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Saturday, August 30, 2008

German Unemployment Continues To Fall In August

German unemployment fell by a slightly larger-than-expected 40,000 to 3.2 million in August, according to data from the federal labor agency last week. This followed a fall of 20,000 in July, and many analysts had been expecting a more modest seasonally-adjusted drop somewhere in the region of 10,000.

Commenting on the data, labour agency chief Frank-Juergen Weise said the positive tendency in the labour market seemed to be continuing and that the developing weakness in the German economy had yet to have any discernible impact on jobs. Indeed, the August fall came despite other indicators pointing to slowing economic growth with two key surveys released earlier this week showing both business and consumer confidence falling.

In the more politically sensitive seasonally-unadjusted terms, the numbers out of work fell by 14,000 to 3.196 million which brought the jobless rate down to 7.6 percent from 7.5 percent in July. The August seasonally-unadjusted figure was 510,000less than in the same month last year.

The German economy, Europe's largest, shrank in the second quarter as companies cut back on investment, suggesting that payrolls may follow. German business confidence fell to a 36-month low in August. Still, the job market may not deteriorate as fast. The Labor Agency's IAB institute recorded 1.13 million job openings in the second quarter, 15,000 fewer than in the previous three-month period. Situations vacant will decline ``over the medium term,'' the IAB said on Aug. 11.

The labor market is a notoriously lagging indicator, and normally lags about six months behind other early warning economic indicators such as industrial production, but in the context of an ageing and about to decline labour force, it may well be that there are more factors at work this time round. In any event it will be well worth following closely how the German labour market responds to what may well be a looming economic recession.

According to the latest comparable data of the Organization of Economic Cooperation and Development, Germany's jobless rate was 7.3 percent in June. France, Germany's main trading partner, reported 7.5 percent unemployment compared with 4.1 percent in Japan and 5.5 percent in the U.S. The OECD average that month was 5.8 percent.

In a separate report the Federal Statistical Office stated that the number of persons in employment in July was 40.16 million. That was an increase of 562,000 persons (or 1.4%) over July 2007. Compared with June 2008, the number of persons in employment decreased by 42,000 (–0.1%) in July.

The statistics office are at pains to point out that a slight decline in the number of persons in employment between June and July is the rule, and offers no indication in and of itself that the long running positive trend in the German employment market has been reversed. This situation is underlined by the seasonally adjusted figures: in July 2008, the number of persons in employment in Germany was 40.25 million after seasonal adjustment, that was a seasonally adjusted increase of 33,000 persons (+0.1%) over June 2008.

Tuesday, August 26, 2008

German Recession Danger Rises As Consumer and Investor Confidence Falls

German business and consumer confidence fell more than economists forecast in August, raising the likelihood that Europe's largest economy may be steadily slipping into a recession.

Business Climate Worsens In August

The Munich-based Ifo institute's business climate index, based on a survey of 7,000 executives, dropped to a three-year low of 94.8 from 97.5 in July. Ifo's gauge of business expectations dropped to 87, the lowest since February 1993, when Germany was experiencing the worst recession of the past two decades. A measure of current conditions eased to 103.2 from 105.7.

"The German economy is encountering an increasingly more difficult situation,"
Ifo President Hans-Werner Sinn

Consumer Confidence Down Again

At the same time GfK AG's consumer sentiment reading slumped to its lowest level in five years. GfK AG's index for September, based on a survey of about 2,000 people, fell to 1.5, the lowest since June 2003, from a revised 1.9 in August, the Nuremberg-based market-research company said in a statement today.

GfK's sub-index measuring economic expectations plunged to minus 21.8 from minus 8. A measure of consumers' propensity to spend fell to minus 27.9 from minus 26.2 while a gauge of income expectations improved to minus 16.8 from minus 20.

