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Economy in Brief

German Orders Continue to Erode
by Robert Brusca  January 6, 2022

German industrial orders rose by 3.7% in November as foreign orders soared by 8% and domestic orders fell by 2.5%. These results were the opposite in sign from developments in October when overall orders fell, dragged lower by plunging foreign orders as domestic orders rose by 3.4%.

Looking at the sequential rates of growth from 12-months to six-months to three-months, all at annualized rates, overall, German real order growth is slowing. But foreign order growth is accelerating as shorter-term growth rates move up to a stronger pace. However, that trend is undercut by domestic orders where order growth slows sharply and sequentially with double-digit negative rates of growth over both six months and three months.

In the quarter-to-date, however, all categories of real orders show sharp annualized double-digit negative rates of growth in the -20% to -30% range.

Sector real sales
The results for orders contrast with the results for real sales across sectors. For mining and manufacturing combined, sales accelerate steadily from 0.3% over 12 months to a 4.3% pace over six months to a soaring 33.7% annualized pace over three months.

However, consumer goods sales are in a slowdown mode across this timeline on what are sporadic and trendless gyrations in sales for durable- and nondurable-goods separately.

Capital goods carry the day for the accelerating overall trend as capital goods sales fall by 1.9% over 12 months then rise at a 7.4% annual rate over six months before having moon-blast grade growth rising at a 73.2% annual rate over three months.

Intermediate goods do not demonstrate acceleration or deceleration. But after a 1.5% expansion over 12 months, intermediate goods sales manage to spurt at 12.1% annualized rate over three months after a backtracking over six months.

Sales quarter-to-date
For the quarter-to-date, overall sector sales are expanding at a 17.4% annual rate; consumer goods overall as well as both nondurable and durable consumer goods show contraction. Capital goods sales rise sharply at a 34.3% annual rate in the QTD period as intermediate goods log a growth rate of 8.3%.

Over the Covid period
However, when we look at longer-date changes back to January 2020, before the virus struck, we find clear evidence of orders being stronger by 3.7% led by foreign orders (up by 5.2%) and even some improvement in domestic orders (up by 1.4%). But on that same timeline, real sector sales are lower nearly across the board. For manufacturing alone sales are 2.9% weaker and consumer goods real sales are 2.8% lower, mostly on weakness in nondurable consumer goods sales. Even capital goods, where sales have become so strong, show a net decline in real sales from January 2020 of 4.9%. Intermediate goods are the lone and small exception with sales up by a skinny 0.2% from January 2020.

The industrial sector across EMU
The EU Commission's industrial confidence indicators across the EMU shows strong readings across the board for the four largest EMU economies in November. The column on Queue % standings (see table, second column from the right) shows that all industrial metrics are in their 90th percentile (top 10%) or better as of November. The column on change over the last 12-months shows changes in the industrial barometers ranging from +14.1 points in Spain to +29.4 points in Germany. The far-right hand column shows the change in these metrics since January 2020. Clearly the lion's share of the improvement has come over the last year. Germany is the exception to that, having made only 17.6% of its improvement since 2020 in the last 12 months. But for the other three countries, the improvement in the last 12-months is greater than the improvement from January 2020, reinforcing how they have been climbing out of the hole dug by Covid even over the last year.

Covid effects impact global service sector
Covid continues to circulate and to be a problem among 12 developed and developing countries/regions (EMU, Germany, France, U.S., U.K., Canada, Mexico, Japan, China, India, Brazil, and Russia) that report out separate service sector results. All service sectors weakened in December except two. The exceptions are China where its nonmanufacturing gauge has improved and Russia where oil revenues have ramped up. The JPMorgan global services index fell month-to-month but holds to an 81.5 percentile queue standing over the last 4.5 years. Service sector readings are below their respective median standings for EMU, Germany, China, and Russia. In December, Germany and Russia show contracting service sectors. Much of this distress is being caused by the fast-spreading Omicron variant.

Is Omicron Covid’s last hurrah?
While the Omicron variant is spreading exceptionally fast, doctors in NYC estimate that ICU hospitalizations from Omicron are only around 10% compared to 25% to 35% for earlier variants (Source from WSJ here). People are obviously wary of the Omicron wave, but so far it has been a wave that has generated a tremendous amount of infection, a good measure of fear, but not as much real heath damage. The facts seem to point to the potential for this wave of infections to pass us by relatively quickly and with much less damage than past waves. Some experts see in this wave signs that it may be the last one (I have no idea on that one). These findings and opinions suggest that whatever damage has been done to the global economies and especially to their service sectors might be able to be undone relatively quickly and allow firms to get back to the business of business later in 2022.

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