Economy in Brief

The German consumer climate gauge for December 2023 improved slightly to -27.8 from -28.3 in November. Apart from the November reading, the climate reading in December was last weaker in April 2023. From August 2022 to April 2023, climate marked a period in which GfK reading was persistently weaker than it is today, in December. However, apart from this nine-month interval, and the reading for November, there are no other climate readings lower than the current December reading from GfK at any time in the past.

The climate reading for December has a 3.8 percentile standing, which tells us that it has been this week or weaker less than 4% of the time.

Weak components and their momentum The components of the climate reading consist of economic and income expectations, and a propensity to buy measure. These components are available with a one-month lag. In November, the economic expectations indicator improved slightly, rising to -2.3 from October’s -2.4. This continued a string of improvements for economic expectations. Income expectations in November, however, slipped to -16.7 from -15.3 that extended a two-month ongoing decline in that indicator. The propensity to buy in November improved slightly to -15 from -16.3; it has been improving very slightly but consistently in recent months.

Low-ranking component values The ranking of these components remains quite weak. Economic expectations have a queue-standing at their 32.7 percentile in the bottom one-third of their historic queue of readings. Income expectations are much weaker with an 8.7 percentile standing of their queue of data, marking income as in the lower 10% of all readings. The propensity to buy has a 22.4 percentile standing, in the bottom 25th percentile of its historic queue of data. All of these are very weak readings. And while they trail the current December reading for climate in terms of topicality, it's quite clear that the climate ranking is much lower than any of these components and what that tells us is that it's the confluence of weakness among all the components topically that is unusual and is substantially responsible for the extremely weak reading for climate.

The German economy The Bundesbank continues to look for declines in the Germany economy. The current government has just had a setback in which some of its plans to engaging green spending have been flagged by the courts as inconsistent with their budgetary process and therefore monies that they thought they had set aside for their economic agenda are now going to count towards the budget deficit which will cause the administration to have to scramble and reorganize priorities and spending. At the same time, the war between Russia and Ukraine just continues to drag on mercilessly. While it appears that Ukraine is persisting and possibly even making gains against Russia, as Russia is losing huge numbers of troops due to ham handed strategies, the outcome of the war hangs in the balance and Ukraine's dependence on continued arms provision and the aid from its allies remains as important as ever at a time where some of these allies are beginning to engage in grumbling about how expensive it has been to finance this war and how slow the progress now is going.

Consumer confidence elsewhere in Europe We can compare the GfK climate figures to consumer confidence for other European countries. France and the U.K. have the most up-to-date readings, with consumer readings that are available through November, only one month behind the GfK reading. In France, the INSEE measure has moved up in November to a 25.9 percentile standing. In the U.K., consumer confidence has moved up to -24 in November from the level of -30 in October, to a standing at its 27.8 percentile. Readings for confidence in Italy lag and are available only through October. Italian confidence has been easing from August to September to October; that leaves the October reading at 101.6 down from 105.4 in September; still, it has a 57.1 percentile standing. Italy has the strongest standing for consumer confidence among this group of countries, but the U.K. and France have similar weak rankings, and Germany comes in with the weakest readings of all, but with component standings more in line with those of overall confidence readings that we see from France and the U.K.

Technically the flash PMI readings are slightly stronger month-to-month in more places than they are weaker in November. But the improvements are small. Of the eighteen readings in the table, only six are weaker month-to-month in November, compared to nine of eighteen weakening in October and eleven of eighteen weakening in September.

Sequentially weak: The sequential readings weakened in seventeen of eighteen readings over three months, in fourteen of eighteen over six months and in fourteen of eighteen over 12 months.

Some monthly resilience: While monthly data are showing a bit of resilience in November, the sense of rebound is small and the trend weakness is impressively negative. The 3-month change column is relevant here because the sequential data are calculated on averages and only on hard data, not on flash values. So, the 3-month change column in the table is the 3-month change in monthly flash values. On that basis, seven of eighteen observations are weaker over three months - fewer than half of them. Weakness on that basis is across all sectors in France and in Japan. The EMU exhibits net sector weakness in the service sector over three months. The U.K. and Germany show some sizeable improvement over three months on this net basis while the U.S. shows moderate improvements across sectors over three months.

Weakness is the bottom line: The bottom line for these members, however, is still much more that conditions are weak. Ranked on Data since January 2019, the average composite rank of the six jurisdictions in the table is 24.9%. The average manufacturing sector rank is 12.6%. The average service sector rank is 31.1%. Of course, all these pooled observations are below the 50th percentile, leaving them well below historic median values.

Sector standings: Among individual country sector rankings only the service sector in Japan has an above 50-percentile standing, at its 61st percentile – no sector in any other country in the table comes close to that. And every sector in every reporter shows a reading lower than its January 2020 level before Covid struck, marking the last four years as having made no net progress in the wake of Covid.

Evaluating the Covid/post-Covid period: However, evaluating the individual country and sector results, over the past nearly five years, sectors have been above their January 2020 levels only about 48% of the time. The composite indexes were above their January 2020 levels just about half the time. However, the service sector was above its January 2020 level about 53% of the time while manufacturing was above its January 2020 level only about 40% of the time.

Manufacturing coming under less stress? Manufacturing clearly continues to be hard hit. While manufacturing has improved on the month in the EMU, Germany and the U.K., it has an average PMI ranking only in its 12th percentile. Over 3 months the manufacturing PMI has advanced the strongest- by 4.1 points- in the U.K., by 3.2 points in German, by 0.1 point in the EMU, and by 1.5 diffusion points in the U.S. Manufacturing is weaker over three months by 3.9 points in France and weaker by 1.5 points in Japan. There is a hint of improvement in manufacturing globally, but not much more than a hint.