Factory orders in the 15 countries that share the euro increased in July, although the rise was entirely driven by the highly volatile transport equipment sector and is unlikely to be sustained.

The European Union’s statistics agency Eurostat said Tuesday new industrial orders rose 1.0% from June and 1.6% from July 2007.

It was the first increase in new orders since April, and a much stronger outcome than was expected. Economists polled by Dow Jones Newswires last week estimated that orders fell 0.9% on the month and 3.9% on the year.

In June, orders fell 0.5% on the month and 7.2% on the year. Those figures were revised, with Eurostat initially calculating that orders fell 0.3% on the month and 7.4% on the year.

The surprise increase was due to a 10% rise in new orders for transport equipment, which includes aircraft, ships and trains, which are volatile, and according to Eurostat have “a limited immediate impact on production.” Transport orders fell 3.1% in June and 6% in May.

Excluding the transport sector, new orders fell 1.4% from June, and that’s probably more representative of the underlying trend than the headline figure.

With global demand slowing, euro-zone exporters have had greater difficulty finding overseas buyers for their goods, while domestic demand is also on the wane. As a result, orders for metal goods fell 2.4% from June, while machinery and equipment orders fell 1.1% and orders for electrical and electronic equipment fell 1.8%.

“While the recent overall retreat in the euro and oil prices will obviously benefit euro-zone manufacturers, we believe they will continue to find life difficult over the coming months as they are buffeted by slowing domestic demand, muted activity in key export markets, and tight lending conditions,” said Howard Archer, an economist at Global Insight. “Furthermore, oil prices have spiked back up, while the euro is still relatively elevated.”

The rise in total new orders is therefore unlikely to persuade the European Central Bank that the worst of the economic slowdown has passed, particularly given the probable effects of renewed financial turmoil in August and September.

Indeed, a survey of purchasing managers in the euro zone, published Tuesday, indicates the economy slowed further in September.

The survey also found that new orders in the manufacturing sector fell for the fifth straight month and were at their weakest since May 2003.

In the E.U. as a whole, new orders rose 2.3% on the month and 2.8% on the year, Eurostat said.

Source: http://www.djnewswires.com/eu

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