German Industrial Orders Rebound Very Sharply But it's Not a Sign of Zone Revival

German orders recorded a sharp snap back in October, rising by 3.9% after falling by 2.4% in September, The jump still leaves overall orders lower by 2% year-on-year but the profile is now sharply different with foreign-sourced orders up by 1.5% Year-on-year. Domestic orders are still weak; they rose by only 0.4% after falling by 1.8% in September and are lower by 6.4% Year-on-year.

Foreign orders shipped within the Zone rose 3.5% after falling by 8.3% in Sep. Zone members are not firing up demand for German exports.

Intermediate goods: Foreign orders for intermediate goods which fell by 8.8% in Sept rose by 8.4% in October. Domestic demand which fell by 2% in September fell by an additional 0.8% in October. But among eurozone destinations Sept orders fell 11.6% and only rebounded by 6.2%. Meanwhile, intermediate goods orders outside the Zone fell by 6.3% in Sept and rebounded by a sharp 10.2% in Oct. Demand for German intermediate goods output is coming from outside the Zone.

Capital Goods- Capital goods orders remain at the heart of German strength. Overall these orders fell by 0.7% in Sep and gained by 4.5% in October, a nice net rebound. But domestic capital goods orders are not part of the revival. They still lag having fallen by 1.4% in Sep and only rebounded by 0.9% in Oct. Foreign orders on the other hand slipped by 0.3% in Sept then expanded by a sharp 6.7% in Oct. The revival was not among eurozone members whose Sept orders fell by 6.8% but rose in Oct by only 2%. Outside the e-Zone foreign orders for capital goods rose 2.9% in Sep and rose a further 8.7% in Nov. That's where the strength is.

Consumer Durable Goods -Consumer durable goods orders show a slightly different pattern. Orders fell by 1.5% in Sept then rose 2.1% in Oct. Domestic orders made some net progress in October rising 4.6%, more than the 3.7% they fell in Sept. Foreign consumer durable orders did not make much headway, rising 0.3% in Sept then coming up flat in Nov. Eurozone orders continue to show weakness on this account falling by 3.2% in Sept and rising back by only 1% in Oct. Foreign orders for consumer durables outside the Zone saw a sizeable gain in Oct as orders rose by 4.1% but Sept brought some erosion with orders dropping 1%. There is very little consumer durable demand heating up.

The bottom line is that German capital goods are very strong and they are finding demand outside the Zone. Consumer durables are showing some domestic market revival but not much demand for them outside of Germany either among Zone members or outside the Zone.

While Germany is tapping into some source of strength most of the rest of Europe is still looking very beleaguered. In past months German exports have leaned on the US, the UK and China as destinations. It will be interesting to see if other Zone members have tapped into the same sources of external demand that Germany found or if German is unique. Many Zone members are not really very competitive and are not able to sell effectively into global markets.