Economy in Brief

The EU Commission index for the EMU area fell in December after remaining steady in November and declining in October. November had seen increases in EMU Commission country-level sentiment readings in all but 15 of the 18 early reporters. However, now, in December, the EU country level readings are falling in 13 of 18 early reporters, including in three of the four largest EMU economies.

In December, sector readings show that EMU-wide the industrial readings fell sharply, consumer confidence backtracked as retailing and construction were at unchanged readings month-to-month. Strengthening month-to-month was only the service sector reading.

In terms of standings, the overall EMU standing is at the 24.7 percentile, right at the border of the lower quartile. The industrial sector has a bottom 12.8 percentile standing, with consumer confidence at its 25.4 percentile standing. Services, despite the sector’s rise this month, has only a 35.9 percentile standing. However, retail and construction have standings that are above their respective medians at a 69.4 percentile in retailing and a 72.3 percentile for construction.

Despite bottom quartile consumer confidence standing, retailing has a 69.4 percentile standing. This seems unusual for retailing to hold up so well despite such weak overall sentiment and such weakness in consumer confidence.

Country readings show only five are above their historic medians. Only the small EMU nations Cyprus and Lithuania have sentiment standings above their 70th percentile. In contrast, nine countries have percentile standing below their 30th percentiles – including the EMU overall metric.

EMU inflation rose by 0.2% in December after gaining 0.1% in November and rising by 0.3% in October. The headline rate is up for three months in a row. The year-on-year pace is 1.7% in September, rises to 2.0% in October, to 2.3% in November, and then to 2.5% in December. These are small changes to be sure, but it is a clear adverse trend.

EMU-wide core inflation fell from 3.3% year-over-year in February 2024 to 2.9% in March 2024. For March onward, the core rate has fluctuated between 2.8% and 3.0% - nine months running with the December core reading as yet unavailable.

While headline inflation appears to be toeing the line on inflation, the core is stuck nearly a percentage point higher. But growth in the EMU area is weak and the ECB has been cutting rates largely without opposition in this environment.

The trends are more convoluted. In the table, the country level data among large EMU members shows headline HICP rates are accelerating over three months compared to six months. In Germany, inflation accelerates over six months compared to 12 months and over three months compared to six months. Only Italy shows headline inflation lower over three months than it is over six months and in the case of Italy inflation is falling at a 1.6% annual rate.

Core inflation or ex-energy measure are in the table for Germany, Italy, and Spain. Italy and Spain show core inflation decelerated to a sub 2% pace over three months. But in Germany, ex-energy inflation is stubborn at 3.1%, the same as its six-month pace.

The S&P composite PMI tracks economic performance across manufacturing and services sectors for a group of 25 countries; it shows mixed performance in December with conditions slightly slowing for just over half of the reporters. However, among the larger economies, conditions are largely improving with the United States improving and with the European Monetary Union improving in December, including the large individual members of the union: Germany, France, Italy, and Spain. Japan also improves month-to-month in December although among large economies the U.K. economy worsens and worsens for the third month in a row. Condions in China also deteriorate.

The U.S. shows composite conditions improving over 12 months, six months, and three months based on averages, as does Ireland, and Sweden, and Hong Kong. Worsening consistently from 12-months to six-months to three-months is only India. In the case of India, this is a slowing from extremely high readings as the percentile standing for India's composite in December is in its 71.9 percentile tying it for the fourth highest percentile ranking in this sample of countries over the last five years.

While there was still a great deal of slowing, there wasn't that much contraction going on in this group of countries. Only 6 composite readings are below 50, indicating contractions in December compared to seven in November and October. Over three months averages show only 7 contracting; over six months, eight are contracting; and over 12 months six are contracting. In terms of percentile standings, however, 15 of the 25 reporters in the table show relative standings below their medians over the last five years so relative weakness is the rule although contraction is not.

The unweighted average for the sample is for a composite PMI reading of 51.8 which shows a bare-bones expansion. The unweighted U.S., U.K., and European Monetary Union average is at 51.8, the G-7 weighted average is at 52.8, while the G-6 average, that excludes the U.S., is at 48.9. The G-7 weighted average has a 52.6 percentile standing over the last five years while the G-6 GDP-weighted average has only a 29.8 percentile outstanding emphasizing the strength that the U.S. economy imparts to any measure of the performance of the most advanced economies.

Ranked over the last five years, only 10 economies have standings above their medians for this period. The median for the whole sampler is at a 43.9 percentile standing; the average is at a 48.6 percentile standing- there's currently still a great deal of weakness among these countries. The weakest standing in the sample is for France at a 21.1 percentile standing with Singapore's 24.6 percentile standing running a close second, the U.K. ranks third worst at 26.3 percentile, and Ghana's 28.1 percentile standing is in 4th place.

There's little evidence of trend as the chart above shows. The G-7 reading over 12 months, six months, and three months is locked in a narrow range between 52.2 and 52.6; the G-6 range is lower but also narrow between 49.0 and 49.9. The overall average fluctuates between 51.8 for three months and 52.0 over 12 months. For the most part, we're getting readings that are in the growth category but simply not very impressive and readings that are quite low by the standards set over the last five years which was by itself or relatively listless.