EMU IP Gains in September for the Second Month in a Row

Industrial production in the European Monetary Area rose by 0.9% in September following a 2% increase in August. The pattern for industrial production shows declines over the usual sequential periods, but there is no indication of any change in trend. Over 12 months, the increase in industrial production is 4.3%. Over six months output rises at a 6.1% annual rate, over three months the annual increase is lower at 2.3%. Manufacturing output rose 1.5% in September after rising 1.7% in August and, again, there is no clear pattern of acceleration or deceleration. Manufacturing output increases over 12 months, over six months and over three months and does so without creating any tendency to accelerate or to decelerate.

Monthly results The components of manufacturing showed a decline in consumer durables output and a decline in intermediate output in September while nondurable output increased by 3.6% and capital goods output increased by 1.5%. In August, only intermediate goods output declined.

Sequential trends Looking at sequential trends, consumer goods output shows clear acceleration; output grows by 5.6% over 12 months; that steps up to a 12.2% annual rate over six months and up again to 27.7% annual rate over three months. That result is driven exclusively by nondurable goods where the acceleration is strong while output for consumer durables is showing clear deceleration from a 3.9% pace over 12 months, to a contraction of 1.2% at an annual rate over six months and giving way to further contraction at a 4.4% annual rate over three months. Within the consumer goods sector output is both accelerating and decelerating depending on the industry grouping.

Intermediate goods trends show clear deceleration. Intermediate goods output falls at a 2% annual rate over 12 months, falls at a 3.4% annual rate over six months, and falls at a 9.2% annual rate over three months.

Capital goods output, while showing increases in September and August, shows an unclear pattern when it comes to looking at acceleration or deceleration trends. Capital goods output is up at a 10.8% annual rate over 12 months; that accelerates to 14.6% at an annual rate over six months but then falls back to a 1.1% annual rate gain over three months.

QTD: Quarter-to-date (preliminary Q3 results) Quarter-to-date headline for the European Monetary Union is increasing at a 6.1% annual rate. This report is for September, so these figures represent preliminary closure for data for the third quarter. Manufacturing output is increasing at a 6.9% annual rate. Consumer goods output increases at a 14.5% annual rate; that result is the combination of a 15.4% annual rate rise for nondurables and a 3% annual rate drop for durable goods. Intermediate goods output is declining at a 7.6% annual rate while capital goods output expands and a 9.5% annual rate.

Output gains since Covid struck Looking at output trends back to January 2020 before COVID struck, the aggregate increase in output rises by 2.7%, manufacturing output is up by 3.3%, consumer goods output is up by 10.4%, led by nondurable goods: capital goods output is barely up rising by 1.5% and intermediate goods output is declining by 0.2%. These are the aggregate gains/losses over a period of 2 years and eight months.

The EMU PMI in comparison... Over the same span, the manufacturing PMI of the European Monetary Union is lower by 10% and that index is lower in each of the last three months as well as lower on balance over three months, over six months and over 12 months. The breath of output in the EMU is clearly on the decline. The level of the PMI reading for manufacturing is below 50 (an indication that output is contracting in the lexicon of the PMI report) in May, June, and July. The PMI is also below 50 on its three-month average. But its six-month average ekes out a reading of output expansion at a standing of 51.7 while the 12-month average reading is a robust 55.1. Compared to the manufacturing results for industrial output, a sequence that shows a steady menu of consistent increases, the PMI indicators have been pointing to weaker conditions than those that have been experienced.

EMU by country Country level data for 13 European Monetary Union members in the table and three other European members are available for comparison (the U.K., Sweden, and Norway). EMU members showed declines in output in September in 6 of these 13 members. August also showed a decline in six members. However, July produced declines in eight of 13 members.

Sequential data across these same 13 members shows increases in 12 of 13 countries over 12 months; over six months five countries showed declines in output. And over three months seven countries showed declines in output. The pattern for output is mixed across the European Monetary Union; it's hard to make any simple consolidating statement except by looking at the weighted overall European Monetary Union results at the top of the table which does show output is continuing to expand on a weighted basis. In the quarter-to-date, however, that marks the end of the third quarter on a preliminary basis, output is declining in eight of the 13 countries even as it increases for EMU overall. Annualized the 3.3% manufacturing gain implies growth rates averaging 1.2% per year over this period.

EMU output in sum On balance, European output data based on the conventional industrial output measure is stronger than the data we've been looking at from the purchasing managers surveys on manufacturing; PMI data have been consistently weaker and showing declining trends in output.

However, country level data in the EMU show a great deal of irregularity. The reason EMU logs an increase in output overall is largely because two of the large economies, France and Italy, show sizable increases in output for the QTD period while Germany shows a decline that is a very small decline and those are the three largest economies in the Monetary Union.

The other European data in the table show mixed results. The U.K. shows a steady diet of declining output trends sequentially as output is declining and the declines are gathering pace. Sweden shows consistent increases sequentially from 12-months to six-months to three-months but no acceleration or deceleration. Norway shows a decline over 12 months, an increase over six months, and a larger gain over three months in an accelerating output pattern.

Overall conditions in Europe remain mixed with the industrial production treatment of output stronger than that from the purchasing managers indicators. There is still plenty of concern about the future with inflation running high and the European Central Bank raising interest rates. War in Ukraine, of course, presses on and that continues to hang over the head of all European countries since the war is in their backyard. Europe still has concerns about its energy supplies come winter. And colder weather is coming despite ‘global warming’…