Foreign Orders Break Out To Lead EMU Growth

Orders in the euro-area rose by 0.9% a very good showing after gains of 2.6% in February, 5.1% in March and now 0.9% in April. As a result of the sharp gain late in the first quarter the Q2 level has been boosted to show a 34% annual rate of growth over the Q1 base.

Domestic orders growth rates are ramping up nicely from 12 months to six months to three months but for foreign orders the growth rates are huge and rise to an annual rate of 38% over the last three months compared to 27% Yr/Yr. No sign of slowing in theses trends yet. But there is evidence of losing ground in the monthly PMI indicators that are one month more up-to-date.

Germany, France and Italy each show that orders growth is accelerating from twelve-months to six months to three-months. The good news is widespread.

The trait that sticks out here is that Europe is experiencing export led growth. Germany is its prime example. While Angela Merkel has just shot down Obama's request for more spending to stimulate domestic demand Europe is pleading with the US to spend less. But less growth from 'abroad' will undermine the fire under Germany's export boiler. Even so Germany does not want to do anything to stimulate its domestic demand and to make a contribution to world growth. Germany is a growth parasite, so is Japan and China. Is this theme familiar?

And to the G-20
Obsession with debt promiscuity - In the wake of the Fed meeting that cited European financial problems as a source of risk in the outlook, and with the upcoming G-20 meeting, the spot light is on Europe to show that it will not overdo things in the wrong direction. Clearly Europe's challenge is to not over-do austerity and to try to do more on stimulus. So far this 'mandate' is going by the boards. This debt crisis has turned everything topsy-turvy. Earth to EMU, Earth to EMU: There is more to policy than debt reduction.

Medieval policy - France's Christine Lagarde has said if growth is not better soon France may have to implement more austerity. This is peculiar. Do doctors, if the bleeding does not stop, say that they will have to engage in more blood-letting? They used to, but not anymore. So why does France think that 'less' calls for' even less'?

The ethnocentricity of Europe -- Europe has growth problems and debt problems. France has been a major debt transgressor. But getting on to a plateau of dependable growth is important before trying to solve the deficit issues. We are going to have a lot of fiscal contraction in the period ahead if policy follows rhetoric (fortunately often it does not). Still it would be better to have a plan and to use rhetoric that points the way to a sustainable conclusion without too much risk, instead of hoping that policy pledges are not fully kept. We already have a contractionary budged adapted in the UK. Japan's new PM has pledged to get control of Japan's huge debt. Greece and Spain have announced fiscal austerity measures. We are well on our way down the road to perdition well-paved with the best of the best of the best intentions. Each leader wants to be the man in the black...or with his budget closer to it.

The US is no poster child for what-to-do -- Granted the US has been too profligate with its spending and in ways that have added to the deficit without priming growth much. US spending has been about as off the mark as it possibly could have been from the stand point of providing stimulus. The US picked an odd time to engage in several rounds of social welfare spending but it did. And that is its own tragedy. But Europe can ill afford to follow though with all the planned austerity. Each of its nations depends too much on everyone else for their growth! It's as if Germany wants the US to split open under the strain of another huge current account deficit while it holds back and doles out unemployment subsidies and fails to exploit its own growth potential. Don't we know by now that the economy is global and that you can't shunt adjustment off on somebody else? Crises tend to draw everyone into them.

20 bottles of beer on the wall- There is little evidence that the lessons of the last financial crisis - and of the import of the huge balance of payments deficits that spawned it - have been learned. Without markets for its exports the US cannot cut its current account deficit. And if the US is to grow faster than other developed nations its imports will not contract especially not with the dollar now stronger and some lip-service flexibility in the yuan. As the G-20 prepares to meet we have to wonder if anyone in the G20, 19. 18. 17, etc is thinking at all. Are they? What is the evidence? It's a ticking time bomb that they are presiding over and each one is as stubborn as the next. There is no cooperation among members of this group, so what good is it? Better to sit down and drink 20 bottles of beer than to read their communiqué-bet on it.

Selected Euro-Area and UK Industrial Orders
Saar except m/m	Mo/Mo			Apr 10	Mar 10	Apr 10	Mar 10	Apr 10	Mar 10
Euro-Area Detail	Apr 10	Mar 10	Feb 10	3mo	3mo	6mo	6mo	12mo	12mo
MFG Orders	0.9%	5.1%	2.6%	39.9%	28.0%	23.2%	18.5%	20.7%	18.3%
MFG Sales	-1.1%	2.9%	1.1%	11.9%	24.1%	11.5%	14.7%	9.0%	10.0%
Consumer	-2.8%	1.7%	-0.2%	-5.1%	7.2%	1.9%	6.7%	-1.4%	3.0%
Capital	-2.4%	3.2%	0.3%	4.2%	22.8%	4.1%	8.3%	6.2%	6.8%
Intermediate	-0.3%	9.2%	2.1%	52.5%	10.5%	20.0%	4.8%	15.3%	12.1%
Memo:MFG
Total Orders	0.9%	5.1%	2.6%	39.9%	28.0%	23.2%	18.5%	20.7%	18.3%
E-13 Domestic MFG orders	-0.3%	9.2%	2.1%	52.5%	10.5%	20.0%	4.8%	15.3%	12.1%
E-13 Foreign MFG orders	1.2%	6.6%	6.9%	77.3%	36.4%	38.1%	27.0%	29.0%	27.1%
Countries:	Apr 10	Mar 10	Feb 10	3mo	3mo	6mo	6mo	12mo	12mo
Germany (MFG):	3.3%	5.9%	0.5%	45.9%	58.9%	40.1%	23.9%	32.5%	27.2%
France(Ind):	-3.4%	6.3%	-1.2%	6.1%	-24.1%	12.4%	0.9%	8.4%	9.8%
Italy (Ind):	4.7%	1.1%	-0.2%	24.2%	-7.2%	23.6%	14.6%	20.2%	9.5%