by Thomas Cooley, Charlie Nusbaum, and Peter Rupert
Much has happened since our last post. The US-China trade war intensified as the Renminbi was allowed to fall 2% in three days, the European Central Bank set rate targets deeper in negative territory, and a new quantitative easing program was announced with a bond purchasing target of €20 billion per month.

Moreover, the ECB staff projections suggested a worsening of the overall EU economy. The GDP growth estimate for 2019 was dropped to 1.1% from 1.2% and for 2020 from to 1.4% to 1.2%. Inflation forecasts are 1.2% this year, 1.0% in 2020, and 1.5% for 2021.

There was significant dissent among the members over the sharp change in monetary policy. Governor Draghi’s decision provoked widespread dissent, and led the German member of the executive board to resign in protest. The committee also made it pretty clear that monetary policy alone will not be enough, quoting the report from the last meeting:

Finally, all members agreed that, in view of the weakening economic outlook and the continued prominence of downside risks, governments with fiscal space should act in an effective and timely manner. In response to the significant risks related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, policies other than monetary policy would be more effective and were better suited to address country-specific shocks. In this context, the Governing Council should communicate carefully so as not to create unrealistic expectations about the contingencies that monetary policy was able to address.

While many European economies seem capable of sustained fiscal stimulus, the vast majority are relatively small. Among the larger economies, only Germany and, to a lesser degree, the United Kingdom appear positioned to loosen their purse.

All of this begs several questions. How are the largest economies fairing? How effective is European monetary policy? What more can be done? Let’s dive deeper into these questions.

What do the data say?

Real GDP growth throughout the EU continued to decline during 2019Q2. Year-on-Year quarterly growth in Italy remains just above 0.0%, whereas French and German growth fell to 1.38% and 0.41%, respectively. The downward trajectory for Germany is particularly troubling given that it is the largest economy in the EU. Spanish growth also declined, albeit to a lesser degree, to 2.03% while growth in the United Kingdom remained steady at 1.22%. Growth in the EU has a whole declined to 1.37% from 2.26% this time last year. The decline in the Euro Area is even larger, from 2.26% to 1.15%.

While it is the case that some countries have experienced quite high year-on-year growth, it has been concentrated in the smaller European economies.

While the above pictures already spark alarm, the annualized quarter-on-quarter growth rates are even more concerning. Quarterly growth in the EU28 has fallen remarkably during 2019Q2, from 2.0% to just 0.7%. Much of this decline is driven by the two largest European economies: Germany and the United Kingdom. The annualized quarter-over-quarter growth rate for each was -0.30% and -0.77%, respectively. Both are large contractions.

Unemployment remains low across much of Europe. Indeed, the unemployment rate in Germany and the United Kingdom reached 3.1% and 3.8%, respectively, in 2019Q2. Still, the unemployment rate in the next three largest economies–France, Italy, and Spain–are some of the highest in Europe. The EU28 as a whole lags far behind the United States along this dimension with an unemployment rate of 6.3%. Euro Area unemployment is roughly double that of the United States, with 7.6% of their labor force without work.

Moreover, investment growth, as measured by changes in real fixed capital formation, has all but ceased in the United Kingdom. Spain is not far behind. Italian investment growth, partially rebounded since 2018Q4, also appears tepid. Despite serious concern in 2018Q2, both the EU28 and Eurozone have outpaced the United States, experiencing investment growth of 2.5%, 2.8%, and 1.9%, respectively.

Market participants seem to have recognized some of these signs of slowing and have adjusted their expectations for future growth downward. Here, we use the spot rate yield curve as a proxy for market expectations. Typically, a higher rate is demanded for long term bonds than for short term bonds. The reasoning is simple: Both the opportunity cost and risk associated with long-run inflation and potential default are greater for long times to maturity than for short term bonds. As pessimism about the immediate future grows, capital shifts from equities to long-term bonds in the hopes of riding out a potential recession and market rates fall.

Relative to the prior two years, the yield curve in the Euro Area has begun to flatten. Indeed, yields on bonds of almost all maturity lengths have decreased and turned negative as of 2019Q3. The largest changes occurred for long maturity bonds, with the yield on 30 year bonds falling over 1 percentage point over the past year. In contrast, the slope of the yield curve remained fairly steady between 2017Q3 and 2018Q3.

While the previous picture is quite striking, the Q3 yield curve remains steeper than that in the United States. Whereas the average slope between 1 year and 10 year, and 1 year and 30 year bonds in the Euro Area is positive, only the latter is true in the United States. Still, the degree of change displayed above highlights growing market concerns.

