Economy in Brief

EMU Shows Some Services Upswing, But still Is Range-bound The PMI data for April from S&P Global shows a mixed performance that tends toward strengthening except for the United States. U.S. data in April show a weaker composite, a weaker manufacturing sector, and a weaker services sector and these three readings were also weaker month-to-month in March in the United States. The other seven countries reporting on the table show stronger data for April and while a bit more mixed strengthening in March as well. On average, the monthly data from February to March to April show the composite readings creeping higher. Manufacturing ratings move higher in March compared to February and then stall in April. For services, there is a steady progression of stronger service sector numbers from February to March to April.

Sequential data are far more equivocal with the average Composite Index at the same level over three months as it is over 12 months. The manufacturing reading is a tick higher at 47.7 over three months compared to 47.6 over 12 months. The services reading is slightly lower on average over three months at 51.3 compared to its 12-month average of 51.5.

The PMI this month highlights conflicting trends with the February-to-March-to-April data showing an upswing while the averages from 12-months to six-months to three-months show flatness to slight weakness. On balance, it's not the improving picture that we'd hope to see at this point.

The queue percentile standings data place the April flash data in a four-year queue of observations and viewed in that way the average for the Composite Index is at 62nd percentile, the average for manufacturing is at the 38th percentile and the average for services is at its 67.6 percentile. The services sector is barely inside of the top third of its 4-year historic range for this. Manufacturing at a 38-percentile standing is a good ten percentage points of percentile standing points below its median.

Of course, they're very different experiences across countries. India has the strongest performance with rankings in the 90th percentile for the composite, manufacturing, and services. Japan has firmed showing strong standings with the composite ranking in its 87.8 percentile and a services sector in its 91.8 percentile. But Japan’s manufacturing is still only in its 51st percentile. Japan and India are the only two countries that have manufacturing percentile standings above their respective medians (above the 50th percentile mark). Manufacturing in the euro area as a whole has a 22.4 percentile standing, Germany has a 16.3 percentile standing, and France has a 16.3 percentile standing. Manufacturing remains a weak sector in the global economy. India is benefiting from some relocation activity from some of the businesses leaving China.

The table also presents data and changes from just before COVID struck using January 2020 as a base. On that comparison, Germany, France, and the U.S. have weaker composite readings than they had four years ago. The European Monetary Union has a higher reading but only by 0.4 points, on its composite diffusion index. India's composite is higher by 6.1 points, Australia is better by 5 points, Japan is better by 2.5 points, and the U.K. is better by 1.7 points. None of these are very remarkable increases over a period of four years, but the statistics for India and Australia are quite respectable.

Dutch consumer confidence improved in April, rising to -21 from -22 in March, continuing its slow but steady climb higher. The willingness to buy index also continues to make a steady climb; it improved to -13 in April from -14 in March and -17 in February.

A strong six-month change: The simple period-to-period changes (not annualized) show that most of the change in the index has come over the last six months. Over the last six months, confidence is up by 17 points compared to being up 16 points over 12 months; a 7-point gain has occurred over the last three months. For the willingness to buy, there’s an increase of 14 points over six months compared to a 17-point gain over 12 months, once again most of the improvement coming over six months. Since then, the improvement is evenly split as the index has improved by 7 points over the last three months.

Climate: The measure of climate from the Netherlands continues to improve; it rose to -34 in April from -35 in March and from a reading of -41 in February. Looking at its sequential changes, the bulk of its improvement has come over six months as well, where there's a 22-point gain which is larger than the gain that it made over 12 months; there's a gain of 14 points; however, the pace of gains obviously has slowed with only five points worth of gains occurring over the last three months.

Still, the message from the Netherlands is that we're seeing improvements and the improvements, while slow, continue to be steadily coming month-by-month. The last six months has been particularly good for the improvement in conditions in the Netherlands.

Belgian compared We can compare the improvements in the Netherlands to Belgium’s consumer confidence index, a country from the same region and a member of the European Monetary Union. Belgian confidence deteriorated over six months, it fell by one point over six months, was unchanged over 12 months, and then showed more weakness recently by falling by 4 points over three months. The readings for the Belgian index show -6 in April, a deterioration from -5 in March with the March reading being unchanged from its value in February. These comparisons show that the Netherlands is having a much better recovery experience in 2024 than is Belgium, an economy that is traditionally linked strongly to the German economy.

Queue standings across metrics- We are evaluating these metrics in terms of their queue standings; on data since about 1990, we see that the Belgian data that are improving by less recently have the stronger queue standing over the entire period with a standing in its 54.5 percentile. This compares to a confidence ranking in the Netherlands at its 25.7 percentile, a willingness to buy standing in its 24.7 percentile, and the climate reading in its 30.6 percentile. Belgium has improved to a higher level than the Netherlands, but the Netherlands is currently experiencing a faster pace of improvement from a worse level of confidence than Belgium. These metrics are borne out over a shorter period as well. Since January 2020, the Belgian confidence indicator is up by 20 points while the Dutch confidence index is up by two points, the willingness to buy index is up by four points; Dutch confidence is weaker by three points.

Global inflation trends have been in concert for major money center countries/areas- excluding Japan, of course. Inflation flared after Covid struck and in the wake of the Russian invasion of Ukraine. It continued to ramp up more than central bankers thought. Interest rates were raised from very low levels- the U.S. led the pack in terms of rate hike speed, getting its key rate up to its prevailing inflation rate in record time after a long period of being asleep at the switch. It said it stood prepared to hold rates ‘higher longer.’ Then the next unexpected thing happened; inflation fell sooner and more sharply than expected and it did this globally, not just in the U.S. However, we are now into phase three of this process: inflation went up more and longer, inflation then fell more and faster and now inflation is off peak but not back were we want it—and it is looking stubborn. This is more or less a global money center country/area description of inflation. Inflation that went through its boom-bust phase, as you clearly see from the sequential growth rates of the German PPI is now up from its lows. The headline price level is falling but losing momentum. The core PPI is only falling in its ‘legacy’ 12-month rate.

German PPI inflation falls by 2.8% over 12 months, falls at a 3.4% annual rate over six months, and falls at a 1.2% rate over three months. Core PPI inflation falls by 0.7% over 12, months then rises at a 0.7% annual rate over six months and three months. The core points the way for trend.

The NSA (not seasonally adjusted) sequential data show acceleration across and three major PPI sectors: consumer goods, investment goods and intermediate goods. Prices only fall over 12 months for intermediate goods. All other sectors trends show increases by period and all show acceleration in progress.

German CPI data show higher inflation over three months than over 12 months for the headline and the core with a dip in between – not a steady state acceleration but a clear hint at where things are headed and with German inflation rates clearly above the EMU-wide 2% mark.