> Corporate surveys will highlight the business cycle foreseeable future. The IFO will be released on Tuesday 24 as will be the French Climat des Affaires. The French momentum is currently higher than in Germany as this latter is more exposed to the international backdrop. The Italian survey on corporate confidence will be out on September the 27th and may show the impact of a pro-European government on corporate confidence.
> Markit surveys, flash estimates, will be released on Monday the 23rd for the Euro Area, France, Germany and the US. The Japanese release will be done on September the 24th. These surveys are important but I will carefully look at the New Export Order indices in the Euro Area, US and Japan. Its average is clearly consistent with the world trade profile. In August it was as low as 46.6 giving a signal of continuous contraction in trade. September date will be important.
> Consumer confidence in the US (24 for the conference board and 27 for the Michigan), in France (25), Germany(26) and Italy (27). The US conference board will give us relevant signals on the US labor market dynamics. France index will remain above its average, way above the level it has a year ago when the yellow vests demonstrations started.
> Consumption expenditures in the US (27) and Fed’s preferred measure for inflation for August will be released on August the 27th. Consumers’ behavior is the strongest support of the current US growth momentum. Nevertheless it can be very volatile. We expect that it will be strong in August, consistently with retail sales. No strong expectations on inflation. The July core inflation rate is 1.6%.
> Inflation for September in France and Spain. > New Home sales in August in the US. The real estate market has been stronger recently. A confirmation is expected as interest rates were low in August.
French households are optimistic. INSEE the French statistical institute has just released its consumer confidence survey for August. The synthetic index is 2% above its historical average. Last November, at the start of the Yellow Vests movement, the index was more than 8% below this average.
The change has been important. The real change is that now, households have a positive outlook on their immediate future. In November, they were very pessimistic on their purchasing power due to higher taxes on diesel. This is no longer the case. This extra tax has been withdrawn, the labor market is more supportive (150 000 new jobs have been created during the first half of 2019), and the economic policy has pushed up purchasing power.
The budget constraint is less tight than it was perceived and the labor market sends a positive signal. This change in perception can be seen on sub-index in the survey. The financial situation for the next 12 months which reflects the financial situation for an individual is above its historical average and the index for Standard of living (for all the French people) is also above this average. This can be completed by the perception that unemployment is no longer a important source of concern. French households’ perception on unemployment is also on the optimistic side. In other words, the rapid reaction of the government has limited the impact and duration of the Yellow Vests crisis.
For French households, the future has darkened during the last two months. The household confidence index plummeted in December and households’ perception of their own situation or that of all French people is at a very low level, not necessarily very different from that observed during the post-Lehman shock period. 2008/2009. This is a measure of the feeling of what is happening in France today. The difference is that in 2008/2009 the shock was external and in a way it was enough to wait for the effects to fade. Today the shock is endogenous, it has its source in the very dynamics of French society. When we look at the year-on-year change in the household confidence index, we can see that the shock is stronger than in the winter of 1995 when the French economy froze. The consequence is that households can no longer project themselves into the future. The perception of their own situation is very degraded leading to a more wait-and-see attitude, leading to a deterioration of the economic situation, feeding a vicious circle. To get out of it, the government must propose measures in rupture that could change very quickly everyone’s perspective to avoid dramatic political excesses. It is he who has the responsibility and it is certainly not by accentuating the tax burden that the solution will be found.
Rebound of the UK consumer confidence index in August
After the referendum on Brexit, June the 23rd, households were worried by the consequences of the “Leave” option. They thought that the impact would rapidly be negative. The consumer confidence index dropped deeply in July. It was driven by the uncertainty related to the 12 month outlook for the economy.
After a vote, people are generally happy with the result. That’s what we see in France after a presidential election. With a new president there is a new situation and a majority of people think it will be better in the future. That seems logical and easy to understand.
British are different. They have just voted for a major change in their institutional framework as they want to exit from the European Union. We can expect that a majority of British people will be happy with that.
This is not the case. In July, the households’ confidence index drops deeply by 8 points (deepest drop). Clearly there is no enthusiasm for this fracture.
More than that, expectations on the economic activity for the next 12 months is trending downward dramatically. There is a risk of self prophecy for a recession. The message was that a Brexit could lead to a recession (see economists). The Brexit has been voted and people are worried by this perspective. They will adopt a lower profile for their expenditures because of the uncertainty created by the risk of recession; they prefer to save. But as demand addressed to companies will be lower, the probability of a recession is high.