Despite maintaining a negative rate target since June 2014, Euro Area inflation has remained far below that in the United States and the ECB’s inflation target of 2%. In fact, there has been little movement in average Euro Area inflation since 2014Q1 with the exclusion.

Another complicating factor is EU-US trade relations. The polices put in place by the ECB have been putting pressure on the Euro.

What has the ECB signaled?

With target interest rates steadily falling and little adjustment in average Euro Area inflation, the threat of deflation looms large on the ECB’s decisions. Incoming ECB President Christine Lagarde has said as much in the past: “If inflation is the genie, then deflation is the ogre that must be fought decisively.”

The outgoing ECB President appears to agree. According to Draghi the open-ended QE policy will be functioning “as long as necessary to reinforce the accommodative impact of its policy rates.” This left the timing and size to be determined as the data pour in. This is more like “open-ended forward guidance,” that is, “What data will be the determining factors?” The stage appears set for even further monetary stimulus moving forward.

Historical Consequences of Monetary Policy

But to what degree has the ECB succeeded in the past? The rate cutting behavior of the ECB is designed to boost the economy through increased consumer spending and a rise in loans issued by banks. The link between monetary policy and consumer spending appears to have weakened in recent years. Indeed, household consumption growth has slowed in many economies.

Instead, households have increased their deposits. The ECB reports that deposits held by financial institutions has shown a consistent upward trend since 2010. This is in despite of gradual rate cuts by the ECB.

On the other hand, the loan channel of monetary policy has succeeded to a degree. While loans to non financial institutions have declined relative to deposits held, the situation has improved since target rates entered negative territory in 2014. Still, achieving even such modest expansion of loans has required rather extreme rate targets.

Moreover, the rate cuts during 2011 appear to have reduced overall systemic risk of the financial sector and the probability of large scale defaults. It is unclear, however, if this correlation has persisted since 2014. Despite continued monetary policy loosening, the chance of systemic default has changed little. The reductions in systemic risk suggested by the figure below can only tell us so much. We do not know if this reduction is artificial or a sign of a healthier financial sector. It could very well be the case that loose monetary policy is simply hiding inefficiencies and otherwise be poor performance.

Our Take

Aggregate growth across Europe has clearly slowed and market optimism has decline remarkably over the past year. Concern within the European Central Bank is certainly warranted. It is not clear, however, how effective loosening monetary policy further will be. Despite crossing the so called “zero lower bound” and entering negative territory, inflation remains well below 2% and household deposits are growing at their fastest since 2010Q1.

This failure of rate reductions is likely the cause of the ECB re-instating its quantitative easing program. Such a program is not without its own inherent risk. Evidently, traditional policy tools have failed and so it is not clear what effect new QE will have. The ECB will eventually need to reduce its balance sheet and offload its assets. Expanding its balance sheet either too early or to little effect will only exacerbate the pain of tomorrow. To us, a not so simple question must be answered: Has European monetary policy reached its limit?

by Thomas Cooley, Charlie Nusbaum, and Peter Rupert

It has been almost three years since some of our British friends voted to leave the European Union and forge ahead on their own. Many discussed the potential economic ramifications of leaving the EU leading up to the vote. From immigration to trade to capital investment, Brexit was meant to be disastrous for the Brits. Since the initial vote, much has happened. Theresa May both became Prime Minister and faced a “No Confidence” vote, large scale protests both for and against another referendum have erupted, and May’s Brexit deals have been rejected by the British Parliament on three occasions. Now, the deadline for a No Deal Brexit has been extended to October 31 as talks have broken down and Theresa May has announced that she will step down as Conservative Party leader. Throughout these negotiations and despite its political uncertainty, the United Kingdom kept pace with many of its major European neighbors and has even outperformed over the past 9 months.

Average year-over-year growth among Europe’s largest economies has remained just below the US average of 2.2% since the start of 2016. During the end of 2017 and beginning of 2018, however, growth in France, Germany, and Italy began to decline, reaching 1.1%, 0.7%, and under 0.1%, respectively, for 2019Q1. We have attributed this decline to political uncertainty in previous posts. With early general elections and the rise in the Catalan Independence Movement in Spain, and Brexit looming over the United Kingdom, we would have expected these two to experience a similar slowdown. Instead, however, both have remained largely insulated, with Spanish and UK growth reaching 2.4% and 1.8%, respectively. Both ticked up from 2018Q4.

