EMU Inflation Trends Offer Hope and Hype- Inflation in the European Monetary Union rose by 0.2% month-to-month in April, the same as in March. Core inflation, however, picked up, rising by 0.4% but that was after being flat in March. The sequential growth rates from 12-months to six-months to three-months show the headline inflation rate at 2.4% over 12-months falling to 2% over 6-months, then rising to a 3% annual rate over three-months. The core rate for the monetary union rose 2.9% over 12-months at a 2.7% annual rate over six-months, it steps up to a 2.8% annual rate over three-months. Headline inflation is resisting moving down to the 2% level consistently while core inflation appears to be stuck just short of 3%. Whether these trends are good enough depends on whether the ECB sees itself implementing precision-guided policy or playing horseshoes and hand grenades.
Introducing
Robert Brusca
in:Our Authors
Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media. Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.
Publications by Robert Brusca
Japan| May 16 2024Japan’s IP Jumps but… Everybody Knows This is Nowhere
Despite a sharp 4.5% month-to-month jump in Japan’s industrial production, a gain much larger than expected, Japan’s production index is still lower on balance over three-months six-months and twelve-months. It is still 5.8% below its level in January 2020 before Covid struck and it is only 87% of its past cycle peak. The March jump by itself is impressive and welcome, but Japan still has so far to go to repair the disruption it has had in manufacturing and across industry.
Global| May 14 2024ZEW Survey Shows Improvements in German Expectations and Conditions
The economic situation, surveyed by the ZEW's survey, showed improvement in the euro area to -38.6 in May from -48.8 in April. The German survey improved to -72.3 in May from -79.2 in April. However, the economic situation in the United States lost some of its luster, with its index falling to 40.9 in May from 48.5 in April.
The survey for expectations in Germany improved to 47.1 in May from 42.9 in April. For the U.S., macroeconomic expectations remained negative at -13 in May, weaker than the -0.7 reading in April.
Inflation expectations and showing moved away from the view is an inflation was continuing to fall as the euro area continued to post a negative value of -45.6 in May, but that was stronger than the -49.1 in April. Germany's reading rose to -41.0 in May from -47.8 in April. The reading for the U.S. was much less changed, at -41 in May compared to -42.6 in April.
On the back of those expectations, short-term interest rates in the euro area were less intensely forecasted to fall as the headline reading of -80.5 in May rose from -84.6 in April. In the U.S., the reading rose to -55.2 in May from -63.7 in April.
Long-term interest rate expectations continue to drop, however. In Germany, expectations for long-term rates fell to -33.5 in May from -26.9 in April. In the U.S., the reading edged lower to -28.3 in May from -26.5 in April. The outlook for lower long-term interest rates is still intact.
Stock market performance in May is stronger in the U.S., euro area, and Germany. This is despite some minor degradation in the assessment for current conditions and expectations in the U.S. Euro area stock market expectations showed its diffusion value of 23.3 in May, up from 7.2 in April. The German reading rose to 18.7 in May from 3.8 in April. The U.S. index in May rose to 21.5 from 9.9 in April. All-in-all, the ZEW survey participants are becoming much more constructive on the stock market as they become modestly and more constructive on the bond market.
Despite these various shifts in the survey, the percentile standings of most of these indicators remain extremely weak: for example, economic situation assessments stand in the 41st percentile for the euro area, the 17th percentile for Germany but manage to rise above the neutral mark of 50 to the 58.1 percentile in the U.S. Economic expectations in Germany have crept up to a 68.8 percentile reading compared to only a 32.3 percentile reading in the U.S. Inflation expectations everywhere remain low with the euro area and the U.S. having percentile standings below their 10th percentile, while in Germany they post a still-low value in its 14th percentile- all those are very low readings. Short-term interest rate expectations in the euro area have been lower only 4.1% of the time; in the U.S. they've been lower only 9.3% of the time. Long-term rate expectations have been lower in Germany only 2.2% of the time and in the U.S. only 1.9% of the time on the ZEW survey metric. Participants continue to look for extremely low long-term interest rates. The stock market expectations, while up sharply in the month, have only reached the 24th percentile for Germany, the 12th percentile for the euro area and the 38th percentile for the U.S. On balance, stock market expectations haven’t reached their median values in any of these areas and although they've improved the outlook for their performance is still muted.
