Tuesday, June 17, 2008

German - American Sentiment

Economic confidence is plunging to multi-year lows. The latest reading for the University of Michigan/Reuters index of consumer sentiment dropped to the lowest level in 27 years (see chart below, click to enlarge).

Data: St. Louis Fed/Bloomberg

Things are no better in Germany, the world's third largest economy (or fourth, depending on who's counting). The ZEW indicator of German economic sentiment just hit the lowest level in 16 years at -52.4, versus an average reading of +29.2 since 1991 (red line in the chart below).

Data: ZEW

What is interesting about both low readings is that they are occurring not because of some transient negative event (e.g. war, natural catastrophe, etc.) but are due to real, fundamental economic reasons (credit and real estate crisis, high and rising food and fuel prices). They are thus unlikely to reverse in a meaningful way any time soon.

So far, the negative sentiment has not spilled over to consumer spending in a major way. But how long can this relatively benign situation last, on both sides of the Atlantic, if sentiment continues to remain so negative?


Marcus said...

It does take a lot to slow down the aircraft carrier of consumer spending in the US. Just wondering though, what inflation numbers are the statisticians using when they calculate real consumer spending and can we trust this regime?

Wow, I'm getting so cynical about my country's bureaucracies. Now there's a sentiment I think would be in the historic dumper zone.

Anonymous said...

Secular as opposed to cyclical.....

Best regards,


jmf said...

Moin from Germany,

just a quick comment on the ZEW index. In my opinion it´s probably the most overrated index in Germany. It´s the opinion of market participants like economists etc.... Need i say more.... :-)

The IFO index is a much better index. It comes directly from the people that are running the business and is the largest survey in Europe.

Compare the Ifo chart with the ZEW and you see the difference.

On the other side i agree that the IFO will tank very soon ... :-)

Here is the english Ifo site for more details

yoyomo said...

Francois made a very perceptive observation over at TheTelegraph (Morgan Stanley warns of 'catastrophic event'... by AmbroseEP) that the ECB wants to choke off exports to the US by raising the Euro because it doesn't want more $ which it expects to become worth much less. It would rather run a deficit with the US so that it can redeem as many $ as possible through balance of trade payments without having to dump $ on the ForEx markets. Sounds plausible to me. Perhaps Hel's pound of flesh demanded by America's creditors?

Yoski said...

Things will get really interesting once the real estate market in Britain, Ireland, Spain and Netherlands tanks.

yoyomo said...

Check out the June16 post at Financial Armageddon. If this doesn't convince you on which side of the evil/incompetent divide the regime falls on I have lost all hope in your diagnostic abilities and I would advice your patients to shop for a new MD.

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