Economy in Brief

Germany shows signs of withering domestic demand in the face of weaker foreign demand. German exports weakened in August, falling by 0.5% month-to-month. The drop in German exports to the U.S. was being highlighted at a 2.5% month-to-month decline, but its exports to EMU members were down by 2.2% as well and exports to non-EMU members of the EU were lower by 3.1%. In fact, German exports outside the EU area rose by 2.2% largely on exports to China.

Exports to the U.S. vs. European trends The German website highlights a large drop in German exports to the U.S. from August 2024, a period over which German exports to the U.S. are off by some 20%. This is a much sharper drop than the German overall result that shows a decline of less than 1% over the past year for total exports. However, on the near-term comparison, German exports to the U.S. seem to be behaving a lot like German exports to its closer European neighbors.

World trade The Baltic dry goods index shows a sharp recovery in world trade volume (in dry goods; excluding tanker volumes) from a dip in early-2025. From early 2025 to date, trade volume readings on the Baltic index are among some of the stronger readings since 2022.

German orders imports, demand German orders data had also flagged weakness in external orders. Overall orders show weakness, but domestic orders remain strong and are accelerating. Still, the recent (August) IP report showed declines on the month and growing output weakness - despite strong domestic real orders. In today’s trade report, we are seeing some weakness in Europe and among the EU’s non-EMU members plus trade weakness with the United States. This is partly compensated for by strength elsewhere and a part of that is German exports finding some demand in China. All the geographical references are up to date through August.

Overall German trade patterns However, German overall trade showing German domestic import strength with real and nominal imports rising solidly and even strongly over 12 months and six months but giving some ground over three months. German nominal and real export trends are showing some growth except over three months but at that, the pace generally is weaker than the pace for imports.

Japan's economy watchers index in September advanced to 47.1 with the future index rising to 48.5. The current index rose month-to-month by four-tenths of a percentage point while the future index rose by a full diffusion point.

The Current Index In September, among the 9 detailed categories, all but three of them improved in the current index, in August all but two had improved, and in July all but four had improved.

Sequential changes- The sequential changes on the current index shows that over three months the headline and all components improved, over six months the headline and all components also improved, but over 12 months only two components improved and the headline falls back by about nine-tenths of one-point. Improving over 12 months are only the assessments for services and for housing

Rankings- The ranking statistics for the current index show only two components below a rank-value of 50%, which means only two components are below their respective medians on data back to 2004. However, the current readings show the headline and all components below diffusion values of 50 in September, indicating contraction both overall as well as in each category. This combination of observations is a stark reminder of how weak Japan’s economy has been, that contracting diffusion values are above their medians. In the case of housing with a 73.5 percentile standing – a standing that, on its own seems quite solid, corresponds to a monthly diffusion value at 49. Housing diffusion has been stronger than a diffusion value of 49 only about 27% of the time (over the past 21-years).

The Future Index The future responses are similar in nature to the current responses. Recent diffusion values have mostly been improving monthly. Only two were weaker in September, compared to four in August and none in July. The future index, however, has two September readings above diffusion values of 50: for eating & drinking places and for nonmanufacturers. In August services read above a 50 diffusion value (even as the weaken month-to-month) and in July three component responses are above 50.

Sequential changes- Over three months all components improve except employment; that result is replicated over six months. Over 12 months only three categories are improving: eating & drinking, housing, and nonmanufacturing.

Rankings- Only two sectors rank below 50% (below their respective medians) in September; those two are services and employment expectations). The headline standing is above 50% at 50.2%, unlike for the current reading where the headline standing is at 48.2%. However, we once again see that 5 sector readings in the future survey have diffusion values in September below 50 but are above their respective medians. The same is true of the headline for the future index. The median phenomenon has been a moderate contraction over the last 21 years.

German orders fell by 0.8% in August, dropping for four months in a row. Foreign orders have been and continue to be chronically weak. Domestic orders that made a strong rebound in the month have been erratic in recent months although they seem to be on a recovery path.

Total German factory orders are sequentially weakening on growth of 1.6% over 12 months, 0.5% annualized over six months and logging an annual rate of decline of 14.2% over three months. This path is largely driven by foreign orders that are weakening progressively and sharply. Foreign orders rise by just 0.4% over 12 months, then fall at a 1.6% annualized pace over six months and collapse at an annualized rate of -31.2% over three months. In contrast, domestic orders engage a moderate accelerating path that is topped off by extremely strong growth. Domestic orders rise by 3.4% over 12 months and at a slightly stronger 3.7% pace over six months and accelerate to 20.8% annualized over three months.

Quarter-to-date overall and foreign orders are declining with domestic orders following suit. Foreign orders show substantial contraction in the quarter while domestic orders contract at a much less violent pace.