Subdued economic prospects and the expectation of additional price hikes continued to depress consumer sentiment in August. While income expectations recovered slightly from the marked downturn in the prior month, economic expectations were dampened further. The propensity to buy, which in a long-term comparison has been far below average for many months, recorded a further slight reduction.
GFK Press Release

Second Quarter GDP Contraction Confirmed

Further detailed data released today by the Federal Statistics Office confirmed that the German economy contracted in the second quarter, while all the short term indicators we are now receiving seem to suggest that it may fail to grow in the third quarter as well. While oil prices have receded from a record $147.27 a barrel, they're still up 60 percent over the past year, putting pressure on consumer spending power and just as the slowdown in Southern European economies like Spain and Italy start to weigh heavily on German exports.

The economy contracted 0.5 percent in the three months through June as construction dropped back sharply and companies and households reduced spending, the Federal Statistics Office confirmed today.

Building investment dropped 3.5 percent from the previous quarter, investment in plant and machinery fell 0.5 percent and consumer spending decreased 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product fell a seasonally adjusted 0.5 percent from the first quarter, when it rose 1.3 percent, the office said, confirming an estimate from Aug. 14. That's the biggest drop since the second quarter of 1998.

German exports fell 0.2 percent in the second quarter from the previous three months, when they rose 2.1 percent, today's report showed. However imports dropped even further (due to the weak domestic consumer demand) - by 1.3 percent from the first quarter (when they increased by 3.2 percent). Ironically, despite the deterioration in the export situation, the net impact of trade on GDP was positive (0.4 percentage points) due to the sharp drop`in imports. This result is even stranger than it seems at first sight, since the strong imports in the first quarter meant that trade was in fact a negative for GDP (minus 0.3 percentage points) despite the relatively stronger earlier export performance.

According to the most recent PMIs for Germany the manufacturing sector barely expanded in August:

although services fared a little bettercoming in at 53.1, which was slightly up from July's 52.1.

Thursday, August 21, 2008

Eurozone Recession On the Horizon?

Is the first zone wide recession in the short history of the eurozone about to be registered? Certainly the flash PMI estimates for August give the impression that it might. The Royal Bank of Scotland Group Plc's composite index came in at 48 after 47.8 reading in July. Any result under 50 indicates contraction. Unfortunately we only get flash estimate breakdowns for France and Germany, but it isn't that difficult to deduce from the composite number that Spain and Italy continue to contract - although given that the composite rebounded slightly, while both services and manufacturing slowed in Germany, and in France manufacturing contracted more sharply in July while the contraction eased a bit in services, then it may be that Spain and Italy weren't contracting quite so strongly in August as they were in July.


The German manufacturing index fell to 49.9 in August, its lowest level in three years, after slipping back index to 50.9 in July.

Helping to push down the manufacturing indicator was the export component, which fell to its lowest level since June 2003, according to the report from Markit Economics.

The services PMI reading was not much better, falling to 50.6 in August from 52.1 in June. As things stand German services are riding just shy of contraction if the flash reading is borne out in the final result.

In its report, Markit Economics noted that the business expectations sub-index for Germany had slipped to the lowest level since November 2002.


Activity in France's manufacturing sector contracted at the sharpest rate in over six years in August, with a contraction of 45.1 being registered, down on July's 47.1 and the lowest level since December 2001.

The service index came in at 48.5, above July's 47.5 but still only its second time in negative territory since mid-2003. New business logged by service firms shrank at its fastest pace since the data was first collected in May 1998.

"If you extrapolate these figures through to the third quarter you're probably looking at stagnation of GDP (gross domestic product)... This is not a harbinger of imminent upturn," said Chris Williamson at data compiler Markit Economics. "Nothing points to a fundamental turnaround... I think there's been a spillover effect from Italy, Spain and now Germany, and France has followed suit."
So Is It Recession, and Will We See Rate Cuts From the ECB

Gross domestic product fell 0.2 percent in the second quarter from the first, when it grew 0.7 percent, according to the data released ny Eurostat (the European Union's statistics offic) last week, and it now seems clear that this contraction may well pass over into the third quarter. In fact Germany's Economy Ministry said only yesterday that the economic outlook in Germany has worsened even beyond the second quarter, when gross domestic product shrank for the first time in four years.

European consumers are not getting much relief from falling oil prices either, since while oil prices have fallen 20 percent from a record $147.27 a barrel on July 11 the euro has dropped 7 percent ($1.4780 today) from its peak of $1.6038 hit on July 15, taking a lot of the edge off the drop. The fall in the euro will however make exporting outside the zone easier, the difficulty is that the demand for exports is slowing generally as the global economy slows.

