German Orders Rise But Slow

German new factory orders rose 1.8% in January after rising by 3% in December and by 3.6% in November. Orders are up at a 39.2% annual rate over three months; that's a sharp acceleration from the minus 9.2% rate of change over six months and a solid acceleration from the 7.4% annual rate over 12 months.

Foreign orders rose by 9.4% in January after falling 2.4% in December and rising 6.5% in November. Foreign orders are rising at a very strong 67% annualized rate over three months after falling at a 3.2% annual rate over six months and rising by 9.4% over 12 months. Domestic orders fell by 8.3% in January, blunting the increase in overall order gains. Domestic orders rose by 11.4% in December and fell by 0.7% in November. Over three months domestic orders are rising at a 6.1% annual rate, up from a minus 17.5% rate over six months compared to their 4.6% increase over 12 months. Domestic orders have been more volatile and weaker than foreign orders.

Clearly German orders are being driven by their foreign component. This is not surprising since foreign orders have increasingly more important than domestic orders going back to at least 1990. Germany is highly trade-dependent, and its manufacturing sector continues to show that. Germany is highly exposed to international events although a lot of German trade occurs within Europe and within the EMU single currency area without clear foreign exchange consequences.

Overall orders: Quarter-to-date and Covid-to-date In the quarter-to-date, total orders are rising at a 34% annual rate boosted by a 75.7% annual rate increase in foreign orders; domestic orders are falling at a 10.2% annual rate early in Q1 2022. Looking at orders back to January 2020 when COVID first struck, total orders are up by 8.8% on that timeline, foreign orders are up by 11% and domestic orders are up by 5.5%. These are reasonably firm results for real orders over a two-year period.

Real sales trends Real sales in Germany show more of a mixed trend across its component sectors. For manufacturing monthly sales are up by 1.8% in January; that accelerates from 0.7% in December and compares to a 4.3% rise in November. However, consumer goods, consumer durable goods and consumer nondurable goods sales all decelerate month-to-month. Intermediate goods sales decelerate month-to-month as well. But those trends are dominated by capital goods that accelerate and grow 3.9% month-to-month in January, after being flat in December and surging by 8.3% in November alone.

For the moment, capital goods are extremely strong and making up for some lost time. Manufacturing sales are also accelerating; they are accelerating to a 30.4% annual rate over three months from 8.3% over six months and 3% over 12 months. The manufacturing sector is gaining momentum.

By sector, consumer goods output is less linear with a 3.2% gain over 12 months turning to a decline of 0.8% at an annual rate over six months but then climbing back in the plus column with a 5.3% annual rate gain over three months. Intermediate goods accelerate steadily, rising from a 0.3% gain over 12 months, to a 1.2% pace over six months and to a pace of 8.1% over three months. Capital goods show the strongest acceleration of all; real capital goods sales are up by 3.1% over 12 months rising to a 14.8% pace of expansion over six months. That increases to 60.2% at an annual rate over three months. Clearly capital goods are driving force in the German economy right now.

Quarter-to-date and Covid-to-date Quarter-to-date real sales show strength for manufacturing where sales are up at a 24.1% pace; consumer goods are up at 3% pace; intermediate goods are up to 2.2% pace; capital goods sales are rising in the quarter-to-date at a massive 46.8% annual rate. Some of this clearly is ‘catch-up’ as sales have been weak since COVID struck. Looking at the change in sales since January 2020, total manufacturing sales are still somewhat weaker being 0.2%, below their January 2020 mark. Consumer goods real sales are 2.4% lower; intermediate goods sales are higher by 0.9% but sales of capital goods are lower by 0.7%. So, the manufacturing sector is just now beginning to gather momentum and post some pace.

Caveat outlook This, of course, is time for us again to deal with suspicions about the future. After having to make caveats over the last two years about COVID and its effect on manufacturing in the economy, on orders and on trade, there is now a war going on in Ukraine. There are huge potential consequences for Germany and for Europe because of the dependence of this area on oil from Russia. There is an ongoing dialogue about whether Russian oil will be embargoed or not. This raises a huge question mark about Germany and its potential for growth looking ahead.

So far, we have good strength in the countries that we summarize in the table: Germany, France, Italy, and Spain. Industrial measures stand in their respective 90th percentile ranking them in a data queue since 1990. Obviously, the future is clouded because of war in the Ukraine and because of European dependence on oil. For now, momentum looks good. Sector performance is solid. There are still ongoing supply-chain problems, but for now, these forces do not seem to be restraining Germany very much. However, the war in Ukraine is a new element that must be put in the uncertainty column looking ahead and it could become a huge fact and will likely restrain growth ahead.