German Manufacturing PMI April 2008

European manufacturing growth slowed for a third month in April as cooling global demand and a stronger euro took their toll on export orders. Royal Bank of Scotland Group Plc's manufacturing index fell to 50.7 from 52 in March, according to NTC Economics Ltd., which carries out the survey of purchasing managers. That's less than an initial April 23 estimate of 50.8 and the lowest since August 2005. A reading above 50 indicates growth.

The final RBS/NTC Eurozone Manufacturing PMI came in at 50.7 in April, down from 52.0 in March and slightly below the earlier flash estimate of 50.8. The fall in the PMI was the largest for six months and took the index to its lowest since August 2005.

National trends among the big-four euro nations varied markedly again in April, as did production by sector, with consumer goods producers reporting a survey record decline in output.

The PMI (Purchasing Managers' Index) was particularly weak, registering the first decline in new orders since May 2005 (in line with the flash reading). New export orders fell by marginally more than indicated by the flash reading, also declining for the first time since May 2005 due to softer economic growth in key foreign markets and the strong euro.

Among the big-four euro countries, only Germany recorded an increase in new orders, though the rise was the smallest for three months. This deterioration was primarily the result of a substantial easing in growth of new export orders at German manufacturers. Spain and Italy both saw new orders fall at the steepest rates since December 2001.

In a sign of broad-based weakness of production to come in future months, new orders for consumer, intermediate and investment goods (such as plant and machinery) all fell in April, albeit only marginally in the case of investment goods. Consumer goods producers saw the sharpest monthly drop in new orders in the survey’s ten-year history, in part reflecting lower levels of new export orders.

``Germany will do better than average,'' said Dominic Bryant, an economist at BNP Paribas in London, in a research note to investors. ``At the other end of the spectrum, Italy and, in particular Spain, will have a very tough year with growth well below trend.''

German PMI

German manufacturing activity weakened to its slowest pace in four months in April, but held above its long-term average thanks to robust expansion in output. A dip in new orders growth, however, suggested pressure on output may increase in coming months and the pace of job creation slowed to the weakest since October.

The NTC/BME Purchasing Managers' Index (PMI), based on a survey of 400 firms, slipped to 53.6, adjusted for seasonal swings, from March's seven-month high of 55.1, NTC said.

"The manufacturing sector remained on a healthy footing at the start of the second quarter, with production rising at a robust and above-trend rate," said NTC economist Tim Moore. "However, output growth was again slower than the peak of the current growth cycle and will likely come under pressure in the months ahead following the relatively subdued improvements in new order volumes recorded on average in 2008."

A measure of output rose to 55.3 in April from 54.7, NTC said. By contrast, a gauge of employment fell to 54.2 from 56.5 and a measure of new orders dropped to 52.5 from 54.9.

An NTC gauge of new export orders signalled the second-weakest increase for around three years, falling to 51.8 from 54.0.

"There were reports that the strong euro and deteriorating economic conditions in the United States had both weighed on export demand," the group said. NTC chief economist Chris Williamson said the impact of the strong euro was most discernible in the consumer goods sector in April's survey. "Whether that's down to the euro or just general easing of consumer sentiment in key trading partners like Britain and the United States remains to be seen," Williamson said. "There are problems in competitiveness creeping in because of that strong euro on a broadbased scale," he added. On prices, Moore said a surge in steel and energy costs had underpinned a sharp increase in average cost burdens last month, with the rate of inflation only just below March's eight-month high. "April data suggest that the spike in pipeline inflationary pressure has begun to make its way to the factory gate, as output prices rose at the third-strongest pace in the series history," Moore added

German Retail Sales March 2008

Retail sales in Germany, Europe's largest economy, unexpectedly declined in March for a second month as accelerating inflation left consumers with less money. Sales, adjusted for inflation and seasonal swings, fell 0.1 percent from February, when they dropped 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Year on year, sales fell 6.3 percent. It is important to remember at this point that the Easter week was in March this year. It will be important now to look at April sales.

