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Economy in Brief

German Orders Back Track in May
by Robert Brusca  July 6, 2021

German industrial orders (real new orders) fell by 3.7% month-to-month in May 2021. Orders had risen by 1.2% in April. The fall in May broke a string of four straight months of order increases. The May decline was driven by a drop of 6.7% in foreign orders. That drop also broke a string of four straight increases. Domestic orders rose by 0.9%, regaining part of their 1.8% drop in April.

In May 2021, intermediate goods saw new orders decrease by 3.6% compared with April 2021. Capital goods orders receded by 4.6% on the previous month. Consumer goods new orders rose by 3.9%. Consumer goods, on balance, are pushing things ahead providing a counterpoint to weakness elsewhere.

A tale of momentum and growth
May of 2020, one year ago, had been a month of some rebound after March showed declines and April took the biggest hit from the onset of the Covid responses of one year ago. As a result, the year-on-year changes this month are still elevated because of comparisons with a depressed period from a year ago. For this reason, the table also presents comparison with January 2020, before the Covid restrictions hit. While year-on-year order growth is up by 54.3% in May, the gain from January 2020 is only 3.5%. Compared to January, foreign orders are higher by 0.5% and domestic orders are up by 7.9%. These figures from slightly more than a year ago put order growth in a truer perspective. This is further underscored by the column title of 'Year Ago' in the table that looks at the 12-month growth in orders-logged one year ago. These are deeply negative numbers for total orders foreign orders and domestic orders; they emphasize how impacted by the virus the economy was one year ago.

Recent strength
Moving up the timeline to look at six-month and three-month trends resets the analysis shifting it away from the depressed base of one year ago. But there have been fits and starts of economic disruption over the ensuing period as well. The 3.7% order drop this month is a reminder that conditions are still developing and that the global economy is still only emerging from its period of crisis and is not yet fully emerged. This is the most starkly true in looking at the most developed countries vs. others since the most developed and richest countries have the populations that are the most fully vaccinated. Germany now shows weakness in orders from abroad over both three months and six months. In contrast, domestic orders are higher over both three months and six months.

The evolving quarter
Despite the severe drop in orders in May, with two months of data in place, orders in Q2 (quarter-to-date, or QTD) in Germany are rising at an 8.8% annualized rate. Foreign orders QTD are up at a 7.5% pace and domestic orders hit double digits with a pace at 10.8% QTD.

Sales vs. orders
Real sales data show a drop in May as well but by a much smaller 0.6%. The drop adds to a decline of 2.5% in April. Sales trends have the same issues as orders trend as regards the timing of the virus and its distortion on data. But the changes in sales data are pinned to real world production and shipments and are held in check more by the constraints of the physical world compared to orders that are only book-entries.

Real sales trends
Real mining and manufacturing sales fell by 0.5% in May after falling by 2.5% in April. They are up by a Covid-exaggerated 24.5% over 12 months but are lower by 5.1% from January 2020. Sales, unlike orders, are not yet back to their pre-Covid mark. Also, in the quarter-to-date, sales for manufacturers are flat at a 6.6% annual rate. Consumer durables sales in the quarter are very strong but dominated in the consumer sector by weakness in nondurables. Intermediate goods show a small lift in sales while capital goods sales are off sharply. These trends are echoed by the three-month growth trends as well.

Consumer confidence in Europe
Turning our attention to demand in Europe more broadly, we see that consumer confidence indexes were mixed for Germany, France, Italy, and Spain in May. But compared to just one month earlier, March 2021, they are all up quite significantly. Moreover, 12-month to six- month to three-month averages of confidence show steady ongoing improvement for each of these countries. The averaging smooths the hiccups from the virus. Each also slows a significant change in confidence from January of 2020, a pre-Covid metric for improvement. Viewed in a more 'absolute framework,' we find confidence ranking in its top ten percentile for three of these four countries while the exception, France, carries a ranking that is still in its top 20 percentile. Confidence is in a quite solid position.

Summing up
On balance, consumers seem to be in relatively good shape. While different methods were used in different countries in this fight with the virus, it still became a recession. But it was reacted to quite differently than past recessions with more aggressive countervailing efforts made to try to restrain and reverse the downtrend. Despite consumers being in a good frame of mind currently, there is still a long way to go to restore lost output and lost jobs. But clearly the digging out process is well underway. The focus is being shifted to when various government and central bank programs will need to be pulled back. That discussion is farther advanced in the United States than in Europe. But in Europe the end game is a light at the end of the tunnel and some can now see it and want to engage on the issue.

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