Economy in Brief: February 2023

In February, the EU index for overall activity in the European Monetary Union ticked slightly lower to 99.7 from 99.8 in January. While there is little-change month-to-month, it shows that the improvement is holding up since December had a value of 97.1 and November, a value of 95.1. EMU economic assessments are moving higher, but in January and February gains are consolidating.

Sector stories The industrial confidence measure registered plus-one in both February and January, compared to readings of minus-one in both December and November. Consumer confidence improved in February moving to -19 from -20.7 in January, reflecting improvements from both December and November levels. The retailing assessment at zero in February, improves from -1 in January, -3 in December, and -6 in November - a clear ongoing trend of improvement for retailing. The construction sector is more waffling. Its February reading of +2 is above the January reading of +1, but that's below the readings for both December and November. Construction has remained relatively stronger than the other sectors; however, it is not advancing now. The services sector at +10 in February is at the same level as it was in January, but it's up from an assessment of +8 in December and of +4 in November.

Sector summary On balance, the sector readings in the European Monetary Union are stable or higher; construction is a minor exception. However, these are not high readings. The overall European Monetary Union index has a standing in its 47.9 percentile (below 50 and therefore) below its historic median level. Consumer confidence sits at an extremely weak 9.1 percentile reading, in the lower 10 percentile of its historic queue of values. The industrial sector has a 73-percentile standing; it's in the top 30% of historic readings; services have a 62-percentile reading, just inside the top 40% of readings but the sector is above its median and that's still a positive situation. Retailing and construction have the two strongest readings: retailing has a reading in its 82.9 percentile with construction in its 87.7 percentile; both are quite strong readings in historic comparison.

Since COVID... If we look at changes since the Covid situation developed, the overall index is lower by five points compared to January 2020 and all the sectors are lower compared to January 2020 except the industrial sector which is higher by six points. On balance, there has been little growth and for the most part weaker conditions over the last three years since COVID came to town.

Country-level conditions There are 18 early reporting European Monetary Union members reporting and among these 18 members all but 7 showed month-to-month improvement in February; all but two had shown improvement in January. These metrics of breadth reinforce the notion that conditions in the monetary union have been improving even if they're not strongly reflected in the aggregate data. Clearly, conditions are better in January and February, taken together, than they were in November and December, although there's scant improvement in February compared to January. That finding is echoed across the various industries as well as across countries. Country level data are, for the most part, still very weak among these 18 reporting countries. Only four have percentile standings above their medians - above a level of 50%. Among the big-four economies Germany has a rank standing as 37th percentile, France is at its 40th percentile, Spain is at its 41.6 percentile; only Italy, in its 62nd percentile, has a reading above its historic median. Among the weakest standings are Estonia at a 5.7 percentile standing, Slovakia at an 8.2 percentile standing, Belgium at a 14.9 percentile standing, and Finland at a 15.6 percentile standing.

The GfK consumer climate index for Germany that projects climate from March has improved to a reading of -30.5 from -33.8 in February. This marks the 5th month in a row that climate in Germany has improved. So far, the steps are small, but they are persistent. Economic expectations, a survey that lags by a month, have four improving months in a row; income expectations, also on a one-month lag, have five improving months in a row. The propensity to buy, another lagging component, however, is only just improved in February from January whereas in January had deteriorated compared to December. Propensity to buy readings are hovering closer to their cycle lows although the cycle lows are nowhere near global lows for this series, as they are for climate and income expectations.

The context for this month: History- Despite the rather widespread and now nearly half-year trail of improvement, the path of improvement is a shallow one and the current readings for climate and most components remain stuck at historically low levels. Climate has been lower than its March reading only 2.7% of the time on data back to January 2002. Economic expectations fare the best of the lot, with a 48.4 percentile standing as of February, marking it is quite close to its historic median level (which would be marked by a 50-percentile standing). Income expectations have a very weak, 3.5 percentile standing; they are weaker only 3 ½% of the time. Consumers’ ‘propensity to buy’ is weaker than its February reading only 20% of the time. Climate alone has a March reading; the components have readings that are up to date as of February.

Elsewhere in Europe- In addition to the improvement in Germany, the U.K. logs an improvement (on data current through February). France posts a February setback but on readings that have been rather stable over the last five months. Italy's most recent reading is in January; it marks a decline to 100.9 from a level of 102.5 in December. But each of those two readings is still the strongest reading on Italian confidence since May 2022.