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Economy in Brief

IFO Details Begin to Show Cracks…
by By Robert Brusca October 30, 2007

The IFO indexes from Germany provide us with detail to their earlier release. The chart on the left shows that the EU indexes for Germany’s MFG sector track the result for the IFO. Both indexes are pointing lower with the IFO index more up-to-date. The climate gauge is closing in on a level that is near its position when Germany’s economy was still struggling with EU debt limits and growth before the recent run up in growth and optimism came to pass. The table below documents some of the more worrisome elements of the new IFO survey

The percentile column (the last column) and red highlights provide the best overview for this table. While the strong and rising euro seems to be one of the main risk factors to German growth, foreign orders on hand continue to be buoyant (last listing in the table). Foreign orders on hand rank high in terms of the individual sector percentile readings. The foreign order series is just beginning to show decline in its monthly measures (not encroaching red highlights) whereas the more inclusive ‘orders on hand’ category has been dropping for some time and shows percentile ranks for current readings that are at or below the midpoint mark except for capital goods. We know that capital goods is one area of strength for Germany That may be one of the reason its export demand or orders are holding up better that orders in general. But that is not all of it since all export orders are holding up better than orders in general. With the euro so strong that has to be viewed as a curiosity. Even though many German ‘foreign’ orders do not cross the exchange market at some point they are still exports and subject to competition from weak currencies.

Capital goods also tend to work on longer lags and the longer the Euro remains high the greater the prospect for Germany to lose orders to capital goods competitors like Japan and the US even though it does not appear to have happened yet.

Percentiles for activity measures also have slipped to mid range or weaker except for capital goods. Despite this, expectations for the next six months are generally upbeat even for consumer goods. The percentile readings are generally around the 60% mark or higher with a few exceptions. As for current conditions, the percentile sector readings are solid to strong.

Today’s German survey on consumer optimism, a poll by the Forsa institute, was commissioned by Germany's RTL television. It was carried out among 2,503 respondents from October 22 to 26. Some 43% of those surveyed said they expected the state of the economy to worsen, up from 28% in the previous Forsa survey conducted in May. Only 26% in the current survey said they expected the economy to pick up further, down from 41% in the May survey. Clearly, conditions and expectations are in flux in Germany. The IFO components are only beginning to show some of the ill effects of these shifts. The optimism of past success seems to weigh heavily on new assessments for the future among the IFO respondents.

IFO Survey: Germany
  Percent: Yr/Yr Index Numbers
  Oct
07
Sep
07
Aug
07
Jul
07
Jun
07
Current Average Curr/
Avg
%tile
Biz Climate -1.5% -0.9% 0.7% 0.8% 0.2% 103.9 95.7 108.5% 79.7%
Current Situation -2.1% -1.3% 2.5% 2.4% 1.6% 109.6 94.8 115.6% 82.3%
Biz Expectations -0.7% -0.4% -1.1% -0.9% -1.2% 98.6 96.7 102.0% 68.6%
  Oct
07
Sep
07
Aug
07
Jul
07
Jun
07
Current Average Curr/
Avg
%tile
Biz Climate -1.5% -0.9% 0.7% 0.8% 0.2% 103.9 95.7 108.5% 79.7%
Current Situation -2.1% -1.3% 2.5% 2.4% 1.6% 109.6 94.8 115.6% 82.3%
MFG 0.0% 0.8% 4.4% 4.4% 4.4% 109.5 92.4 118.5% 90.8%
Intermediate -1.6% -0.5% 3.1% 3.0% 4.3% 109.0 91.0 119.8% 86.6%
Capital 2.9% -0.4% 5.5% 4.8% 5.1% 113.1 92.1 122.7% 97.1%
Consumer 1.0% 4.3% 5.4% 5.3% 5.3% 105.5 95.9 110.0% 81.3%
Construction -5.9% -6.0% -2.2% -3.1% -4.0% 112.3 103.0 109.0% 64.0%
Wholesale -5.9% -2.2% -1.9% -0.8% 0.0% 114.4 99.3 115.2% 68.7%
Retail -4.4% -6.6% 2.1% 1.1% -4.1% 103.3 95.4 108.3% 77.7%
Next 6 Mos         
Biz Expectations Oct
07
Sep
07
Aug
07
Jul
07
Jun
07
Current Average Curr/
Avg
%tile
MFG -2.4% -1.5% -1.9% -0.5% -2.8% 97.4 96.5 100.9% 67.4%
Intermediate -6.5% -4.8% -2.8% -2.3% -4.2% 94.2 96.0 98.2% 51.7%
Capital 2.4% 2.1% -1.4% 4.4% -2.7% 100.6 96.4 104.4% 75.4%
Consumer -0.5% 1.0% 0.5% -2.3% 0.9% 99.1 97.8 101.3% 62.6%
Construction 3.4% 3.4% 0.1% 0.2% 0.4% 101.3 98.2 103.1% 57.4%
Wholesale -3.4% 3.5% 0.5% -3.8% 2.8% 101.3 97.0 104.4% 63.5%
Retail 5.5% -3.0% -0.5% -0.5% -0.5% 98.4 96.0 102.5% 70.1%
(m/m)         
Activty(m/m) Oct
07
Sep
07
Aug
07
Jul
-07
Jun
07
Current Average Curr/
Avg
%tile
MFG -5.3% -4.5% 1.0% -1.8% -3.6% 96.9 97.0 99.9% 52.9%
Intermediate -8.6% -5.8% 0.5% -5.9% -4.6% 93.2 96.3 96.8% 42.4%
Capital -3.3% -2.3% 0.0% 0.5% -2.7% 99.0 97.1 102.0% 63.8%
Consumer -3.9% -3.3% 3.5% -0.5% -2.4% 99.3 98.4 100.9% 50.9%
          
Demand M/M Oct
07
Sep
07
Aug
07
Jul
07
Jun
07
Current Average Curr/
Avg
%tile
MFG -8.4% -6.4% -2.8% -3.3% -7.1% 95.3 97.1 98.2% 48.5%
Intermediate -13.8% -9.2% -3.8% -6.8% -10.3% 91.5 97.5 93.8% 33.0%
Capital -3.7% -4.2% -1.9% -3.2% -4.9% 98.8 96.0 102.9% 72.5%
Consumer -9.5% -6.4% -2.8% 6.0% -7.4% 93.3 96.6 96.6% 35.2%
          
Orders on hand Oct
07
Sep
07
Aug
07
Jul
07
Jun
07
Current Average Curr/
Avg
%tile
MFG -7.9% -4.6% -2.3% -2.7% -3.6% 97.4 96.5 101.0% 55.7%
Intermediate -13.3% -9.6% -5.2% -8.4% -6.7% 93.5 96.5 96.8% 39.9%
Capital -1.8% -0.9% -0.5% 1.0% 0.8% 101.5 95.7 106.1% 77.1%
Consumer -6.3% -2.4% 0.5% 1.0% -5.1% 98.2 98.5 99.7% 40.4%
Fgn orders on hand Oct
07
Sep
07
Aug
07
Jul
07
Jun
07
Current Average Curr/
Avg
%tile
MFG -0.4% 0.5% 2.4% 1.9% 2.0% 111.0 94.6 117.3% 95.2%
Intermediate -3.4% -2.0% 0.0% -0.5% 0.0% 107.2 93.7 114.3% 83.3%
Capital 3.2% 2.9% 6.1% 5.3% 6.3% 114.7 93.5 122.6% 97.6%
Consumer -0.4% 2.1% 1.6% 0.0% -0.5% 112.2 98.5 113.9% 93.7%
Yr/Yr percentage changes in underlying Indices
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