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Thursday, November 27, 2008

German Unemployment Holds Steady In November

German unemployment extended its decline in November, withstanding the worst recession in 12 years, as employers continue to retain and even recruit staff even as orders slump. The number of people out of work, adjusted for seasonal variations, dropped a further 10,000 in November to reach 3.15 million, following a 26,000 fall in October, according to data from the Federal Labor Agency out today (Thursday). The adjusted unemployment rate held at 7.5 percent, a 16- year low.

The German labour market normally follow broader economic trends only with a time lag - sometimes of as much as nine months, according to research by the Cologne-based IW economic institute. Since Germany’s recession began in the second quarter we may well only see the unemployment numbers begin to respond at the start of 2009.

Only this week both Volkswagen and Porsche have said that they plan to suspend production at their core plants in coming weeks. VW will close its factory in Wolfsburg from Dec. 18 to Jan. 11 and Porsche will halt output in Stuttgart for seven days between now and the end of January. Daimler has also reported that it is begotiating with worker representatives about cutting working hours at some of its car production plants in Germany. The company said Thursday it may scale back hours at Mercedes-Benz car manufacturing facilities in Sindelfingen, Berlin, Bremen and Duesseldorf.

Separate data from the Federal Statistical Office show that in October 2008 there were 40.84 million Germans in employment. That was up by 538,000 (+1.3%) on October 2007 and was the highest number of Germans in employment ever.

When compared with September 2008, an additional 219,000 persons were in employment in October. After eliminating seasonal variations, the number of persons in employment in Germany was 40.41 million in October 2008. Against September 2008, that was a seasonally adjusted increase of 39,000 (+0.1%).

There is a slight discrepancy between the two sets of data, since the organisations use a different methodology, and the Federal Statistics Office uses the labour force survey. Using this surbey they estimate unemployment figures according to International Labour Organization (ILO)criteria. According to their provisional estimates, the number of unemployed amounted to a seasonally adjusted 3.04 million in October 2008. Compared with October 2007, unemployment was down by a seasonally adjusted 12.6% or by 440,000 persons. The seasonally adjusted unemployment rate – which is harmonised across the EU and measured as the share of unemployed in the total labour force – amounted to 7.1% in Germany and was thus notably lower than in the same month one year earlier (8.1%).

Germany’s ILO harmonised jobless rate of 7.1 percent in September, compares with 7.9 percent in France, 4 percent in Japan and 6.1 percent in the U.S. The OECD average for September was 6 percent.

Tuesday, November 25, 2008

German Consumer Confidence Rises Slighly In November

German consumer confidence rose for a third consecutive month in November, a strange result when you consider the fact that Germany is in recession. GfK AG’s forward looking index for December, based on a survey of about 2,000 people, increased to 2.2 from 1.9 in November,according to a report from the Nuremberg-based market-research company published today. Basically we need to bear two things in mind here to understand this result, the substantial drop in oil (and with it in inflation) and the resilience being shown by Germany's labour market.

German inflation fell in October and the price of oil dropped to just over $50 a barrel from the July peak of $147, boosting households’ disposable income. On the other hand, Germany's worst recession in 12 years is continuing to affect consumers’ outlook for the economy, according to the GfK report.

“Many Germans don’t yet believe they will be significantly affected by the downturn,” GfK said in the statement. Still, a further improvement would “very much depend on how deep the recession is and how the labor market will be affected.”

Household consumption rose 0.3 percent in the third quarter from the second, following a 0.6 percent drop in Q2, according to the detailed GDP data released by the Federal Statistics Office this morning.

Reports that the Federal Republic of Germany is also being hit by the global financial and economic crisis and is now also in recession have caused German expectations for the economy to slide dramatically, GfK said.

The expectation indicator hit a new record low in November. In contrast, falling prices for heating oil and gasoline have somewhat eased the pessimism when it comes to income expectations and the propensity to buy. The recent collective bargaining wage agreements in the metal and electrical industry are also likely to have contributed to the fact that income sentiment has risen for the fourth time in a row.

Sharply falling energy prices also meant that the income expectations sub component continued to rise - for the fourth time in a row - and the indicator now stands at -6.9 points, year-on-year however it is still down almost 7 points.

