Economy in Brief

The Confederation of British Industry Survey of retailing and wholesaling showed that retail and wholesaling sales declines slowed sharply in the U.K. in February.

Retailing Retail sales compared to a year ago were at a -7 reading in February, compared to -50 in January and -32 in December. This is a sharp improvement compared to the numbers sales had been posting; however, it is still in the lower 26-percentile of monthly reported metrics since 2000. But it is also the fifth largest month-to-month improvement on that that timeline of 284 monthly changes reported since mid-2000. This is a sharp monthly gain but still a very weak number. Orders compared to a year ago locked-in another declining figure at -14 in February, but again it was sharply better than the -36 logged in January and the -54 in December. Orders compared to a year ago have a 22.5 percentile standing. Sales, for the time of year, also improved sharply, logging a -1 reading in February compared to -47 in January and -25 in December. Sales, for the time of year, moved up above their median for this timeline to log a percentile standing in the 61st percentile. The month-to-month gain was sharp, ranking as the sixth largest change in the month-to-month survey value since mid-2000. On ranked data, the median occurs at a ranking at the 50th percentile. The reading for stocks rose slightly to 17 in February from 15 in January and also has a rank standing above its historic median, which is a standing at its 56th percentile.

Expectations March expectations for retail sales compared to a year ago also improved sharply- still logging a negative figure at -15 in March compared to -50 in February and -41 in January. However, the reading had been as strong as -6 in December of last year. Still, the month-to-month jump in the survey is the fourth largest month-to-month change in the survey value on data back to mid-2000. The ‘sales for a year-ago’ figure, despite its extraordinarily sharp improvement from February and January, still has a lower 13th percentile standing when placed in their historic queue of ranked data. Orders, for the time of year, were not much changed from February, logging another deeply negative number at -36 in March compared to -35 in February and -29 in January. The standing for the March reading is in its lower 5.6 percentile, an extremely weak reading. This is the one category that occupies a middle ground standing and does not have a strong monthly improvement. Expected orders are weak and have been bottom-scraping and weak for the last three to four months in a row. These survey responses are perplexing. On one hand, we are seeing ‘near record’ improvement month-to-month in several important categories but are still left with what are generally quite weak readings in the aftermath of those sharp improvements.

The German IFO diffusion survey weakened broadly in February. The index survey is over 5 industries plus provides an overall all-sector reading and applies itself to three venues: climate, current conditions, and expectations. We assess the readings on these 3 broad environments across the five industries on data back to 1991 and on that basis only one reading out of 18 has a standing above its median. That reading is under current conditions and the sector is construction. The construction standing; its 53.7th percentile standing places it barely above its historic median; the median on ranked data occurs at the 50th percentile mark.

Turning to the three broad areas that are surveyed, the all-sector standing for climate in February is at its 5.7 percentile. The All-sector standing for current conditions is at its 11.7th percentile and the all-sector standing for expectations is at its 9.1 percentile. In all three of these environments the readings are exceptionally weak. The climate is weak, the current conditions are weak, and they've been weak for a prolonged period. Despite that extended weakness, there continues to be weakness in expectations. This extended period of weakness has not been used successfully to repair the view of the future.

Far right-hand columns, in addition to the long-dated percentile standing column, present a column determining changes in these various metrics since January of 2020 just before COVID struck. None of the 18 readings is higher than it was in January 2020. The all-sector summary statistic for climate is lower by 24 points, for current conditions it's lower by 29 points and expectations are lower by 17 points. In all cases the stepdown compared to the pre COVID period is quite substantial. This means all these German metrics continue to run substantially below their performance of four year ago.

The far-right hand column of this table ranks data on a different timeline from the period just before Russia's invasion of Ukraine. The three venues show conditions are weak across the board although they are starting to see some stabilization on expectations. The all-sector climate index is at its low point right now at a ranking of 0. Current conditions have a ranking of 4%, extremely low and rarely lower. However, expectations have a ranking at the 48th percentile. This reading is close to the median - and recall that these statistics are being generated only since the invasion of Ukraine by Russia, so this is still a period in which the readings are going to be low - the assessment is that in February expectations are still hovering at the median for this period. And that's better than the other functional assessments for current conditions and climate by a long shot.

The chart gives us a means to understand this. If you look at the plot for the three functional surveys for climate, current conditions, and expectations note that at the very time of the invasion expectations fell very sharply immediately, while current condition and climate readings continued to erode somewhat slowly. Expectations fell to a low point and have hovered there persistently near that low, while current conditions and climate have proceeded to erode as time has passed.

The IFO survey does not paint much of an optimistic picture for this month period conditions continue to be quite weak and then the current conditions framework only services improved month-to-month. Expectations continue to show extremely low net negative readings across industries with only minor change. Climate weakened month-to-month I February except in three industries, those being construction, services, and wholesaling but only to a very minor extent. There is little reason for optimism in the wake of this survey.

Climate improved for industry in February. Manufacturing production expectations nonetheless weakened in February falling to -8.1 from -7.0 in January.

The recent trend for production is a net negative reading in February but it is improved from its weaker reading in January. The own-industry likely trend is assessed as stronger in February, that metric is the respondents’ assessment for the performance of his own industry, but that one too is weaker in February than in January. Both are below their historic means.

Orders and demand are a net negative in February, that reading is still above its historic mean. Orders and demand in February are slightly stronger than in January. Foreign orders improved in February and are well above their historic average.

The own prices and manufacturing prices overall weakened in February. Both are substantially weaker than a year ago, as well as below historic means.

Evaluated over the sample period back to 2001 all entries in the table are weak, below their historic medians, (a ranking of 50); foreign orders are the exception, they have a high 72nd percentile standing.

Foreign demand is an important factor supporting the French economy. Domestically the economy is struggling and politically dealing with farm protests. European conditions remain touch and go with the war on its door-step and new pressures to generate support for Ukraine while the US sorts out where it will stand in the middle of a political impasse.

The recent trends and expectations for production have weak standing and momentum. The good news is that inflation has weak momentum and a low standing, too. It is being driven back. The ECB is determined to reduce it further. A recent ECB communication has deemed the greater risk to be the risk of turning to ease too soon. Like in the US at the 11th hour central bankers in Europe may finally be waking up to the idea that reducing inflation from extremely elevated levels can be done but getting it all the way back down to target is more difficult and will require a more concerted effort. For a while it appeared that central bankers would be willing to cruise with inflation in an uncomfortable zone still above target. Now maybe they are deciding that they really need to get to their target values sooner rather than later. However, the state of the French economy is a reminder as to why this is difficult. The French economy is weak and in recession. It wants interest rate help. Markets have been looking for rate reductions for some time. But central banks had been so reluctant to hike rates further when inflation peaked, that they are left with inflation progress to proceed slowly, and this could also mean lingering high rates to go the final mile on inflation progress. This is not what markets want now. But it is a reminder that policy choices that seem to avoid the hard policy options, often wind up paying the piper in a different way that may also turn out to be painful.