IP Gains in EMU in August- Sector Still Challenged

Industrial output in the European Monetary Union rose by 0.6% in August following a sharp 1.3% decline in July and a small 0.1% increase in June. Sequentially output remains weak but without any clear developing pattern. Output is down 5.3% over 12 months; it's falling at a faster 6.7% annual rate over six months; it is falling at a slower 2.6% annual rate over three months. However, in the quarter-to-date with two months of data in-hand, output is falling at a relatively rapid 4.6% annual rate. Turning away from the headline (which is for industrial production excluding construction), manufacturing shows a clearer deterioration in place with a 5% decline over 12 months, a decline at an 11.8% annual rate over six months, and a lesser, but still very rapid, decline of 10.3% at an annual rate over three months.

Sector results find industrial production output mostly increasing in August, with consumer goods output up by 0.7% and capital goods output up by 0.3% offset only by intermediate goods with an output decline of 0.3%.

Sequential sectors Sequential sector results from manufacturing shows consumer goods with output falling 2% year-over-year, falling at a 5.8% annual rate over six months and then rising at a 0.7% annual rate over three months. Intermediate goods output falls at fairly steady 5% pace over 12 months, falling at a nearly identical 5.1% annual rate over six months and falling just a slightly less rapidly 4.4% annual rate over three months. Capital goods has a consistent pace of decline over 12 months, six months and three months, with growth rates clustered near an extremely weak 10% annual rate over each horizon.

Monthly country results Thirteen European Monetary Union countries offer early results for manufacturing industrial production. In August only three countries show month-to-month declines: those are Belgium, France, and the Netherlands. However, in July six countries showed month-to-month declines, while in June ten countries showed month-to-month declines. In June the countries showing increases in industrial production were Italy, the Netherlands, and Ireland.

Sequential growth in IP across EMU members Sequentially these 13 countries show output accelerating in half of them over three months and in half of them over six months, but acceleration occurs in only about 8% of them over 12 months. The accelerations compare three-month growth to six-month growth, six-month growth to 12-month growth, and 12-month growth to the period of 12-months ago. Acceleration data look somewhat better with essentially neutral readings over three months and six months showing that only half of the countries are experiencing output growth that is decelerating. However, in many cases this is because the decline in output – which is still in train- is occurring at a slower pace. Over three months nine countries show output declines; over six months twelve of thirteen-countries show output declines; that is the same number as over 12 months. Output in the monetary union in the manufacturing sector is still broadly declining; however, the pace of decline is not clearly accelerating as over three months and six months we see that accelerations are worse in only half of the members. However, quarter-to-date data show that eleven of thirteen countries are showing output declining with two-month data in for the third quarter.

Summing up The industrial sector in the monetary union remains mixed with activity skewed to the weak side. Diffusion measures show that output is declining, and diffusion readings are also weakening over three months, six months and 12 months. However, the manufacturing PMI reading did pick up in August compared to July. Output in the monetary union overall is declining over three months, six months and 12 months, the same as for manufacturing. Manufacturing declines, however, have progressed up to double-digit rates over three months and six months; conditions in manufacturing must be considered as still very weak. The outlook is still guarded because the European Central Bank is still fighting off inflation that's over the top of its target. Also, geopolitically, the news out of the Middle East has worsened recently as the war in Ukraine drags on. The geopolitical background for the economy has gotten a bit darker in recent days.