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GRAPHIC-What to make of German industry's divergent numbers? Look to the correlations
February 7, 2017 / 12:41 PM / 10 months ago

GRAPHIC-What to make of German industry's divergent numbers? Look to the correlations

LONDON, Feb 7 (Reuters) - German industrial figures over the past few days have provided not just a big surprise, but perhaps at first glance a confusing one.

First, industrial orders for December rose 5.4 percent month on month, way higher than the 0.5 percent consensus expectation and higher than any forecast in a Reuters poll.

Then, industrial production for December came in at minus 3.0 percent, way lower than the plus 0.3 percent consensus expectation - and lower than any Reuters poll forecast.

Here's the divergence:

So what does it mean? Look at the correlations.

In short, economic growth in the final quarter of 2016 may not have been as robust as some analysts expected.

Most believe it to have grown by some 0.5 percent in the fourth quarter. But the industrial production performance may not allow for that.

Over the last 10 years, the correlation between monthly industrial production and current quarter GDP has been a strong 0.868, according to Thomson Reuters data.

In other words, poor industrial production usual translates into poor GDP.

But the December orders - described as “sensational” by one analyst - bode well for the first quarter of this year.

The 10-year correlation between monthly orders and the next quarter has been an almost-as-strong 0.808.

So probably positive news overall for Germany’s economy. (Editing by Hugh Lawson)

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