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Despite a previously issued strong orders report (a report that is summarized in the table below), German industrial output backtracked in June, falling by 1.5% month-to-month after falling by 0.1% in May. More broadly, the sequential growth rates show German industrial output lower by 1.8% over 12 months, rising at a 1.7% annual rate over 6 months and then falling at a 5.2% annual rate over 3 months.

In the current month, sector activity in Germany is mixed with consumer goods output rising 1.8%, capital goods output falling 3.9%, and intermediate goods output rising by 0.4%. This pattern of increases and declines is completely the reverse of what each industry reported in May.

Looking at industries over a broader sequential framework, consumer output accelerates from -0.8% over 12 months, to a smaller 0.2% negative growth rate over 6 months, to a solid 7.6% annual rate of increase over 3 months. Capital goods, however, head any other direction. Capital goods output rises by 4.3% over 12 months, declines at a 2.5% annual rate over 6 months, and then declines faster, at a 5.6% annual rate over 3 months. Intermediate goods show a chaotic pattern with output falling 5.4% over 12 months, log a strong 8.2% annual rate gain over 6 months, and then fall at a 2.9% annual rate over 3 months.

The construction sector also shows a chaotic pattern. Construction output fell by 2.7% in June after increasing in May and April. Construction output is down by 1% over 12 months, rises at nearly a 17% annual rate over 6 months, and then collapses to fall at a 3.2% annual rate over 3 months. There is no pattern there.

Manufacturing alone shows a 1.2% drop in output in June after smaller increases in both May and April. Manufacturing output has a chaotic pattern with a 0.4% fall over 12 months, a 1.5% annual rate of increase over 6 months and a 2.5% annual rate of decline over 3 months. The orders figures for manufacturing are strong as we reported earlier with explosive growth rates culminating in a 68.1% annual rate over 3 months. Big-ticket orders in the aircraft sector are responsible for most of that strength. In contrast to the strong orders, real sales in manufacturing fell in June by 1.6% after rising in May and falling in April. Their pattern shows a steady menu of increases, but the 0.4% rise over 12 months eases to zero over 6 months and then accelerates to 6.1% over 3 months. That's a small deviation from what would otherwise be an accelerating pattern.

Other manufacturing gauges for Germany show the ZEW current index weakening sharply in June and weakening from April to May to June while that same index shows improvement from 12 months to six months to three months. The IFO manufacturing gauge shows a steady slippage from April to May to June, but from 12-months to 6-months to-3-months the IFO is firm. IFO’s manufacturing expectations survey slipped decidedly from 96.6 in April, to 90.7 in May, to 84.1 in June. However, the progression from 12-months to 6-months to 3-months shows a step up from 12 months to 6-months and then a small step back from 6-months to 3-months. The EU Commission industrial gauge also shows monthly slippage April, to May, to June, and it shows a confirming slippage from 12-months to 6-months to 3-months. Germany's industrial indicators show us some mixed patterns with a good deal of weakness trending over the last 3 months but with more substantial firmness generally from 12-months to 6-months to 3-months.

Manufacturing in select other European countries shows widespread weakness with declines in output from France, Spain, and Portugal in June, while Norway posted a flat performance. All these countries showed increases in May and three of the four had declines in April. Rates from 12-months to six-months to three-months show a chaotic pattern in France as well as in Spain. There are persistent declines in Portugal that border on deceleration. Norway shows positive growth rates on all horizons; there is only a modest tendency toward strengthening.

QTD The quarter-to-date shows industrial production falling 5.2% at an annual rate for the just completed second quarter. Manufacturing output alone falls at a 2.7% annual rate, while real orders and real sales are up modestly at a pace of 1% to 2%. The industrial indicators show weakness in the second quarter compared to the first quarter for the IFO manufacturing and manufacturing expectations indexes as well as for the EU Commission industrial index. Only the ZEW current index shows quarterly improvement. For the four European countries listed in the table, three of them show quarter-to-date declines in output with France showing an increase of 2.9% at an annual rate.

These data continue to show a good deal of struggling going on in manufacturing in Germany although indicators provide a more optimistic view of conditions than German production trends in industry and construction. The reporting European countries also show a great deal of production weakness. While there has been some tendency toward optimism in some of the recent data, these reports do not fit into that pattern.