European Retail Sales Rebounds, As German Unemployment Increases

Source: Daily FX

The European region received conflicting fundamental data reports as retail sales sharply improves, while German unemployment increased. Consumer consumption in the 15 member region rose to 53.1 from 41.8 in April. The breakdown revealed increases in purchases of food and clothing, which improved from 40.2 to 69.2 and from 39.8 to 73.9 respectively. Germany led the charge as sales in the country grew at its fastest pace in eighteen months as the country’s labor market had been strong. However, a separate report showed German unemployment increase for the first time since January, 2006 with 4,000 more applicants. Economists were expecting a decline of 25,000 and the unemployment rate to fall to 7.8%. Nevertheless, unemployment remains at 7.9% -the lowest since August, 1992, leading many retailers to anticipate sales to remain strong in the near term. The rebound in consumption shows those consumers remain willing to spend, which may provide enough growth to offset the headwinds from the U.S. The data reinforces the ECB hawkish stance and may increase expectations that the central bank will start to consider a rate hike by the end of the year to rein in inflation.