Economy in Brief

PMI data for October are weak on a broad front, falling for all composites in the table except for Japan and falling in all these sectors except for manufacturing in the U.K. and for services in Japan. In September, the U.S. is the exception with stronger readings for the composite, manufacturing, and services. Japan has a stronger composite and services reading in September as does France, but the United Kingdom, Germany, and the European Monetary Union all show weaker readings for all three components. In August, there are weaker readings for all the composites and most of the components with the exceptions only for manufacturing in France and manufacturing in the U.K. that both were stronger in August compared to July. The picture that emerges from this is widespread weakening.

Three-month, six-month, and twelve-month data in the table I bet it's turn hard data they exclude the October reading which is a flash reading. Based on these averages, all the three-month readings are weaker than all the six-month readings. The six-month readings are weaker than all the 12-month readings except in Japan where both services and the composite are stronger. Over 12 months, there's more variability with 10 of the 18 readings stronger on the month.

High-low standings The percentile standing which positioned the month’s reading relative to the high-low readings since January 2018 show relatively moderate and positive standings. The U.S. is the exception with a 48.6 percentile standing. Japan logs a 94th percentile standing; France logs an 80th percentile standing; the European Monetary Union logs a 71.4 percentile standing. However, these are the current index paced in a range relative to the highest and the lowest readings during this period. It's a much more powerful reading to look at the ranking of the current month among all the readings since January 2018.

Queue standings The queue standings rank the current month among all the readings since January 2018 and here the rankings changed remarkably. Japan has the highest composite standing at its 72nd percentile. After the Japan reading, it drops all the way down to a 27.6 percentile standing in France and from that we're down to a 6.9% standing in the European Monetary Union, in the U.K., and in the U.S. There's clearly a proliferation of weakness. 11 of 18 queue percentile standings reside below the 15th percentile mark.

The net drops in PMIs In October, the unweighted change among this group of countries and the EMU is for the composite to fall by 1.2 points, for manufacturing to fall by 0.9 points, and for the services reading to fall by 1.1 points. Over three months, the average drop is 1.9 points for the composite, 3.1 points for manufacturing and 1.9 points for services. Over 12 months, the average drop is 6.5 points for the composite, 8.9 points for manufacturing and 6.6 points for the composite.

Comparisons to pre-COVID levels Compared to just before COVID struck, in January 2020, there are only four readings in the table that are above that January 2020 level. They are all the readings for Japan and the manufacturing reading for Germany – the German reading is higher by only 0.4 points. On average, since January 2020, the composites are weaker by 3.6 points, manufacturing is weaker by 1.4 points, and services are weaker about 4.0 points. The boom-bust cycle related to COVID has now left us at a net weaker level. Not only are the PMI readings weaker but they're decaying; they have more negative momentum.

The GfK measure of consumer confidence in the UK rebounded slightly in October to a -47 reading from a -49 level in September- which is its all-time low. The two-point bounce is extremely small given the weak level of the September reading. The outlook for the period ahead, over the next 12 months, sees slight improvements in the household financial situation and for the general economic situation, although both continue to have extremely weak readings when it set against the background of their historic range of values. Both those readings are weaker historically less than one-half of one percent of the time. Both readings reach all-time lows in September and rebound weakly in October. The outlook for unemployment continued to be moderate and fell in October.

Retail sales are weak - Keep your eye on volume data The background in terms of the consumer confidence is extremely weak. It's not surprising that sales in September fell by 1.5% in nominal terms and by 1.4% in real terms. Over 12-months nominal sales are up by 3.8%, while real sales - sales volumes- are down by 6.9%. Inflation has become an extremely decisive factor in understanding anything in the UK economy. For example, the ranking of the year-over-year sales rate has a 60.2 percentile ranking in its historic queue of data. That’s a moderate reading, above its historic median. On the other hand, the ranking of the year-on-year percent change in real retail sales (volume) has a 0.8 percentile standing- a standing in the bottom 1% of its historic queue of data. Clearly, to understand what's going the inflation adjusted data are the way to go - and these data are weak.

Sales volumes are weak, and weakness is accelerating Retail sales data show a decline of 6.9% over 12 months, they show decline of 8.2% at an annual rate over 6-months, and a decline of 11.4% at an annual rate over three months. UK retail sales are slipping, and they're rate of decline is accelerating. The economy appears to be careening toward recession with consumer spending this weak it would be hard to imagine the economy continuing to expand. In the quarter to-date retail sales volumes are down at a 7.3% annual rate; the volume number completes the economic picture for the third quarter. ONS has reported a DGP decline from July and August and has noted that growth of 1% in the economy for September would be necessary to prevent a quarterly decline. The recession cake appears to be in the oven and nearly baked.

UK CBI survey confirms weakness Surveys of UK retail sales show marked deterioration in September compared to August, a Confederation of British Industry CBI) report shows. Retail sales for the time of year record a survey level of -10 compared to +12 in August. The CBI volume of orders measured year-over-year also shows a net negative -17 reading in September compared to +14 in August.

The queue standings for these CBI readings are still not as weak as the retail sales volumes themselves. The retail sales for time of year have about 45-percentile standing while the volume of orders year-over-year has a weak 18.6-percentile standing. The CBI survey does show encroaching weakness, however, the weakness in real retail sales appears to be much more severe than what's being picked up by the survey at least as of September. And the survey in September took a sizable turn for the worse compared to August, so it could be that retailers are just beginning to appreciate the depth of their problem situation.

Summing up Economic conditions in the UK clearly are weakening. Inflation rate is high; over 3-months (using the HICP as a benchmark) inflation is up by 6% and while that's down from the year-over-year pace of 10.1% it's still a high inflation rate and, in September, the measure advanced by 0.4% month-to-month not an indication that pressures are cooling very much. However, the Bank of England has a difficult job because the inflation rate is high and yet the economy is cooling – on the brink of recession. This will call for a very careful modulation of policy to control rising inflation and not to exacerbate the economic slide that appears to be underway. The UK also has political leadership problems: the recent resignation of the Prime Minister just set a record for the shortest term in the history of British politics. Now the government needs to reconvene and pick a new leader at a time that economic conditions are difficult and their choices, once again, are going to be contentious. The UK finds itself between a rock and a hard place at a time that global inflation is high, the global economy is sliding, there's a war in Ukraine, and energy prices continue to hover at high levels. It's not an enviable situation but it is what they face – a lot of tough choices.