Economy in Brief

Money event overview- Global money supply shows money supply in major money center countries is expanding. Money supply deflated for the impact of inflation is weaker and mixed contracting in Japan and in the United Kingdom along with credit in the EMU while real balances for the EMU and in the United States log positive growth is year-over-year in January. Inflation globally is over-target in the money center countries and areas where inflation of 2% is targeted.

The chart shows that money supply growth is steadily improving in nominal terms across countries, with the exception of Japan where M2-plus CD growth is gradually in a state of ongoing slowdown.

EMU In the European Monetary Union, nominal money growth has stepped up from 1.7% over three years, slowed to 1% over two years and accelerated to 3.3% over one year. Private credit growth has fallen from a 2.1% annual rate over three years, to 0.9% over two years and picked up to 2.1%, again, over one year. Real money balance growth in the EMU has progressed from -2.8% annual rate over three years to a -1.6% pace over two years to +0.8% over the last 12 months. Similarly, real credit to private residents has improved steadily but is still contracting by 0.4% over 12 months.

U.S., U.K., and Japan U.S. nominal money growth is gradually improving from an average of zero over three years to a pace of 3.9% over 12 months. Real balance growth in the U.S. also improves steadily from -4% over three years to +0.8% over 12 months. U.K. nominal money growth improves from 1.0% over three years to a pace of 2.7% over 12 months. U.K. real balances show monetary shrinkage, but the shrinkage is steadily lessening from -4.3% over three years to a pace of -0.8% over 12 months. Japan’s nominal monthly growth shows little variation, but it does gradually slow from 2.2% over three years to 1.3% over 12 months. Japanese real balance growth rates all are negative at -1.3% over three years, at -1.2% over two years and at a weaker -2.7% over 12 months. Japan’s inflation has recently picked up and after wondering if its inflation was real following a decade of deflation flirtation, Japan now has over-the-top inflation to deal with.

This month in my presentation of the German GfK consumer climate index, I extend the chart back historically to make a point about German climate and how strong and steady it used to be compared to what it has become. The components of economic expectations, income expectations, continue to fluctuate about the same as in the past; however, the propensity to buy is more variable and the climate gauge itself is decidedly weaker and more variable than it used to be when Germany was the ironclad economy of Europe something that it can claim to be no more.

Post Covid vs. Pre-Covid (and Post Ukraine Invasion) Also, since Covid, the correlation of the economic situation to Climate has gotten slightly stronger perhaps suggesting that the German social welfare system has been under pressure since economics assessments are more strongly correlated with economic conditions post-Covid. And Income and Economic expectations are much more highly correlated. There is a weakening connection between the propensity to buy and economic conditions post-Covid and a weakened link between the propensity to buy and income expectations. The reduced link between income and spending suggests a more cautious public and higher savings as does the weakened link to income. The latter may reflect more social welfare dependency. Overall, the correlation between the components and the Climate gauge are still relatively the same before and after Covid, with only economic expectations showing a slightly tighter correlation.

Pre-Covid/Post-Covid Averages The average readings (pre-2020), of course, are all lower post-Covid than pre-Covid. Because some average readings are positive, and others negative, it is difficult to look at the change or ratio of the average after vs. before, as a gauge for comparison. Instead, I have calculated each average, pre-Covid and post-Covid and ranked each of them as if they were observations in the full sample of historic observations. Put that way the average post-Covid Climate reading is 36 ranking positions lower than it was pre-Covid. That is a drop in ranking positions of about 13%. The economy and buying climates are each lower by 22 places. But the post-Covid income average reading falls a very sharp 63 places on the ranking gauge. Income expectations have been hit very hard in the post-Covid period more so that economic assessments or spending propensity.

Current Results In March, the German climate gauge from GfK has slipped from -22.6 to -24.7. It is at an 8.2 percentile standing in its historic queue of data, making the March reading weaker than this only about 8% of the time. In contrast, the components which are up to date through February show an improvement in economic expectations from January to February and a slip in income expectations from -1.1 to -5.4. There's also a slip in the propensity to buy from -8.4 to -11.1. These components have standings and their historic queues of data at the 39th percentile for economic expectations, nearly the 25th percentile for income expectations and about the 29th percentile for the propensity to buy. The median for these gauges would occur at their 50th percentile so all of them are significantly below their historic medians on data back to January 2002.

The German economy is not only weak, but it's been weakening again on a mild gradient after having shown some tendency to stabilize and even to improve. Political instability has married economic weakness throughout Europe and recent German elections now put the country in a position perhaps to deal with some of its issues if the new government is able.

Other Europe The table also presents consumer confidence statistics for Italy, France, and the United Kingdom. French and U.K. statistics are up to date through February; Italian statistics are up to date through January. Each of these readings shows some recent improvement. For Italy and France, the improvement is more ongoing whereas for the U.K. the improvement is very short term as the February reading is lower than readings for November and December; February in the U.K. constitutes an improvement only from January.

The queue percentile standings (or count percentile standings) for Italy, France, and the U.K. have those metrics at the 79th percentile for Italy, the 39th percentile for France, and the 29th percentile for the U.K. These percentile standings are quite similar to the standings for the components of the GfK index but certainly nothing is as weak as the GfK climate headline for Germany. And that has been the case for some time. Italy is an exception to everything showing above-median and relatively strong readings for consumer confidence at the 79th percentile level.

Distributive trades retailing Sales- The U.K. distributive trades survey for retailing in February produced another sequence of weak results. Sales compared to a year ago improved incrementally in February; orders compared to a year ago improved to a -38 reading compared to -43 in January. Each of these is an improvement but it's a small improvement and correspond to a weak overall reading. Sales for the time of year weakened further, however, to -34 in February from -24 in January. The percentile standings for these metrics put sales compared to a year ago at a 12.7 percentile standing, orders compared to a year ago with a 7.4 percentile standing, and sales for the time of year at a 9.5 percentile standing. All of these are extremely weak readings regardless of whether they get slightly better or worse month-to-month.

Expectations- The expectations for March are still very weak in terms of ranking and generally weakened month-to-month. Sales expectations compared to a year ago in March weakened to -30 compared to -26 in February; orders for the time of year weakened to -47, a sharp drop, from -25 in February; sales for the time of year improved slightly to -27 from -31 in February. The rankings on these three metrics are displayed on the table - they all stand below their 10th percentile.

Distributive trades wholesaling Sales- The distributive trade readings for wholesaling are slightly more optimistic than for retailing. The rankings are still weak; while numerically stronger than for retail sales, they are not really demonstrably stronger, at least, in economic terms month-to-month distributive trades show sales compared to a year ago at -19 in February, an improvement from -30 in January. Orders for the year ago improved to -30 in February from -33 in January while sales for the time of year improved to -29 a small improvement from -31 in January. The percentile standings for these readings are in their lower 16th percentile or lower.

Expectations- Moving to expected sales for wholesaling, the March numbers improved to -14 compared to a year ago, that matched up to -28 in February. Order expectations compared to a year ago improved to -21 in March relative to -30 in February. Sales for the time of year logged -23 reading, a sharp improvement from -35 in February. The rank standings for these have sales and orders compared to a year ago at or close to their 20th percentile while sales for the time of year have a standing below their 10th percentile. These are stronger readings than for expectations for retailing; however, they're still extremely weak. The 20th percentile is really not significantly better in economic terms than being in the 10th percentile.

Summing up For all the distributive trades, survey results remain weak with mixed performance month-to-month in the retailing and wholesaling sectors. The U.K. economy continues to struggle and the survey this month doesn't do anything to increase confidence about economic performance.