German industry under pressure despite improvement

German industry expanded production slightly in September compared to August and booked more orders. Production volume increased by 1,3% month-on-month, but this followed a 3,7% decline in August. Year-on-year, production fell by 1,0%, and compared to the peak of the production index in November 2017, the decline was a staggering 17,4%. Keep in mind that in 2024, industry was responsible for almost 20% of total value added in Germany. 

The volume of orders received was 1,1% higher in September than in August. Excluding orders for large goods such as trains, ships, and aircraft, the increase was 1,9%.

Dutch purchasing managers became slightly less optimistic in October. The Nevi index fell from 53,7 in September to 51,8. This is still a respectable level and indicates continued growth in manufacturing. Perhaps that 53,7 in September was a bit of an exaggeration. A week ago, Statistics Netherlands (CBS) reported that industrial confidence had increased in October, but their benchmark had lagged considerably behind the Nevi index earlier this year. All in all, the picture for Dutch manufacturing looks promising.

In the US, the two leading manufacturing confidence indicators are giving conflicting signals. The Institute for Supply Management (ISM) index fell from 49,1 in September to 48,7 in October. Aside from a brief period early this year, the ISM manufacturing index has been below 50, the "boom-bust" threshold, since November 2022. The rival S&P Global purchasing managers' index has been above 50 for most of the year, improving from 52,0 in September to 52,5 in October.

The Fed's December interest rate meeting will be a tense one. Markets are expecting a third consecutive rate cut. Fed Chairman Powell said last week that another rate cut is far from a foregone conclusion. Several board members are currently giving their views on the matter in speeches. Furthermore, the US government shutdown is a problem, as it has resulted in virtually no official economic statistics being available. It is clear that inflation is above target, which argues against a further rate cut. However, this high inflation is likely primarily due to the effects of the import tariffs, which is likely a one-time effect.

The labor market has been weakening recently, which argues for an interest rate cut in December. However, it can be argued that the weak employment growth is the result of significantly reduced immigration. In this view, the weakness in job growth is not caused by weak demand for goods and services, meaning an interest rate cut will have little effect.

With few, if any, official statistics becoming available, attention is increasing for figures from unofficial sources. According to Challenger, Gray & Christmas, over 153.000 layoffs were announced in October, compared to over 54.000 the previous month.

These figures are not seasonally adjusted. That's why it was emphasized that the number of announced layoffs for October was the highest since 2003! The stock market reacted quite negatively. Commentary on the figures stated that artificial intelligence was a significant factor in the job losses. I would actually expect a positive stock market reaction, as AI apparently allows companies to save on personnel costs. That will benefit corporate profits. However, investors may have been looking for an excuse to sell stocks that have already risen sharply this year.

The value of Chinese goods exports was 1,1% lower in October than a year earlier. In September, that value was 8,3% higher. Monthly trade figures are volatile, and the disappointing October figure was partly due to fewer working days and the fact that exports were high in October last year. Naturally, the figures are being closely monitored to determine the extent of the trade war's impact. The value of Chinese exports to the US was approximately 25% lower than a year earlier.

Closing
German industry booked more orders in September than in August and produced more. Looking longer term, the observation remains that this sector, so important to Germany, is under considerable pressure.

Dutch purchasing managers were slightly less positive in October than in September, but the Nevi index is still comfortably above 50.

In the US, various indices of industrial confidence are currently contradictory. This is unfortunate, as the government shutdown has led to a sharp decline in the availability of official economic statistics, thus reducing economic visibility. Unofficial statistics suggest the labor market is weakening considerably. Artificial intelligence appears to be playing a significant role in this.

China's export value fell in October, but this was partly due to one-off factors. What is certain, however, is that (direct) exports to the US fell sharply.

Hans de Jong

Han de Jong is a former chief economist at ABN Amro and now a resident economist at BNR Nieuwsradio, among others. His comments can also be found on Crystalcleareconomics.nl

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