P2P In The Spanish Economy

Well, we are getting a lot of waffle out there (noise), and talk about greens shoots and muted recovery, but all too often what is lacking is anything very substantial in the way of hard data to back up the various arguments. In poarticular, when it comes to Spain I would like to know where people are finding the justification for all the optimism, since as we will see below, there is little in the way of hard data to suggest anything other than continuing deterioration. In this post we will look at the most recent data for three key indicators - construction, industry and retail sales, as well as the most recent services and manufacturing Purchasing Managers Indexes (August).

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.