We can attempt to uncover the affects of Brexit more rigorously by estimating the probability that there has been a break in long-run growth. In the above graph, we use Bayesian methods to estimate this probability and restrict our attention to after the Great Recession. Two empirical facts are immediately evident. First, our regression model estimates a high probability of a change in the long-run growth rate for all countries during the recovery. Second, our regressions indicate that it is very unlikely–almost 0 probability– that long-run growth in these economies has changed since then. The exception to this is Spain, where our model predicts a high probability that a trend break occurred during 2013Q1 due to its persistent rise around this time. Still, Brexit does not show up anywhere in terms of a trend break.

Investors also seem to have confidence that the recent events of Brexit are little to worry about. While an imperfect measure, here we use stock returns as an indicator of market expectations. Several features are apparent. First, there was a large drop in returns leading up to 2016 and again prior to the Brexit vote. Second, returns in the EU have experienced a persistent decline since the start of 2017. Finally, and most notably, large declines in European returns track declines for the Dow Industrial Average quite closely. If Brexit were a first order concern of investors moving forward, we would expect to see sharper movements in European markets than in US markets, particularly in the FTSE 100, around key Brexit deadlines. At most, it seems as though Brexit is already baked into market expectations.

Are the negative effects of Brexit and uncertainty surrounding it hidden elsewhere? Not as far as we can tell. Below is a striking graph of real household consumption growth. Whereas real consumption growth has declined substantially across Europe’s largest economies since 2016, the United kingdom has maintained a year-over-year consumption growth of between 1.6% and 2.0% since initially dropping below 2.0% in 2017Q3. France, Italy, and, until this quarter, Germany saw consumption grow by only around 0.5%. Spain has recently suffered weak consumption growth, falling from 3.0% in 2018Q1 to 1.4% in 2019Q1. Still it remains well above France and Germany.

Moreover, trade has been largely unaffected by the developments surrounding Brexit. In fact, none of the four largest economies– France, Germany, Italy, and the United Kingdom– have seen a change in trading behavior. Exports both to their EU trading partners and the United States have continued their long-term trends since at least 2010, or in the case of the United Kingdom, 2015.

Imports among these economies tell a similar story. One major difference in these pictures is that UK imports of US goods has steadily risen since the beginning of 2018 after remaining largely constant for the three years prior. Still, given that France, Germany, and Italy have seen very little change to their trends in trading behavior, and given that the UK has also seen a large increase in imported goods from the rest of the EU, it is difficult to identify any effects of Brexit.

There is one place where we may– and we stress the word “may”– be beginning to see the effects of Brexit. Since 2018Q1 Germany, France, and Spain have largely maintained average investment growth as measured by fixed capital formation of 2.8%, 2.8%, and 5.2%, respectively, while the United Kingdom has had almost no increases in investment of late. This past quarter, however, UK investment growth risen above the US average of 1.2% to 1.7%.

Final Take

While the largest European economies have seen quite substantial declines in both GDP and household consumption growth, the United Kingdom has remained steady. This is in spite of the uncertainty surrounding their future. It is hard for us to point to a single picture, or collection of pictures, to see Brexit effects. We challenged ourselves to imagine that we did not know when Brexit, and the subsequent political turmoil, occurred and tried to guess when it happened using these data. We couldn’t. Can you?

by Tom Cooley, Charlie Nusbaum, and Peter Rupert

For several quarters now, there have been signs of trouble for many European economies, including the biggest ones. In earlier posts we highlighted the impact that trade and policy uncertainty may have on growth (here) and the strain that weak banking sectors place on European economies (here). Some of these concerns have been realized. But which margins are most affected by this slowdown? As is evident below, however, this phenomena seems to be concentrated in the Western European economies. Hence, we focus on Europe’s four largest economies to investigate this question.

In our country pages, we discussed the 2011-2013 slowdown extensively. From 2013 to mid 2017, the “Big Four” began accelerating in terms of growth. Growth in France, Italy, and Germany maintained an upward trend during this time period. After 2017Q4, however, growth trends for these three have reversed in remarkable fashion. Indeed, year-over-year GDP growth in France, Germany, and Italy has fallen by 1.9, 1.2, and 0.9 percentage points, respectively, over the past year. The United Kingdom has not faced the same type of trend reversal. Instead, year-over-year growth in the United Kingdom has slowly declined from its 2014Q4 peak of 3.07%. The UK slowdown continued this quarter, with year-over-year growth falling to 1.33%.

