Economy in Brief

German consumer confidence/climate on the forward-looking GfK measure has reached its highest reading in the past two years. On the surface, this sounds impressive, but in fact over the past two years confidence has varied in range from -24.4 to -42.8 with a median value of -28. The reading today of -24.2 for May is only marginally better than what it has been over the last two years and over the last two years there have been 16 readings above -30. The six-month moving average of the climate index increases to -27.2 in May from -27.8 in April. The six-month MAV was last at this level in February 2024 and was higher in August 2023-January 2024. What we have with the May reading is a marginal nudge to the higher part of the range that we have been seeing for the past two years. If we go back to April 2022 that's when we start to see a real shift in the level for confidence on the GfK measure, we see a dramatic shift in the level of climate. In April 2022, the headline measure was -15.7 and in March 2022 it was -8.5. While the May reading takes us back to the cusp of those very low readings, it only does that chronologically; it doesn't do that in terms of the intensity of the reading.

Context! - The rank standing of the reading provides some information on this. The May 2024 climate reading stands in the lower 9.1 percentile of its historic queue of data. Viewed as a position and its high-low range, the consumer climate reading from GfK has a 34.6 percentile standing. That higher standing comes about because the low point for the reading is so very much lower than where it is right now below point comes at a reading of -42.8. The economic expectations and income ratings as well as propensity to buy ratings are also weak but not as weak as the GfK climate headline. The component readings for the GfK report lagged by one month so the most up-to-date reading for these components are through April. As of April, the economic expectation rating rose from -31 in March to 0.7 in April; the income rating rose from -1.5 in March to 10.7 in April; the propensity to buy reading rose from -15.3 in March to -12.6 in April. These readings give us count percentile or cube percentile standings: the 36.5 percentile for economic expectations, the 45.6 percentile for income expectations, and the 25.9 percentile for the propensity to buy. Income expectations has made the largest leap forward with its jump to 10.7 in April from -1.5 in March; it's a leap that is clearly unmatched by the improvement that we've seen in the headline for climate that is barely inching ahead, having posted -28.8 in March, risen to -27.3 in April and moved further up to -24.2 in May.

Improvement, yes, but still not good- All the components have queue or count percentile standings below the 50-percentile mark which means they are below their historic median levels. The propensity to buy is the relative-weakest component just above the lower quartile of its historic queue. Income expectations are closest to their median, with their 45.6 percentile standing. While ‘expected’ German incomes are getting close to their median value, the propensity to buy is lagging behind badly. And economic conditions are also considered to be inferior to expectations for income. It's clear that the German economy is still in this very weak period that it's been in since COVID and the Russia invasion of Ukraine. Germany hasn't really made the transformation to a moderate recovering economy. The IFO report, released just earlier this week, revealed widespread improvements but still extremely low percentile standings for the various sectors on that gauge. There is considerable evidence suggesting that the German economy is improving; however, the metrics that assess performance of industry or the level of consumer confidence or comfort continue to lag badly behind historic norms.

Elsewhere in Europe- The table also provides information for other countries the rankings for Italy, France, and the United Kingdom. They generally show better consumer confidence than in Germany’s GfK metric. The confidence metrics for these countries tend to lag one or two months behind the German measure which is not surprising because the GfK metric is for May; it's looking one month ahead. Italy has an updated value as of April; from February to March to April, the Italian data showed slippage in confidence although the percentile standing for the April Italian confidence measures is its 70th percentile of its historic queue of data, quite a bit better than the numbers from Germany. France's most up-to-date number is for March; for France, conditions have been holding steady. The percentile standing for its March metric is at its 37.4 percentile like the components for the German GfK metric that are up to date through April. The U.K. confidence measure has been stable over the last three months with just some minor slippage. It has a 32nd percentile standing in its historic queue of data. All these cases evaluate the consumer metrics back to June 2002. Queue (or rank) standings for all these countries, therefore, are executed over the exact same timeline so that they are directly comparable.

The April IFO improves but is a mash-up- The IFO survey in April exhibits broad-based improvement in climate, current conditions, and expectations. However, among the three categories, the least-broad improvement is in current conditions module. Current conditions show a monthly worsening for manufacturing, construction, and wholesaling. But the all-sector reading is boosted to a value of_+2.6 in April from +0.6 in March on the back of improved conditions in retail and a strong month-to-month gain in services conditions. Manufacturing still slips by five points month-to-month as wholesaling slips by 3-points, and construction drops by about a point more in April than in March. But retailing improves month-to-month by five points and services improve by nearly six points, driving the overall all-sector current-index higher. The current situation is still clearly in flux with so much weakening and improving going on at the same time in different sectors and industries.

Changes are one thing; the level of assessment is another- We are speaking here (so far) only of changes since the absolute levels of these readings remains weak or no better than middling across the board. The all-sector queue rankings in April find climate at a 23.2 percentile standing, the current index at a 15.9 percentile standing, and a 15.1 percentile standing for expectations. The standing data leave no doubt about the continuing impacted state of the German economy. The monthly gains are still good news. But this news is still not enough to buoy spirits or enough output to make a significant mark in the outlook. Moreover, the bifurcated nature of the current readings, with some improving sharply and some still back-tracking sharply, leaves a quizzical ‘buzz’ in the air.

The current survey- In the current survey, construction (54.1 percentile) and retailing (66th percentile) are the only current queue standings above 50, a level that marks each entries’ historic median. Manufacturing, wholesaling, and services all still reside in the lower one fifth or one fourth of their historic queue of data- weaker-than- ‘this’ only one fourth or one fifth of the time.

The climate and expectations surveys- All the climate readings are below their 50th percentiles with retailing’s 46.9 percentile standing, the closest to breaking through to an above-median reading. But the all-sector climate standings are otherwise bottom quartile readings or worse. Despite gains (and broad gains!) this month, expectations are marked by an all-sector standing in its 15.9 percentile. Ominously, the services category that shows such a jump in its current reading makes the smallest possible one-tick improvement in expectations for April. That is not a resounding endorsement of the month’s jump as a future trend.