As is often the case, the June batch of confidence data is a mixed bag. Confidence has deteriorated in all broad business sectors except construction but has improved among consumers, suggesting that the economic recovery is not yet firing on all cylinders.
The first highlight comes from manufacturing, where confidence has fallen to the lowest level since November 2020. The contraction is particularly marked in instrumental goods, where decelerating orders match with an increase in the stocks of finished goods. The manufacturing soft patch is still in place and poor demand conditions (insufficient demand looks set to emerge as the single most powerful obstacle to production also in the second quarter) still seem to be delaying the start of a re-stocking cycle.
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The good news comes from consumer confidence, which gained more than three points on the month, reaching the highest level since February 2022. Consumers are more upbeat about the economic situation and consistently report sharply decreasing worries about future unemployment. Interestingly, they also show a sharp increase in their willingness to purchase durable goods; experts suspect this might depend to a good extent on the introduction, early in June, of generous incentives for the purchase of electric/hybrid vehicles. This might bring about a temporary recomposition of consumption towards durables over the second half of 2024.
Confidence data still consistent with slight GDP growth deceleration in the second quarter
All in all, today's confidence data provide additional evidence the economic recovery is still in place, at different speeds across sectors. While industry could still act as a supply side drag in the second quarter, services should compensate, but quarterly GDP growth could slow down to 0.2% from 0.3% in the first quarter.
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