Recent Updates

  • Japan: ** Japan IP forecasts have rebased from 2010=100 to 2015=100. We are currently working on processing the new data.**
  • ** New Zealand Jobs Online has changed its reported frequency from monthly to quarterly and rebased from August 2010=100 to Q4 2010=100. **
  • Australia: PPI, Manufacturing Price, Construction Materials Prices (Mar); New Zealand: Trade by Country by Commodity, International Trade (Mar); ANZ-Roy Morgan Consumer Confidence (Apr)
  • more updates...

Economy in Brief

EMU Services Sink
by Robert Brusca  April 4, 2013

The US services index dialed down in April. In Europe services are lower on a broad front. US jobless claims are moving up and there is a hue and cry to blame it on Easter and bad seasonal factors. Maybe there is some of that in the US jobless claims numbers. But, there is something much more worrisome at work here than just a rogue Easter Bunny. It's policy that is laying an egg and not a nice, pretty, decorated one.

In our data both sides of the pond show that there may be a new demand weakening in train. Weakness in the US ISM manufacturing index was substantial and widespread in March. We see the same sort of thing going on in the euro area where the weakness is deeper and has been longer-lived but still is worsening. The overall services index in March for EMU posted a 46.35 reading after posting 47.87 in February.

When we place the March reading for the euro area in its historic queue it lies in the bottom 8.1% of all historic readings for the services sector. This is obviously a weak reading. Of the individual reporters, surprisingly, Ireland's service sector which fell to 52.28 from a level of 53.56 has the best relative standing among all services sectors of individual reporters in the monetary union. The March reading for Ireland sits in the 41st percentile of its historic queue. Germany's index which declined very sharply, from 54.69 to a level of 50.91, resides in the 31st percentile of its historic queue. The next best standing among zone members is Spain, whose indexes is in the 23rd percentile of its queue. Italy's service sector is in the bottom 15% of its queue while France is scraping the bottom of the barrel with its index in the bottom 2% of its historic queue. France's service sector also declined relatively sharply to a level of 41.35 in March from a level 43.70 in February. In the Zone conditions are not just deteriorating they are deteriorating rather substantially.

But these numbers are not out of the blue. The earlier-released EU Commission indices put the EU wide service sector reading in the bottom 10% of its historic queue. In the Monetary Union the services sector was in the bottom 17% of its historic queue. At the same time EMU-wide consumer confidence was in the bottom 10th percentile of its historic queue. When you look at consumer confidence queue standings by country according to the EMU-wide statistics we get a similar ordering to the one that we get from looking at the Markit estimates for their service sectors' standings.

Germany seemed to show some improvement earlier in the year but that has given way to a substantial unwind. France whose slide was easing early in the year has seen its slide accelerate. Italy, whose service sector was weaker longer than the rest of the Zone, has showed some slight rebound, at least in March.

The US data have exhibited the same pattern as in the last several years of showing some stronger growth earlier in the year and then giving it back as the year has progressed. As a result of this precedent, there is a good deal of nervousness in the wake of the stronger numbers early in the year compared to the current tailing off. Are we doing it again? Is Europe along for the ride?

European data are showing a clear tail off as the region meets new threats to its banking market and has to weather the storm of political blowback in Italy.

Despite a good deal of speculation that the European central bank would be willing to act to possibly cut rates, to possibly open some of the doors to its lending facilities, to initiate some new program, to do something, to do anything, in the event, this morning...it did nothing. The ECB may not be the right vehicle from which to take action but it's about the only European monetary union-wide institution with a role to play. Conditions in Europe have become weaker and more uncertain. Even in Germany, the best-performing European economy, auto sales are reported to be weakening on concerns about developments within the Eurozone.

Common threads: Readings from the United States' non-manufacturing sector and the euro area's services sector both were hit about equally as hard in the financial crisis. The two sectors rebounded at approximately the same speed. Both of them reached a lower peak in 2011 and fell off rather significantly into 2012 from that point forward the performance of the two sectors has diverged. Europe's service sector continues to fall and for the past year has hovered below the lower 20th percentile of its historic queue. In the United States the services sector has oscillated somewhat widely between the 60th percentile and the 40th percentile standing as it rebounded early this year and now has a relatively recent backtracking in train.

My message is that this coming weakness appears to be real. The Easter Bunny is not. We can stop looking for excuses and look the situation straight in the eye. We are the problem, we the people are the problem. The people who are making things worse are people who we elected. They refuse to take the right steps because they are concerned that if they do, we won't reelect them. That's how this game works. The representative system of government doesn't work when our representatives fail to represent us but instead realize that they are independent agents with incentives that differ from our own and decide to represent themselves. We have elected the wrong people to do the job.

We have seen this in action in Greece and in Italy where public officials took on debt and hid it, to improve the lives of the electorate, to postpone the burdens of that improvement, and to secure their own political future. This thing plays out just about everywhere including in the United States with slightly different specifics.

In US our elected officials in Congress get much better healthcare systems and get much better pension arrangements than the people who elected them. It's no wonder that they don't feel our pain. It seems that the bureaucrats have found a loophole in democracy. And their most immediate reaction is to commandeer another public institution, the central bank, to buy for themselves more time. That gambit is working for them. It's not working very well for us. We are living on borrowed time, and time is one thing that you can't pay back. At some point Europe and United States need to come to their senses and establish economic policies that make sense for each of them. This one is senseless and will end badly.

close
large image