German Orders Are Now on a Run of Weakness; Chart May Say 'Flat' But Three-Month Changes Say 'Weak'

German real industrial orders fell by 2.7% in April after falling by 4.2% in March and by 1.3% in February. This is the first series of three declines in a row since January through March of 2020 when COVID struck. Foreign orders have also fallen for three months running: at -4% in April, -5.8% in March and -2.4% in February. Domestic orders have fallen in two of the last three months, at -0.9% in April and -1.6% in March. The weakness in orders is now deep and it's widespread. Having total orders drop for four months in a row, should that occur next month, would be very rare.

Despite the severe weakness over three months, German orders are not decelerating on a sequential basis. However, German orders are falling for total orders, for foreign orders, and for domestic orders over 12 months, six months and three months.

Recent, but severe, order weakness in Germany Orders fail to show sequential deterioration because the decline over six months is smaller than the decline over 12 months for each of the categories of total orders, foreign orders, and domestic orders. Yet, the decline over three months is severe and is far more intense than the decline over 12 months making the sequential decline calculation moot. It's quite clear that orders are deteriorating sharply and that they erode at some speed in each of these three periods (over 12 months, six months, and three months); there is something very much not right with German orders. The three-month change in orders has been weaker only 3.5% of the time since December 2000 for total orders and foreign orders. Domestic orders have been weaker over three months about one-fifth of the time. These statistic record marked weakness.

With such severe declines over three months, it is not surprising that the quarter-to-date comparisons show deeply negative numbers. Even though the data are only one month into the new quarter, new orders are declining at a 30.3% annual rate with foreign orders declining at a 41.4% annual rate and domestic orders declining at a 10.5% annual rate.

With these steep declines on the books, looking at the change in German orders from January 2020 just before COVID struck we see total orders are higher over this better-than two-year period by only 0.7% with foreign orders weaker by 2.1% and domestic orders higher by 4.7%. The concentration of weakness in foreign orders clearly flags the Russia-Ukraine war and the impact of sanctions because of Germany's previous significant trading ties to the Russian state.

Sales by sector Sector sales trends paint a much less gloomy picture with sales rising from manufacturing overall in April by 0.5%; manufacturing & mining sales together rise by 0.6% with total consumer sales rising by a skinny 0.1% led by consumer durables that gained 7.3% in April and capital goods which rose by 1.4% as consumer nondurable goods sales fell by 1.1% and intermediate goods sales fell by 1%.

Over three months, the results are less upbeat. For all manufacturing, sales are falling at a 21.9% annual rate led by a 40.3% (AR) decline in capital goods sales, a 7.1% decline in intermediate goods sales, while consumer sales are up at a 4.4% pace, bolstered by consumer durables which rose at a 14.8% pace. Over 12 months, there are declines in sales for mining & manufacturing, for manufacturing overall, as well as for capital goods and intermediate goods. The overall consumer goods sector shows a gain on an increase in both durable and nondurable goods sales. Even so, sales by sector show broad-based deceleration over three months and they clearly decelerate over 12 months compared to 12-months ago as well. As with orders, there is less of a weakening of sales over six months. On a quarter-to-date, manufacturing sales are down at an 18.9% annual rate. Those declines are led by capital goods that fall at a 32.8% annual rate and intermediate goods where sales fall at a 10.5% annual rate while consumer goods fall at a rate of less than 0.5% annualized.

Pre-COVID comparison Real sector sales compared to their pre-Covid sales levels of January 2020 show declines overall as of April, falling by 6.5%, consumer goods sales are down by 1.3%, capital goods sales are down by 13.2%, and intermediate goods sales are up by only 0.3%. Within consumer goods, there's a split with consumer durables sales up by a solid 7.1% while sales of nondurables fall by 2.9%.

Industrial performance: Germany and Europe We can compare German industrial performance to performance in other European Monetary Union countries France, Italy, and Spain using the EU Commission's industrial indexes also available through April. Those indexes show positive readings for Germany at +16.4 and in Italy at +4.5 in April. France shows a negative reading of -0.5 and Spain records a -1.2. These are net (up minus down) diffusion indexes. In terms of monthly changes, Germany is stronger relative to March by just a tick while the other countries show weakening between March and April with France falling to -0.5 from +1.4, Italy falling just two ticks to +4.5 from +4.7 and Spain falling to -1.2 from +4.4.

The average readings over three months, six months and 12 months show a slow deterioration over those spans in Germany, a slow deterioration in Italy, as well. However, Spain and France present a convoluted pattern that demonstrates neither acceleration or deceleration in a clear fashion. However, if we look at just net changes from a year ago, three of the four largest European Monetary Union countries show increases with Spain alone showing a small decrement over 12 months of 0.2 points.

The queue standings of the industrial indexes from the European Commission show firmness or strength across the board. Germany is at a very high 97th percentile standing, France and Spain boast standings in their low 70th percentile and Italy presents a standing around its 85th percentile. All of these metrics are firm-to-strong. And looking at the industrial data, changes since COVID struck back to January 2020 show positive changes. Spain demonstrates the largest change, up by 34.3 points on this index, Germany is up by 27.0 points, Italy is up by 9.5 points, and France is up by 2.3 points.

EU Commission readings in context The EU industrial confidence readings are for the most part firmer and stronger than the German orders series we began evaluating. However, the German manufacturing PMI gauge for April did slip month-to-month and it presents a manufacturing PMI ranking on data from January 2018 of only 46.2%, below its median on that timeline. If we rank the German PMI and EU Commission industrial index under the same timeline, the EU index continues to rank strong at a 78.8 percentile mark. There is quite a difference in these rankings. When differences and surveys that purport to evaluate much the same thing begin to diverge, it's an indication that conditions are changing. One technical measure of industrial strength and activity can differ from another and they are going to differ more when conditions are changing and when the impact on industry is not uniform.

Summing up The German real orders data and real sales data show some clear and severe weakening for Germany. The PMI for manufacturing shows the value below its median, but continues to show expansion for the sector as of April which is consistent what we see from the real sector sales data but it's not the picture painted of the future by the orders data. The European Commission industrial data (which are - in form - much more similar to the S&P Global manufacturing PMI) still show a large difference with that PMI survey. Although the EU Commission data also show some weakening, they continue to show a lot more strength across manufacturing than either German orders, sales, or the S&P Global PMI data.