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Economy in Brief

Germany’s IFO to Sixteen Year Low
by Robert Brusca November 24. 2008

IFO: I Fell, OUCH!

Germany’s IFO index, a focal point for early economic signals in Germany, fell to a 16 year low in November. Manufacturing has fallen very hard and fast, as the chart above demonstrates. Going back to January of 1991 the overall IFO sector index stands in the lower 4% of its range – in simple terms, it rarely is weaker than this. Manufacturing is in the bottom 10% of its range. Retailing is in the bottom 9% of its range. These are extremely weak readings. The service sector is in the bottom 18% of its range which extends back only to mid 2001. Wholesaling is in the bottom 27% of its range. Construction is relatively better off standing in the bottom 39% of its range of values since 1991. In terms of raw readings instead of relative IFO scores we see a clustering of scores in the -30 region. Wholesaling is a bit better at -21 and services, a more stable sector overall, registers a -7.3 net reading. Still for that sector such a raw reading is still in the bottom 18% of its range.

A fast unravel: Compared to just a month ago the indices have dropped sharply. The headlines and MFG indices have shed nearly 10 points in one month. Only in Sept 2001 did the German sector headline index drop by more. Clearly this downturn is hitting with lightning speed and a savage punch in Europe where key policymakers thought they would be spared. Think again.

Headline level is very weak, too -The headline for the IFO business climate index fell to 85.8 in November from 90.2 October. This index only fell more sharply than this in Sept of 2001 after the attack on the US World trade Towers. The current situation index dropped to a level of 94.8 in November from 99.9 in October. The expectations index at 81.4 fell to 77.6. The 77.6 reading is a lifetime low. For current conditions it is a bottom third of the range reading. For the climate index it’s a bottom 4% of range reading. Not only is the index falling fast but it is scrapping very low levels.

Germany: harbinger for Euro-weakness -- Clearly the situation in Germany is fluid and falling fast. For all of the Euro Area new industrial orders were released today and that series dropped by 3.9% month to month in September and by 5.2% Yr/Yr. The Q3 drop for EMU-wide orders is 7.4% at an annual rate. Among large countries Germany’s -7.0% Yr/Yr drop is one of the largest among EMU members; while engineering orders in the EU’s UK are off by 10.7% Yr/Yr.

Autos too - Europe is also having difficulties in the auto sector as France’s Sarkozy and Germany’s Merkel in a joint statement indicated their interest to support the ailing sector.

Summary of IFO Sector Diffusion readings: CLIMATE
CLIMATE Sum Current Last Mo Since Jan 1991*
  Nov-08 Oct-08 average Median Max Min range % range
All Sectors -29.0 -20.2 -7.7 -8.4 16.9 -30.9 47.8 4.0%
MFG -29.6 -18.9 -0.2 1.6 27.0 -35.9 62.9 10.0%
Construction -30.2 -27.7 -28.2 -30.3 1.3 -50.5 51.8 39.2%
Wholesale -21.8 -15.1 -13.2 -15.7 23.6 -39.3 62.9 27.8%
Retail -33.5 -25.1 -14.2 -14.5 28.7 -39.7 68.4 9.1%
Services -7.3 -4.3 11.0 9.5 28.5 -15.2 43.7 18.1%
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