German manufacturing orders surge in May

German factory orders rose much more than expected in May helped by strong foreign demand, official data showed on Friday, suggesting manufacturing made a solid contribution to economic growth in the second quarter. The volume of orders surged 3.2 percent from April on a seasonally-adjusted basis, according to preliminary Economy Ministry figures.
It was the biggest gain since February and easily outstripped the mid-range forecast of economists polled by Reuters last week for an increase of 0.5 percent. Domestic orders increased 2.2 percent, while foreign orders rose twice as much, up 4.4 percent on the month. April's data was revised to show a monthly decline of 1.6 percent compared with the originally-reported drop of 1.2 percent.
"Demand for manufactured goods has picked up strongly again recently," the ministry said, adding that April's temporary weakness had been left behind. "The prospects for continued brisk industry output have clearly stabilised."
Europe's biggest economy grew at the strongest pace in six years in 2006 and most economists expect the pace of expansion to remain robust this year and next. The upswing has relied on strong foreign demand for German goods, firm corporate investment and a pick-up in the construction sector, but an improvement on the labour market is expected to spur consumer spending in the coming months.
Alexander Kuerger, an economist at WestLB in Duesseldorf, said he expected the pickup in orders to continue into the second half of this year. The latest NTC/BME survey of purchasing managers suggested the outlook for the manufacturing sector is rosy.
Activity in the sector expanded at the strongest pace in five months in June, as employment growth accelerated to the joint second-strongest on record, the survey showed. The Economy Ministry said a 2.9 percent increase in domestic orders for consumer goods in May suggested private consumption was set to strengthen in the coming months.
Investment goods orders rose 3.8 percent in May, orders for intermediate products were up 2.4 percent and overall consumer goods orders increased 4.0 percent, the ministry said. The Economy Ministry said May's data had again shown an above-average volume of big-ticket items. The ministry is due to publish data on May industry output on Monday at 1000 GMT.
Output probably rose by 1.0 percent on the month, after a drop of 2.3 percent in April, the Unicredit/Reuters forecasting tool published on Thursday showed. The tool is based on industry data from the big states of North Rhine-Westphalia and Bavaria.