Economy in Brief

German real orders unexpectedly rose in September; however, it's not the surprise that it may seem on the surface. They gain in order was only 0.2% following a 1.9% rise in August; while a gain of 0.2% after a gain of 1.9% might seem significant, those two months followed a decline of 11.4% in July. Because of that, the profile of German orders continues to be negative, with real orders falling 4% over 12 months, accelerating to rise at a 7.1% pace over 6 months, then diving to drop at a 33% annual rate over 3 months.

Foreign real orders rose by a strong 4.2% in September after a 1.6% gain in August. Those two brisk increases follow on the heels of a much more substantial 12.7% decline in orders in July. Foreign orders rose by 0.8% over 12 months, rose at a 19.9% annual rate over 6 months, then fell at a 27.3% annual rate over 3 months. And 12-months ago year-on-year real foreign orders were falling 13.8%. The table (below) depicts an isolated island of revival in foreign orders over the last 12 months and 6 months that previously had shown order declines and is doing so again over three months. The foreign sector hardly looks like a back-bone of growth to support the German economy through the export sector.

German domestic orders fared much worse, falling by 5.9% in September, rising by 2.3% in August, and falling by 9.2% in July.

Sequential orders fell by 11% over 12 months, fell at a similar 10% annual rate over six months and fell at a 41.4% annual rate over 3 months.

None of these categories make orders look anything like ‘firm’ or ‘solid,’ let alone ‘strong.’ But the domestic situation is clearly the worst.

Sales trends- abysmal Real sales trends across sectors show declines in all categories in September. All categories show declines over 3 months as well. Over 6 months, only capital goods showed a rise with the other metrics for real sales falling. Over 12 months, again, all categories showed declines except for capital goods sales. Real manufacturing sales declined by 2.5% over 12 months. That improved technically to a 2.4% annual rate drop over 6 months, then, over 3 months sales plunged at an 11.3% annual rate.

QTD trends Quarter-to-date (QTD) trends show orders falling overall as well as for foreign and domestic orders – led by extreme domestic weakness. Real sales by sector register declines in all categories as well, led by weakness in consumer durables.

European conditions Industrial confidence, according to the EU Commission measures, shows net negative readings in September for Germany, France, Italy, and Spain. Month-to-month conditions improved in Germany and France but deteriorated in Italy and Spain. Over 3 months, however, all four countries show conditions weakening; conditions also weaken over 6 months compared to 12 months. In the quarter, all four countries have EU Commission readings that are below historic median in each of these countries.

In this week’s letter we focus on recent investor behaviors concerning Asia. We note the recent exodus of investor funds from the region, driven largely by outflows from Mainland China amid lingering uncertainties. We also examine investor pivots toward other areas in the region, including India and Vietnam, and note the distinct pull factors of those economies. India has become an increasingly attractive investment destination for portfolio flows, with opportunities supported by a relatively stable rupee and a still-positive yield spread over the United States. Vietnam continues to draw investment flows from all over the world, spurred by its manufacturing infrastructure and comparatively low labor costs. Finally, we give a nod to the latest yield developments in Japan, following the central bank’s decision last week to officially demarcate 1% as the upper 10-year yield limit.

Foreign portfolio equity flows Foreign investors unwound about $15.6 billion of equity positions in Asia over September, after having already sold $20.2 billion of assets in August (chart 1). Almost all of the recent equity divestments are of Mainland China assets, with significant moves out of Taiwan and South Korea seen too. The selloffs come in contrast to the optimism displayed earlier this year when the major investment thesis for emerging Asia was about maximizing exposure to China’s reopening. Now, we have seen such optimism fade, with investors increasingly turning to other pockets of opportunity, such as India and Vietnam.

In September, the unemployment rate rose in the European Monetary Union to 6.5% from 6.4% in October. The rate had been chopping around between 6.5% and 6.4% over the last four months. There's nothing decisive about this rate increase except that the rate has stopped moving lower. The unemployment rate has gone from its trend of persistent declining to a period of waffling and failing to be able to make a new low. This begins to look more like the end of a run for the declines in the unemployment rate and the European monetary system. And given how far the decline has come, it's not surprising.

Some members still experience falling rates of unemployment- In September the unemployment rate fell in only one monetary union member in the table, and that is Greece where the unemployment rate fell quite significantly from 10.6% in August to 10% in September. Greece has the second highest unemployment rate in the table exceeded only by Spain at 12% in September. Greece is the only country in the table with the unemployment rate falling for three months in a row. Greece is also the country that is making the most progress overall in reducing its unemployment rate that is lower by 2.1 percentage points over 12 months. Among the twelve countries in the table, only five have net-lower unemployment rates over 12 months. That pack is led by Greece, followed by a 0.9 percentage point decline in Spain, a 0.6 percentage point decline in Italy, a 0.2 percentage point decline in Ireland, and a 0.1 percentage point decline in Germany.

Broadly low rates across the monetary union- The lowest unemployment rate in the monetary union among countries in the table is Germany at 3%. However, the lowest ranking unemployment rate in the table belongs to Ireland where its 4.2% unemployment rate sits in the lower 5.5 percentile of its historic queue of unemployment rates. That compares to a 6.7% standing for the nominally lower German rate. It points out that the relativity in these unemployment rates differs across countries and helps to explain why for the monetary union the overall EMU rate standing is at 2.1 percentage points, a lower standing than any country in the table. It's because the coincidence of low unemployment rates across all these countries is very unusual and has contributed to an unusual and extremely low unemployment rate for the monetary union itself.

Declining unemployment rates are becoming scarce- However, declines in unemployment are becoming rarer over three months; only two countries have unemployment rates lower over three months; they are Ireland and Greece. Over six months, four countries have lower unemployment rates: Portugal, Greece, Spain, and Italy. Over 12 months, unemployment rates fell in five countries and rose in seven countries.

Below-median unemployment rates are a common feature- Still, unemployment rates across the monetary union are low; they're below the medians for all countries except two. Only Luxembourg and Austria among country members in the table log employment rates above their 50-percentile mark which means they're above their historic medians for this period.