Economy in Brief

The flash PMIs from Standard & Poor’s in January resemble a Fleetwood Mac song as they go their own way. Conditions are stronger in the EMU region as well as in Germany. But the composite PMIs are weaker in France, the U.K., Japan, and the U.S. However, for manufacturing, it's a different tune. Manufacturing improves in January in the EMU region, Germany, France, and the U.K.; it weakens only in Japan and the U.S.

Still, we're talking about month-to-month gyrations here. The historical averages show all regions weaker on average over three months compared to over six months and most regions are weaker on their six-month averages than on their 12-month averages. Japan’s headline composite and its service sector are the only exceptions. Year-over-year changes based on average data are different, with service sectors stronger in the EMU, France, the U.K., and Japan. Bolstered by service sector strength, the French composite is also stronger year-over-year. Japan’s composite is stronger year-over-year as well, and so is its manufacturing gauge.

Period to period changes Some of the month-to-month changes (second to last column on the right) are substantial with the German composite up by 4.6 points and the EMU composite up by 2.9 points. But in France, the composite is lower by 1.2 points, in the U.S. by 1.6 points, in Japan by one point, and the U.K. deteriorates by 0.4 points, month-to-month.

Over three months, the German composite is up by 5.6 points, the EMU composite is up by 3.1 points and the U.K. composite is up by 0.6 points, but the U.S. is lower by 1.6 points with Japan and France both lower by one point. These results indicate fewer uniform changes even over three months.

Standings in January The queue standings show all the observations in January, below their historic medians calculated back to January 2019 - except for Japan where services and the composite have relatively strong percentile rankings for the period. The U.S. and U.K. have the weakest composite standings on this period, in their respective 12th percentile and 14th percentile. France has a 24.5 percentile standing. Germany has a 28.6 percentile standing. The European Monetary Union has a 32.7 percentile standing. Manufacturing gauges for these regions range from a low percentile standing of 6.1% in the U.S. to a 38.8 percentile for the EMU and France.

The big picture… In the big picture, there's still a great deal of weakness in the highly developed country area, not only are the percentile standings low but most of the reports show declines for the composite and the manufacturing and in services indexes compared to the January 2020 levels, the levels that prevailed before COVID struck. The exceptions are that all three Japanese measures are somewhat higher than that level and in Germany manufacturing is now 1.7 points higher than it was in January 2020. All the rest of the gauges are lower on balance. That finding signals no growth and in fact a step back for most of these observations over a three-year span. Among the 18 PMI readings in January for the 3 sectors across six areas, only 6 (one-third of them) show PMI diffusion readings of 50% or higher – and no reading is even as high as 51%. It’s fair to say all reading are clustered around ‘unchanged’ or lower.

Danish confidence improved again in January marking the third monthly improvement in a row; however, the index has still been weaker only 1.2% of the time and its history back to 1995 marking the January reading as a still exceptionally weak reading. Like elsewhere in the world, Danish confidence had been negative but really took a tumble in March at the time the Federal Reserve in the United States began raising rates. In February 2022 Danish confidence had been -3.2; in March it fell to -14.4 then quickly dropped in April to -20.9. The index remained weak and skidded to a low at -37 in October 2022, and it has been gradually improving from that low-point.

Changes in monthly consumer component readings In January, the past and future financial situations are beginning to score somewhat improved results as the financial situation over the last 12 months improved in January by 4.7 points, building on a gain of 1.5 points in December. The look ahead reading for the next 12 months is up by 4.1 points month-to-month after falling by 0.4 points in December.

The past general economic situation has been improving slightly from November and December and that continues in January albeit at a stepped down pace. The expectations for the future stepped up in November, scoring a strong 12.2 gain compared to a 1.9-point drop in October. It continues to improve, logging a 0.4-point increase in December and moving up to a 5.4-point gain in January.

The development of inflation has begun to get some negative responses indicating that there are some expectations that inflation will be rolled back. The reading for December fell by 1.8 points, in January it fell by 8.2 points; these are backward looking reflections for the last 12 months. Looking at 12-months ahead, November shows a 12.5-point drop, December a 7.3-point drop, in January a 10.1-point drop indicating that there is a substantially entrenched view that inflation is going to be brought to heel. At the same time, concerns about unemployment have dissipated slightly, unemployment concerns have jumped, posting a change of 14.2 points in March, as the Federal Reserve in the U.S. was hiking rates. The next biggest increase came in October 2022 at an increase of 13.4 month-to-month but that was followed in November by a slip of 5.6 points. December then brought an increase of 4.6 points, but January now brings us a negative change of -2.9 points. Clearly Danish consumers are beginning to vacillate about whether the future offers them better or worse unemployment conditions for the 12 months ahead.

After a string of negative changes and two-months of improvement, the backward-looking assessments on conditions for making a major purchase, deteriorated in January. The forward-looking responses, however, have improved for three months in a row, gaining by 2.6 points in January, building on a 4.2-point gain in December and a 1.7-point gain in November.

The ability to save over the past 12-months as well as over the next 12 months shows improvements in both December and January.

The general financial situation shows improvement of 3.4 points in January after a decline in December; that followed two months of improvements. It's hard to call any of this a lasting trend. Consumers still seem to be trying to puzzle out where things are going.

The rankings on the level of the responses in January provide the bottom line on where consumers stand. The consumer confidence indicator has been weaker 1.2% of the time, the financial situation over the past 12 months, over the next 12 months and the general economy situation over the last 12 months all have standings in the lower 5% of their queue of historic values. The look-ahead for the economy over the next 12 months shows some improvement with a nearly 18 percentile standing; that's better than a lower 5 percentile standing, but still not impressive. Consumer prices over the last 12 months have a 97.6 percentile standing, indicating there has been a lot of inflation. Over the next 12 months, that standing is down to 25.2%, indicating that an abatement of inflation and a decline in inflationary pressures is more widely anticipated. However, the unemployment trends over the next 12 months continue to have a high 94.5 percentile ranking, indicating that there are concerns that there will be an unemployment price to pay for getting inflation under control.

The current favorability of the environment for spending is in its lower one percentile. Looking ahead, to the next 12 months, it's still only in the 1.2 percentile of its queue of historic data. Favorability to save both in the past 12 months and the forward-looking 12-months is near its median at a 47-percentile standing. The general financial situation for households has a lower 5 percentile standing - extremely weak.

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.