Short term growth for these economies presents a similar picture. While quarterly GDP growth in the UK has shown moderate declines over the past 3 years, that of France, Germany, and Italy shows a more sharp decrease. In fact, Italy has posted negative quarterly growth of -0.13% and -0.22% during 2018Q3 and 2018Q4, respectively. Germany “rebounded” from its -0.20% quarterly growth in 2018Q3 to 0.02% in 2017Q4. While CEPR adopts the NBER view that two-consecutive quarters of growth does not itself constitute a recession, the performance of these countries over the past two quarters will almost certainly be a focus for CEPR’s Business Cycle Dating Committee given the optimism of their last report.

To determine which margins are most affected at this point in the slowdown, we rely on the expenditure identity:

Y = C + I + G + NX

Here, Y is output, C is personal consumption, I is investment, G is government consumption, and NX is net exports. Given that output growth has slowed, it must be the case that one or more of these values has also deviated from trend.

Personal Consumption

Household consumption is often one of the first signs of economic slowdowns. Indeed, recall the circular flow diagram. This simple diagram shows that all expenditures (output) are balanced out by an equal amount of income receipts similar to a T-account. As a result, declines in output should be reflected in declines in aggregate income and thus aggregate consumption, depending on marginal propensities to consume.

Below, we see that real household consumption has steadily risen for each of the Big Four since their most recent troughs. Excluding Italy, each country has more than recovered from the Great Recession. Italian personal consumption on the other hand remains roughly 3% below its pre-recession levels.

Growth in household consumption, however, seems to have slowed in Germany, France, and Italy. Consumption growth peaked in Germany and France in 2017Q2 and 2016Q4 at 2.44% and 2.18%, respectively. Both have seen persistent declines since. Italian consumption growth has also seen a sharp decline since 2017Q3 following a brief recovery in this measure between 2016Q4 and 2017Q1. United Kingdom consumption growth, on the other hand declined from a 2016Q1 peak of 3.32% to 1.65% in 2017Q3, but has remained just under 2% since.

Investment

A second potential sign of the downturn is a decline in investment. Below we show real fixed capital formation, a measure of fixed capital investment. Note that these 2018Q4 flash estimates for Germany and Italy are not yet available. Each country has shown persistent increases since their respective troughs. The United Kingdom has seen a decline in fixed capital formation beginning in 2017Q4.

Recent German and French investment growth peaked at 4.3% and 5.5% in 2017Q2 and 2017Q4, respectively, and has declined ever since. Italian investment growth remained on the rise until 2018Q3.

Investment in fixed capital has indeed showed signs of slowing. In the United Kingdom, it has even declined. Moreover, the timing of this decline coincides largely with the European growth slowdown. This suggests that declines in capital accumulation are in fact one important source of this slowdown.

Government Expenditure

Government expenditures have continued to increase in Germany and France. Italian and UK government consumption, on the other hand has remained constant since 2016Q1.

Despite continued increases, growth in German and French government consumption has declined. The starkest growth decline is in Germany, which has fallen from its peak of 4.78% in 2016Q2 to 1.73% in 2018Q3. The deceleration of French government consumption began more recently, decreasing from 1.52% in 2017Q3 to 0.92% in 2018Q4.

These declines in government expenditure growth may be an effort to stabilize rising government debts, with the exception of Germany. Instead, Germany has steadily decreased the relative size of its public debt. The decelerating its government expenditures will certainly aid in continuing this trend.

Trade

Finally, declining output growth me be reflected in declines in net export growth. The graph below shows monthly exports between the Big Four European economies and China, the rest of the EU, and the United States. Excluding the United Kingdom, there is a persistent upward trend in exports among these countries and their trading partners. UK exports experienced large gains in 2013 and 2014, but leveled off shortly thereafter. Germany has experienced the smallest growth in exports, but also the least volatility in its exports throughout the period.

Net exports display a similar story. Here, a negative index implies a trade deficit for that month whereas a positive index indicates a trade surplus. Here again, net exports are largely trending upwards and at least not decreasing by a substantial degree. The exception is the United Kingdom, where net exports with all of its trading partners have shown a slight downward trend.

Taken together, these pictures do not yet show any clear signs of the economic slowdown. Given that there do not seem to be deviations from trend beginning around 2017Q4, we conclude that trade has not yet been affected by the downturn.

