Louise Curley

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<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080729j.jpg" align="left" border="0" height="265" width="353"></p>
<p>Consumer Confidence indicators were released today for France,
the Netherlands and Slovakia. Business confidence indicators for the
Netherlands and Slovakia were also released today. France's Composite
Business Climate Indicator was released last week. Both consumers
business people in the three countries have become increasingly
pessimistic. Consumers have generally been more pessimistic than
industrialists as can be seen in the three attached Charts which show
consumer and business confidence measures for each country.</p>
<p>Consumer confidence in the Netherlands declined by 12
percentage points in July to -31% from -19% in June. The pessimists in
the Netherlands now outweigh the optimists by 31%/ The optimists still
exceed the pessimists among the producers, but the margin has been
shrinking and now is only 2.4 percentage points.</p>
<p>Consumers are even more pessimistic in France where the
percent balance between pessimists and optimists is 48%, up from 46% in
June. France's Composite (synthetic) Business Confidence Indicator has
fallen below its average level of 100. At 98 it is at the lowest level
since April, 2005.</p>
<p>The percent balance between the pessimists and optimists in
Slovakia has been increasing but the pessimists exceed the optimists by
only 8.8% in contrast to the much bigger differences in France and the
Netherlands. The excess of optimists over pessimist in industry has
practically disappeared. It is only 0.7%, and is 15.6 percentage points
below the excess of optimists in July, 2007.</p><p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080729i.jpg" border="0" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080729h.jpg" border="0" height="265" width="312"></p>
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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b>CONSUMER
AND BUSINESS CONFIDENCE&nbsp;</b></th>
<th scope="col"><b>Jul 08</b></th>
<th scope="col"><b>Jun&nbsp; 08&nbsp;</b></th>
<th scope="col"><b>Jul 07&nbsp;</b></th>
<th scope="col"><b>M/M chg&nbsp;</b></th>
<th scope="col"><b>Y/Y&nbsp; chg&nbsp;</b></th>
<th scope="col"><b>2007</b></th>
<th scope="col"><b>2006</b></th>
<th scope="col"><b>2005</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol" colspan="9"><b>Netherlands</b></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer
Confidence (% balance)</td>
<td>-31</td>
<td>-19</td>
<td>14</td>
<td>-12</td>
<td>-45</td>
<td>8</td>
<td>-1</td>
<td>-22</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Producers
Confidence&nbsp; (% balance)</td>
<td>2.4</td>
<td>5.3</td>
<td>7.6</td>
<td>-2.9</td>
<td>-5.2</td>
<td>7.8</td>
<td>6.8</td>
<td>0.6</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9"><b>France</b></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Household
Confidence (% balance)</td>
<td>-48</td>
<td>-46</td>
<td>-15</td>
<td>-2</td>
<td>-33</td>
<td>-21</td>
<td>-25</td>
<td>-28</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
Composite (synthetic Bus Confidence Indicator (Average=100; Std Dev =
10)&nbsp;</td>
<td>98</td>
<td>101</td>
<td>109</td>
<td>-3.0</td>
<td>-10.1</td>
<td>109</td>
<td>106</td>
<td>100</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9"><b>Slovakia</b></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer
Confidence&nbsp;(% balance)</td>
<td>-8.8</td>
<td>-6.4</td>
<td>2.3</td>
<td>-2.4</td>
<td>-11.1</td>
<td>-1.0</td>
<td>-9.1</td>
<td>-14.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industry
Confidence (% balance)</td>
<td>0.7</td>
<td>2.3</td>
<td>16.3</td>
<td>-1.6</td>
<td>-15.6</td>
<td>12.1</td>
<td>7.6</td>
<td>4.6</td>
</tr>
</tbody>
</table>
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Consumer Confidence indicators were released today for France, the Netherlands and Slovakia. Business confidence indicators for the Netherlands and Slovakia were also released today. France's Composite Business Climate Indicator was [...]

Consumer and Business Confidence in The Netherlands, France and Slovakia

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Sandy Batten

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The Federal Reserve Bank of Philadelphia reported in its May survey of manufacturing activity that the Current Activity Diffusion Index fell to 4.5 this month from 15.5 in April. The Action Economics Forecast Survey had anticipated a decline to 5.0. The Philly Fed survey responses were collected from May 6 to May 13. More than 29% of the firms reported increases in general activity this month (down from 38% last month), while 25% reported decreases (up from 22%); 46% reported no change (up from 40%).

