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Economy in Brief

INSEE Household Index Fades Again in February
by Robert Brusca  February 24, 2022

The INSEE household index for France fell for the second month a row to 97.5 in February from 98.6 in January. The index has now dropped for two months in a row, having reached its mini cycle peak of 99.4 in December 2021 (100.9 in September before that).

At its February level, the household index rank standing is at its 55.6 percentile, just a small margin above its historic median. On ranking data, the median occurs at the 50th percentile rank so the household index is only marginally above its median since the year 2000.

The living standards index for the past twelve months declined to -61 in February from -57 in January. The outlook for the next 12 months finds living standards at a -34 reading, compared to -33 in January. The monthly deterioration is quite modest.

Expectations for employment are improving to underpin this change. The unemployment survey for 12 months ahead evaluates at a -8 reading. That is lower than its +2 reading in January, indicating some improved outlook (reduced expectations for unemployment). In fact, that response for expected unemployment is an extremely low reading, in the bottom 3.5 percentile of the historic range of observations for the that survey item. It is the best news in this month’s survey.

Price developments for the past 12 months show a sharp increase to a reading of 45 in February from 29 in January. The experience of inflation has shot up very quickly in February compared to January and to December when the reading was about the same (28 to 29). Turning to the outlook for the next 12 months, the survey response is -12, which is weaker than the -7 that we saw in January and in earlier months. Survey responders do not expect inflation to keep up. However, if we look at the ranking levels for these two sets of responses, we find that the past 12 months response is in its top 5% whereas the outlook for the next 12 months is still in the top 8% of its own historic queue of data. Although the survey responses look very different for the two categories, relative to their distributions of responses in the past we can see about equal angst over the past 12 months compared to the next 12 months when we express it in ranking terms.

On the matter of savings, whether it's favorable or whether people have the ability to save, we see very little change in responses between January and February and the answer to both of those survey questions has responses in the top 10% of their historic ranges. Savings don't seem to be a problem for survey respondents.

There also is little change in the spending environment for making major purchases. The spending response for major purchases has slipped slightly: it was -14 in December and -16 in January; now in February, it is slightly improved to -15, but these all are roughly the same responses. The -15 response resides in the 44th percentile of its historic queue of data, putting it below its median. These are consistent evaluations over recent months, and they refer to below-median conditions.

The financial situations in the past month and the next 12 months have been quite consistent over the past four months. The two responses are above their respective medians at standings in their mid-60th percentiles.

Looking at the survey responses in February, compared to where they were before the virus struck most are lower. On the other hand, a few are strong and that includes assessments of price developments where the assessment of the last 12 months is 78 points higher and expectations for the next 12 months are 12 points higher. The savings environment is considered better with the response favorable to save 25 points higher than it was two years ago and the ability to save response 12 points higher than it was two years ago. All other responses are lower.

What is unknown is what going to be the response to what is now clearly an invasion in Ukraine. Europe could be swamped with refugees from war-torn Ukraine, military spending demands could rise sharply, and feelings of security could erode. There are a host of factors that are now in flux at a time that central banks clearly need to raise rates with inflation elevated. The ECB only recently has changed its posture to admit that it will have to do something more restrictive with interest rates before the year is up. However, with the invasion of Ukraine, oil now is in play with oil prices higher. Brent is over $100 barrel. Projections for this gain to unwind are now going to fade. As the potential for some sudden good news on the inflation front is also fading. What lies ahead is a new world and it is going to be more dangerous, more inflationary, and more expensive.

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