GlobalFinancial markets have been a little more unsettled in recent days as recession fears have resurfaced again in several major economies. Those fears have been amplified by some remarks from central bankers at the ECB’s conference in Sintra this week suggesting that further monetary policy restriction is likely. Still, most gauges of financial market stress have not signalled any significant instability in recent weeks. This can be partly attributed to relatively sturdy US dataflow (see chart 1). That core CPI inflation appears to have turned a corner in many major economies is arguably another reason for the absence of financial instability (see chart 2). A key exception to this, however, is the UK where core inflation has deviated from global norms with consequences for the gilt market and sterling (see chart 3). Tight labour markets, in the meantime, are one of the factors that’s compelling central banks to keep monetary policy on a restrictive path but there are some suggestions in higher-frequency data that employment activity is beginning to ebb (see chart 4). Recent business surveys from the euro area certainly support the notion that activity in that region is now weakening quite sharply (chart 5). A broader and more pronounced global slowdown will arguably now depend on how consumers respond to a tightening of monetary policy, which we explore further in our final exhibit this week (in chart 6).
USA| Jun 29 2023U.S. GDP Revised Higher in Q1
- GDP now seen up at 2.0% pace, firmer than 1.3% reported before.
- Higher exports and lower imports both contribute to upward revision.
- Consumer spending revised up, business investment revised down.
USA| Jun 29 2023U.S. Pending Home Sales Decline in May as Interest Rates Rise
- Sales fall to five-month low.
- Most regions record declines.
by:Tom Moeller
|in:Economy in Brief
USA| Jun 29 2023U.S. Initial Unemployment Insurance Claims Decline Sharply
- Claims fall to lowest level in four weeks.
- Continuing claims drop sharply to February low.
- Insured unemployment rate steady & low for 9th straight week.
by:Tom Moeller
|in:Economy in Brief
Europe| Jun 29 2023EU Commission Indexes Continue to Log Weakness
The European Commission indexes for June show the overall index for the Monetary Union slipping to 95.3 from 96.4 in May compared to readings of 98.9 in both March and April.
Countries Among the 18 early reporting European Monetary Union (EMU) members, 13 show month-to-month declines in their overall indexes with one country showing an unchanged index. This compares to 14 showing month-to-month declines a month ago and to 9 countries showing month-to-month declines two months ago in April – the breadth of declines has expanded. The declines being experienced by the overall index are broadly distributed across monetary union members; over the last two months three of the largest four countries show declines in their overall country level indexes as well.
Sectors The sector indexes in June show month-to-month erosion in the industrial sector, the retail sector, in construction and in services. Only consumer confidence is improving slightly on the month. Among the five sectors, four of them have net negative measures with services being the exception posting a plus-6 diffusion reading in June.
Standings The percentile standings of the sector readings show retailing and construction with rankings above their medians. On this ranking metric, the medians occur at a reading of 50 so that any reading above 50 is above the median. Retailing has a reading in the 58.4 percentile while construction has a reading in the 77.6 percentile. However, services, the job creating sector, has a 42.6 percentile standing with the industrial sector at a 39.5 percentile standing. Consumer confidence has a 19.1 percentile standing.
Country level standings show only three of the 18 early reporters with standings above their historic median values. Greece, Cyprus, and Italy have above median readings in June. Among the Big Four economies, Spain has a 41-percentile standing, France a 39.5-percentiel standing, and Germany a 24.7-percentile standing. Italy leads the pack with the only above-medina standing at its 54.9 percentile.
Compared to pre-Covid activity All sector readings in June, including the overall EMU index, show weaker readings than those that existed in January 2020 before COVID struck. The EMU overall index is lower by 10 points than it was in January 2020.
No country is above its January 2020 level of activity. However, Italy and Greece both match their levels of activity for their overall country readings in January 2020 as of June 2023.
On balance, this performance suggests that in the wake of COVID everything remains weak while countries have been through several cycles of being hit by the COVID recession and trying to recover. The bottom line is an activity has generally been impaired compared to what it was in January 2020 and even now there have been some waves of recovery for the most part economies were damaged by the introduction of COVID and still have not been able to restore their past levels of activity.
USA| Jun 28 2023U.S. Goods Trade Deficit Narrows in May
- Deficit average in Q2 suggests moderate subtraction from GDP growth.
- Exports decline modestly following April slump.
- Imports shortfall fall back again.
by:Tom Moeller
|in:Economy in Brief
- Sharp increase follows a small gain in prior week.
- Purchase & refinancing applications rise.
- Mortgage rates remain below late-May high.
by:Tom Moeller
|in:Economy in Brief
Europe| Jun 28 2023Slight Climate Backtrack in Germany; Confidence and Money Growth Remain Weak in Europe
The GfK measure of consumer climate in Germany slipped in July, falling to -25.4 from -24.4 in June. Climate had been improving tracking back to a cycle low in October 2022; from that point onward confidence/climate been steadily, at least in a small way, persistent in improving monthly climate until this month. The climate reading for Germany remains extremely weak with a queue percentile standing (or count percentile standing) in the lower 5% of its historic range of values.
The components for GfK climate lag the headline by a month. Economic climate in June stepped back from a 12.3 reading in May to a 3.7 reading in June. This is the weakest reading since January 2023.
The income reading weakened to -10.6 in June from -8.2 in May, although it was last slightly weaker in April 2023. This was not as sizeable a step back for income expectations as it was for economic expectations.
The propensity to buy, in contrast, improved slightly to -14.6 in June from -16.1 in May. And this measure is stronger than most readings since August 2022, although it was slightly weaker than the reading in April 2023. The propensity to buy has been stuck and a range around -13 to -15 for quite some time. The reading slipped to net negative numbers back in February 2022 and has remained negative ever since.
Other European confidence measures The table also offers consumer or household confidence readings for Italy, France, and the United Kingdom. All three of these countries showed some degree of improvement in confidence in June compared to May, where June is the most up-to-date estimate now available. The estimate for Italy has a standing at its 75.9 percentile France is much weaker at a 14-percentile standing and the U.K. is closer to the French standing at a 26.7 percentile standing. Consumer confidence in Italy has been more robust than France and the U.K. on a ranking basis for some time.
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