Industrial machinery

FT headline: "German engineers see export plunge".

Apparently, orders for industrial machinery have fallen 42 % in January 2009 compared to the same month last year. Domestic orders were 31 % lower, foreign orders 47 % lower.

Sounds rather apocalyptic at first glance. But then, machinery is just about the most pro-cyclical industry there is: If the economy is contracting, your capacity underutilised, and credit is tight as well, why on earth would you want to buy a new machine? The mood throughout the world economy was extremely gloomy in January 2009, and surely every customer thought twice before placing an order.

And here's the thing:

The year-on-year drop was extremely steep. But 2007 and 2008 were bumper years for German machinery producers. Times had never been better. Companies didn't know how to fulfill the orders they had, for lack of people and capacity. Delivery times sometimes stretched to 2 years and more.

January's orders, in spite of the steep drop, and in spite of the mega-gloomy mood prevailing right now, were only 12 % below the level of 2005, and 2005 was hardly a crisis year. So unless orders keep deteriorating a lot more from where we are now (we don't want to assume that, do we?), I'd say most of the industry can survive. They'll have to cut back, but apart from some specific sectors (think: machines for car producers...), they'll manage.