Retail sales surprised on the downside in October, falling 2.8% M/M while a decline of 2.1% M/M was expected. The previous figure was downwardly revised from 1.2% M/M to 1.3% M/M. Looking at the details, sales of gasoline stations declined very sharply (-12.7% M/M from -0.4% M/M) and also motor vehicles and parts worsened significantly (-5.5% M/M from -4.8% M/M). Excluding cars, retails sales dropped 2.2% M/M, while the consensus was looking for a more modest drop (-1.2% M/M). In October, both retail sales and retail sales less autos showed the steepest declines in survey history which indicates that consumers are very pessimistic and are delaying purchases of expensive goods. But it is important to note that part of the decline is due to a sharp plunge in oil prices.
Import prices dropped by 4.7% M/M in October, after falling a downwardly revised 3.3% M/M In September. On a yearly basis import inflation fell back from 21.4 Y/Y in July to 6.7% Y/Y in October. The details show that most of the drop is due to falling oil prices (-16.7% M/M), but also industrial supplies declined sharply (-11.0% M/M). It might be important to note that prices of goods from China decreased 0.3% M/M (from 0.0% M/M in September and 0.2% M/M in August), which suggests inflationary effects from China are weakening.
University of Michigan consumer confidence came out slightly better then expected in November. The headline index showed a marginal improvement from 57.6 to 57.9, while the consensus was seeking for an outcome of 56.7. The economic conditions sub-index rose from 58.4 to 61.4. The economic outlook deteriorated from 57.0 to 55.7, which illustrates that consumers are becoming more pessimistic about the future.
EMU: Economy slides into technical recession
In the euro zone, third quarter GDP contracted by 0.2% Q/Q, which was in line with the consensus estimate. This is the second consecutive quarter of negative growth which indicates that the euro zone economy slid into a technical recession. On a yearly basis, GDP grew 0.7% Y/Y after 1.4% Q/Q in the second quarter of 2008. This is the first technical recession since the start of the euro zone which signals the need for further (aggressive) rate cuts.
The October euro zone CPI figure confirmed the flash estimate; coming out at 3.2% Y/Y, which is in line with the estimate. The month-on-month figure (0.0% M/M) came out lower than the flash estimate. Core CPI stabilized at 1.9% Y/Y.
