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Economy in Brief

Confidence Loses Its Grip
by Robert Brucsa  April 27, 2012

German confidence is edging down, now for the second month in a row. Economic confidence is still on the rise but Income and buying confidence are on the retreat. Overall confidence is higher than the May value only 25% of the time. Economic confidence is higher 49% of the time Income confidence is higher 22% of the time and the confidence to purchase is higher only about 33% of the time. These are not weak figures at all they in fact reflect for the most part solid readings, but they are slipping with the exception of the economic reading, which though is on the rise, is still lagging the other components.

But this is not just about consumer confidence in Germany.

Other countries have reported timely confidence readings too, but most with a lag to the German statistics. In Italy the April reading for confidence is down to 89 and is the weakest reading in nearly eight years (and longer). In France the reading for confidence ticked up to 88 from 87 and it stands in the 41st percentile of its eight year queue. Unlike Germany the French reading is higher than this most of the time, 59% of the time. The UK reading at -31 is steady month to month but it is lower only 16% of the time. The UK reading is exceptionally weak as that country mucks around still stuck in its recession morass.

The confidence readings from the US are similarly conflicted. The US indictors are not much different in their standing but they are showing very different paths and composition. Over this same nearly eight year period the US U of M Sentiment index stands in the 44th percentile of its queue, the Conference Board index is in the 51st percentile of its queue, the consumer comfort index (Bloomberg) stands in the 47th percentile of this queue. These are all reasonably close readings in terms of how they rank over this period (44th pale to 51st place). It’s a much tighter cluster than for the few report above for Europe (zero percentile to 75th percentile!).

But the US sentiment reading (UofM) this month is showing a sharp setback in current conditions coupled with the highest expectations reading in 31 months. The consumer confidence reading (ConfBd) shows improving current conditions and falling expectations. The Comfort index (Bloomberg) has different components but it had been on an exceptionally strong hot streak then in just the current week it has given up seven-weeks-worth of gains, backtracking sharply.

On balance we have a hard time knowing exactly where the consumer is in the US cycle. In Europe the consumer seems to have all different sorts of assessments. Yet there is only one ECB to implement policy.

The consumer continues to be a wildcard. For those who have hoped that he German consumer would step up and take up the slack for weak European area - that does not seem to be happening. The rest of Europe is still spooked by the legacy of austerity and only now is there talk of some sort of pro-growth movement and that will be done in the ‘context of austerity’, (whatever that means). With right-wing minority parties getting more traction in Greece, with Sarkozy fighting from behind in France, and with the Netherlands have gone through a minor identity crisis over cutting its budget, it is clear that the implementation of severe economic programs has created the obvious blow back in politics. And this is not the blow-back that carries a refreshing breeze.

This only a TASTE of what Europe is up against as it tries to keep the Zone together. In the end competitiveness differences are huge in Europe and they are the basis for everything, EVERYTHING, that is now going wrong. They are very hard to fix especially if the Zone stays together. Unfortunately, there is no fix being promoted for the various competitiveness gaps: None whatsoever All that Europe is doing is fixing symptoms. Meanwhile, the consumers are slowly (or rapidly!) losing their grip. While the US consumer seems on firmer footing, our various reports show so much difference in trends and among their moving parts we are also confused about the consumer.

The global economies right now are raising as many questions with each new piece of data they print and policy move they make, as they are answering with the steps they take and news they release. This cannot continue for long. Soon there will have to be some real progress, some real clarity, some real decisions, some meeting of the minds... instead of gnashing of the teeth.

Germany Consumer Climate Survey GFK Other EU Members
  Climate Expectations Propensity to Consumer/Household Confidence
    Economic Income Buy Italy:ISAE France:Insee UK:GFK
May-12 5.6 -- -- -- -- -- --
Apr-12 5.8 8.5 33.0 27.6 89.0 88.0 -31.0
Mar-12 6.0 7.2 34.3 38.6 96.3 87.0 -31.0
Feb-12 5.9 5.9 41.3 39.2 93.9 82.0 -29.0
Jan-12 5.7 7.5 34.1 41.8 91.5 82.0 -29.0
Levels Current Lagged one month   2Mo Lag
Average 4.7 11.8 7.8 11.7 100.8 90.2 -16.3
Max 9.1 69.5 45.2 64.4 108.5 107.0 1.0
Min 1.5 -32.9 -20.5 -37.4 89.0 79.0 -39.0
% range 53.9% 40.4% 81.4% 63.9% 0.0% 32.1% 20.0%
Count% 75.5% 51.1% 78.7% 67.0% 0.0% 41.9% 16.0%
% range is current reading as a percentile of Hi/Low range  
Count % is current reading ranked as a %-tile among all readings  
GFK survey dates from January 2002  
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