Economy in Brief: July 2023

The U.K. confidence measure from GfK slipped to -30 in July from -24 in June; the index had been rising from its depths after reaching a second low following a post-Covid revival in the index that did not last. In September 2022, the index fell to a reading of -49 carving out a new low in this cycle below the immediate post-Covid low.

In July, the current household financial situation backed off, falling to a reading of 19 from 22 and is back to its May level. The only component improving on the month is present savings that ticked up to 26 in July from 25 in June.

The last 12-months Compared to the last 12-months, the household financial situation deteriorated in July to a -20 reading as it fell from -15 in June. The general economic situation fell to -58 from -54. Although the reading on the CPI backed down to 118 in July from 123 in June even though inflation in the U.K. continues to run quite hot. Comparisons to conditions over the previous 12 months nonetheless for two of three metrics deteriorated except for inflation where participants saw some improvement despite what has been dismal incoming inflation news.

12-months ahead Looking ahead to the next 12 months, the household financial situation is expected to be worse, falling to -7 in July compared to -1 in June, but this is still slightly better than May’s -8 reading. The general economic situation is assessed to be worse at a -33 level in July compared to -25 a month ago; this setback interrupts a previous improving trend. Unemployment is seen lower at a reading of 25 in July compared to 30 a month ago. Savings are projected to be weaker; the survey response falls to 16 from 20 but is stronger than the two previous months’ results. And the CPI expected for 12-months ahead shows a small improvement to 76 in July from 78 in June and that compares to 83 in May. However, so far, improvement on the inflation front has been elusive.

By income group By income class, lower income people see a worsening in July compared to what they saw in June; the just survey response fell to -43 from -41 although that's an improvement from May at -47 and April at -50. For upper income persons, the outlook worsened more sharply in July at a -9 compared to a +4 in June and zero in May.

Rankings are generally low The rankings for these metrics show only four responses above the historic medians; we've ranked the data over the last 20 years, a reading of 50% on the queue assessment puts an indicator at its median for the period. On this basis, only present savings, future savings and the CPI compared to the last 12- months and the CPI compared to the next 12-months show standings above the 50th percentile mark. The high rankings for inflation are not reassuring. Overall consumer confidence has a 16.5 percentile standing with the current household financial situation at a 37.7 percentile standing and the household financial situation for 12-months ahead having a 22.9 percentile standing - some improvement on a rank-standing basis, but not much. The general economic situation has a 22-percentile standing over the last 12-months. Looking ahead to the next 12-months, it has a nearly identical 21.6 percentile standing. Both are quite weak. Unemployment prospects have a 44.9 percentile standing putting them below their historic median; in this case, a rating below the median is better than one above it. On the other hand, it's not below the median by that much as it's a 44.9 percentile standing.

The French industry gauge from INSEE edged higher, rising to 100.3 in July from 100.0 in June. Despite the increase the standing for the climate gauge is at its 40.4 percentile. That leaves it below 50, the level that marks its median value.

The percentile standings in the table are telling. For production, the personal likely trend is at an anemic 6.9 percentile standing. That response tells us that the likely trend for production in the respondents’ own industry is exceptionally low. Interestingly respondents to this survey – quite different from being in denial- are much more downbeat on their own prospects compared to industry overall where the recent trend is higher on the month at +8.8, up from +2.6 in June. The recent trend also has a standing in its 57th percentile. While industry overall performs solidly, firms are very worried about their own prospects.

External demand is king Orders and demand overall have a 49.4 percentile standing, essentially on top of their historic median. And foreign orders, that improved sharply to -5.7 in July from -15.0 in June, have a 74.5 percentile standing - much stronger than for orders and demand overall. France seems to have a lot of its stimulus and support coming from external demand.

Meanwhile, inventory levels rank high at an 88.3 percentile standing. This is not a good sign. When demand weakens inventories often are ‘the residual’ that firms can’t control. As firms move to cut orders in a weakening environment, there are always lags, goods in shipment, and if sales continue to weaken, inventories will continue to pile up as a result.

Own-prices rose in July while the manufacturing price level response slipped to +4 in July from +7.1 in June. Respondents own likely price level has a 63.6 percentile standing compared to a standing at its 38.1 percentile standing for manufacturing prices. For services inflation forces are much stronger.