After a good first quarter, a series of iffy data has been cropping up in Germany in the second quarter, including – against all “expectations” – the rising number of unemployed folks in May, published last week. The Bundesbank had already warned earlier that economic growth has slowed in the second quarter. And it did what everyone else had done in the US:
It blamed the weather.
But this time, it blamed the unusually warm weather in Q1 that had goosed various aspects of the economy in Q1. Hence the drop-off now.
Blaming every bout of bad weather for bad economic data is convenient and politically expedient. It even makes some sense to those folks stuck at home or in their cars on a highway with two inches of snow – though it makes less sense in reality when the whole country has a terrible quarter.But blaming warm weather in winter, in the prior quarter, for crummy economic data in the subsequent data? Go figure!
So on Monday, German industrial output data for May was released. And it wasn’t pretty: down 1.8% from April when it had already dropped a revised 0.3%, seasonally and price adjusted. It was the sharpest rate of decline since April 2012.
It was dragged down by a 1.6% drop in manufacturing output and a 4.9% plunge in construction output. And orders, a sign of what’s going to happen to output in the following months? They fell 1.7% on a monthly basis, with domestic and foreign orders both down.
Foreign orders down?
So what was the weather like around the world in Q1 that it would drag down orders in Q2? Didn’t we in the US – a big export market for Germany – blame polar vortices for the terrible first quarter only to benefit, hopefully, from the “pent-up demand” in the second? Maybe not. These tangled-up weather stories get confusing.
The German statistics agency, Destatis, remained hopeful, however. It admitted that production, after the glorious first quarter, has “temporarily” swooned over the last couple of months; but it would soon pick up speed, perhaps later this year. At least it didn’t use the word “escape velocity.” That would have been a really bad sign.