The mood among consumers in August shows a positive but non-uniform pattern. Both income expectation and propensity to buy have been able to improve their already outstanding levels, while economic expectation was less impressive after five increases in a row. GfK forecasts an increase in consumer climate for September of 0.1 points in comparison to the previous month to 10.9 points.
Consumers in Germany see the domestic economy continuing on a very good path. Evidence of this is provided by the new increases in income expectation and propensity to buy. It has been possible for both to again improve in their high levels. Economic expectation, on the other hand, has suffered a setback. Yet its current level still suggests that consumers nevertheless see the German economy continuing on a course for growth.
Economic expectation suffers a setback
After economic prospects among consumers had reported growth since April, they suffered a blow in August. Economic expectation loses 14.2 points, falling to 30.4. The indicator continues to maintain a good level overall, though. Compared with the previous year, it still shows a major increase of nearly 22 points.
Despite the losses, German consumers still see the German economy on a solid path to growth. It remains to be seen whether the drop in August was just a one-time "slip". A number of citizens are possibly somewhat worried about whether the exporter nation of Germany can show development as dynamic as it has up to now in the face of the debate regarding the future of the diesel automobile and numerous other crisis flash points.
The economic experts, though, assume that Germany will maintain its course of growth. The Federal Office of Statistics thus reports that the gross domestic product increased in the second quarter of 2017 by 0.6 percent over the previous period (first quarter: 0.7 percent). Compared with the same period the previous year, in the second quarter there was calendar-adjusted - i.e. taking into account the different number of working days - economic growth of 2.1 percent, after 2.0 percent in the first quarter of 2017. Therefore, Germany's central bank assumes in its current monthly report that the economy can even grow somewhat more this year than by the 1.9 percent forecast in June.
Income expectation breaking records back to back
Despite middling economic expectations this month, income expectation continues to move from record to record this month. This indicator rose by 0.5 points in August to reach 61.4. This is already the fifth increase in a row. With it, the indicator has reached a new post-reunification high. Not since 1991, when consumer mood was first recorded for all of Germany, has a better result been measured.
A basic reason for this string of records is and remains the exceptionally positive situation in the jobs market, which is also rushing from record to record. The employment numbers are thus continuing to increase. According to the Federal Office of Statistics, 44.2 million people were employed in the domestic jobs market in the second quarter of 2017, more than ever in Germany. Compared to the previous year, this represents an increase of more than 660,000 people, or 1.5 percent.
Propensity to buy makes up for previous month's losses
Despite temperate economic prospects, citizens in Germany were very much in the mood to buy in August, too. Propensity to buy picked up by 3.3 points to climb to 58.1. This more than compensates for the losses suffered by the indicator last month (-3.1 points).
The very positive employment situation in Germany is and remains the most important factor for the good consumer mood. Stable employment means very little fear of job loss. As a result, Germans are more willing to be somewhat riskier in financial dealings and make larger purchases, which could also involve credit.
A very weak continuing propensity to save has given the consumer mood an additional boost. The indicator did in fact rise in August, but could not make up for the big losses from the previous month. So propensity to save remains very far down in the summer of 2017 as well.
Consumer climate posts the highest level since October 2001
Following on from 10.8 points in August, GfK forecasts an increase to 10.9 points in September. This is the fifth increase in a row, and the highest level since October 2001. With it, the consumer mood in Germany remains on a stable course for growth.
GfK confirms the forecast we published at the start of the year, that real private consumer spending will rise by around 1.5 percent in 2017. Domestic demand will subsequently be able to make a significant contribution to economic growth in Germany this year as well.
Possible risks to consumption are more likely to be international in origin than from the domestic market. The very slow Brexit negotiations, the less transparent US policies, and a worsening of the situation in various crisis regions, such as North Korea or the Middle East, could harm consumer climate in the future.
About the study
The results are an extract from the "GfK Consumer Climate MAXX" study and are based on around 2,000 consumer interviews per month conducted on behalf of the European Commission. This report presents the indicators in graphical form and provides predictions and detailed comments on the indicators. It also provides information on consumer spending plans for 20 areas in the consumer goods and services markets. The GfK Consumer Climate Study has been carried out since 1980.
Consumer climate refers explicitly to all private consumer spending. However, retail trade, depending on the definition used, accounts for only around 30 percent of private consumer spending. Services, travel, rent, health services, and the entire wellness sector account for the rest.
GfK's forecast for 2017 is an increase in private consumption of at least 1.5 percent. According to data from the German Federal Statistical Office, private consumption rose by 2.0 percent in real terms in 2016. Again, this does not concern retail sales but instead refers to total consumer spending.
Propensity to buy, like all other indicators, is a sentiment indicator. It queries whether consumers currently consider it advisable to make larger purchases. Even if they answer "Yes" to this question, there are two further requirements for making a purchase: The consumer must have the necessary money for such a large purchase and must also see a need to make this purchase. Furthermore, this only actually concerns durable goods, which also require a larger budget.
The results of the consumer climate survey are obtained from monthly interviews of around 2,000 people who are representative of Germany's population. This survey tool is subject to constant quality controls, particularly in order to ensure that it is representative. The particularly high quality of this survey is also demonstrated by the fact that it is used and approved for surveys in the field of empirical legal research (for example, the danger of confusing products). This means that the results have the status of an expert report and must be recognized in court.
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