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Economy in Brief

Germany's Flirtation with Rebound Is Smashed by a Stunning September Order Drop
by Robert Brusca November 6, 2008

German officials have officially ended their excursion trip with optimism. During their journey through fantasy land, they did take their turns in showing how wrong they can be. From the start of the US slowing, they thought Europe had decoupled and that the euro could continue to rise with little ill effect on the Zone. When the other e-Zone countries were affected they said Germany was different. When the banking crisis hit the US they said German banks were strong and did not have these sorts of problems. Recently they had believed Germany was going to be so much less affected by the growing recession in Europe as policymakers announced that Germany was better prepared to meet the crisis. And so it may be. And we shall find out because ready or not here it comes.

The pop in orders in August may have errantly encouraged the belief that Germany was wearing some sort of special recession-proof vest. But now Super-Germany has met its Kryptonite. The Sept plunge in orders of -8% is the largest drop since German unification and has swept optimism aside. Germany is now, after all, just another European country with an economy under pressure, not a special case

Moreover a perusal of the trends makes is crystal clear that this downturn has been building for some time. Optimism in retrospect looks a bit like whistling past the graveyard. August’s orders gain was a rogue rise of 3.5% sandwiched in between drops of 1.7% in July and now 8% in September. The sequential growth rates get progressively more negative from -9% over 12 months to -12% over six months to -23% over three months. Similarly the foreign and domestic orders show the same progressions.

Germany is getting pulled down more by weakness from the outside. So, in some sense, it is true that Germany has been faring better. But in good times German export orders boomed beyond the reach of domestic orders as well. Germany is simply a lower growth more stable economy than the world in which it trades. Yet weakness abroad will weigh on Germany just as a global boom will boost it. Because Germany is plugged into that trading system, it shares the good and bad times with the world it exports to. There is nothing unusual about that or about the effect of that on Germany in this cycle.

The German industrial sales figures underline the issues. German sales are showing the same sort of progressive declines. For a while Germany was growing better than its trading partners because it deals a lot in capital goods. One year ago German capital goods growth rates rose 8% Yr/Yr while overall German sales rose by just 5.8%. But in September German capital goods orders are being crushed. They are falling by 5.2% in Sept alone. Their three-month pace of contraction is -14.4% rivaling the 15.5% drop in the usually volatile sales of consumer durable goods.

Germany has been caught in the same web of weakness that all of Europe is in. Today’s industrial orders report combines with the week’s earlier reports from the MFG and Services sector purchasers data from Markit to show that weakness is spreading in Germany as well as across the e-Zone.

Germany is in the soup along with the rest of Europe although it may be submerging at a slightly slower rate. There can be little doubt that Germany, like the rest of Europe is submerging. Down periscope.

German Orders and Sales By Sector and Origin
Real and SA % M/M % Saar
  Sep-08 Aug-08 Jul-08 3-Mo 6-Mo 12-Mo Yr Ago QTR-2-Date
Total Orders -8.0% 3.5% -1.7% -23.0% -12.2% -9.0% 6.4% -14.7%
Foreign -11.4% 4.3% -1.2% -30.7% -16.7% -13.6% 12.1% -17.8%
Domestic -4.3% 2.8% -2.1% -14.2% -7.4% -3.9% 0.8% -11.4%
Real Sector Sales
MFG/Mining -4.0% 4.5% -2.4% -8.2% -4.2% -1.9% 5.8% -5.0%
Consumer -0.6% 2.0% -0.4% 4.0% 2.0% -2.6% 1.3% -0.9%
Consumer Durables -6.3% 6.8% -4.2% -15.5% -8.1% -5.8% 2.4% -7.7%
Consumer Non-Durable 0.6% 1.2% 0.3% 8.5% 4.2% -1.9% 1.0% 0.6%
Capital Goods -5.2% 5.7% -4.0% -14.4% -7.5% -1.2% 8.0% -9.2%
Intermediate Goods -4.3% 4.2% -1.7% -7.5% -3.8% -2.6% 6.0% -2.5%
All MFG-Sales -3.9% 4.4% -2.2% -7.4% -3.8% -1.9% 5.3% -4.5%
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