The European Central Bank, which raised its benchmark rate by a quarter point to 4.25 percent in July, currently predicts growth will slow to about 1.8 percent this year from 2.7 percent in 2007, but today's PMI data would seem to confirm that the ECB's growth projections are no longer realistic and that the time to move over into rate cuts mode is fast approaching.

Tuesday, August 19, 2008

ZEW Economic Sentiment Indicator Rebounds Slightly In August

German investor confidence increased more than anticipated in August following a decline in the euro and an easing in oil prices from the record levels reached in early July. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to minus 55.5 from minus 63.9 in July. The July reading had been the lowest since the survey began in 1991.

The German economy contracted by a larger than expected 0.5% in Q2, and it is still touch and go whether we will see a technical recession and quarterly GDP in the third quarter too. The Berlin-based DIW economic institute predicted yesterday that gross domestic product would rise just 0.1 percent in the three months through September, and accepting this assessment at face value it is still within a margin of error which could mean contraction.

Inflation is also still proving to be a major area of concern, and German producer-price inflation accelerated to 8.9 percent in July, the fastest pace since October 1981, reinforcing speculation the European Central Bank will keep interest rates at a seven-year high even as the economy cools. Month on month prices rose 2 percent, according to data from the Federal Statistics Office earlier today.

German energy prices gained 25 percent from a year earlier and prices for electricity increased 23 percent. The cost of diesel fuel rose 30 percent from July 2007. Excluding energy, producer prices rose 3.6 percent in the year.

German consumer prices rose 3.5 percent in Julay from a year earlier, according to the Federal Statistics Office on August 14.That's the fastest pace since Germany started measuring inflation using a harmonized European Union method in 1996. From June, prices rose 0.7 percent.

Thursday, August 14, 2008

The German Economy Contracts In Q2 2008

The German economy shrank in the second quarter of 2008 for the first time in almost four years. German gross domestic product (GDP) was down by 0.5% on the first quarter of 2008 taking into account price, seasonal and calendar adjustments. In the first three months of the year, the GDP was up a revised 1.3%. The last time the German economy had a quarter on quarter decrease was in the third quarter of 2004 (–0.2%).

As further reported by the Federal Statistical Office, the main trend in the second quarter for decreasing household final consumption expenditure and smaller fixed capital formation. Especially capital formation in construction was markedly down on the first quarter. Foreign trade continued to make a positive constribution, although in Q2 this was mainly due to a significant decrease in imports.

GDP was up 3.1% in the second quarter of 2008 compared with the same quarter a year earlier. When calendar adjusted, the growth rate was 1.7% as the reference quarter had three more working days than the second quarter of 2007.

In the second quarter of 2008 there were 40.2 million persons in employment, which was an increase of 566,000 persons or 1.4% on a year earlier.

In addition to the first calculation of data for the second quarter, the published results for the last four years (from 2004) have been revised by the Federal Statistics Office, as happens every year in August. Such continuous revisions are carried out routinely to integrate newly available statistical information into the calculations.

The complete basic statistics required for a “final” calculation of national accounting data generally are available only after about four years, so that only then are the results final and do no longer have to be revised on a regular basis.

The current recalculations resulted in rates of change of the annual and quarterly GDP (unadjusted figures) which differ from the previously published results by up to 0.2 percentage points. The rates of change of the seasonally and calendar adjusted quarterly results were revised by up to 0.3 percentage points. The Federal Statistical Office will release detailed results on 26 August 2008.

