Australia Sees Holiday Retail Sales Boom, Italy Sales Suffer from Inflation
Economic news and commentary for January 11, 2023
Australia Retail Sales
Australian nominal retail sales grew 1.4% MoM to 7.7% YoY in November. This is the largest monthly jump in sales since January 2022; though the annual pace of retail sales growth has been falling since August 2022. The strength was caused by a 6.4% MoM increase in clothing sales and a 5.4% MoM increase in department store sales which were bolstered by holiday spending. The Australian Bureau of Statistics points out that Black Friday spending has increasingly gotten more popular over the years, and that the weakness in October sales was likely a result of consumer waiting to spend during the November holiday. The holidays also pushed sales higher in the general household goods sales category, up 2.1% MoM, and other retail sales category, up 1.1% MoM. Food and restaurant sales were basically flat, both up 0.1% MoM. It is worth noting that inflation for the month of November was relatively calm (November CPI was up 7.3% YoY, slightly higher than 6.9% YoY in October), so despite this series being reported as nominal, the price changes do not factor much into the movement.
Italy Retail Sales
Italian real retail sales grew 0.4% MoM in November but was down -3.6% YoY. In general, food sales were flat, and non-food sales grew 0.7% MoM. Both were down on an annual basis, -6.3% YoY and -1.8% YoY respectively. On a nominal basis, food sales grew 0.6% MoM and non-food sales grew 1.0% MoM, and both were up on an annual basis. The volume of sales has continued to deviate from the value of sales as inflation problems persist for Italy. Consumers continue to draw down on funds while paying for less goods. This is true in categories like cosmetic and toilet articles (+7.6% YoY), computers and telecom equipment (+5.3% YoY), and tools (+5.2% YoY). We will continue to see the financial position of households deteriorate as long as consumers are forced to spend through high prices, so the hope will be that prices can come down in 2023 to ease that pressure. In Q4 2022, GDP growth looks to be holding up okay, but a recession is on the horizon given the current conditions.
Still to come…
10:00 am (EST) - US Atlanta Fed Business Inflation Expectations
10:30 am - US EIA Petroleum Status Report
7:30 pm - Australia Trade
8:30 pm - China CPI & PPI
Morning Reading List
Other Data Releases Today
The euro area current account deficit was €88 billion (0.7% of euro area GDP) in four quarters to Q3 2022, down from €342 billion surplus (2.8% of GDP) a year earlier.
Households' financial investment increased at slightly lower annual rate of 2.6% in third quarter of 2022, after 2.7% in second quarter. Non-financial corporations' financing increased at higher rate of 3.6%, after 3.2%. Non-financial corporations' gross operating surplus increased at higher rate of 7.6%, after 5.0%.
Small Business Optimism Index
Inflation Continued to Weaken Small Business Sentiment in December: Slowing Economic Activity Produced Broad-Based Declines in the Index (Wells Fargo) - The National Federation of Independent Business (NFIB) Small Business Optimism Index fell 2.1 points to 89.8 in December, a steeper decline than expected. December marks a full year of the index coming in below its long-term average of 98.
Small Business Optimism Index deteriorates, reversing four months' gains (TD Bank) - The NFIB's Small Business Optimism Index lost 2.1 points, dipping to 89.8 in December - the lowest level since July. The reading is below the consensus forecast, which expected it to ease only by four points to 91.5. The index has been below the historical average since the beginning of 2022.
US
US Weekly Economic Commentary: Solid ending to 2022 (S&P Global) - The outlook for fourth-quarter GDP growth improved dramatically in recent weeks, especially following a sharp narrowing of the trade deficit in November. We currently estimate that GDP rose at a 2.8% annual rate in the fourth quarter, following 3.2% growth in the third quarter. Since Dec. 23, we have revised up our estimate of fourth-quarter growth by nearly two percentage points, with the bulk of that accounted for by a massive upward revision to the change in net exports of $96 billion.
Easing wage sum growth suggests Fed is moving in the right direction (Danske Bank) - The December Jobs Report illustrated that the US labour market remains in healthy shape, but that wage inflation could be starting to ease. Importantly, wage sum growth appears to now moderate towards levels better consistent with Fed’s inflation target.
Europe
The impact of higher energy prices on services and goods consumption in the euro area (ECB) - The recent increase in real consumer spending in the euro area masks heterogeneous developments in individual consumption components. Total private consumption in the euro area increased significantly in the second and third quarters of 2022, mainly supported by consumption of services, which rose sharply after subdued growth at the beginning of the year.
Brazil
Brazil's "January 6 Moment" (Wells Fargo) - While political risk is typically elevated in Brazil and could weigh on local asset prices, we believe Brazil's “January 6 moment” will not have a long-lasting impact on local financial markets nor the economy. Despite more elevated political risk, we maintain our view that the USD/BRL exchange rate can hover around BRL5.30 by the end of Q1-2023 and that the real can strengthen by the end of this year.
