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Economy in Brief

German Orders Rise But Slow
by Robert Brusca  April 4, 2014

German orders rose by 0.6% in February after the downward revision of January's gain from 1.2% to 0.1%. As a result, orders over three months are rising at just a 3.3% annual rate. That's up from the 1.7% pace over six months but only about half of the pace of 6.1% over 12 months. In the quarter to date, orders are growing at a 3.5% annual rate. For Germany, the most competitive country in the euro area, these are relatively tepid results.

Foreign orders have been an important driver of German orders all year long. Foreign orders are up 7.5% over 12 months, compared with a 4.1% gain for domestic orders. However, foreign orders have been slipping. Over the most recent three months, domestic orders are holding their pace better than are foreign orders as domestic orders are growing at a 3.9% annual rate, compared to 2.5% for foreign orders.

In February, domestic orders rose by 1.2% on the back of a 2% gain in January. Foreign orders advanced weakly by 0.2% in February after falling by 1.3% in January. The two sectors are now growing at more similar growth rates over three months. It is no longer easy to tell which of these sectors is the main driver of growth. But domestic order growth does appear to have firmed and it now seems more reliable and stronger than it has been. At the same time, a weakening in foreign orders has brought us some sector convergence. But in the quarter to date, it is quite clear that growth is being driven by domestic orders which are surging at a 9.4% annual rate as foreign orders shrink in the quarter.

Real sector sales are slowing across the board in February. And sales are actually falling for both consumer goods and capital goods. Only intermediate goods sales rose in February. Overall manufacturing sales dropped in February as well.

Over three months, sales are still falling for consumer goods and capital goods, but oddly intermediate goods sales are expanding rapidly. The strength in intermediate goods sales boosted the pace for manufacturing. In the quarter-to-date, consumer goods sector sales are falling while capital goods sales are up sharply along with intermediate goods. Capital goods and intermediate goods strength drive overall manufacturing sales to a nearly 10% annualized growth rate in the quarter-to-date.

The overall picture shows some odd developments in Germany with real sector sales running at very different speeds by sector over some very similar time horizons. Also strength in intermediate goods unaccompanied by strength in any final goods sectors is peculiar. The sharp downward revision to orders in January has altered the picture of German strength.

However, the domestic sector appears to be firming even as foreign orders are looking less reliable. But these trends can shift a lot month to month especially if revisions are playing a role. The more erratic patterns in German orders will bear watching, especially as other European data have also started to run hot and cold.

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