German Factory Orders Drop as Boost From Air Show Fades: Economy

German factory orders fell in July after demand was boosted by the Paris Air Show a month earlier.

Orders, adjusted for seasonal swings and inflation, dropped 2.7 percent from June, when they rose a revised 5 percent that was larger than originally estimated, the Economy Ministry in Berlin said today. Economists forecast a July drop of 1 percent, according to the median of 39 estimates in a Bloomberg News survey. Orders climbed 2 percent from a year ago, when adjusted for the number of working days.

The German economy, Europe’s largest, expanded 0.7 percent in the second quarter, helping the 17-nation euro area emerge from its longest-ever recession. Manufacturing expanded and business confidence rose to a 16-month high in August, indicating that the recovery is gathering pace as the country prepares for Sept. 22 parliamentary elections.

“A setback was to be expected after orders last month were boosted by bulk orders,” said Gerd Hassel, an economist at BHF Bank AG in Frankfurt. “But I wouldn’t make story out of it. The recovery is intact and will surely continue.”

The euro was little changed at $1.3206 at 1:50 p.m. in Frankfurt. The currency has climbed almost 3 percent in the past two months. The yield on 10-year bunds advanced 7 basis points to exceed 2 percent for the first time since March 2012.

Plane Orders

Domestic factory orders dropped 0.3 percent in July from the prior month, while foreign demand shrank 4.5 percent, today’s report showed. Basic-goods orders rose 0.8 percent from June, while demand for consumer goods declined 1 percent. Investment-goods orders slid 5.1 percent, with demand from the euro area dropping 11.7 percent. Orders from the currency bloc surged 18.1 percent in June.

Airbus SAS, a unit of European Aeronautic, Defence & Space Co., received orders for 466 planes worth $69 billion at the Paris Air Show in June. Euro-area demand for investment goods surged the most in six years in response.

Signs of growth have started to accumulate since the euro area, Germany’s biggest trading partner, ended six quarters of contraction in the three months through June. An index of the region’s services and factory output last month climbed to the highest level since June 2011 and economic confidence soared to a two-year high.

‘Upward Trend’

“The level of orders continues to exceed that of an already-strong second quarter,” the Economy Ministry said in today’s statement. “The upward trend for orders remains.”

The European Central Bank left its benchmark interest rate unchanged today at a record low of 0.5 percent. President Mario Draghi will present new growth and inflation forecasts at a press conference at 2:30 p.m. in Frankfurt.

The Bank of England kept its quantitative-easing program at 375 billion pounds ($587 billion) and held the benchmark rate at a record low of 0.5 percent. Sweden’s Riksbank kept its benchmark repo rate unchanged at 1 percent.

The Organization for Economic Cooperation and Development this week increased its 2013 growth outlook for Germany to 0.7 percent from the 0.4 percent predicted in May.

Growth Engine

German business confidence last month was at the highest since April 2012, according to the Munich-based Ifo institute. Unemployment close to a two-decade low is supporting private consumption as recoveries from the U.S. to China bolster exports. Overseas shipments are forecast to have risen for a second month in July, according to a Bloomberg survey before data tomorrow.

“Germany is strong, Germany is an engine of growth, Germany is an anchor of stability,” Chancellor Angela Merkel said in the only televised election debate between her and Social Democratic challenger Peer Steinbrueck on Sept. 1. “I would like to continue this course.”

Merkel’s Christian Union bloc is leading Steinbrueck’s SPD by 16 percentage points, according to the latest Emnid poll. Steinbrueck said in the debate that Germany has “been standing still for four years.”

Growth in Germany will “normalize and stabilize” in the remainder of the year, the Bundesbank said on Aug. 19. The central bank predicted in June that the economy will expand 0.3 percent this year and 1.5 percent in 2014.

U.S. Expansion

The U.S. economy maintained a “modest to moderate” pace of expansion from early July through late August, the Federal Reserve said in its Beige Book report yesterday. Employment numbers for August will be reported today by Roseland, New Jersey-based ADP Research Institute.

The nation’s gross domestic product grew at a 2.5 percent pace in the second quarter, stronger than the 1.7 percent previously estimated, figures from the Commerce Department showed on Aug. 29. Exports rose the most in more than two years, signaling the global economy is stabilizing.

A U.K. factory index increased to the highest since February 2011 in August and China’s manufacturing strengthened, according to surveys of purchasing managers.

“For exports, Germany’s traditional growth driver, the outlook is a bit brighter than it was in the spring,” said Christian Schulz, senior economist at Berenberg Bank in London. “Germany’s most important export market, the euro zone, is stabilizing. The U.S. and the U.K. are growing nicely and China is also showing slightly more positive signs.”