Economy in Brief

The Belgian National Bank index for January remained negative, at a -13.6 reading, close to its December value of -13.8. The manufacturing index in January improved to -19 from -19.9 in December, still substantially weaker than its -16.7 value in November.

Over three months the Belgian index is down by 0.8 points; over six months it's down by 1.3 points; however, over 12 months it's rising by 2.8 points.

The result for manufacturing is similar to the headline; the three-month change of -0.7, a six-month change of -4.1 and a 12-month change of +3.0.

Despite the increases in the survey over 12 months which are more frequent than the decline to cross the various components, the three-month changes are largely negative and of course the readings for January are broadly negative.

For manufacturing, the production trend in January deteriorated sharply to -14 from -7 in December, compared to +8 in November. Despite this recent deterioration, the index shows a 5-point increase over 12 months but then the 13-point decline over six months and a 13-point decline over three months.

Orders are not reassuring The domestic order trend has become volatile and volatile amid weaker numbers with a reading of -11 in January; that's an improvement from -21 in December but also a sharp deterioration from -1 in November. However, the sequential change data complicate the picture a great deal with the domestic order trend up by 5 points over 12 months, up by 9 points over six months, but then up by only 6 points over the three months. Foreign orders show deterioration monthly from a +7 in November to -23 in December and another -23 reading in January. The sequential changes, however, are negative with a 6-point drop over 12 months, a 19-point drop over six months, and a 6-point drop on balance over three months. Despite all negative readings on a diffusion basis in January and December, domestic orders show sequential advancing while foreign orders show sequential deterioration. But the queue standing all are weak as we shall see.

Prices Price trends became more deeply negative monthly. In January, the reading was -7, compared to -3 in December and -3 in November. Sequentially price trends are becoming more negative with a 2-point drop over 12 months, an 8-point drop over six months, and an 8-point drop over three months.

Industry overall The current assessment in the survey has deteriorated slightly in the last three months but for neither total orders nor foreign orders has there been very much change. At -39 in January total orders are 2-points weaker than they were in November and at -48 foreign orders are 4-points weaker than they were in November. Looking at the sequential changes, total orders are up by 6 points over 12 months, down by 2 points over six months and up by 4 points over three months. Foreign orders are lower on all horizons: lower by 3 points over 12 months, lower by 15 points over six months and lower by 2 points over three months.

Other sectors Assessments of other sectors, wholesaling & retailing, construction, and business services show net negative numbers for January, December, and November except for business services that post positive numbers but positive numbers that are losing momentum from November to January. Sequentially wholesale & retailing show an improvement over 12 months of 0.5 points but a decline of 12.8 points over three months. Construction shows improvement in all horizons; a gain of 8.3 points over 12 months, underpinned by a 4.1-point increase over three months. Business services show a decline over 12 months of 2.6 points and a decline of 1.8 points over three months.

Rank standings of January diffusion readings The rank standings of the diffusion values for January show weak numbers up and down the line; every single category is below its 50th percentile, putting all of them below their median readings over data back to September 1997. The strongest reading is for the construction sector at 41.9%. The second strongest is for business services at 31.5%. Wholesaling & retailing have an 11.6-percentile standing, with the total industry at 10.9% and manufacturing at a 7.9 percentile standing. The Belgian survey continues to be weak across all categories and the momentum is mixed to the negative side. This is not a reassuring report. What’s worse is that it looks like it's a reasonably good bellwether for what goes on in Germany and in the European Monetary Union. The January report for Belgium is a month ahead of those two surveys and it does not portend better readings for them.

Inflation adjusted German orders rose by 6.9% in December after falling by 5.2% in November. Foreign orders rose by 1.4% in December after a November plummet of 10.3% (a drop at a 72.9% annualized rate). Domestic orders jumped in December, rising by 14.6% (w/ another extremely sizeable, annualized rate if placed on an annualized basis). This followed a 3.5% increase in November.

The bright side is that German domestic orders have been rising for two months in a row by a sizeable amount. They are growing at a 61.4% annualized rate over three months and showing building momentum and acceleration from 12-months to 6-months to 3-months. Foreign orders are more erratic; they fall by 11.4% over 12 months as well as at a 29.6% annual rate over three months- but they also rise over six months. So, the direction for Germany orders overall is unclear, but there is now clear strength in domestic orders and more hopeful forces in play for orders overall than we have seen for some time. In the just completed quarter, domestic orders rise at a 134.8% annual rate over Q3 while foreign orders fall at a 29.1% annual rate compared to Q3.

