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Economy in Brief

Some Bad News From Europe…
by Robert Brusca May 27, 2010

The Insee index of household confidence has dropped again marking the fourth straight month of decline. This is not some garden variety slippage in confidence from France. The four month drop marks a cumulative drop of eight points in the index which is the 12th largest four month decline in the series history. That makes the drop a top 5% event. This not exactly what Europe is looking for in May.

Until quite recently most European reports had been upbeat. But now there are some signs of erosion. The GFK German confidence index for June edged slightly lower on expectations decay. The UK CBI distributive trades index also reported today plunged sharply in May. Now in France the household confidence index that has been slipping has continued on that path.

Until now we had seen a fairly steady and strong recovery of economic data in the wake of the financial crisis. The MFG sector has been rebounding in Europe particularly strongly. The service sector has lagged. And the household sector has lagged even further. But in France it’s not a case of lagging but of the sector declining, backtracking.

The European economy is fighting off the remnants of recession and financial crisis with a new layering of financial crisis stemming from Greece’s problems, the knock effects to banks that hold European debt (substantially French and German banks) and the adverse market sentiment stemming from the need for fiscal austerity in Europe including France. It looks like the French consumer has figured out that the recovery will not be a bed of roses and maybe even that sector wide strikes that make such great theater in France will serve no purpose this time. The French consumer appears to be going down without a fight.

INSEE Household Monthly Survey
          Since Jan 1990
  May-10 Apr-10 Mar-10 Feb-10 Percentile Rank % Mean
Household Confidence -38 -37 -34 -33 15.8 5.7 -19
Living Standards
past 12 Mos -67 -68 -68 -67 13.3 10.2 -41
 Next 12-Mos -53 -48 -43 -37 9.2 4.1 -22
Unemployment: Next 12 62 63 63 58 77.3 83.7 33
Price Developments
  Past 12Mo -20 -18 -25 -26 30.8 56.7 -16
  Next 12-Mos -26 -31 -34 -37 37.0 82.4 -35
  Favorable to save 14 17 18 20 43.2 19.2 22
  Ability to save Next 12 -10 -10 -8 -10 44.8 49.8 -9
 Favorable for major purchase -24 -26 -23 -24 31.0 25.3 -14
Financial Situation
  Current 16 16 16 16 61.9 82.9 12
  Past 12 MOs -25 -25 -24 -25 35.5 13.9 -17
  Next 12-Mos -19 -16 -13 -12 11.8 3.7 -2
  Number of observations in the period 245
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