Industrial Production Trends Among EMU Members Are Soggy

Manufacturing production trends in the European Monetary Union (EMU) showed slippage in October, with the mean change in production among thirteen of the longest standing members posting a drop of 0.1% following a drop of 0.7% in September and a drop of 0.2% in August.

Monthly trends Among these 13 members, seven of them posted declines in October including a decline in Germany, the largest economy in the EMU and in Italy, the third largest economy in the monetary union. September had produced declines in eight of the thirteen reporting members; that compares to seven that showed declines in August. On a monthly basis, slightly over half of the reporting countries have been showing declines on a regular basis over the last three months. The largest economy in the monetary union, Germany, has showed declines in two of those months. France, the second largest economy, has showed a decline in only one of those months. Italy, the third largest economy, has showed declines in two of those months. Spain, the fourth largest economy, has logged a decline in only one of those months.

Sequential trends Sequential growth rates from 12-months to six-months to three-months do not show a clear pattern, but there is an improvement over three months where the median growth rate for these 13 countries is 0.4% at an annual rate. That compares to a decline of 3.1% at an annual rate over six months and a decline of 1.4% at an annual rate over 12 months. Over three months six of the thirteen countries showed declines in industrial production. Over six months, nine of the thirteen countries showed declines. Over 12 months, declines are logged in eight of the thirteen countries. The breadth of the declines in industrial production and the monetary union has therefore not been spreading but it is still significant. Among the largest countries in the monetary union, Spain, the fourth largest economy, does not show any declines in industrial production over 12 months, six months, or three months. Italy, the third largest economy, shows declines over all of those horizons. France shows declines over 12 months and six months; Germany also shows declines over 12 months and six months.

Momentum: accelerations/deceleration Looked at over 12 months, 50% of the reporting monetary union countries show output accelerating compared to their growth over the 12 months earlier. Over six months 50% are accelerating compared to their 12-month annual growth rates. Over three months the percentage accelerating compared to six-months is slightly lower, at 45.5%. These statistics underpin the sense in which output growth acceleration or deceleration continues to be more mixed than it is dominated by a trend. The propensity for output to either accelerate or decelerate is hovering around the neutral value of 50% over twelve months, six months, and three months. That assessment is in the aggregate. There clearly are members that are showing more weakness and even progressive weakness although there are no members showing progressive acceleration. Greece shows progressive weakness with six-month growth weaker than 12-month growth. Three-month growth weaker than six-month growth and six months weaker than twelve months for the Netherlands, as well as for Belgium and Austria. There are no clear accelerating tendencies. Italy shows a drop in output over 12 months at a 3.7% annual rate then improves to a 1.7% annual rate drop over six months and over three months, making Italy the closest thing there is to showing an accelerating pattern among countries and the monetary union. Still, there are countries that are showing more strength even if it isn't consistent formally acceleration such as Malta that logs a 28.2% annual rate in output over three months and Portugal that has a 25.4% annual rate gain in output over three months. Spain shows output increasing on all horizons and has only a slight step down over six months compared to 12 months; it logs an increase at 14.8% at an annual rate over three months so even though it's not strictly persistent acceleration there's still evidence of some strengthening.

Quarter-to-date On a quarter-to-date basis, output is falling in seven of the thirteen reporting countries, just slightly more than half. The median change is -0.3%. However, there are some strong upside gains and the average QTD for the thirteen is a gain of 6.6%. This is with only one-month available in the new quarter.

Summing up On balance, manufacturing production in the EMU remains disappointing. There's a great deal of weakness with only a few pockets here and there with some strength. The factory sector in the global economy continues to be weak. Even in the U.S. where there is the most strength in GDP among large economies, the manufacturing sector continues to lag and to produce weak diffusion readings. And central banks are shifting their focus a bit on policy-easing as inflation has remained stubborn. This creates more uncertainty about the outlook for growth.