Japan| May 10 2024Japan’s Economy Watchers Index Sinks in April
Japan’s economy watchers index stayed below the breakeven threshold of 50 in April, falling further to 47.4 from a level of 49.8 in March. These numbers compare to a reading of 51.3 in February. Over 12 months, the economy watchers index has fallen by 5.9 points. It made 3.3 points of that drop over six months and 2.8 points of that drop over three months. Taking the April level of the economy watchers index and expressing it as a percentile standing, the level is at 49.8%. A standing below its 50th percentile means it is below its median when ranked among data since April 2003.
The economy watchers subindexes across industries and the other functional categories show slippage (diffusion below 50) for each one between March and April. In addition, all categories weakened in March compared to February except for the reading for eating and drinking places and the reading for employment. And many March diffusion readings are below 50. The economy watchers index is clearly on a run of weakness.
Overall the current index ranks below its historic median as we noted above; components that are below their median values are retailing, manufacturing corporations, and employment. The employment reading is the weakest one in the table with the standing only at its 29.6 percentile. At that ranking, it sits near the top of the lower third of all observations since April 2003. That's an all-too-weak reading for such an important index for the economy.
Sequential changes in the current index show over three months all components are lower on balance except nonmanufacturing firms. Over six months, all components are lower on balance except nonmanufacturing firms and housing. Over 12 months all components are lower on balance except for housing. The Bank of Japan has had some concern about inflation and these concerns have become a bit more two-sided; a weakening economy is not going to allow the BOJ to raise interest rates and to proceed in its objective of returning monetary policy to a range of normalcy. Consumer spending in Japan has been weakening as well. Overall, the economy watchers index fits into a profile of an economy that's weakening rather than strengthening.
The future index The economy watchers index has a future component. This component also weakened in April compared to March and has slipped below a diffusion value of 50, dropping to 48.5 in April from 51.2 in March. This indicates falling expectations. The percentile standing of the future index is in its 47.8 percentile, below its historic median also on data back to April 2003. All the readings for the future index have diffusion values below 50 in April except for employment, which moved up slightly to 51.3 in April from 49.4 in March. And all the components in April weakened compared to March except for that employment reading. In addition, all the components in March had weakened compared to February except for retailing. This gain is broad-based weakening clustering at values close to the diffusion level of 50 that marks the dividing line between expansion and contraction.
Like the current index, the future index is mired in a patch of weakness. Over three months all the future indexes are lower on balance with the headline falling by 4 points over three months. Over six months all of the components are lower on balance except for retailing that is up by 0.7 points. The future headline is lower by 1.3 points over six months. Over 12 months all the components are lower without exception and the headline is lower by 6.1 points.
Clearly, expectations have been scaled back for Japan’s economic performance. The headline’s 47.8 percentile standing leaves it below its historic median. This result is, in part, generated by a housing reading below its median at the 39.1 percentile and by manufacturers with a 39.5 percentile standing. Employment has a 43.5 percentile standing which is below its median but not as weak relative to other past future readings as the current index for employment is weak compared to its past index values. So as weak as the current economy is on the employment side, the future economy doesn't have the same degree of pessimism associated with it as the current index.
Ireland| May 09 2024Irish Inflation Trends Keep Pointing Lower
Ireland continues to produce good inflation news in April. The HICP index rose by 0.1% in April logging a 1.6% increase from a year ago, well within the target set by the European Central Bank for inflation in the entire Monetary Union. Ireland also reported a 0.3% increase in April for its domestic CPI gauge; that gauge is up 2.8% over 12 months. Ireland's CPI core fell by 0.1% in April and it's higher by 3.5% over 12 months. The annual rate difference between the inflation rate for the European Monetary Union inflation index known as the HICP, and Ireland's domestic CPI appears wide at 1.6% versus 2.8%; yet, both year-over-year changes are at 33-month lows. The domestic CPI core inflation rate is at a 27-month low. While these three gauges measure inflation in slightly different ways, it's quite clear that for the measure that each chooses to assess inflation, each has made a substantial reduction from where it has been and that all three gauges are showing substantial as well as ongoing inflation progress.
