Japanese retail sales fall short of expectations

Emily Nicol

Japanese retail sales fall short of expectations as prices continue to rise
Japan’s retail sales fell well short of expectations in October, with the value of sales up just 0.2%M/M compared with a forecast increase of 1.0%M/M. Admittedly, coming on the back of a cumulative rise of 3½% in the previous three months, this still left sales more than 1½% higher than the Q3 average. Within the detail, the increase was driven by a solid increase in food sales (1.8%M/M, 1.3%Y/Y), where price pressures have risen strongly over recent months (up 2.2ppts to 6.3%Y/Y in October). In contrast, sales of household goods, autos and fuel all fell on the month. Overall, when adjusting for prices, our estimate of retail sales volumes fell more than 2%Y/Y compared with growth of more than 4%Y/Y in the value of sales, illustrating that, like elsewhere, Japanese households are getting less bang for their buck.

Japanese employment and job offers slipped back in October
Today’s Japanese labour market numbers were a touch underwhelming too. While the unemployment rate moved sideways at 2.6%, this reflected a rise in inactivity in October to a six-month high, while the number of people in employment fell around 70k. Of course, these data are subject to month-to-month volatility, and on a three-month basis employment rose very slightly, to leave it up by more than ½mn on a year earlier. But while the job-to-applicant ratio rose further in October to 1.35x, its highest since March 2020 and suggestive of a tighter labour market, this reflected an easing in applicants as the number of job offers also slipped back for the first time in eight months.

Flash German state and Spanish CPI inflation eases more than expected in November
Based on early estimates from the Länder, German inflation looks to have fallen more than initially expected in November. In particular, in the largest state of North Rhine-Westphalia, which accounts for more than one fifth of the economy, prices declined for just the second month in the past year, by 0.8%M/M, reflecting a notable drop in services (-1.2%M/M) on the back of significantly lower leisure costs. This saw CPI inflation in the state decline 0.6ppt to 10.4%Y/Y, with an easing in clothing, services and transportation inflation. Prices also fell back in Lower Saxony (-0.6%M/M), to leave inflation down 0.5ppt to 10.0%Y/Y. Today’s Spanish figures similarly reported a larger-than-expected drop in inflation with the headline HICP rate down 0.7ppt to a ten-month low of 6.6%Y/Y. The national inflation measure fell 0.5ppt to 6.8%Y/Y due principally to lower fuel and electricity prices. Indeed, core CPI inflation on the national measure rose 0.1ppt to 6.3%Y/Y.

Commission survey set to report some stabilisation but still consistent with slowing economy
Against this backdrop, the European Commission business and consumer surveys will be watched closely for any further signs of easing price pressures in line with the recent flash PMIs. In addition, given the improvement in the flash consumer confidence index and stabilisation in the PMIs, the headline Economic Sentiment Indicator is likely to have increased from October’s near-two-year low (92.5), albeit remaining below the long-run average and suggestive of a slowing economic trend.

BoE lending figures to show subdued consumer credit growth and drop in mortgage approvals
The BoE’s lending figures are likely to suggest that demand for consumer credit remained extremely subdued due to the recent jump in borrowing costs. Meanwhile, growth in secured lending is likely to have remained relatively robust last month, albeit with these mortgages based on offers under significantly lower interest rates than at present. In contrast, with the average interest rate on a 2Y fixed 75% LTV 184bps higher than in September, we expect to see a sharp drop in the number of approvals for new house purchases in October. Separately, the BoE will begin sales of its Gilts purchased during the period of market stress between 28 September and 14 October, in the first of this week’s three “demand-led” operations. In terms of BoE communication, hawkish external member Catherine Mann will speak on a panel.

US consumer confidence set to weaken as house prices continue to fall
In the US, the Conference Board consumer survey is expected to report a further deterioration in November as a weakening economic backdrop and increasing headwinds for 2023 continue to erode sentiment. Indeed, despite the (likely one-off) upside surprise to last week’s new home sales figures, today’s FHFA and S&P CoreLogic house price indices are expected to report further decline in September for the third consecutive month. 

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