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Economy in Brief

German Consumer Confidence Ticks Higher to Best Level since April 2020
by Robert Brusca  September 28, 2021

German confidence in October will tick higher to its best level since April 2020 but it increases only to a net positive reading of 0.3 from a net negative reading of -1.1 in September. The small-seeming 1.4-point month-to-month change is among the 24 strongest gains in the 237-month history of changes on this metric. In fact, over the last nearly 20 years, 13 of the highest 24 monthly changes have occurred since April 2020, a period of just 19 months.

The headline reading of 0.3 for the GfK confidence measure is the first positive reading in the index since April 2020 when it stood at +2.3. That is a sign of progress and the monthly gain of 1.4 points actually is a more notable and impressive rise than it may seem at first glance.

However, having said that and having made a point about 'change' a further point is that the level of confidence that attaches to this reading this month has a ranking in the queue of all historic readings of the GfK index that stands the lower 13.5 percentile. Confidence has made a relatively sizeable jump this month. But the level to which confidence has climbed is still extremely low.

The GfK confidence measure projects what confidence will be in October. Its components, however, are only available through September. The components show much stronger rankings as of September than the comfort index itself displays for October. Economic expectations have a queue percentile standing in their top 10 percentile (91.9 percentile standing). Income expectations have a 64-queue percentile standing, a level above their historic median (that median occurs at a rank level of 50%). The propensity to buy still has a weak reading with a below-median 34.7 queue percentile standing.

The overall climate is ranking much weaker than the individual components as a rule right now, realizing that the readings pertain to different months.

The queue (or count) of percentile standings place each of these observations (headline or component) in a percentile based the position in its queue of ordered observations using all historic data. A second ranking method is to the look at the month's reading as a percentile in its high-low range. That sort of range ranking is less powerful since it depends on only three observations in the series (not all of them as the queue ranking requires). The range percentile depends on the value of the highest high, the lowest low, and the current value. Nonetheless, if we look at the range standings, we find all the range values lie in a range from 57% to 80%. With the headline climate reading at a 68.6% range and the propensity to buy at the low of 57.4%.

In other words, while the current queue standing for the headline places it at a very low point in the queue of observations, the lowest low is much farther away from where the current observation lies than its relative position tells you. Using actual values rather than positioning the lowest value is much weaker still. Of course, this is often the nature of these distributions. Something happens and that drives a very weak observation to occur which then becomes the tail of the distribution and that value may not (maybe ever??) be revisited or exceeded again. Each series will have its extreme low and its extreme high. Even though the German index shows more consistency among the headline and components using the range positionings, I still think that the queue standings provide a better true perspective. After all what they are telling us is that German climate has been better than this 86.5% of the time. Economic conditions have been better only 8.1% of the time. And so on. That I think those standing communicate better and provide a more intuitive appeal than describing the current value as a position between the very best ever and the very worst ever.

Italy and France already have higher consumer confidence standings (for September) than Germany when the indexes are ranked over the same period. That comparison allows us to rank, not absolute levels of confidence, but the relative levels. Confidence today can be compared to with the levels that prevailed in the past and described as a percentage standing or percent of average to put the measures on comparable footing. On that basis, Italy's confidence is at its high for the period! French confidence has an 84.3 percentile standing. Confidence in the United Kingdom has a below median 39.8 percentile standing. And compared to their respective averages, only the U.K. and Germany are below their historic average confidence levels with their most recent observations.

Corona's Global impacts
The Coronavirus and how it has affected countries has had huge impact on all these developments. Germany is an exporting-trading nation. While global trade seemed to have sprung back fast and even the Baltic Dry Goods Dry index shows a lot of ongoing rebound, the sad truth is that trade and supply chain disruptions run rampant and restrain the trade sector. Ports in the U.S., in particular, have long queues of ships waiting to unload. The logistics system has been swamped by the coronavirus shut down, economic meltdown, then the attempt to rebound and catch up.

A monkey wrench in the finely oiled machine
The problem is that before corona the global supply chain mechanism was a smooth-running work of art. Firms were operating on a long establish just-in-time production platforms and the pieces fit together just so. But once the system was disrupted and there was a deficit to make up and factories could not operate at their former peak levels and there were not enough ships and trucks to carry goods and the shipping shortage was made worse because ships had to wait in line at sea instead of being unloaded reloaded and sent off again, like with a tag-team. The system has seized up. Domestic transportation logistics are a problem ranging from truck drivers to the availability of containers and even just moving containers out of the way at ports to make space to pick up new ones.

In the U.K., there has been a further kerfuffle over fears of a fuel shortage that drove people to top up their tanks, a move that in turn created a fuel shortage where there was none.

Just-in-time is great when it works. But when it is running a full capacity, there had better not be a slip. It is sort of like the danger of running with scissors. Running can be dangerous, but running with scissor is more dangerous.

There is still a lot of work out to be done. The international trading system is balled up. There are no fast turnarounds possible. There is a concern about fuel availability in Europe for the winter. There is a power shortage in China. There is a smattering of Covid everywhere. We are not out of the soup…

And...there are no simple answers.

Commentaries are the opinions of the author and do not reflect the views of Haver Analytics.

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