German Orders Drop

German real orders, those are orders adjusted for the effects of inflation, fell by 70% in January, with foreign orders falling 2.3% and domestic orders falling 13.2%. These results follow increases for all the categories December reported a rise in total real orders of 5.9%, foreign orders of 0.5% and domestic orders of 14%. In November total orders and foreign orders fell while domestic orders rose by 3.5%.

Weakness overall German orders remain in a period of weakness as overall orders are dominated by foreign orders which continued to decline. Foreign orders are falling at an accelerating pace that's strong enough to drive the total order series to a decelerating pace despite the fact that the domestic order series falls over 12 months and gets even weaker over six months but then shows a strong gain over three months. That strong 3-month gain is buried in the total by the extreme weakness in foreign orders; it declined at a 40.2% annual rate over three months.

The statistics behind these trends show total orders down by 2.5% over 12 months, falling at a 12.2% annual rate over six months and falling at a 24.3% annual rate over three months. Foreign orders fall by 3.8% over 12 months, at an 8.4% annual rate over six months and at a 40.2% annual rate over three months. Domestic orders only fall by 0.5% over 12 months but then accelerate that drop falling at a 17.1% annual rate over six months and then rebounded to rise at a 10.5% annual rate over three months.

On a quarter-to-date basis, total orders, foreign orders, and domestic orders are falling at deep double-digit paces of about 25% or more at an annual rate, but this is early in the first quarter with only January data in hand. Things could change.

Real sector sales Real sector sales show greater firmness; real sales fall only in consumer durable goods and in intermediate goods in January. They fell for capital goods and intermediate goods in December. A 3-month growth rate for real sector sales shows an 8.2% annual drop for consumer durable goods, and a 4% annual rate drop for intermediate goods, with increases elsewhere for all the manufacturing. Sales are not just improving but they're accelerating from -0.8% growth over 12 months, to a +5.4% annual rate growth pace over six months to +9.7% annualized growth over three months. Even though orders are weakening at a rapid pace, sales continue to plow ahead, and they've actually been plowing ahead at an improving pace.

On quarter-to-date basis, real sector sales are growing for all categories except for consumer durables and intermediate goods. For all manufacturing, the growth rate is 7.6% at an annual rate.

Industrial indicators for Europe Industrial indicators for Germany, France, Italy, and Spain, the four largest economies in the European Monetary Union, show negative readings in January. But there is some improvement afoot. In Germany, the reading improved slightly to -25.2 in January from -28.2 in December. France’s rating improved slightly to -11 from -11.4. Italy's reading improved to -8.2 from -9.4. Spain's reading improved to -4.4 from -4.6. Industrial confidence in these four economies improved in January across the board, but these are small improvements and improvements are from very weak readings. Looking at a broader changes, the change in these readings from a year ago finds Germany worse off by 20 points with the decline of 20.4 points and with more modest but still negative results for France, Italy, and Spain, all of which are weaker in January 2025 than they were in January 2024.

Industrial queue standings - The table provides queue standings for the industrial confidence indicators since 1990 and here we see how weak conditions are: the German numbers on industrial confidence have been weaker only about 4% of the time. France and Italy have been weaker only about 21% of the time; however, Spain shows the reading above its median! The Spanish reading for January has actually been weaker 51.6% of the time and stronger less than 50% of the time. Spain is above its median.

Queue standings reveal weakness On the upper part of the table, I present two different kinds of queue standing data, one set of percentile standings is applied to the levels of orders expressed in real terms. There we see that overall orders are above their 50th percentile, at 50.5 percentile. Foreign orders have a 64.1 percentile standing. Domestic orders are only at a 27.4 percentile standing, substantially below their historic median. Quite apart from the growth rates, the level of orders Germany is getting from abroad are still above what it has been historically, above the historic median. Domestic orders generate only a 27-percentile standing. The queue standings for real sector sales show manufacturing sales above their historic median at a 51.3 percentile mark, led by a 70.5 percentile standing in capital goods. Intermediate goods are below their median at a 43.9% standing and consumer nondurables are at a 44.4 percentile standing; both of those are marginally below the 50th percentile mark which would designate the median reading since 1990. The levels that are extremely weak are levels of real orders for consumer goods particularly weighed down by consumer durables that have been weaker only 3.2% of the time.

Growth rate standings The second set of standings is applied to year-over-year growth rates and here we see total orders foreign and domestic orders all are below their median growth rate with rankings in the 24th to the 44th percentiles. Real sector sales post only a 32-percentile standing for all manufacturing although year-over-year sales or consumer nondurable goods have a 74-percentile standing and that helps to elevate overall consumer goods to a 63-percentile standing.

Summing up On balance, the reading that German orders remains poor the January reading, so it shows a loss of further momentum across the board. Real sales are holding up a lot better than orders and that may mean that there'll be a termination of this weakness in orders. It's hard to believe that the orders are this weak and have been weak this long they're going to continue to weaken and drag real sales down further but that remains a possibility. It's always a question when you have this kind of divergence whether the firm sales will get translated back into orders or whether the weakness in orders is going to further degrade the strength in sales and we're waiting to see which way that goes. Right now, the step up in German military seems to set the stage for a strengthening ahead. As for Europe we see weakness across the board and weak standings across the board with only Spain that has been showing better statistics in a number of ways showing some firming and improving trends. The rest of Europe will see increased military spending as well. For now, Germany continues to be struggling along with France and Italy in those conditions are largely borne out by other indicators as well. But there is an air of change in the wind.