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Economy in Brief

Euro Area's Orders Hang Strong But Could Yet Go Wrong
by Robert Brusca   October 25, 2010

Euro-Area orders jumped by over 5% in August after a drop of 1.8% in July, restoring some sense of balance to the outlook for the Euro-Area itself. In July three of the four largest Euro-Area economies had seen orders drop by about 2% or more, raising warning flags about the future. Now in August this weakness has unwound and new-found strength is in the air. Of the four largest economies, the only one with declining orders in August is the sole large economy that had produced increasing orders in July, France.

Foreign orders continue to provide the pull to stronger growth. While foreign orders and domestic orders seem to be shifting gears together, it is foreign orders that have set the brisker pace.

Overall orders are still posting a stronger three-month growth rate than year-over-year growth rate but the pace has slackened from that of six-months ago.

Sales have slowed over 12-months are and are weaker over three-months than over six months. But this is mostly owing to the pattern for consumer goods sales in the Zone. Despite the ongoing recovery consumer goods MFG sales are actually falling over three-months. But capital goods MFG sales are rising strongly and are in sequential growth rate acceleration. Intermediate goods sales are slower over three-months than over six-months but are stronger over three-months than they are year-over-year. So only consumer goods MFG sales show any real slow-down here.

Both domestic and foreign MFG orders are weaker over three-months than over six months. But foreign orders also are weaker over three-months than they are year-over-year; a first hint of real slowing since foreign order growth has been leading this parade. Domestic orders are showing a stronger three-month rate of growth than a twelve-month rate of growth. The picture on acceleration deceleration is not completely clear.

Abstracting from the data, we know there are lags in this process and that there are monthly irregularities than bounce the data about. But In the Zone there is a lot of austerity afoot and some of it is just beginning to bite. Euro-Area neighbor and EU colleague, the UK, seems to be struggling with the impact of austerity on its growth. It seems unlikely that the potential for greater growth will be carried by domestic demand trends within the Zone, at least in the near term. So far euro-stock market trends are still positive but we cannot tell if that is a bet on short term trends or an approval of what austerity is expected to bring to the zone in the future.

Country trends show Germany is cooking at consistently high rates of growth. France with lower growth rates is showing a steady acceleration but that should be interrupted when the impact of its striking activity in October is accounted for. Italy is clearly decelerating. Spain's trend is less clear and its monthly data jump around viciously. There are hints of slowing in Spain and there is austerity in train making slowing the better-case scenario there if want to bet on one or the other. The upshot is that the monthly data in August are better than expected but Europe still faces many challenges to growth.

Selected Euro-Area Industrial Orders
Saar Except M/M Mo/Mo Aug
10
Jul
10
Aug
10
Jul
10
Aug
10
Jul
10
Euro-Area Detail Aug
10
Jul
10
Jun
10
3Mo 3Mo 6Mo 6Mo 12Mo 12Mo
MFG Orders 5.3% -1.8% 2.4% 25.3% 20.5% 35.4% 26.9% 21.0% 14.8%
MFG Sales 3.6% -1.0% 0.2% 11.3% 16.0% 17.5% 12.3% 13.1% 10.5%
  Consumer 0.3% 0.2% -1.0% -1.9% 13.6% 5.9% 4.9% 3.4% 3.8%
  Capital 5.2% -2.2% 1.9% 20.7% 21.8% 20.3% 10.6% 14.0% 8.5%
  Intermediate 5.4% -0.3% -0.4% 19.8% 8.5% 32.5% 21.3% 11.0% 8.1%
Memo:MFG
Total Orders 5.3% -1.8% 2.4% 25.3% 20.5% 35.4% 26.9% 21.0% 14.8%
 E-13 Domestic MFG orders 5.4% -0.3% -0.4% 19.8% 8.5% 32.5% 21.3% 11.0% 8.1%
 E-13 Foreign MFG orders 5.4% -0.2% 0.7% 25.7% 25.8% 38.7% 39.0% 30.4% 24.3%
Countries: Aug
10
Jul
10
Jun
10
3Mo 3Mo 6Mo 6Mo 12Mo 12Mo
 Germany (MFG): 3.4% -1.9% 4.2% 25.4% 10.4% 34.3% 26.8% 25.4% 22.8%
 France(Ind): -0.4% 1.7% 2.9% 18.2% 23.5% 16.1% 14.7% 9.9% 12.4%
 Italy (Ind): 7.3% -2.6% -2.6% 7.5% -5.5% 24.2% 8.2% 27.1% 4.4%
 Spain(Ind): 5.9% -5.9% 4.0% 15.7% 2.7% 16.8% 15.4% 8.2% 2.3%
Some Euro-Area reporters are timely and some lag. This table allows a sequential inspection of trends regardless of topicality
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