Economy in Brief

European vehicle registrations falter and flatten in February. The month-to-month changes for a decline of 0.9% in February; year-over-year vehicle registration growth is -3.9%. The chart makes it clear that country-by-country the growth rates have been closing in on fairly unchanged levels of activity with a slight bias to contraction.

Country-by-country year-over-year sales results are strongest for Spain with the 10.4% increase, France with the 1.7% increase, the United Kingdom with a 2.4% drop, Italy with a drop of 6.2%, and Germany with a drop of 7.1%. These numbers translate into a 3.9% decline year-over-year for the total. If we look at smoothed data updated from three-month moving averages, there's a decline of 1.4% year-over-year, just to get a less volatile read.

Despite the year-over-year declines that are more prevalent than increases, the sequential trends show vehicle registrations trending more toward acceleration. There is clear acceleration registered in Italy and the United Kingdom. After that, there's certainly a very strong hint of very strong acceleration in both Spain and France. I say that because the year-over-year gain for Spain is 10.4%, while the three-month gain goes up to 32.1% at an annual rate (!); however, that is a step-down from the six-month growth rate of 47.6% at an annual rate so it's not exactly a clear accelerating trend but certainly three- and six-month growth rates are far in excess of the 12-month growth rate. We see the same thing happening in France with a 1.7% year-over-year growth rate compared to a 23.1% annual rate over three months, but that three-month rate is a step-down from the six-month pace of 27.7%. Because of that, I can't classify those two countries as accelerating but clearly something very positive is a foot.

If we turn to look at ranked data, we find the ranking of year-on-year sales growth is at 20.2% overall growth rates since 1995 – weak and unimpressive. Country rankings range from low 7% rank for Germany to a high of a 46-percentiel standing in the U.K. All rankings are below 50%, below their respective historic medians. We can also rank the same data in terms of the pace of unit sales. In Europe, the pace of unit sales (units sold per month or per month at an annual rate) there is a 33-percentile standing on all unit sales data since 1995. The auto sector pulled back after the Great Recession, it recovered into Covid, then suffered further downward pressure after the invasion of Ukraine by Russia. Since then, there has been a much more modest recovery leaving the pace of unit sales closer to the lows reached after the Great Recession than to its pre-Great Recession mark. Europe’s auto sector may be recovering but it is doing so slowly and sporadically, and it has a long way to get back to trend.

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.