Standard Life Investments

Weekly Economic Briefing

Global Overview

Winter blues


Households seem to have come out of the festive period with a nasty hangover. Retail spending has faltered across a range of markets in early 2018, with this weakness most evident in the developed world. Indeed, sales volumes in this region have fallen an alarming 3.5% annualised over the past three months, despite seemingly robust consumer fundamentals. Weak spending has been broad based, with the US, the Eurozone and Japan all falling prey to a bump. Sales data in emerging markets have also cooled, albeit to a much lesser extent. Aggregate retail sales growth across the region has moderated to a 12-month low of 3.6%, down from highs of nearly 8% just a few months ago. What might have caused this moderation in spending and, most importantly, should we be worried that it signals a more prolonged downshift?

There are a few potential explanations for this poor run. The first might be seasonal, with inclement weather in some countries likely weighing on spending. Second, recent rises in energy and commodity prices may well have squeezed consumer purchasing power. Finally, there have been idiosyncratic drags in certain markets, such as delays to tax refunds in the United States. The good news is that these drags are likely to prove temporary. Indeed, after accounting for these there seems to be little reason to become more pessimistic around the consumer. Improvements in labour market conditions across many economies are helping boost incomes. Wage growth has been less spectacular, but tentative signs of improving productivity could herald a little more progress on this front. Consumer confidence is running at high levels in many economies, contributing to lower precautionary saving. Indeed, our aggregate personal savings measure, based on 26 major economies, is not far off pre-crisis lows. Rising interest rates might pose more concern, especially given high levels of personal debt in some markets. However, rates still remain low from a historical perspective and central banks are in general treading carefully with regards to policy withdrawal. Overall, there seems to be little reason to become pessimistic on the outlook for consumer spending. Indeed, households are expected to shrug off their winter hangovers and start spending more freely again as we move into spring.

Stuttering spending