European IP Runs Up Then Crashes Off Peak to Neutral Momentum- Or Worse

This chart includes a dozen early reporting mostly long-standing EMU members and three others for a total of fifteen. Four of the EMU 12 members show IP declines in October with one at a dead-flat reading; two of the three non-EMU member show IP declined in October. Overall, there are six declines among these fifteen early reports – 40% show output declines and 53% show output increases. It's a mixed pattern tilted to advance in the month of October. September has six output declines and one flat result. August had eight output declines and two flat output results. The recent (three-month) run of data have been mixed with a tilt to expansion at least by the number of countries. Among the four largest EMU economies (Germany, France, Italy, and Spain), there are six declines in output in the most recent 12 monthly IP changes for this group and one flat result. That leaves the large economy group with just slightly more output declines than increases (6 vs. 5).

The sequential growth rates tell a less upbeat story. There are 10 IP declines out of 15 changes over three months. Over six months, there also are ten declines. Over 12 months, there are only four declines against eleven increases.

Still, there are seven among these fifteen countries that show IP growth rates deteriorate steadily moving from 12-months to six-months to three-months. Only Finland shows IP growth rates accelerating on this sequence of dates. Looking only at period-to-period trends, output accelerated over three-months (compared to six-months) in about one third of the countries while over six-months (compared to 12-months) there is acceleration in 30.8%. However, over 12-months compared to 12-months ago, there is acceleration in 83.3% of the countries.

These many ways of tracking and slicing the data to revel trends shows that strength is beginning to ebb. The year-on-year gains are solid, widespread, and confirmed by PMI results, but that strength does not carry through over shorter periods or in the various monthly habitats.

In the very young quarter-to-date period (October's result compounded over the Q3 average), the incipient trend registers declines in seven of the fifteen countries. The two largest EMU economies show output increases while the next two largest EMU economies show declines. The median increase is an annualized 1.7% gain.

We can also look at manufacturing PMI trends on these periods. For the EMU, over the each of the last two months, PMI weakened; but the PMI had increased in August. Over three months and six months, the EMU manufacturing has been weakening. But over 12 months, manufacturing IP is higher than it was 12-months ago. Compared to January 2020, the Markit manufacturing metric is higher in 74% in the EMU – and that looks a lot stronger than the results gleaned from actual output changes.

In addition, we can take a longer look back to January 2020 levels of output before Covid struck. On this timeline, there are ten countries with output level that are still below their levels of January 2020. All four of the largest EMU economics have output below their respective January 2020 levels. The U.K., the second largest economy in Europe (but not an EMU or EU member), also has output lower than it was in January 2020.

On balance, we see output trends slowing and tracing their weakness back to January 2020. We must mark this as a rather extended period with output having been broadly listless. And the sense we get of momentum trend is muted or negative. Of course, such trend assessments are less valuable with Covid circulating since it has such trend wreaking capabilities. For now, there is another wave of infections rising in Europe and in various places in the U.S. Clearly, we have poor trends in the works a rising threat to the prospect of improvement to boot.