Different metrics but tracking the same forces However, since Covid stuck, the differences between the core and the HICP and HICP and CPI have become magnified. Much of that is because of the growing difference in inflation lags and developments between the core and the headlines when inflation accelerates due to different causes. Still, the CPI headline and the HICP headline are more inconsistent than they were prior to August 2021. In the earlier period, there would be a standard deviation between the headline readings of annual inflation of 0.2%; that has grown to 0.6% after August 2021. However, the difference has shown signs of declining recently. The correlation between the headline HIPC and core has actually improved in the Covid period. This reinforces the belief that inflation is a singular force being tracked by both methods with differences stemming from their methodologies and weights rather than there being different underlying inflation dynamics at work.
Sequential results Sequentially the ECB inflation measure, the HICP, rises by 1.6% over 12 months, falls at a 0.5% annual rate over six months and then rises at a modest 1% annual rate over three months. The Irish CPI gauge shows at a 2.8% year-over-year increase, a 0.6% annual rate rise over six months and a 1.6% annual rate gain over three months. Ireland's CPI core rate rises 3.5% over 12 months, at a 1.6% annual rate over six months and at a 2% at an annual rate over three months. All three gauges show six-month inflation below 12-month inflation as well as 3-month inflation higher than 6-month inflation but also 3-month inflation below the pace of its 12-month gain. So once again, we can look at different inflation measures and the absolute reading on inflation is going to be different depending on what we mix into the pot. Regardless of that, it appears that the overall inflation pressures in Ireland are consistent and behaving in a similar fashion regardless of which of these metrics we look at.
Inflation across categories The diffusion gauge for the domestic CPI, which looks at accelerations across the CPI categories, marks accelerations as the value of 1 and unchanged inflation as the value of 0.5. Summing these and presenting them are proportional results, produces a diffusion rating at 50% when inflation is accelerating and decelerating in equal proportions, a value above 50% when inflation is accelerating in more categories, and a value of below 50% when inflation is decelerating in more categories. Inflation diffusion for Ireland is at 33.3% over 12 months, 33.3% over six months, but rises to 54.2% over three months. This calculation shows us that 12-month inflation compared to 12-months ago is decelerating in nearly 70% of the categories; that, over six months compared to 12 months, inflation is also still decelerating in nearly 70% of the categories. But, over three months, the inflation rate accelerated in slightly over half of the categories. And that's not surprising. Look at how the headline inflation rate for the CPI and for the core performed over this period. Although the diffusion calculation doesn't necessarily agree in all cases with changes in the headline diffusion and the weighted inflation headlines show the same trends. Diffusion is a separate measure that looks at the breadth of the inflation trend by assessing whether inflation is rising or falling across the various categories and then toting up the results. The diffusion measure neither looks at the magnitude of the change in inflation nor imposes any weight across the categories; it is simply looking at the change in inflation across various categories.
Germany| May 08 2024German IP Falls in March after Two Months of Strong Gains
German industrial production was strong in January and February but March brough a setback as IP slipped back by 0.4% month-to-month. In March, month-to-month IP fell in all major IP categories except capital goods where it edged ahead by 0.1%.
Sequential trends Sequentially, German IP shows signs of life and of acceleration. The month’s small setback has not reversed that, but since it is an early setback in a process of recovery that is long overdue there is some skepticism about whether the rebound will be sustained. Persisting acceleration is exhibited in the headlines and in all three key sectors. Still, the year-on-year change shows a net drop for the headline and all components. Capital goods still show net output declines on all horizons.
Trends year-on-year Year-on-year consumer goods trends (see data plot) show a somewhat sharper move upward in growth rates while intermediate goods show a slow crawl higher – in both cases this means slower year-on-year declines in train. Capital goods trends show less recovery with only a recent bounce from a deep, 6.2% year-on-year decline, logged in January of this year.
Quarter-to-date The QTD trends show strong gains across components and for the IP headline – the exception is capital goods where output is still falling at a 6.3% annual rate, even with all this pickup in activity around it. The failure of capital goods to join the rebound parade is another reason to remain cautious about embracing the notion of the sustainability of the rebound.