The Labor Market

While not explicitly found in the expenditure approach equation, the circular flow diagram shows that labor markets are tightly linked to output fluctuations. Below, we show the employment to population ratio for 20-65 year olds. Note that only 2018Q3 data is currently available for this measure. The employment to population ratio has been on the rise in all countries. Germany and the United Kingdom boast the largest relative working population with employment to population ratios of 79.7% and 78.6%, respectively. Italy is weakest in this regard with only 63.1% of 20-65 year olds maintaining employment. Of note is that there have been no significant deviations from trend over the past year among the Big Four.

A direct corollary of these trends is the fact that the unemployment rate has continued to fall. While there has been a slight uptick of 0.1% in the United Kingdom and a leveling out in France, the unemployment rate in Germany and Italy has continued to decline.

One key friction in labor markets is that it takes time to find work, leading to structural unemployment. The rate at which those searching for jobs receive offers may discourage “marginal searchers” from participating in the labor force. One way to investigate worker-firm matching in the labor market is through a Beveridge Curve, which plots the job vacancy rate against the unemployment rate. Economic theory tells us that the higher the ratio of vacancies to unemployed job searchers, the higher the arrival rate of job offers.

Below we show the Beveridge Curve for the EU excluding the United Kingdom as more historical data is available than for the EU28. The graph is qualitatively identical for the EU28. Data limitations force us to rely on the EU as a whole as a proxy for the Big Four. Clearly, this Beveridge Curve indicates that the vacancy rate is very high relative to the unemployment rate. Notice, however, that the red portion of this curve has shifted outward relative to pre-2013 data. This indicates that match efficiency in the labor market has declined. That is that for any particular vacancies to unemployment ratio, there are fewer worker-firm matches. This decline in match efficiency may reflect a number of things such as differences in the skills required by job openings and those searching for work, geographical mis-match between the unemployed and vacancies, etc.

Despite the decrease in match efficiency, however, it is difficult to see the recent downturn in this picture. Taken together these pictures suggest that the labor markets of these four economies have remained largely unaffected by the growth slowdown.

Final Take

France, Germany, Italy, and the United Kingdom have all experienced a sudden slowdown in growth over the past year or so. The effects of the slowdown (or even negative growth in some cases) have already shown themselves in household consumption and to a lesser degree, investment growth. Trade and the labor market have largely remained unaffected so far. It is unclear, however, whether these two markets are robust to the source of this current slowdown or that their fragility is masked in current data.

Several factors contribute to our anxiety. Europe, like the U.S., is faced with large sources of uncertainty. Brexit continues to cast a long shadow, Italy’s GDP growth has been in negative territory and government debt is becoming increasingly problematic at about 130% of GDP. The rise of populist governments has splintered the fragile consensus about the European vision. Increasingly the monetary union feels like a straight-jacket to some of the underperforming economies. One thing is certain: the next few years in Europe will be interesting to watch.

By Thomas Cooley, Charlie Nusbaum, and Peter Rupert

European Politics

During the first quarter of 2018, the EU has been marred by both political and economic uncertainty. Increasing tensions between the U.S. and its European allies have resulted in the looming threat and subsequent imposition of trade tariffs. Moreover, Germany and Italy, the largest and fourth largest economies in the EU, respectively, were struck by the emergence of the populist, Eurosceptic wave washing over Europe. Indeed, the Social Democratic Party polled its lowest during the German election since World War II whereas the Alternative for Germany party, the nationalist insurgency, gained entry into the Bundestag for the first time with the third largest number of votes. Angela Merkel’s Christian Democratic Union party lost a total of 55 parliamentary seats. Despite the conclusion of the German elections in late September of last year, a formal coalition was not formed until March.

In Italy, a similar story played out during 2018Q1. In late December, President Sergio Mattarella dissolved the parliament and called for new elections to be held in early March. In the run-up to the election the Five Star Movement, a right wing populist party which has supported abandoning the Euro and leaving the EU at various times, surpassed the consistently pro-Europe Democratic Party to take the top spot in opinion polling while Lega, the more fervent anti-Europe party, maintained its fourth position in such polls. The results of the election showed the Five Star Movement winning the popular vote and Lega placing third.

Uncertainty surrounding Brexit, however, lessened as the deadlock in the first round of negotiations broke. In fact, the United Kingdom entered 2018Q1 having just reached an interim agreement surrounding three key issue: free movement across borders, the rights of UK citizens abroad and EU citizens in the UK, and a financial settlement to be paid to the EU. While preliminary, it served as an important step in resolving some of the uncertainty surrounding the crucial transition period of the Brexit process.

