German IP Drops, Unexpectedly

German IP fell by 1% in October, led by declines of 1% in consumer goods output, a 0.4% decline in capital goods output, and a 0.4% gain in intermediate goods. Output had fallen and fallen sharply across the board in September. That fall was one of the main reasons that expectations this month were slated for a bounce-back.

Despite this, the pace of decline has slowed over three months. German IP falls by 4.7% over 12 months; it drops at an annual rate of 9.1% over six months and then drops at a three-month annualized rate of 1.8%. Consumer goods output comes closer to having an ongoing accelerating decline in progress. Capital goods output declines at a 4.9% pace over 12 months and declines at an 8.1% annual rate over six months then shifts to log a strong 9.8% increase at an annual rate over three months. In contrast, intermediate goods output shows declines on all horizons without and clear trend beyond that.

Surveys for German industrial performance generally get weaker from 12-month to 6-month to 3-month, except for IFO manufacturing expectations that fluctuate and side-slip. France, Spain, Portugal, and Norway report early IP data for October. Sequentially, only Spain has a pattern and that is accelerating. The rest show fluctuation but three of the European countries (exception, Norway) show IP rising over three months.

Still, the queue standings for the various metrics in the table are uniformly low. Among the 18-rankings in the table, only three of them stand above their 50-percentile which puts them above their respective historic median year-over-year gains. Spain and Portugal show historical strong manufacturing IP gains while for Germany real orders have a standing above their historic median.

On balance, it is another disappointing economic report for Germany. The manufacturing sector remains under pressure although there is some evidence of slightly better growth in other European economies. For the most part, the quarter-to-date readings show ongoing weakness.