Haver Analytics
Haver Analytics

Economy in Brief

    • Three-month payroll growth is weakest since 2021.
    • Earnings match expectations m/m, but trend continues to decelerate.
    • Unexpected jobless rate increase continues upward trend of last year.
  • German industrial production fell by 2.5% in May, continuing a sawtooth pattern over the last few months. Reductions in headline output, consumer goods output, capital goods output, represent reversals from gains in April; for intermediate goods, the May decline is the second month in a row of output declines.

    Trends are clear Sequential trends for German output are poor. The progression in growth rates from 12-months to six-months to three-months isn't always pointing to a steady deterioration, but the case for weakening German growth can be made comparing the three-month growth rates that are weaker to their 12-month growth rates. For the headline, for consumer goods, for capital goods, and for intermediate goods, for construction, all show that tendency. That's also true as construction, as output falls at a 26.8% annual rate over three months compared to a drop of 8% over 12 months. The pattern for manufacturing is illustrative with output down by 7.1% over 12 months, improving slightly to a loss of 5.1% annualized over six months, and then dropping at a 10% annual rate over three months. While the decline in the manufacturing pattern is not clear sequential deterioration, it certainly leans in that direction.

    Real orders and sales Real orders for manufactured goods also lean the direction of weakening, with declines of about 8.5% over six months and 12 months that mushroom into a decline of 11.7% at an annual rate over three months. Real sales in manufacturing fall by 6% over 12 months, reduce that pace of drop of 3.3% over six months, and then fall at a stepped-up 8.3% annual rate over three months.

    Surveys are mixed but highlight some weakness Surveys of the German economy show secular deterioration from 12-months to six-months to three-months in the ZEW current index. On the EU Commission industrial sector index, there is sequential deterioration as well. Contrarily, the IFO manufacturing index shows sequential improvement and the IFO expected manufacturing index echoes sequential improvement, rising from 86.6 over 12 months, to 88.7 over six months, to 92.7 over three months.

    IP elsewhere in Europe Industrial production elsewhere in Europe shows mixed trends with France, Spain, and Portugal logging positive growth rates over three months, six months and 12 months although without any clear patterns for acceleration or deceleration. Norway shows sequential deterioration with output falling at a 1.4% pace over 12 months, at a 3.2% annual decline rate over six months, and at a 6.6% annual decline rate over three months.

    Quarter-to-dates (QTD) growth Quarter-to-date growth rates (or changes in survey indexes) show mostly declines. For the traditional gauges of industrial output, output by sector in Germany, as well as for orders and real sales, the exception is an increase in the output of consumer goods in Germany. German surveys, on the other hand, tend to improve in the quarter, except for the EU Commission index. Industrial production in other European economies shows a strong gain in Spain, a gain in France, a decline in Portugal, and a sharp developing decline in Norway where output is falling at a 14.5% annual rate in the quarter-to-date.

    Growth rankings are weak The queue standings that rank the annual growth rates or are applied to the levels of the variables for surveys, show all these metrics with rankings below their 50% mark putting them below their historic medians for data ranked over the last 24 years. The exception to this is output in Spain and Portugal; their output, contrarily, has very strong standings at the 98th percentile for Spain and a companion standing for Portugal at its 93rd percentile.

    Results since before COVID struck We compare results in May 2024 to levels of performance in January 2020. The final column compares changes in these metrics to their levels as of January 2020 before COVID struck. All metrics show weak readings in May 2024 below January 2020 except for IFO manufacturing expectations and industrial output in Spain. All the other metrics are showing net lower readings compared to their values more than four years ago (ouch!).

  • We will not be publishing ‘Charts of the Week’ and our accompanying podcast next week.

    A soft landing scenario for the world economy, driven by moderating global growth, and aided by disinflationary pressures, has remained the base case in financial markets in recent weeks. A recent – and prospective – loosening of monetary policy by the world’s major central banks has also been reinforcing the view that a severe economic downturn can be avoided (see chart 1). Writing ahead of the non-farm payroll report on Friday, this week’s dataflow from the US and the euro area offered some mixed messages. The US labour market, for example, still appears to be quite tight judging by May’s data for job vacancies and turnover (chart 2) while June’s ISM surveys suggest the economic activity more generally could now be slowing much more sharply. Service sector inflation in the euro area, in the meantime, still appears to be quite sticky, judging by June’s flash CPI data, and possibly because regional labour markets also remain relatively tight (chart 3). On a brighter note, latest data from South Korea have reinforced the idea that global demand for new AI infrastructure is still solid (chart 4). Japan’s exporters have also been in vogue in recent times, partly thanks to a weak yen (chart 5). Finally, and just after the UK election, but ahead of the second round of the French election this weekend, financial markets have also been dancing to political melodies in recent days. However, a lack of domestic macroeconomic harmony, and much uncertainty about how politicians will respond, remain key sources of downside risk in the period ahead (see chart 6).

    • Gain in jobs is weakest in five months; factory jobs decline.
    • Service-sector & construction job growth slows; leisure hiring picks up.
    • Wage growth for “job stayers” eases y/y.
    • 48.8 in June vs. 53.8 in May; 3.3 pts. below the 12-month average of 52.1.
    • Business Activity (49.6, the first contraction since May ’20), New Orders (47.3, the first contraction since Dec. ’22), Employment (46.1, the fifth straight contraction), and Supplier Deliveries (52.2, above 50 for the second successive month).
    • Prices Index falls to a three-month-low 56.3, albeit remaining above 50 since June ’17.
    • Durable goods orders edge higher, but nondurable goods orders decline.
    • Total unfilled orders rise but excluding transportation fall.
    • Inventories rise slightly.
    • Total monthly deficit widened to $75.1 bn from $74.5 bn in April.
    • Both exports and imports declined slightly in May.
    • Goods deficit widened to the largest since May 2022; services surplus widened to the largest since November 2019.
    • Trade deficit on course to be another drag on GDP growth in Q2.
    • Initial claims hover in tight range over last month.
    • Continuing claims up moderately in June 22 week.
    • Insured unemployment rate still at 1.2%.