Economy in Brief

Swiss confidence improved in the first quarter of 2023 rising to -30.2 from -46.5 in Q4 2022. Confidence had previously deteriorated in the third and fourth quarters. In terms of four quarter changes, confidence is still in a broad deteriorating cycle; it's fallen by 21 points over 12 quarters, by 16 points over eight quarters and by 26 points over four quarters.

The outlook for confidence improved sharply in the first quarter. The reading of -16.3 is up sharply from the -57.2 logged at the end of 2022. But the confidence outlook is lower by 11 points over twelve quarters, slightly higher, rising by 0.2 points over eight quarters, and is still net lower over four quarters, falling by 37.4 points. The outlook has been on a bit of a roller coaster in the wake of COVID and the uneven recovery and inflation it spawned.

Past confidence improved in Q1 2023 at -49, compared to -59.9 at the end of 2022. Past confidence is still slipping, having worsened by 26.2 points over four quarters after improving by 45.1 points over eight quarters, and worsening by 55.1 points over 12 quarters. The 12-quarter comparison takes us back to the Q1 2020 level when COVID first struck.

The price outlook for Switzerland has fallen to 90.3 from 104.5 as of the first quarter of 2023. Over four quarters the price outlook is now net lower down by 3.6 points; over eight quarters, however, it's higher by some 46 points, and over twelve quarters it's higher by 35 points. Obviously, inflation is still stirring. Looking at past prices, the first quarter assessment is slightly higher than the assessment for the fourth quarter at 132.7 compared to 130.7 The four-quarter change is still higher by 49.9 points; however, that's smaller than the nearly 115-point gain over eight quarters and then there is the 85-point gain over 12 quarters. These readings flag, of course, past significant rises in inflation and while past increases are still the rule the recent past has shown some improvement. And, of course, the outlook shows small declines in the price outlook – there is a progression at work.

Job security perceptions increased smartly in the first quarter of 2023 as the reading rose to plus 1.6 from -25.1 in the fourth quarter. Over 12 quarters, assessments improved by 45.9 points, over eight quarters they improved by 124 points, over four quarters they are better by 60.8 points. Much of the improvement is very recent; COVID plays a big part and those past developments and in causing people to become more worried about their job security. Now, even with the war in Ukraine in progress, and having been in progress for a year, job security in Switzerland has improved smartly.

Personal finance metrics haven't changed that much in recent quarters; the outlook for financial conditions shows a very similar reading for Q1 2023 to what it logged for Q2 2022 with some deterioration in between. Past financial conditions over the last four quarters have also been relatively stable. However, all the changes in financial conditions over four, eight, and 12 quarters show that there has been deterioration to some degree afoot- there is only one quarter in a row of improvement in financial conditions and their outlook.

The spending environment has not changed too much over the last three quarters; however, the changes over four quarters, eight quarters, and twelve quarters show deterioration although a deterioration that has been slowing.

Queue standing assessments The final column of the table evaluates the Q1 2023 readings relative to their historic performance back to 1980. On that timeline, confidence measures are extremely low, inflation measures are elevated, job security emerges as rather solid at an 86.7 percentile standing. Job security has been better less than 14% of the time. However, personal finances under current circumstances show a bottom 16% standing and the outlook has a bottom 2.3% standing. In addition, the likelihood of making a special purchase - despite solid job security - is at a very low 1.7 percentile standing. The present assessment for consumer confidence has only a 6.4 percentile standing although the outlook is better with a nearly 35-percentile standing; that's still a lower one-third-of-queue reading.

At today’s meeting of the Federal Open Market Committee, the targeted Federal Funds Rate was raised by 25 basis points to a range of 4.50% - 4.75%. The action followed one 50 basis point increase and four consecutive 75 basis point increases. The rate was set to the highest level since October 2007.

The Fed’s statement following the meeting contained the following indications.

“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”

“Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. The Committee is highly attentive to inflation risks.”

“The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously released plans.”

Today’s action was endorsed by each member of the FOMC.

The Fed issued a statement concerning the Longer-term Goals of Monetary Policy and it can be found here.

The table chronicles manufacturing PMI data as presented by the S&P survey across a wide range of global economies. Notably this month there is a divergence between what the S&P PMI data say in the U.S. for manufacturing and what the ISM survey says. In the table, I present the results from the U.S. S&P survey while in the chart I plot the U.S. ISM manufacturing data that show the U.S. continuing to erode while the U.K. and the European Monetary Union show monthly improvements.

In the S&P survey, there is an improvement in the euro area as the manufacturing PMI moves up to 48.8 in January from 47.8 in December and the two largest monetary union economies, Germany and France, also show improvement in their manufacturing sectors. The U.S. manufacturing report from S&P shows an improvement to 46.8 from 46.2. This contrasts with the U.S. manufacturing ISM reading that falls from 48.4 in December to 47.4 in January.

Turning back to the monthly S&P data, among the 18 reporting units in the table, all but five show month-to-month improvement in January; worsening are Russia and India as well as Malaysia and Taiwan. The median S&P manufacturing gauge for January is 48.9, up from 48.0 a month ago; however, the averages for PMI data from 12-months to six-months to three-months show mixed trends.

The diffusion data for these time-sequence cohorts shows that over 12-months there are only five countries that report improved results compared to the previous 12-months. Over six-months there are four countries that show improved conditions from 12-months ago. Over three-months there are eight countries that show improvements from 6-months ago. The number of reporting units that show improvements month-to-month Vs deterioration is at a standoff in January. The median reading is still weakening on trend. The question is whether the January improvement owes to data variability or whether it's beginning of something completely new.

While the odds-on call is still for recession in the U.S. and in Europe, there's a growing chorus of economists arguing that a recession can be and will be avoided and so data that begin to show some economic resilience are going to have some play and get some purchase in markets. And this will occur until the transition of these economies toward recession either continues and until recession develops or unless resilience builds on itself and shows that recession avoidance is a real event.

For the moment, there's not a great deal to go on. PMI data do show some resilience month-to-month; however, as of January there are still 11 reporters in the table with PMI values below 50 indicating the manufacturing activity is still contracting whether it is improved month to month.

Manufacturing PMI values ranked on data back to January 2020 show only five observations above their medians for this period, Russia, India, China, Indonesia, and Turkey. The rest have standings below their 50th percentile for their queue rankings with an average percentile standing at the 25.7 percentile mark which is quite weak (just outside the lower quartile). The U.S. alone has its S&P manufacturing standing as the weakest in the table at its 8th percentile; the euro area has a standing at its 24th percentile; the U.K. has a standing at its 13th percentile; Japan has a standing at its 29th percentile and so on.

Manufacturing sectors are weak compared to where they have been (since 2019) and this has not been a particularly robust period for economic growth. And data since January 2020, when COVID struck, show that every reporting unit in the table has a PMI value lower than it was before COVID except for Russia and Mexico. Taiwan is lower by 15.9 points; U.S. manufacturing slowed by 12.3 points. No other country is lower by double digits although Germany is lower by 9.8 points.