The propensity to buy indicator also rose, more than making-up for the sharp drop in October. The rise of 11.5 points this month is almost twice as high as the drop of 5.4 points recorded in October. At present, however, the indicator still stands at -6.7 points, way below its long-term average of 0 points.

Thus the propensity to consume is still withstanding the general recessionary trend, and consumers appear to assume that they will not be particularly affected by the downturn and feel there is no special need to further restrict their willingness to buy, just at the moment at any rate.

Wednesday, November 12, 2008

Germany's Recession Becomes Official

The German economy contracted more than most analysts expected in the third quarter, entering what now appears to be its worst recession in at least 12 years as both exports and domestic spending continue to fall. German gross domestic product dropped by a seasonally adjusted 0.5 percent from the second quarter, when it fell by a revised 0.4 percent, according to data from the Federal Statistics Office earlier today (Thursday). The Germany economy last had a two quarter contracted of this magnitude back in 1996.

And all the signs are that the fourth quarter will be worse than the third one, so the situation may even surpass the 1996 recession.

``The headwinds of the financial crisis and the global economic slowdown are
blowing right in the face of the German economy,'' said Carsten Brzeski, an
economist at ING Group in Brussels. ``Even more worrying, the full impact of the
financial crisis still has to unfold. Anecdotal evidence and leading indicators
are scary.''

And the 2009 outlook promises to be even worse. Only last week, the International Monetary Fund forecast economic contractions for the U.S., Japan and the euro region next year, with Germany's economy expected to shrink by 0.8 percent.

The European Commission said on Nov. 3 that the 15-nation euro region is probably already in a recession. Just over 40 percent of German exports go to other euro-area nations. Eurostat, the European Union's statistics arm, will publish third-quarter growth data for the region tomorrow.

Quarter-on-quarter positive side of the GDP growth balance sheet came from a slight increase in the final household consumption and government expenditure of households as well as an increase inventories. Imports were up significantly (largely due to the rise in oil prices - oil peaked around $147 a barrel in July, while exports dropped, thus movements in the net trade balance had a negative impact on final GDP.

The German economy did, however, continue to create jobs, and third quarter employment - at 40.5 million persons - was up by 582,000 persons (or 1.5%) on a year earlier.

Looking forward a little into Q4, the signs, as I said, are for deterioration rather than improvement, as can be seen from the fact that (according to the PMI) German services contracted for the first time since January in October.

While the manufacturing contraction which started in August really began to pick up speed.

Tuesday, November 11, 2008

German Investor Confidence Rises Slightly In November

German investor confidence rose again slightly in November as governments and central banks stepped up efforts to fight the turmoil on financial markets. The ZEW Center for European Economic Research index of investor and analyst expectations increased to minus 53.5 from minus 63 in October. The index reached minus 63.9 in July, the lowest on record. As can be seen in the chart below, this increase is rather relative, and in historic terms investor confidence remains at pretty low levels.

Germany's benchmark DAX share index rebounded from a three- year low last month and interbank lending rates in Europe have now fallen to their lowest level since February folowing the central bank decisions to injected cash into the financial system. Also Chancellor Angela Merkel's Cabinet agreed on a stimulus package worth 50 billion euros ($64 billion) on Nov. 4.

Still, investor sentiment remained negative for a 16th month in November, suggesting pessimists outnumber optimists in the survey. The indicator's long-term average is 27.1, according to the ZEW. A gauge measuring investors' assessment of the current situation fell to minus 50.4 from minus 35.9 in October.

Thursday, November 6, 2008

Recession a Near Certainty In Germany As New Orders And Industrial Output Continue To Fall

``The worst is still to come for manufacturers,'' said Carsten Brzeski an economist at ING Group in Brussels. ``The industrialized world is heading for a recession and the German economy is in the middle of the storm.''

Industrial production in Germany declined the most in almost 14 years in September, meaning that a Q3 contraction (and hence a recession) in Europe's largest economy is now more or less a "done deal". Output was down a seasonally adjusted 3.6 percent from August, according to data from the German Economy Ministry in Berlin earlier today (Friday). Year on year earlier, production adjusted for working days fell 2.1 percent.

German companies are scaling back production as the global economy buckles under the weight of the credit crunch and the impact of higher borrowing costs, hurting export markets and causing consumers to cut back on spending as they worry about the outlook for their jobs.