The resolution surrounding Brexit was rewarded by the markets with all four major stock indices in the EU seeing gains towards the end of the year. These gains were quickly lost, however, when it became clear that the uncertainty surrounding tariffs, Italian elections, and the formation of a coalition among Germany’s major political parties were a potential threat to Europe. In fact, all four indices showed largely horizontal movement throughout 2018Q1. These trends beg the question: Is the European economy robust enough to withstand such bouts of uncertainty?

Economic Growth

Overall, the EU28 and EA19 both saw a minor slowdown in growth during 2018Q1, ticking down from 2.71% and 2.83% during 2017Q4 to 2.43% and 2.54%, respectively. Moreover, both were outperformed by the U.S., which saw a year-on-year growth rate of 2.78% according to the BEA’s second estimate. The Eastern European countries by and large outperformed the rest of the EU, while Cyprus continued to break from its Greek neighbors and boasted year-on-year growth above 3.5% for 6 straight quarters. This is quite a turnaround for the small European island given that just four years ago it struggled to pull itself out of a two year contraction. On the other hand, the four largest economies in the EU underperformed.

Indeed, France, Germany, Italy, and the United Kingdom all saw a decrease in growth during 2018Q1. For the United Kingdom, this continues a long term trend that began in 2015Q1 and was restarted during 2017 following the Brexit vote. For France, Germany, and Italy, however, this marks one of the first signs of weakening in this regard over the past year and a half.

Europe lagged behind the United States slightly in terms of investment growth with real fixed capital formation growing by 4.19% and 3.59% in the EU28 and EA19, respectively, compared to 4.45% in the U.S. Here again, the Eastern European countries fared best while Cyprus saw a severe contraction in investment. Going forward, this trend may inhibit Cypriot growth and break its impressive streak of exceptional growth.

The Unemployment rate in most European countries remained low during 2018Q1. Indeed, only Spain and Greece maintained unemployment rates above 10%, with values of 16.2% and 20.5%, respectively. Across the EU28, the unemployment rate decreased slightly to 7.2%. The European labor market remains behind the United States, which boasted an unemployment rate of only 4.1%, in this regard.

Still, the European labor market is heading in the right direction despite the uncertainty revolving around the European political status quo. Those countries whose labor market struggled the most continued their long run trends of declining unemployment. While Finland, France, and Italy have seen the least dramatic movement in unemployment, a slight downward trend still presents itself. Not pictured below are the first and second largest EU economies: Germany and the United Kingdom. Germany and the United Kingdom both display a similar downward trend, though they boast unemployment numbers of 3.5% and 4.2%, respectively. Both of which are on par with the United States.

As a whole, the EU labor market has shown persistent improvement. Indeed, the EU28 Beveridge curve continues to indicate ever increasing market tightness as is evident by the simultaneous decrease in unemployment and increase in the job vacancy rate.

A key comparative static of Beveridge curves are whether they display an outward or inward shift as they complete their loop. Here, it is clear that the Beveridge curve has seen a drastic outward shift between 2013Q2 and 2018Q1 as compared to the 2006Q1 to 2008Q1 period. This implies that the labor market requires a higher number of unfilled jobs in 2018Q1 than 2008Q1 in order to sustain the same level of unemployment.

An Uncertain Future

In spite of the political uncertainty throughout the continent, the EU largely maintained its positive growth. There are, however, some early signs that the perceived threats to the European experiment are beginning to have a real impact.

It is far too early to sound an alarm, but we take the recent data to be an early symptom that should be watched carefully. Trade policy between the U.S. and the EU is becoming increasingly strained as each side ratchets up tariffs, tension has emerged within the German coalition over legislative priorities and the refugee crisis, and a populist coalition between the Five Start Movement and Lega that many fear will place increased strain on Italy’s finances has taken power. Moreover, the United Kingdom and the rest of the EU must come to a final Brexit agreement in the coming months before the mid-October EU summit. While the EU has shown resilience to the early political events of 2018, increasing uncertainty and an escalating trade war will be a true test of the European economies.

We are pleased to announce that we have finished updating our partner blog: the U.S. Economic Snapshot. It should now give us the same flexibility in our data presentation as in the European Snapshot. We also hope to bring you more regional and state-level analysis in our future posts.

You can find the U.S. Snapshot at econsnapshot.com.