German Confidence Flattens and Falters

Judging from consumer confidence, the largest European economies would seem to be in fine shape. German confidence for May is mooted at a 97.8% queue percentile standing, better only 2% of the time. Italy has exactly the same queue percentile standing as of its April reading. Slightly further behind is France with confidence at a 92.7 percentile standing. The U.K. is struggling with Brexit adjustment concerns and that has helped to drop its confidence ranking to its 62.4 percentile, a modest but positive standing.

Still, none of the readings indicate trouble and all of them seem to be overmatched by actual economic developments.

I wrote earlier in the week about the disconnection between Italian confidence and the Italian economic and political situations (see my April 24 commentary here). French consumer confidence is higher month-on-month, but the French are protesting change in the streets and their economic momentum is fading. Still, their confidence increases. The IFO just this week admitted that German growth is fading.

The GfK survey for Germany does show a flattening of confidence and small turn lower as of its May projection. The GfK reading has slipped to 10.8 in May from 10.9 in April. But this is not much of a slippage. The GfK measure has averaged a reading of 10.8 for the last 10 months. Its highest reading on the GfK scale has been 11.0. Any way of looking at Germany, consumer confidence is still sky high.

On a lagging basis, the German confidence components are showing somewhat weaker developments. For example, German economic expectations fell sharply in April from their March level (all components lag the headline for confine by one month) and have only an 80.4 percentile standing. Income expectations also have drifted lower; they still have an 88.8 queue (or count) percentile standing. The propensity to buy index, however, continues to churn higher and it has a 95.5 queue percentile standing. German consumers are feeling no pain and their economy is still performing well. But there are still a lot of global and local challenges to be met.

Consumers do not seem to be on the cutting edge of what the various economies are doing. Instead, I judge them to be breathing a sigh of relief that recovery is still in gear and that a decade of struggle has now been put behind them. I do not consider these readings to be statements about the future as much as a comparison with the past. And I also see consumers as having cut their expectations over the past decade making them easier to please. While consumer confidence measures remain high, I would not interpret that as much as being good news as much as it is news of the quality of the water passing under the bridge. There is little sense in these reports of what the next wave might bring.