As positive as May’s performance has been, in April Denmark’s economy was sending widely mixed signals as consumer spending growth remained muted. The energy sector had a growth of only 0.2% since March. This windfall was counter balanced by flat-lining in other areas of the overall economy. With consumers staying frugal, consumer spending shows a defensive hand on discretionary spending, especially on services and nightlife.
Even with the small rebound in energy spending, once you account for inflation as of April, this increase vanishes entirely. The impacts on restaurant and nightlife spending have been flat or negative. This trend is indicative of consumers regressing to the mean and holding back on discretionary leisure dollars with the economic outlook still cloudy. The data on the warm services has really softened up a lot this year, muddying that whole picture.
Granular seasonal adjustments have tried to account for quarterly and annual fluctuations in service-related data but have consistently fallen short of this mark. As an example, price estimates of holiday-related services like hotels and airline travel services clearly display the futility of seasonal adjustment techniques. Even with these adjustments, it doesn’t change the reality that the robustness of consumer spending is quite fragile.
In the retail sector, spending has been flat in real terms. This is further evidence that consumers are afraid to spend more. In April, grocery sales were up only 0.2%, and cosmetics store sales were only up 0.1%. All other indicators point to overall consumer spending being pretty lackluster the last few months. Most households will be prioritizing spending on necessities over non-essentials or luxuries.
Real income levels are up, giving consumers more financial wiggle room. This increase in income provides an opportunity for growth in future spending should consumer optimism improve. Moreover, the housing market specifically and the labor market more generally both remain strong, lending additional encouragement to the case for economic continuance in stasis.
Year-over-year growth comparisons paint an entirely different picture. This sharp contrast is largely due to the timing of Easter, which occurred in April this year versus March last year. This timing has further inflated these comparisons and could lead to exaggerated impressions of real economic prosperity.