The September drop in manufacturing was led by a 7.2 percent slump in the production of durable goods like washing machines, computers and televisions.

Manufacturing Orders Drop At A Record Rate

And the output for the coming months doesn't look any brighter. Manufacturing orders dropped by a record in September, led by a sharp drop in foreign demand for factory machinery, with s easonally adjusted constant price orders falling 8 percent from August, when they rose 3.5 percent. This was the largest drop since records for a reunified Germany began in 1991.

German business confidence - as measured by the ILO institute index - fell to the lowest level in more than five years in October.

And the manufacturing PMI for Germany showed contraction at the fastest pace in seven years in October.

Tuesday, November 4, 2008

German Manufacturing Contracts Sharply In October

Germany's manufacturing sector contracted in October at the fastest pace in seven years as incoming orders and output experienced their sharpest declines in more than 12 years. The headline index in the Markit Purchasing Managers Index (PMI) for Europe's biggest economy fell in October to 42.9 from 47.4 the previous month, well below the 50 mark that separates growth from contraction.

The latest figure was the worst since the month following the Sept. 11, 2001 attacks in the United States, and also below the flash PMI reading for October of 43.3.

"The data underlined the considerable extent to which the global financial crisis has affected German manufacturing, with output and new orders both falling at the steepest rates since the survey began in April 1996," Markit said. "The investment goods sector was particularly hard hit in October, as difficult economic conditions prompted some companies to cut back on capital expenditure plans.....Anecdotal evidence indicated that falling commodity prices (particularly oil) had resulted in a steep drop in input cost inflation during October,"

The Report Itself

At 42.9 in October, down from 47.4 in September, the seasonally adjusted Markit/BME Purchasing Managers' Index (PMI) - designed to give a single-figure snapshot of operating conditions in the manufacturing economy - sank to its lowest level for seven years, with all five component indexes exerting a negative influence on the headline figure.

Production levels have now fallen for three consecutive months, with the latest decline broad-based across the three market groups. Anecdotal evidence suggested that a rapid decline in new orders, combined with falling backlogs and unwanted inventory building, had led to a steep drop in output requirements. October data pointed to a survey record contraction of new business from abroad, with by far the fastest rate of decline recorded in the investment goods sector.

Survey respondents widely commented on deteriorating economic conditions in key foreign markets, particularly the UK, the US and other Eurozone countries. German manufacturers responded to weak market demand by trimming the size of their workforces for the first time since September 2005.

Job cuts were recorded in all three product sectors in October, with firms generally pointing to reductions in temporary staff at their plants.

Input cost inflation eased sharply to a five-year low in October, following falling commodity prices on world markets. This led to a further moderation in output charge inflation, which was the weakest recorded in 2008 to date.

Firms also attributed slower factory gate inflation to competitive pressures. Meanwhile, supplier performance improved at the most marked pace since December 2001, reflecting a steep contraction of demand for raw materials.


Manufacturing production fell sharply in October following a rapid decline in new orders and shrinking volumes of work-in-hand. Output levels have now fallen for three consecutive months with the rate of contraction accelerating to its steepest in the twelve-and-a-half year survey history. Sector data showed particular weakness at investment goods producers, as the global economic slowdown resulted in lower capital expenditure.


New order volumes deteriorated at a survey record rate in October, with anecdotal evidence widely suggesting that recent global financial turmoil and concern about the economic outlook had shaken market demand. Firms also commented that clients faced cash flow difficulties and associated shortages of working capital in the wake of credit market turbulence, in some cases leading to the delay or cancellation of new orders.


October data pointed to a steep and accelerated reduction of incoming new business from abroad. The seasonally adjusted New Export Orders Index was below the neutral 50.0 level for a fourth month running and fell to its lowest since the survey began in April 1996. There were widespread reports that the deteriorating global economic climate had led to the steep fall in new export orders, particularly in the investment goods sector.


The volume of work-in-hand (but not yet completed) in the German manufacturing sector declined at a series record rate in October, largely reflecting a steep contraction of incoming new work. The fastest reductions of unfinished business were again in the intermediate and investment goods producing sectors.


After adjusting for seasonal factors, the Stocks of Finished Goods Index was above the 50.0 no-change mark in October for the fourth time in the past six months. Although the rate of growth was only moderate, a number of manufacturers commented on unintentional stock accumulation in October as a result of a marked reduction in client demand.


