width=147Release: Factory Orders m/m (Nov.)
Consensus Forecast: -1.6%
Previous: 5.2%
Date/Time: 1/06/11 (6:00 AM ET; 11:oo GMT)

Factory Orders Expected to Slip in November

German economy is the locomotive behind the euro zone. Recent data from Germany has been relatively supportive and on aggregate will help boost Euro-zone wide data. On Friday we get a leading indicator for the manufacturing sector - the latest reading on factory orders. More factory orders means more production and more exports for the German state.

The expectation or the consensus forecast is for a 1.6% drop in orders during November, which compares to 5.2% increase in September.


That shows the strains expected I and that business spending as a result of the escalation the sovereign debt crisis. Here's some more context as we anticipate this release.

From Bloomberg: German exports of cars, machines and services breached the 1 trillion euro mark ($1.3 trillion) for the first time in 2011, according the BGA export group. Yet continued export growth, which may be half the 12 percent reported in 2011, depends on the euro region solving its debt crisis in a sustainable way, the BGA said on Dec. 30.

Germany may depend on demand from China this year as budget cuts and belt-tightening causes sales to ebb to Germany's European partners, the destination for 60 percent of its exports, University of California Berkeley economist Barry Eichengreen said in a Dec. 30 interview published in the Financial Times Deutschland.


Ifo and the Bundesbank both slashed their forecasts last month for 2012 economic growth in Germany as a result of the debt crisis on Germany's main euro-area trading partners, to 0.4 percent from 2.3 percent and to 0.6 percent from 1.8 percent respectively. Chancellor Angela Merkel's government estimates that the economy grew 2.9 percent in 2011.

The data will follow other key releases from Germany this week which paint a rather mixed picture. While employment data came in better than expected we see German consumers retrenching in terms of their spending.

German Labor Market Continues to Improve

In the labor market we saw on employment change dropping by 22K in December, a figure which beat forecasts of a 9K decline. It also matched the 23K drop seen in November.


The seasonally adjusted unemployment rate dropped to 6.8% extending a downward trend since September of 2009 and puts the unemployment rate at its lowest level since Germany reunified in 1991.


But, Stronger Labor Market Is Not Leading to More Consumer Spending

width=400Despite the improvement in the labor market it is not translating into more consumer spending.

In another key release from Germany this week we saw that retail sales declined 0.9% in November, undershooting by quite a bit forecasts of 0.2% increase for the month.

At the same time we saw the October reading revised downwards to show a 0.2% decline in sales when the originally reported reading had sales climbing 0.7%.

That undercuts the thesis that better labor market conditions will help spur domestic demand thereby countering the expected soft demand from other EU nations which are facing austerity measures as well as recessionary economic conditions.

That shows German consumers are anticipating gloomy times ahead and are cutting back on spending. Therefore it it may be even more important for Germany to be able to sustain strong manufacturing growth as it enters the beginning of 2012 and puts more emphasis on leading indicators like Friday's factory orders.

Where Germany Goes, The ECB (And the Rest of Europe) Follows

While it may not have the biggest impact on the EUR amid concerns in bond markets, the state of the Germany economy will determine the outlook for Europe as a whole in the 1Q of 2012. If the economic conditions deteriorate in Germany, then the ECB will feel more pressure to undertake further measures such as lowering the interest rate, or conducting further easing of monetary policy through unconventional means. If Germany's data proves resilient, then Europe may have a bit more time to see if conditions can improve in the sovereign debt complex on the periphery.

Nick Nasad is the Chief Market Analyst at FXTimes - provider of Forex News, AnalysisEducationVideosCharts, and other trading resources.