The headline index reflects the answer to a single question on the state of economic activity. Haver Analytics calculates a composite index along the lines of the ISM PMI. That calculated index fell to 46.4 in May from 49.8 in April. This indicates that even though the headline index was above zero, the components pointed to a weaker Philly Fed district manufacturing sector.

The decline in May was led by significant weakness in shipments and orders. The shipments subindex plummeted to -1.2 in May from 19.1 in April while the shipments subindex fell markedly to -7.9 from 12.2. The employment subindex rose slightly in May but remained in negative territory at -7.9. This is the seventh consecutive month that the employment index has been negative, pointing to an ongoing decline in employment. Two-thirds of the firms reported no change in employment levels this month, while the share of firms reporting decreases (20%) exceeded the share reporting increases (12%).

On balance, the firms continued to report overall increases in prices. After rising 19 points last month, the prices paid index declined 4 points to 18.7 in May. Almost 19% of the firms reported increases in input prices, while none reported decreases. The current prices received index ticked up 1 point to 6.6. Almost 13% of the firms reported increases in prices received for their own goods while 6% reported decreases. 

Expectations for business conditions in the next six months deteriorated slightly in May but remained elevated. The May reading was 32.4 versus 34.3 in April and 38.6 in March.

The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease. The Philadelphia Fed data can be found in Haver’s **SURVEYS** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.



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- Even with the May decline, the index remains in positive territory, pointing to expansion
- However, both shipments and orders subindexes fell markedly and more worryingly into contraction territory
- The employment subindex rose slightly but remained negative
- Expectations decline slightly but remain elevated


Philly Fed Manufacturing Index Falls in May

Andrew Cates

**Consensus GDP growth forecasts**
There has been a reversal of fortune in the world economy in recent weeks according to the latest Blue Chip survey of economic forecasters. The consensus forecasts for US GDP growth in 2024 was unchanged in May’s survey compared with April, at 2.4%. That’s the first time since July 2023 that US forecasters did not raise their growth expectations for this year. This stands in contrast moreover to the growth forecasts for the euro area and UK, which were lifted in May compared with April. The growth outlook for Japan in the meantime was left unchanged (see chart 1 below). 

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**Outcomes for GDP growth in Q1**
Those observations for Europe, unsurprisingly, chime with the early estimates for GDP growth in Q1. While the US economy still eked out a respectable growth rate of 0.4% q/q, that still marked its weakest pace of quarterly growth since 2022 Q2. The UK and euro area in the meantime chalked up respective growth rates of 0.6% and 0.3%, their fastest pace of growth since 2021 Q4 and 2022 Q3. That said, a bigger-than-expected contraction in Japan’s GDP of 0.5% in Q1, stands in contrast to the stabilization in growth expectations seen above. Weaker momentum in the US and stronger momentum in Europe, to be fair, partly reflect the underlying base from which the economy has shifted – i.e.  a relatively strong base in the US and a weak base in Europe. Even so, these reversals of fortune are clearly worth monitoring in the coming weeks.  

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**Germany’s under-performance**
Within Europe, nonetheless, the lingering under-performance of the German economy is another standout. One reason for this is the under-performance of activity in its industrial sector. In March 2024, for example, Germany’s industrial production was still around 9.5% lower than its pre-COVID level in January 2020. That compares with France, where production in March was some 4.2% lower than Pre-COVID levels, and Italy, where production was some 5.2% lower. Reasons for this under-performance are varied but they focus on the heavy reliance of Germany’s economy on manufacturing, amidst simmering global trade tensions and supply chain disruptions. Germany is also undergoing a major transition in its energy policy, which has led to increased dependence on imported energy, particularly natural gas from Russia. And that became extremely problematic especially after geopolitical tensions escalated.

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**The UK labour market**
Tuning back to the UK where this week’s labour market data have taken some of the shine away from its latest Q1 GDP report. These data showed another big fall in employment, albeit concentrated in the part-time sector, a further decline in job vacancies and another rise in the unemployment rate and accordingly speak to growing slack in the labour market. However, the data on wage growth were the proverbial fly in the ointment for the Bank of England. For instance, private sector regular pay rose by 0.6% month-over-month in March, following a 0.9% increase the previous month. These rates are arguably too strong for those on the BoE’s monetary policy committee who lean towards a more hawkish stance.

