Economy in Brief

Germany's IFO gauge for climate improved to -4.3 in February from -7.3 in January. The current all-sector index deteriorated slightly to 14.0 in February from 14.4 in January, but that deterioration was wholly because of a deterioration in the manufacturing sector; every other sector improved on the month. Expectations improved with the all-sector expectations index moving to -14.5 in February from -18.9 in January; there were improvements in all sectors, on the month. However, every single sector continues to have a net negative expectation reading. While there is some improvement and, while there is broad improvement, the IFO index only represents improvement from an extremely low level to a slightly less weak level. As an example, the all-sector expectations index has a queue standing at its lower 10th percentile; the all-sector current index has a standing in its 23rd percentile; and the overarching climate index has a standing in its 19th percentile. Any percentile standing below the 50-percentile mark is a standing below the median for that measure on data back to 2005.

On a shorter timeline comparing the February values to their respective levels back in January 2020 before COVID struck, we see declines for all of the measures except for manufacturing. That sector is slightly stronger on its climate, on its current, and on its expectations readings. For manufacturing, all of those changes are positive whereas for all of the other components all of those changes are negative. Since COVID struck, all sectors of the German economy have had a very difficult time getting back into gear.

The current-situation gauge shows rampant weakness with all sectors having queue rank standings below their 50th percentile except for construction. Construction has a 64.4 percentile standing; however, the retail sector is close to the 50-mark with a 49.5 percentile standing. The next closest is wholesaling, at a 40th percentile standing. Manufacturing, even though it has risen from its January 2020 level, still has only a 29.6 percentile standing. Services have only a 22.7 percentile standing. In terms of the current indexes, the assessments by participating in firms in the survey show continued weakness compared to historic performance.

The IFO expectations survey shows net negative readings up and down the line; all of them improved month-to-month. The queue rank standings for all of these are weak, below their 15th percentile for all industries except manufacturing that has a ‘whopping’ 19.4 percentile standing. The weakest sector response is from construction with a 3.7 percentile standing; services have an 8.3 percentile standing. Compared to January 2020, all of the readings are weaker except for manufacturing as noted above.

The S&P flash (preliminary) PMIs show improvement across all early reporters in the table for the composite and for services. All composite indexes are above 50 showing expansion and all service sector readings are above 50 showing expansion in that sector as well. Manufacturing gauges improve month-to-month in the U.S. and the U.K., but they ease in Japan, the EMU, as well as in Germany and France separately. Manufacturing PMIs are still below 50 showing contraction everywhere.

A shift to strength- These results stand out starkly in the table that labels readings as stronger or weaker month-to-month. In January, only 4 of 18 readings were weaker month-to-month. In December, only four were weaker and three of those were readings for the U.S.

Sequential trend- Despite monthly evidence of the tide turning toward strength, over three months (a period calculated on hard data and ending in January) data show only 5 stronger readings over three months, four are stronger on balance over 6 months compared to 12-months and only two are stronger over 12 months compared to their levels of 12-months ago (both of those are for Japan).

Overall view of February- Flash standings data for February values show eight of eighteen readings above their median values on data back to January 2019. Manufacturing has a rank below 50 (below its median) for all countries and areas in the table. Services readings are below 50% only in the U.S. and Germany. Only the U.S. and Germany have composite standings below their respective 50% marks – but France is on the cusp….

Manufacturing- The U.S., France, and Japan have extremely low manufacturing sector queue standings in February with rankings below the 15th percentile. The EMU, Germany and the U.K. have standings around their 33rd percentile, at the border of the bottom third of their respective queue of responses.

Service sector- Only Japan has a strong service sector in relative terms with a 96th percentile standing, the U.K., France and the EMU have standings near the upper one third of their historic queues of data. Germany has a below-median 46th percentile standing; the U.S. has an even weaker 26th percentile standing.

Canada's PPI in January fell by 0.5%, its second consecutive monthly drop, as it fell by 0.2% in December. Core prices fell by 0.3% in January after rising 0.5% in December. Of course, Canada trades closely with the United States; it shares the business cycle with the U.S. on most occasions, and there's a great deal of trade causing price developments between the two countries to tend to converge.

However, producer prices are showing slightly different trends right now between Canada and the U.S. The U.S. PPI that was recently announced accelerated in January and the U.S. core PPI accelerated as well. Canada's industrial prices have decelerated from 12-months to 6-months to 3-months and Canada's core industrial prices have fluctuated a little bit more, rising 3.6% over 12 months, accelerating to a 3.9% pace over 6 months then decelerating to a slower 2.6% annual rate over 3 months. U.S. headline PPI prices show some tendency to move lower, although the three-month inflation rate picks up compared to the 6-month inflation rate for the headline. The U.S. PPI core shows a considerable pickup in inflation over 3 months compared to 6 months. These features cause the U.S. pattern for prices to look different from the Canadian pattern.

Still, Canadian price inflation shows industrial prices up by 5.4% over 12 months with the core up only 3.6% over 12 months; that's a substantial difference. Core prices in Canada appear to be much better behaved; for gains over 12 months, 6 months and 3 months, the strongest gain over those horizons is the 3.9% gain over 6 months. The 3-month gain is down in a normal range rising at just a 2.6% pace.