Economy in Brief: February 2024

Money and Credit in EMU- Money growth rates in the European Monetary Union are starting to show clear acceleration although the move higher is moderate. M2 growth in the Monetary Union shows a decline of 1.2% over 12 months, an increase of 0.3% at an annual rate over six months, and a 1.2% annual rate increase over three months-- a clear moderate accelerating pattern. Credit to residents in the Monetary Union continues to waffle as it declines over 12 months and three months but manages an uptick over six months; private credit shows the same pattern.

Real balances in EMU- Real money balances that reflect money supply indexed for the effects of inflation also shows a tendency to move higher although it is still contracting on all horizons. Real money growth declines at a 3.9% annual rate over 12 months, declines at a 1.9% annual rate over six months, and declines at a 1% annual rate over three months. Real credit to residents in real terms shows no clear pattern but declines on the order of 2% to 3% over three months to 12 months. The same is true for real private credit.

Global money trends- Real money balances in the Monetary Union have been declining over the last three years, the same pattern is pretty much true for the U.S., the U.K., Japan, and the other major monetary center countries. U.S. and U.K. monetary growth are calculated through December rather than January because they are not yet updated. For both the U.S. and the U.K., real balances do not decline over the most recent three-month period. U.K. real balances are flat; U.S. balances increased at a 0.2% annual rate, a very small rate of increase. Only Japan, among the major monetary center countries, shows flirtation with growth in real balances even over the three years. Over three years Japan real balances grow by 0.6%; over two years they fall by 0.6%; over 12 months they rise by 0.2%; over six months they fall a 0.5% annual rate; over three months real Japan money balances are growing at a 1.7% annual rate.

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.