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**US immigration**
As for the US, while it might now be underperforming, this follows a period during which, as Chart 1 above suggests, its economy had been significantly outperforming expectations. Various factors have contributed to this, including fiscal activism, technological innovation, and robust corporate balance sheets. However, another factor gaining recognition is immigration. For instance, new data from the CBO suggest that 3.3 million net immigrants arrived in the US in 2023. Through its impact on labour force growth, consumer spending, and housing activity, immigration could have provided far more support to overall economic growth in the US last year than many observers had initially realized.

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**Global inflation**
Finally and taking a step back from the ebb and flow of the monthly inflation cycle, our last chart this week looks at the latest annual inflation data for 2023 from the World Bank. More specifically, we home in on the relatively rapid pace of global food price inflation last year when compared with levels of energy price inflation or broader levels of core (ex food and energy) CPI inflation (see chart 6). Some of the key reasons for these high inflation rates in food prices include supply chain disruption amidst intensifying geopolitical tensions, together with a likely lagged impact from high energy prices in the previous year. But another key source of food price inflation is likely to have been climate change and more extreme weather conditions: Indeed, extreme weather events, including droughts, floods, and heatwaves, affected key agricultural regions around the world last year which, in turn, reduced crop yields and tightened global supplies of food commodities.

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A Fed easing narrative has been re-energized over the past few days largely thanks to a slightly weaker than expected US CPI report this week but, more generally, because of a battery of weaker-than-expected US data over the past couple of weeks. In our charts this week we examine the latest Blue Chip survey of economic forecasters and the corresponding signals suggesting that the light is now shining a little less brightly on the US economy (see chart 1). The same survey suggests the outlook is shining a bit more brightly on Europe’s economies, albeit from a position of relative darkness, and as equally indicated by the GDP growth outcomes for Q1 2024 (Chart 2). Germany, however, continues to be a notable underperformer, which prompts us to examine the latest data on industrial production across several major euro area economies and the persistent evidence of underperformance (Chart 3). Next, we turn our attention to this week's UK labour market data, which increasingly suggest that this market is loosening (Chart 4). We then shift focus back to the US economy, highlighting one of the reasons for its relative strength in recent months —namely, higher levels of immigration (Chart 5). Finally, we address inflation issues, and specifically the relatively rapid pace of global food price inflation in recent years (Chart 6).

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Charts of the Week: Reversal of fortune

Tom Moeller

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The Consumer Price Index increased 0.3% during April following two consecutive 0.4% increases. A 0.4% rise had been expected in the Action Economics Forecast Survey. The 3.4% y/y rise compared to 3.5% in March, and was increased from a 3.1% January low. It remained below the peak 9.1% y/y increase in June of 2022. The three-month increase of 4.6% (AR) was steady with March and more than double the rise at the end of last year. As expected, prices excluding food & energy also rose 0.3% following three consecutive 0.4% monthly increases. It rose 3.6% y/y last month compared to 3.8% in March; however, during the last three months, core price inflation has accelerated to 4.1% (AR), off the 4.5% March high but higher than the 2.6% low during August of last year.

The CPI less food, energy and shelter, another measure of core pricing power, rose 0.2% after two consecutive 0.3% increases. The 2.1% y/y rise remained below the 7.6% y/y peak in February 2022.

Service costs less energy increased 0.4% in April (5.3% y/y) following two straight 0.5% increases. Transportation services costs strengthened 0.9% (11.2% y/y) following a 1.5% March jump. The cost of shelter rose 0.4% (5.5% y/y) for the fifth month in the last six as owners’ equivalent rent of primary residences increased 0.4% (5.7% y/y) for the third consecutive month. Rents of primary residences increased 0.4% (5.4% y/y) after a 0.4% gain. The cost of lodging away from home fell 0.2% (-0.3% y/y) after two months of 0.1% increase. Education & communication prices rose 0.2% (1.6% y/y) for a second straight month. Recreation services prices rose 0.3% (4.1% y/y) following a 0.1% uptick and medical care service costs rose 0.4% (2.7% y/y) after a 0.6% strengthening.

During April, the CPI for goods less food & energy dipped 0.1% (-1.3% y/y) after falling 0.2% in March. Education & communication goods costs rose 0.1% (-6.0% y/y) following a 1.2% drop in March. Prices for recreation products held steady (-2.2% y/y) after falling 0.5%. Home furnishings prices weakened 0.4% (-2.8% y/y) after a 0.1% slip, while appliance costs fell 0.9% (-5.6% y/y) after two straight months of decline. Apparel prices rose 1.2% (1.3% y/y) after rising 0.7% in March. New vehicle prices eased 0.4% both m/m and y/y after slipping 0.2% in March while used car & truck prices declined 1.4% (-6.9% y/y) after falling 1.1% in March.