Other IP assessments There is a column of queue standings that rank the year-on-year growth rate on annual data over the last 24 years. This ranking produces a standing in the 14.5 percentile for IP overall and sector standings that rank from 39% to 11%. Next, evaluating IP gains from before Covid in January 2020 to date, leaves us with an empty house. There are no net gains! All sectors show the level of IP in March 2024 -a hearty four-year period – containing some major and minor cycles, a sucker punch from Covid and the Russian attack on Ukraine – at lower levels. German industrial output overall and across sectors is weaker on balance and with unclear momentum. Statistically the momentum looks good right now, but it still must show its sustainability.
Other German manufacturing metrics Manufacturing output on its own follows the same script as for overall IP. However- ominously- real manufacturing orders do not. They show the opposite case, an implosion of sequential growth rates culminating in a drop at a nearly 40% annual rate over three months. Real sales also show a steady diet of declines without much trend but with their weakest reading over the more recent period. The queue standings of the annual growth rates are low.
German surveys The monthly survey results are a mixed bag of monthly trends. The sequential averages, however, show a trend to deterioration of all four industrial metrics, save one (IFO manufacturing). QTD the survey results are split. The queue standings of the surveys are uniformly weak in the ranking range of 10-15-percentile…quite weak.
Other Europe MFG IP Other Europe presents a split view. Monthly data for the four European nations in the table are mixed. Trends from 12-month to 6-month to 3-month are showing acceleration for Spain and Portugal vs. a clear trend to deceleration in France. Norway, a non-EMU country, shows unclear trends but only exhibits an output decline over 12 months. However, the IP standings for the four European nations in the table all are superior to Germany’s. Germany traditionally is the European powerhouse on this metric. Remember this is an individual ranking metric; it does not rank countries against one another. Germany’s own ranking is 14.5%, Spain’s own ranking is 77.7%, France and Portugal have mid 40-perentile rankings, while Norway has a 37-percentile ranking. Comparing each to its own normal performance over the last 24 years, all countries are doing better than Germany. Not surprisingly, German output has fallen by 8.7% since January 2020 compared to a net 4.6% drop for France, a net 2.8% drop for Portugal, a net 0.9% drop for Norway, and an 8.1% rise for Spain. Europe is not operating as it has in traditionally normal times. Covid and the Russian invasion have turned Europe on its head…and it is still there, despite some early signs Germany may be mounting a recovery.
Germany| May 07 2024German Orders Are Still Challenged; Volatile Foreign Orders May Show Some Recovery
Real German orders fell by 0.4% month-to-month in March after falling by 0.8% month-to-month in February. These two declines followed a much larger 10.9% drop in real orders posted in January of this year. Foreign orders in March rose by 2% after falling by 2.2% in February and falling by 10.8% in January. Domestic orders were basically on that same roller coaster, falling by 3.6% month-to-month in March after rising 1% in February and falling by 10.9% month-to-month in January. January was a tough month for German orders no matter where you look; since January, there hasn't been any recovery in German orders.
Sequential Real Orders But the sharp drop in orders in January, just three months ago, sets the stage for the three-month annual rate in orders to decline sharply; it falls at a nearly 40% annual rate compared to a 5.9% annual rate decline over six months and a 1.7% decline over 12 months. Foreign orders and domestic orders show similar progressions as you can see in the table. With the extra drop over three months, it does not make much sense to dwell on whether the declining pattern is sequentially enabled or not.
Real Sales Real sales by sector are less affected by whatever machinations are buffeting orders. Sales across categories fell in March after posting a full slate of monthly gains in February. That followed a near-full-slate of declines in January, with consumer nondurables an exception to the weakness and one that showed enough strength to boost overall consumer goods sales to a gain as well. Sequentially real sector sales show declines on all horizons, a series that barely escapes showing progressive weakness but annualized sales over three months are weaker than sales over 12 months.
Q1 Assessment March completes the orders and sales data for the first quarter; that finds orders falling at an 11.3% annual rate with similar drops for both domestic and foreign orders. Real sector sales in the quarter fall at a 1.8% annual rate on declines across categories except over all consumer sales and consumer nondurable goods sales.
Global| May 06 2024PMI Composite Readings Improve Slightly Amid Cross-currents
April readings for the S&P total or composite PMI survey show mixed performance in April with more countries showing deterioration month-to-month than showing improvement, but with the average reading in April higher than the average reading in March. That makes it a bit of a standoff in terms of trying to assess the performance of the survey. More countries are doing worse but on average countries are doing better.
