Economy in Brief: August 2023

In July, global money supplies and credit demands continued to be weak or to decline- for the most part. However, on the oil front, prices rebounded strongly after a step back in June. The impulse to prices coming from money supplies is very weak despite this reversal.

Euro area trends In the euro area, money supply (M2) is falling 1.5% at an annual rate in July and credit measures are growing at less than 1/2 percent at an annual rate. Over three months money and credit growth in the European Monetary Union are declining. Over six months money and credit measures are declining, and over 12 months money is declining with credit measures up by barely 1% year-on-year. However, sequentially, the progress of growth rates to continually lower level has been truncated over three months compared to six months but not by much since we're still seeing declining growth rates, they're just smaller declines than over six months.

Turning to real balances in the monetary union, the growth of money and credit is negative over three months, six months, twelve months, two years, and three years - on all those horizons for all three measures. The decline in the demand for inflation-adjusted credit rolls on and real money balances continue to contract. For the most part, the peak negative growth rates are over twelve months with M2 money supply in the monetary union falling at a 6.2% annual rate, logging a -6.1% annual rate decline over six months and then a 4.9% annual rate drop over three months. That's a slight diminishing of downward pressure but the emphasis is on slight. Credit to residents falls by 4.3% over twelve months, slips at a 3.9% annual rate over six months and falls at a 2.9% annual rate over three months. Similarly, private credit falls at a 4.1% annual rate over twelve months, falls at a 3.8% annual rate over six months, and falls at a 2.9% annual rate over three months; these are all substantial negative growth rates, but there's evidence across all three measures of slightly diminishing downward pressures.

Overview IFO climate, current conditions, and expectations all slipped to lower readings in August compared to their levels in July. The rankings of the August indexes for climate, current conditions, and expectations are all extremely weak. The climate index has a 7.5 percentile standing, current conditions have a 14.3 percentile standing, and expectations have a 5.4 percentile standing. Over the last four months, there has been a cumulative drop in the diffusion gauges of 20 points for climate, 14.1 points for current conditions, and 19.8 points for expectations.

Climate Climate rankings by sector show the highest standing for construction at a 31.8 percentile standing compared to the lower 6.8 percentile standing for services. None of the sectors displays a climate reading above the 50% mark that designates, in each case, the median for the sector. Climate changes are negative in each of the last four months across all sectors. Wholesaling and retailing are weaker month-to-month for five straight months.

Current Conditions Current conditions erode and erode significantly in each sector compared to July. The current business situation shows declines across each of the last five months for the headline as well as in manufacturing, construction, and wholesaling. Retailing and services have shown month-to-month declines in four of the last five months. Construction actually has declined for six months in a row. Over the last 14 months, manufacturing, construction and wholesaling have seen diffusion fall month-to-month in 11 of those 14 instances. Retailing and services have declined in 8 of those 14 instances. There has clearly been an intense period of weakness over the past five months, there was some respite 6 to 9 months ago, and then 10 to 14 months ago, there was a previous heavy menu of persistent month-to-month declines. The current period represents another significant step down in current activity.

Expectations Expectations weakened in August compared to July for overall expectations as well as all sectors except retailing. Month-to-month expectations have weakened for four months in a row for overall expectations, manufacturing and construction. Expectations have weakened for three of four months in wholesaling and service and in two of four months in retailing. Expectations also have been through cold, warm, cold cycling phases with sectors generally showing persistent declines from September 2022 to March 2022, improving more persistently form December 2022 to April 2023, and then eroding consistently over the last four months.

French manufacturing and services sectors weakened in August. The climate indicator for industry fell to 96.2 from 100.7 and sits in the lower 20% of its historic range of values. The services indicator fell to 100 from 101.6 and has a queue percentile ranking in its 42.7 percentile, a standing below its historic median, but relatively stronger than the standing for industry.

Manufacturing Manufacturing production expectations weakened in August to -9.5 from -8.7 in July.

For production itself, the recent trend fell sharply to a -5.4 reading in August from 9.2 in July. Survey respondents present their own industries’ likely trend as stronger, giving it a +1 reading in August compared to a -4 reading in July. This means respondents were considerably more negative on the economy overall while expectations for their own individual industries were for conditions to improve.

Orders and demand in August fell sharply to -21.4 from -14.8 in July. Foreign orders and demand also fell sharply on the month to -15.3 from -5.1 in July. Inventory levels in general crept higher in August from July as July had crept higher from June.

Price trends in their own industries are still showing pressure, but less than in July, as the August reading was 2.8 compared to 6.9 in July. However, for the overall manufacturing price level, respondents saw overall stronger pressures, logging a 5.0 reading in August compared to 4.3 in July.

All the components show weaker values in August 2023 than in August 2022 with the sole exception of a slightly larger reading for inventories.

The percentile standings are calculated on data back to 2001; that process produces an overall percentile standing in manufacturing at the 20th percentile. For manufacturing production expectations, a 33-percentile standing emerges; the recent trend and the own industry or ‘personal likely trend’ for production are both weak standings, at their respective 16th and 18th percentiles. The orders and demand category has a 32.8 percentile standing with foreign orders and demand at a 36.8 percentile standing. Prices shown as ‘own industry’s likely trend’ are at a 47-percentile standing with the manufacturing price level at a 40.9 percentile standing. The only strong ranking in the table is for inventories; they have a 95-percentile standing and are rising. An environment where everything else is weak as inventories rise likely suggests undesired building. The INSEE manufacturing survey is weak and weakening.