Rankings as an order-vetting process If we further vet orders by their levels, a weak judgement-standard over such a span even for ‘real’ orders, rankings on levels since 1990 show foreign orders at the 70% mark and domestic orders at a quite weak 35-percentile. However, rankings based on year-over-year growth rates drop the foreign order ranking to 38.5%, below their median and raise domestic orders to their 61.9 percentile. Total orders ranked by growth have a 49.2 percentile standing, nearly a median ranking; while total orders ranked on levels have a 58.4 percentile standing.

Real sales Real sales for manufactured goods, viewed sequentially, show mixed trends with manufacturing overall having no clear tendency other than that of slight contraction. Consumer durable goods orders show accelerating contraction. Other categories are without clear trend. Quarter-to-date most categories show contraction in the quarter. Levels of real sales rankings show an above-median 50.7% for all of manufacturing boosted by capital goods with a 69.7 percentile standing and supported by intermediate goods with a slight under median 47.1 percentile standing. Consumer goods sales standings are extremely weak. But sales based on growth rates (12-months) show rankings below 50% for all sales categories – most are at the one-third mark.

EMU industrial confidence in large countries Industrial confidence metrics for the four largest EMU member economies show broad weakening in August except for France; but all of the countries had improved industrial confidence in July. Sequentially the patterns are mixed for these four countries. Compared to year ago, values for two of them improved (France and Spain) while two other deteriorated (Germany and Italy). The queue standing on levels which are a fairer comparison on diffusion data (like this) show all readings below their 50-percentile mark (the median), with Germany at an anemic 12.9 percentile rank, the weakest of all and Spain at a 46.8 percentile ranking, the strongest.

On balance, this is a disappointing report for Germany. Its domestic economy seems to be on the right track, but its key customer base in foreign markets appears to be struggling more. It’s a mixed view, at best.

Motor vehicle registrations fell sharply in August, dropping 10.8% after rising 11.5% in July, which had followed a 4.6% drop in June. This sort of ragged action in monthly activity is not really very unusual. It's characteristic of the auto market; however, if we look at the sequential data in the table, we see motor vehicle registrations up 3.6% over 12 months, falling at a 12% annual rate over six months, and then falling at 19.1% annual rate over three months, clearly an escalating pattern of weakness that is hidden by the monthly volatility.

Aggregate sales for the monetary union are not available yet; however, we have sales for eight key European countries. Not all of them members of the monetary union. Still, they tell a story.

We see in August sales dropped month-to-month in Germany and Italy and the Netherlands; sales rose in the other five reporting countries. There was repeat fall for Germany since sales also fell in July month-to-month; sales had fallen in two countries in July, the drop in Spain was reversed by an August gain. Italy, that has seen a drop in August, had flat sales in July. But only two countries had clear net declines in sales for July and August combined. In June, sales dropped in Denmark and the Netherland, while they turned up flat in Norway; sales grew in the other reporting countries.

We can recalibrate by looking at the sequential growth rates from 12-months, six-months, and three-months. On that basis, we see that there is weakness in play for Germany, Denmark, and the Netherlands over this span. Only Italy shows sales volumes are steadily expanding at an increasingly more rapid rate. Technically Spain is not on the list of countries showing acceleration, but Spain is showing growth of 4.5% or 4.6% in each one of these periods, a very steady and solid result. Sweden also fails the ‘every period improvement test’; however, its 3.9% growth over 12 months with growth down only to 3.6% over six months that explodes to an 18.1% annual rate over three months is clearly a candidate for a country that is percolating and doing better.

Quarter-to-date we've seen that motor vehicle registrations are falling at a 1.4% annual rate. But retail sales QTD are as strong as 7.5% in an annual rate in the Netherlands and 6% in Sweden. With the weakest result, apart from Germany's decline, there’s a gain of 1.7% at an annual rate in Italy. These data, through August, are for two months into the new quarter.

We also made the comparison of sales gains since COVID struck. On that basis, we see that motor vehicle registrations have fallen from their level in January 2020 by 20.2%. U.K. sales are contracting, falling by 2.6% in this lengthy period. Over this period, the U.K. conducted its operation Brexit in which it exited its membership from the European Union. As you can see, they paid a price for the exit- the weakest sales in this group and the only net decline. In Italy, sales are up very strongly at 11.1%, in Spain at 8.5%. After that, sales rates are clustered around net growth rates of 4 or 5% or slightly weaker; since we're looking at a 5 ½ year period, these sales translate into real consumer spending of less than 1% per year.

The graphic on retail sales shows that there's not a great deal of momentum for sales. We can see from the growth statistics of the individual countries in the table where three of the countries in the sample showing ongoing sales decelerations against only one with a clear acceleration.