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Tuesday, May 13, 2008

Retail & ECB Bank Lending

Advance retail clocked an overall decline of 0.2% from March to April and an annual increase of 2.0%. On an annual basis that is well below the inflation rate.

Overall spending on gas dropped, even though gas prices increased. The pinch is really hitting now.

On an annual basis, some selected figures:
Motor vehicle dealers: -8.0%
Groceries: +6.1%
Gasoline: +16.3%

According to the ECB lending survey, banks plan to tighten business and household credit by the highest margins in 5 years (the length of the survey). The four future questions showed tightening quite similar to 2003, a year in which GDP in the core EU countries grew at less than 0.5%. So one would say that the European slowdown is underway.

The consumer outlier was purchase money mortgages, for which 32% of respondents intended to tighten. This is significantly higher than the previous height of 25% recorded in January 2004.

The business outlier was loans to large enterprises. 54% of respondents expected to tighten in the next quarter, whereas only 33% expected to tighten for small to medium enterprises. Short term lending was less affected, with only 33% expecting to tighten, whereas 53% of respondents intended to tighten long term.

There is a steep 3-quarter rise in tightening shown for all categories of lending. The trajectory for long term business loans beginning Jan 2007 through April 2008:
Jan 07: 3%
Apr 07: 8%
Jul 07: 10%
Oct 07: 34%
Jan 08: 35%
Apr 08: 53%
That is going to show up in the economy, no ifs, ands or buts. The percentage of respondents tightening short term business credit increased 10% points between January and April. In general European companies tend to be more dependent on bank lending than US companies.

In 2003 the tightening bias was easing throughout the year. I would say that Europe will be in recession by the end of this year. Inflation does have some masking effect there as well as in the US, but these are intimidating numbers.


Let's talk about inflation today.

And remember: In the land of the blind, the one eyed man is king.
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