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Economy in Brief

German Orders Lose Their Froth Faster Than Day-old Beer
by Robert Brusca June 5, 2008

As the dollar fell and euro rose German authorities gloated about the resilience of their economy. German economic statistics have largely remained firm and vibrant in the face of ever diminishing competitiveness, as the euro rose. Well the bloom is off the rose (or the rise) now. Orders are now giving that erstwhile optimism is rightful comeuppance. German orders have now fallen month-to-month for FIVE straight months lead by five straight months of foreign orders dropping. During this span, domestic orders fell in three months, were flat in one and rose in another - the most recent month of April posted a small gain for domestic orders. German foreign order weakness is concentrated within the Euro Area rather than in transactions that more explicitly cross exchange rate lines. Still, within the Zone German ‘exporters’ continue to face competition from other producers domiciled outside of the zone and producing with other currency-based production costs… like the dollar.

For the moment German own-country orders are holding up better than foreign orders. Both sets of orders are still UP on the year (last 12-months), foreign orders by 3.4% and domestic orders by 4.8%, But over three and six months foreign orders are dropping at an astonishing -19% and -10% rate respectively. Meanwhile, over three and six months, domestic orders’ annual rates of decline are the far more modest pace of -1.7% and -0.9%. That’s so far. No country, especially within the strong currency Euro-Area is an island, and Euro Area weakness abounds.

Still dogging Germany is the fact that domestic consumption has not picked up. Orders for consumer goods lead the way lower. Despite a sharp April bounced back in capital goods orders the series remains mired in three-month and six-month negative growth trends with weakness accelerating. Its fellow EMU members are fading fast, just as growth is fading also in the UK.

The central banks in EMU and the UK are continuing to hold firm to fight food and energy inflation. Meanwhile each looks set to open up a larger GDP gap which will help to fight inflation along with that strong euro, at least for EMU. Manufacturing sales are starting to lose their zest in Germany. If the ECB was once worried about second round effects if will now find its region populated by workers that are going to be more concerned about jobs than about wages. Eventually that development will breed different behavior on the part of the ECB but that is still a long way off.

German Orders and Sales By Sector and Origin
Real and SA % M/M % Saar
  Apr-08 Mar-08 Feb-08 3-Mo 6-Mo 12-Mo Yr-Ago QTR-2-Date
Total Orders -1.8% -0.5% -0.6% -11.1% -5.7% 4.0% 6.9% -13.2%
Foreign -3.8% -0.3% -1.1% -19.2% -10.1% 3.4% 6.8% -23.4%
Domestic 0.3% -0.8% 0.0% -1.7% -0.9% 4.8% 7.0% -1.0%
Real Sector Sales
MFG/Mining -0.9% -0.6% -0.1% -5.8% -3.0% 5.2% 5.1% -7.3%
Consumer -1.8% 0.2% -1.8% -12.9% -6.7% -0.9% 2.0% -13.0%
Cons Durables 0.2% -0.9% -0.3% -4.0% -2.0% 3.5% -0.1% -3.0%
Cons Non-Durable -2.1% 0.3% -2.0% -14.4% -7.5% -1.6% 2.3% -14.5%
Capital Goods 2.4% -2.6% -0.8% -3.9% -2.0% 9.5% 4.5% 2.3%
Intermediate Goods -4.2% 1.6% 1.7% -4.1% -2.1% 3.5% 7.7% -14.9%
All MFG-Sales -0.8% -0.6% -0.2% -6.2% -3.2% 4.8% 4.8% -7.3%
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