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Economy in Brief

IFO and EU Indices Show Unwind for Germany: Back to Normalcy?
by Robert Brusca  April 21, 2011

The German IFO index showed a weaker climate reading in April. Both the topical IFO and the lagging EMU index for Germany are showing a damping down for the overall climate index (see chart). The Manufacturing index which is stronger in absolute and relative terms than all the other sector indices also stepped down in April from its cycle peak in March. The Services reading moved up above the MFG raw reading but the 91st percentile standing in its range in its range underscores that in reality it is lagging. But with this month’s rise the services current index has reached its cycle peak even though its climate reading peaked in February. Wholesaling climate also peaked in February. Construction, however, which remains negative, saw conditions improve slightly in the month.

Overall current conditions are still improving in the month and are on their cycle high. But expectations are fading, having peaked in February.

The IFO indices still show strong readings across most sectors. The statistics for ‘percent of range’ tell the story of how unusually elevated these reading are. We know that this happens in the early stage of recovery, sectors get unsustainably strong after a period of weakness then they settle down. This pattern is normal. There is nothing in the damping down of the IFO indices at this points that should not be of concern. This is the normal progression after a recession in an economic recovery.

Summary of IFO Sector Diffusion Readings: CLIMATE
Climate Current Last Mo Since Jan 1991*
  Apr-11 Mar-11 Avg Median Max Min Range % Range
All Sectors 19.9 21.4 -8.4 -9.4 21.8 -36.0 57.8 96.7%
MFG 28.8 29.9 -1.0 0.1 29.9 -42.7 72.6 98.5%
Construction -5.7 -7.2 -28.8 -29.5 -3.6 -49.7 46.1 95.4%
Wholesale 18.8 22.4 -13.0 -15.7 26.2 -39.8 66.0 88.8%
Retail 9.1 12.1 -15.0 -14.4 24.0 -40.0 64.0 76.7%
Services 28.9 28.0 13.5 16.8 33.0 -14.5 47.5 91.4%
Current conditions:ll 28.1 27.3 -10.3 -13.5 28.1 -38.2 66.3 1.0
Expectations:All 12.0 15.6 -3.9 -3.0 18.3 -45.1 63.4 0.9
* June 2001 for Services
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