Economy in Brief: April 2023

The manufacturing climate reading for France fell to 101.1 in April from 103.5 in March and an elevated 104.5 in February. After having several months of more elevated readings, the French manufacturing gauge is reverting to weaker readings. The gauge still is not weak; its rank standing is below its historic median (below a 50-percentile rank standing). It has a moderately weak ranking value of 43.8% which is roughly 6 percentage points below its historic median on data back to 2001. However, looking at the change in this index back to January 2020 before COVID struck, the index is, on balance, lower in April 2023 than it was at that time.

Manufacturing readings Manufacturing components show that production expectations weakened in April compared to March and have weakened for two months in a row (and have net negative readings in 11 of the last 12 months). Industries report the personal likely trend for production, that is the trend applicable to the individual industries rather than to industrial production overall has weakened for three months in a row and logged a relatively sharply weaker 4.7 in April, down from 10.0 in March. The recent trend for manufacturing overall has weakened for two months in a row and is below both its January and February levels.

Orders and demand fell sharply in April; the -17 net negative reading follows a -12.7 response for March. March had improved relative to February and a two month move to stronger readings (smaller negative readings) was in progress until April. Foreign orders and demand have also weakened to -9.3 in April from -8.7 in March. That reading had improved for three-months running until April. However, the April to February readings remain clustered in a tight range. But February, March and April are significantly stronger than January.

The inventory metric shows a jump in April compared to March and gives us the highest ranking of the year at plus 21.7; it’s also the strongest reading since December.

As for prices, the ‘own likely price trend’ moved sharply lower compared to manufacturing prices in March; April was down to 12.8 from 28.1 in March. The inflation reading was stronger in January as well. Weakening price pressures have come about since these pressures peaked in December 2022. Overall, the manufacturing and industrial price level also fell to 46.8 in February from 55.9.in January; Industrial prices as a group reached peak pressure in April 2022 and pressures have been easing month-to-month since then with only one small exception in September 2022.

Standings of March readings The rank percentiles for manufacturing climate show overall industry climate below its median at a 43.8 percentile standing. Manufacturing production expectations are also below their median at a 44.9 percentile standing. The recent production trend, however, is slightly better than it's been over the previous period with 61-percentile standing, above its median. But the own-industry, or personal likely trend, shows only a 28-percentile standing, sharply below its median. Interestingly, contributors to this survey on average see their own industry performing a lot worse than for production overall. Orders and demand have a 45-percentile standing, below their historic median while foreign orders and demand have been above average, with a 61.9 percentile standing, a moderately firm reading. Inventory levels are now high in March with a 98-percentile standing; they are rarely higher. The ‘own’ expected price trend has a ranking in its 79th - nearly 80th -percentile. The manufacturing price level trend is slightly firmer near an 83-percentile standing.

Most activity readings are below their level of January 2020 before COVID struck; the exceptions are an 11.1-point change for the recent production trend and the 14.7-point change for inventory levels. Prices, of course, are much higher with the likely price trend 10.3 points higher than in January 2020 and the manufacturing sector price level higher by 27.3 points.

U.S., Euro Area and U.K. inflation lose momentum, but U.K. inflation is the most stubborn U.K. inflation, on its CPIH measure, rose 0.6% in March, a disappointingly large increase after gaining 1% in February. Inflation in the U.K. is 8.9% over 12 months, decelerating to an 8.4% annual rate over 6 months and then trimming down to 7.2% annualized pace over 3 months. This is still very hot inflation. In addition, the core measure of inflation rose 0.5% in March after rising 0.9% in February. The progression of core inflation goes from 5.6% over 12 months, rising by 5.8% when annualized over 6 months and rising again to a pace of 6.1% over 3 months. This is exactly the wrong progression for the U.K.

U.K. comparative inflation Comparing U.K. inflation to inflation in the European Monetary Union and to the United States, the U.K. has currently the highest year-over-year inflation rate by a large margin. It also has the smallest decline in the year-over-year inflation rate when all are measured on an HICP basis. Year-on year inflation on an HICP basis in EMU is 6.9%, U.K. HICP inflation is at 10.1% and U.S. HICP-basis inflation is at 5.3% (the U.S. HICP is up to date though February). Year-on-year EMU inflation is lower by 0.6%, U.K. inflation is higher by 3% and U.S. inflation is lower by 3.6%. The U.K. is a clear laggard on inflation progress. The U.S. is making the most progress in this grouping.

U.K. inflation dynamics The U.K. inflation progress for the headline is poor and for the core, it’s in the wrong direction. Not surprisingly the diffusion statistics for U.K. inflation that measure inflations breadth across the components in the table also is poor. One year ago, the year-over-year inflation rate had accelerated from what it had been a year before in 90% of these categories. Currently, over 12 months, the 12-month inflation rate is still accelerating in 64% of the categories compared to what it was one year ago. Over 6 months, there's a break, as inflation accelerates in only 27% of the categories compared to the inflation rate over 12 months. But then, over 3 months, the trends are back to broad deterioration as diffusion is again at 64% comparing the 3-month inflation rates to inflation rates over 6 months. These statistics do not show that there is much progress in train in the U.K. Over 3 months, the inflation rates that are deteriorating compared to 6-months are for housing & household expenditures, furniture outlets, transportation (reflecting the oil price weakness), and for restaurants & hotels (where, despite decelerating, the 3-month inflation rate is still 10.7% annualized).

U.K. economy: In terms of the performance, there has been a slight tendency for the unemployment rate to increase. In January, the unemployment rate is up to 3.8%; six months prior to that it had been as low as 3.5%. The unemployment rate in the U.K. has crept higher, but it doesn't show strong signs of accelerating.

On balance: The Bank of England still has work to do. In fact, its situation is somewhat worrisome because of the acceleration that we see in core inflation. Global trends (that we will look at below) are moving in the right direction; they will provide a better environment for inflation fighting ahead. They can provide some assistance in gaining control of inflation. But the current situation in the U.K. is that (1) inflation is too high, (2) it's stubborn, or in terms of the core measure, (3) it's simply moving in the wrong direction and (4) still too high. The main burden for success falls on the BOE.