Economy in Brief

The Belgian National Bank index in July weakened to -12.3 from -11.1 in June. The -12.3 reading is the weakest since it was -12.8 in February. The index has not weakened greatly; however, instead it has languished in the -10 to -11 region. July stepped down to the -12 region, indicating ongoing morass for Belgian industry. The three-month change in the index worsened by 0.4 points; however, over six months it improved by 4.1 points, but over 12 months it improved by only 2.5 points. There is some improvement in the history, but the improvement over six months is stronger than over 12 months, a good sign except that over three months some of that gain has been given back. This leaves the trend in an uncertain situation.

The standing for the index is in its 14.3 percentile which leaves it very low in its queue of historic readings. Manufacturing alone has a 17-percentile standing, slightly better than for total industry, but still not too different from the total industry mark that is poor.

Manufacturing worsened in July to -14.9 from -13.1 in June. The production trend for manufacturing, however, has improved slightly, rising from -3 in May to -2 in June to -1 in July. The July reading is its best since a rogue improvement brought the index to zero in March. Setting that aside, this is the strongest reading since June 2023.

The domestic order trend, on the other hand, is weak and somewhat worrisome. In May the reading was -7; in June it fell sharply to -19 and in July it stayed in that region with the -20 reading. The domestic portion of demand for Belgian industry has weakened significantly in the last two months and stayed at that weaker posture.

Foreign demand during this period weakened as well. The foreign order trend in May was 0 that weekend -5 in June and improved only slightly to -4 in July.

Price trends show negative readings in May and June that turned to a positive reading of plus one in July.

The unweighted average among the 8 units reporting in the table improved month-to-month. The composite average from 12-months to 6-months, to 3-months, gets progressively stronger by a small amount. But the July value for aggregate data is below the recent (lagging) 3-month average that is constructed from hard data from June backward. As a result of these data entanglements, the trend for this group is quite flat and hard to pin down.

However, there are trends and events of importance in this month’s report- especially regarding the performance of the U.S. services sector that need attention.

The progressive average shows strengthening from an average over 12 months, to six months, to three months for both aggregated manufacturing and services sectors. Yet, both services and manufacturing are weaker in July than over their respective previous three-month averages.

Month-to-month changes show a split situation in July; 12 of 24 sector readings are weaker and 12 are stronger. Among these, five total-indexes (or composite indexes) are stronger month-to-month while three are weaker. But in June many more composites weakened and in May many more strengthened.

The queue percentile standings that position the monthly PMIs in a string of data back to January 2020, show only nine of 24 rankings above a standing of 50% which marks the median for each data-series on this timeline. Of those nine, three are India, while Japan and the U.S. account for another two each. The EMU and Germany each have service sector standings above the 50% mark.

The U.S. service sector reading headlines this report Interestingly, the U.S. ranks above 50% for its composite and for services. Services show a strengthening in each of the last three months. This is huge! It stands in stark contrast to astonishing weakness reported by the ISM services report in June. With the U.S. strength in services this month reported by S&P, there is no squaring those two reports as have a timing difference or some other technicality. That possibility is gone. They are simply different and quite different. In fact, the S&P service sector ranking for the U.S. in July has a 69-percentile standing- a standing in the top one-third of historic observations since January 2020. In contrast, on this same timeline the ISM services gauge is the third weakest observation over those 54 months. These are vastly different pictures of the performance of the U.S. services sector, an especially important sector for the U.S., for the Fed, and for global monetary policy. All eyes are on the Fed with inflation having notched lower again and the Fed looking for confirmation of a lower inflation trend to pull the rate-cut trigger. Inflation is most intense in the U.S. services sector. But it broke lower in June. Is the services sector weak, and will inflation continue lower? Or is the services sector strong, and will service sector inflation rise and remain stubborn? We are looking at severely conflicting data. The ISM services diffusion reading in June has a value of 48.8; that compares to a reading of 55.3 in the S&P survey and now to 56.0 in the S&P July survey.

Not only do opinions on the economy clash but so do data that pertain to the same phenomena… That is not reassuring.

Danish confidence continues to post negative values in July. The July confidence reading is slightly worse than in June, but its negative reading is not as deeply negative as in May, although it comes in right on its three-month average. Sequentially the average readings for Danish confidence are improving from -23.5 on its 12-month average of a year ago, to a -8.9 average over the most recent 12 months, to a -6.7 average over the recent six months, and to average -5.4 over the last three months.

Danish trend The chart shows a relatively rapid improvement in confidence from late-2022 to mid-2023. Since then, the improving gradient has been less steep but still shows steady, if not monotonic, improvement. This month’s backtracking is not unusual as there have been five monthly backtracks over the last 12 months even as the index improved by 4.7 points on balance, an average monthly gain of about 0.4 points per month. This is normal volatility, not at all unusual.

The chart also plots the Danish figure against the Sentix gauge for the EMU. That relationship shows a tracking of Denmark with the Sentix gauge, with Sentix being the more volatile reading. Currently both Denmark and Sentix are on improving trends and each have negative readings.

Environmental standings The Danish data show readings for confidence and a separate set of readings pertaining to the environment. The environmental readings are mostly higher than the percentile standings of other conditions and their future values except for inflation. Inflation expectations in Denmark are still elevated.

Notably the environment shows standings for most environmental variables in their mid- to upper-fiftieth percentiles leaving the rankings moderately above their period medians (medians occur at a rank of 50). The exception here is a weak 17.3 percentile standing for the favorability of the time to purchase, but that improves to a 57-percentile standing on the outlook for the next 12 months.

Confidence Consumer confidence itself has a ranking at its 16th percentile with weaker readings for the 12-month outlook that for the last 12-months for the components ‘financial situation’ as well as for the ‘general economy.’ The outlook standings for these two components have values in the 7th percentile (Financial Situation) to the nearly 18th percentile (General Economy), both quite weak.

The unemployment trend for the next 12 months has been fluctuating at a value of +7. That has a 65.5 percentile standing. That puts expectations for unemployment moderately above its historic median, which is slightly uncomfortable.

Inflation expectations are lower on the outlook than the look-back over 12 months, but both have elevated standings with the backward-looking standing at 87.6% and the outlook still high at 70.9%.