EU Indexes Point Lower - Across the Board

EU sentiment indexes are also lower year over year. In February the EU/EMU and all large countries' sentiment indexes fell except in Germany where a small bounce was recorded. Conditions in the UK (an EU member not an EMU member) deteriorated very sharply. Among EMU members Italy’s recent slide is the worst.

In percentile terms the ESI (EU sentiment index) stands in the 62^nd percentile of its range, about 12 percentage points above its mid-point. That is still a solid expansionary reading. But, it has been slipping for eight straight months, although no single ESI component has fallen for that many months straight. The last two months show the percentage drops in the ESI have accelerated.

Services has the highest absolute net balance reading among ESI components but it is the relative lowest in terms of its percentile standing in its range (residing in the 31^st percentile of range a very weak showing). Interestingly, despite concerns about the strong euro, the weakest sector is seemingly, the most trade insulated, services. However, there is another way to look at this since the service sector while having some items for which demand is relatively inelastic, like home services, probably also has a large degree of consumer discretionary items and it contains tourism, the latter is probably quite exchange rate sensitive. The demise of this sector may be reflecting the drop in consumer confidence which, in its 55^th percentile, is weaker than any of the economic sectors, except services. Moreover, services are very weak in the UK, 8^th percentile, and in Spain, 1.8 percentile. Tourism is important to Spain and the high euro could be taking a toll there. That is also true of Italy where the services sector is in the bottom 15 percent of its range.

Note none of the country specific ESI range readings are shown in the table below.

Retail confidence is relatively strong near the 80^th percentile, but is at the 57^th percentile in the UK, 50^th percentile in Germany, and the 28^th percentile in Spain. Oddly with all the weakness signaled in the various Italian reports the EMU retail index scores Italy in the 86^th percentile for retailing.

The retailing results stands in marked contrast to consumer confidence which stands in the 38^th percentile for Italy. Spain’s rating for the consumer is also in the 37^th percentile. The UK stands in the 54^th percentile and France in the 52^nd percentile. German consumer responses are in the in the 67^th percentile, relatively elevated for this group.

Industry is holding up partly due to investment demand in and around the euro area. Industry’s strongest component is export orders in the 84^th percentile of their range. And while production expectations are at the 67^th percentile and order volume is in the 82^nd percentile the production trend expected is only in its 61^st percentile. This sector’s strong reading may be living on borrowed time.

Employment expectations have taken a hit in the services sector. Expectations for employment grade out in the 44^th percentile and current employment also grades out below 50 at the 44^th percentile. Interestingly, retail and industrial sector employment expectations are around the 90^th percentiles of their respective ranges.

In this cycle the ESI has taken the largest drop in the UK -20 points followed by Italy at -16.5 and Spain at -14. The EMU index is off by 11.0 points while France and Germany are off by 7.5 and 7.9 points respectively.