Economy in Brief

Danish confidence sank further in October, falling to -8.9 after registering -6.8 in September. September had been a small improvement from August at -7.4 but now confidence has dipped below its August value. Confidence was last weaker in December of last year.

Inflation concerns are beginning to rise in Denmark as well. Inflation expectations that rose sequentially over the last 12 months are once again rising sequentially as we look ahead to the next 12 months.

Monthly trends The financial situation has eroded steadily over the last 12 months and continues to erode with the October reading, falling to -1 after posting +2.9 in September and +3.2 in August; this is small but steady slippage.

The outlook or assessment for the general economy has slipped over the last three months, but looking ahead at prospects for the general economy there is a small improvement but the last three monthly values are all net negative values and there doesn't seem to be any strength in that assessment. That conclusion is further underscored by unemployment trends that have worsened sharply over the last three months, with an August reading of plus 5 followed by a September reading of 9.5 and an October rating of 10.2; concerns about unemployment have risen.

The assessment of the environment monthly shows little change in the favorability of the time to purchase goods, with consistent negative readings over the last three months; the favorability looking forward to the next three months slips with October falling to -8 after having negative readings in the minus 5 region in both August and September. The general financial situation of households, however, does show some snail’s pace improvement, with the August reading of 24.8 moving up to 26.3 in September and moving up further to 26.9 in October.

Sequential trends Danish confidence is not improved very much sequentially although it's made a very small improvement from a -7.9 12-month average to an average of -7.7 over three months. The present situation improved over the last 12 months, with the last three-month assessment at -6.8 compared to a 12-month average of -9.3; there was still slippage compared to six months ago. The assessment of financial situation looking ahead, while positive, shows a decreasing positive value; a 12-month average is 3.5 with a three-month average slipping to 1.7. The assessment of the general economy sequentially looking backward had slipped over the last 12-to-six-to-three months; looking ahead that slippage continues as the 12-month average of -6.1 moves to -6.9 over six months and the average drops further to -9.0 over three months. As noted above, the outlook for inflation had been worsening and it continues to worsen even more sharply for the 12-months ahead. Unemployment expectations had improved sequentially from 9.3 over 12 months to 7.7 over six months and 8.2 over three months – but the monthly pattern unwinds the sequential trend.

The favorability of the environment to purchase is becoming progressively less negative sequentially. The favorability to purchase envisioned over the next 12 months has continued that progression with very small improvements. The three-month pattern that shows an increase in the general financial situation of households has extended this broader progression from 12-months to six-months to three-months that has generally been improving but has been improving slowly and actually saw a slight setback in the three-month to six-month progression.

Rankings for readings The rankings of these assessments are predominantly weak with the consumer confidence indicator weaker only 10.6% of the time. The financial situation over the last and the next 12 months both have rankings below their 10th percentiles. The general economy looking ahead has a ranking in its 15.5 percentile. The outlook for inflation over the last 12 months was high at its 89th percentile; over the next 12-months its standing is lower but is still high at a 79th percentile. The unemployment trends over the next 12 months have a 73.3 percentile standing, relatively high and well above the median which occurs at a ranking of 50 percent. The environment shows the favorability of the time to purchase is weak with a 15.2 percentile standing. Looking ahead, that improves but only slightly to a 20.6 percentile standing. The favorability of the time to save both currently and looking ahead has a 53-percentile standing, moderate, and slightly above average. Meanwhile, the general financial situation of households comes in above its median with a 60.3 percentile standing and logs the brightest reading in the table – although a 60-percentile standing is not particularly strong.

European vehicle registrations fell by 6% in September, partly unwinding a drop of 9.7% logged in August. Registrations continued to be in a weak patch, falling at a 27% annual rate over three months and acceleration from a 2.9% rate of decline over six months. Over 12 months sales are lower, falling at a 7.7% annual rate. The problem is not just weakness in the month because the data on the three-month moving average show a decline and have fallen for several months in a row; based on three-month moving averages, the three-month 6-month and 12-month moving averages show declines at double-digit rates. Registrations are weak in Europe.

By country, registrations rose in the five countries that report sales: Germany, France, Italy, Spain, and the United Kingdom. Gain to the sharpest in Spain at 14.5% gains were weakest in the U.K. at 3%. Except for the U.K., all these reporting countries showed declines in registrations for two months in a row; the U.K. posted an increase in registrations in July.

