Industrial Output in EMU Falls in July; Capital Goods and Consumer Durables Output Drop

Industrial output and manufacturing output as well as sector detail for the European Monetary Union in July revealing drop in overall output and in manufacturing output, spurred by sharp declines in consumer durables and capital goods output weakness. Consumer nondurables show an increase in output of 0.4% in July while intermediate goods output is higher by 0.2% month-to-month in July. There is minor growth month-to-month in intermediate goods and nondurable goods, but that fails to offset the sharp drops in consumer durables and capital goods output.

Sequential trends are not reassuring Sequential growth rates from 12-months to six-months to three-months show manufacturing output falling by 1.7% over 12 months, falling at a 6.2% annual rate over six months, and falling at a 4.4% annual rate over three months. Output falls over each of these horizons, but it's not getting progressively worse although it still falls faster over three months than it does over 12 months. Consumer goods output follows this same pattern with the declines on all three horizons and no sign of progressive deterioration but still with output over three months weaker than the output decline over 12 months. Within consumer goods, however, consumer durables output shows progressive deterioration with a drop of 6.9% over 12 months bested by a drop at an 8.7% annual rate over six months that then worsens to -14% at an annual rate over three months. In contrast, consumer nondurables output also declines on all three horizons but falls at just a 0.5% annual rate over 12 months, then declines much more sharply at a 6.9% annual rate over six months but then trims its fall to just a 0.4% annual rate over three months - slightly less then its pace of decline over 12 months. Intermediate goods output falls on all horizons, but the drops become progressively smaller as there's a 5% drop over 12 months, a 2.8% annual rate drop over six months, and a 1.6% annual rate drop over three months. Capital goods output shows an increase year-over-year, but that gives way to progressive deterioration in growth rates as its 2.6% output gain over 12 months collapses to a 5.4% annual rate decline over six months, and that worsens to a 7.7% annual rate decline over three months.

Quarter-to-date growth On a quarter-to-date basis (July relative to the Q2 average for output) overall production and output in manufacturing drop at annualized rates of 5% and 8.5%, respectively. Declines occur in each of the sectors and in each of the consumer goods subsectors. The sharpest decline in output in the quarter is from consumer durable goods, declining at a 15.9% annual rate; that drop is followed closely by a decline at a 14.7% annual rate in capital goods output.

Output compared to its pre-Covid level Taking a longer perspective… looking at output compared to where it was in January 2020 before COVID struck, both manufacturing and industrial output are higher on balance by 1% for overall output and by 1.3% for manufacturing output. Consumer goods output is higher by 6% on that comparison, consumer nondurables output is higher by 6.1%, and capital goods output is higher by 6.7%. However, consumer durable goods output is lower by 2.3% and intermediate goods output is lower by 4.5% on that timeline.

Summing up Evaluating the year-over-year growth rate on data back to mid-2006, overall output growth ranks at its 19.5 percentile with manufacturing output at its 23rd percentile. All the sectors have growth rates below their respective 50th percentiles, except capital goods. Capital goods have a 51.2 percentile standing. For consumer goods, overall output has a 23.9 percentile standing that consists of a much weaker durable goods standing at its 9.3 percentile versus nondurable goods at 26.8 percentile. Intermediate goods output is at a 14.1 percentile standing. Capital goods output is at a standing above its 50th percentile in three of the last four months, while all the other measures have been below their 50th percentile consistently over the last four months. The weakness in output has been relatively entrenched. This month's numbers show some slight month-to-month deterioration, but they don't break any new ground in terms of activity in the sector or trends.