British Industry Continues Improvement, but German Expectations Weaken

British industry continues its improvement this month with only the second positive move in its order volume in 7-1/2 years. The Confederation of British Industry (CBI) survey shows a reading on orders at +2 for August; the other positive observation was just in May, at +1. Other items in the survey also look favorable. Inventories of finished goods are slowing their rate of build-up, the volume of output over the coming three months is holding at a steady gain, and prices are firming at which domestic orders are booked.

The situation is Germany is more problematic. Early August summary measures of the business climate showed some deterioration. While a mere 0.5-percentage-point decrease in the overall diffusion index may be seen as a trivial, marginal movement, it extends a negative tendency that began in February; the index had its best recent level in January at -5.9.

Only the broad sub-gauges of business confidence and expectations are available in this first report on the Ifo Survey. They show that "confidence" is actually holding up well, as its value as an index based in 2000=100 rose from 94.1 in July to 94.7, maintaining an uptrend that began in early 2003. Expectations, by contrast, indicate some nervousness: from a recent peak of 102.8 in January, these sagged to 96.0 for this month. As Louise Curley wrote here Tuesday, concern over labor reforms may be affecting demand, and the uncertainty over the new policies looks to be hurting the business outlook.