Economy in Brief

With so much weak data being reported, the INSEE household survey out of France is a breath of fresh air. Household confidence is sharply higher, rising to 95.1 in September from 92.5 in August, a jump that has been exceeded on a month-to-month basis only 12% of the time over the past 18 years. It was last stronger in February 2022, over two years ago. Yes, the September gain is sizeable.

The gain brings the level of confidence to a standing at its 49.6 percentile, near to its historic median on data back to 2001 (the median for ranked data occurs at a ranking of 50).

Granted, this only puts household confidence back at its median, but it is slightly above its mean. This qualifies as being called ‘normal.’ France has normalized its household sector despite all the Covid and post-Covid chaos that for France includes now the installation of a new government. France is also in the aftermath of having hosted the Olympics and having dealt with a nationwide transportation sabotage associated with forces trying to disrupt that event.

The headline index is below the 50% mark by small amount and among the 10-components five are also below their respective 50-percentiel standings – but not all those sub-50 readings are bad. Living standards for the past 12 months as well as the future 12 months are below, but close to their 50-percentiel ranking; the assessment for the next 12 months is one point below its mean. Next, unemployment assessment is below its median value at a percentile standing of 39.4. That is good news that expected unemployment is well-below its median.

While prices over the past 12 months register a median assessment at the 50-percentiel mark, the look-ahead for the next 12 months gets a very low 3.6 percentile standing. Inflation in France is widely, strongly, expected to be lower. That is more good news. And the favorability to save metrics are high.

One fly in the ointment is that it is not considered a favorable time to make a major purchase, as the rank standing for that assessment is a lower 18-percentile reading. Still, households rate their past financial situation as strong with a 64.2 percentile standing; the next 12 months ahead are even better with a 70.4 percentile standing.

The INSEE survey of France households in September is a refreshingly optimistic take on conditions in Europe’s second largest economy. This is particularly good news since conditions in Germany, Europe’s largest economy, still show that it is under pressure.

The Belgian National Bank index has weakened in each of the last four months. Manufacturing also has weakened for four months running. The production index has suddenly, in September, declined sharply, falling from a small negative reading over the previous four months to a suddenly much weaker reading of -23 in September. A case of SOW: Sudden onset weakness. And central banks remain concerned. They already are cutting inflation ‘slack’ to hover at above target levels as they find reasons to cut rates and try to preserve growth while exuding optimism on inflation coming to heel…some day.

Meanwhile, trends have broadly shifted in Belgium. The domestic order trend is weaker in September, falling to -15 from -6 in August. But that is no example of sudden onset weakness. The domestic orders index has been even weaker in recent months and has been fluctuating. However, foreign orders have turned sharply weaker in September, falling to -26 from -3 in August after four months of logging small negative numbers. Foreign orders are back to the sort of weak reading they had logged in February of this year except they are even a bit weaker now, in September. Prices also have turned weaker; they were last weaker back in March of this year. The coincident weakness in activity orders and prices makes it look as though encroaching economic weakness is for real.

Current assessments show persistently larger negative readings and readings with a slightly weaker tone when assessed over equal time periods on a ranking basis. Both total and foreign orders are quite weak in September and are weakening further. On a ranking basis, they have a standing in their 6th to 9th percentiles- exceptionally weak- when ranked on data back to 1997.

However, the other metrics, such as for the BNB headline, for production and trend analysis can be even weaker on ranking basis than these deep negative survey readings assessing orders. For example, the headline for the Belgian Bank index has an 11.9 percentile standing. Manufacturing has a 10.6 percentile standing. The production trend has a 1.5 percentile standing - an exceptionally weak trend assessment. The domestic order trend has a 17.9 percentile standing, but the foreign order trend has an extremely low, 2.4 percentile standing. The price trend lags behind these weak readings with a still very weak 16.1 percentile standing of its own. There is nothing here that is reassuring, and Belgium is a European country at the crossroads of a lot of trade.

The assessments for other sectors such as wholesaling & retailing, construction, and business services show rankings that range from a low at an 11.9 percentile ranking for construction to a 37.1 percentile ranking for wholesaling & retailing. Services are generally more resilient.

September PMI readings faded across the board. Composite PMI readings fell in each of the seven early reporting entities. In fact, PMIs fell for all composites and services readings generating showed only a single increase for manufacturing in September - that was in France. Among the 21 composite and sector readings in August, 12 had improved, the same as in July. The September result is a watershed change compared to the last two months, where although data still were mixed, they favored improvement.

With the turnabout in September not even included, the sequential readings are souring (the sequential averages are presented only on finalized data). The three-month averages (through August) still only show improvement in six of twenty-one composite and sector readings. That is a sharp shift from the six-month change where the averages improved broadly compared to the 12-month averages, declining in only five composite and headline readings. Over 12 months conditions broadly improved compared to a year ago, with only eight composites and sectors showing a worsening.

The queue percentile rankings are mostly below the 50% mark that reflects the median for the period of ranking back to January 2020. The ranking exceptions are India where the composite and both sectors rank above their respective medians, the United Kingdom, where the composite is above a 50% ranking, and the United States, where the composite and the service sectors have above-median rankings. Still, for the U.S., the U.K. and India, all readings weakened this month. For the U.S., the manufacturing reading is exceptionally weak at an 8.8 percentile standing, tied with Germany for the second lowest standing in the group.

As an indicator of how troubled the global economy has been in this group of advanced countries plus India, of the 21 composite and sector rankings for the group, 12 of them show weaker readings in September than in January 2020. As we noted above, few are above their period median values based on ranking statistics.

For this group of respondents, the average composite ranking is 42.9, the average manufacturing reading is 23.6 and the average service sector reading is 50.6. It is the service sector that has been providing the backbone for sustaining growth while manufacturing has been severely impaired.