Economy in Brief

German industrial production rose 1.4% in June after falling 3.1% in May and edging up by 0.2% in April. Sequential growth rates do not set a clear course, but on all horizons, growth is weak or lower. IP falls by 3.9% over 12 months, rises at a 0.9% annual rate over six months, then falls at a 5.8% annual rate over three months. Three-month growth is weaker than 12-month growth, but there is a rise in-between, over six months. Still, the overall pattern is weak. In the quarter just completed, IP falls at a 5.1% annual rate. Also, note that there is a legacy of weakness in IP that is still standing in June, 10.6% below its level in January of 2020 (4 ½ years ago) just before COVID struck.

The IP sectors show the same trend ambivalence as the headline. Only capital goods show output decline on all horizons, but even then, the progression is not clear as the weakness dissipates over six months.

Total manufacturing output and real orders rose in June as real sales fell. Sequentially, manufacturing output is weaker over three months than over 12 months but without clear trend. Real orders rise solidly over three months despite a double-digit pace of decline over 12 months and a deeper drop over six months. Real sales do show a clear trend and a trend to deterioration amid negative growth rates.

Other indicators for German industry show an uneven monthly sequence. The broader sequential data show strengthening over three months compared to six months for the ZEW current assessment, for IFO manufacturing and for IFO manufacturing expectations. The EU Commission assessment shows a weakening from 12-months to 6-months to 3-months. It is the exception. All indicators except the EU Commission indexes show improvement in the quarter as well.

IP in other European countries shows declines in Portugal, Spain, and France while Norway (an EEA member) shows output higher in June by 1.3%. The broader progressions show ongoing deterioration in Portugal and in France. There is secular improvement in Norway as growth improves form a -0.9% pace over 12 months to a 4.1% gain over three months. Spain shows erratic behavior with no clear trend and a sharp 10.1% annual rate of decline over three months.

On balance, the IP report for June shows a one month rebound for Germany but still weak trends in place across sectors. Other indicators show a somewhat more positive picture. Individual European IP reports largely show weakness in play. There is not much cause for optimism here.

Real German industrial orders rose 3.9% in June after falling 1.7% in May and 0.6% in April. The sharp rise in June has driven the three-month growth rate into positive territory to 6.4% at an annual rate. Orders in June were largely driven by domestic orders that rose by 9.1% in June after rising 0.4% in May and being flat in April. Foreign orders rose by 0.4% after falling 3% in May and 1% in April. June was a good month for German orders especially for domestic orders; however, the trend for German orders is still poor (see the year-on-year growth data-plot chart).

Sequential trends Sequential growth rates show that 12-month growth for real orders is -11.7%, over six months the annualized growth rate is -20.9%, and over three months that trend reverses to plus 6.4% at an annual rate. Foreign orders fall by 15.5% over 12 months, they drop at a 28.3% annual rate over six months, and that pace of decline is reduced to -14% at an annual rate over three months. Domestic orders fall 6.1% over 12 months, they drop at an annual rate of 9.4% over six months and then rebound strongly, growing at a 44% annual rate over three months. The progression of German orders is largely negative until the last 3 months when the negative paces reverses quite sharply in the case of domestic orders and in the case of foreign orders the pace of decline is simply diminished.

Manufacturing Overall manufacturing sales fell 0.9% in June after falling 0.3% in May and 1% in April. For manufacturing, there's a sequential decline that is getting progressively worse from -5.1% over 12 months to -6.2% at an annual rate over six months to -8.7% at an annual rate over three months.

Sector sales Sector results show consumer goods sales in June fell by 3.7%, consumer nondurables sales fell by 5.1% with durables sales rising by 4%. Capital goods sales fell by 1.7% and intermediate goods sales rose by 0.7%. That's rather a hodgepodge of pluses and minuses. However, taking a longer string of data, consumer goods sales are progressively contracting from a -4.9% decline over 12 months to a -6% rate of decline over six months to -12.7% rate of decline over three months. That progression is driven by nondurable goods that get sequentially worse, while consumer durable goods sales show the opposite trend, progressive acceleration from -6.4% over 12 months to a +5.3% pace of expansion over six months to a +13.3% pace of expansion over three months. Capital goods sales do not give us a clean reading on trend; sales are negative over 12 months; the negative growth rate worsens over six months but then it's trimmed back over three months. However, capital goods do show negative growth rates over each horizon. Intermediate goods are also confusing hodgepodge of growth rates with -4.5% growth over 12 months, 0.2% positive growth over six months and then -9.3% growth at an annual rate over three months.

