EMU Trends Erode with Considerable Volatility

Industrial output in the European Monetary Union grew by 1% in April with manufacturing shooting up by 3.7%. Hold the applause on this, however. Because this is a rebound from a larger 3.8% drop in March and a larger 5.8% drop in manufacturing output. While output overall and in manufacturing had gained in February, the 3-month change shows a decline in total EMU industrial production had a 5.8% annual rate over three months compared to manufacturing where there is a decline of 4.6% at an annual rate. The outsized increases posted in April do not reverse the trend weakness in industrial production or in manufacturing output in the European Monetary Union.

April: strong with isolated strength April's rebound, in fact, is wholly the result of strength in the capital goods sector where output surged by 14.7% after contracting by 15.2% in March. Consumer goods output fell by 2% in April, intermediate goods output fell by 1%. Both consumer goods and intermediate goods output have fallen for two months in a row. The strength that appears in April industrial production and in manufacturing output is wholly the result of a partial recovery in capital goods output.

Sequential rates of growth flag weakness Sequential rates of growth in overall output and in manufacturing output show progressive deterioration. For manufacturing, there's a 1.3% gain over 12 months, a 2.7% annual rate decline over 6 months, and a 4.6% annual rate decline over 3 months - that's a clear worsening pattern. Consumer goods output comes close to showing a deteriorating trend, but minor differences in the growth rates between 3-months and 6-months prevent that from occurring. Consumer durable goods output shows progressively smaller declines from 12-months to 6-months to 3-months. Nondurable goods output carries the day for progressive weakening trends. Intermediate goods also show diminishing sequential weakness as a 6.1% decline over 12 months becomes a 5.1% annual rate decline over 6 months and diminishes further to a 4.7% annual rate fall over 3 months. Interestingly and ironically, capital goods endorse the progressive deterioration trend with the 9.5% increase over 12 months, a weaker 0.3% annual rate decline over 6 months and a 3.7% annual rate decline over 3 months.

Country patterns Country patterns show broad output declines for manufacturing across 13 EMU countries reporting in April with eight showing declines in manufacturing (all of them, month-to-month declines of 1.8% or more). Country data also show 9 EMU members with output declining in March. March and April show much worse conditions than February when only 3 EMU countries showed month-to-month declines in output. Over 3 months eight European monetary union countries show output declines, seven countries show declines over 6 months, six countries show declines over 12 months. However, if we look at the median results for these countries, the median decline is 3.1% over 12 months that shrinks to a 1% decline at an annual rate over 6 months and then expands back to a 2.3% annual rate decline over 3 months, imposing no clear secular pattern, but showing persistent declines. However, over these three periods, as well as over the three most recent months, fewer than 50% of the reporting countries show output is accelerating when we evaluate it period-to-period. For example, output over 12 months is accelerating compared to 12-months ago in only 36% of the categories. That improves over 6 months as over 6 months 46% of the categories show output accelerating compared to its 12-month pace. However, over 3 months, only 36% of the categories show improved growth rates compared to what they log over 6 months.

Summing up On balance, European Monetary Union production is still struggling. April is the first month of the second quarter and so very early in the second quarter – despite a strong month-to-month gain, output is falling at a 6.5% annual rate for the headline IP excluding construction figure. Manufacturing output in the second quarter is starting out flat, largely boosted by capital goods output where there's a 20.2% annual rate of increase, against quarter-to-date declines in all the other sectors. On a QTD basis, all the EMU countries are showing declines in manufacturing output except France that has a 2.1% annual rate of increase underway and Greece that has a 20% annual rate increase underway. Despite the surge in output excluding construction and in manufacturing, EMU industrial production trends are weak across sectors and across countries. Sequentially they are turning up quite weak and they are weak in the quarter-to-date as well.