Economy in Brief

U.K. manufacturing output rose by 0.4% month-to-month in May, reversing the output drop from April. Sequentially output is in a low-growth profile gain at a pace of 0.6% over six months and 12 months. The three-month growth rate registers a negative 4.2% at an annual rate. Quarter-to-date IP is falling at a 4.5% annual rate. Manufacturing output is still 4.2% below its level of January 2020, before COVID struck. That’s four years and output is still lower on balance.

April showers; still few May flowers Sectors show mixed results with consumer durables output lower in May, nondurable goods output higher month-to-month by 1.1%, intermediate goods output higher, and capital goods output lower. It’s a mixed bag in May.

Sequential Growth Rates Sequential growth rates from 12-months to 6-months to 3-months show consistent negative growth rates for consumer durables. They tend toward weaker results but do not progress steadily since there is less weakness over six months than over 12 months. Similarly, consumer nondurable goods output shows consistent growth and tends toward acceleration except for a weakening in growth over six months. Intermediate goods output runs a pattern like that for consumer durables, growth rates that are consistently negative and tending toward more weakness. Capital goods output growth is positive over 12 months and six months, but growth slows over six months and declines over three months, exhibiting clear sequential deterioration.

Key Industries Key industries are mixed as well. Sequentially only food, beverages & tobacco output grows over each horizon. Textile & leather output declines on each horizon. Textile & leather is sequentially deteriorating along with vehicles and essentially utilities where 12-month and 6-month output growth is at nearly the same pace before dropping over three months. Only mining and quarrying has output stronger over three months than over 12 months.

Aussie business confidence Business confidence in Australia rose to 3.6 in June from -2.3 in May. Its rank percentile standing at the 31-percentile mark remained in the lower third of its historic queue of values. The 3-month moving average (MAV) is rising, but the 12-month MAV is falling. Business conditions eroded in the month.

The rank percentile standings (Rank %) for the headline of business conditions has a 31-percentile standing. Apart from prices, the highest percentile standings are for capacity utilization (87.3% standing), exporter sales (54.3 percentile), and exports (49.0 percentile). But prices and costs have standings of 86th percentile, 75th percentile, and 69th percentile.

The final column shows changes among the 13 components of the index are higher for 9 items and lower for 4 items, but this is after more than four years and the strongest gain is 2.4 points for inventories. On the negative side, capital expenditures are lower by 10.1 points, forward orders are lower by 8.9 points, profitability is lower by 2.2 points, and business conditions are lower by 0.4 points.

Japan’s economy watchers index current reading moved up to 47.0 in June from 45.7 in May. This move leaves the current index below its April value and continues a string of readings below 50, indicating ongoing contraction in the current index – that string is now at four months.

The future index for the economy watchers similarly rose to 47.9 in June from 46.3 in May and it's still below its April value of 48.5. Once again there's a month-to-month improvement and the continuation of a three-month string of readings below 50, indicating expected contraction in the future by the economy watchers survey.

The current index Still, the month is striking for its degree of improvement. The current headline improved month-to-month in six of nine components. Weakening on the month is the reading for housing that slipped to 45.3 from 46.7 in May; the assessment for corporations slipped to 47.3 in June from 47.9 in May; nonmanufacturers fell to 47.6 in June from a reading of over 50, at 50.1, in May. As a result of these changes, there are no readings in June in the current index above 50, which in the lexicon of diffusion index would reflect an assessment that activity was unchanged. All the sectors and categories assessed in the current index, even though many improved in the month, are still indicating ongoing contraction.

The future index The future index shows six of nine categories improving in June as well. And the futures index shows no sector in June with a reading at or above 50, underscoring that expectations are for continuing contractions in the future. The readings that weaken month-to-month are for housing that slipped to 44.0 in June from 45.7 in May, and for nonmanufacturers that slipped to 48.0 from 48.7 - these two slips match the declines and their current index as well. However, the future index also showed a slip in employment a reading that had been running read above 50, but it slipped to 49.9 in June from 50.3 in May.

Queue standings… We can further try to understand the meaning of the economy watchers index by looking at the queue standings of the diffusion readings for June. The queue standings are presented as percentages, and they reflect the percentile standing of the June economy watcher diffusion readings relative to observations back to January 2002.

Current queue Assessed in that way, the current index has four readings that are above 50% which puts them above their medians for that historic period. The strongest reading is for eating and drinking places, followed by services. However, the headline reading is only at 44.7 percentile and the weakest component is for employment with a 20.6 percentile standing. That tells us that the employment reading has been weaker than its June diffusion value of 46.2 only about 20% of the time, marking this as a significantly weak reading. The employment reading is important. However, for both current and future readings, the household, retail, and nonmanufacturer readings (in that order) are the most important.

Future queue The future index has a slightly weaker standing with its queue reading at a 41.9 percentile position. The future index has only one reading above its median and that's for manufacturers that have a 51.0 percentile standing for June. The weakest percentile standing among the future components is for housing with a 34-percentile standing, but not far off is employment with a 34.8 percentile standing, and services with a 39.1 percentile standing. The future assessments show that a great deal of weakness is still expected according to the economy watchers that were surveyed.