Recent data send conflicting signals about the outlook for the US economy. A survey of chief financial officers shows they have become gloomier and the nowcast of the Federal Reserve Bank of Atlanta is forecasting a contraction of real GDP in the second quarter. This would mean two successive quarters of negative GDP growth, which corresponds to the popular definition of a recession. However, the labour market continues to be strong and the majority of indicators used by the NBER Business Cycle Dating Committee are still in an uptrend. This suggests there is no imminent risk of recession yet.
The downward trend of the global manufacturing PMI continued in June. The index dropped in the US and declined in the euro area to respectively 52.7 and 52.1, which brings us close to the crucial 50 mark. The various euro area countries for which data are available all recorded lower numbers. Data were also weaker in the UK and Japan. Australia, Mexico and, in particular, China saw an improvement.
Results from the various economic activity indexes and confidence surveys are all pointing in the same direction. The US economic slowdown is becoming more severe, particularly judging by the sharp fall in the flash composite PMI for June, which came in at 51.2, down 2.4 points relative to May. Consumer surveys are continuing to show a sharp drop in confidence. The University of Michigan Consumer Sentiment Index slumped 9.5 points in June, taking the total decline since January to 17 points, while the Conference Board Consumer Confidence Index – which had previously been more resilient – finally gave way, falling 3.5 points.
In May 2022, Germany recorded its first trade deficit since 1991. Due to a much bigger than expected increase in imports (2.7% m/m) and an unexpected drop in exports (-0.5% m/m), the country’s trade balance was negative to the tune of EUR 1 billion. By comparison, Germany was running a monthly trade surplus of nearly EUR 20 billion at the end of 2019. Moreover, this deterioration of the trade balance is likely to continue.
Although real GDP held up in Q1 (+0.1% q/q), our barometer clearly shows that the economic outlook is worsening. Annual inflation rose again in June, going from 7.3% to 8.5%, while manufacturing output stagnated: although Italy’s manufacturing PMI remained in the expansion zone at 50.9 in June, it fell for the seventh straight month and has been down 11.9 points over that period.
