Global| Oct 09 2012German Output on Fading Trend Still Show Some Gain in Q3
Summary
With growth in the e-Zone under pressure and evidence that weakness has spread to the core zone nations German industrial output has contracted in August, falling by 0.5%. Output is down over 12-months by 1.4% but it registers [...]
With growth in the e-Zone under pressure and evidence that weakness has spread to the core zone nations German
industrial output has contracted in August, falling by 0.5%. Output is down over 12-months by 1.4% but it
registers positive rates of growth over 3-months and 6-months. Order trend point the way even lower…
Yet, in the unfolding third quarter, German output is showing some life. Two months into the quarter German output is growing at a 6.6% rate over the level in the previous quarter. Consumer goods output is up at a 3.1% pace on this basis and capital goods output is up at a whopping 16.9% annualized pace. Intermediate goods output is withering, falling at a 1.5% pace. Construction output also is off at a very slightly negative rate of -0.1%.
While output trends are positive in the new quarter German industrial orders (also real and seasonally adjusted) are showing shrinkage. Real industrial orders are shrinking at a 5.5% annual rate in the new quarter while MFG orders are up at a 6.9% annual rate.
Germany remains the most competitive country in Europe. It has a huge price advantage on trade within the Zone even as Zone growth withers. Meanwhile, outside the zone, there is a pronounced slowdown in the making. Seeing output rise against the trend in orders suggests that there is some short term event in play that will have not follow through. The orders series does a good job over time in tracking the output series. The longer the period, the better it does. Over three months the orders series predicts 36% of the variance in output, over six months that rises to half the variance and over twelve months it rises further to 78% of the variance. And if we lead the orders series by three months the 12-monh prediction rises to 92% of the variance in MFG output.
German orders are forward-looking. And while they can have some departure from MFG output in the short run, over the long haul their predictive powers are not to be set aside. Over short term periods the differences in the two series can be substantial but that in no way undermines the long term signal from orders. This month’s IP drop is more in character with what we expect from German IP. The incipient its rise in the quarter to date for IP is more likely a last hurrah instead of a sign of life.
| Total German IP | |||||||
|---|---|---|---|---|---|---|---|
| SAAR Except M/M | Aug-12 | Jul-12 | Jun-12 | 3Mo | 6Mo | 12Mo | Q-2-D |
| IP total | -0.5% | 1.2% | -0.4% | 1.4% | 4.4% | -1.4% | 6.6% |
| Consumer | 0.3% | -0.4% | -0.5% | -2.3% | 3.4% | 0.0% | 3.1% |
| Capital | 0.0% | 3.6% | -1.5% | 8.3% | 4.4% | -0.7% | 16.9% |
| Intermed | -1.3% | 0.0% | 0.0% | -5.1% | 0.0% | -3.7% | -1.5% |
| Memo | |||||||
| Construction | -2.8% | 1.4% | -1.3% | -10.3% | 41.2% | 0.7% | -0.1% |
| MFG IP | -0.4% | 1.5% | -0.9% | 0.7% | 2.5% | -1.7% | 6.9% |
| Real MFG Orders | -1.3% | 0.3% | 0.0% | -10.0% | -0.9% | -5.2% | -5.5% |
Robert Brusca
AuthorMore in Author Profile »Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media. Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.
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