Wednesday, May 8, 2013

New Orders - end of the negative trend?

I like to show the following graph of new orders from the beginning of 2011 until February 2013 when people talk about the "powerhouse" Germany that is "withstanding" the recession in Europe:

New orders have been declining for the last two years. Yesterday the March numbers were released and seasonally adjusted (X-12-Arima) they were up 2.2 % compared to February. The economics ministry declared that "the industry seems to gradually overcome its phase of weakness". So, the second positive month in a row has them less excited than last month. Back then the statement was that the "industry IS more and more overcoming its phase of weakness". The non-adjusted new orders were pretty bad for this month. March is usually the strongest month of the year, but this year the Easter holiday reduced the workdays by two compared to 2012 and it was also significantly colder than usual, seasonal adjustment might therefore be quite tricky.

So are we seeing a new trend or is this just an one-off? The statistisches Bundesamt also uses another method for seasonal adjustments. It is called BV4.1 and in addition to seasonal adjustment it also has a useful trend cycle component. Here we see stagnation since June last year. at around 102.9 % (SA up 1.9 %), so the economics ministry is rightly careful in its assessment of the current situation. These two positive months in a row are a genuinely good sign but they do not indicate a new trend yet. The falling IFO business climate index indicates that we should not get our hopes up. Also lets not forget the euro crisis. It therefore seems unlikely that these positive numbers are more than just a blip.

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