Energy prices increased 1.1% (2.6% y/y) in April for a second consecutive month. These gains followed four months of decline. Gasoline prices rose 2.8% (1.2% y/y) after a 1.7% rise. Amongst other energy products, fuel oil prices rose 0.9% (-0.8% y/y) after declining 1.3% in March. Electricity prices slipped 0.1% (+5.1% y/y) after rising 0.9%, while natural gas prices declined 2.9% (-1.9% y/y) after holding steady in March.

Food prices held steady (+2.2% y/y) last month after rising 0.1% in March. Egg prices weakened 7.3% (-9.0% y/y) after five straight months of strong increase. Meat, poultry & fish prices eased 0.1% (+1.9% y/y) after rising 0.6% while cereal & bakery product prices rose 0.6% both m/m and y/y after declining 0.9% in March. Fruit & vegetable prices weakened 0.8% (+1.7% y/y) after edging 0.1% higher, while dairy prices edged up 0.1% (-1.3% y/y) and reversed the March fall. Nonalcoholic beverage prices fell 0.2% (+2.3% y/y) after a 0.3% gain.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Transportation costs surge, while shelter prices increase steadily.
- Goods price pressure weakens further.
- Energy prices move higher but food prices hold steady.

U.S. CPI Strength Diminishes in April; Core Pricing Pressures Ease

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The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo fell 11.8% during May (-10.0% y/y) to 45 from 51 in April. The reading fell short of expectations for 51 in the Informa Global Markets Survey. The NAHB figures are seasonally adjusted. During the last ten years, there has been a 65% correlation between the y/y change in the home builders index and the y/y change in housing starts.

The May index of present sales conditions in the housing market weakened 10.5% (-8.9% y/y) to 51 after rising 1.8% in April. The index for conditions in the next six months fell 15.0% (-8.9% y/y) in May to 51 after declining 3.2% in April. Home builders reported that the traffic of prospective buyers’ index weakened 11.8% (-9.1% y/y) to 30, down from the recent high of 40 in July 2023.

Amongst the regional indexes for May, the index for the Midwest fell 2.0% from April (+16.7% y/y) while the index for the South declined 10.0% (-19.6% y/y). The index for the Northeast declined 10.8% this month (+28.9% y/y) and the reading for the West dropped 25.0% both m/m and y/y.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions asking builders to rate market conditions as "good," "fair," "poor" or "very high" to "very low." The figure is thus a diffusion index with numerical results six over 50 indicating a predominance of "good" readings. The weights assigned to the individual index components are .5920 for single-family detached sales, present time, .1358 for single-family detached sales, next months and .2722 for traffic of prospective buyers. The results are included in Haver's **SURVEYS** database. The expectations figure is available in Haver's **MMSAMER** database.

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- Current & future readings fall meaningfully.
- Prospective home buyer traffic is depressed.
- Regional declines are broad-based.

Consumer and Business Confidence in The Netherlands, France and Slovakia

Summary

Louise Curley

More Economy in Brief

Philly Fed Manufacturing Index Falls in May

Charts of the Week: Reversal of fortune

U.S. CPI Strength Diminishes in April; Core Pricing Pressures Ease

U.S. Home Builder Index Declines Sharply in May

CONSUMER AND BUSINESS CONFIDENCE	Jul 08	Jun 08	Jul 07	M/M chg	Y/Y chg	2007	2006	2005
Netherlands
Consumer Confidence (% balance)	-31	-19	14	-12	-45	8	-1	-22
Producers Confidence (% balance)	2.4	5.3	7.6	-2.9	-5.2	7.8	6.8	0.6
France
Household Confidence (% balance)	-48	-46	-15	-2	-33	-21	-25	-28
Composite (synthetic Bus Confidence Indicator (Average=100; Std Dev = 10)	98	101	109	-3.0	-10.1	109	106	100
Slovakia
Consumer Confidence (% balance)	-8.8	-6.4	2.3	-2.4	-11.1	-1.0	-9.1	-14.6
Industry Confidence (% balance)	0.7	2.3	16.3	-1.6	-15.6	12.1	7.6	4.6