Economy in Brief

OK…the earth is not flat. No one is falling off ‘the edge.’ But the decline in Italian IP across sectors is abrupt and the fall is sharp as though it has fallen into some sort of abyss. The chart is very telling. The table is too. The table is ‘coded’ with negative values in red except for ranking data where values are red when they are below their respective medians (below 50%). Among 45 categories in the IP portion of the table, only four are positive! In the lower portion of the table, the indicators and their standings show 27 observations of which four are not negative and among those four, three are zero. None of this is reassuring. Italy is experiencing some sudden broad weakness after having shown a good degree of resiliency. Manufacturing IP as well as two of its three main sectors – as well as transportation- show ongoing decelerating trends.

There is little here to equivocate on. Everything is weak and most categories are showing sequential worsening. Quarter-to-date growth rates for IP or changes in the indicators are negative everywhere except for manufacturing IP. Compared to the January 2020 level of IP categories or of survey values, all observations are weaker than their levels of five years ago. That is almost breath-taking. That’s half a decade.

Ranking data are largely at or below their 25th ranking percentile. Six of the eight categories show rank percentile standings below their 15th percentile.

Outlook/assessment Much of Italy’s weakness is new. Since January 2020, IP is lower by 10%, but over the last 12 months it is down by 8.4% - that is the bulk of that net drop. Transportation output is down by 13.7% since January 2020 and by 19.4% over the last 12 months. Indicators show the EU index for the industrial sector in Italy lower by 4 points from January 2020 and down by 1.7 point over 12 months. Italy’s ISTAT index has fallen 5 points over 12 months and the bulk of its 6-point drop since January 2020. The ISTAT outlook for production is down by 2 points over 12 months and lower by 7 points since January 2020. On balance, Italy’s industrial sector is looking extremely weak. It seems to be under new and severe downward pressures. At a time of global weakness and ongoing manufacturing weakness, this remains a sector to watch closely.

Business confidence in Australia rose according to the National Australia Bank (NAB) Business Survey, but business conditions in January eased to a +3.2 reading from +6.2 in December. At that level, they are a tick above their November reading but still well below their respective, 3-month, 6-month, and 12-month averages. On the same tenor of comparison, confidence is higher in January while business conditions are eroding.

The components of the index are broadly weaker in January with only 31.3% improving, after 75% improved in December, following 25% improving in November. That’s a somewhat jagged past to disentangle. However, looking at improvement over 12-months compared to 12-months ago, six-months compared to 12-months, and 3-months compared to 6-months, we see the breadth of improvement rising from 37.5% over 12 months to 50% over six months to 68.8% over three months.

Still, the average business conditions readings are sequentially easing, profitability is sequentially easing, so are trading conditions, labor costs, purchase costs and capacity utilization. Items that are sequentially strengthening (or easing by progressively less) are forward orders, exports, and exporters’ sales.

The ranking of the various components shows a narrow group of categories with readings above their medians (above a ranking of 50%) involving prices, costs, and capacity (labor costs, purchase costs, prices, capacity utilization, and stocks). However, employment was close to a 50-percentile standing, at 49.8. This is broadly true, globally, as unemployment has remained low and the labor markets have generally remained strong even in the face of sub-par economic growth, especially in the manufacturing sector.

Compared to the period before COVID struck only six categories are higher – five years later. Stocks are higher by 4 points and employment by 5.8 points; the rest (labor costs, purchase costs, prices, and capacity utilization all are higher by less than one point). Profitability, forward orders, and capital expenditures are each down by more than 5 points on this timeline comparison.

On balance, Australia is still struggling. Confidence is improving but current business conditions are weakening. It’s not clear how that will sort out. Also, the confidence metrics are broadly weak with upward pressure most prevalent on prices and costs, unfortunately. Globally conditions remain touch and go with a good deal of weakness still prevalent and much of the world is bracing for what U.S. tariff policy might do. The current situation is difficult, and the outlook calls for caution.

Industrial production in the Netherlands fell by 1.1% in December and declined broadly across key categories. The output decline comes after two monthly rises in a row. Output has been vacillating, showing declines month-over-month in six of the last twelve months.

Sequentially output (IP excluding construction, the headline series) is lower by 2.2% over 12 months, falling at a 1.6% annual rate over six months then rising at a 2.8% annual rate over three months. In the just completed Q4, output is falling at a 0.5% annual rate. On data back just before the start of COVID to January 2020, output is up by 0.5% a very narrow gain over such an extended period. Separately, ranking the year-on-year IP growth back to 2020, the current growth rate stands at the 20.4 percentile, near the boundary for the lower one-fifth of its queue of data. And the S&P manufacturing PMI gauge ranks on data back to January 2020 at its 35.4 percentile, also a low standing. However, they compare most closely to manufacturing, whose output growth rank is an extremely weak 3.7 percentile.

The table and the chart combine to provide as clear a picture as we can get of the manufacturing sector. In the table, we see cross-currents as manufacturing performance varies by sequential period and, of course, increases as periods of calculation shorten. Over three months, all categories show output increases, except transportation, where output falls hard. Over six months, output falls in all main industries. Over 12 months, output falls in three-categories and rises in two. Sequentially overall output is improving, moving from weak and shrinking to growing. Manufacturing has the same pattern while transportation output trend consistently worsens. Food & beverages as well as mining & quarrying are without clear trend but both show increases over three months and 12 months and decline over six months.

The queue rankings (on 12-month growth rates) for IP show strength for mining & quarrying with a 98-percentile standing for its 17.8% y/y growth. The food and beverage industry has an above 50%, standing at 55.6%. Manufacturing overall and transportation equipment have standing below their respective 15th percentiles.