EU Sentiment Erodes on EU Commission Metrics

The European Commission reading for overall sentiment in July slipped again to 94.5 from 95.3 in June, continuing a 3-month rundown in the overall assessment of sentiment for the Monetary Union.

July saw slippage in the industrial measure that fell to -9 from -7 in June, continuing a string of ongoing declines in that sector. Construction also fell to -3 from -2 in June, continuing a series of slides for that sector. The services sector was unchanged at a reading of +6 that it had fallen to in June from a value of +7 in May - this continues a series of low or slipping readings for the services sector. Month-to-month retailing improved slightly, rising to a -5 reading from -6 in June, bringing it back to its May level of -5. Consumer confidence also improved to -15.1 from -16.1 in June; there is a series of small improvements there as well in eight of the last nine months.

On balance, sentiment is slipping; however, there are several key sectors that are showing some signs of stability, recovery, or less slippage overall.

Slippage across countries Looking at the big four economies, there was slippage in Germany and France in July while Italy and Spain showed improvements. In June, there were declines in the big four economies, except for France and the same is true in May, when there were declines in the big four economies excepting France. But declines are posted by the large economies and in all cases where declines are present, they represent drops of 1% or more. In July, both Italy and Spain improve; Spain's improvement is a substantial improvement of 1.3% as Italy ticked higher by only 0.1%. Weakness dominates the large economies, but it has some notable exceptions.

Looking across the whole of the Monetary Union, 18 of 19 members report. In July, 7 members show declines in sentiment; this compares to 13 members showing declines in June, and 14 members showing declines in May. But as we demonstrate above, the largest economies are still showing declines. Germany, the largest EMU economy, logs month-to-month to decline on all three-months. France shows a month-to-month decline only in July, while Italy and Spain show declines in June and May but then rebound in July.

Sector standings The percentile standings by sector show two sectors, retailing and construction, with performance above their historic medians on data since about 1990. However, the overall index has a standing near its lower quartile at a 27.7 percentile standing; the industrial sector has a lower 30th percentile standing, consumer confidence has lower 20th percentile standing while the services sector has a 43-percentile standing.

Standings by country The standing data by countries show that among the eighteen countries, only four have readings that are above their historic medians. Those four are Cyprus with a 62.7 percentile standing, Malta at a 79th percentile standing, Greece with an 89-percentile standing, and Italy with the 57-percentile standing. For the remaining countries, the standings are much lower with the highest country percentile standings being Spain at a 44-percentile standing and Portugal at about a 40-percentile standing. Only Luxembourg (3.3%) and Estonia (5.7%) log single-digit standings. There are a number of countries that have standings between the 10th and 20th percentiles including Austria, Belgium, Finland, the Netherlands, Slovenia, and Slovakia… as well as Germany. Nine countries stand in the lower one-fifth of their historic queue of data compared to only one in the top one fifth of its historic queue.

The table below provides assessments of the various sector readings by country with the four largest Monetary Union members. • All large countries have industry measures below their 50th percentile with Germany and France being among the weakest. • Consumer confidence is below its median among and all members except Spain that has a 57th percentile standing. The weakest confidence reading is in Germany. • Retailing is at an overall reading in the 50th percentile for the Monetary Union boosted by Italy that has a 92.9 percentile standing: an above-median standing for Italy and Spain amid weak readings for the two largest Monetary Union economies with Germany's 29-percentile standing the weakest retail sector. • Services in the Monetary Union follows to some extent the pattern in retailing with Italy having an 87.9 percentile standing, and Spain an above-median 52.8 percentile standing. Germany has the weakest standing at its 23rd percentile. On this timeline, the services standing is at its 43.8 percentile for the whole of the Monetary Union. • Construction has above median readings every place except in Germany; the reading for the Monetary Union is at its 66.5 percentile. • The Monetary Union sentiment readings for these large economies are consolidated here. Only Italy has a reading above its historic median, with Germany having a lower 20th percentile standing.

Summing up On balance, we continue to see a lot of weakness in the Monetary Union and the weakness is across countries and across various sectors although now we're also seeing some pockets of resilience. That has only resulted in four countries with sentiment readings above their historic medians – so hold the optimism. The overall ranking for the Monetary Union is in its lower 27th percentile; that is still extremely weak. I would caution against thinking that there's anything significant brewing in the sense of growth. However, we do see a flattening out in the services sector, and we see some improvement in retailing, and in consumer confidence. Consumer confidence is improving in these measures in the U.S. as well as in the EMU. It is an interesting phenomenon with interest rates still high and rising and with inflation still high but coming down. As we've seen from the retailing sector in the U.S. as well as in the Monetary Union, retailing has been benefiting from this and retaining some amount of resilience. In the Monetary Union sector rankings, the services sector is one of the few that's still above its historic median in two large EMU countries. It's clear that the consumer is showing a lot more life than the industrial sector as it is one of only two EMU sectors with an above-median ranking (the other is construction). And we do get a lot of readings on the industrial sectors globally; that may account for why it's somewhat surprising to see this firmness in retailing against the preponderance of weak industrial readings that we are bombarded with month-by-month.