Employment levels in the German manufacturing economy fell for the first time in just over three years during October, with job cuts broad-based across all three market groups. Reports from panel members indicated that personnel numbers (including temporary staff) were reduced in response to falling workloads and, in some cases, expectations of further declines in incoming new work.


Average prices charged by German manufacturers increased in October, but the rate of inflation eased further from August's high and was the weakest recorded in 2008 to date. Survey respondents widely suggested that strong market competition, together with a steep moderation in input cost pressures, had resulted in slower factory gate price inflation at the start of the fourth quarter.


The seasonally adjusted Input Prices Index fell from 66.3 to 52.1 in October, which was the largest month-on-month decline in the index since data were first collected in April 1996. Although still above the neutral 50.0 mark, the latest reading was the lowest for five years. Anecdotal evidence indicated that falling commodity prices (particularly oil) had resulted in a steep drop in input cost inflation during October.


Average vendor performance improved for a second month running in October and at the fastest pace since December 2001. A number of manufacturers indicated that a steep reduction in demand for raw materials had resulted in spare capacity at suppliers. Investment goods producers reported the most marked improvement in average vendor lead-times.


Input buying declined sharply in October as firms responded to lower demand and the unfavourable economic outlook by cutting back on their purchases of raw materials. The rate of contraction accelerated markedly and was the fastest for seven years in October. Data signalled that lower levels of purchasing activity remained broad-based across all three market groups.


October data signalled a reduction in pre-production inventories for the first time in four months. Around 25% of survey respondents reported lower stocks of purchases at their plants, which they generally attributed to deliberate efforts to cut raw material inventories in the wake of falling production requirements.

The JP Morgan Global Manufacturing Index Plummets Too

The October contraction in Germany, while undoubtedly highly significant, is really only part of a more general global pattern. Indeed the latest JP Morgan Global PMI report really does makes for quite depressing reading.

The world manufacturing sector suffered its sharpest contraction in survey history during October, as the ongoing retrenchment of global demand and further deepening of the credit market crisis negatively impacted on the trends in output, new orders and employment. The JPMorgan Global Manufacturing PMI posted 41.0, its lowest reading since data were first compiled in January 1998 and a level below the no-change mark of 50.0 for the fifth month in a row.

Output, total new orders and new export orders all contracted at the fastest rates in the survey history in October. With the exception of India, which again bucked the global trend, all of the national manufacturing surveys posted declines in output and new orders. The impact of the downshift in global market conditions also had a far-reaching effect on international trade volumes. Although new export orders fell at a slower rate than total new business, all of the national manufacturing sectors covered by the survey (including India) saw a reduction in new export orders.

"October manufacturing PMI data reinforce the stark retrenchment that the sector is currently facing, with production, total new business and new export orders all falling at record rates. The latest Output Index reading is consistent with a fall in global IP of almost 8%. The only positive from the surveys was a decline in input prices for the first time since August 2003."
David Hensley, Director of Global Economics Coordination at JPMorgan

Economies across the Eurozone are being affected. The French manufacturing purchasing managers index was revised down to a series low 40.6 in October, down from both the 'flash' estimate of 40.8 and September's 43.0 figure, Markit Economics said in a press release issued on Monday.

Disaggregating the figures, the output component fell to an all-time low of 37.8 from September's 41.7 level, while new orders slipped all the way to a series low of 34.9 for the month, down 2.6 points from September's 37.5 level. Purchase quantities and new export orders also saw some new record lows in October, falling to 33.7 and 38.5 respectively.

In Italy manufacturing activity contracted at the fastest rate in at least 11 years in October according to the latest Markit/ADACI PMI survey out yesterday (Monday). The Markit Purchasing Managers Index fell to 39.7, its lowest since the series began in 1997, down from 44.4 in September. The Italian manufacturing PMI has now not been above the 50 mark separating growth from contraction since February and the latest data showed activity falling at an accelerating pace as demand shrank while jobs were shed at the fastest rate in the history of the survey.

Other recent indicators from Italy have also been far from encouraging, with October business confidence hit its lowest point since September 1993, when the economy seized up after Italy was rocketed out of the European Exchange Rate Mechanism a year earlier.

