Economy in Brief

In March, household confidence in France sank after rising in February. The index now resides below its level in January. Since early in this new millennium, confidence resides at its 36.2 percentile, a standing that is just above the lower one-third of its queue of outcomes over that period. The median result lies at a ranking of 50%. The mean level for confidence over this period is 96.5. Living standards for the next 12 months are weaker at -50 compared to -47 in February. The past standard has a standing in its 32nd percentile while the period ahead registers an expectation with a rank standing in its 21.9 percentile, just above its lower one-fifth mark.

In March, the evaluation of past living standards over the past 12 months improved very slightly to -69 from -70.

Among the good news in this survey is the drop in unemployment expectations in March to 46 from 54. Still, unemployment expectations rank at their 63.1 percentile which is above their median and mean - the mean for unemployment expectations is lower at 33. So, the good news is that unemployment expectations have fallen, but the bad news is that they are still elevated.

There is good news on price developments. Expectations for a drop increased in the March reading in the past 12 months; they increased to -7 from -5. The March reading has a 43.9 percentile standing, below its mean and its median. Looking at the next 12 months, inflation expectations are a touch less optimistic at -41 in March compared to -43 in February. The ranking for 12-months ahead has a very low standing at its 22.6 percentile, marking the small giveback in expectations in March as inconsequential.

The environment for saving and being able to save are both little-changed month-to-month and both also have extremely high standings in the high 90th percentile.

The favorability of the environment for making major purchases improve slightly in March continuing a modest trend higher. Still, spending favorability ranks as weak in its lower 26.2 percentile.

The financial environment was little-changed in its evaluation of the past 12 months; but looking ahead, a sharp deterioration to -11 was posted for the next 12 months compared to a reading of -4 in February. The financial situation over the past 12 months has an evaluation with a standing in its 60.1 percentile, above its historic median, but switching to an outlook 12-month ahead yields a rank standing in the 44.5 percentile just below its median and one point below its mean.

Since Covid and Since the Russian Invasion The final two columns show changes in survey responses since before Covid stuck and since the Russian invasion of Ukraine. We do this in two-steps looking at the change from levels just before Covid struck to the threshold of the invasion, then from the invasion to the up-to-date readings. From Covid, things were improving to early 2022; then since the invasion, consumer conditions are worse by 4 points. Expected living standards rose 8.5 points into the Covid recovery but since the invasion conditions are 11.9 points lower. Unemployment expectations were higher by 14.2 points in early 2022 but after the invasion they rose sharply by 62 points! Post Covid eventually inflation expectations were reduced. They were lower by 9.7 points in early 2022 but since the invasion they are lower by 30.9 points. Post Covid the spending environment was higher by 11.1 points but since the invasion that response has reversed by 9.9 points.

On the plus side of things, financial conditions ahead are 2.0 points higher since the invasion, previously they were 3.5 points higher in early 2022 in the pre-invasion Covid recovery.

The bottom line to all this is that there has been a digging out after the Russian invasion but that post Covid recovery process has now seemingly run out of steam. The forward-looking inflation expectations are still on a slow improving path but that may have stalled. In any event, the turn to more military spending in Europe could make a marked change in Europe’s inflation environment and could alter future surveys considerably.

Germany's all sector climate index improved in March to -19.8 from -24 in February. Still, the index only has a 13.9 percentile standing on data back to the early 1990s. The all-sector climate index, the current index and expectations all improve month-to-month with the scope of improvement for the all-sector climate and expectations indexes greater only about 10% of the time. These are sharp month-to-month improvements. However, the levels of the indexes are so weak that the rankings continue to scrape very low levels. Overall conditions in Germany have hardly changed despite the solid month-to-month improvement concentrated in climate and expectations.

Climate The climate measure shows improvements for the all-sector reading, manufacturing, construction wholesaling, retailing, and services. The highest percentile standing for any sector is for construction at a below-median 41.5 percentile standing. The next highest standing is for retailing at a 24.5 percentile standing, the weakest reading is a standing of 10.3% in manufacturing, and the services sector is at a 13.2 percentile standing, not too much stronger than that.

Transition-Ho! While climate conditions are still in difficult straits, we find that current conditions standings are largely worse than for climate standings; expectations show uneven comparisons. We know there are big changes coming to Europe, particularly for Germany, because of the new shift to more defense spending. This, obviously, will create improvements in the defense sector but should also have broader multiplier effects for the economy, for the manufacturing sector, but also for the economy in general. We also expect these changes to spread across Europe with similar increases in military spending to be introduced in other countries, as the United States is looking for Europe to carry more of its own security burden. We should continue to see improvements in expectations and in climate in the coming months and those improvements should be translated gradually into improved current conditions as well.

Current conditions-Manufacturing and Construction lead Current conditions in the index show improvement across all sectors with minuscule improvements being posted in wholesaling and in retailing in March. The percentile standing for the current indexes in March show the strongest reading in construction; it is the only sector above its median: above its 50th percentile at 61.6%, with retailing close to its 50th percentile mark at 48.2%. The weakest readings are for manufacturing at an 11.9 percentile standing and then services at a 16.9 percentile standing. But manufacturing has the largest month-to-month gain. The overall standing for current conditions is lower still at its 10.7 percentile standing, indicating a confluence of weakness across sectors, a result that has the overall index at a weaker standing than any for individual sector.

Expectations – Manufacturing surges Expectations show broad improvement and for the most part fairly significant improvement across sectors. The headline improvement shows expectations at -16.1 in March compared to -20.5 in February, which leaves the index at a 16.9 percentile standing overall. Expectation standings are weak, however, with the strongest expectation standing in manufacturing at 21.1%, the second strongest for wholesaling at 19.8%; services rank third with the standing of 15.1%. Construction, the sector that has the strongest current and climate standings, has the weakest expectation-standing at the 8.2 percentile mark.

S&P flash PMI statistics for March show very little change in the composite which has been plugging along at 51.4 in January, 51.4 in February and now 51.5 in March. These are readings from unweighted averages from the eight reporting countries and the European Monetary Union. The manufacturing composite is crawling its way higher from 49.1 in January to 49.5 in February to 49.9 in March, putting manufacturing nearly to a breakeven reading after a long period of showing sector contraction. Service sector readings monthly log 52.0 in January, 51.9 in February and 51.6 in March, a steady but very minor trend to erosion.

The sequential growth rates on the quarterly average readings that exclude March are performed only on hard data. They show that the composite reading has also been very stable at 51.6 for the 12-month average, 51.3 over 6 months and 51.3 over the most recent hard 3 months’ worth of data. Manufacturing has also been stagnant with a reading of 48.4 for the 12-month average, 48.4 for the six-month average and 48.6 for the three-month average for the period ended in February. Services show the same minor slippage we see in the monthly data from 52.5 over 12 months to 52.2 over 6 months, to 52.0 over the most recent three-months of hard data. These trends show minor improvement in manufacturing and minor deterioration in services. Manufacturing continues to show minor contraction as services continue to show minor expansion. Neither sector performs particularly well and neither sector has any particularly notable trend to it. The diffusion data across countries show a great deal of variation.