Factory Orders Beat Driven By Aircraft One-Offs, Core Remains Weak

German factory orders for December easily beat expectations, rising by +2.7% Y/Y (vs -5.3% cons; -4.7% prior, revised from -4.4%) and +8.9% M/M (seasonally-adjusted; vs -0.2% cons; 0.0% prior, revised from +0.3%). For 2023 as a whole, factory orders declined -5.9% Y/Y.

• However, the December beat was strongly driven by volatile large ticket items, particularly in the airplane sector. Excluding one-off big ticket items, "core" new orders declined -2.2% M/M (vs -0.8% prior), the 4th consecutive monthly drop, with the less volatile 3M/3M measure coming in at -2.6% (vs -1.4% prior), the lowest since June 2023. The level of core orders is at the lowest since the pandemic.
• Looking at individual components, the "other vehicles" sector saw a jump of +110.9% M/M. This can be accounted for by large airlines including Turkish Airlines ordering more then 800 Airbus aircraft in the month (per Airbus data - total 2023 deliveries were at 735), which are partly manufactured in Germany.
• Large one-off orders also drove the headline figure higher in the metal products and electrical equipment sectors. Consequently, investment goods and intermediate goods orders grew at +10.9% M/M and +8.3%, respectively. Consumption goods saw a decline of -1.3% M/M.
• Looking at a geographical split, domestic orders climbed by +9.4% M/M, up for the 2nd consecutive month. Foreign orders increased +8.5% M/M, driven by Eurozone orders increasing +34.5% (non-Eurozone at -7.5% M/M).
• Even though the headline suggests a clear uptick in activity compared to last month, the underlying "core" measures rather point towards ongoing weakness in German industrial activity.
• Indeed, real turnover in manufacturing fell -0.1% M/M, suggesting that the rather weak consensus estimate of Wednesday's industrial production data (-0.5% M/M expected, after -0.7% in Nov) might be well justified.