These tendencies are provided without any weighting for the country’s GDP size; that's another caveat. Looking at the United States, the European Monetary Union, and the EMU’s four largest members as though they are all separate and independent observations (which they are not) shows two worsening was in April with the same relative results in March; February shows only one worsening and five improving. Those are certainly good statistics and good news since these are large economies carrying a large weight in terms of their contribution to world output.
In Asia, Japan, and China show different performance with China improving month-to-month in February, March, and April but with Japan worsening month-to-month in April and February but improving in March.
Turning to sequential data that look at averages and changes over three months, six months and 12 months, we find the highly developed European and the U.S. readings all improving over three months; however, four of six of those readings deteriorate over six months compared to 12 months. Three deteriorate and three improve on balance over 12 months compared to the average ending 12 months ago.
We also assess the performance of these countries by looking at their PMIs in a queue of ranked data since January 2020. In that queue, Italy and Spain have 70th percentile standings, above their historic medians (medians occur at a ranking of 50%) along with the European Monetary Union with a 53.1 percentile ranking. However, the United States has a 36.7 percentile ranking, Germany, a 40.8 percentile ranking, and France, a 46.9 percentile ranking; that leaves us with three readings above their median and three below for the full period assessment.
Over the entire sample, the averages from February to March to April cluster in a very tight range from 52.0 to 52.5; the median lies in a range of 51.3 to 52.7. Over those three months, there are 4 of the countries in the survey below a reading of 50 which means they're contracting in April. Six are contracting, in March and six are contracting in February. The averaged data show improvements from three-, six-, and 12-months. On those metrics, nine countries contract over three months, 11 contract over six months, and 11 contract over 12 months.
Turning to statistics on acceleration, we find that 52% of countries are slowing in April but only 44% in March and only 32% in February. The averages are fairly stable; there are deteriorating circumstances in terms of the proportion of countries showing readings below the month before and on a month-to-month basis. Looking at the sequential data for three months compared to six-months, six months compared to 12 months, and 12 months compared to 12-months ago, the percentage of countries slowing steadily diminishes from nearly 70% over 12 months to 56.5% over six months to 30.4% over three months. The broad picture shows less slowing while the monthly picture shows that there may be more slowing creeping into the process.
The average queue standing, which positions these countries in their queue of data since January 2020, is at 51.6%. Across our sample of 25 countries, 12 of them show readings below their respective 50th percentile rankings. This gives us a sense that across the sample based on the ranking data and the average of the PMI data statistics are hovering close to the median for the period. However, this is comparison over a four-year period that has seen a good deal of contraction in play.
Europe| Apr 30 2024EMU in 2024-Q1: All Early Reporters Avoid Q/Q GDP Decline
GDP in the European Monetary Area in the first quarter rose by 1.3% (saar), offsetting a 0.2% quarter-to-quarter decline in the fourth quarter and a 0.2% decline in the third quarter of 2023. All seven of the early reporters in the table show positive GDP growth in the first quarter unlike the fourth quarter when two of them, Germany and Ireland, showed declines in the fourth quarter of 2023. Growth rates decelerated in Belgium and Portugal in the first quarter with each of them posting growth rates that were only slightly slower than what they had logged in the fourth quarter of last year.
Much attention in the new set of European GDP releases, centers on Germany, which posted a 0.9% increase (at an annual rate) in the first quarter after falling at a 2% annual rate in the fourth quarter. Some news services report this as Germany having avoided recession and this is understandable considering the fixation that the financial press has for the ‘rule of thumb’ that claims that two consecutive quarters of GDP declining defines recession. In fact, that does not define a recession. It is only a ‘rule-of-thumb.’ While some call it a ‘technical definition of recession’ it, in fact, is not a ‘rule’ or a ‘definition’ and there is nothing technical about counting all the way from ‘one’ to ‘two.’
Recession or not it looks like trouble... A closer look at the table shows more serious problems for Germany. If we move to the right-hand portion of the table, we present year-over-year growth rates that, instead of measuring growth from adjacent quarters and annualizing it, we're going to, in this part of the table, look at the raw percentage change and growth from the same quarter of one year ago. The result of that percentage change will be an actual annual -not just an annualized - calculation of growth. When viewed in that way, the growth rate in the first quarter of 2024 is -0.2%; in the fourth quarter of 2023 it's -0.2%, in the third quarter it's -0.1%, and in the second quarter of 2023 it is positive but only logging a growth rate of 0.1%. This is a period of weak German GDP; output has declined on balance over the last four quarters for three quarters in a row. And the quarter before that, when German GDP did not decline, it barely managed any increase at all.
