Economy in Brief: March 2023

A Confederation of British Industry (CBI) survey has produced significantly and broadly better data in its March survey, both for sales and orders in March and for expectations for the month ahead in April.

Comparing sales to a year ago in March, the reading relative to February was slightly weaker ticking down to a +1 from +2; however, both readings are leagues better than the January reading of -23 for sales performance relative to a year ago.

Orders compared to a year ago improved sharply in March to -2 from -25 in February and -32 in January.

Sales for the time of year in March moved up to a +12 reading from +6 in February and -3 in January.

The performance of stocks of goods relative to sales showed inventories at a + 10 in March compared to +8 in February and that compared to +23 in January. The stock-sales ratios data have to be analyzed in conjunction with the performance of sales trends. The notion that inventories are still improving and sales are improving can regarded as a positive development. The stronger increase in inventories back in January when sales were declining probably referred to unintended increases in inventories and that was not a positive or a strong reading at that time.

Looking ahead, expected April sales compared to a year ago have a + 9 reading compared to -18 in March and readings of -15 and -17 in the two earlier months.

Orders compared to a year ago have a net zero assessment in April; that compares to a -23 reading for March, -19 for February, and -23 for January. Once again, we see significant improving trends even though the net reading for April is only zero.

Expected sales adjusted for the time of year are at +13 for April, up from +11 in March and much stronger than -2 in February and +2 in January.

Stock sales ratios have a +6 reading for April, below 23 for March, 12 for February and 8 for January. But significantly, the reading is still positive and it's occurring at a time when sales are advancing more strongly and when orders are no longer falling.

In the far-right hand column, we can vet these readings for March for current data and for April for expected data compared to their historic trends. Even though we are looking at improvement, the state of the current readings is still relatively weak. Sales compared to a year ago have a 34-percentile standing, meaning that they have been weaker 34% of the time and stronger nearly 2/3 of the time. Orders compared to a year ago have a 41.6 percentile standing, closer to their median reading which occurs at a value of 50%. The time period being studied in this case is back to June 1998. Sales for the time of year are actually quite strong on this timeline; they have an 83.9 percentile standing indicating they are stronger less than 17% of the time. The stock sales ratio has an 18.5 percentile standing indicating that although positive it's still relatively low.

Turning to expectations for April, we once again find a slew of relatively weak readings with standings below their 50th percentile in all cases except for once again sales for time of year. Expected sales for time of year in April have an 84.6 percentile standing, quite similar to the standing for current performance in March. Sales compared to a year ago have 38.5 percentile standing and orders compared to a year ago have a 42.1 percentile standing; both of these are about equally weak below their key neutrality value of a 50 percentile standing. The stock sales ratio has a 13.7 percentile standing for its April expectations, slightly weaker than its current standing in March.

U.K. reports actual retail sales volume data through February; as of February, sales we're falling year-over-year by 3.5%, less weakness than the 5.1% 12-month decline logged in January. The 12-month percent change over the last 12 months has been on the order of 5% so U.K. real retail sales have been weak for some time. The queue standing for the U.K. retail sales series evaluates the year-over-year growth in sales volumes as at a 5.4 percentile standing – an extremely weak reading. This reading has been weaker only about 5% of the time. The CBI survey data are showing a lot more strength than that.

The S&P Global flash PMIs are continuing to show some resilience in the face of what have been some significant challenges. Commodity prices and inflation have been rising and high and in response central banks have been raising rates for about one year. The Russia-Ukraine war has been in progress for a year casting a pall of uncertainty across geopolitics as well as over the economic outlook. A more recent development is banking problems that have emerged, particularly in the United States and Europe and specifically in Switzerland. And, of course, it's too soon to see the impact of any banking sector problems in these data.

What we do see is stronger PMI readings across the board, except for the U.K. We see stronger readings for the services sector everywhere, once again except the U.K. There are weakening manufacturing responses for the European Monetary Union overall, for Germany, and for the U.K. in March. However, there is a widening count of sector or overall readings of weakness in progress and a surprising period of strengthening that came well into the rate hike cycle. In January, only three of the 18 readings registered month-to-month weakening. In February, there are four indications of month-to-month weakening. In March, there are five indications of month-to-month weakening. However, with 18 sectors represented in the table, the number recording weakness has only risen to five in March from three in January. In terms of changes in PMI data, it doesn't appear that tightening monetary policies are having all that much impact, certainly not a rapid impact on these economies.

If we look at the strengthening versus weakening responses over 12-month, 6-month and 3-month periods, we find overwhelming evidence of weakening over 12 months and over 6 months, not so much over 3 months. Over 3 months, Germany and the European Monetary Union show strengthening in all their measures along with the U.K. France and Japan show weakening over 3 months compared to 6 months in two sectors with manufacturing strengthening in France and services strengthening in Japan. The U.S. is the exception to all these rules with 3-month, 6-month and 12-month weakness in all the sectors on all the horizons. Let me point out again that the 3-month, 6-month and 12-month averages are applied only to hard data and so they are applied to data beginning in February not the data from March.

If we set aside our obsession with the changes and look instead up the levels of the PMI data where the nomenclature focuses on values above 50 showing expansion and below 50 showing contraction, we find that services sectors in all six of these reporting units in March and in February show expansion. In contrast, manufacturing shows contraction - that is levels below 50 for the diffusion indexes- in March and February in all six cases. Regardless of whether manufacturing did a little bit better or worse on the month than the month before, manufacturing broadly is declining while services broadly are showing ongoing expansion.

The queue percentile standing is presented in the table. These readings measure the standings of the March PMI values across all values reported since January 2019. They show percentile readings below the 50% mark in manufacturing for all reporting entities in the table. The 50% mark in ranking represents the median for the period over which data are ranked. So what we are seeing is below median values for manufacturing everywhere with rankings clustered around the 20% mark although with France below the 10% level and the U.S. at the 13.7% level. Services rank above their 50th percentile everywhere with an extremely strong reading at the 98th percentile in Japan and a strong 82nd percentile in the European Monetary Union. Those compare to a relatively weak standing for services at about the 53% level in the U.S. and a 55th percentile standing in the U.K.

The table also presents diffusion point changes month-to-month and over 3 months as well as the change versus January 2020 before COVID struck. These data show that all manufacturing readings are weaker than they were in January 2020 while most service sector readings are stronger; however, the U.K. and Germany are exceptions with small service scepter decrements to their January 2020 levels in March. The U.S. has a service sector gain of only 0.3 points on that timeline. However, over 3 months, we see service sector readings mostly better, stronger by 2.3 to 8.4 points over that span. Japan shows the smallest composite increase at 2.3 points while the U.S. shows the largest composite increase over 3 months of 8.4 points.