German Orders Log Surprise Drop on Trade War Fears

Germany's orders fell by 0.9% in July when they were expected to rise by twice that much. Sequentially, German order growth rates are getting progressively weaker over shorter periods of time; that sort of deceleration is never a good sign. The flip side of that observation is that if the economy is not delving into recession, these kinds of episodes of order deceleration tend to right themselves. In Germany, the orders deceleration effect is being driven by the foreign sector while domestic German orders are actually in a steady acceleration mode with growth at 0.5% over 12 months and with the pace rising to 8.1% over six months and rising further to 16.8% over three months.

Sales and order weakness: QTD
In the quarter-to-date, overall German orders are falling at a 15.3% annual rate led by a stunningly weak -31.4% annual rate cascade in foreign orders. But German domestic orders, nonetheless, are rising at a 12.9% annual rate.

Sales echo the weakness in orders and they echo the deceleration in the orders' trend as well. Overall sales are slipping from a -0.1% over 12 months to -3.2% over six months to a -6.3% annual rate drop over three months.

Sector trends
Consumer goods orders buck the sliding trend as overall consumer goods as well as durables and nondurables orders show acceleration in trend from 12-month to six-month to three-month. However, the gradients for these accelerations are pretty muted.

The trend for capital goods may be the most disturbing. Capital goods orders show a progression to increasing weakness with the three-month annual rate drop in orders reaching -14.1%.

Intermediate goods are trendless, but orders for intermediate goods at least show positive growth on all three horizons.

Orders for manufactures, looked at as a stand-alone, show clear deceleration.

The weakness is lodged in foreign orders; we are told that German producers and their customers are wary of the impact of trade restrictions.

Trade news
The trade-news background for this is an odd cacophony of news. U.S. negotiations with Canada over NAFTA are said to be going well at last but being conducted at a furious pace. U.S. President Donald Trump has said that he is not ready to make a deal with China yet as a new deadline is here for the U.S. to set a new round of tariffs on Chinses goods. China has said that if the U.S. issues more tariffs it is ready to and will retaliate. So the spring seems to be loaded for more bad trade news ahead despite some potentially good news on Canada.

FEAR Trump!
Separately, in Germany in a new poll, Germans have cited the politics of Donald Trump as their greatest fear rising above their fear of immigrants and even terrorists. The "Fears of Germans" poll has been carried out for over a quarter century by the R+V insurance company's Infocenter (Source here).

Recent economic reports have showed evidence of economic activity slipping. Asia continues to log weak readings. Europe is in the process of some sort of slowdown.

Under the category: hey man it's not my job
There is criticism galore of U.S. trade policy because the U.S. is trying to turn the tables on other countries that have been using these same tactics for over 40 years. Apparently, turnabout is not fair play. Germans are worried that Trump has complained that he might let countries who contribute too little to defense to take care of themselves. They are afraid because Germany is in no position to protect itself. But this is German policy and Trump put Germany on notice about low payments to NATO over a year ago and still Germany is not upping its contribution to NATO and yet its fiscal policy remains dead set to prioritize running a surplus. That is their political choice. But how can those choices by a German government be reason to fear Donald Trump? Germans should instead be afraid of the policies of their own leaders!

Tensions all around
Similarly, there is a lot of tension across Europe on variable political matters. The Catalans are going to push for separatism from Spain again. Italy's new government wants to play the economic game by different rules and we are still waiting to see how that will evolve. No EU member wants to let its own people vote on the current state of affairs. It is reported that in the U.K. today if they voted again Brexit would be reversed (of course, polls thought that Brexit would fail the last time as well! So I am not convinced that this is really ‘news.').

The blame game
It is always easier to conjure a foreign bogey man. But in most places, the real villain is home-grown. Mr. Trump's methods may bring out the worst in people. He is a gruff, adversarial, divisive figure. That is how he gets things done. And that predilection does not make it right or ‘OK.' But it's the way things are. Everybody had better get used to it and find a way to deal with it. Trump is dead set to change the way the rest of the world interacts with the U.S. and to do so in a way that improves job opportunities in the U.S. It's hard to say that that is a bad goal... but do the ends justify the means?

Weak orders point to weak industrial output ahead