Consumer Confidence Lags in Large European Economies

German consumer climate has been steadily fading in recent months although continuing to hold to a relatively strong perch based on its overall results since January 2002. Overall German consumer climate is still assessed as strong in the 81.5 percentile of its historic queue of data, marking the current observation as this strong or stronger only about 18.5% of the time – a top 20% result. Italy’s confidence on this same timeline is in its top 16th percentile, France is in its top 17th percentile, the U.K. is in its bottom 37th percentile as Brexit concerns continue to reverberate through the British economy.

Despite the strength of the economic climate reading in Germany, its components (that lag by one month) seem to point to more severe degradations in consumer attitudes. On this timeline with a one-month lag, all the components for German confidence in the GfK measure rank below the aggregate measure for climate, one by a small amount, another by a moderate amount, and the last by a great amount.

The component performing the worst is the expectation for the economy. It has a 38.6 percentile standing. The economy metric actually improved a bit in June compared to May, but that June value is still well below its median value (the median occurs at a ranking of 50%). The economy reading in this cycle peaked at a level of 54.4 in January and February of 2018, a bit more than one year ago. That compares to peak values of 58.8 at end-2010 and of 69.5 in May 2007.

Income expectations for June were last lower in March 2017. They fell by a sharp 12.2 points month-to-month in June. This monthly drop is the eight largest drop in the 209-month history of the index. A drop of this size or greater occurs only 4% of the time. Since there was a sharp gain in expectations in January of this year, there have been only small increases and relatively large monthly drops recorded subsequently, a clear winding down.

The buying index that rose by 3.2 points in June has a 79.5 percentile rank standing and is comparable to the July standing for Climate.

Beyond the long term...
However, the long-term rankings for these confidence measures may give a false impression of how they stand compared to more recent events. Since the metrics go back to 2002, there is a large weighting of the period around the great recession. If we look at a more recent characterization of these readings, we find them in the small table here. Since June 2016, a period of just over three years the German confidence measure has been weaker than its current reading only once. By the standards of the last three years, this German reading, despite having a strong standing in its full historic range, has become relatively weak. Similarly, the U.K. with a rebound in its confidence reading this month has been weaker only seven times since mid-2016, marking this as a relatively weak U.K. performance despite the rebound. Italy’s current confidence reading is the highest in three months but sits nearly midstream among the last 37 observations. However, France logs a reading that has been lower 25 times out of the last 37 observations marking it as relatively strong. The French reading was last stronger in April 2018 and then barely by a point. Compared to the other economies here, French confidence is doing quite well compared to its lot of the previous three years.

Clearly, confidence is under pressure in Europe. France is an exception as we saw in the French manufacturing report and as the Markit PMI data show. France is having more of an industrial revival as others are struggling. French consumer confidence is doing better relative to its own recent history than is the case in other European countries, too. But that only makes France an exception; France will not be a new source of growth. And with the dark clouds closing in, we can only wonder how long this performance can last, especially with recent record of domestic protests. While not as ‘bad’ as Italy, France also has an excess fiscal deficit problem and the EU has yet to decide how it will treat its Maastricht rule-breakers.