Euro Area IP Advances Again

Output in the euro area rose by 0.8% in May after rising 0.5% in April. The manufacturing sector logged a gain of 1.4% in May after rising 0.1% in April. However, for both metrics, output is now declining on balance over three months. Overall industrial production is declining at a 1.9% annual rate over three months while manufacturing IP is falling at a 1.1% rate over three months. Both measures show net declines in the current quarter-to-date that has two out of three months' worth of data in hand.

The manufacturing sector in the EMU shows increases in two of three sectors in May with intermediate goods output being flat, consumer goods output up by 1.6%, and capital goods output up by 2.5%. Consumer goods output rose for two months in a row and in two of the last three months. Capital goods output rose in May after declining in both March and April. Intermediate goods output rose in April but declined in March.

Over three months, consumer goods output is rising at a 6.1% annual rate, intermediate goods output is falling at a 4.8% annual rate, and capital goods output is falling at a 6.4% annual rate. Intermediate goods output shows ongoing decay: there is a 0.2% decline over 12 months, a flat performance over six months and then a 4.8% decline over three months. Capital goods output shows declines over all three periods: a 1.4% decline over 12 months, a 0.8% decline over six months, and a 6.4% decline over three months. Consumer goods alone show increases over all horizons, rising by 6.5% over 12 months, at a 10% pace over six months and at a 6.1% pace over three months.

In the quarter-to-date, consumer goods output is rising at the double-digit pace of 12.1% annualized, intermediate goods output is falling at a 1.7% annualized rate, and capital goods output is falling at an 8.8% annual rate. The strength in output clearly is concentrated in the consumer sector.

Output by nation
Of the 13 EMU countries listed in the table for May, five show output declining with the rest showing output gains on the month. Six countries show declines in output in April and five show declines in March. Output continues to increase in more countries than it decreases and that has been persistent. Still over the last three months, there is a substantial core of countries that are showing output declines marking the industrial sector as somewhat uneven.

However, taking the whole three-month period, there are output declines in only four of the 13 EMU members. Looking at output over six months, there are only three countries that have output declining on that horizon; those are Germany, Malta, and Portugal. Over 12 months, four countries show output declines. In the quarter-to-date, there are output declines in five of the 13 reporting EMU members.

Looking at the recovery in output compared to its pre-COVID level in January 2020, output has increased on balance in 9 of 13 countries; the exceptions are Germany, France, Malta, and Portugal. There are double-digit output increases as well: Ireland, the Netherlands and Belgium log double-digit gains since January 2020 and Austria and Greece log strong increases in output greater than 9%. Manufacturing in the euro area has progressed with firm output trends since COVID struck although the overall gain in the EMU-area manufacturing output on that period is only 1.1%.

Results for three European countries that are non-EU members, the U.K., Sweden, and Norway, demonstrate somewhat mixed results. Norway shows output declines over 12 months, six months, and three months, but the pace of decline is gradually dissipating over those horizons. Both the U.K. and Sweden show output increasing over all three horizons and accelerating increases.

The trends in readings for industrial output and the European monetary union appeared to be relatively solid and for the most part appear more reassuring than more up-to-date data from the global PMI series. We do not see in the IP series here any indication of substantial ongoing weakness after February when Russia invaded Ukraine. Instead, what we see is a spread of output statistics that show expansion.

Inflation continues to be a problem in the euro area and the ECB is preparing to deal with it, but it's being somewhat hesitant and delicate due to problems with its energy supplies from Russia and the nearby Russia-Ukraine war. These issues with the energy supply situation and too-high inflation raise questions about the prospects for growth past May even though the trends in output show little weakening currently.