· EMU orders rise, but beware the optimism 
EMU orders rose in November more than expected. A lot is being made of the much smaller Yr/Yr drop which now at -4.1% compares to the -12.1% reported last month (not shown in the table). But this arithmetic is tricky. As you can see this rise in orders in November was a relatively modest +0.6%, while the difference in the Yr/Yr drop is a massive eight percentage points. It’s because in November of 2008 orders had been dropping very rapidly. Orders AVERAGED month-to-month drops of 6.8% in Sept, Oct, and November of 2008. In December of 2008 orders then plunged m/m by 10.9%! The upcoming Dec orders figure will be delightful, as, if the level of orders is unchanged in Dec 2009, the Yr/Yr orders figure will jump by 7.6% Yr/Yr. But that outcome would not really signal any change in the pace of recovery, would it?

· Perspective
We include in the table a column to remind you how much these various series are off from their cycle peaks EVEN if that peak was more than one year ago. Currently sales are off by 20% from their peak. Orders are off by 23.6% from their peak. Orders in Germany, France, Italy and the UK are also clustered around a peak-to-current drop of about 30% (see table for hairsplitting).

· No MFG sector tooth-fairy
The point is that yes, there is some rebound in train, but that industry has not made some magical recovery as if visited overnight (or over-month) by the tooth-fairy. The industrial sector remains severely impacted by the recession and is still very much in dig-out mode even though the yr/yr figures will turn to a sharp positive reading in December. For now e-zone sales are up from their cycle’s lowest point by only 3.8%. Orders are up from their cycle lowest point by 10.9%. At that foreign orders are leading the rebound with a rise of 12.7% from their low compared to a rise of 9.3% by domestic orders form their low. Germany at +19% from its low is showing the most rapid recovery –even if its drop from its peak is now only about the same as elsewhere in EU/EMU. While France at +2% is experiencing the smallest bounced from its cycle low.

· Growth, ‘yes’ but acceleration, ‘no’ 
Momentum is still building to the upside but it is not accelerating. The three-month growth rate of orders is less than the rate over six months (both annualized, of course). Over three-months France and the UK have seen drops in orders and that is not good, but it’s not decisive either. . Trichet’s warning that recovery would be moderate and somewhat irregular is a simple statement of extrapolating what is already in train: the gospel from the church of what’s happening now.

· Upbeat interpretation is exaggerated
So despite the upbeat tone on the orders report of today, if we put the data in context, it’s a slow plodding and irregular recovery in Europe. Recovery is not gaining momentum despite the month’s result on orders growth and despite yr/yr improvement in orders. We are more interested in yr/yr results that are driven by changes in the front month than by those driven by the back month which is the case in November and likely will be the case in the December.

· The Obama Plan meets world opinion and reality
The recent reports from the e-Zone have become more circumspect. The UK reported out some poor December retail sales results today (Friday, Jan 22). Japan hit a 21-year low in supermarket sales. President Obama’s plan to corral unruly bank practices has sent a pall across the financial sector and has bushwhacked stocks around the globe. It is clear that a lot of work still lies ahead for the world’s key economies if they are to get recovery in full swing. Attempts to set a new fairer path for financial institutions may slow down this already slow recovery. To make matters worse the noises from around the world’s policy circles show a lot of disagreement over what President Obama has announced even among those who like it ‘in principle.’ So, are we doomed to an even weaker recovery?

· A rational view of irrationality 
I urge a different message be distilled from this reluctance by banks and bankers to modify their post-crisis behavior. Many see it as greed and simply foment anger about it. I urge that bankers’ behavior be seen in a broader context. Look at how reluctant bankers are to change even with all their troubles and failings that were obviously of their own doing. They do not want to change behavior or alter their bonus-getting… why do economists assume that consumers will be so much more wiling to make changes; to save more and to spend less? It seems to me that the key to recovery is to get jobs growth going. Once it is in gear I would expect consumers to spend as they always have. For those newly back to work the urge to spend will be strong (pent up demand). Discipline will flag among those who are now thrifty as the crisis passes and as fear erodes.

· Behavior is behavior is behavior… 
Behavior is hard to change and not just for bankers. Try to stop smoking; try to lose weight; just TRY to stop spending. It is harder to change when one does not learn from his own lesson; as bankers have not learned as they were bailed out. Consumers have been put on a starvation diet by taking their jobs and destroying their wealth. They have not modified their behavior out of choice – something economists don’t; yet seem to appreciate. They long to go back to their old spending ways. And the wheels of change are spinning. I think the potential of the up-swing is being under-valued for these reasons even with all the obvious problems faced by the world’s economies. Behavior is the hardest thing of all to change even if it is not rational (smoking, overeating, overspending). Give consumers jobs and let them earn income and they will go back to the ‘old normal’. Forget this stuff about a ‘new normal’ that is more austere; it’s a positively abnormal thought.