Dutch IP Steadies Its Pace of Growth

Dutch industrial production fell by 2.7% excluding construction in August. It logged a gain of 0.9% in July and another of 1.7% in June. Utilities output fell by 5.8% in August after falling 4.3% in July and 4% in June - there is a much longer broad string of weakness here related to Europe’s energy problems. The weakness in utilities casts a pall over performance of the rest of the economy as well as prospects for the manufacturing sector and other sectors looking ahead. What can you do without energy? Go Green go…fight green, fight…win green… win? And now the pipeline is kaput, too.

Mining & quarrying activities saw output fall by 5% month-to-month in August after gaining 8.5% in July and falling 6% in June.

Manufacturing output fell by 2.2% in August after gains of 1% in July, and 2.6% in June. The manufacturing PMI changes for the Netherlands have seen declines in August, in July, and in June, in terms of their month-to-month changes- the level readings are still very high with the manufacturing reading still at 65.7 in August even after a series of monthly drops.

Sequential growth rates for output Sequential growth rates for industrial production in the Netherlands show some recent weakness over three months, but there is not a clear pattern of ongoing deceleration. For example, for overall industrial production excluding construction output falls at a 1.2% annual rate over three months but it gains at 6.1% pace at an annual rate over six months and that's an acceleration from a 5% pace over 12 months. Utilities output continues the dismal trend we see in the monthly data with output falling at a 27.1% annual rate over 12 months, at a 36.7% annual rate over six months, and at a 44% annual rate over three months. Mining & quarrying also show a descent into weakness with an 8.4% gain over 12 months giving way to a 6.1% annual rate of decline over six months and an 11.8% rate of decline over three months.

Manufacturing gets back to a more ambivalent trend with output up by 9.2% over 12 months, then accelerates to a 13.1% annual rate over six months, before decelerating to a 5.5% annual rate over three months. The sector ‘food & beverages’ shows declines on all three horizons and clearly demonstrates deceleration. Textiles, on the other hand, show ambivalent trends with acceleration over six months spoiling a deceleration trend. Transportation equipment output shows a clear deceleration with output down 26.7% over 12 months, falling at a 62% annual rate over six months and then falling at a nearly 80% annual rate over three months.

The manufacturing PMI Still, over the sequential period, the manufacturing PMI average for the Netherlands is higher over three months than over six months (barely even comparing averages) and higher over six months than over 12 months and higher over 12 months than it was 12-months ago. The PMI data which address breadth are showing improvement in breadth over these periods even though the strength has encountered a string of monthly weakness.

Growth after Covid Growth in the Netherlands has not been particularly robust in the post COVID era. From January 2020 before the Covid virus hit, the headline series for industrial production is unchanged. Manufacturing, however, is up by 4.2% over that period, a span of a year and one-half. Utilities output falls by 23% compared to that benchmark while mining & quarrying activity falls by 15.7% from that benchmark. Manufacturing output is higher on balance, the food & beverage sector is lower by 7.8%, textile output is lower by 2.6%, and transportation equipment output is lower by 42.8%.

Quarter-to-date growth In the quarter-to-date, the headline series maintain their momentum. Industrial production excluding construction is up at a 4.3% annual rate in the third quarter-to-date. Manufacturing output is up at 10.8% annual rate in the quarter-to-date. Textile output still strong showing a strong gain at a 15.6% annual rate; however, there is a severe negative downdraft in the transportation sector and from utilities.

Ranking Dutch IP growth rates and sector growth Ranking the various industrial production components based on their annual growth rates since 2017 put the overall IP growth rate in the top 10% of all annual growth rates seen on that period at a 90.7 percentile standing. Despite recent setbacks, mining & quarrying is also strong with a 96-percentile standing. Manufacturing has a 90.7-percentile standing. And the growth of output from textiles over the last 12-months has a 72.2-percentile standing, still a firm reading. But for the remaining sectors, there is no halfway about it. Utilities output shows the weakest year-over-year percent change on this entire timeline. The output in the food & beverage industry has been lower only about 7 1/2% of the time. The year-over-year output change for transportation equipment has been weaker only 3.7% of the time. However, as an overall measure of manufacturing, the manufacturing PMI continues to be a very strong signal logging a level at its 90.7 percentile on data back to 2001.

The Netherlands as the pulse of Europe The Netherlands is a small European economy. However, the port of Rotterdam is extremely important, and the Netherlands is the focal point of trans-shipments for a lot of goods that leave Europe. The mixed signals from the Dutch economy show manufacturing is still strong, but the presence of such abject weakness in utilities and in other sectors must raise some eyebrows and cause us to wonder what lies ahead. Up to this point, the Dutch economy has been able to function well, judging from the statistics, despite the weakness in utilities and what we know to be a problem with energy in Europe. Still, this sector disruption must raise question marks about what lies ahead for this economy as well - as for the rest of Europe.

The outlook- beyond simple economics Of course, we double up on this doubt in the wake of events in Ukraine. Lines are being drawn even more boldly there. After the bombing of the bridge that links Russia to the Crimean Peninsula, Russia has answered with an onslaught of missile strikes, some of which were interdicted, but many were not. They pummeled Ukrainian cities and targeted the Ukrainian civilian population. The European Union has called this a war crime. For its part, Russia continues to warn about what will happen if Ukraine continues to attack Russia. This is perhaps the most confusing statement I've ever had to try to disentangle, since it is Russia that has attacked Ukraine - and except for what might be a few guerrilla operations inside Russia itself - Ukrainians have not attacked over the borders that we identify as ‘Russia.’ However, Russia now claims several Ukrainian regions that Ukraine has not ceded. Ukraine claims them as Ukrainian and Russia claims them as Russian, after some sham elections. If these are the areas that Russia is referring to, then its demands to stop attacking, certainly are not going to be met and there are going to be more very difficult days ahead. None of that will be good for economic sentiment in Europe, especially with Putin continuing to threaten a nuclear option.