Economy in Brief

The U.K. distributive trades survey covers retail sales and wholesaling, providing assessments of current activity as well as expectations for the month ahead. October is a mixed report with retail sales weakening and wholesaling showing some improvement. However, the outlook for both retailing and wholesaling deteriorates in November. All ranking statistics are weak except for inventories.

U.K. retailing Current assessment- In retailing, sales compared to a year ago in October fell to -36 rating from -14 in September. The sales responses have been somewhat volatile recently; however, the October reading of -36 is well below the 12-month average of -13. Orders compared to a year ago also slipped to -37 from -19; that response compares to a 12-month average of -24. Sales assessed for the time of year slipped to -10 in October from +5 in September. Those readings compare to a 12-month average of zero. Stocks relative to sales moved up to +27 in October from +6 in September, above the 12-month average of +17. An increase in the stock to sales ratio while sales are weakening is not generally a good sign. The ranking statistics on the table rank the current responses on the timeline back to March 2000. On that timeline, the performance of sales over a year ago has of 5.6 percentile standing. Orders compared to a year ago have a 6.3 percentile standing. Sales assessed for the time of year have a 36.6 percentile standing. The stock-sales metric has a 91.2 percentile standing. These are all quite weak assessments, and the stock sales ranking does not appear to be good news with sales weakening.

Retail outlook- The retail outlook for the categories listed above all show deterioration month-to-month except stock stock-sales response which rose. The outlook assessments are below their 12-month averages but only slightly below the average for sales performance over one year. The ranking metrics and the responses are all still extremely weak. The stock-sales ratio again has a strong standing in its 86.7 percentile.

Wholesaling survey Current assessment- In wholesaling, in October sales compared to a year ago improved to -15 from -23 in September. The October -15 reading compared to a 12-month average of -11. Orders compared to the year ago, however, deteriorated to -25 from -15 and those figures compared to a 12-month average of -15. Sales for the time of year improved to -1 in October from -3 in September but compared to a stronger +8 average over the last 12 months. The stock-sales ratio response in October fell to 10 in October from 43 in September and compared to an average of 18 over 12 months, indicating a very different inventory conditions and dynamics for wholesaling than in retailing. In terms of rankings, the performance of sales compared to a year ago reveals a 16.5 percentile ranking. Orders have a 10.9 percentile ranking. Sales for the time of year have a 29.9 percentile ranking and the stock-sales ratio has a 39.1 percentile ranking. All these are still quite weak with the stand-out feature being that the stock-sales ratio isn't moving in the opposite direction as it is for retailing.

Wholesale outlook- The outlook portion of the wholesale survey for November shows weakness across the board. All these metrics show month-to-month deterioration and much weaker performance in November than over the last 12 months. The stock-sales ratio for November falls to a metric of +16 from +37 in October but October clearly was an outlier strong-reading. The November value of +16 is only slightly above the 12-month average of +14 - an exception among this month’s responses. Looking at the rankings of these various metrics, we continue to see weak readings for the outlook across the board. The stock-sales standing at a 65.6 percentile is firm but not a worrisome reading, particularly with the stock-sales ratio in November being close to its 12-month average.

EMU money and credit growth contract Money supply growth in the European Monetary Union (EMU) continues to contract over three months as well as over six months and 12 months. In real terms, money supply declines as well on all horizons although the 12-months contraction is at a more severe pace than it is over 3-months and six-months.

Credit in the EMU is weak; it registers weak, but positive, growth over three months in nominal terms. Credit to residents, as well as private credit, both contract over 3-months and 6-months in nominal terms. In real terms, both credit measures decline on all horizons; the pace of the credit decline has slowed slightly over three months and six months compared to 12 months – perhaps a sign that economic excess have been or are being boiled out more than a sign that economic deterioration is getting out hand.

Manufacturing slides as services waffle and ease The S&P PMI flash survey this month is difficult to summarize since its message is split. There are six respondent areas with three sectors each; and of these 18 observations, 9 are stronger this month and nine are weaker – split decision! The three EMU sectors are weaker in October while the three U.S. sectors are stronger. The manufacturing sector is stronger on the month except in the EMU and France. Services are weaker everywhere month-to-month except in the U.S. and in France. The U.S., the U.K., and the French composite indexes are stronger month-to-months while the EMU, German, and Japanese composites are weaker.

Sequential readings: comparing averages The sequential readings are constructed on historic averaged data that do not include flash observations for October; they show weakening across the board – all regions all sectors - over three months. Over six months, conditions are mixed with 8 worsening and 10 improving. France is alone in weakening across all three sectors over six months. Japan improves across all three sectors. Manufacturing deteriorates over six months in all reporting jurisdictions except Japan. Services are stronger in five of six jurisdictions with France the exception. The composite over six months worsens only in France and the EMU. However, viewed year-on-year, all sequential jurisdictions in all sectors weaken compared to their year ago 12-month averages, except in Japan where services and the composite improve on balance. There is a broad weakening comparing the last 12 months to the 12 months before that – a powerful generalizable result.

Other trend observations Manufacturing weakened over six months broadly as well as over three months, everywhere, strengthening in four of six monthly observations in October. Looking at a two-month comparison, the U.S., the U.K., and Germany show slightly stronger readings for manufacturing in October compared to August- the EMU, France, and Japan are weaker on balance. Service sectors show stronger reading for October than for August in the U.S., France, and Germany but only by quite small amounts. The composite reading is stronger in October compared to August only in the U.S. and Germany.

Weakness prevails for queue standing data However, the overpowering sense of the survey is that of weakness- momentum aside. There is not much push to the momentum that exists in the first place. But beyond that, the rankings for October levels of activity have extremely low percentile standings with the composite average standing at its 19th percentile, across respondents. Manufacturing averages a 9th percentile and services average a 26-percentile standing across respondents. Japan generally has the strongest rankings, but that is only a 47-percentile composite, a 19-percentile manufacturing sector standing, and a 57-percentile services sector standing. The U.S., however, as a slightly stronger manufacturing sector standing than Japan at its 23rd percentile, putting Japan in second place on that metric.

Diffusion readings mostly show weakness In raw diffusion terms, the strongest composite reading is 51 in the U.S. followed by 49.9 in Japan. The weakest composite diffusion is 45.3 in France. The strongest manufacturing diffusion gauge is at the edge of breakeven with a 50 reading in the U.S. followed by 48.5 in Japan. The weakest manufacturing reading is a 40.7 reading in Germany. Services have the highest standing in Japan at 51.1 with the U.S. at 50.9. The weakest service sector diffusion reading is 46.1 in France followed by 47.8 for the EMU.

In addition, diffusion readings mostly signal contraction The diffusion data remind us that most of these readings are signaling some degree of contraction not just weakness. Only the U.S. and Japan have sectors with diffusion readings of 50 or more and the U.S. has all sectors at or above 50 in October. Japan has only services above 50, but its composite is on the verge at 49.9.

One year-ago comparison Compared to one year-ago composites (month-to-month not average comparisons) are higher, significantly higher, in the U.S. and modestly higher in Germany and the U.K. The composite is substantially weaker over the past year in France, weaker in Japan and slightly weaker in the EMU. Manufacturing is weaker everywhere year-on-year except in the U.K. where the sector makes solid year-on-year improvement but still bears a very weak queue standing. Services are weaker in the EMU, France, and Japan and stronger in the U.S., the U.K. and Germany viewed year-on-year.