Economy in Brief: 2024

The economy watchers index rose to 47.5 in July from 47.0 in June, indicating less contraction on the month. Similarly, the future index improved to 48.3 in July from 47.9 in June, also signaling less deterioration is expected in July compared to June.

The current index has a 50.6 percentile standing on data back to 2003; the future index is slightly weaker at a 46.6 percentile standing. The current index is just above its median mark while the future index is below its median on that same period.

There are no indications of steady net gains being made over 12 months, six months, and three months for either the current or future surveys. That is not reassuring. However, there is persistent deterioration for five current components and five future components. The future declines that register persistent erosion also display net diffusion readings below 50 in July; so do four of the five current readings. Household-related metrics show a preponderance of persistent weakness. In the current survey, it is housing, employment, and eating and drinking places that are persistently weaker from period to period. In the future index, it is also household-related measures that are persistently weak: households overall, retailing, housing, and employment. Consumer-related sectors are weak and weakening.

The economy watchers survey shows momentum weakness as well as weak standings. The current index has four of nine components with standings below their historic medians and seven with diffusion values below 50, indicating contraction. In addition, the ranking of the employment metric at 22.1% is the lowest of all current components and that is disturbing. The future index has five components with rankings below 50% in addition to the headline. Eight of nine components have diffusion values below 50, as well as the headline. The weakest future standing is for housing at a 24-percentile value, but employment is also extremely weak with a 31-percentile standing.

The chart on the economy watchers survey shows that weakness was arrested over the last two months. Still, there is not much of a rebound established and there are still modest-to-weak readings all around. Broader momentum still points lower since the rebound as it stands is only a very localized affair. Despite two months of diffusion improvement, this is still a report that does not offer a lot of encouragement.

German industrial production rose 1.4% in June after falling 3.1% in May and edging up by 0.2% in April. Sequential growth rates do not set a clear course, but on all horizons, growth is weak or lower. IP falls by 3.9% over 12 months, rises at a 0.9% annual rate over six months, then falls at a 5.8% annual rate over three months. Three-month growth is weaker than 12-month growth, but there is a rise in-between, over six months. Still, the overall pattern is weak. In the quarter just completed, IP falls at a 5.1% annual rate. Also, note that there is a legacy of weakness in IP that is still standing in June, 10.6% below its level in January of 2020 (4 ½ years ago) just before COVID struck.

The IP sectors show the same trend ambivalence as the headline. Only capital goods show output decline on all horizons, but even then, the progression is not clear as the weakness dissipates over six months.

Total manufacturing output and real orders rose in June as real sales fell. Sequentially, manufacturing output is weaker over three months than over 12 months but without clear trend. Real orders rise solidly over three months despite a double-digit pace of decline over 12 months and a deeper drop over six months. Real sales do show a clear trend and a trend to deterioration amid negative growth rates.

Other indicators for German industry show an uneven monthly sequence. The broader sequential data show strengthening over three months compared to six months for the ZEW current assessment, for IFO manufacturing and for IFO manufacturing expectations. The EU Commission assessment shows a weakening from 12-months to 6-months to 3-months. It is the exception. All indicators except the EU Commission indexes show improvement in the quarter as well.

IP in other European countries shows declines in Portugal, Spain, and France while Norway (an EEA member) shows output higher in June by 1.3%. The broader progressions show ongoing deterioration in Portugal and in France. There is secular improvement in Norway as growth improves form a -0.9% pace over 12 months to a 4.1% gain over three months. Spain shows erratic behavior with no clear trend and a sharp 10.1% annual rate of decline over three months.

On balance, the IP report for June shows a one month rebound for Germany but still weak trends in place across sectors. Other indicators show a somewhat more positive picture. Individual European IP reports largely show weakness in play. There is not much cause for optimism here.

Real German industrial orders rose 3.9% in June after falling 1.7% in May and 0.6% in April. The sharp rise in June has driven the three-month growth rate into positive territory to 6.4% at an annual rate. Orders in June were largely driven by domestic orders that rose by 9.1% in June after rising 0.4% in May and being flat in April. Foreign orders rose by 0.4% after falling 3% in May and 1% in April. June was a good month for German orders especially for domestic orders; however, the trend for German orders is still poor (see the year-on-year growth data-plot chart).

Sequential trends Sequential growth rates show that 12-month growth for real orders is -11.7%, over six months the annualized growth rate is -20.9%, and over three months that trend reverses to plus 6.4% at an annual rate. Foreign orders fall by 15.5% over 12 months, they drop at a 28.3% annual rate over six months, and that pace of decline is reduced to -14% at an annual rate over three months. Domestic orders fall 6.1% over 12 months, they drop at an annual rate of 9.4% over six months and then rebound strongly, growing at a 44% annual rate over three months. The progression of German orders is largely negative until the last 3 months when the negative paces reverses quite sharply in the case of domestic orders and in the case of foreign orders the pace of decline is simply diminished.

Manufacturing Overall manufacturing sales fell 0.9% in June after falling 0.3% in May and 1% in April. For manufacturing, there's a sequential decline that is getting progressively worse from -5.1% over 12 months to -6.2% at an annual rate over six months to -8.7% at an annual rate over three months.

Sector sales Sector results show consumer goods sales in June fell by 3.7%, consumer nondurables sales fell by 5.1% with durables sales rising by 4%. Capital goods sales fell by 1.7% and intermediate goods sales rose by 0.7%. That's rather a hodgepodge of pluses and minuses. However, taking a longer string of data, consumer goods sales are progressively contracting from a -4.9% decline over 12 months to a -6% rate of decline over six months to -12.7% rate of decline over three months. That progression is driven by nondurable goods that get sequentially worse, while consumer durable goods sales show the opposite trend, progressive acceleration from -6.4% over 12 months to a +5.3% pace of expansion over six months to a +13.3% pace of expansion over three months. Capital goods sales do not give us a clean reading on trend; sales are negative over 12 months; the negative growth rate worsens over six months but then it's trimmed back over three months. However, capital goods do show negative growth rates over each horizon. Intermediate goods are also confusing hodgepodge of growth rates with -4.5% growth over 12 months, 0.2% positive growth over six months and then -9.3% growth at an annual rate over three months.

Quarter-to-date The quarter-to-date calculations show that overall orders are falling in the recently completed second quarter by 5.3% at an annual rate, but this is the result of a nearly 12% annual rate decline in foreign orders tempered by an increase in domestic orders of about 5%. Across sectors, we find declines in the quarter for all sectors except for consumer durable goods but they post a significant growth rate of +8.9% at an annual rate in the quarter.

Industrial Europe Measures of industrial confidence for Germany and the three other largest economies in the European Monetary Union also give us a mixed picture; in the current month all three of them score a negative values for industrial confidence. However, over the last three months there's very little trend involved for either Germany, France, Italy, or Spain; they're all pretty much hugging a consistent negative growth rate on the period. And the same is true when we look for sequential growth rate patterns from 12-months to 6-months to 3-months. All four of these countries continue to present pretty much the same values without any clear trends over the period. Additionally, we create queue standings for these four countries and find that they are all in June below their mean values on data since 1990. The weakest standing is for Germany with a 16-percentile standing. The strongest is for Spain with a 42-percentile spending, with France at 37-percentile and in Italy at a 23.5 percentile standing.