Over the past six months, the leading index has declined by 4.8 percent (about a -9.3 percent annual rate), well below its 2.7 percent decline between September 2007 and March 2008 (about a -5.4 percent annual rate). In addition, the weaknesses among the leading indicators remain very widespread.
The coincident index, a measure of current economic activity, declined in September, its fourth decline in the last seven months, as a result of a large fall in industrial production and a smaller decrease in retail sales. Since March, the coincident index has remained unchanged, substantially below the 1.8 percent annual growth rate which prevailed during the previous six months. However, the strengths among the coincident indicators have been more widespread than the weaknesses in recent months. At the same time, real GDP growth declined to a -1.9 percent average annual rate for the second and third quarters of 2008 (including a -2.1 percent annual rate during the third quarter), down sharply from a 3.5 percent average annual rate for the fourth quarter of 2007 and first quarter of 2008. This represents the first time since the first half of 2003 that real GDP in Germany has declined in two consecutive quarters.
The leading index has been falling since July of 2007, and its decline during the past year is the largest (y-o-y) since 1993. After growing steadily throughout 2006 and 2007, the coincident index has fluctuated around an essentially flat trend so far in 2008. Taken together, the recent behavior of the composite indexes suggests that economic weakness is likely to continue into the first half of 2009 and risks for further weakness remains elevated in the near term.
LEADING INDICATORS
Two of the seven components in the leading index increased in September. The positive contributors to the leading index - in order from the largest positive contributor to the smallest - are inventory change series, and gross enterprises and properties income. Negative contributors - in order from largest to smallest - are new orders in investment goods industries, stock prices, yield spread and new residential construction orders. Consumer confidence remained unchanged in September.
With the 1.1 percent decrease in September, the leading index now stands at 91.6 (1990=100). Based on revised data, this index declined 0.4 percent in August and declined 1.1 percent in July. During the six-month span through September, the leading index decreased 4.8 percent, with two of the seven components increasing (diffusion index, six-month span equals 28.6 percent).
COINCIDENT INDICATORS
Two of the four components that make up the coincident index increased in September. The positive contributors to the coincident index were employed persons and manufacturing sales. Industrial production and retail trade declined in September.
With the 0.4 percent decrease in September, the coincident index now stands at 110.8 (1990=100). Based on revised data, this index increased 0.5 percent in August and decreased 0.2 percent in July. During the six-month period through September, the coincident index remained unchanged, with three of the four components increasing (diffusion index, six-month span equals 75.0 percent).
