As you will see, I have also introduced a new measure - P2P - which stands here for "Peak to Present", since after 12 months of decline the year on year measure is no longer interesting, and more than often misleading.
Here then are a series of P2P charts - showing the percentage drop from peak to present, which will enable us to follow the evolution of the crisis on a monthly basis.
You will also find with them the relevant index charts, and these also give a feeling for the extent of the drop.
Retail Sales
The latest retail sales figures (July) continue to confirm the same picture. According to Eurostat data, retail sales were down 1.2% month on month over June, and down 6.47% over July 2008. Sales are now down 10.11% over their November 2007 peak. So as we can see, sales are steadily sliding down, and the drift is relentless.
Construction
Latest data show that Spanish construction fell again between May and June, despite plan E, it was down 0.2%. Year on year figures are meaningless for an industry which will have been contracting for three years in July, but from the peak (July 2006) activity is now down by 30.5% - that is it is the industry has now shrunk to 70% of what it used to be.
Industrial Output
Industrial output continued to fall in June, and was down 16.2% year on year, which means it has now fallen 33.45% from the June 2007 peak. That is output has now been falling for over two years, and the decline seems to have continued in August (see manufacturing PMI report sumarised below)
August Purchasing Manager Surveys
And I have added the two Purchasing Managers Index charts - for services and manufacturing - for July, which is the first month of the third quarter, and so give us some idea of where we are going next. As can be seen, the contraction continues, more moderately, but it continues.
The Market Purchasing Managers' Index on Tuesday nudged lower to 47.2 from 47.3 in July, while manufacturing output again declined below the 50 mark -- the dividing line between expansion and contraction -- after peeking above that level last month for the first time since January, 2008. "The Spanish manufacturing sector appears to be stagnating, rather than entering full recovery mode during the third quarter," economist at Markit, Andrew Harker said of the survey.
Employment continued to decline, although at a slower pace for the second month running. The employment index has showed job cuts every month for the past two years.
Services PMI
Spanish service sector business conditions continued to deteriorate in August, but data pointed to a much slower drop in activity than in July. Input prices rose for the first time since December 2008, while optimism strengthened. The headline seasonally adjusted Business Activity Index – which is based on a single question asking respondents to report on the actual change in business activity at their companies compared to one month ago – rose to 45.3 in August, from 40.8 in July. Although the data indicated a marked contraction in business activity, it was the slowest since February 2008. Activity has now decreased in each of the past twenty months.
Yet Consumer Confidence Continues To Rise And Rise
And then, the strangest thing of all, consumer confidence goes on rising, month after month. Confidence in the current economic climate rose 3.9 points in July, continuing a six-month trend of increased optimism. The survey also indicated Spanish consumers have higher hopes than ever for the future of the economy, and the indicator for future economic expectations now stands at 106.7, up from a low of 59.8 in July 2008, partly according to the ICO (who organise the survey) due to an expectation that the job market is going to improve before the end of 2009. My guess is that a combination of falling prices and interest rates coupled with some salary increases for those on long term contracts has a lot to do with this bout of exhuberant optimism. As the job market continues to deteriorate in the autumn I predict we will start to see a reversal in the trend.
9 comments:
Edward, in addition to your explanation I would add the summer service hirings maybe gave a boost to confidence. But the drop in pernoctaciones and money less spent by tourists is also going to add to the long cold winter. We've had a huge buildup of hotels here in Spain the last couple of years. I just booked a couple of nights in Barcelona at a very nice hotel at less than 1/4th it's rack rate. It's good for me but not a good indicator for the economy in the near future given the percentage of the GDP from tourism.
TorreTim
Hi.
Sorry, but my english it's not very good. Perhaps the last point, Consumer Confidence, could be explained with the marketing, as is said in this page http://www.libertaddigital.com/opinion/emilio-j-gonzalez/por-propaganda-que-no-sea-50652/
Regards
Hi Torre Tim,
"I would add the summer service hirings maybe gave a boost to confidence."
Definitely. Also the current account deficit. Again we don't have a seasonally adjusted CA deficit, but of course over the summer the monthly gap is 1.5 to 2 billion euros a month less, thus giving the impression that something is improving (which it is) but nothing like as fast as it seems.
Anonymous
"Perhaps the last point, Consumer Confidence, could be explained with the marketing"
Definitely, even the TV news is an important factor, since it only emphasises how the recovery is coming. Lats night I watched extensive coverage about how the OECD was improving its outlook (without mention of the fact that they are specifically excluding Spain) while there was no mention of Trichet's press conference where he stressed that the Eurozone recovery was "fragile" - hence people have no real criteria for reaching judgements.
Edward, another point that might contribute is that many of my friends that own houses here in Spain insist their homes are worth their bubbled prices and are not adjusting to the current crisis--the ones that aren't selling that is. This probably adds to their "irrational exuberance" since we know that perceived wealth contributes to consumer confidence. I wonder if you are seeing this phenomena too or are your neighbors more pragmatic?
These perceived values dovetail nicely with the banks asset evaluations your earlier writeups linked to.
It worries me.
As always, thank-you for your postings.
TorreTim
Hi Again Tim,
"another point that might contribute is that many of my friends that own houses here in Spain insist their homes are worth their bubbled prices and are not adjusting to the current crisis--the ones that aren't selling that is."
I agree, I think it isn't only the banks who are in denial, lots of people are.
But then this is very hard for people, how do they decide whether this is Japan 1992 or Spain 1992. If this is Spain 1992 they will be right, and things will come out OK, and if it is Japan 1992 then they will lose a lot of money, and really prices will stay well below their December 2007 peaks for a generation. I think I know which it is, due to the macro tools I apply to the analysis, but how the hell does old Joe an the Clapham omnibus decide?
Hi again.
In Spain, houses has fallen down only a 10% because banks are refinancing both people and builders for the next two years. I think that 2011 will be a crucial year for the spanish economy. I read sometime ago that the difference between people that lost money with shares and with houses is that people sell the share and go out of the market while people that own a house are loosing money but they are still in the market.
Thank you for your comments.
Andres
Hi from Spain,
Maybe a point can help understand the stubborn high level of confidence in the public: the great effort of communication by the Government trying to sell the idea that everything is improving. This efforts are in line with those of the Obama administration (and other european governments, too, but the special problems of the spanish economy are been sidelined.
JH
Excellent review Edward of the current situation in Spain. Amazing how politicians don't like P2P statistics. If things could continue to worsen exponentially, we'd cease to exist!
Is confidence on the increase? I doubt the veracity of the results. The only comment I hear around here (Castellon) is 'cada vez peor'. As opinion cannot be quantified very easily by figures, I believe it's bull....!
As readers have pointed out, falling mortgage repayments could be temporarily easing the situation for families but a rude awakening awaits them when the Euribor tide turns and their property continues falling in value. Not to mention the thousands who will run out of unemployment benefit. Could also be that many Spaniards are falling for the govenment's wishful thinking, misleading propoganda. Not everyone reads Intereconomia or Edward's blog! If you just listen to the TV, you'll remain in ignorance.
Saludos, Chris.
In my opinion, the weakest link in the chain, prone to a break in coming months, is local and regional authorities finances. I can talk about the figures of one of the richest authorities in Spain, in the BAsque Country: as of august, tax receipts have fallen around 24% . That is a black swann !! Many local services are unaffordable if such level of receipts do not dramatically improve very soon. But wherever I watch, I only see "biding time" strategies, hoping for a miraculous recovery coming from somewhere.
JH
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