Economy in Brief

German IP fell by 0.2% in May as manufacturing IP rose by 0.2%. Manufacturing and headline IP both show sequential deterioration in play for their annualized rates of growth from 12-months to 6-months to 3-months. Consumer goods and capital goods output both show secular growth rate deterioration while intermediate goods show only a very minor deviation from that same pattern.

Real manufacturing orders and real sales both show more complex patterns.

The IFO headline for manufacturing and the gauge for expectations both show secular improvement from 12-months to 6-months to 3-months. The ZEW current index shows persistent negative readings, but they show progressive improvement. The EU Commission industrial index shows secular deterioration.

Other early European reporters show different results. France and Spain show ongoing sequential improvement in their output trends for IP. Portugal and Norway show sequential deterioration while Sweden shows a mixed pattern.

There are 17 quarter-to-date calculations in the table. Ten of them show negative growth in progress. Overall, German IP, manufacturing IP and real German orders log negative readings for the quarter to date. The ZEW current treading, as well as France and Sweden, log positive readings along with two key German sectors: capital goods and consumer goods.

Nine of 17 queue rankings show standings below their respective 50 percentile, a level that marks the median value for each series. The weakest percentile standings are for the intermediate goods sector for German manufacturing, the two IFO series (that are more upbeat- but from this lower ranking position) and IP in Portugal.

Twelve of 17 measures show weaker conditions in May 2023 that existed in January 2020 before Covid struck.

German real orders in May grew strongly, rising 6.4% month-to-month with foreign orders rising 6.4% and domestic orders rising 6.2%. There are back-to-back monthly increases in total orders and in domestic orders. However, March saw even weaker orders with total orders falling by 10.9% month-to-month, foreign orders falling by 13.2%, and domestic orders falling by 7.7%. The strength in May reflects an unwinding of some of the weakness in March, albeit with a one-month lag.

Domestic vs. foreign growth trends in orders Because March was so weak, the three-month change in orders continues to be negative for Germany. Total orders are down by 4.1% over 12 months; they rebound to log a 3.2% annual rate of growth over 6 months, but then they are declining at an 18.7% annual rate over 3 months. This sequence is repeated for foreign orders that fall by 6% over 12 months, have a small 0.4% annual rate gain over 6 months and then decline at a 29.6% annual rate over 3 months. Domestic orders fall by 1.3% over 12months, rise by 7% at an annual rate over 6 months and then execute a small decline at a 0.4% annual rate over 3 months. For now, the greater weakness is in foreign orders on the recent horizon as well as over 12 months.

Real sector sales patterns Real sales by sector also show strength with gains across consumer goods, capital goods and intermediate goods in May. Within the consumer goods sector, consumer durables spending falls by 0.1% in May, the only sector or subsector to register a decline in the month.

Sector sales do not show any clear trends over the sequential period from 12-months, to 6-months, to 3-months. Manufacturing sales overall show a gain of 4.2% over 12 months, a decline of 1.5% at an annual rate over 6 months, and a gain of 0.8% annualized over 3 months. There is a 4% gain in real sales over 12 months, but over 3 months and 6 months there's not much change in sales at all. Consumer goods show sales declines over 12 months and over 6 months with a rebound over 3 months. Capital goods show growth over all three horizons at a 13.6% annual rate over 12 months, slowing to a 4.2% annualized gain over 6 months and then accelerating to log a 7.8% annual rate gain over 3 months. Capital goods sales rise on all horizons but do not accelerate. In contrast, intermediate goods sales fall on all horizons and their fall gets progressively worse as intermediate goods sales fall by 4.3% over 12 months, at a 6.6% annual rate decline over 6 months and at a 7.8% annual rate decline over 3 months.

EMU Big Four economies and EU Commission indexes The EU Commission industrial confidence gauges for Germany, France, Italy, and Spain show negative readings in March, April, and May. The monthly progression for Germany shows increasing weakness. Italy shows increasing weakness. Spain and France show less straightforward results but generally look to be on a weakening path since the May reading is weaker than the March reading for each of them. Sequentially the German industrial confidence indicator weakens from an average of +4 over 12 months to +0.4 over 6 months, to -2.3 over 3 months. France also shows sequential deterioration that gets worse as does Italy; Spain breaks the pattern with the -4.1 reading over 12 months, slightly worse at a -4.2 reading over 6 months and then logging a small improvement to -3.5 over 3 months. However, there's nothing in any of those sequences that looks like it's a real improvement. The queue standings for the EU Commission readings in May show all of them below their respective 50th percentiles, a level that marks the median since 1990.

The quarter-to-date In the quarter-to-date (QTD) as of May, two months into the second quarter, orders are falling at a 13.5% annual rate, foreign orders are falling at a 24.6% annual rate, while domestic orders in Germany are rising at a 5.2% annual rate. Real sales by sector show total manufacturing sales up by 0.6% at an annual rate in the QTD with consumer durables showing a 10.8% annual rate increase in sales and capital goods logging at a 6.5% annual increase in sales. Total consumer goods, consumer nondurables and intermediate goods sales are falling out on the QTD basis.