Germany shows the weakest progression for registrations among the individual countries although on a year-over-year basis the weakest sales are in France where they fall 12.3%, in Italy where they fall 11%, compared to Germany where registrations year-over-year fall by only 6.7%. The U.K. has registrations up by 0.5% over 12 months while Spain has registrations up by 6.2%.

The progression of sales from 12-months to six-months to three-months shows growth rates in Germany escalating negatively from -6.7% over 12 months to a -20.2% pace over six months to a -56.9% annual rate over three months. This extreme weakness is challenged to some extent by Italy where there's an 11% drop over 12 months, a 3.5% drop, at an annual rate, over six months, and a three-month drop of 38.8% annualized. France shows consistent negative numbers across these horizons, falling by 12.3% over 12 months, a 19.1% annual rate drop over six months and a 14.2% annual rate drop over three months. Spain’s 6.2% year-over-year gain becomes a 17.6% annual rate drop over six months but then recovers to a 17.3% annual rate increase over three months. Spain's data are more volatile than they are weak. The U.K. is the only country to show increases on all horizons; it's showing accelerating increases with a gain of 0.5% over 12 months, progressing to a 2.6% annual rate rise over six months and elevating to an 18.5% annual rate over three months.

The United Kingdom is the only country that has a true positive story to tell. Spain has a story of some volatility with an increase over three months. The other countries have these isolated gains in September that are part of negative progressions. In Europe, conditions are weak; the auto sales data tell us they continue to be weak and there's no evidence that broadly tells us that things are getting better. In fact, the overview seems to be that conditions continue to be quite weak and might be getting worse. European car registration data today are not reassuring.

The German PPI in September fell by 0.5% as the ex-energy PII fell by 0.1%.

Year-on-year Germany’s PPI fell by 1.4% but the ex-energy PPI rose by 1.3% providing ‘some breathing space’ on the inflation front. The PPI, of course, is not targeted by the ECB nor are any national pricing results. However, Germany is the largest economy in the EMU and its results matter. What we see in the PPI is evidence of better price discipline overall- but overstated in the PPI headline.

Sequentially the German headline PPI gains 0.6% at an annual rate over six months and is flat over three months- compared to its 12-mont drop of 1.4%. The ex-energy PPI rises at a 1.9% annual rate over six months and runs at a 0.7% annual rate over three months. PPI prices are more closely linked to the manufacturing sector when global economic conditions have remained weak.

German sector results show mixed gains/losses from July to September monthly. Sector results taken sequentially show German consumer goods prices (at the PPI level) up by 1.5% over 12 months, gaining at a 1.8% pace over six months and rising at a 0.6% pace over three months. That’s a relatively subdued profile. Investment goods prices rise by 2% over 12 months, rise at a 1.2% annual rate over six months, and tick higher over three months at a 0.3% annual rate. Intermediate goods prices are up by only 0.5% over 12 months, rise at a 1.0% annual rate over six months, and fall at a 1.0% annual rate over three months.

The table shows German CPI prices for comparison. They are closer to the HICP that the ECB targets EMU-wide than the PPI. The profile of headline CPI prices in Germany runs under the EMU 2% target on all three sequential periods. But the CPI excluding energy is hot, running at a pace North of 2% over 12 months, 6 months and 3 months at an annual rate and showing its hottest pace over 3 months.

Japan’s core CPI – the CPI excluding fresh food and energy- rose by 0.2% in September as the headline rate fell by 0.4% - both month-to-month. The measure of all items excluding food and energy rose by 0.1%; prices excluding only fresh food fell by 0.3%.

Year-on-year inflation trends Year-on-year inflation was excessive for the headline at 2.4%, but that was a down-draft from a year-on-year pace of 3.1% from a month-ago. Core inflation settled to target on a 12-month basis as the pace dropped to 2.0% from 2.1% a month ago. Prices less fresh food fell to a 2.4% pace over 12 months from a 2.8% pace a month ago. Prices excluding all food and energy logged a 12-month gain of 1.7%, the same as a month ago. Not surprisingly, different measures show different trends. The headline is a bit hot but the preferred core measure, excluding only fresh food and energy, shows inflation dead-on target. Still, that is not the end of the story.

Inflation risk rises in the core The X-fresh food and energy core (xFFE) is spot-on over 12 months, but that may be a passing fancy. Sequential growth rates for this measure show the xFFE core running at a 2.3% clip over six months and by 3.0% at an annual rate over three months. Inflation may only be transitorily at its 2% target as it builds a head of steam for stronger expansion that, if sustained, would push the core beyond 2%.