Norwegian IP Trends Show Resiliency

Norwegian industrial production has been weak and struggling since late-2021 as the graphic clearly shows. And despite some ongoing struggles and clear problems in Europe with energy and with security, Norway shows signs of stabilizing its manufacturing sector.

Norway's headline industrial production measure, which excludes construction, is decelerating from 2.8% growth over 12 months to 1.3% over six months to a decline of 2.6% at an annual rate over three months. Utilities output declines at a 10.3% annual rate over 12 months, logs a decline at a 24.2% annual rate over six months, and plunges to a decline at a 41.1% annual rate over three months. But that may be more a function of energy availability than a reference on economic activity. Although mining & quarrying is also weakening, from a 2.1% pace over 12 months to a modest 0.8% annual rate of gain over six months to a 5.4% annual rate of decline over three months.

Manufacturing is a counterpoint to encroaching weakness In contrast to those metrics, manufacturing is up by 1.7% over 12 months, it is falling at a 0.5% annual rate over six months but then is increasing at a 1% annual rate over three months. The three-month rate of change isn't particularly strong; however, it clearly breaks the chain of declining activity and provides a counterpoint to overall production, to utilities trends, and to mining & quarrying trends. The production of food shows uneven trends although within manufacturing the production of textiles does show sequential weakness migrating from a 2.8% growth rate over 12 months to a -5.9% pace over six months and to a -8.9% pace over three months.

Manufacturing sectors are mixed However, looking at the sectors within manufacturing rather than individual industries, we see a lot more ambiguity about trends. The consumer goods sector overall does show weakening with the growth of 4% over 12 months, a modest gain of 0.8% over six months and flat performance over three months. This is clearly decelerating growth. Consumer durables show declines in output on all three horizons, but there is a pickup - less of a decline - over six months followed by a much more severe decline over three months. Durables trends do look troubled. Consumer nondurables, in contrast, show growth on all three horizons, rising at a 5.7% annual rate over 12 months, at a weaker, 1.5% pace over six months then stepping up to a 2.6% pace over three months. Intermediate goods showed declines on all horizons, falling 0.4% over 12 months followed by a 5.6% annual rate drop over six months and a 4.5% annual rate drop over three months. The sequential trends may be muddied but the direction here seems clear. The capital goods sector, in contrast, shows acceleration with a 5.1% rate of growth over both 12 and six months that steps up to a 5.7% pace over three months. Manufacturing is a mixed bag with more weakness than strength on these metrics.

While these trends are mostly permeated by declines and weakness, capital goods is a striking contrast and the fact that industrial production does show clear declining trends. Manufacturing does not show weakness across all the sectors - in fact, it doesn't show decelerating trends overall, only in the overall consumer goods sector which culminates over three months in flat performance, not in decline.

Inflation runs hot...some let up Meanwhile, inflation in Norway continues to run relatively hot. The pace year-over-year is 8.4%; it rises to a 9.7% pace over six months, and then barely cools to a 9.6% pace over three months. The core inflation measure is up at a lesser 6.1% annual rate over 12 months, but that accelerates to 7.5% over six months, then it cools to a 5.5% pace. Still, all these are excessive growth rates for inflation.

Quarter-to-date... Quarter-to-date (QTD) industrial production excluding construction is up a very robust 7.9% annual rate; manufacturing output is up at a 3.3% annual rate; manufacturing consumer goods shows expansion at a 3.3% annual rate; intermediate goods output falls at a 4.3% annual rate. But capital goods output is rising at an 8.3% annual rate. The QTD calculations are nascent calculations for the fourth quarter representing the growth in October over the third quarter average with the growth rate properly compounded over that third quarter base. Over that same third quarter base, inflation is rising at a 10% annual rate QTD with the core up at a 6.6% annual rate.

Since COVID... As a summary statistic, I have taken the ratio of current industrial production to the level of industrial production just before COVID began in January 2020. Overall industrial production is up by 8.7% on that timeline (a bit less than 2% per-year on average), manufacturing production is up by only 0.4% on that timeline, mining & quarrying is up nearly 50% on that period. While utilities output is only up by 2.5%. Looking at manufacturing sectors, consumer durables output as of October is lower than it was in January 2020 and capital goods output is still lower than it was in January 2020. The strongest gains in output among these sectors are for consumer goods at 3.1% and consumer nondurables at 3.1%. Intermediate goods output is up by 2.4%.

A smoothed view of trends Table 2 below offers the same calculations as Table 1 with a completely different result. The data in Table 2 are calculated from 3-month moving averages of the underlying data series. You can see immediately what a tremendous difference it makes in some of the series. On this basis, the headline series is now clearly accelerating; on this basis, manufacturing output is clearly accelerating; and on this basis, consumer goods output is looking very firm. While intermediate goods output is in a clear deceleration mode, capital goods (investment goods) show ongoing acceleration. Therefore, when I look at the underlying data in Norway, I see a little bit more strength than you might admit by looking flat out at Table 1. Table 1 is conventionally the way we would calculate statistics on growth rates, but Table 2 provides a little bit more stability calculating the growth rates from broader moving averages rather than from individual months. Monthly data can be skewed one way or another and have a substantial impact on growth calculations. I believe the data in Table 2 look slightly more consistent with the story being told in the chart of manufacturing production for Norway.

Inflation continues to dog the global economy and to be ever present across Europe and in Norway. Security problems are continuing issues with the Russia-Ukraine war dragging on and with Western economies looking to impose some kind of cap on Russian oil prices. Russia is trying to retaliate against countries that employ the cap against it.

The U.S. economy has shown some resiliency recently while Europe is showing encroaching weakness, particularly for consumer spending. Norway is operating in an environment where growth is being challenged, where inflation is high, where interest rates are rising around it, and where security concerns are growing. It continues to be in a difficult environment although so far Norway has managed to fight off most of the deteriorating trends and the charts seem to depict a situation in Norway where output is challenged but where economic momentum is still fighting to maintain its positivity.