German factory orders plummet

05 May 2023

Chris Scicluna
, 
Emily Nicol

German factory orders plummet in March, while turnover also suggests manufacturing output contracted in Q1
German factory orders plummeted in March, by a much larger-than-expected 10.7%M/M, the most since the initial pandemic slump and before that August 1976. Admittedly, given the pickup over recent months, this left them broadly flat in Q1 (+0.2%Q/Q). Nevertheless, they were down a whopping 11%Y/Y and more than 20% below the pandemic peak in July 2021.

The weakness was in part driven by a slump (-47.4%M/M) in new major orders in the “other vehicle construction” sub-sector (ships, railway, aircrafts, spacecrafts and army vehicles), which largely reversed a surge in February. But new auto sector orders also fell sharply (12%M/M). Overall, when excluding major items, total orders fell 7.7%M/M, to be down 1.3%3M/3M.

Looking ahead to Monday’s IP release, today’s manufacturing turnover numbers also suggested a notable weakening in output in the sector at the end of Q1. In particular, turnover fell 2.9%M/M, to leave it down almost 1%3M/3M.

French IP fell in March as strikes weighed on mining output
French IP data for March were also weaker than expected, falling for the second month out of the past three, by 1.1%M/M. This left output unchanged over the first quarter as a whole and broadly in line with its level a year ago.

The weakness was principally driven by a strike-related slump in output from the petroleum refinery sun-sector (-45.6%M/M). Construction activity also fell for the first month in three. In contrast, autos production rose to a six-month high, to leave up more than 1½%3M/3M in Q1.

European construction PMIs likely to signal ongoing weakness in the sector
The construction PMIs due shortly are expected to flag ongoing lacklustre demand in the sector particularly in housing amid higher borrowing costs, weaker disposable income and low consumer confidence. The activity indices are likely to remain in contractionary territory in Germany, France and Italy and point to little growth in the UK too.

US payroll growth likely to have slowed a little further in April
Initial claims data, as well as broader evidence of deteriorating economic conditions, suggest that US nonfarm payrolls are likely to have slowed a little further in April from 236k in March, which was well below the 399k average in the first two months of the year. Lawrence Werther of Daiwa America forecasts NFPs to rise 225k, a little above the median on the BBG survey (185k). Given the likely pickup in labour force participation, Lawrence also expects the unemployment rate to tock back up 0.1ppt to 3.6%.

Average hourly earnings data will be watched too, with the consensus anticipating a month of unchanged growth in this measure of pay, at 0.3%M/M and 4.2%Y/Y. 

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