The retail sector in the United States and Europe has been quite stable in recent months. Consumption of consumer durables in the United States, for example, remains extremely high. U.S. consumers still spent 26% more on consumer durables in Q4 2022, adjusted for inflation, than in the last pre-pandemic quarter at the end of 2019. In Europe, where stimulus packages to the population were distributed more cautiously during the pandemic, the corresponding figure is again just below the level of Q4 2019.
Development of the inflation-adjusted consumption pattern in the United States since the outbreak of the pandemic
Source: raw data by Bureau of Economic Analysis (BEA), illustration by hpo forecasting
However, it would be very surprising if this overconsumption simply continued. In the meantime, it is no longer financed with government checks, but increasingly also with consumer credit, which has been rising rapidly in the United States since mid-2021 and whose level is constantly reaching new record levels.
Industrial production also developed very stably for a long time and grew relatively steadily in both the United States and Europe. While in Europe the 2019 level was exceeded already by the end of 2020, the United States only reached the pre-crisis level towards the end of 2021. Since October, however, industrial production has been falling in both regions.According to hpo model calculations, this weakening momentum in industry will continue in the coming months.
Development of industrial production in Europe and the United States
Source: raw data by OECD; illustration by hpo forecasting
While retail and industrial production had a strong supportive effect on the real economy last year, consumer sentiment in Europe, Asia and the United States has been falling rapidly since 2021 and reached historic lows in all three regions by mid-2022. In the last quarter, the trend reversed slightly, and sentiment brightened somewhat. Historically, consumer sentiment remains extremely pessimistic and the index is far below the neutral value of 100.
Development of the Consumer Confidence Index in Europe, the United States and Asia (M5A); values below 100 = pessimistic consumer sentiment
Source: raw data by OECD, illustration by hpo forecasting
The mood among companies looks better. Relieved that inflation appears to have peaked and that the worst fears of an energy crisis in the winter did not materialise, the Business Confidence Index (BCI) for Europe published by the OECD stabilised in the fourth quarter and is now back just into expansionary territory. Data from the ifo Institute for Germany show that expectations for the future in particular have improved sharply in recent months. In the United States, by contrast, the BCI continued to fall unabated in Q4 and at 99 points is in contractionary territory.