Industrial orders have fallen unusually significantly. Economists see a connection with the delivery problems – but warn not to overinterpret the figures.
Sor more than a year now, German industry has experienced a remarkable upturn. The demand for cars and machines continued to grow in the Corona winter, among other things because of the rapid economic recovery in China. But according to the latest figures from the Federal Statistical Office, there was an abrupt slump in May. Orders fell by 3.7 percent compared to the previous month.
Such a decline within a month is unusual. It was not expected either, economists previously surveyed by Reuters news agency had expected an increase. Also unusual: The demand for consumer goods is unbroken, it even rose by 3.9 percent. On the other hand, there were significant declines in intermediate and capital goods. Orders from the non-euro area and there primarily in the automotive industry fell by an above-average rate.
It is reasonable to assume that the decline in orders has something to do with the persistent problems in the supply chains and the extreme price increases for intermediate products such as semiconductors and plastics. Timo Wollmershäuser, economic director at the Munich Ifo Institute, sees evidence for this. “The shortages are reflected in the prices of our industrial products,” he says. These are currently 0.9 percent more expensive than the previous month and annualized, ie extrapolated to the full year, with 12 percent “as seldom before,” said Wollmershäuser. “That depresses the demand for our industrial goods and is reflected in the incoming orders.” And according to the June survey by the Ifo Institute, the price increase is likely to continue in the coming months.
“Usually the best leading indicator”
His colleague Torsten Schmidt from the RWI-Leibniz Institute for Economic Research also sees a connection between delivery bottlenecks and the recent drop in orders. “If you look at the detailed figures, you can see that sales are still developing weaker than incoming orders,” he says. “That already indicates that there are delivery problems with the preliminary products.” This is also supported by the fact that above all the incoming orders from non-European countries have declined, especially for intermediate and capital goods such as machines.
However, one should not overinterpret monthly economic figures. The decline in industrial orders in May is also so strong because statisticians have revised the value for April upwards from minus 0.2 to plus 1.2 percent. “Industrial orders are usually the best leading indicator of future industrial activity,” says Carsten Brzeski, ING Bank’s chief economist. Over the past few months, however, the major revisions, along with supply chain interruptions, delivery delays, and lack of materials and inputs, have blurred the traditional link between industrial orders and production. As a result, the industrial recovery could turn out to be “somewhat more unpredictable” than previously assumed.
“There is nothing to worry about,” says Brzeski. “The reduction of order backlogs is still a much more pressing issue for German industry than new orders.” Nils Jannsen, economic researcher at the Kiel Institute for the World Economy, also warns not to derive too much from the monthly order numbers. The company surveys are still good, and the recent high rate of incoming orders could not have continued for German industry anyway. He does not want to shake the economic forecast for this year – the Kiel economists expect an increase of 3.9 percent for Germany in 2021, more than other institutes.
“Overall, incoming orders are still above the pre-crisis level,” announced the Federal Ministry of Economics on Tuesday. It emphasizes that the orders are still more than 6 percent above the level of February 2020, the month before the start of the Corona crisis in Germany. The order books of German industry are well filled, said Thomas Gitzel from VP Bank in Liechtenstein. “You don’t have to be scared and afraid.”