Industry showing signs of life but are they sustainable?

The last few days have shown upticks in factory orders in the US and industrial production in Germany. Are these green shoots that are going to take root and bare fruit or are they seedlings that will soon wither and die? The later seems to be the prevailing conventional wisdom.

Since the economic shock of the credit crisis last fall, firms have been running down inventories, not wanting to get caught with stock they cannot sell. After months of drawing down inventories, recent data shows companies are stocking the shelves again, helping firm up the production data. The fear is that once the shelves are restocked they will slow production again to avoid getting stuck with inventories again.

Until final demand resumes, we will see this “fits-and-starts” pattern play out, keeping any rebound choppy. With the US consumer tapped out, a return to vigorous growth could be months, if not years, away.