Economy in Brief

Output in the European Monetary Union shows the median rise across early reporting members of 1.3% in November. This is a rebound from a 1.2% decline among the same members in October and compares with a 0.5% increase in September.

Progressive growth trends The medians for their manufacturing growth rates are mixed with year-over-year IP output rising by 0.4%, the six-month median shows a gain of 1.8%, while the three-month median shows a fall of 1.2%, annualized. The progression does not point to any clear trend, although the disturbing element is the decline over the recent three months with five European Monetary Union (EMU) members showing industrial production declines over three months at annual rates ranging from minus 1.2% to minus 11.4%. Over six months only three EMU members show manufacturing output declines, the same as over 12 months.

Quarter-to-date developments Quarter-to-date tracking of industrial production trends in manufacturing are up to date through November; that's two out of three months of the fourth quarter. The median annualized change for the quarter at this juncture is a decline at a 1.5% annual rate. Greece, the Netherlands, and Finland show the largest quarter-to-date declines in progress while the strongest gains come from Belgium, Ireland, and Austria. There is quite a division in growth rates among these early reporting members for fourth-quarter growth, ranging from +20% to -13%.

Recovery since Covid There are still three European Monetary Union members, Germany, France, and Portugal that have not returned to the level of manufacturing output they had enjoyed as of January 2020 before Covid struck. The median among early reporting members shows the gain from January 2020 is 8.3%. The strongest gains from January 2020 comes from Ireland, Belgium, and Austria. These contrast with the countries that have not yet reestablished January levels for output.

Nordic growth Sweden and Norway, countries that are not European Monetary Union members, also have reported manufacturing production data early. Both show output declines in November but both show increases in the recent three months. Sweden shows a 0.4% gain over 12 months, a 1.4% annual rate decline over six months and a strong 5.3% pace over three months. Norway shows positive growth rates on each timeline with growth of 0.3% over 12 months, rising to 2.6% at an annual rate over six months, and ticking down to a 2% pace over three months.

Europe a mixed picture On balance, Europe does not show us strong trends for manufacturing industrial production. There is a solid gain in November but that follows an equally weak performance in October. However, among the nine early reporting countries, four of them Austria, Belgium, Germany, and Ireland show gains in output on all horizons over 12 months, six months and three months. Among those four, Belgium and Germany show trends that are steadily accelerating. On the negative side, only Finland and Greece show declines in output on all three horizons although both of those countries also show steady deceleration is in progress in each of them.

Still in the grip of cross-currents Europe is still in the grip of various cross currents as they are still in the aftermath of the adjustment to Brexit, still adjusting to life in the wake of Covid with the Covid virus still circulating, it has a full scale war going on just outside of its border between Russia and Ukraine, and the European Central Bank is in the midst of trying to get a grip on the inflation that emerged in the post Covid period. This is a lot to deal with at once and it's not surprising that European economies are having some struggle with it. The PMI data across Europe shows that there is a broad slowing of progress that really cuts across manufacturing and services industries. With inflation still excessive, and the European Central Bank raising rates, the prognosis for growth in 2023 is guarded.

The unemployment rate in the European Monetary Union (EMU) remained at 6.5% for the second month in a row. The unemployment rate for all of the EMU ranks in the lower one percentile of where that unemployment rate has resided since April 1994. Unemployment conditions in Europe across countries are excellent and quite low compared to their historic norms.

In November among the 12 early reporting European Monetary Union members in the table, only three reported an increase in their unemployment rate: Austria, Belgium, and Portugal. Ireland saw tick up in its unemployment rate in October.

In broad terms, over three months, the unemployment rate falls in six of these countries and rises in four. Over three months, unemployment rates fall in Finland, France, Italy, Spain, Greece, and the Netherlands. Over that same three months, unemployment rates rise in Austria, Belgium, Luxembourg, and in Portugal.

Over six months, the unemployment rate for the monetary union falls by 2.5 percentage points. The unemployment rate also falls in five countries: Belgium, France, Italy, Spain, and Greece. Over the same six months, the unemployment rate rises in six countries: Austria, Finland, Luxembourg, Ireland, Portugal, and the Netherlands.

Over 12 months, the trends are much clearer cut, but the unemployment rates fall broadly. For all of EMU, the unemployment rate falls by 0.6 percentage points. Over 12 months, the unemployment rate falls in all countries except for Austria, where it rises by 0.5 percentage points, Portugal where it rises by 0.2 percentage points, and in the Netherlands where it rises by one percentage point. Greece shows the largest drop in the unemployment rate over 12 months; its rate falls by 1.7 percentage points, followed by Italy where the unemployment rate falls by 1.2 percentage points, and by Ireland where the rate falls by 0.8 percentage points.

Ranking the unemployment rates from April 1994 shows only one country to have the unemployment rate above its historic median - that's Austria with the 68.9 percentile standing. All the rest of the monetary union members have standings below their 50th percentile. Luxembourg barely ducks under that mark with the standing at its 48.8 percentile and Greece has a 47.3 percentile standing. But after those three countries, the highest unemployment rate standing is Spain at its 30.2 percentile, followed by Portugal at its 20.1 percentile followed by Italy at its 16th percentile. Unemployment rates across Europe are, broadly, historically low.

