Manufacturing orders unexpectedly slumped in October. A 3.7 percent monthly drop was nowhere near the market consensus and more than reversed the previous two months' gains. Annual growth dropped from minus 3.5 percent to minus 7.2 percent and orders matched their weakest level since March.

Foreign orders accounted for the overall decline, decreasing some 7.6 percent versus September to touch a 6-month low. This masked a 2.4 percent increase in the domestic market although that said, the rebound here recovered less than half of the previous period's 5.7 percent fall. Overall capital goods were down 6.0 percent, mainly reflecting a 13.5 percent nosedive in mechanical engineering. Intermediates were also off 1.4 percent but consumer goods rose 2.8 percent.

October's setback will dent hopes that manufacturing is over the worst. The data are highly erratic but as things currently stand, total orders stand 2.7 percent below their average level in the third quarter. The 3-monthly change is even weaker at minus 4.6 percent. Accordingly, near-term output prospects look grim. Today's update reduces the German RPI to minus 7 but the RPI-P remains in positive surprise territory at 9.

Manufacturing orders are expected to increase 0.5 percent on the month in October versus a 0.2 percent rise in September. On the year, orders are expected to be down 3.4 percent following September's 4.0 percent decline.

Manufacturers orders are a leading indicator for industrial production. The figures are calculated every month by the Federal Statistical Office and represent the value of all orders for the delivery of self-made products confirmed by industrial enterprises with 50 or more employees in the respective reporting period. The results are broken down by both sector and region of origin (domestic and foreign split into euro area and non-euro area). Monthly volatility can be very high so moving averages give a much better guide to underlying trends.

Manufacturers orders data are keenly awaited by analysts each month. The data present a detailed breakdown by various sectors and a reading of the pulse of a major sector of the economy. Like the PPI, manufacturing orders data exclude construction, which is the preferred Eurostat measure.

The manufacturers orders data rank among the most important early indicators for monitoring and analyzing German economic wellbeing. Because these data are available for both foreign and domestic orders they are a good indication of the relative strength of the domestic and export economies. The results are compiled each month in the form of value indexes to measure the nominal development of demand and in the form of volume indexes to illustrate the price-adjusted development of demand. Unlike in the U.S., orders data are not collected for all manufacturing classifications - but only those parts in which the make-to-order production plays a prominent role. Not included are, for example, mining, quarrying and the food industry.