German Orders Jump…But from a Pothole

The year-over-year chart of German order growth rates puts in context some of the wild changes in growth rates we've seen month-to-month over the past three months or so. But the chart makes clear that the year-over-year trends haven't changed very much although there's been a great deal of monthly turbulence recently. In June, orders jumped 7.6%. In July, they fell by 11.3%. In August, they rose by 3.9%. On balance, over this period there hasn't been much change in orders, but the monthly turbulence has been tooth-rattling.

Sequential growth rates aren’t particularly telling either, with 12-month growth at -4.4%, the six-month annualized growth rate at -11.3%, and the three-month growth rate stands at -3.1%. All these statistics show that over all the periods orders are declining, but there's no clear trend beyond that. Foreign growth shows some wild swings from -5.1% over 12 months, to -12.5% over six months, then jumping to +6.7% over three months (all annualized). Domestically there is deterioration as the 12-month growth rate of -3.2% gives way to a -9.3% pace over six months which then gives way to -15.4% pace over three months. The domestic picture is worth keeping an eye on.

Sector sales, adjusted for inflation, generally show declining trends and a tendency toward progressive deterioration apart from consumer durables and intermediate goods. For all the manufacturing, sales rise by 0.8% over 12 months, fall 1.9% over six months and then the drop accelerates to -7.2% over 3 months, a clear deteriorating pattern. So while the order patterns are indeterminate except for domestic growth, demand conditions are clearly worsening - the trend for demand shows the clear deterioration.

Industrial confidence for selected large European economies shows negative numbers and a worsening for the recent months apart from Spain and, even that is a minor exception. The averages for industrial confidence measures over 12 months, six months and three months are negative and show deterioration on those timelines.

Quarter-to-date trends are broadly negative with two months of quarterly data now available. For the European industrial data, the table presents instead of quarterly changes the queue percentile standings and here the standings are in the lower 30th percentile for three of the four countries with Spain logging a stronger 41-percentile standing.

On balance, a lot of the references to this report treat it as a surprise and stronger than expected. While that is true, on closer inspection, smoothing out the lumps and the bumps, it appears that the trend is still negative, and this report is simply a strong jump out of a deep pothole that doesn't leave the economy much better off despite a better-than-expected monthly result. The German economy is still looking like it's struggling based on the performance of its factory sector; in fact, there are hints here the conditions could be worsening.