There are still high unemployment rate countries in the EMU. Spain’s unemployment rate stands at 12.4%. Greece's unemployment rate stands at 11.4%. After that, Italy is at 7.8%, France is at 7%, Finland at 6.7%, and Portugal at 6.4% and so on. The low rankings in the face of some unemployment rates that are currently still numerically high remind us that there are still structural differences across the European Monetary Union. However, a number of countries that used to carry unemployment rates closer to 15% and 20% have seen a great deal of progress on that front and no country in the table has rates anything like that.

Of course, there are still concerns. And the monetary union is benefiting from this extended recovery from COVID but at the cost of inflation that is significantly above its target rate. The European Central Bank is raising interest rates and doing so at a rather measured pace. But there is still likely to be fallout across the EMU from the ECB’s actions. We just have not seen the effects yet. When central banks fight inflation, they slow aggregate demand. The reduction in aggregate demand growth sometimes results in an outright reduction in aggregate demand and usually produces increases in unemployment. Increases in unemployment help to reduce the inflation rate that the central bank is targeting. It's an unfortunate and painful process, but that's how it works. And we are looking for these effects to visit the European Monetary Union in 2023 as the ECB continues to hike rates.

Retail sales in the European Monetary Union (EMU) rose by 0.8% in November after falling by 1.5% in October and rising by 0.8% in September. Retail sales have been gradually digging themselves out of a hole as retail sales volumes fall at a 2.8% annual rate over 12 months, fall at a 1.9% annual rate over six months, then manage an increase at a 0.4% annual rate over three months. Still, quarter-to-date retail sales volume is falling at a 2.7% annual rate.

On the other hand, motor vehicle sales and the European Union (EU) area rose by 13.3% in November, after falling by 6.7% in October, and rising by 2.1% in September. There is not a clear pattern to the growth rate of motor vehicle sales in the European Union. However, there is a consistent picture of those sales rising on all the time horizons. EU motor vehicle sales rise at an 18.6% pace over 12-months, accelerate to a 72.3% annual rate over six-months, and then ‘ease back’ to a growth rate of 35.9% over 3-months. All of these are extremely strong growth rates and suggest some ongoing recovery in the sales of motor vehicles. And, in the quarter-to-date, motor vehicle sales in EU are rising at a 36.1% annual rate.

Among the key early-reporting European countries, some of them EMU members and some of them not, there are increases in sales reported in November in six of the seven presented in the table. The exception is a decline in November in UK sales volumes. Meanwhile, Spain leads the parade of month-to-month increases with a gain of 3.8%, followed by Sweden at 2.2%, Portugal at 1.6%, Germany at 1.1%, and Norway at 0.9%.

The sequential growth rates for these countries, however, paint a mixed picture for retail sales. Germany shows declines on all the horizons from 12-months to 6-months to 3-months as does Denmark, the UK, and Sweden. Portugal and Norway show declines in all the periods with the exception that each of them has an increase over the recent three months. Only three countries in the table are EMU members: Germany, Spain, and Portugal.

EMU Member Trends: In the case of Germany the weakness in sales is diminishing as sales fall at a 5.9% pace over 12-months, that's reduced to a 4.7% pace of decline over 6-months, and that decline slows further to a -1% annual rate over one month. Spain shows outright acceleration, with sales falling 0.6% over 12-months, then rising at an 8.1% pace over 6-months, and a faster gain at a 19.3% pace over 3-months Portugal also shows sales moving to a more positive direction as they fall at a 1.3% pace over 12-months, drop at a 0.2% annual rate over 6-months, then rise at a 0.6% pace over 3-months.

Non-EMU Trends: As for the rest of the European reporters, the same progression from weaker to less weak declines holds for the most part. We see that most strongly in Norway, the condition is present for the UK. Sweden shows less weakness over 3-months than over 12-months although it shows more severe weakness over 6-months. Denmark shows weakness abating from 12-months to 6-months but then more weakness over 3-months at nearly the same pace that sales fell over 12-months appears. On balance the progression towards more strength/less weakness is stronger for the European Monetary Union member countries than for the EMU non-members.

Retail and Auto Sales Trends: The chart of retail sales volumes and passenger car registrations underscores these developments with strength in passenger car sales clearly depicted although those sales are still quite weak when compared to what historic levels of sales had been and where trends were and where they were headed prior to Covid. If we extrapolate the past to see what we would have expected at this time prior to the strike of Covid, we would expect to see levels of auto sales far superior to the ones that are being posted now, despite their current strong gains. The same is true for retail sales volumes, although the retail sales volumes did recover from Covid and then moved to even higher levels; but, since 2021 sales volumes in the European Monetary Union have continued to work their way slightly lower.

Outlook and prospects: Central banks are raising rates and with ongoing angst over the war between Russia and Ukraine, consumer attitudes within Europe have been impacted and are adversely affecting retail sales trends. Consumers are wary of what central banks are planning as they are aware that inflation is well over the top of what's targeted and they expect central banks to continue to take actions to bring inflation back into line; there are clearly concerns about what that will do to the economy. The survey data on PMIs show that, globally, as well as in Europe, there's a slowdown in progress that is now affecting both the manufacturing and the nonmanufacturing sectors. New data from the US today- although showing weakness in the US PMI statistics- also shows ongoing strength in the US job market including a decline in the unemployment rate to its cycle low in December, a largely unexpected event. With such strength and with continued firmness in wages in the United States, it seems clear that the Federal Reserve will continue to raise rates and that will put pressure on other global central banks to follow suit. It's more likely that the period ahead brings more economic weakness than some sort of recovery as the trends in retail sales in the European Monetary Union might seem to suggest. At the moment, that is a trend that will have a tough time extending itself in 2023.