Economy in Brief

Since late-2022 the German GfK measure of consumer climate has improved but has been doing so very slowly and in fits and starts. Climate improved sharply from the end of 2022 until early to mid-2023 but the sharp rise did not go on for long. Afterwards some slight erosion took place. However, near the end of 2023, there was another step up as an improvement in German climate began. Since that point, confidence has remained steady in the region of about -21 or so (a weak level) in terms of the climate headline from GfK. More recently, economic expectations have logged some fresh erosion after having a similar path and moderate rebound.

Even so, the statistics on the GfK readings are clear. Climate is at the bottom 10% of all ranked historic readings. Economic expectations, income expectations, and the propensity to buy, are the three components that lag the GfK headline by a month. Their observations through September show economic expectations at a 37-percentile standing, the propensity to buy at a 30-percentile standing, and income expectations at a 44-percentile standing. Income expectations have clawed their way higher to stand near neutrality, as the median for ranked statistics -on any measure- occurs at a ranking at the 50th percentile mark. Income expectations are coming the closest to being back at neutral although they still fall short. The propensity to buy, at the 30% ranking mark, is still substantially short of neutrality, and the same is true of economic expectations with roughly a 37-percentile standing. But overall economic climate is in much worse shape than the components on the comparison of standings. The headline GfK reading is much weaker than any average of the ranking for its components. That is not unusual because historically the average component rank only explains about 60% of the variability in the ranking of climate.

GfK components The GfK components show improvement in train as of September for the propensity to buy measure and for income expectations while economic expectations are faltering and weakening. However, the GfK component improvements where they exist are only month-to-month. All three components are weaker compared to two months ago and two of three are net weaker compared to three months ago.

Elsewhere in Europe Other European confidence measures are up-to-date only through September, like the GfK components. Italy and France show solid month-to-month improvements in September confidence while the United Kingdom shows a sizeable drop in September. Over two months only France shows an improvement and over three months Italy is unchanged as France continues to show a gain and the U.K. shows a worsening. It would be hard to look at these data and find anything better than a possible spark of good news. In terms of the standing of confidence, Italy shows strong results apart from its recent trend changes with September marking an 80.5 percentile standing in its confidence measure. France has only a 43-percentile standing despite its recent gains. The U.K. is still nearly at its median level with a standing at its 49.2 percentile despite its recent sharp erosion.

With so much weak data being reported, the INSEE household survey out of France is a breath of fresh air. Household confidence is sharply higher, rising to 95.1 in September from 92.5 in August, a jump that has been exceeded on a month-to-month basis only 12% of the time over the past 18 years. It was last stronger in February 2022, over two years ago. Yes, the September gain is sizeable.

The gain brings the level of confidence to a standing at its 49.6 percentile, near to its historic median on data back to 2001 (the median for ranked data occurs at a ranking of 50).

Granted, this only puts household confidence back at its median, but it is slightly above its mean. This qualifies as being called ‘normal.’ France has normalized its household sector despite all the Covid and post-Covid chaos that for France includes now the installation of a new government. France is also in the aftermath of having hosted the Olympics and having dealt with a nationwide transportation sabotage associated with forces trying to disrupt that event.

The headline index is below the 50% mark by small amount and among the 10-components five are also below their respective 50-percentiel standings – but not all those sub-50 readings are bad. Living standards for the past 12 months as well as the future 12 months are below, but close to their 50-percentiel ranking; the assessment for the next 12 months is one point below its mean. Next, unemployment assessment is below its median value at a percentile standing of 39.4. That is good news that expected unemployment is well-below its median.

While prices over the past 12 months register a median assessment at the 50-percentiel mark, the look-ahead for the next 12 months gets a very low 3.6 percentile standing. Inflation in France is widely, strongly, expected to be lower. That is more good news. And the favorability to save metrics are high.

One fly in the ointment is that it is not considered a favorable time to make a major purchase, as the rank standing for that assessment is a lower 18-percentile reading. Still, households rate their past financial situation as strong with a 64.2 percentile standing; the next 12 months ahead are even better with a 70.4 percentile standing.

The INSEE survey of France households in September is a refreshingly optimistic take on conditions in Europe’s second largest economy. This is particularly good news since conditions in Germany, Europe’s largest economy, still show that it is under pressure.

The Belgian National Bank index has weakened in each of the last four months. Manufacturing also has weakened for four months running. The production index has suddenly, in September, declined sharply, falling from a small negative reading over the previous four months to a suddenly much weaker reading of -23 in September. A case of SOW: Sudden onset weakness. And central banks remain concerned. They already are cutting inflation ‘slack’ to hover at above target levels as they find reasons to cut rates and try to preserve growth while exuding optimism on inflation coming to heel…some day.

Meanwhile, trends have broadly shifted in Belgium. The domestic order trend is weaker in September, falling to -15 from -6 in August. But that is no example of sudden onset weakness. The domestic orders index has been even weaker in recent months and has been fluctuating. However, foreign orders have turned sharply weaker in September, falling to -26 from -3 in August after four months of logging small negative numbers. Foreign orders are back to the sort of weak reading they had logged in February of this year except they are even a bit weaker now, in September. Prices also have turned weaker; they were last weaker back in March of this year. The coincident weakness in activity orders and prices makes it look as though encroaching economic weakness is for real.

Current assessments show persistently larger negative readings and readings with a slightly weaker tone when assessed over equal time periods on a ranking basis. Both total and foreign orders are quite weak in September and are weakening further. On a ranking basis, they have a standing in their 6th to 9th percentiles- exceptionally weak- when ranked on data back to 1997.

However, the other metrics, such as for the BNB headline, for production and trend analysis can be even weaker on ranking basis than these deep negative survey readings assessing orders. For example, the headline for the Belgian Bank index has an 11.9 percentile standing. Manufacturing has a 10.6 percentile standing. The production trend has a 1.5 percentile standing - an exceptionally weak trend assessment. The domestic order trend has a 17.9 percentile standing, but the foreign order trend has an extremely low, 2.4 percentile standing. The price trend lags behind these weak readings with a still very weak 16.1 percentile standing of its own. There is nothing here that is reassuring, and Belgium is a European country at the crossroads of a lot of trade.

The assessments for other sectors such as wholesaling & retailing, construction, and business services show rankings that range from a low at an 11.9 percentile ranking for construction to a 37.1 percentile ranking for wholesaling & retailing. Services are generally more resilient.