Charts of the Week: Oil Consuming

Consumer confidence in the US and Europe Latest survey data for May reveal that consumer confidence has staged a big recovery in recent months in both the euro area and the UK and is now approaching longer-term (20-year) averages. US confidence (based on the Conference Board survey), in contrast, has been far more resilient over recent months, but still well below its pre-pandemic level.

US consumer confidence and energy prices Energy price fluctuations have continued to be a key driver of consumer confidence, particularly in the United States (see chart 2). That’s probably because broader gauges of inflation expectations – and thus cost-of-living challenges – appear to be heavily swayed by the price of oil.

Euro area credit conditions The revival in consumer confidence in the euro area has also found an echo in several high-profile data points in recent weeks, including this week’s broad money supply data for April. Specifically the broad M3 aggregate increased by 1.3% y/y in April after 0.9% in March. The underlying details, however, suggested that private sector credit growth remains very week, slowing to 0.7% y/y in April, from 0.8% in March. The absence of much recovery in this component arguably suggests that the ECB’s monetary policy is hampering the provision of credit in the broader economy. As such it should not stand in the way of a likely interest rate cut at the ECB’s policy meeting next week.

Labour markets in the US, Europe and Canada High frequency data from the hiring company Indeed suggest that labour market activity has been cooling in many of the major economies for some time (see chart 4). The latest data also suggest that the global trend toward declining job postings that began in 2023 has gathered pace over the past few weeks.

The UK’s net international investment position The sharp deterioration in the UK economy’s net international investment position in recent years has been noteworthy not least given the intense focus on the UK’s economic performance over recent years during the current election campaign. A key factor driving this deterioration has been direct investment flows, specifically via a significant increase in capital outflows. Slower economic growth, coupled with high levels of political uncertainty in the UK relative to other major economies, may have contributed to this by reducing the relative attractiveness of UK assets compared with elsewhere.

China and industrial policy There has been a significant focus of late on China's overcapacity issues, particularly regarding its export practices in certain sectors. The export volumes of specific products from China have certainly shown robust growth rates over the past few years, raising discussions about whether these trends reflect policies designed to offload its excess capacity onto global markets. For instance, in April, the export volumes of electric cars from China surged by 70% y/y, while cement exports saw an even more substantial increase of 103%. Similarly, double-digit growth in export volumes have been chalked up by other goods such as solar panels and steel products, albeit at slightly lower rates. Despite the sustained surge in export volumes for these products, China's overall export prices have declined during the same period. This has sparked a debate about whether China might also be exporting deflation to the rest of the world.