Thursday, August 7, 2008

German Exports Rise Again In June

The silver Swan, who living had no Note,
when Death approached, unlocked her silent throat.
Leaning her breast against the reedy shore,
thus sang her first and last, and sang no more:
"Farewell, all joys! O Death, come close mine eyes!
"More Geese than Swans now live, more Fools than Wise."
Orlando Gibbons: The Silver Swan

German exports rose again in June, defying the recent downward trend and pushing the trade surplus to a record. Sales abroad, adjusted for working days and seasonal changes, increased 4.2 percent from May, when they fell 3.4 percent, according to the Federal Statistics Office in Wiesbaden earlier today. This is the largest month on month increase since September 2006, although it is important to bear in mind that May exports were at a pretty low level by recent standards, and in absolute terms this months exports did not get back to the level achieved in April (which was also an unusual month due to the early timing of Easter). So it is hard to read a trend here, but my overall feeling - and strongly so - is that the tendcy is down. The trade surplus widened to 19.7 billion euros ($30 billion) from 14.3 billion euros in May, and in general the surplus over the last three months taken together has been stronger than in January to March, so that should be something positive for the otherwise pretty gloomy Q2 GDP numbers.

Exports were up 7.9 percent on June 2007. Imports fell 0.1 percent from May and rose 5.3 percent from a year earlier. The surplus in the current account, the measure of all exports including services, widened to 18.5 billion euros from 7.5 billion euros in May.

Industrial Output Also Up Slightly

German industrial output rose a seasonally adjusted 0.2 percent in June from May, according to preliminary data from the Ministry of Economy and Technology. The May figure for the month-on-month decline in industrial output growth was revised to 1.8 percent from 2.4 percent.

Manufacturing output rose a seasonally adjusted 0.5 percent in June from May, but output in the construction industry fell 2.1 percent, while output in the energy sector dropped 1.3 percent. Year-on-year, May industrial output rose 4.1 percent in unadjusted terms, and was up 1.7 percent after being adjusted for the number of working days.

For the two-month period spanning June and May, industrial output decreased a seasonally adjusted 1.8 percent from the April-March period and was 1.5 percent higher in unadjusted terms, compared with the same period of last year. And if we look at the chart for the seasonally adjusted index (see below), we will see that the level of output has been dropping more or less steadily since January/February.

But Future Orders Down

On the other hand German  manufacturing orders, as reported on this blog yesterday, fell by an unexpectedly steep 2.9 per cent in June, underlining the rapid deterioration of the country’s economic performance and raising fears about the health of the European economy as a whole.

The drop, which was much larger than expected, was the seventh consecutive month-on-month fall, the longest such downward spell in nearly 20 years. The latest figures left the average order level in May and June down 4.4 per cent from a year ago. While the headline orders figure was disappointing, the detailed breakdown is even more preoccupying, since it showed that the weakness in orders had come mainly from abroad. Orders from outside Germany fell 5.1 per cent on the month against a 0.6 per cent fall for domestic orders.

Another cause for concern was the fall in orders from within the eurozone. The drop of 7.7 per cent was almost double the 3.1 per cent drop from outside the region. As we can see in the chart below, sales to the eurozone were up again in June, but this position is hardly sustainable with the zone as a whole more than likely moving off towards recession. Indeed it was the drop in demand last autumn from Spain and Italy which initially set German exports off on their downward trend, in my opinion.

So my guess is that June's exports and industrial output were the pre-summer swansong (or last gasp for breath) before we get into the really serious business of recession.

Wednesday, August 6, 2008

The German Economy May Have Contracted By 1% In Q2 2008

As anticipated on this blog (and in my two posts on RGE European EconMonitor - here, and here) the German economy contracted in the second quarter, possibly by as much as 1% according to the Süddeutsche Zeitung newspaper who somehow or another seem to have gotten an advance glimpse of the economic data which is due to be officially released next week.

The Financial Times reports that government officials initially declined to confirm the report but that one spokesman later told the Financial Times: "The contraction will be in the order of magnitude of minus one per cent." The official added: "Bear in mind, though, that this is partly a correction after the exceptionally good first quarter."

This decline in economic output, if confirmed, is pretty steep and shows that the German economy, like much of the eurozone, is now possibly staring a looming recession straight in the face.

What most analysts seem to have failed to notice was that the 1.5 per cent jump in growth registered in the first quarter – which was the fastest increase in almost 12 years – contained a very strong (0.7%) component due to a sudden sharp rise in inventories. Strip these out of the second quarter - as inventories are reduced again - and you are bound to see some sort of significant correction. Add to this that demand for German exports is slowing, and you get contraction. What we now need to see is the extent to which this negative momentum carries over into the third quarter.

