September Retail Sales

Retail sales were up in September, and this, as Paola would point out to me, is thoroughly consistent with the September confidence index reading:

Italian retail sales rose for the first time in eight months in September on promotions and increased consumer spending, a Bloomberg purchasing managers index shows.

An index of retail sales rose to a seasonally adjusted 51.2 from 48.7 in August, according to a survey of 390 retailing executives compiled for Bloomberg LP by NTC Economics Ltd. today. It's the first time since January that there's been a reading above 50, which signals an increase.

``Italy's economy is growing at its fastest pace in five years, and consumer spending is the engine,'' said Francesca Panelli, an economist at Aletti Gestielle Sgr in Milan. ``It's clear that going forward that growth is going to slow.''

So September was a good month. This is fine, but it is worth digging a little bit under the surface to try and see what is actually happening.

In the first place we should note that this is the first time in 8 months that this has happened, and during this time the European economy has been having something of a growth renaissance, so that in itself is rather troubling.

Secondly part of the reason for the September flurry has apparently been a reduced price stock-clearing operation, and this 'mini boom' may therefore not find too much of an echo when it comes to profitability:

The increase in sales ``was generally linked to increased marketing and promotional work,'' NTC said in the report. ``There was also some mention of higher customer attendance.' taly's summer sales season wrapped up in September, with retailers slashing prices and clearing out old inventory. As a result, profit margins continued to decrease, according to 23 percent of those surveyed. Profit margins tightened the least since May as promotions boosted sales, the report said.

And looking to the future interest rates are rising, and fiscal tightening is just round the corner:

The European Central Bank raise interest rates by a quarter of a percentage point today, a move that may also slow spending toward the end of the year.

``Higher rates definitely will increase spending on mortgages and loans and will reduce consumer spending,'' Panelli said.

So bearing all these factors in mind I think there is still every reason to ask whether all in the garden is as rosy as it seemed in September, after all you can't keep winning the world cup every couple of months.