IFO Index Drops But Sentiment Drops But Sentiment Makes Some Gains

The IFO Index fell again in March but the IFO expectations index rose. Expectations are still only in the 16th percentile with this ongoing bounce. The overall business climate and the current situation indices are at lows.

The chart above shows how some of the sector indices based on diffusion indices are doing. All three pictured indices are falling sharply. The services and retail sectors have made a small rebound. Manufacturing is slowing its descent. Manufacturing and the all- sector index (not pictures) are at the bottom of their range. The wholesaling and services sectors (wholesaling not pictured) hover around the bottom 10% of their respective ranges. The retail sector is in the bottom 20% of its range. Construction is nearly midrange, being far less affected overall – so far.

On the month the manufacturing index ticked a bit lower. Retailing, services and wholesaling moved a bit lower too. But Construction showed higher diffusions reading. Contraction in there is becoming less pronounced. And even though manufacturing deteriorated it was by the slimmest of margins. In broad terms the IFO reading is in agreement with the PMI sector indices from Market that show a reduction in the rate of decline in both MFG and services.

Still, the news from IFO was not good and was not a positive as some had hoped for. The upshot is that the report weighed on the euro. However there might be enough evidence of an abatement in the slowdown for Europe to call for additional stimulus. Today the EU’s Junker was saying Europe would not simply cave into the US wishes for more European stimulus because the economy’s spiral was still so severe. But if the severe phase of the European downturn is abating, a dollop of stimulus might be helpful. If Europe turns more to look at the facts of its circumstance in stead of being disagreeable with the US, it might find that the US urging is pushing it in the right direction.