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Friday, February 27, 2009

Europe's Retail Sector Contracts Again In February

The Bloomberg Euro-Zone Retail Purchasing Managers' Index, based on a mid-month survey of more than 1,000 executives in the euro area retail sector, fell from 44.0 in January to 42.3 in February. The results signaled an acceleration in the month-on-month rate of decline in sales revenues, in contrast to the easing seen over the previous two months and indicated a renewed weakening of consumer confidence and high street spending. Sales have now fallen for nine consecutive months.

Germany registered the smallest drop in retail sales of the three countries, and also saw the rate of decline moderate from the near-record pace seen in January. The month-on-month index for Germany rose from 41.7 to a four-month high of 45.4. Sales in Germany have fallen for nine successive months.

In France, retail sales fell at a five-year survey record pace in February, a marked reverse from the marginal rise seen the previous month. The month-on-month index fell from 50.5 to 42.6 as consumers shunned the high street.

Euro area retailers cut their employment levels for the eleventh consecutive month in February, with the rate of job losses matching December's five-year survey record. The employment index registered 47.4, from 47.5 in January. All three countries covered reported lower staffing levels, with the sharpest decline again seen in Italy. German retailers continued to shed staff at a marginal rate.

Thursday, February 26, 2009

German Unemployment Rises Again In February

German unemployment rose again in February but new government job protection measures appeared to be paying off, as the increase was lower than predictetd by economists. Data released from the Federal Labour Agency on Thursday showed that the jobless total increased by 40,000 jobs in February (to 3.31 million), on a seasonally adjusted basis, pushing the adjusted unemployment rate from 7.8 per cent to 7.9 per cent, marking an acceleration of the deterioration in labour market conditions since December.

As reported by the Federal Statistical Office (Destatis) on the basis of first calculations, the number of persons in employment whose place of residence was in Germanyamounted to 39.83 million in January 2009. Hence, the number of persons in employment fell below the 40 million threshold again for the first time since March 2008. In January 2009, employment exceeded the level of the same month a year earlier by 107 000 persons or 0.3%.

In January 2009, the number of persons in employment dropped markedly from the previous month. Compared with December 2008, 1.7% or 704 000 less persons were in employment whose place of residence was in Germany. Typically, a considerable decline in the number of persons in employment is recorded for the month of January. At the beginning of the years 2007 and 2008, that is during the economic upswing, the number of persons in employment dropped by nearly half a million. Due to the rather adverse economic development, the decline was stronger at the beginning of 2009 than in the two previous years. It has to be assumed that – in addition to the short-term economic trend – the relatively cold weather conditions this winter have had an additional negative effect on the development, while the regulations concerning short-time work probably had a mitigating effect on the employment decline.
After elimination of the typical seasonal variations, the number of persons in employment amounted to 40.21 million in January 2009. Compared with the preceding month of December, that was a seasonally adjusted decline by 84 000 persons.

Based on the labour force survey, Destatis determines unemployment figures according to the concept of the International Labour Organization (ILO). According to provisional estimates, the number of unemployed amounted to a seasonally adjusted 3.16 million in January 2009. When compared with the same month a year earlier, i.e. January 2008, the number of unemployed persons was by 170 000 or 5.0% lower, after seasonal adjustment. Compared with the preceding month of December 2008, the seasonally adjusted number of unemployed persons rose by 1.3%. 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 a seasonally adjusted 7.3% for Germany and was hence still notably below the corresponding figure of the same month a year earlier (7.7%).

Struggling businesses can apply to shorten working hours in exchange for government wage and social-insurance subsidies for a period of up to 18 months, compared to just six months in the past.

Since October business have applied to cut the hours of some 775,000 workers, with more than 290,000 applications falling in January alone.

This may not prove enough for some firms and many economists have accordingly forecast that unemployment will rise back above 4m this year.

Companies in February announced they’re planning to add 600,000 workers to those already working shortened shifts, Labor Agency head Frank-Juergen Weise said in a Bloomberg Television interview today. Around 200,000 people were working shortened shifts in December, the latest month for which figures are available, he said.

The share of German companies planning to cut jobs rose to 30 percent in January from 18 percent in October, according to a survey of 25,000 companies by the DIHK chambers of trade and industry. In unadjusted terms, the number of jobless increased by 63,121 in February, today’s report showed.

Weise told reporters in Nuremberg he doesn’t expect unemployment to rise to 4 million people in non-adjusted terms from the 3.6 million recorded in February. There are “absolutely no signs of massive job cuts,” he said.

