Sharp Rise in German Orders Generated by Foreign Sector

German orders surged in June rising by 7% after gaining 6.2% in May and after rising 0.2% in April. This is a particularly strong stretch for German orders. Orders are being pushed ahead by the foreign sector as foreign orders grew 13.5% month-to-month in June after rising 6.8% in May. Domestic orders fell by 2% in June after rising 5.3% in May.

Sequential trends Sequentially, German orders are accelerating, growing by 2.9% over 12 months, rising at a 13.6% annual rate over 6 months then exploding at a 68.1% annual rate over 3 months. This profile is engaged to some extent by both foreign and domestic orders, but it clearly is being driven by foreign orders. Foreign orders rise 8.6% year-over-year, advance at a 30.8% annual rate over 6 months, and then skyrocket at 108.8% annual rate over 3 months. In contrast, domestic orders over 12 months fall by 5%, and then they weaken further, falling at a 7.8% pace over 6 months; however, over the most recent 3 months domestic orders turn around and grow sharply at a 21.7% annual rate.

An unexpected -and probably not lasting- surge in orders The strength in orders Germany experienced in June has come from large orders substantially related to the aerospace industry mostly concentrated from fellow members within the European Monetary Union, augmented by moderate strength from outside the Monetary Union as well. The surge in German orders saw large new product orders rise sharply in June; excluding this surge, new orders fell by 2.6% month-to-month. Orders from other European Monetary Union members grew sharply in June, rising 27.2% on strong demand from the aerospace industry. Foreign orders from outside of the euro area were solid, rising 5% month-to-month. In contrast, German domestic orders languished, and fell on the month.

Just-completed Q2 Despite this strength, in the quarter-to-date (just completed Q2), orders are rising only 0.9% at an annual rate with foreign orders falling at a 0.4% annual rate and domestic orders rising at a 3% annual rate.

Real sales are pedestrian Real sales across sectors exhibit declines everywhere in June. The sector weakness is surprising in view of the strength in orders. For manufacturing, the sequence of growth rates shows a 0.4% gain in real sales over 12 months, flat performance over 6 months, and a 6.1% gain over 3 months. Over 3 months, mining & manufacturing real sales are up by 6.6% at an annual rate; consumer sales fall by 2.4%, with consumer durable sales extremely weak. Capital goods sales rise strongly at a 22.1% annual rate over 3 months, but intermediate goods sales fall at a 6.7% annual rate over 3 months. In the quarter-to-date, real manufacturing sales are rising at a 1.9% annual rate.

Industrial confidence in EMU’s largest economies EU industrial confidence shows worsening. The confidence for Germany, Italy, and Spain, three of the four largest economies in the European Monetary Union, declined in June. France registers a -7.8 reading for industrial confidence in June, an improvement from its -9.2 reading in May, but clearly not enough to create an overall positive signal for France, Italy, and Spain taken together. Over the last 12 months, all four countries show weaker readings in June than they display over 12 months on average. Looking at point-to-point changes over 12 months, the German economy has fared the worst backtracking by 23.8 points over 12 months, compared to Spain losing 10.5 points, Italy losing 9.2 points and France shedding 7.7 points. These confidence measures when ranked on data since 1990 show lower 33- to 42-percentile rankings for all these countries. All the Big Four economies in the EMU have confidence readings below their respective medians- all are weak.