Manufacturing Orders Down

Manufacturing orders decreased 1.3% m/m in May after already contracting 2.2% the previous month. Figures for manufacturing orders are nonetheless volatile and they have probably been impacted by the floods in May.

Manufacturing orders decreased 1.3% m/m in May after already contracting 2.2% the previous month. Figures for manufacturing orders are nonetheless volatile and they have probably been impacted by the floods in May.

Manufacturing orders have been very volatile up until recently. In April, they were down 2.2% m/m, following 2.4% monthly increase in March. This time they were down once again (-1.3% m/m). Their decrease was due to the fall in both domestic orders (-2% m/m) and foreign orders which account for more than 50% of total orders (-0.7% m/m). Nonetheless manufacturing orders underlying trend remains upward orientated (+1.4% q/q, after 2% in April) albeit less clearly than before, as outlined by the Economy Ministry.

Orders from eurozone countries declined 3.9% after already -3.5% m/m in April, indicating that German recovery is closely linked to the euro area recovery. Conversely orders from non-eurozone countries were up 1.1% m/m.

Looking at the sector breakdown, investment goods declined 1.8% m/m after -3.3% in April, while consumer goods orders were down 3.1% following a 6.5% jump in April. Intermediate goods were almost unchanged over the period down 0.1% m/m. Overall manufacturing orders declined 2.1% over the year, recording their sharpest fall since September 2012.

Nonetheless recent surveys give encouraging signals regarding activity, as they are all orientated upwards. The IFO index was modestly up from 105.7 in May to 105.9, while the ZEW expectations index increased from 36.4 to 38.5. According to ESI release, Germany's sentiment indicator increased from 98.7 to 99.8. Finally, the manufacturing PMI output index (at 50.5) remained above the 50- threshold in June for the second month in a row, though falling somewhat from May.

All in all industrial output should recover progressively as the euro area exits from current recession. On Monday, May industrial output data will be released. We expect a downward correction. Indeed manufacturing production has been up by more than 1% month-on-month between February and April, thanks mainly to catchup effects following the bad weather conditions during winter. In addition the floods have probably weighed on output at the end of May.

BY Caroline NEWHOUSE

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