German Consumer Climate Improves But Is Still Quite Weak

Germany's consumer climate measure for November from GfK rose to -18.3 form -21.0 in October. Despite improvement, the index had been as week as -18.6 as recently as August 2024. The climate gauge, despite improving, has a queue standing among all its historic values that places it in the bottom 12% of all past monthly results. The climate gauge is for November while the component values for the index are for October. The components were mixed with the economic expectations gauge weakening while income expectations improved along with the buying propensity index. The components ranked higher than the GfK index, with economic expectations ranked at their 35th percentile; income expectations are nearly neutral, ranked at their 47.5 percentile and the propensity to buy at its 31.9 percentile. Economic reading for the Germany economy has remained weak; Germany's PMI readings have eroded, but slowly, with manufacturing diffusion weak, logging a value of 40 and services just above its neutral level at 50.6. The consumer climate reading ranks as weak and ranked over the last four-and-one-half years. Germany’s manufacturing sector ranks as lower only 8% of the time while service has been weaker only 40% of the time. The economy clearly has a burden of weakness and is not showing much lift or support for the consumer sector. Meanwhile, the ECB’s rate cut process has stalled or at least slowed.

Consumer readings for Europe from fellow EMU members Italy and France as well as for the United Kingdom show weak results. These readings are up to date on the same timeline as GfK components, as of October. All of them weaken by small amounts month-to-month. However, they rank higher than the GfK German climate index. Italy’s consumer confidence measure has a 77.1 percentile standing on the same timeline as Germany’s GfK. France has a 51.5 percentile standing. The U.K. is below its median for that same period with a standing at its 33.2 percentile, in the lower one-third of its queue of data.

Context and trend Stepping back for some perspective, the GfK index has been on an improving profile; its weakest reading at -42.8 came in October 2022. The was an improvement to reading in the -26 region and then there was an improvement to the -20 region with November’s improvement to -18.3. Income expectations hit an extreme low in September 2022 and have improved in those same steps as the GfK headline and remain on an uptrend. Economic expectations have had a similar ride, up to a point. But economic expectations reached their strongest reading in April 2023 and then backtracked to a near zero reading where they still reside and oscillate today. Income expectations are on an uptrend, but economic expectations have gone flat. The propensity to buy index has had milder swings but has followed the path of income expectations more-or-less and it continues to be on a mild upswing.

Summing up Compared to its components, the reading for climate is lagging, but it also traces the pattern of expectations to an upswing. There is little in this report that is truly encouraging, however. The upswing in the GfK index is mild and slow. But at least the headline index, income expectations and the propensity to buy indexes show intact uptrends. The economic index remains in no-man’s land. The outlook for monetary assistance is not strong enough to provide any strong counterpoint to weakness. Germany remains in a morass and is sluggishly trying to continue to advance. It is not clear from the up-to-date GfK or PMI data whether it will be able to forestall or avoid deepening weakness.