German IP Grows in June But Still Has Weak Momentum

German industrial production rose 1.4% in June after falling 3.1% in May and edging up by 0.2% in April. Sequential growth rates do not set a clear course, but on all horizons, growth is weak or lower. IP falls by 3.9% over 12 months, rises at a 0.9% annual rate over six months, then falls at a 5.8% annual rate over three months. Three-month growth is weaker than 12-month growth, but there is a rise in-between, over six months. Still, the overall pattern is weak. In the quarter just completed, IP falls at a 5.1% annual rate. Also, note that there is a legacy of weakness in IP that is still standing in June, 10.6% below its level in January of 2020 (4 ½ years ago) just before COVID struck.

The IP sectors show the same trend ambivalence as the headline. Only capital goods show output decline on all horizons, but even then, the progression is not clear as the weakness dissipates over six months.

Total manufacturing output and real orders rose in June as real sales fell. Sequentially, manufacturing output is weaker over three months than over 12 months but without clear trend. Real orders rise solidly over three months despite a double-digit pace of decline over 12 months and a deeper drop over six months. Real sales do show a clear trend and a trend to deterioration amid negative growth rates.

Other indicators for German industry show an uneven monthly sequence. The broader sequential data show strengthening over three months compared to six months for the ZEW current assessment, for IFO manufacturing and for IFO manufacturing expectations. The EU Commission assessment shows a weakening from 12-months to 6-months to 3-months. It is the exception. All indicators except the EU Commission indexes show improvement in the quarter as well.

IP in other European countries shows declines in Portugal, Spain, and France while Norway (an EEA member) shows output higher in June by 1.3%. The broader progressions show ongoing deterioration in Portugal and in France. There is secular improvement in Norway as growth improves form a -0.9% pace over 12 months to a 4.1% gain over three months. Spain shows erratic behavior with no clear trend and a sharp 10.1% annual rate of decline over three months.

On balance, the IP report for June shows a one month rebound for Germany but still weak trends in place across sectors. Other indicators show a somewhat more positive picture. Individual European IP reports largely show weakness in play. There is not much cause for optimism here.