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Economy in Brief

German Orders Grow Strongly But the Year-On-Year Pace Eases
by Robert Brusca  August 5, 2021

German factory orders rose by 4.1% in June, a pick up from their 3.2% drop in May. The May drop was caused by a 6% m/m May plunge in foreign orders following a sizeable gain of 3.2% in April. But in June, German foreign orders are still weak, rising only 0.4% m/m. It was domestic orders that popped in June, rising by 9.6% after a 1.1% May gain.

Sequential growth rates show a steady slowing in growth for orders, driven by a strong deceleration in growth including a three-month contraction in foreign orders. Contrarily, domestic orders steadily accelerate their growth from 12-months to six-months to three-months.

But over 12 months orders overall gain 25.9%, led by a 34.6% rise in foreign orders compared to a 16.2% gain in domestic orders. Overall foreign orders are stronger based on year-over-year gains; yet, it is domestic orders that have the positive momentum.

In the quarter-to-date, domestic orders are driving the quarterly growth rate too. June completes the data cycle for Q2. Domestic orders surged at a 25.1% annualized rate in the quarter compared to a 3.8% pace for foreign orders. Also, domestic orders have made a strong comeback from their January 2020 levels. In the wake of the virus, domestic orders are up by 18.6% from January 2020 while German foreign orders are up by just 1.6%. Germany depends on growth in that foreign sector and it has just not been there.

While real orders are growing over three months, real sales in mining and manufacturing are weak and falling broadly over three months. Real sales are off in month-to-month in April, May, and June. Consumer goods sales fall in June and April. Capital goods sales fall in April, May, and June. Intermediate goods sales rise in June as well as in April, but still fall on balance over three months. Orders clearly are out ahead of sales. In this environment, it is hard to explain sales since there are global supply chain effects and sales may be constrained by shortages. If that is the case, then orders are the better barometer of underlaying demand- not sales.

Sequentially mining and manufacturing sales decelerate from 12-months to six-months to three-months. So do the sales of consumer goods, capital good and intermediate goods. Consumer nondurable goods sales follow that pattern of decay, but durables break out of it with strong growth over the recent three months.

In the quarter-to-date, overall real sales are contracting, led by capital goods with a small decline in consumer goods sales while intermediate goods post a small increase in sales q/q. Total real sales are lower compared to January 2020. This weakness is led by capital goods sales followed by consumer goods sales. Intermediate goods tick higher compared to January 2020, gaining a thin 0.6%... not much of a gain over a period of 17 months.

Industrial confidence in Europe in June is split for the countries in this table. It rose in Germany and in Italy while it eroded in France and fell more sharply in Spain. Over three months there is clear improvement in all four countries compared to their respective six-month averages. All are higher compared to January of 2020. Germany is the strongest, followed by Italy with smaller gains for France and Spain. The industrial sectors all are on the move and improving. Their queue percentile assessments range from hot in Germany and Italy to strong in Spain to quite firm in France. On balance, the European industrial scene seems in good shape despite the fading and ongoing weakness in German foreign orders.

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