Economy in Brief: 2022

The GfK consumer climate index for Germany has fallen, reaching a new lower low in September at -36.5. This is a drop from August when the index was at -30.9. The index dropped from its previous all-time low to a new lower low in September. The monthly decline of 5.6 points is the biggest monthly decline since May of this year and represents real month-to-month deterioration, not just some further slippage. A month-to-month decline larger than 5.6 points occurs less than 2% of the time…and this is a drop from what had been an all-time low

The components for the GfK index lag by one month; we have component values for August as the most up-to-date readings. The August reading for economic expectations improved slightly to -17.6 from -18.2 in July. The August reading for economic expectations stands in the lower 11th percentile of its historic queue of data. Income expectations also improved slightly, logging a -45.3 reading in August compared to -45.7 in July. The July reading was the all-time low for the income series so the ranking for August income expectations is in the lower 0.4 percentile of its historic queue of data. The propensity to buy reading for August slipped further to -15.7 from -14.5 in July; this reading has a lower 17.6 percentile queue standing.

All the components are weak. The propensity to buy is in the lower 20th percentile of its queue of data, economic expectations are in their lower 11-percentile while income expectations are just a few ticks off their all-time low, logging the second lowest reading on record. These are not encouraging signs for Germany or for the consumer.

Other Europe There are also readings for Italy, France, and the U.K. in the table; these are up to date through August. In Italy, consumer confidence improved to 98.3 in August from 94.8 in July. In France, the INSEE reading moved to 82.2 from 79.6. But in the U.K., there was deterioration as the consumer confidence reading fell to -44 from -41 to reach a new all-time low for U.K. confidence.

The INSEE business indicator for French industry climate fell to 103.6 in August from 105.6 in July. The index had been at 107.9 in June and 106.3 in May. The decline in August brings it down to a significantly lower level compared to where it's been in recent months. The indicator has a 63.3 percentile standing in its historic queue data back to 2001. This is a moderate standing above the median which occurs at a ranking of 50.

Manufacturing production expectations post a -1.6 reading in August, an improvement from July's -5 reading and from the readings of June and May as well. The ranking on data back to 2001, however, is at the 51.8 percentile of its historic queue of data, marking it as barely above its historic median value – a more or less 'average' reading.

The recent trend for production has a 4.2 reading in August compared to much stronger readings in May, June and July. However, the percentile standing in August is only at a 40.5 percentile standing in its historic queue of data back to 2001. This marks the reading as substantially below its historic median.

The 'personal likely trend' for production is meant to get the survey participant to look at their own industry rather than at industry overall. Respondents to the survey expect their personal likely trend will improve in August to 13 from what were much weaker values over the previous three months. This improvement to 13 has a queue percentile standing at its 71.7 percentile which is a reasonably strong reading.

Orders & demand in August have slipped to a -10 reading in August from -4.7 in July, compared to stronger readings in June and May. At -10, orders & demand have a 70.4 queue percentile standing, a moderately firm reading. Foreign orders & demand also weakened in August, falling to -7.6 from a reading of -4.9 in July and stronger values in June and in May. The August queue standing is at its 70th percentile, like the standing for orders & demand overall.

August inventory levels are up to 16.6 in August from 9.3 on July and represent an elevated level compared to June and May as well. This is a high reading at the 94th percentile of its historic queue of data.

Price trends show their own likely price trend at 39.7 in August, up from 35.3 in July. However, this is a weaker reading than in June and in May by a substantial margin. However, the August reading still has a queue percentile standing in the 96.8 percentile: that is within the top 4% of all observations back to 2001. Firms clearly are raising their own prices.

Manufacturing prices overall are seeing weakening month-to-month as August has a 55.3 reading compared to July at 63.3 and even stronger levels in June and in May. The manufacturing price level has a 95.5 percentile standing, just slightly weaker than for own prices. These readings indicate continued price pressures for the period ahead.

Looking at these survey responses compared to what they were before COVID struck, in January 2020, we have the industry climate index higher by only one point. Manufacturing production expectations are higher by less than one point. The recent production trend is higher by 5.4 points while the personal likely trend is up by 4.2 points. Orders & demand as well as foreign orders & demand are both weaker by 0.2 points. Prices, however, are hugely stronger than they were before COVID struck. The price index for the own likely price trend is up by 37 points; the manufacturing level is up by 49 points. Clearly firms have experienced a lot of inflation since COVID struck and their perceptions of prices remain high as we've seen from the percentile standings.