Recession or not, here I come? Whether this is a recession or not, it's going to depend on the judgment of economists who look closely at the German economy. It certainly is not going to be declared by a journalist who's going to look at just quarter-to-quarter growth that is simply going to be too narrowly focused to reveal what is going on in the underlying German economy. Performance certainly is disturbing despite the growth rate that's positive in the first quarter of 2024. Typically, when economists try to assess recessions, there are three metrics that are considered: one is how broad the decline in economic activity is, the second involves the depth of the decline that occurs, and the final metric is the length of the period of time over which this disruption Deacon of activity occurs. So, the three measures are: depth, duration, and breadth. Viewed in this way, the decline in German activity is broad because GDP is the broadest measure of economic activity; activity is declining year-over-year for three quarters in a row. That statement takes in both the category of breath and of length. We're talking about declines in GDP over full year periods that are occurring for three consecutive quarters. On the other hand, the intensity of the decline is only -0.2% for two of these annual periods and it's -0.1% for the other one. All these clearly are declines; they're not particularly severe. And since, at this point, Germany's long-term growth rate is not particularly high, the shortfall of these minor negative growth rates may not rise to the level of disruption that will cause the experts on Germany's economy to say that it is a recession. On the other hand, maybe it is.
Whatever you call it Germany’s economy is not doing well. Over this same span of time looking at growth in the European Monetary Area four-quarter growth in the first quarter of 2024 is only 0.4%. In the fourth quarter of last year it was only 0.1% and the third quarter of last year was only 0.1%. So once again while skirting the ‘popular definition’ of recession for these numbers, the European Monetary Union is showing extremely weak growth. On the other hand, the European Monetary Area also shows a decline in growth in the fourth quarter of 2023 and in the third quarter of 2023 which would trip that rule of thumb signal about it being in recession. Yet, its string of year-on-year growth rates is stronger than the string for Germany even though Germany doesn't trip that so-called ‘technical signal.’ This is a good reason not to get to bound up with the precise label that we put on the economy and whether we call it recession or not. Weakness is simply weakness. And is there a huge difference between a severe slowdown and a mild recession?
Ireland also posts a long string of negative growth rates. In the case of Ireland, these are fairly severe with one of them showing year-over-year growth falling 9.1%, which clearly would be a recession signal and certainly is in the context of all the other negative growth rates that Ireland is reporting. Ireland is a clear-cut recession case.
Quarterly data paints a kinder picture of developments in the monetary union as only Portugal and Belgium are decelerating and there are quarter-to-quarter growth rates in the first quarter with all the rest of the early reporting members showing acceleration. In the fourth quarter, only three countries decelerated compared to their third quarter growth rates. The important lesson here is that GDP growth across these countries in the monetary union as well as for the monetary union as a whole are not showing an intensification of the downward pressures that might be lingering in these economies. Instead, after a period of weakness, we're starting to see growth stabilize and accelerate.
The tendency is for acceleration and deceleration in year-over-year data are a little more concerning. The color coding and the table of growth rates occurs from a full precision calculation of the growth rate so growth rates that to the single-digit that appears in the table. The number may seem to be identical with an adjacent number, but may not be when they are taken to the next decimal point and that reflects why some growth rates that appear to be ‘unchanged’ are color-coded as decelerations in the table. In the first quarter, there are decelerations in France, Germany, Italy, and Portugal. There were three year-over-year decelerations in the fourth quarter; those came from the European Monetary Union as a whole, Germany, and Ireland. The third quarter saw the broadest decline across the Monetary Union with decelerations occurring in every country reporting in this table except Belgium. And the second quarter of 2023 saw deceleration occur in four of the reporting countries as well as in the European Monetary Union as a whole.
We also parsed the data in the table into the four largest economies in the EMU versus the other economies. On that basis, looking at the year-over-year data, the four largest economies do not show year-over-year declines in the last four quarters while the rest of the European Monetary Union shows declines in three of the last four quarters.
