Economy in Brief

German real orders fell by 1.5% in October after a surge of 7.2% in September. However, the September surge had followed a plunge of 5.4% in August. The German order series have been extremely volatile with volatility present both in the foreign series and in the domestic series. Foreign orders rose by 0.8% in October after jumping by 9.3% in September; that followed a 1.9% drop in August. Domestic orders fell by 5.3% in October after rising 4% in September. The September gain followed a 10.1% drop month-to-month in August. These have been extremely volatile times for orders.

Sequential order patterns- Sequentially orders are up 5.8% over 12 months; they’re up at a 14.2% annual rate over six months but now they’re falling by 0.4% over three months. Foreign orders show a continuing strong and even accelerating trend with orders up by 13.7% over 12 months, then rising at a 25.4% annual rate over six months, stepping up to a 36.5% annual rate over three months. In contrast, domestic orders fall by 5.3% over 12 months but then trim that rate of decline to -1.5% at an annual rate over six months. However, over three months German real domestic orders are falling at a 38.5% annual rate. As you can see, the weak domestic orders and the strong foreign orders nearly cancel one another out with an overall order result of minus 0.4% over three months.

Sales trends- Sales trends show a little bit more stability but still some volatility. Here we will focus on total manufacturing sales. Manufacturing sales fell by 1.2% in October after falling by 1.1% in September; in August real manufacturing sales had risen by 3%. I will not detail the growth rates here; you’ll find them in the table. However, looking at sales growth rates for consumer goods, consumer durables, consumer nondurables, capital goods, and intermediate goods, you see across each one of these sectors a significant amount of volatility in sales month-to-month from August to September to October.

Sequential real sales- Sequentially manufacturing sales fall by 3.8% over 12 months; they step-up to a decline of 5.5% at an annual rate over six months and then, over three months, there’s a turnaround in the trend as real sales rise at a 2.6% annual rate. Overall consumer goods, capital goods, and intermediate goods show declines in sales over 12 months and over six months. Over three months, consumer goods sales make a small decline, while capital goods sales surge at an 11.4% annual rate, and intermediate goods sales rise at a 4.2% annual rate. The turnaround and stability to overall real sales by sector owes substantially to capital goods, and to some extent intermediate goods, where sales have firmed up over the last three months after having a legacy of declines over six months and 12 months.

Europe – Beyond Germany The bottom of the table looks at industrial confidence readings from the European Commission for Germany, France, Italy, and Spain. All the readings for the last three months are negative readings and for each of the countries there’s a deterioration in October compared to September. All countries also showed deterioration from August to September. Spain in September is an exception. The sequential readings from 12-months to six-months to three-months show German industrial readings are negative and getting worse in each horizon. Italian readings are negative and getting worse on each shortened horizon as well. French readings are negative over 12 months; they’re worse over six months but then improve by just a tick over three months compared to six-month readings. For Spain, readings are negative and all the periods; however, they improve over six months compared to 12-months and then they improve again over three months compared to six-months although these improvements are stepwise small changes.

Quarter-to-date- The quarter-to-date readings show that orders are increasing early in the fourth quarter at a 7.5% annual rate. Foreign orders are surging at a 43.6% annual rate and domestic orders are contracting at a 32.1% annual rate. Total manufacturing sales are falling at a 5.6% annual rate in Germany with consumer goods sales rising 2.6% at an annual rate. Intermediate goods sales are up at a 2.3% annual rate and capital goods sales are falling at a 1.6% annual rate.

Europe’s rankings- For the industrial data, I present the queue standings for Germany, France, Italy, and Spain. We see Germany with the lowest industrial queue standings in their bottom 5.6 percentile. France stands in its 12.5 percentile; Italy stands in its 18.4 percentile; Spain has the relative strongest readings with a 32.7 percentile standing which puts Spain as the strongest respondent in the table even though in the lower third of its own historic queue of industrial readings. All of these are extremely weak readings, and these are the four largest economies in the European Monetary Union.

Overview: “MIXED” at weak levels of activity- The S&P composite PMI readings for November continue to show a mixed bag of activity globally among the 25 national jurisdictions in the table. The average reading in November slipped to 51.7 from 51.9 in October; the median reading slipped 51.7 in November from 51.8 in October. There are 7 reporting jurisdictions with diffusion readings below ‘50’ indicating a contraction in overall economic activity in November, the same number as in October but down from a count of 12 in September. The breadth of slowing in November is at 44%, which is more slowing than in October, when only 24% of the reporters were slowing month-to-month. But both of those readings are much stronger than in September when 84% of the reporting units slowed down on a month-to-month basis.

Reading this table: In addition to summary data at the bottom of the table to provide some numerical benchmarking to the indications in the table (below), I use color-coding and shading to indicate other trends. The month-to-month or the period-to-period changes in activity are flagged by the word ‘better’ or ‘worse’ with ‘worse’ appearing in red and ‘better’ appearing in black to create an easier visual image of how countries are doing over these time horizons. Shading is used to reveal rankings below ‘50’ for diffusion data. Diffusion readings below 50 indicate contraction. At a glance, we can see that the weakness is really concentrated in the large western economies with the European Monetary Union, specifically, Germany and France, and sporadically, Italy, showing a proliferation of below ‘50’ readings. Sweden, Russia, and Australia have below ‘50’ readings in September but have since shaken those off in subsequent months. Zambia and Egypt have been consistently below ‘50’ readings and Nigeria is in that same club except for its 12-month average. Kenya and Ghana had a below ‘50’ reading in September but have since shaken those off.

Queue standings are WEAK! - The queue standing data take the diffusion readings and place them in a queue of data over nearly the last five years. The far-right hand column labeled “queue %” provides these standings. The benchmark here is that a standing of 50% identifies the median for the period so any reading above 50% is above its five-year median; anything below 50% is below its five-year median. I color-code these to make them easier to summarize at a glance with the below 50% readings in red in the above 50% in readings in black. Fourteen of the 25 readings have standings below their approximate 5-year medians. This weakness is concentrated in large economies with the U.S. as a clear exception having a 66.7 percentile standing, but the European Monetary Union, Germany, France, and Italy all have standings below their 50th percentile, as does the United Kingdom. In Asia, Japan and China have standings that are slightly below their respective 50th percentiles.

The bigger they are, the harder they fall? - The largest economies are having the biggest problem shaking off the weakness in the wake of COVID and in the wake of their COVID policies. Sequential data that compare three-month, six-month, and 12-month periods and the changes in activity over those periods show that the overall average has really been quite static although there is a very slight erosion in play with the overall average at 51.9 over 12 months slipping to 51.8 over six months and to 51.7 over three months. This is sequential hair-splitting weakness. The median values follow in step with a median of 51.3 for the 12-month average, slipping to 51.1 for the six-month average and staying at 51.1 for the three-month average of the cross-section median values. Over 12-to-6-to-3 months, the number of jurisdictions below ‘50’ fluctuates between 6 and 7; across these periods, there is not much change. Beyond the sequential movements of the average and the median, we can look at the percent slowing; the percent slowing has been creeping up. Over 12 months 43.5% of the reporting units are slowing, over six-months 60.9% of them are slowing, and over three months 78.3% of them are slowing. While the aggregate data on medians and averages show only a very slight erosion across jurisdictions, the count of areas where activity is actually slowing has actually been rising demonstrably.