German Orders: Big Surprise Comesin Small Package

German orders are FLAT in April: what’s so good about that? German orders have been decimated over the past year with only two month-to-month gains in the past twelve months against a slew of huge month-to-month declines. This month’s flat performance, however, leaves German orders RISING early in 2009-Q2. Surprise! While February brought a huge decline of 3.1% in orders, March took order back up by an outsized 3.7%. The FLAT performance in April extends the March level into 2009-Q2 imposing on Q2 a gain above the average level of orders in 2009-Q1. Optimism is born!

German orders are still decimated being off by 33% Yr/Yr. Foreign order are of by 35% Yr/Yr while domestic orders are off by 29% Yr/Yr. Foreign orders are building upward momentum again being up at an 8% pace over six months and up at an annual rate pace of 17% over three months. Really!

Suddenly the bottom is not falling out any more...and there is forward momentum to boot- at last somewhere. And for Germany foreign orders are a very important ‘somewhere.’

The OECD LEIs also are giving some hint of support as they are showing some resiliency for some OECD members. The OECD’s cyclically adjusted leading indicator for the U.S. rose to 90.9 in April from 90.7 in March, while for Japan the index rose by the thinnest of margins to 89.5 from 89.4 in March; the leading indicator for Germany also ticked up a to 90.3 from March's 90.2. Among the large developing economies, China once again showed the clearest signs of revival, with its leading indicator rising to 94.3 from 93.4. The leading indicator for India rose in April to 93.9 from 93.5 in the previous month. Indicators for Brazil and Russia continued to fall, which is interesting since each of these countries is also experiencing sharp surges in their respective equity markets. "Major non-OECD economies still face deteriorating conditions, with the exception of China and India, where tentative signs of a trough have also emerged," the OECD said. Still there are lots of hints of good news in the countries that are most likely to be leading the global business cycle. And there are even some good market trends in countries with poor economic trends as the Brazil and Russian stock markets show.

On balance combined with the good order results from Germany, and stronger ‘shoots’ being seen in the US, the ‘global tea leaves’ increasingly point to some sort of global resurgence. That is not too surprising given the floor under oil and its new rising trend. (Although we should by now have learned to be at least somewhat skeptical of what oil’s signal is really worth.) Still, along with sharply improved global equity market trends that feature rising ‘high beta’ stocks, firmer commodity price trends, and improved economic reports, we have bond yields on the rise. For every silver lining there is also a cloud. In the US at least attention has begun to be directed to the prospect that rates might switch to an increasing trend even before year end. To many this is a shock.

To be sure rising treasury rates that might boost US mortgage rates raise questions about the sustainability of the incipient US expansion as well. But these are the issues visited in each and every economy that switches from recession to recovery. Beware that the agenda in markets is changing and the US is usually a bellwether Look for shifts in the policy discussion overseas as well once chatter over the European elections dies down.

Things change. Sometimes they change for the better…as they are now. And changes have consequences.

German industrial production fell by a sharp 1.9% m/m in April. The April drop follows a small gain of 0.3% in March. The pace of decline in IP is slowing down in the recent three-month period as its negative growth rate (saar) is -18.1% compared to -32.3% over six months. The 3-mo pace represents a slower drop than for Yr/Yr output as well.

Capital goods output, the backbone of German industry, continues to be very weak. Although capital goods output rose by a strong 3.7% in March and that looked good at the time, the gain is now sandwiched between declines of 5.2% m/m in February and of 6.4% m/m in April. With the April figures in hand the March bounce looks like an anomaly. Still, the slide in capital goods output slowed its pace of decline in three months compared to six months returning to roughly to its Yr/Yr pace. Intermediate goods output is where most of the progress seems to be made. Consumer goods output is still decelerating.

German orders trends do not look as good as we had hoped. While German orders are showing some better signs, and although output itself rose in May, the declines are back in April and the sense of progress is largely absent from this report.

A diverse group of European countries--Czech Republic, Cyprus, Estonia, Finland, Malta and Portugal--reported their first quarter GDPs today. Cyprus, the second smallest country in terms of population in the Euro Area, was one of those rare countries to report an increase in GDP of 1.2% in the first quarter of 2009 over the first quarter of 2008. Malta, the smallest country in the Euro Area, in terms of population, reported a year to year decline of 3.4%. Estonia, another relatively small country, in terms of population, reported a year to year decline of 15.1% in the first quarter of this year after a 9.7% year to year decline in the fourth quarter. Estonia is the last of the Baltic's to report its first quarter GDP. Lithuania earlier reported a 13.6% year over year decline and Latvia, one of 18%. The first chart shows the year to year changes in GDP for Cyprus, Malta and Estonia.

Among the mid sized countries--population wise-- reporting today, the Czech Republic reported a first quarter year to year declines in GDP of 3.4% after a 0.6% decline in the fourth quarter of last year. Portugal's year to year decline in the first quarter of 3.7% followed a 2.0% decline in the fourth quarter of last year. Finland's year to year decline at 7.5% was more than twice those of the Czech Republic and Portugal. The second chart shows the year to year changes in GDP for the Czech Republic, Finland and Portugal.