Euro-Area Indices Weaken

EU/EMU confidence continues to fall. The two main regional indices are still some 5% to 6% above their average values, however. Although the decline in the index is a clear ongoing pattern (see the attached chart) the recovery process remains well under way with the EU/EMU indices each at still strong values and at relatively strong positions relative to their historic queue of values. Within their queues of historic observation the overall EU index stand is in the 68th percentile and the EMU index is positioned at the 70th percentile.

Viewed by member country Germany continues to stand at the highest position in its historic queue in the ninety-third percentile. France stands in its 81st percentile. After that the remaining large-countries’ standings drop sharply as Italy stands only in its 51st percentile and Spain stands in the fifteenth percentile of its range. Not surprising the smaller weak economics of Greece and Portugal have weak standings that are in their 10th percentiles or lower. The UK, an embattled EU member, stands in the 38th percentile of its queue after seeing Q1 GDP advance by just 0.5% in 2011-Q1. The UK austerity program is putting that economy under a great deal of stress even as inflation has flared and the central bank repeatedly has held its hand.

The EU sector that is the strongest remains the industrial sector. While falling to a reading of +5 from +7 in its net reading this month, it is skidding from its cycle high reading as well. The barometer still shows the industrial sector in the 94th percentile of its historic queue. Retailing slid from the positive side at plus-one to a negative-four reading in April and stands in the 68th percentile of its queue. After that the sector readings are all below the midpoint of their respective queues. Consumer confidence which has slipped to -14 from -13 is at the 35th percentile of this queue; Services which fell three points to plus-seven from plus-10 are still only in the 40th percentile of its queue. Construction which actually moved higher trimming its negative scoring to minus-26 from minus-27 stands in the 38th percentile of its queue.

The EU report is a varied score-card for the Zone. While the overall readings are still quite high and stand firmly in their historic ranges they are doing so being propped up by just two sectors, one of which is very strong and one of which is stable. The largest EU/EMU nations show only two qualifying as strong, with one exceptionally strong. As for the rest: Italy is floundering, the UK is well below par and Spain is struggling.

Despite the strong overall score for the Euro-Area and the EU customs union it is clear that there is a great deal of variability in this region and that the ECB’s decision to hike rates was much more a judgment call that an economic necessity. With Trichet looking the end of his term in the eye, his successor will play an important role as the ECB is now embarked on path to hike rates in region with a great many irregularities in it. The good news is that the industrial sector appears to be very strong globally. The malaise that affects Europe is much the same sort of thing that is hounding the US. In the more developed economies the industrial sector is quite strong but the service sector has lagged. That may mean that the strength in the industrial sector will prove to be a steady cyclical underpinning. And even if that is true there remains the question of how long it will take to pull up the services sector since that is where the jobs are and as long as it lags retailing will be constrained and consumer confidence will be impaired.

EU Sectors and Country level Overall Sentiment EU Apr
11 Mar
11 Feb
11 Jan
11 %ile Rank Max Min Range Mean Overall Index 105.1 107.4 107.2 105.8 77.8 81 116 67 49 100 Industrial 5 7 6 5 93.6 14 8 -39 47 -7 Consumer Confid -14 -13 -12 -13 52.9 163 2 -32 34 -11 Retail -4 1 1 4 65.7 79 8 -27 35 -6 Construction -26 -27 -26 -28 35.6 155 3 -42 45 -20 Services 7 10 10 6 59.1 105 34 -32 66 11   % M/M Apr
11 Based on
Level Level  EMU -1.0% -0.6% 1.0% 106.2 76.3 75 118 70 48 100  Germany -0.8% -0.6% 1.1% 115.2 89.8 16 120 73 47 100   France -0.7% 0.8% 0.2% 109.2 81.0 46 117 75 42 100   Italy -1.0% 0.1% -0.5% 100.2 57.6 124 121 73 48 100   Spain -1.0% -3.2% 2.4% 90.0 41.5 213 115 72 43 100 Greece -5.4% -1.3% 4.3% 74.2 13.2 245 120 67 53 100 Portugal -1.8% -6.3% 4.8% 87.1 38.2 227 117 69 48 100 Memo:UK -4.9% 2.6% 3.1% 99.5 68.4 155 116 64 51 100 All since Feb 1990 253 -Count Services: 175 -Count Sentiment is an index, sector readings are net balance diffusion measures

EU Sectors and Country level Overall Sentiment
EU	By Queue rank%	Average Level is:
Overall Index	68.0%	100.0
Industrial	94.5%	-7.4
Consumer Confid	35.6%	-11.4
Retail	68.8%	-6.4
Construction	38.7%	-19.6
Services	40.0%	10.7
		% Avg
EMU	70.4%	106.2
Germany	93.7%	115.1
France	81.8%	109.2
Italy	51.0%	100.3
Spain	15.8%	90.2
Greece	3.2%	74.5
Portugal	10.3%	87.3
Memo:UK	38.7%	99.4