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Economy in Brief

Mild Declines by Sector for IFO Survey
by Robert Brusca  June 24, 2011

Germany's well-regarded IFO survey shows there has been minimal erosion in the various German key economic sectors. All sectors stand in the top 20% or in a much better position of their historic ranges of hi-low values. When ranked and placed in their historic queues the current standings appear even higher (not shown).

Still there is some erosion in gear in Germany. The retail index at 11.5 is down relatively sharply on the month and is off by some 51% from its cycle high –in this cycle. But the retailing peak was a very short-lived one month spike that is not representative of the progress the sector has made. In broader terms retailing is actually holding its ground if we set that one peak reading aside. Services fell while wholesaling rose on the month, but both sectors are off by about 20% from their respective current cycle highs. Manufacturing is off its current-cycle high by just 9.5% and construction is at its current-cycle high this month even though it still carries a negative reading. Overall the all-sector climate index is off its current-cycle high by just 7.5% and it edged higher this month.

The diffusion index for business confidence rose this month to 34.1 from 30.5 in May and it has risen to its cycle high. The diffusion reading for business expectations is lower at 8.8 in June compared to 11.0 in May and it has fallen for four straight months. Expectations, also a net diffusion concept, are down by 150% from their cycle high reading of 17.6. That shows perhaps that the 'worst is yet to come.'

Overall the erosion in German trends is clear but it is also less worrisome in this report compared to other reports where the speed of decline appears to be more severe, such as in the PMI reports.

Also Germany is sliding as at a slower rate than the EMU as a whole.

To some extent the IFO report is reassuring. But it does raise questions about the future...We will want to continue to monitor it and especially to see its details once they are filled in with the final version of this report.

Summary of IFO Sector Diffusion Readings: CLIMATE
CLIMATE Current Last Mo Since Jan 1991*
  Jun-11 May-11 Avg Median Max Min Range %Range
All Sectors 21.1 20.6 -6.6 -7.3 22.8 -36.7 59.5 97.1%
 MFG 27.7 27.8 1.2 3.1 30.6 -43.1 73.7 96.1%
 Construction -2.0 -5.6 -28.8 -29.6 -2.0 -49.7 47.7 100.0%
 Wholesale 21.5 17.1 -11.4 -13.9 27.4 -38.6 66.0 91.1%
 Retail 11.5 15.1 -15.9 -16.1 23.9 -41.6 65.5 81.1%
 Services 26.4 27.4 14.1 17.2 33.0 -14.5 47.5 86.1%
Current conditions:ll 34.1 30.5 -7.2 -9.8 34.1 -38.6 42.7 1.0
Expectations:All 8.8 11.0 -2.7 -1.2 17.6 -45.8 63.4 0.9
* June 2001 for Services
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