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Economy in Brief

EU Indices Show Some Rebound: UK Shines...Mostly
by Robert Brusca  November 29, 2012

The EU Indices rose unexpectedly in November despite ongoing pressure in the Zone and discord about how to approach its tangled future. The EU economic sentiment index is at its highest level since July. The EMU index is at its strongest since August.

At the EU level all sector indices improved except for construction which remained unchanged. Still the EU/EMU economic sentiment indices as well as the sector indices remain with very weak readings. Both the EU and EMU readings are in the bottom 10% of their respective historic queues. Retailing is the strongest sector at the EU level this month and it stands in the 28th percentile of its queue; the next strongest sector is services in the bottom 20th percentile of the queue. Consumer confidence is the relative weakest index in the bottom 7 percentile of its range; construction, the bane of Spain, is in the bottom 10 percent.

Among the first eleven EMU members the country with the strongest consumer sentiment reading is Germany in the 26th percentile of its queue of sentiment readings. The next strongest is Finland in the 14th percentile. Obviously the sentiment readings are pretty close to what you would see in recessions across most of the Zone if these two are the relative strongest.

The service sector and retail indices made the strongest positive moves in November. The EU services sector and retail sectors made the 19th and 27th strongest gains in their respective histories since February of 1985, a period of 334 months. Thus the monthly rebounds were quite significant. For retailing that improvement was driven by the UK whose own retail improvement was the 9th largest since 1993. As for the service sector improvement the UK made is second strongest improvement since January 1998 while Greece made its 12th strongest monthly improvement over the same period. The UK also has had the fifth largest monthly increase in consumer confidence since mid-1986, over a period of 317 months.

Despite having several sectors that jumped sharply in the month the UK overall economic sentiment index has not advanced by that much in November. But its strong rise of 3.1 points follows a very sizeable gain of 5.2 points in October; those two monthly improvements together are the fourth best two-month improvement since January 1998. For EMU, Greece, Germany and Austria made the largest advances in economic sentiment for the month. Compared to their respective history of changes, it was an advance that stood historically in the top 10% of each nationís respective range for monthly changes. Unlike the UK, Greece, Austria, and Germany each made this advance after a month of a decline in sentiment.

In EMU, Retail sentiment also saw large gains for Greece and Spain and significant gains in Germany and Portugal. But for services the EU gain was mostly on the back of UK improvement. When we look at EMU alone the services sector gain overall was only a mid-range gain. Only Greece really registered a service sector gain that was outsized, and of course, it is small and has little impact on overall EMU metrics.

On balance it is hard to pin down what is driving Europe. Consumer confidence remains weak; it fell for EMU. It rose for the EU mostly on the sharp gains in the UK. So what we see this month are some pretty impressive numbers for the UK and some significant improvement for several of the peripheral nations in EMU (that nonetheless remains at very weak levels of activity).

It is very hard to take in the improvement in a few peripheral nations and go with that very far for EMU as a whole. Germany continues to show rising unemployment. The retail sales and services sectors in some nations are bit more sheltered than MFG and had a bounce this month but is that a trend or a one-month blip?

The pressure for adjustment is still on in the Zone. Some of the pressure may have lifted on the periphery or perhaps the impact from the pressure is diminishing because it already has done so much damage that it is hard to do more. But for the core of the Zone some data had been suggesting that things were getting worse, yet that point of view is not what is playing out this month in the EU Commission indices. Germany, France, Italy and Spain, the four largest EMU economies, each saw improvement on the month in their key industrial sectors. In fact Germany has the third largest month-to-month improvement in its industrial index since 1988. But it has continued to report declining overall and foreign orders. The German industrial reading is hard to fathom this month. So the trends for EMU industry are the incipient trends to watch. Oddly on this same measure for the industrial sector the UK took a big step back, as its industrial sector deteriorated in November as other sectors appeared to be improving sharply. There are few clear signals from EU/EMU these days.

EU Sectors and Country Level Overall Sentiment
EU Nov
%tile Rank Max Min Range Mean By Q
Overall 88.1 86.1 86.2 87 43.0 302 117 67 50 101 9.6%
Industrial -14.2 -15.8 -14.4 -14.6 53.2 289 7 -39 46 -6 13.5%
Consumer Confid -23.8 -24.3 -24 -22.7 24.9 310 2 -32 34 -12 7.2%
Retail -9.2 -12.8 -15.2 -13.4 51.2 238 8 -27 34 -6 28.7%
Constr -36 -36 -33 -35 20.0 298 4 -46 50 -18 10.8%
Services -8.9 -11.8 -12.5 -11.4 36.3 154 32 -32 64 7 20.6%
% M/M Nov
on Level
EMU 1.7% -1.1% -1.0% 85.7 34.0 306 118 69 49 100 8.4%
Germany 2.5% -1.5% -1.1% 95.6 49.6 246 119 73 46 101 26.3%
France 1.9% -2.7% -1.1% 87.4 30.0 296 117 75 43 100 11.4%
Italy 0.5% 0.6% -0.1% 79.4 14.6 316 121 72 48 100 5.4%
Spain 0.6% 2.1% 1.6% 86.4 32.6 275 116 72 43 100 17.7%
Greece 4.2% -0.4% -1.2% 79.0 15.5 305 119 72 48 100 8.7%
Portugal 0.8% -2.4% -6.3% 72.9 3.3 308 126 71 55 101 7.8%
Austria 3.9% -2.9% -1.3% 90.8 42.8 291 118 70 48 100 12.9%
Belgium -2.5% -2.0% 0.1% 87.1 36.4 299 116 71 45 99 10.5%
Finland 0.7% -2.3% 1.1% 90.2 36.8 287 120 73 47 100 14.1%
Neth -3.7% 0.9% -1.4% 94.0 33.9 320 116 67 49 100 4.2%
Memo: UK 3.2% 5.7% 0.4% 100.2 55.9 203 129 64 64 102 39.2%
All since June 1990 334-Count Services: 194-Count  
Sentiment is an index, sector readings are net balance diffusion measures
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