EU Commission Indexes for EMU Show Minimal Uptick

The EU Commission indexes that evaluate the European Monetary Union, its members, and sector results for April, show the smallest possible uptick for the overall index to 99.3 from 99.2 in March. This calls for popping the cork on a champaign bottle and then drinking none of it- a sort of dry celebration. The April value of the index has a 46.9 percentile standing, leaving it still below its historic median. The median on these ranked data occurs at a ranking of the 50th percentile. So, a technical ‘improvement here’ but really nothing to celebrate- a waste of the bubbly.

Monthly changes The overview of sector results shows a setback in April for the industrial sector that fell to a net reading of -3 from -1 in March. The construction sector was unchanged at a rating of plus-one in both March and April. The retailing sector improved to -1 in April from -2 in March; the services sector improved to +11 from +10; and consumer confidence improved to -17.5 from -19.1.

Standings are firm across sectors for the most part…but NOT overall These monthly changes leave the assessments of sector performance quite mixed. Consumer confidence has the weakest ranking at a 15.4 percentile standing, which is quite weak. The industrial sector has a 57.2 percentile standing, above its median, but not impressive. Services do better with the 65.9 percentile standing, retailing has a quite-firm 78.3 percentile standing, while construction continues to score a relatively strong standing at its 85.4 percentile. But as you can see from the rankings, the sector rankings really scatter quite widely and the extreme depressed state of consumer confidence has a large impact on the overall Monetary Union index since only consumer confidence is below its historic median and that's enough to drag the entire overall index below its historic median for April.

Countries month-to-month 18 of 19 member countries report in April and of these, eight show month-to-month deterioration while ten show approvement. However, the data are quite mixed on the month as the declining reporters generally show quite severe declines with five of eight declining entries showing monthly drops of 1.6% or worse. Among the countries reporting improvements in the month, 6 show increases of better than 1% and four show increases of 1.6% or better month-to-month. April becomes a month of some considerable divide among the reporting countries with a number of quite good responses and also significant number of quite bad responses. The number of respondents showing month-to-month deterioration has been relatively stable in recent months with seven countries reporting declines in March and eight reporting declines in February; the number in February being the same as the number in April.

Country standings The percentile standing data for the countries is significantly less upbeat than the percentile standing statistics by sector. Among the five sectors (as we saw above) four of them have standings above their medians with two sectors posting firm to strong queue standings. On a country-by-country overall index basis there was only one strong country entry and that's from Malta with a 94-percentile standing with Greece and Italy having standings we would consider to be on the firm side, above the 70th percentile, but still below the 80th percentile. All-in-all there are only five countries with percentile standings above their medians and 13 countries with standings below their medians. The European Monetary Union evaluates as much stronger when we assess it by looking at sectors rather than looking at country rankings. It's not particularly clear why this is true, because it's not as though the countries assessed positively are the largest economies. The two largest EMU economies have standings well below their historic medians while the 3rd and 4th ranked largest economies have standings above their historic medians and among the remaining 14 countries only three have standings above their historic medians and they aren't particularly large countries.

To gain some insight into what is going on let’s look at sectors by country focusing on the four largest monetary union economies Germany, France, Italy, and Spain in that order.

Sector performance in large EMU economies Italy is the third largest monetary union economy and yet it has the highest percentile standings for confidence, retailing, services, construction, and for the overall sentiment gauge among the four largest economies. Italy's ranking only falters for the industrial sector where it's ranking is third behind Spain, that ranks number one, and Germany, that ranks number two. In terms of the gauges themselves, the confidence gauge ranks below the 50th percentile in each of the four largest economies as well as overall. Confidence is a widespread problem response for the European Monetary Union. On the other hand, construction, which unfortunately is a relatively small sector, has above 50th percentile rankings in all countries. The ranking of the services sector is mixed, with a strong 90th percentile standing for Italy, a barely above-median 50.2 percentile standing for France, and low 40th percentile standings in both Germany and in Spain. Retailing shows only one sub-50-percentile standing and that's in Germany with Italy and Spain having standings and the 98th percentile for Italy and the 81st percentile for Spain and with France once again just barely above its 50th percentile at a 51.0 percentile standing. The industrial standings show only France below its 50th percentile with the strongest industrial standing for Spain at its 70th percentile; Germany has a 63rd percentile standing, and Italy is at its 56th percentile.

France is a drag on April results The results this month are clearly affected by poor readings in France as President Macron is fighting a backlash from his insistence on cutting the retirement age, something that continues to be strongly, vigorously, and with hostility, opposed across France. France has an extremely low retirement age as it stands it's not much of a give back toward international norms…. that Macron is asking for. But the French electorate and workers are in no mode to give anything back. On top of that, issue problem there's the ongoing problem of still tough inflation in the monetary union as well as the ongoing war between Russia and Ukraine has no sign of let up. Moreover, with the change in the seasons there's some expectation that hostilities there are going to heat up.

Mixed trends among the big four The plot of the index data show how Italy has been gradually separating itself by doing better than the rest of the pack among the top four countries, while this month France has fallen off because of its political difficulties over the retirement age issue. The euro area in total and the German responses have, for the most part moved, sideways in April. They are off their worst levels since the recovery began and then backtracked but still show no momentum. We find it's still a very mixed picture of conditions in the European Monetary Union where the consumer remains rather troubled even though the retail sector is relatively buoyant. Inflation is high enough that the ECB still has a good deal of work ahead of it. The European Monetary Union remains mired in crosscurrents this month.