German and Japanese Orders

March 11, 2009

In January, Japanese machinery orders plunged 18.5%, while German industrial orders fell 8.0%.  Foreign demand was particularly weak in each instance.  Japanese foreign machinery orders declined 49% to 43.3% below the fourth-quarter average level and 71.2% less than in January 2008. Those results are much worse than generally anticipated.  Likewise, foreign orders for German goods slumped 11.4% in the first month of 2009 to 19.1% below their 4Q08 level.  In the five months between August and January, German foreign orders plummeted 67% at an annualized rate.  Core domestic private orders for Japanese machinery dropped 3.2% in the latest month and were 10% less than the 4Q level.  Officials had expected core domestic private orders to recover 4.1% in the first quarter of this year, which now seems hopelessly optimistic.  In Germany, domestic orders for capital goods, a leading indicator of business spending, were 21.2% weaker than their 4Q level and represented a 49.7% annualized drop from the level in August.

Those nations that lived by exports are now getting clobbered because of that dependency.  Besides Germany and Japan, China today reported that exports in February were 25.7% lower than a year ago.  That much bigger-than-anticipated collapse followed a drop of 17.5% in January.  Exports had risen 4.7% on year in the fourth quarter and by 19.2% as recently as the year to October.  Chinese exports went up 17.2% in 2008 as a whole.

Britain has also suffered a huge drop in export sales.  Shipments to places outside the European Union fell 15.9% between December and January and by 47.5% at an annualized rate over the past six reported months.  Total British exports were 31.0% lower in January than last July at an annualized rate.  Britain and China have not benefited from supportive shifts in the trajectories of the the yuan and pound.  A policy of controlled appreciation in the yuan from July 2005 accruing to roughly 21% by mid-2008 was halted by Beijing officials to protect exports in the face of an escalating financial and economic slump.  Sterling has meanwhile declined around 19% on a trade-weighted basis since the middle of last year.  The pound’s early adjustment may yet pay dividends but not in the near term.  During the Great Depression, economies whose currencies depreciated first proved to be comparatively resilient.  Great Britain, for instance, experienced a much milder downturn than the United States back then.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution  without express permission.

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