German Factory Orders Rise But Still Display Poor Momentum

German factory orders rose by 1% in January following a 3.4% increase in December. Of course, that gain came out the heels of a 4.4% decline in November. As a result, German factory orders are still declining over 12 months, over six months and over three months. The order pattern shows clear deceleration as the 12-month drop is at a -11% pace, the six-month drop is at an -8.9% pace and the 3-month drop is at a pace of less than -1%.

Foreign orders substantially carried the day in January with a 5.5% increase on the heels of a 2% increase in December, but that's after a 6.9% decline in November. Foreign orders show an increasing profile against a -12.3% pace over 12 months, a -8.9% annual rate over 6 months, and a rise at just less than 1% over 3 months.

Domestic order trends are poor German domestic orders on the other hand were weak in January, falling by 5.3% after a 5.3% rise in December; that compares to a 0.5% drop in November. Domestic orders also show an improving profile but not as dramatically improving as for foreign orders; over 12 months domestic orders posts a decline at a -9.2% rate; that pace lets up slightly over 6 months at -8.9%, and that gives way to a -3.3% annual rate over 3 months.

Quarter-to-date In the quarter-to-date with only one month of data in hand, total orders are growing at a 10.6% annual rate led by a 29.1% surge in foreign orders and held back by a -12.6% annual rate drop in domestic orders. This has been a difficult period for German orders. Calculating growth back since COVID struck in January 2020, total orders, foreign orders, and domestic orders all are lower with the declines on the order of 2.5% or so.

Real sales by sector Real sales show more resilience with manufacturing sales off by 0.1% over 12 months, rising at a 4.9% annual rate over 6 months, and holding out a 4.9% annual rate gain over 3 months. Consumer goods categories show declines over 3 months for consumer goods overall, and for consumer durables and consumer nondurable sales. Over 3 months the strength comes from capital goods where there's an increase at a 27.1% annual rate, after a 20.7% annual rate increase over 6 months, a 7.1% annual rate increase over 12 months. Intermediate goods output, however, is still declining and decelerating with the -7.3% rate drop over 12 months, a -10.9% annual rate drop in sales over six months and a -15.7% annual rate drop over three months. For consumer goods, the sequential patterns are mixed.

European industrial performance compared Indicators of industrial confidence for the EU Commission allow us to compare Germany's performance with France, Italy, and Spain. All four countries listed in the table show improvement in January compared to December. France and Spain also show improvement in December relative to November. The queue standings for these metrics, however, are moderate. Germany has the best performance is this EU survey with a 79.3 percentile standing. Italy has a 56-percentile standing, about the same as Spain, while France has a 50.5 percentile standing. Indicators show small improvements since January 2020 for Spain and for Italy against a substantial improvement for Germany; only France shows a net weaker industrial reading of January 2023 compared to January 2020.

The month’s data remained somewhat mixed. There are improvements on the month from the EU industrial measures for the four largest European Monetary Union countries and their industrial sectors. Real sales largely increased in January as did overall orders for Germany. However, there is a very strong gain in foreign orders and a sharp contraction for domestic orders in Germany. Real sales are relatively flat on the month with most of the strength in sales from capital goods. Consumer goods sales show a tendency to be less weak and they're still contracting overall and in quarter-to-date. Data still show a lot of weakness and the comparison with January 2020 reminds us this has overall been a weak 3-year period. This report comes against the background of the S&P Global PMI indexes generally showing improvements for February; that's a hopeful note looking ahead. However, inflation remains high and central banks are still raising interest rates. That remains a very significant cloud overhanging the outlook. The geopolitical environment - especially the Russia Ukraine war - continues to be a negative risk factor always lurking in the background. There is somewhat better news in this report, but it's marginal and nothing to be excited about.