Unexpected Rise in German Orders Leaves Order Profile Still Weak

German real orders unexpectedly rose in September; however, it's not the surprise that it may seem on the surface. They gain in order was only 0.2% following a 1.9% rise in August; while a gain of 0.2% after a gain of 1.9% might seem significant, those two months followed a decline of 11.4% in July. Because of that, the profile of German orders continues to be negative, with real orders falling 4% over 12 months, accelerating to rise at a 7.1% pace over 6 months, then diving to drop at a 33% annual rate over 3 months.

Foreign real orders rose by a strong 4.2% in September after a 1.6% gain in August. Those two brisk increases follow on the heels of a much more substantial 12.7% decline in orders in July. Foreign orders rose by 0.8% over 12 months, rose at a 19.9% annual rate over 6 months, then fell at a 27.3% annual rate over 3 months. And 12-months ago year-on-year real foreign orders were falling 13.8%. The table (below) depicts an isolated island of revival in foreign orders over the last 12 months and 6 months that previously had shown order declines and is doing so again over three months. The foreign sector hardly looks like a back-bone of growth to support the German economy through the export sector.

German domestic orders fared much worse, falling by 5.9% in September, rising by 2.3% in August, and falling by 9.2% in July.

Sequential orders fell by 11% over 12 months, fell at a similar 10% annual rate over six months and fell at a 41.4% annual rate over 3 months.

None of these categories make orders look anything like ‘firm’ or ‘solid,’ let alone ‘strong.’ But the domestic situation is clearly the worst.

Sales trends- abysmal Real sales trends across sectors show declines in all categories in September. All categories show declines over 3 months as well. Over 6 months, only capital goods showed a rise with the other metrics for real sales falling. Over 12 months, again, all categories showed declines except for capital goods sales. Real manufacturing sales declined by 2.5% over 12 months. That improved technically to a 2.4% annual rate drop over 6 months, then, over 3 months sales plunged at an 11.3% annual rate.

QTD trends Quarter-to-date (QTD) trends show orders falling overall as well as for foreign and domestic orders – led by extreme domestic weakness. Real sales by sector register declines in all categories as well, led by weakness in consumer durables.

European conditions Industrial confidence, according to the EU Commission measures, shows net negative readings in September for Germany, France, Italy, and Spain. Month-to-month conditions improved in Germany and France but deteriorated in Italy and Spain. Over 3 months, however, all four countries show conditions weakening; conditions also weaken over 6 months compared to 12 months. In the quarter, all four countries have EU Commission readings that are below historic median in each of these countries.

Summing up Conditions in Germany and in Europe in the industrial sector continue to struggle. Despite a technical rebound in German real orders in September, the thrust of the trends remains downward with the German domestic order situation leading the way lower. The sharp decline in domestic orders in September makes it less likely that when the July numbers fall out of the sequential calculations for the three-month change that the cyclical position of Germany in these calculations will improve by very much if at all.

More broadly- The inflation rate in the EMU is getting corralled but is still too high and global conditions remain difficult. Globally investors are beginning to worry about a different sort of problem; it is not warfare per se but the financial effects of it in the wake of the demands made by COVID and all the government monies that have already been spent. Who will continue to finance all these needs in the future? How will the demand for funds to finance the war and the economy as well as to service existing debts be met? And is it reasonable to think that central banks can and will make progress on inflation when debt levels and financing demands are so strained the way they are? These questions are beginning to resonate in markets.