Economy in Brief

The German IFO survey made some significant improvements in March compared to February. The all-sector climate reading grows to -16.1 in March from -23.5 in February. The current conditions index registered a positive 0.6 reading in March after a -1.9 rating in February. The expectations index rose to -16.4 in March from -23.0 in February.

There are some substantial changes and improvements in the month-to-month readings; however, make no mistake about it, the IFO remains very weak. The climate reading, for example, has a rank standing in March at its 19.1 percentile compared to a ranking in at the 6.5 percentile in February. The all-sector current conditions ranking moves up to 13.9 percentile in March from the 11.7 percentile in February. All-sector expectations move up to the 13.4 percentile from the 3.9 percentile in February. These are substantial and significant moves in the month-to-month rankings and for the month-to-month diffusion readings; however, the current readings are still weak. In terms of the values reported last month, the current readings aren't really going to be pointing to an economy that's substantially changed from the readings that we saw a month ago.

However, what's new and what's interesting is there is a month-to-month improvement and it's the first one of some significant value that we've seen in some time and that could mark a turning point. The change is most substantial for expectations, which is also a relatively volatile category and something to keep an eye on. But it's the fact of having an improvement after such a long period of conditions remaining weak that is both impressive and hopeful.

Looking at the various sectors in climate section, construction has the strongest ranking in its 25th percentile - a bottom quartile ranking.

Under current conditions, retail and construction have above-50 percentile standings- above their historic medians. The service sector has the weakest stand-alone ranking in its 15.6 percentile.

Expectations readings show a still-weak 0.8 percentile standing for construction, just off the all-time low made last month. The service sector, with a 15.1 percentile standing, is the strongest ranking sector in expectations.

The S&P composite PMIs in March show broad weakness in Europe with the European Monetary Union composite getting weaker along with its manufacturing and services components. Germany displays the same 3-sector weakness along with France. The United Kingdom shows a weaker headline as well as weakness in services month-to-month, but its manufacturing sector strengthens on a month-to-month basis.

Japan, on the other hand, shows the strengthening across its composite, manufacturing sector, and services sector. Japan’s composite improves in each of the three months driven by an improvement in the services sector over each of the three months. Japan is the only country in the table to also show the services sector that improves year-over-year, over six months compared to 12 months, and over three months compared to six months. Japan's services sector is quite consistently driving strong improvement and it has a strong queue standing to back that up, in the 90th percentile, the only 90th percentile standing for any sector by any country in the table.

The U.S., like Japan, shows strength over the last three months. U.S. metrics show strengthening in the composite, the manufacturing sector, and the services sector in each of the last three months. However, despite this string of increases, the three U.S. sectors: the composite, and its components manufacturing, and services all show weakening on balance over three months, six months and 12 months. Note that the monthly data are ‘flash data’ while the sequential data over three months, six months, and 12 months are based on ‘hard data’ and lag by one-month for that reason.

The queue rankings portrayed by these PMI values, show only Japan's overall composite has a ranking at its 81st percentile driven by that 91st percentile standing in its services sector. Apart from that, the strongest standings are for services in the U.K. and services in the monetary union with 57-percentile standing, a much more modest positioning. The United Kingdom composite has a 53-percentile standing and the U.S. manufacturing sector has a 51-percentile standing, barely above its historic median. All the rest of the sector standings are below their respective 50th percentiles meaning they are below their historic medians on data back to 2020.

The weakest standings in the table are for manufacturing; the German manufacturing sector has a 14-percentile standing, France has a 22-percentile standing - the same as Japan's - while the monetary union has a 24.5 percentile standing for its manufacturing sector.