Asia
Wealth without pensions in Asia (Allianz) - Total gross financial assets in Asia reached a new record high, but the share of life and pension assets in private households’ portfolios kept declining. Total gross financial assets increased by +9.4% and reached a new record high of EUR62.4trn in 2021, 25% above the corresponding figure for Europe. However, the gradual decline of the share of life and pension assets continued: Since 2008, this has dropped by 5pps to 18.4%; in Europe, life and pension assets are almost twice as important.
Australia
Australia: Inflation not beaten yet (ING) - The November monthly inflation series surprised markets with a stronger-than-expected rise. While this will be a disappointment for the Reserve Bank of Australia, many of these factors look likely to reverse in the months ahead.
Inflation
Aggregate Implications of Heterogeneous Inflation Expectations: The Role of Individual Experience (Cleveland Fed) - We show that inflation expectations are heterogeneous and depend on past individual experiences. We propose a diagnostic expectations-augmented Kalman filter to represent consumers’ heterogeneous inflation expectations-formation process, where heterogeneity comes from an anchoring-to-the-past mechanism. We estimate the diagnosticity parameter that governs the inflation expectations-formation process and show that the model can replicate systematic differences in inflation expectations across cohorts in the US. We introduce this mechanism into a New Keynesian model and find that heterogeneous expectations anchor aggregate responses to the agents’ memory, making shocks more persistent. Central banks should be more active to prevent agents from remembering current shocks far into the future.
The Prospects for Disinflation in 2023 (Jim Bullard, St Louis Fed) - St. Louis Fed President Jim Bullard presented “The Prospects for Disinflation in 2023” at an event hosted by CFA Society St. Louis. Disinflation refers to a decrease in the rate of inflation toward the Fed’s 2% inflation target. Bullard noted that GDP growth appears to have improved in the second half of 2022 and the labor market performance remains strong. Inflation remains too high but has declined recently, he added.
Real Estate
How Many Households Are Priced Out by Higher Mortgage Rates in 2022? (NAHB) - Mortgage rates have increased rapidly in 2022, as the Federal Reserve continues to fight high inflation. The U.S. weekly 30-year fixed-rate mortgage rose from a slightly above 3% in early 2022 to more than 7% in late October and leveled off at a rate of 6.42% as of the end of 2022. Mortgage payments increased from $1,925 on a median priced new home in early 2022 to $2,923 on the same house, a 51% increase. Higher mortgage rates have worsened housing affordability as home prices remained high in 2022. This post presents how mortgage interest rates affect the number of households that would be priced out of the new home market.
Manufacturing
PMI: December Data Improve in the Euro Area (BNP Paribas) - The global manufacturing PMI edged down in December on the back of a new, significant decline in the US and for the second month in a row an increase in the euro area where the improvement is broad-based. The index was down in the UK where, at 45.3, it is firmly below 50. Japan was stable, remaining just below 50, China weakened slightly, Vietnam was down again, dropping to 46.4, but India recorded a big improvement, to 57.8.
Commodities
The Commodities Feed: Markets await CPI data (ING) - The bulk of the commodities complex managed to edge higher yesterday despite some hawkish comments from Fed officials. Markets await US CPI data which will be released on Thursday.
Debt
Revolving Debt Climbs as Credit Card Interest Rates Set New Records (NAHB) - The balance of consumer credit outstanding grew 7.1% in November 2022 (seasonal adjusted annual rate) after climbing 7.4% (SAAR) in October according to the Federal Reserve’s latest G.19 Consumer Credit report. Revolving debt—which consists primarily of credit card debt—increased at a 16.9% rate, more than four times the growth of nonrevolving debt (excluding real estate) which grew 3.9% (SAAR).
Markets
Market Monitor: New Year, New S&P 500? (Goldman Sachs) - The S&P 500’s performance in 2022 was its seventh worst since inception and the third worst since 2000. Episodic volatility, lack of earnings growth, and a high cost of capital may pose headwinds for US equities in 2023, but there is a silver lining: since 1928, the index has only delivered consecutive years of negative returns eight times. History may be on investors’ side as positive S&P 500 annual returns have followed a down year more than two-thirds of the time.
Out with the old, in with the same old… for now (TIAA Nuveen) - New year, but little new to celebrate yet. Financial markets started the new year pretty much where they left off in 2022, when decades-high inflation and outsized interest rate hikes took a heavy toll on global investment performance. For the first time in recent history, U.S. equities and fixed income both declined more than 10% in the same year.
Outlook
Professional Forecasters’ Outlook for 2023 and Caveats Based on Past Performance (St Louis Fed) - Currently, there is much debate as to how the U.S. economy will perform in 2023. But the general consensus of professional forecasters and FOMC participants is that economic growth will be slow and inflation will come down from its elevated 2022 rates. Forecasters also expect that the hot labor market from the past few years will begin to cool. However, there are many risks to the outlook: elevated global inflation, slower growth in China, and a cooling domestic housing market, to name a few.
Subscribe to receive Econ Mornings every weekday at 9 am. More economic and finance content on Twitter, Reddit, and my website.