Compared to the European statistics, U.S. data are somewhat astonishing. U.S. growth year-over-year of 3% in the first quarter of 2024, 3.1% in the fourth quarter of 2023, 2.9% in the third quarter, and 2.4% in the second quarter of 2023. There's nothing like that among these countries. In the European Monetary Union, the closest to the U.S. result comes from Spain.
Europe| Apr 29 2024EMU Indexes Ease in April
The European monetary union showed weakness in April; the overall index fell to 95.6 this month from 96.2 in March. The April reading of 95.6 is slightly above the February level of 95.4 but still below the January reading of 96.0. Over these last four months, the index has vacillated and has a narrow range but has eroded more often than it has improved across sectors, and it is still locked in an eroding trend.
The component indexes of the industrial sector, retailing, construction, and services, as well as consumer confidence, generally showed weakness month-to-month or stability in April. Services and construction were unchanged in April from their March levels demonstration stability. Retailing fell by one point, posting a - 7 reading in April from -6 in March. The industrial sector slipped to -11 in April from -9 in March; these sectors exhibited weakness. The exception was consumer confidence, and that wasn't much of an exception, as it rose to -14.7 in April from -14.9 in March. However, it has been gradually improving from January to February through March and April. From mid-2022 onward, consumer confidence, despite its clear deep negative readings, has been engaged in a process of ongoing improvement.
Of the 17 countries in the monetary union that report to this survey in a timely fashion, seven of them showed declines in their overall indexes in April, compared to March. March was a month of relative strength with only four countries weakening relative to February. However, February had been the opposite, with weakness prevalent across monetary union members. In February, only six showed improvement compared to the month before – and each of the four largest economies showed deterioration.
The queue percentile standings rank the countries and the sectors on data back to January 2020. The monetary union has a 31.7 percentile standing on that timeline, leaving it in the lower third of all observations reported during that span. Retailing and construction have queue percentile standings above the 50th percentile which marks them as above their median estimates over this period. The industrial sector is the relative weakness with the 22.4 percentile standing, followed by consumer confidence with a 24.7 percentile standing. The services sector is climbing with a 45.9 percentile standing closing in on its median value over the past four years.
Across member countries, only three have percentile standings above their historic medians for this period. They are Cyprus, Greece, and Spain. They're hardly bellwethers for the community and all Mediterranean countries. Among the largest four economies, especially Germany, the largest economy in the monetary union, weakness prevails. Germany has a 20.7 percentile standing, 36.8% for France, 44.1% for Italy, and 56.4% in Spain. The largest EMU economies are not very strong on a relative scale (queue standings).
Among the rest of EMU members, Estonia has the weakest standing at 6.7%, Finland at 10.3%, Austria at 17.4%, Belgium at 23.2%, and five others clustered in the 30-percentile range. For all EMU members large and small, the percentile standing averages 37.3%, a bit higher than the ranking for the EMU which is a size-weighted measure.
Global| Apr 26 2024Money and Credit Growth Are Stuck in a Transition Phase
Money growth still contracting; credit growth is flat EMU Money Growth- Money and credit growth in the European Monetary System has ground to a halt with M2 money supply still decelerating in nominal terms. Three-year growth is at 2.6% at an annual rate, two-year growth at a 0.5% annual rate, and growth over three months is flat. When viewed in real terms, there's a little more progress that appears but the growth rates for real money supply are negative. Over three years European Monetary Union money grows at a rate of -2.7%; over two years it is weaker at a -3.8% annual rate; over 12 months real money supply declines at a 2.5% annual rate. Over three months, real money supply has declined at a 1.3% annual rate, reversing the step-down in contraction. There's a gradual and somewhat uneven movement toward money growth contraction to be less restrictive; however, negative real money growth rates persist and when it comes to nominal money growth the performance is simply flat.
EMU Credit Growth- Credit growth in the monetary union faces similar trends. Private credit grows at 2.7% at an annual rate over three years, at a 1.9% annual rate over two years, but private credit growth over three months has only a 0.2% annual rate of growth. Nominal private credit growth has slowed its pace so much that over three months its pace has been close to zero. Looking at private credit growth in real terms, we see it shrinks at a 2.7% annual rate over three years; it shrinks at a 2.5% annual rate over two years, that's further reduced to a -2% annual rate over 12 months. Over three months, the annual rate for credit growth is further reduced to -1.1%. The degree of contraction for credit in the European Monetary Union has been reduced; however, the EMU continues to demonstrate weak nominal credit growth and declining inflation adjusted credit growth.
