusted for the shift in Easter from March last year to April this year. When the retail sales gain for both months is combined and compared to the same period a year ago, there is a notable uptrend. The graph below summarizes retail sales gains on a year-over-year basis.

Factors Driving Demand Likely To Remain In Place

IDEX Online Research believes the fundamental drivers of these solid retail trends will remain in place through at least the second half of the year; this bodes well for the 2006 holiday selling season. The factors that helped to drive European shoppers into the stores during April include the following:

Unemployment rates are dropping across the Euro-Zone. Currently, the unemployment rate stands at about 8 percent, down from nearly 10 percent last year. While unemployment in Germany, France, and Italy is still very high, it is declining. The table below summarizes the unemployment rate for the Euro-Zone and the four largest, which generate 77 percent of the region’s Gross Domestic Product.

Consumer confidence is improving. While the correlation between consumer confidence and retail demand is difficult to prove, it is notable that Euro-Zone consumers say they are feeling better about the future, a trend that has been ongoing for the past several months.
Global demand for Euro-Zone products is growing solidly, both domestically and in markets outside the E-Z. Businesses are more confident, as reflected in hiring and hours worked.

While the statisticians at EuroStat tell us that they have adjusted for the seasonal shift in Easter to April this year from March last year, we feel that perhaps the impact of the shift has not been fully accrued. The good news is that when retail sales results for March and April are combined, the trend still reflects notable strength in retail demand in the Euro-Zone.

Broad-Based Sales Gains

In sharp contrast to March, almost every reporting country in the Euro-Zone posted a retail sales gain over the same month a year ago. Only Spain posted flat sales; no country showed a negative comparison. The table below summarizes retail sales performance by key retail categories as well as countries that make up 98 percent of the economy of the Euro-Zone.

Outlook: Positive Trends

Even the distortions caused by the Easter calendar shift cannot disguise the upward trend in European consumer spending. Unemployment is falling across much of Europe, with the notable exception of the U.K. Although there is some question as to whether the decline in the unemployment rate is due to rising employment or people leaving the work force, there are signs of accelerating job creation in both the manufacturing segment and the services sector.

While declining unemployment and a strengthening economy should boost household income, there is one major risk: European consumers could opt to save a greater portion of their income, rather than spending it. Consumers in Germany, which accounts for 28 percent of the E-Z’s economic output, have been cited as particularly likely to step up their savings rate. While personal savings provides investment capital that ultimately benefits the economy longer term, consumption will decrease in the short term, hampering economic growth.

Granted, consumer spending is not nearly as important to the European economy as it is in America, but it still represents the majority of Gross Domestic Product (roughly 55 percent in Europe versus 67 percent in the U.S.).

IDEX Online Research believes that the early signs point to solid jewelry demand for the balance of the year, with the possibility of a relatively robust holiday selling season.

Diamond Index

IDEX Online Research: Euro-Zone Retail Sales Jump in April

Factors Driving Demand Likely To Remain In Place

Broad-Based Sales Gains

Outlook: Positive Trends

IDEX Online Research: Euro Zone Retail Sales Decline in March

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