German IFO Survey Backtracks in May; First Deterioration in Seven Months

First back-track in seven months Germany's IFO survey made its first back-tracking in seven months in May. The all-sector climate index stepped back to a net reading of -7.5 in May from -0.6 in April. Current conditions edged to a slightly lower all-sector index reading, dropping to +16 from +16.6 in April. Expectations made a larger drop falling to -14.2 in May from -7.7 in April for the all-sector index.

Rankings The ranking assessments of these headlines are low; the all-sector climate index is at a 16.4 percentile rank, the current conditions index is at a 26.9 percentile rank, and the expectations index at a 10.5 percentile rank. All these standings are substantially below their respective medians which occur at rankings at 50%.

Climate by sector The climate ratings in May show negative values across the board except for the service sector with a +6.8 reading, edging slightly lower from +6.9 in April. Manufacturing that had a +6.3 rating in April had fallen to a -0.3 climate reading in May. Among the sector rankings, the weakest ranking is for wholesaling at a 7.8-percentile rank while the strongest ranking is for construction with a 25.1 percentile rank, followed by manufacturing at a 23.7 percentile rank.

Current conditions by sector Current conditions show more positive diffusion readings for May with the all-sector reading at a positive 16, manufacturing at a positive 14.1, and services at a positive 24.3. But for the all-sector headline and the sectors, there was only one improvement, that was in the service sector which improved to the diffusion reading of 24.3 in May from 22.1 in April. Manufacturing backtracked to 14.1 in May from 15.4 in April while construction, wholesaling and retailing all dropped from positive readings to net negative readings in May. The rankings for the current indexes show more strength than for climate, with construction coming close to its median at a 47.5 percentile standing, followed by retailing at a 40.6 percentile standing. However, wholesaling again is the weakest with a 16.4 percentile ranking in May.

Expectations by sector Expectations show negative readings across the board and deterioration month-to-month with one exception, construction. Construction improved ever so slightly to a -32.4 reading in May from -32.5 reading in April. For the rest of the sectors, there is month-to-month deterioration from April to May with a drop of more than ten points for manufacturing comprising the biggest month-to-month drop of all. The standings show several very weak sectors. Wholesaling is at a 5.9 percentile standing and construction at a 7.3 percentile standing. The strongest percentile standing is in manufacturing at a 16.4 percentile standing followed by retailing at a 13.7 percentile standing. Obviously, compared to climate and current conditions, the standings for expectations show much weaker conditions across the board.

Summing up The report for May is a marked difference from the past as it's the first deterioration in seven months. There is a proliferation of negative readings and of extremely low rank-standings with no sector having a standing above its median for the period back to early-2005. There is no sign of resilience here. There is simply weakness and growing weakness for the German economy according to the IFO survey in May as the ECB continues to to restrain inflation.