Economy in Brief

The U.K. Distributive Trades Sector Struggles Quarterly data from the United Kingdom distributed trades survey for the fourth quarter show mixed results from participants although data are still quite clearly weak across the board and, when at their very best, are no better than neutral.

Distributive Trades: Retailing The distributive trades survey shows that imports improved in the fourth quarter to a reading of -6 from -15 in the third quarter. The four-quarter average has been around -11 so this is an improvement relative to the average. Capital spending for the year ahead also made some improvement in retailing to a -27 reading from -35 previously; however, that's still weaker than the four-quarter average of -24. The business situation expected over the next six months; however, deteriorated to -21 from -13 and that's much worse than the four-quarter average of -7. Inflation continues to be an issue in the U.K. although it is moderating. It may be an important reason the business situation is eroding. However, selling prices in the fourth quarter are weaker than in the third quarter at a +24 reading compared to +30 in the third quarter; however, that's a lower reading than the four-quarter average of +32. Employment expectations strengthened to -18 from -25 in the third quarter and that's better than the four-quarter average of -22, indicating some ongoing improvement, the survey on employment. Expected data show that price inflation is expected to be weaker at a +15 reading in the fourth quarter compared to +30 in the third quarter- this compares to a four-quarter average of +43 so inflation progress is being made. Employment expectations, however, are weakening at a -28 reading for the fourth quarter compared to -18 in the third quarter; compared to a four-quarter average of -16. The negative expectations for employment are getting worse.

Distributive Trades: Wholesaling Turning to wholesaling, reported imports are deteriorating, the opposite result that we saw for retailing, with a +7 reading in the fourth quarter compared to a +14 reading in the third quarter; however, the +7 reading is only a tick weaker than the +8 four-quarter average for imports. Capital spending is slightly improved in the fourth quarter compared to the third quarter although slightly weaker than its four-quarter average with a -15 reading for the fourth quarter and a -12 four-quarter average. The business situation expected over the next 12 months deteriorates sharply in the fourth quarter, falling to -12 from a +20 in the third quarter; those readings compare to a four-quarter average of +10, confirming that business expectations are a problem. The selling price for wholesaling ticked up in the fourth quarter to +14 from +12 in the third quarter, but that's significantly lower than the four-quarter average of +24. Inflation progress is being made but HICP data show that inflation, while better, continues to run at a pace above trend. Employment fell off sharply in the fourth quarter; the fall was to a net reading of zero after +14 in the third quarter; those metrics compare to a +9 reading over the last four quarters. Expected prices in the fourth quarter improved significantly (slowing their gain) to +11 from +31 in the third quarter and that survey compares to a +28 over four quarters. Employment expectations in the fourth quarter also declined to +11 from +18 in the third quarter, but they continue to sit on their four-quarter average.

Summing up The rankings are presented in the table and there are but two exceptions where rankings stand above the 50th percentile. Most readings stand below a ranking at the 50th percentile, which puts them below their historic medians calculated from data back to the first quarter of 1990. Only wholesaling imports at a 51.4 percentile standing and expected employment in wholesaling at a 70 percentile standing, have standings above their 50th percentiles. However, wholesaling employment trends over the past have a 49.3 percentile standing, fairly close to neutral, but everything else in the table shows numbers that are quite significantly below the 50th percentile, frequently and most commonly, below the 30th percentile standing. These are readings that have been weaker than their fourth quarter values less than 30% of the time for the most part. Some of them are much weaker than that. The U.K. clearly is experiencing difficulty. There's barely any evidence of any rebound in this survey and only a few categories are improving somewhat in the fourth quarter compared to the third quarter. None of this is very convincing on trend. The ranking data tell us the conditions continue to be extremely weak. The trends tell us that there's very little improvement and still much deterioration going on. It's a grim report for distributive trades survey from the United Kingdom for the fourth quarter. Wholesaling rankings stand broadly higher than those for retailing but without much meaning since both are so weak.

Covid slammed the global economy and hit Germany hard. But the German economy recovered as the chart shows. Then the Russian invasion of Ukraine occurred and sent a second, more lasting, shock wave across the German economy. Government restrictions during Covid were put on and then taken off. But the Russian invasion occurred as a shock and continues to play out disrupting European energy markets, trade, and trade patterns, as well as leaving heightened international tensions in play.

This month’s report includes a table column that ranks the IFO diffusion gauges across industries and concepts since the Russian invasion of Ukraine. The climate gauges are all low ranking on a 1991-to-date basis as well as ranked just since the invasion. Wholesaling, retailing, and services do rank slightly higher over the post invasion period than overall, but the ranking changes are not really meaningful. What these rankings point out is how weak conditions got after the invasion compared to historic lows and how substantially that weakness has persisted.

The current conditions index shows deterioration month-to-month for the overall (all-sector) reading as well as for two individual sectors (construction and services). However, the current rankings over data since the invasion are universally and substantially lower than the rankings made on data since 1991. The all-sector current index is on a post invasion low. Manufacturing, construction and services in the past invasion period are still extremely low.

What has fared better are expectations. The November expectations standing on data back to 1991, the overall ranking is at its 14.2 percentile. But ranking expectations since the February 2022 invasion shows that expectations have lifted substantially from the post-invasion lows with readings largely in the 60th to 70th percentiles. However, even with these rebounds, the overall ranking shows how extremely low the current reading stands in November.

Apart from the rankings, the all-sector diffusion readings are weaker in each of the three ranking environments of climate, current conditions, and expectations. Month-to-month expectations worsen for manufacturing, construction, and services even though those sectors show much higher rankings since the invasion compared to their overall rankings back to 1991.

These comparisons simply point out that there is little in the way of lasting improvement underway. Conditions are better relative to their median values since the invasion for expectations, but not for climate or current conditions. And despite this improved relative standing for expectations, the expectations readings are especially adverse and without an improving trend.