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Economy in Brief

German IP Finally Expands
by Robert Brusca  June 7, 2016

German IP rose by 0.8% in April snapping a two-month losing streak. German IP has been oscillating as it has risen in six of the last 12-months. Production is net lower over the last three months but it is not on a clear decelerating course. IP had accelerated over 6-months before it tired and fell over the most recent three months. And that set of trends is pervasive across MFG sectors. For consumer goods, capital goods and intermediate goods output is down over three-months after accelerating over six-months. Those trends make IP look like it is in a period of volatility more than in a period of weakness. And, of course, output is expanding year-over-year in these sectors.

Of course, we have a number of reports to provide context, too. The IFO survey has showed continued growth in manufacturing with negative expectations. In addition the German MFG PMI has been lethargic but has consistently showed growth.

Real manufacturing orders show less zest overall but they repeat the pattern of showing a six month acceleration followed by a three-month decline.

Elsewhere in Europe we find that the early reports are logging output increases. Spain, Ireland, Portugal, and Sweden all show increases in IP in April with only Norway showing a drop. Over three and six-months only Ireland shows output declines. On balance while German output is falling over three-months that seems a product of volatility while the rest of early-reporting Europe largely is showing output gains. This is a relatively upbeat result.

In the quarter-to-date German output is falling with the construction sector especially hard-hit. In the coming month there could be disruptions instead of progress as flooding has been severe in Europe especially in France. Among the other European countries in the table all but Ireland are showing output gains early in the quarter-to-date.

Summing up German industrial data, manufacturing surveys and related orders performance have been uneven. Globally manufacturing is under pressure. Germany has been dealing with its particular problem of past dependence of its exports on China and Russia. But those disruptions are becoming increasingly less relevant as they become part of the legacy of what Germany has put behind it. Looking ahead there has been talk in Germany of when sanctions on Russia might be lifted; such talk still seems premature. China is no longer as frazzled as it once was but it is still struggling with adjustment and is still an important German export market and one that continues to struggle. The oil market still tells an unclear story of the state of global demand since temporary supply disruptions continue to play a role in firming oil prices. Even so, early in the second quarter the IP data for Germany and Europe are showing some encouraging trends.

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