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Economy in Brief

German Orders Leap Ahead
by Robert Brusca  December 6, 2016

German orders surged in October, rising on a broad front. Both foreign and domestic orders jumped. Overall orders rose by 4.9% in October led by a 6.3% surge in domestic orders supported by a 3.9% gain in foreign orders.

Order trend is higher
In the wake of this order largesse, orders are now rising and accelerating on all horizons. Domestic orders show the strongest acceleration pattern followed by foreign orders. Year-on-year, however, orders are up by 6.3% led by a 7.5% gain in foreign orders and followed by a 4.8% gain in domestic orders. In the previous year to that, both foreign and domestic orders had declined.

Quarter-to-date
Since this is the first month of a new quarter, the quarter-to-date calculations are eye popping for overall orders as well for domestic and foreign components.

Orders by broad geography
Orders within the euro area were flat on the month while orders from destinations outside the euro area surged by 6.7%. Capital goods orders to destinations outside the euro area rose by 9.2% while capital goods orders within the euro area advanced by 3.1%. Consumer goods outside the euro area saw orders increase by 3.3% in the month. Within the euro area, consumer goods orders fell by 4%. Consumer durable goods orders surged both inside and outside the euro area while consumer nondurable goods orders contracted to both destinations.

Real sector sales trends show life
Real sector sales did not show any special strength in October and in fact came in flat. For all of manufacturing sales fell by 0.1%. But real sector sales as well as manufactures sales are on strong accelerating trends. For manufacturing sales are up by 0.3% over 12 months, at a 6.3% annual rate over six months and at a 12.9% annual rate over three months. Consumer goods sales are solid, underpinned by consumer durable goods sales that are accelerating and strong. Consumer nondurable goods sales are the opposite, weak, falling and decelerating. But capital goods sales are strong and accelerating sharply especially over three months. Intermediate goods sales also show a firm and accelerating profile of gains. The pick-up in sales is news that adds to the validity of October's orders rise.

Summing up
As things stand, the German orders seem to be fully back and strong. The strength, however, is largely outside the euro area and as yet it is not clear what the source of the strength may be. China, Japan and most of Asia are still struggling. It is never a good idea to make these calculations in the month of an orders surge and think that the trend has been properly captured. Orders tend to be volatile and momentum tends to ebb and flow. For now there is a good deal of reassurance about the path of German orders, but there can be no certainty about whether the pop in orders will stay or how much of it might erode in the coming months. To be sure it is good news, but it is also news of unknown quality at this point.

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