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Economy in Brief

German Output on Fading Trend Still Show Some Gain in Q3
by Rob Brusca  October 9, 2012

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%
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%
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