So the U.S. ISM came in at 44.8 and production was 52.5 vs 46 in May while new orders came in 49.2 vs 51.1 in May. I was assuming the number was bad looking at new orders as a leading indicator but what your saying is I need to look at the new orders to inventories ratio and that is flashing positive signals?

Enjoy your blog. U.S. media is so myopic in covering world events and economic news and appreicate a good source of European coverage.

Well, the ratio can rise becuase either the numerator goes up, or the denominator goes down, and I suppose this is pretty much a key point.

It kinda parallels the issue of whether it is better to have a current account correction via an expansion of exports or a reduction of imports.

Running down inventories (or reducing imports) provide short term benefits, in the inventory case because new production comes out of stock, but really, recovery only comes when new orders rise and exports grow.

Basically, most of this data is distorted at the moment, since it has been driven by inventory corrections. Ironically, if we are to see a recovery, we should now see it in rising inventories, since as confidence grows, and credit becomes better available, normally people would want to hold larger inventories than they have now. If inventories are still so low (and falling) this is because they don’t have the confidence or they don’t have the credit to stock them higher.

“Looking ahead, the new orders to inventories ratio – which tends to move in advance of the production cycle – rose for the sixth month running to its highest since April 2004.”