Economy in Brief

Car registrations in Europe rose briskly in May, advancing by 10.5% from April as registrations (hereafter, sales) had fallen 12.9% month-to-month. Sales changes, calculated from three-month moving averages, increase month-to-month by 1.3% after a 1.7% April drop. Rather than viewing May as a strong man, it appears to be a rebound month.

Sequential growth rates show 12-month growth in European sales at 20.5%, a very strong pace. Over 6 months, registrations/sales were down by 1.2% at an annual rate. Over 3 months, they expanded at a 16.1% annual rate. Growth rates, calculated from three-month moving averages, show an increase over 12 months of 23.7%, a 6-month increase at a 2.4% pace and a 3-month increase at a 3.3% annual rate. Smoothing the sales shows steadier and continued growth in car registrations/sales in Europe. While the year-over-year gain is quite strong at 23.7%, the ensuing 3-month and 6-month growth rates are much more moderate in the 2½% to 3 ½% range, annualized.

Growth rates by country largely echo the headline as Germany, Italy, Spain, and the U.K. all show positive growth rates in May that are recovering from declines in April. France shows a 0.6% gain in May following a 1.2% rise in April, scoring 2 gains in a row but on much more moderate changes than those reported in other countries.

Sequential gains by country reveal extremely strong gains in Germany, Italy, and France, where the German three-month growth rate annualizes to 66.9%, France to 32.1%, and Italy to 23.4%. These contrast with Spain where there's a 20.3% decline in registrations and the U.K. that has a 48.5% decline in registrations at an annual rate over 3 months.

Sequential patterns show indeterminate or complex results for Germany, France, and Italy. All three cases demonstrate growth rates over 12 months near or over 20% and slip over 6 months only to rebound over 3 months to growth rates nearly as strong or at a stronger pace than they posted over 12 months. France is again the more unusual case as its growth rates are steady and accelerating with a 6-month fall back in growth that's minor in nature as growth is 18.5% over 6 months compared to 22.6% over 12 months and then advancing at a 32.1% annual rate over 3 months. Spain and the U.K., however, show clear decelerations in growth from 12-months to 6-months to 3-months with both posting double-digit declines over 3 months annualized.

The latest estimates for UK CPI inflation were firmer than expected in May. The headline inflation rate held steady while core inflation continued to rise. This will pile pressure on the Bank of England to raise its benchmark interest rate more aggressively in the weeks ahead.

The key elements of note from this data release were as follows-

• The consumer price inflation rate rose to 8.7% In May, maintaining its level from the previous month and exceeding the consensus forecast for a drop to 8.4%.

• On a monthly basis, the headline CPI index rose by 0.7% m/m in May after a climb of 1.2% in April.

• Much of the upward pressure on inflation came from a rise in prices for air travel, second-hand cars as well as recreational and cultural goods.

• Core inflation (which excludes energy, food, alcohol and tobacco) surged by 7.1% in the 12 months to May, up from 6.8% in April and the highest rate since March 1992.

• However, while core inflation rose, there was a slight easing in food price inflation which slowed to 18.4% yr/yr in May, after 19.1% in April.

• The inflation rate for goods fell to 9.7% in May, after 10.0% in April, largely as a result of a further fall in energy prices.

• Meanwhile, services inflation climbed by 7.4% in the year to May, up from 6.9% in April. This may be of particular concern to the Bank of England given the sensitivity of service sector inflation to wage pressures.

• Brighter news emerged today, however, from May’s release of producer price inflation. Specifically, headline output prices fell 0.5% m/m in May (after a downward revision to the previous month’s figures to -0.2% m-o-m), while core output prices were down 0.3% m/m and input prices fell 1.5% m/m.

Trade flows tell us that Europe is weak- The most striking feature about trade and the European Monetary Union as well as in the U.K. in April is the uniformity of weakness of exports and imports over three months and six months. The table displays data for the European Monetary Union aggregate for exports in manufacturing and nonmanufacturing, and for imports in manufacturing and nonmanufacturing. Total exports and imports are presented for France, Germany and the U.K. For other EMU members, Spain, Finland, Portugal, Belgium, and Italy, export data are presented. For all these countries and for the larger EMU economic unit, only Germany has positive export growth over three months and six months. France has positive export growth over three months and all the remaining entries have negative export growth - declining exports and declining imports (where shown)- on balance over three months and six months. The trade data are pointing to significant weakness in economic growth in Europe as of April. It is unusual for economic data to coalesce in such a striking and uniform picture.

Trade in EMU In the European Monetary Union, exports rise 1.1% over 12 months then fall by 10.4% over 6 months at annual rate and at a 10.5% annual rate over 3 months. Total imports register a similar but weaker profile with imports falling 9.5% over 12 months, at a 22.8% annual rate over 6 months and at a 15.4% annual rate over 3 months.

EMU manufacturing exports rise by 2.4% over 12 months, falling to a -12.5% annual rate over 6 months; they log a -8.5% annual rate over 3 months. Imports, by comparison, are slightly weaker over 12 months, falling by 0.7%, but then outperform exports by falling only a 10.7% annual rate over 6 months and at only a 3.4% annual rate over three months.

Nonmanufacturing trade shows exports lower by 4% over 12 months, flat over 6 months and falling at an 18.8% annual rate over three months. Imports, by comparison, are much weaker owing to the inclusion of energy where prices have been falling much faster. Imports fall at a 24.7% annual rate over 12 months, at a 42.6% annual rate over 6 months and at a 36.4% annual rate over 3 months.

Country data and trends The two largest economies in the EMU show weak trends although exports hold up better than imports. For Germany, exports rise 7.6% over 12 months, at a 1.7% annual rate over 6 months, and at a 0.8% annual rate over 3 months. These are positive growth rates over each horizon. But growth is steadily diminishing – a clear weakening pattern for German exports. For France, exports rise 9.5% over 12 months, then decline at a 6.5% annual rate over 6 months; they then recover to grow at a 0.7% annual rate over 3 months. The three-month growth rate interrupts the pattern of progressive deterioration, but there's a clear tendency to weaker growth across French exports. On the import side, both German and French exports show weakness; but only French imports show ongoing progressive weakness.

U.K. trends- The U.K., which is no longer a monetary union nor EU member, shows sharp declines in exports that nonetheless continue to rise 24.2% over 12 months. U.K. exports fall at a 14.6% annual rate over 6 months and fall at an outsized 54.9% annual rate over three months. U.K. imports fall 1.2% over 12 months and fall at 10.1% annual rate over 6 months, then slow their descent slightly with a 7.1% annual rate drop over 3 months.

Other EMU members- Next, we look at a group of countries of various sizes for Europe; all of these are European Monetary Union members. Finland, Spain, Portugal, Belgium, and Italy show declines in exports over 3 months and 6 months while most of them also show declines over 12 months with only Portugal and Italy being exceptions. Italy logs a 4.3% increase in exports over 12 months while Portugal eeks out a 0.2% increase.