Bottom line: somewhat more so than the message from the PMIs, the trend in German core orders appears to have been moderating. This is not such a surprise given signs of ongoing slowdown in euro area auto registrations (as we observed last week) and in global steel production. German capital goods orders are still expanding, albeit at a somewhat slower pace. Overall, the German economic rebound is intact, but today's data serve to underline the exceptional nature of the 2.2% q/q expansion in Q2 GDP.
 
In detail
 
German new factory orders fell by 2.2% m/m in July, following a gain of 3.6% in June (revised from 3.2%). The y/y rate, workday adjusted, was 17.7% in July, down from 24.7% in June. We had expected a 0.3% m/m drop while the consensus looked for a 0.5% increase.  
 
We were looking for a drop given that there were exceptional factors which had boosted orders in June. Indeed, this is apparent from the available data so far, which show that new orders excluding special transport items grew by 0.6% m/m in July, very close to our forecast of 0.7%, having been flat in June and down 0.3% in May. That said, this "core" orders series has been decelerating, and on a 3m/3m basis (sa but not annualised) was at 4.3% in July, down from 8.1% in Q2 and from 4.9% in Q1.
 
The weakness in special transport items was apparent in a slump of 7.8% in foreign capital goods orders in July, unwinding a 10.8% gain in June (mainly attributable to orders within the euro area). That said, domestic capital goods orders also weakened by 1.8% m/m in July (having risen by 0.2% in June and by 1.8% in April). As well, foreign consumer goods orders also fell by 2.6% m/m in July after strong gains the previous four months.
 
Despite signs of weakening global steel production, intermediate goods orders were still firm, rising by 2.5% m/m in July (with a gain of 1.0% for domestic and of 4.3% for foreign). This was due to a 1.3% gain in chemical sector orders, more than compensating for the 0.6% drop in June, but metals industry orders were down by 1.6% m/m in July, after a 1.1% drop in June. Computer/IT/electronic orders bounced back by 3.0% m/m in July, after a 1.7% drop in June; the trend of this series has remained favourable. The vehicle sector also improved with a 1.1% gain in July, having been flat in June and with a 2.3% drop in May (albeit after surging by 8.1% in April and by 3.9% in March). Other capital goods (ie, engineering) orders grew by 0.2% m/m in July after 1.8% in June and 5.5% in May.
 

source: BarCap