Real sector sales decline overall and for all of manufacturing. There are increases in sales for consumer goods and intermediate goods that rate dominated by a decline in capital goods real sales over three months. Sequentially total and manufacturing real sales both show weakening, declining a sign of progress, albeit not very aggressive progress. Still, it is something. Capital goods sales have stopped decelerating. Consumer goods sales are on an accelerating path with sales up at a 10.3% annual rate over three months. Intermediate goods sales are progressing from small declines over 12 months and six months to logging an increase over three months.

Both manufacturing sales and orders show signs of turning around although there have not been any such signs from other reports. The recent ZEW survey for February showed improved macro expectations in Germany and less weakness in the economic situation. By sector, profits showed improvement in construction and in services but not much in manufacturing industries. PMI data from S&P have not tipped any clear improvement in German manufacturing while services continue to plug along mostly showing growth but not a whole lot of it.

Improved macro outlook The ZEW financial experts in February see improved conditions in Germany, perhaps just in time to affect the German elections that are due. Macro-expectations for Germany in February moved up to 26.0 from 10.3 in January while U.S. expectations backtracked to 1.3 in February from 9 in January. German expectations have 54.8 percentile queue standing on data since since 1992; the standing for the United States reading on the same timeline is 50.4%. The macroeconomic expectations for the U.S. and for Germany are very different in terms of diffusion readings in February; however, their percentile standings are surprisingly similar. The diffusion reading is a raw better minus worse reading while the percentile reading ranks the current value against an historic queue of observations. The lesser expansionary reading for the U.S. compares historically about as favorably to past data as does the comparisons of the stronger German diffusion reading to its past data.

Current situation still floundering However, the economic situation continues to be very different in Europe and in the United States. The readings for the euro area, Germany, and the United States all improved in February, but by small amounts. For the euro area, there's an improvement to -45.3 in February from -53.8 in January. For Germany, the improvement is to -88.5 in February from -90.4 in December. In the U.S., it's another small improvement but from 40.1 in January to 42.6 in February. U.S. is logging substantial positive reading, compared to quite deeply negative diffusion readings in the euro area and in Germany. This is made clear by looking at the queue percentile standings for the EMU for February; it is at its 35th percentile, the standing for Germany is at its 6th percentile, and the standing for the United States is at its 62.5 percentile – a world of difference there.

Inflation expectations Inflation expectations are mixed in February, but the euro area in Germany shows weak inflation readings and some tendency for expectations to see inflation even weaker. In the U.S., the inflation readings are positive in diffusion terms and much closer to normal levels. The queue percentile standings for the euro area are around the 20th percentile; the same is true of Germany at its 21st percentile. For the U.S., there is a 54th percentile standing above its historic median- a world of difference in the standings.

Interest rate expectations These differences play out across interest rate expectations as well, but not quite as strongly. The diffusion readings for short-term interest rate expectations find more deeply negative readings in the euro area, -83.2 in February, compared to its -76.2 in January. These readings compare to the U.S. in February at a -27.2 reading, a substantially less negative result than the -39 reading in January. U.S. readings have been progressing more rapidly toward zero as the December reading for the U.S. was set at -71.6. Even so, the queue standing for the U.S. reading was a 16.4 percentile standing for short-term interest rates. The queue standing for the euro area is at a 2.7 percentile standing. Despite the great difference in the diffusion readings, the queue percentile standings for each of them are basically readings in the same extremely weak region. Long-term rate expectations show Germany with a -2 diffusion value in February compared to -7.8 in January; for the U.S., the February reading moved up to 18.7 from 7.3 in January. The German negative numbers are moving up, toward zero, while the U.S. positive numbers are getting higher, so both Germany and the U.S. see long-rate expectations moving in the same direction. The German queue standing for its rate expectation in February is an 11-percentile standing while the U.S. queue standing at a 26-percentile standing is higher, but both of them are relatively weak standings, both of them well below their historic medians.

Stock markets Stock market expectations are weak across the board with the euro area queue standing at 1.3%, exceptionally weak. The German queue standing manages to get below that at 0.5%. U.S. stock market standings are better on a ranking basis but still not very good at the 20.8 percentile standing; they're well below the 50th percentile which marks their median. However, the diffusion reading in U.S. stocks is positive at 12.1; for Germany it's -4.7 and for the euro area it's -0.8; all of these reflect relatively sharp deteriorations from levels in January or December.