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Economy in Brief

German Orders Sink After Strong Run
by Robert Brusca  April 21, 2022

Total German industrial orders fell by 2.2% in February after gaining 2.3% month-to-month in January and 2.4% in December. This decline ends a strong run for orders in Germany. February, of course, is the month in which the invasion of Ukraine began - it was in late-February - so we are likely still looking ahead to the impact of that invasion on German orders. As things stand, over 12 months German orders are rising 2.9%, over six months the annual rate bumps up to 4.8%, and over three months the annual rate of expansion is at 10.2%. German orders are still on an accelerating trend, but it looks like that's about to be cut short by war.

Foreign orders
German foreign orders have been a little bit more irregular month-to-month; they fell by 3.3% in February after rising 9.5% in January and falling by 3% in December. Foreign orders are up by 4.1% over 12 months, they rise at an 8.6% annual rate over six months and accelerate to an 11.2% pace over three months.

Domestic orders
German domestic orders fall by 0.2% in February after falling by 7.2% in January and rising by 10.5% in December. Domestic orders rise by 1.3% over 12 months, they fall at a 0.6% rate over six months and then they rebound to rise at a 9.4% annual rate over three months. German domestic orders are weaker overall than foreign orders and their path is one that is more erratic.

In quarter to date basis, which is two months into the current quarter, total orders are rising at a 19.8% annual rate. Foreign orders are rising at a 41.5% annual rate while domestic orders are falling at a 6% annual rate.

Real manufacturing and mining sales patterns
Real sales by sector are more erratic than orders have been. Real sales from mining and manufacturing fell 1.4% in February after rising 1.5% in January and gaining 0.8% in December. Sequentially, mining and manufacturing sector sales are rising, but apart from showing growth there is no acceleration. Over 12 months sales gain 4.2%, that accelerates sharply to 17.2% over six months then backs down to a 3.6% annual rate over three months. Manufacturing sales by themselves show the same pattern.

Real manufacturing sales by sector
While sales by sector are also erratic, they show growth. Consumer goods sales rise 5.8% over 12 months, slip back to 4.8% at an annual rate over six months and then jump to an 8.5% annual rate over three months. The strength in sales comes from consumer durables that rise by 7% over 12 months, increase their pace to 12.6% over six months and then accelerate further to 22.7% annual rate over three months. In contrast, consumer nondurable goods sales are more erratic, rising by 5.5% over 12 months, slowing into a 3.2% annual rate over six months and then rising at a 6.1% annual rate over three months. Capital goods rise by 1.4% over 12 months, accelerate to a sharp 28.3% annual rate over six months and then decline at a 5.2% annual rate over three months. Intermediate goods show a 3.7% growth rate over 12 months, rising to a 6.9% pace over six months following back to a 3.9% pace over three months. Real sector sales are much more sluggish than orders. Orders usually lead, but this gap could also reflect supply chain problems.

Quarter-to-date by sector
Quarter-to-date growth rates by sector show a 12.9% annual rate for manufacturing with overall consumer goods at a 5.4% annual rate, led by a 17.2% annual rate for consumer durables and held back by a 3.5% annual rate for consumer nondurables. Capital goods sales are rising at a 17.2% annual rate; intermediate goods gain at just a 0.9% annual rate.

Big Four EMU economies and their EU metrics
The industrial readings according to the EU industrial confidence index show different patterns for the largest economies in the European Monetary Union. For Germany, the net readings are strong, but they decay from December to January to February; they also show sequential monthly decay in Italy. France shows an erratic monthly pattern while Spain shows monthly acceleration. The queue standings for each of these countries that place the current reading in a ranked queue of data since 1990 show all of them to be strong, in their 90th percentile or higher for this period. Spain has the highest relative standing at 99.7%, followed by Germany at 98.7%, France at 94.7%, and Italy at 92.8%. According to the EU data, the industrial sectors are strong in all these countries – this is ahead of the outbreak of war...

Compare to the pre-Covid situation
Looking at changes back to January 2020 before the Covid struck, we see the largest gain and the German industrial sector where its EU index is up by 36.5 points; for France, Italy and Spain, the indexes are up by 12 to 14 points for the period. On the same timeline, German orders are up by 7% with foreign orders up 7.1% and domestic orders up by 6.9%; these metrics reveal a tightly clustered sense of rebound. However, sector sales are very different matter. For Germany, mining and manufacturing sales are down by 1.3% on this timeline while manufacturing alone has sales down by 1.2%. Consumer goods sales are down by 0.4% although durable consumer goods sales are up by 6.1% and consumer nondurables sales are down by 1.5%. Capital goods sales are down by 5.8% while intermediate goods post an increase of 2.9%. Order-versus-sales metrics look very different.

The rocky road ahead
The period ahead promises to be much rockier with the war having started in Ukraine and sanctions eventually being imposed. Germany and other European countries will have to deal with the eventuality of weaning themselves off the oil shipments from Russia. At least that's the current prognosis. The war is currently taking a toll on global trade and on global supply line performance. At the same time, there's still a virus circulating that's wreaking its own havoc across various economies. At this point, the virus continues to circulate, but it's less lethal and some countries are more concerned with infection than others. For example, China continues to run a zero COVID policy and is paying a heavy economic price for doing that. We look for softer statistics in the months ahead.

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