There is of course no suggestion whatsoever that the unusual leaking of the GDP
data out of Berlin could be intended to influence the European Central Bank ahead of its scheduled meeting on Thursday, when it is expected to leave interest rates on hold. Cough, cough, cough.

Industrial Orders Down In June

One indication that the contraction may well carry through into the third quarter was provided by the news this morning thatGerman factory orders fell for the seventh straight month in June. Orders, adjusted for seasonal swings and inflation, declined 2.9 percent from May, the Economy Ministry in Berlin said today. That's the biggest drop since July 2007. Orders were down 6.1 percent from a year earlier.

Now this news is important, since it will be reflected in the July and August industrial production numbers. Foreign sales dropped 5.1 percent, while domestic orders fell 0.6 percent in June. Orders from the euro area declined 7.7 percent and demand from outside the region fell 3.1 percent. That is, the position is clear, economic problems in Spain and Italy are slowly but surely dragging German export growth down, and when Germany has no export growth then recession is guaranteed.

The euro area, which takes just over 40 percent of Germany's exports, probably contracted 0.5 percent in the second quarter, according to the latest estimate from economists at the French bank Societe Generale.

Tuesday, August 5, 2008

German Services PMI Shows Continuing Expansion In July

The euro zone's services sector slid further into contraction in July, hitting a five-year low, while inflationary price pressures remained near record levels. Final data in the monthly PMI survey of private sector companies showed that of the big four economies in the euro zone, only in Germany did services activity expand, and in this case slightly more quickly than in June. The RBS/Markit Eurozone Purchasing Managers Index for services companies, which range from banks to cafes, fell to 48.3 in July from 49.1, unrevised from the flash estimate and well below the 50.0 mark that separates growth from contraction.

Germany fared a little better and remained in growth territory at 53.1, ticking up from June's 52.1.

"The final PMI data confirm a dramatic spreading of weakness throughout the euro area, with service sectors in France, Italy and Spain all contracting at or near to survey record rates," said Jacques Cailloux, chief euro area economist at data sponsor RBS. With confidence plummeting amid weaker growth of new business in Germany, the euro zone's largest national economy is also looking in danger of sliding into contraction soon,"

Friday, August 1, 2008

German Manufacturing PMI Shows Slight But Continuing Expansion In July

The seasonally adjusted RBS/Markit Eurozone Manufacturing PMI (Purchasing Managers' Index) registered 47.4 in July, down from 49.2 in June and slightly below the flash estimate for July of 47.5. The final reading signalled the second consecutive monthly deterioration in manufacturing sector business conditions and the steepest rate of decline since June 2003.

German manufacturing activity by contrast, continued to show some resilience, registering a reading of 50.9 in July, down from 52.6 in June.

German Retail Sales Decline Again In June

Retail sales in Germany fell more than twice what economists expected in June as evidence builds that Europe's largest economy not only contracted in the second quarter, but may now be actually entering recession.

According to provisional results of the Federal Statistical Office (Destatis), turnover in retail trade in Germany in June 2008 was in nominal terms 1.2% and in real terms 3.9% smaller than that in the corresponding month of the previous year. The number of days open for sale was 25 in June 2008 and 26 in June 2007. When adjusted for calendar and seasonal variations, the June turnover was in nominal terms 1.4% and in real terms also 1.4% smaller than that of the preceding month.

Consumer confidence dropped to its lowest in more than five years and German unemployment fell at a weaker pace in July, reports showed this week. Business confidence fell the most since the 9/11 terror attacks last month, manufacturing orders unexpectedly declined for the sixth time in succession and industrial production had its biggest decrease in 9 years. Indeed if we look at the (seasonally adjusted) retail sales index, sales in June were below anything we have seen in a long time, certainly in years.

All this is certainly starting to complicate things significantly for the the European Central Bank following the increase in its benchmark interest rate last month to 4.25 percent amid the fastest inflation in 16 years. The ECB governing council meets again on Aug. 7 but there is a virtual unanimity among economists that they will leave interest rates unchanged.