Quarter-to-date The quarter-to-date calculations show that overall orders are falling in the recently completed second quarter by 5.3% at an annual rate, but this is the result of a nearly 12% annual rate decline in foreign orders tempered by an increase in domestic orders of about 5%. Across sectors, we find declines in the quarter for all sectors except for consumer durable goods but they post a significant growth rate of +8.9% at an annual rate in the quarter.

Industrial Europe Measures of industrial confidence for Germany and the three other largest economies in the European Monetary Union also give us a mixed picture; in the current month all three of them score a negative values for industrial confidence. However, over the last three months there's very little trend involved for either Germany, France, Italy, or Spain; they're all pretty much hugging a consistent negative growth rate on the period. And the same is true when we look for sequential growth rate patterns from 12-months to 6-months to 3-months. All four of these countries continue to present pretty much the same values without any clear trends over the period. Additionally, we create queue standings for these four countries and find that they are all in June below their mean values on data since 1990. The weakest standing is for Germany with a 16-percentile standing. The strongest is for Spain with a 42-percentile spending, with France at 37-percentile and in Italy at a 23.5 percentile standing.

In this week's newsletter, we focus on Australia in light of the Reserve Bank of Australia's (RBA) decision earlier today. While the RBA has chosen to maintain its current policy rate, as many economists had anticipated, this decision reflects a complex assessment of the Australian economy. On the one hand, inflation remains significantly above the RBA’s target, and any premature easing could risk reigniting price pressures. On the other hand, the household sector continues to show signs of weakness, with flagging consumption growth and lingering issues with housing affordability. As such, an additional rate hike could further strain this sector. Nonetheless, many Australian economists suggest that the balance of risk may lead the RBA to eventually lower its policy rate rather than pursue further tightening. However, the current consensus is for any initial rate cut to likely only occur early next year. In addition to inflation and household sector issues, we also analyse the current state of Australia's labour market, trade dynamics, and overall growth outlook.

The RBA’s August decision The Reserve Bank of Australia (RBA) maintained its policy rate at 4.35%, as widely anticipated. The central bank's decision to keep its stance restrictive, rather than easing, was primarily driven by persistent inflation. The RBA now expects inflation to take longer to return to its target than previously anticipated. Additionally, while growth forecasts for H2 2024 through H1 2026 have been upgraded, a more subdued growth rate is anticipated for H1 of this year. The RBA also highlighted the ongoing uncertainty in Australia’s economic outlook, and acknowledged headwinds via rising unemployment and weak household consumption. Externally, China, Australia’s major trading partner, continues to face economic challenges, with weakened demand impacting commodity prices. On the currency front, the Australian Dollar has shown muted initial reactions to the RBA’s decision, although it has already weakened significantly in recent days due to disappointing inflation data. We will explore these issues in greater detail in the following sections.

Composite PMI data for July show a slight worsening compared to June across most of the 24 countries and areas reporting composite PMI data. Among the 24 countries and areas that supply early data on this measure, only 8 show improvement month-to-month in July that's after seven showed improvements in June.

The unweighted average for the sample shows a slight cooling to 51.6 in July from 51.9 in June continuing the slowdown from 52.9 in May. However, median statistics provide a slightly different picture, with the median reading in July strengthening the 51.2 from 50.8 in June compared to a median value of 52.3 in May. On both average and median metrics, there is a weakening from May to July that averages a downgrade of about one diffusion point.

Sequential data showing performance over 12 months, six months, and three months indicate little change across reporters for the average metric. The 12-month average is at 51.5, the six-month average moves up to 52.2 and the three-month average moves down to 52.1. Median data over 12 months show a reading at 51.3 moving up to 51.8 over six months and then moving back down to 51.3 over three months. Conditions are relatively static at readings just slightly above the breakeven diffusion value of 50.

In July, there are 7 reporters with PMI values below 50, indicating overall economic contraction. That compares to 8 in June and 4 in May. Sequential data show 8 jurisdictions below 50 over 12 months, 6 below 50 over six months and 5 below 50 over three months.

Tendencies to decelerate have fluctuated, with 40% showing deceleration month-to-month in May compared to 72% in June and 56% in July. Looking at the averages from 12-months to six-months to three-months, 52.2% of reporters show slowing over 12 months compared to 12-months ago, 30.4% show slowing over six months compared to 12-months, and 56.5% show slowing over three months compared to six-months. There is no trend here and there's little evidence of any significant strength. But there is growth.

The queue percentile standing data stand on average at 41.2% with a median at 38.1%; these are roughly similar figures showing that the average or median representative country is below its mean/median by about 10 percentile-standing points. Eighteen of these 24 jurisdictions have percentile standings below their 50th percentile, while only 6 have standings above their fiftieth percentiles. However, in terms of diffusion standings, only seven jurisdictions have readings that are below the diffusion value a 50 which indicates not just underperformance but economic contraction.