Tuesday, February 24, 2009

German Business Confidence Falls Back Slightly

German business confidence fell in February to the lowest level in more than 18 years as business managers worried the government’s stimulus program and interest-rate cuts from the European Central Bank won’t be enough to revive the economy. The Ifo institute's business climate index, which is based on a survey of 7,000 executives, fell to 82.6 from 83 in January. That’s the worst reading since the institute started collecting data for a reunified Germany in 1991.

The German parliament agreed last week to more than double the government’s fiscal stimulus to about 80 billion euros - or around 1.6 percent of German gross domestic product - to try to reduce the impact of what is now the country’s worst recession since World War II.

“The reality is sinking in that a recovery may take a lot longer than initially anticipated, even with all the stimulus packages,” said Kenneth Broux, an economist at Lloyds Banking Group Plc in London. “As an export nation Germany epends on the global economy, and that will remain very weak.”

The current conditions component fell to 84.3 from 86.8, while the expectations sub component rose to 80.9 from 79.5.

Germany’s benchmark DAX share index has dropped 19 percent in 2009, closing at the lowest in more than four years yesterday.

French Consumers Rebound

French consumer spending rebounded a little more than expected in January. Spending on manufactured goods in January was up by 1.8 percent as shoppers sought bargains in the New Year sales. However French consumer confidence fell this month to minus 43 from a revised minus 42 in January.

As Maryse Pogodzinski, an economist at JPMorgan Chase points out, the confidence index “remains at very low levels with barely any room for improvement and their spending is increasingly under threat with even the middle class starting to feel the chill,”.

French unemployment rose above 2.1 million in December, the most in more than two years. Gross domestic product fell by 1.2 percent in the fourth quarter of 2008, the biggest quarterly drop in three decades.

Italian Consumer Confidence Rebounds

Italian consumer confidence rose in February,moving against the trend for the second consecutive month, as optimism about slowing inflation lifted Italians' view of their personal finances and the economy generally. The ISAE seasonally-adjusted index showed consumer confidence rose to 104.1 from 102.6 in January, taking it to back to the levels of December 2007, although, of course, it should be noted that the Italian economy was already near recession at that point.

ISAE said confidence was boosted by the current stability of prices and the calmer inflation outlook for the year ahead.

"At this phase consumers seem to be feeling the benefit of the slowdown in current and expected inflation trends," according to the ISAE report, which added that this was raising spirits regarding savings, family income and the outlook on durable goods. ISAE underlined the advances in the sub-index on personal finances to 119.1 from January's revised 117.3 and the "current conditions" sub-index, incorporating sentiment on the economy and personal finances, which rose to 111.6 from a revised 110.3.

The future outlook also rose to 90.7 from a revised 90.6. But confidence in the state of the economy fell to 71.7 from January's revised 72.1, though it was still higher than the December number of 71.0. Overall, the consumer confidence index remains far below its long-term average of around 113 and the surprise improvements in sentiment in the last two months come against a background of bleak economic news for Italy.

The Italian economy is forecast to shrink at least 2 percent this year, the worst result since 1975, giving Italy two consecutive years of contracting gross domestic product for the first time since World War Two.

Friday, February 20, 2009

Germany's Economic Contraction Accelerates

Hopes that Europe's battered economies might be about to turn themselves around took another sharp knock today (Friday), as the preliminary flash reading on the purchasing manager survey signaled that activity in both the manufacturing and the services sectors are contracting at a new record pace in February.

The preliminary Markit euro-zone manufacturing purchasing managers index, or PMI, fell to a record low of 33.6 in February from 34.4 in January, while the services PMI also fell to a record low, dropping to 38.9 from 42.2 in January. As a consequence the euro-zone composite PMI reading dropped to its own record low of 36.2 from 38.3 in January. Any reading below 50 on these indexes indicates month on month contraction.

Barring some spectacular (and entirely improbable) turnaround in March it now seems likely that the Q1 GDP contraction will be worse than the Q4 2008 one. If we consider that the eurozone contracted by 0.2% in Q3 2008, and by 1.5% in Q4, then, in my humble opinion, the data we are seeing for this quarter are entirely consistent with a 2% quarterly contraction (or an annualised 8% rate of contraction). Not quite Japan territory yet, but not far behind. And for those who simply don't believe the PMIs can tell you so much, here is Markit's own chart, showing the strong underlying relationship between movements in GDP and the *flash* composite PMI. Pretty impressive I would say.

