Economy in Brief

At today’s meeting of the Federal Open Market Committee, the target range for the Fed funds rate was reduced by 25 basis points to 4.50% to 4.75% following a 50 basis point reduction at the last meeting. The decline matched expectations in the Action Economics Forecast Survey.

The statement following the meeting indicated, “Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee's 2 percent objective but remains somewhat elevated.”

It went on to state, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities.

Today’s FOMC statement can be found here.

German industrial output fell by 2.5% in September. Output decline for consumer goods, capital goods, and intermediate goods. The September drops follow broad-based increases in August that followed widespread and deep declines in July.

Sequentially, output falls 4.6% over 12 months; it falls at a 7.9% annual rate over six months and drops at a 10.7% annual rate over three months. The various sectors generally follow the headline pattern revealing progressively falling output across manufacturing sectors from 12-months to 6-months to 3-months.

The construction sector also is showing steady declines and declines that are getting sequentially larger over shorter periods (persistent deceleration).

In contrast, real manufacturing orders are showing growth and acceleration sequentially. Real manufacturing sales also ‘go their own way’ declining on all horizons without any clear change in speed.

Surveys of the German manufacturing sector were mixed in September compared to August. Survey values in September are generally below their July levels. Average levels of the surveys have generally showed some modest improvement from their 12-month averages to their three-month averages.

France, Spain, Portugal, and Norway are early reports of IP data along with Germany. Spain and Portugal show output increases in September, while there are declines in France and Norway. Sequential trends among these countries are chaotic except for Spain that shows clear sequential output acceleration.

The just-completed third quarter shows declines- negative output growth rates and weakening survey metrics with few exceptions. The exceptions are real orders that rose strongly in Q3 (17.5% annual rate). Output in France and in Norway also showed increases in the third quarter.

However, we also rank all of these metrics on growth rates or levels as appropriate. Only Portugal and Norway have indicators that are above their medians on growth rates calculated over 24 years. German output is in its lower 9-percentile. Real manufacturing sales are at their 11th percentile. But orders are doing better; real German orders, an important forward-looking series, has a 46.2 percentile standing, still below its historic median, but getting closer to the median that occurs at a ranking of 50%.

In October, only six reporters saw their composite PMI measures weaken compared to September. Two of those were large EMU economies, France and Spain. But in the EMU, there still was improvement compared to September. The U.S, U.K., and EMU average has the same reading value as in September. The overall average improved in October to 51.9 from 51.4 in September. The median overall reading also improved to 51.8 from 50.0. Still, there is a net decline for the overall average and median compared to August values. Some improvement month-to-month but not much overall: a one-month improvement, a two-month decline.

Sequentially, looking at average levels, over three months, six months and 12 months, there is little volatility in these readings. The average over three months is slightly stronger than the 12-month average while the median is slightly weaker over three months compared to 12-months.

The queue percentile standings tell a story of ongoing weakness. The standing of the average is at the 49.2 percentile, nearly on top of its four and one half year average. The median value is at its 48.3 percentile. Again, these two measures are below their respective multi-month medians but are also quite near to those medians. The BRIC countries (I exclude Russia so its actually a reading for the BICs) average is at a 69% standing.

There are 13 of 25 reporting jurisdictions that have a queue standing below their medians (below 50%). Among the 12 reporters whose standings are above 50%, the average standing is 64.1%. Among those below 50% the average standing is 35.4%. Interestingly, the performing economies have about 14 percentage points above their median while those that were not performing average about 14 percentage points below their medians.