Spain's manufacturing sector continued to shrink at a record pace in October, with both output and new orders contracting and employers shedding jobs at a near record pace, according to the latest Markit Economics Purchasing Managers Index published yesterday (Monday). The Markit PMI for Spain dropped to 34.6 in October, the lowest reading registered by any eurozone economy since the series began in February 1998 and down from the already rapid 38.3 point contraction in September. On the PMI system any figure below 50.0 shows contraction while figures over 50.0 show growth. As we can see, according to this indicator Spanish manufacturing has now been weakening steadily since the start of 2006.

Eastern Europe

Hungary's manufacturing industry contracted sharply in October, with the PMI dropping 5.2 points to hit 44.7 in October - a historic low, and 0.8 points below the previous worst reading registered in October 1998, according to the latest data from the Hungarian Association of Logistics, Purchasing and Inventory Management (HALPIM).

In Poland the ABN Amro Purchasing Managers Index fell for the sixth month running to 43.7 (down from September's 44.9) a record low and well below the neutral reading of 50, according to Markit Economics yesterday. In the Czech Republic, manufacturing output contracted for the seventh month in a row, and the index hit an all-time low of 41.2, just above the revised euro zone figure of 41.1. As the Eurozone itself contracts, these economies which are heavily dependent for exports to the zone will be buffeted, especially now that forex loans for their domestic housing markets have all but dried up.

US Manufacturing

The US manufacturing PMI dropped back to 38.9 in October from 43.5 in September, indicating a significantly faster rate of decline in manufacturing when comparing October to September. It appears that US manufacturing is experiencing significant demand destruction as a result of recent events. October's reading is the lowest level for the US PMI since September 1982 when it registered 38.8 percent. On the other hand inflationary pressures are evaporating rapidly, and the Prices Index fell to 37, the lowest level since December 2001 when it registered 33.2 percent. Export orders also contracted for the first time in 70 months.


China's PMI dropped to lows not previously seen in October, confirming that the economy of the so-called factory of the world is now decelerating along with everyone else. Two international surveys measuring the PMI independently corroborated the evidence of a cooling Chinese industrial economy.

According to a survey complied by securities firm CLSA, China's PMI fell to 45.2 in October, its third consecutive drop, from 47.7 in September, as new orders and exports, as well as pricing power, were squeezed by the global financial crisis.

"The very sharp fall in the October PMI confirms that China is more integrated into the global economy than ever. Chinese manufacturers are seeing their order books cut, both at home and abroad, as the world economy falls into recession," said Eric Fishwick, CLSA's head of economic research, in a report released Monday. "Costs are falling but so are output prices. The coming 12 months will be difficult ones for manufacturers, China included."

The government-backed China Federation of Logistics purchasing managers' index - published on 1 November - also showed a strong contraction, falling to 44.6 in October, the lowest level since the data began in 2005, from 51.2 in September

Russian manufacturing contracted in October at the slowest pace in over two and a half years as the global financial crisis cut demand, according to the latest reading on VTB Bank Europe's Purchasing Managers' Index, which fell to 46.4 from 49.8 in September. This was the third consecutive month in which Russian industry has been contracting.

Business conditions in the Brazilian manufacturing worsened in October for the first time since June 2006. The headline seasonally adjusted Banco Real Purchasing Managers’ Index (PMI) posted 45.7, down from 50.4 in September, pointing to a sharp contraction -the fastest in the survey history in fact. The PMI was driven down by accelerated declines in output and new orders, as well as falls in employment and stocks of purchases.

Even in India the seasonally adjusted ABN Amro India Manufacturing Purchasing Managers’ Index dropped steeply in October, falling to a record low of 52.2, down from a reading of 57.3 in September suggesting another sharp deceleration in growth, even if Indian industry managed to keep expanding. The biggest fall was in the new orders sub-index, which dropped to 54.4 in October from 62.6 in September. Perhaps the saving grace in the Indian survey is that most firms said demand remained strong in domestic markets, while it had been international orders which had waned. This can also be seen from the new export orders sub-index, which contracted to 49.7 for the first time in the history of the series. That fits in with the latest data showing that Indian year on year export growth slowed to 10.4% in September. Thus the Indian expansion is still hanging on in there, by its fingernails, but it is hanging on in.