Germany's Contraction Intensifies

The German service PMI came in at at 41.6, showing the fifth consecutive month of contraction. This was a sharp drop from last months 45.2 reading, and means that the recession is now feeding through from manufacturing to services. The difficult conditions have lead service business owners to hold to the grimmest outlook in the last decade, that is since the index was started. More ominously, the recent data points to a strong reduction in the employment level.

On the other hand February saw the tiniest of upticks in the manufacturing sector, since the PMI came in at 32.2, from January's 32 , the best that can be said here is that the rate of contraction may have stabilised.

France Holds Up Slightly Better Than Most

In France, the manufacturing sector (see chart below) gave up on most of January's rebound, and the PMI fell to 35.4 from 37.9 in January, while services (see chart above) slipped to a record low of 40.1 from 42.6 in January. Nonetheless France is visibly performing rather better than Germany, and when all this is over we will have plenty of time to hold the debate as to why that has been.

Tuesday, February 17, 2009

German Investor Confidence Bounces Back In February

I don't know whether to laugh or cry at this point.

German investor confidence jumped the most in more than 15 years in February after the government stepped up efforts to bolster the economy and the European Central Bank signaled it will cut interest rates to a record low. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to minus 5.8 from minus 31 in January. That’s the biggest gain since July 1993 and the highest level since July 2007.

Obviously these people are still hopelessly overoptimistic, and I can only advise people to stand well clear when the very weighty second shoe inevitably drops here.

Friday, February 13, 2009

German GDP Growth Slumps In Q4 2008

The FT says this is worse than feared, and I say it is just what I was expecting (see here, I do hope that doesn't make me one of those "visionaries" you are all so busy talking about).

Germany’s economic slump in the final quarter of 2008 proved worse than feared, official figures showed on Friday, with the country posting the sharpest fall in gross domestic product since the country was reunified in 1990.The larger-than-expected 2.1 per cent plunge in GDP in the final three months of the year showed Europe’s largest economy contracting at a faster pace than the UK in the same period and threatening to drag down the performance of the 16-country eurozone.

A 2.1% quarterly contraction, for those who are confused by the way we economists do things is equivalent to an 8.4% annualised rate of contraction, which is quite something (although in fairness some of this comes from Q3 when there was a big build up in inventories, which has now unwound). But the real question, when all the dust settles, is going to be why it is that economies like those in Germany and Japan are so incredibly export dependent (remember, all those "decoupling" arguments which were so in fashion not so long ago). My view is "its the demography silly", but then we can't go back 30 years and change all that with the wave of a wand, so we really don need some out of the box thinking on the global imbalances soon (see Claus's arguments in his last post).

Meantime the EU are working furiously away on the next "top secret" European bank bailout proposal (does this have anything to do with the unexpected rapid departure of Michael Glos last weekend? - all of this was most strange, see here). Details are sof the coming bank bailout proposals are still scarce at this point, but the excitable Telegraph do come up with a very hair-raising number (16.3 trillion pounds, see here). As I have been arguing, far from Germany subsidising the rest of the EU, Germany may well be at the heart of the bailout, needing support from the rest of us, which is why we need EU bonds, and we need them now. United we stand, divided we go down the plughole!

Monday, February 9, 2009

German Exports Drop Again In December

Exports from Germany fell back again in December after suffering a record fall in November. This only confirms the general impression that the German recession is steadily deepening. Sales abroad, adjusted for working days and seasonal changes, were 3.7 percent from November, (when they dropped 10.8 percent), and by 7.7% year on year, according to the Federal Statistics Office this morning.

The German government estimates that the was a 2% quarterly drop in GDP in the last quarter of 2008 (an 8% annual contraction rate of 8%) and expects the economy to contract 2.25 percent this year.

Friday, February 6, 2009

German Industrial Outpur Continues to Decline In December

Industrial production in Germany fell by 4.6 per cent in December, more than in any month since German reunification in 1990, according to the Economics Ministry in Berlin today. This follows a 3.7 per cent fall in November. As a result output fell by a record 12.0% over the December 2007 figure.

On Thursday, the Economy Ministry reported that German new orders fell 25.1% in the 12 months to December, falling 6.9% on the November number. Which means there is worse to come, a feeling which is only confirmed by the German January Purchasing Managers Index which showed that manufacturing contracted at its fastest pace in over 12 years in January as further slumps in demand also lead employers to cut staff at a record pace. The headline index in the Purchasing Managers' Index fell to 32.0 in January from 32.7 in December, bringing it further below the 50.0 mark separating contraction from expansion.