Economy in Brief: 2024

The EU Commission indexes for the European Monetary Union's (EMU) performance in December show an overall index improving to 96.4 from 94 in November. This continues a string of improvements that has been underway. The improvements run across most sectors although there's more flattening than improving going on – still, that's good news. Compared to September, for example, the overall index is stronger by nearly three points, the industrial index is unchanged, consumer confidence is better by nearly three points, the retail sector is unchanged, and construction is improved by two points, and the services sector is better by three points. These are small changes over a period of three months; still, they represent stability or improvement across the board.

The country level data have been improving as well. In December, only five of the seventeen early reporting countries show deceleration month-to-month. This is the same number as deteriorated for this group in November. However, in October eleven of these seventeen countries showed deterioration.

The rank standings for the industries are dominated by weakness in the industrial sector and consumer confidence. The industrial sector has a 31.2 percentile standing, consumer confidence has a 21.9 percentile standing and these have strong weights to cause the overall index for the EMU to have only a 34.8 percentile standing. This is despite retailing having a 59.4 percentile standing, construction a 74.3 percentile standing, and the services sector at a 55.2 percentile standing. Three of the EMU sector indexes have standings above their medians (rankings above 50%) while two have standings that are weaker than their medians.

Looking at the same statistics for countries, there are only four country standings above their 50th percentiles. All of those are small countries: Greece has a 61.2 percentile standing, Cyprus has a 62.7 percentile standing, Malta has a 60.1 percentile outstanding, and Lithuania has a 56.6 percentile standing. Germany, the largest economy in the monetary union, ranks 14th among the seventeen early-reporting countries, France ranks seventh, Italy 6th, and Spain 5th. Germany and France tend to be two of the strongest economies in the monetary union; however, among the four largest countries they have the weakest percentile standings, with Germany logging a percentile standing at 21% and France at about 35%.

Inflation in the European Monetary Union rose 0.6% in December (as implied by the flash rate) after falling 0.2% in November. Still, the sequential inflation rates show deceleration in progress with the 3-month pace at 0.3%, the 6-month pace at 2.5%, and the 12-month pace at 2.9%. The annual rate of expansion for inflation is clearly in a deescalating mode as 2023 ends. Hooray!

However, will the end of 2023 also be end of that good news?

Sequential inflation rates for Germany, France, Italy, and Spain show decelerations from 12 months compared to 12 months ago and for 3 months compared to 6 months ago, but the middle picture of inflation over 6 months compared to 12 months ago is mixed, with Germany and France showing inflation continuing to decelerate marking a full trend deceleration for the year, while Italy and Spain saw some inflation pick up between 12 months and 6 months. In the case of Italy, it was a minor uptick where the year-over-year inflation rate was 0.5% and the 6-month pace moved up to 0.7%. That can almost be written off as rounding error especially since the next sequential 3-month inflation rate subsequently collapsed falling at a 3.5% annual rate. In Spain, the backtrack is a little bit more substantial as the 12-month inflation rate at 3.3% moved up to a 4.5% annual rate pace over 6 months, more than a percentage point of acceleration, but then fell sharply and declined at a 1% annual rate over 3 months.

All these trends appear to be quite solid and headed on the deceleration path. If we look at the bottom of the table, there I memorialize Italian core inflation and German inflation excluding energy. There, once again, we see for Germany the ex-energy inflation rate, as we move the calculation to shorter horizons, goes from 3.6% to 2.5% to 2.1% - a clear decelerating path. Italy does exactly the same thing in a lower register with inflation at 3.2% over 12 months, decelerating to 1.2% over 6 months, and then going dead flat over 3 months. When energy prices are removed, the inflation picture remains quite good and that's significant because during this period oil prices have been falling. Brent prices fell 2.9% in October, 9.2% in November, and 6.3% in December. Over the last three months, Brent prices expressed in euros have been falling at a 53% annual rate. Clearly, the ECB’s inflation fight has a tailwind.

The composite global PMIs over a group of twenty-five countries and regions in December shows some very slight improvement. The average unweighted composite PMI overall moves up to 51.0 from 50.5 in November and from 50.2 in October. The median PMI in December moves to 50.4, up from 50.1 in November and 50.0 in October. These shifts are clear, if also exceedingly microscopic, improvements in the monthly PMIs. • Among these twenty-five jurisdictions, eight of them worsened in December compared to November; November had seen twelve worsen month-to-month, and October saw sixteen worsen compared to September. • We can also account for values above and below 50 since 50 is the separating line between a PMI indication of expansion vs. contraction. In December, eleven composite PMIs were below 50, the same as November, while thirteen were below 50 in October. • On balance, the average and the median PMIs show some improvement in December as well as the tendencies to slow and the tendency to contract. However, the change in these tendencies month-to-month is small.

We can engage these same metrics looking at 3-month, 6-month and 12-month averages of the underlying data. Looked at this way: • The average PMI weakens over 3 months compared to 6 months and weakens over 6 months compared to 12 months as well as over 12 months compared to 12 months ago. • The median is unchanged in three months compared to six months; over six months it's weaker than it was over 12 months. • Slowing propensities show no clear pattern as twelve jurisdictions slow over 12 months, which steps up to eighteen over 6 months but then drops back to thirteen over 3 months. There is no clear pattern there. • As for jurisdictions below 50, there's a slight tendency to worsen but no clear sense of direction as eight jurisdictions are below 50 over 12 months, that steps up to eleven below 50 over 6 months, and that drops back to ten being below 50 over 3 months.

The queue (or rank) standings The queue percentile standings have been becoming slightly more equivocal than they were. Eleven of the queue standings that assess growth from the period dating back to January 2019, a 60-month observation period, have values above 50, indicating that the metrics in December 2023 are above their medians for this period. The other fourteen have values that are below 50 indicating sub-par performance. The average queue percentile standing is at 45.9, an average that's below the median of 50. The median of the queue standings in December is at 35, significantly lower and indicating more chronic weakness than the average metric. Out of the twenty-five observations, five are in the lower quartile of their historic queue of data and five are in the upper quartile of their historic queue of data, relative balance.

The readings on balance are weak and the tendencies for weakness, contraction, below median performance, and slowing are still substantial even though they may not all be dominating the other trends. For example, in December, having eleven out of twenty-five of these observations showing contraction is a bad result, but that’s less than half of them. Having eight of twenty-five slowing certainly indicates that less than half of them are slowing; however, eight out of twenty-five is still a large proportion that is weakening. And this occurs with the average and median PMI values in December just barely above 50: the average at 51 the median at 50.4. Moreover, weakness is more concentrated among the larger most developed economies magnifying that weakness.