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Consumer confidence rebounded in Italy to 99.5 In August from 95.8 in July. This is a nice bounce but it still leaves the index at a very low level. The best guess is that the pop in confidence stems from the drop in global oil prices and the positive impact that has on short term consumer budgets. Price trends over the next 12 months improved slightly this month (to 23 from 23.5) and past price trends were assessed as a lot lower this month as oil prices broke. The drop in expected price trends is the first break in the uptrend in two months.
· The overall situation is assessed as better at a reading of -30 up from -35 last month. But that reading is still in the 14th percentile of its historic range, a weak position. The household budget improved sharply month-to-month, most likely the result of lower energy costs. Its improvement to +2 from -7 elevates it to the 22nd percentile of its range, still weak but less severe. It’s the biggest one-month shift in this category since at least December of 1998, although shifts of 8 points m/m have been recorded. As you might expect if the sharp drop in world oil prices is behind the improvement in sentiment spending plans would not be changing much even though the budgets show more breathing room, since oil will not help all that much with big ticket purchases compared to monthly needs. Here we find major purchase plans fell over the next 12 months to -70 from -67 in July and stand in the bottom 10 percentile of their range since Dec 1998. This helps to point the finger for improvement at lower oil and at the same time raises a cautionary note about getting too hopeful on the notion that Italy has reached a turning point.
· On balance the shifts in the ISAE survey of consumer confidence are consistent with the notion that dropping energy prices may be the catalyst for improved sentiment. The house hold budget feels some relief and that improves the overall situation somewhat, but the unemployment expectations and purchase plans are hardly affected.
· Europe is still caught in the grip of a slowdown. And, lower energy prices could help to temporarily mollify consumers. Still, Italy has been weak for some time. It has no special remedy in place to boost its economy. Meanwhile, as surrounding nations are getting weaker, Italy is increasingly challenged. This situation promises to make Italian consumers worse off before they become better off. This month’s improvement does not seem to be part of a trend as much as it reflects a one-off reaction to cheaper oil.
· Still Italy’s result suggests we may see more widespread improvement throughout the
Euro Area this month.
· Oil prices have a more limited impact to improve sentiment in Europe given high energy taxes. Compared to the US where at-the-pump fuel prices will move more when world spot oil prices change, energy shifts can be expected to boost sentiment less in Europe. So whatever improvement in sentiment we might see this month in Europe, we should not expect the improvement to be too dramatic and perhaps not even lasting as deteriorating economic circumstances eventually catch up with euro-consumers.