Germany| Apr 25 2024German Confidence: Best in Two Years- Still Very Weak
German consumer confidence/climate on the forward-looking GfK measure has reached its highest reading in the past two years. On the surface, this sounds impressive, but in fact over the past two years confidence has varied in range from -24.4 to -42.8 with a median value of -28. The reading today of -24.2 for May is only marginally better than what it has been over the last two years and over the last two years there have been 16 readings above -30. The six-month moving average of the climate index increases to -27.2 in May from -27.8 in April. The six-month MAV was last at this level in February 2024 and was higher in August 2023-January 2024. What we have with the May reading is a marginal nudge to the higher part of the range that we have been seeing for the past two years. If we go back to April 2022 that's when we start to see a real shift in the level for confidence on the GfK measure, we see a dramatic shift in the level of climate. In April 2022, the headline measure was -15.7 and in March 2022 it was -8.5. While the May reading takes us back to the cusp of those very low readings, it only does that chronologically; it doesn't do that in terms of the intensity of the reading.
Context! - The rank standing of the reading provides some information on this. The May 2024 climate reading stands in the lower 9.1 percentile of its historic queue of data. Viewed as a position and its high-low range, the consumer climate reading from GfK has a 34.6 percentile standing. That higher standing comes about because the low point for the reading is so very much lower than where it is right now below point comes at a reading of -42.8. The economic expectations and income ratings as well as propensity to buy ratings are also weak but not as weak as the GfK climate headline. The component readings for the GfK report lagged by one month so the most up-to-date reading for these components are through April. As of April, the economic expectation rating rose from -31 in March to 0.7 in April; the income rating rose from -1.5 in March to 10.7 in April; the propensity to buy reading rose from -15.3 in March to -12.6 in April. These readings give us count percentile or cube percentile standings: the 36.5 percentile for economic expectations, the 45.6 percentile for income expectations, and the 25.9 percentile for the propensity to buy. Income expectations has made the largest leap forward with its jump to 10.7 in April from -1.5 in March; it's a leap that is clearly unmatched by the improvement that we've seen in the headline for climate that is barely inching ahead, having posted -28.8 in March, risen to -27.3 in April and moved further up to -24.2 in May.
Improvement, yes, but still not good- All the components have queue or count percentile standings below the 50-percentile mark which means they are below their historic median levels. The propensity to buy is the relative-weakest component just above the lower quartile of its historic queue. Income expectations are closest to their median, with their 45.6 percentile standing. While ‘expected’ German incomes are getting close to their median value, the propensity to buy is lagging behind badly. And economic conditions are also considered to be inferior to expectations for income. It's clear that the German economy is still in this very weak period that it's been in since COVID and the Russia invasion of Ukraine. Germany hasn't really made the transformation to a moderate recovering economy. The IFO report, released just earlier this week, revealed widespread improvements but still extremely low percentile standings for the various sectors on that gauge. There is considerable evidence suggesting that the German economy is improving; however, the metrics that assess performance of industry or the level of consumer confidence or comfort continue to lag badly behind historic norms.
Elsewhere in Europe- The table also provides information for other countries the rankings for Italy, France, and the United Kingdom. They generally show better consumer confidence than in Germany’s GfK metric. The confidence metrics for these countries tend to lag one or two months behind the German measure which is not surprising because the GfK metric is for May; it's looking one month ahead. Italy has an updated value as of April; from February to March to April, the Italian data showed slippage in confidence although the percentile standing for the April Italian confidence measures is its 70th percentile of its historic queue of data, quite a bit better than the numbers from Germany. France's most up-to-date number is for March; for France, conditions have been holding steady. The percentile standing for its March metric is at its 37.4 percentile like the components for the German GfK metric that are up to date through April. The U.K. confidence measure has been stable over the last three months with just some minor slippage. It has a 32nd percentile standing in its historic queue of data. All these cases evaluate the consumer metrics back to June 2002. Queue (or rank) standings for all these countries, therefore, are executed over the exact same timeline so that they are directly comparable.
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