Economy in Brief

U.K. consumer confidence, according to the GfK survey for January, slipped back to -45 from -42 in December. The index has been as weak as -49 back in September 2022, when it reached its all-time low. Since then, there has been some moderate rebound and now a relapse. But generally what we see is that the GfK readings continue to bounce around near their all-time lows (apart from two lower readings in October and September of 2021), the January reading is lowest on record back to January 1974). These lows can be seen to be significantly below the weakest levels reached during COVID and substantially below the lows reached during the Great Recession and the financial crisis in 2008. The U.K. is undergoing challenging economic times amid political upheaval that even extends to turbulence within the royal family. The Bank of England continues to fight excessive inflation in the U.K. The rule of thumb right now is this: if you're looking at the U.K., and if it can go wrong, it is going wrong.

GfK is mostly deteriorating In the GfK survey, 4 of 12 of the components showed month-to-month improvement, and here I'm excluding, of course, the increases logged in the CPI where the monthly rise actually marks deterioration. However, included among those components that rose on the month is ‘expectations for unemployment’ which is a bad result. But then again, on the expectations for the next 12 months, the CPI reading from consumers does decline giving them another bit of good news this time from the falling component as the Bank of England's fight against inflation is expected to yield some results. This does leave the count of ‘positive changes in components’ at 4 for the month- but that is based on the above adjustments in the count, not on a simple tally of the columnar changes.

A few survey metrics do improve, but to little avail… The other components that improve month-to-month are the household financial situation which registers a -27 net diffusion reading in January, slightly better than the -29 issued in December. That reading still sits at the lower 2.5% of its queue of values experienced over the last 20 years. The ability to save improved slightly on a diffusion value of 10 up from 8 in December. And the evaluation of confidence by upper income persons has improved to zero from -23, a relatively sharp improvement that elevates their response to the 58.5 percentile of their historic queue of responses above their historic median. But that reading contrasts sharply with confidence readings by lower income people that slipped to -56 from -47 and sits at the 0.4 percentile mark among its historic queue of data, very near its all-time low. The rich-poor divide in the U.K. appears to be undergoing a tremendous amount of stress at the same time U.K. politics is ongoing a tremendous amount of stress. This causes me to evaluate the improved assessment by upper income persons as a less than positive development. Whatever ‘good’ it implies for upper-income individuals, it may imply also much more political stress that will undermine the economy more.

Current assessments Current assessments in January show that household financial situation slipped to 15 from 17 in December and present savings slipped to 14 from 20 in December. The household financial situation has a 15-percentile standing which is quite low while savings are still above their historic median and at a queue standing at the 61st percentile.

Previous 12 months evaluated As a benchmark, assessments of the previous 12 months show deterioration in the two major components, with the assessment of inflation having gotten worse. The household financial situation assessment slipped to -31 in January from -28 in December and reached an all-time low at least over the past 20 years. The general economic situation slipped to -71 from -66 and resides in the lower 4.7 percentile of its historic queue of data - an extremely weak reading.

Little if any good news: There's little in the way of good news in this survey. It, however, is good news that the Bank of England is expected to make progress on inflation and that the ranking of inflation in the 12-months ahead is below the ranking of the 12-months behind although here we're comparing a standing that's near 100% to a standing that is only reduced by 14 percentage points to the 86th percentile. Inflation expectations are still relatively high even though progress is expected to be made. The prospects for savings to improve is a flip compared to the current situation where there was a month-to-month deterioration. Despite the improvement on the expectation front, the percentile standing for savings in the period ahead is much lower than it is for the current situation. And, of course, the difference in perceptions of conditions by income class is stark and troubling.

Japan's trade deficit in December was at 1.7 trillion yen, approximately the same as in November, down from the level of 2.4 trillion in October. Exports fell in December at a sharp 3.5% pace while imports fell at an equally sharp 3.4% pace. In November exports fell by 1.4% while imports fell by 6.3%. Trade flows have suddenly contracted sharply.

Sequential growth rates for exports show a 12.5% annual growth rate in nominal yen terms over 12 months that falls to a 1.4% growth rate over six months and degenerates to a -12.5% growth rate over three months. Imports are up at a 26.4% annual rate on the same basis over 12 months then decline at a 2.5% annual rate over six months and then decline at a 19.2% annual rate over three months. Much of this is on the back of changes in oil prices.

The exchange rate has also been on the move as the yen has fallen 18.5% against the dollar over 12 months and 11.5% on a broad trade weighted basis over the same period. Over three months, however, the yen is rising at a 21% annual rate against the dollar and an 18% annual rate on a broad trade-weighted basis.

Export prices are up by 12.2% over 12 months then they fall at a 2% annual rate over six months and fall at a 13% annual rate over three months. Import prices are up by 23% over 12 months, fall at a 7.1% annual rate over six months and then fall at a 32.7% annual rate over three months.

Trade volumes show real exports up by 0.2% over 12 months at a 3.4% agreed over six months and by 0.8% at an annual rate over three months. Exports are clinging to growth, but there's not much of it. Real imports on the other hand have been strong; they rise at a 2.7% annual rate over 12 months at a 4.9% annual rate over six months and at a 20% annual rate over three months.