According to provisional results of the Federal Statistical Office (Destatis), turnover in retail trade in Germany in March 2008 was in nominal terms 3.7% and in real terms 6.3% smaller than that of the corresponding month of the previous year. The number of days open for sale was 24 in March 2008 and 27 in March 2007.

When adjusted for calendar and seasonal variations (CENSUS-X-12-ARIMA), the March turnover was in nominal terms equal to that (0.0%) and in real terms 0.1% smaller than that of the preceding month.

Compared with the corresponding period of the previous year, retail turnover was in the first three months 2008 in nominal terms 1.3% larger and in real terms 1.2% smaller than that in the first three months of 2007.

Rising food and energy prices pushed German inflation to 3.3 percent in March, matching a 12-year high reached in November. German consumer prices, based on a harmonized European Union method, rose 2.6 percent in April from a year earlier. In Europe, inflation slowed more than economists forecast in April - to 3.3 percent (from 3.6 percent in March) the previous month, according to a flash estimate from Eurostat on April 30.

German GFK Consumer Confidence Index May 2008

Well this really is quite a surprising result, largely becuase it seems to run so contrary to everything else we are seeing at the moment. German consumer confidence unexpectedly increased to a seven-month high as rising incomes encouraged spending.

GfK AG's index for May, based on a survey of about 2,000 people, increased to 5.9 from 4.8 in April, the Nuremberg-based market-research company said in a statement today. Economists predicted the gauge would fall to 4.5, according to the median of 28 estimates in a Bloomberg News survey.

The mood among German consumers markedly improved in April. The economic outlook indicator, income expectations and the propensity to buy all climbed significantly. As a result, the consumer climate indicator for May is forecasting a value of 5.9 points after a revised 4.8 points in April.
GFK Report

Rising wages and the lowest unemployment in 16 years are cushioning the impact on consumers of faster inflation and slowing economic growth. While industrial production unexpectedly rose in February and manufacturing growth accelerated last month, business confidence fell more than economists forecast this month under the impact of the global credit squeeze on export markets.



The euro pared gains after the report, having risen as high as $1.5682 from $1.5630 on April 26.

The sub-index measuring income expectations jumped to 10.5 from 1.5 and the gauge of consumers' propensity to spend rose to minus 4.7 from minus 10.2. The measure of economic expectations increased to 23.3 from 15.




Economic expectations: marked growth

After the minimal growth recorded last month, the economic expectations of German consumers are now increasing dramatically, with the indicator rising 8.3 points to stand at 23.3 points.

Consequently, a further fall in the economic mood is not on the cards, at least for the time being. Consumers assume that the German economy is not in recession, but is likely to show signs of slowing down. They believe that the impact of the US subprime crisis and its associated repercussions will not leave German banks totally unscathed. Up to now, however, the banks seem to be very resilient and able to counter these dangers. The many positive reports on the job market testify to the generally good state in which the German economy finds itself.

Income expectations: remaining optimistic

Income expectations in April rose again for the third consecutive time. Up by 9 points, the current increase was even greater than the two previous months together. However, compared with the same period last year, the figure was down by a good 19 points.

Above all, the good wage agreements in the public sector are rightly giving public sector employees the hope that, unlike in previous years, they will finally be given greater purchasing power once again. Evidently, these expectations have been able to allay any fears of inflation, provoked by rising food and energy prices. On top of this, the positive trend on the job market continued to reduce fears of unemployment, which in turn, also sustained income expectations.

Propensity to buy: still on course for recovery

Buying propensity also continued to recover unabated in April. The indicator rose markedly for the second time consecutively, up by 5.5 points this month. This represents propensity to buy of -4.7 points, which is still below its long-term average of 0 points.

The more optimistic income expectations, in particular, seem to have encouraged growth in the propensity to buy. However, the fact that it remains at a level which is below average also reflects the remaining element of uncertainty and shows that Germans will think twice before abandoning consumer reticence.