Economy in Brief

Italian industrial production for manufacturing rose 0.1% in September after gaining 0.3% in August. These increases came after a 1.2% drop in July and they're still part of a sequence of continuously declining industrial production calculations over the past 12 months for Italy.

Italian manufacturing production fell by 2.2% over 12 months; the pace of reduction has eased slightly to -1.5% over 6 months then it steps up to a decline at a 3.4% annual rate over 3 months. We see industrial production declining on all three timelines. The 3-month deterioration is at a faster rate than at 12-months, but over 6 months, there's an interruption in that deteriorating trend that makes the overall trend ambiguous.

Consumer goods- Consumer goods production fell by 2.2% in September after rising 1.3% in August and falling 1.6% in July. The annual rate decline in consumer goods output is 6.8% over 12 months; that's reduced to a 4.7% declining pace over 6 months but then blows out to a decline of 9.5% at an annual rate over 3 months. This pattern echoes the overall pattern from manufacturing output on the same timeline.

Capital goods- Capital goods output rose by 1.5% in September after output declined in August and July. Capital goods output shows a clear decelerating sequential trend, however. After rising 2.6% over 12 months, it reduces that to a 1.2% pace of increase over 6 months and then output declines at a 2% annual rate over three months.

Intermediate goods- Intermediate goods output rises by 0.8% in September after falling 0.7% in August and falling 0.4% in July. Intermediate goods are the only category that shows that declines in output are occurring at a diminishing pace as output falls 2.8% over 12 months; that's reduced to a -1.4% rate over 6 months and reduced slightly further to a -1.2% annual rate over three months.

Overall manufacturing goods production clearly is declining although the sequential patterns are not firmly established.

Transportation- Trends for transportation equipment show deterioration although there's a strong gain of 6.1% in September compared to August. Output rises at an 11.7% annual rate over 12 months, and at a 5.9% annual rate over 6 months, but then falls sharply at an 8.6% annual rate over 3 months.

Industrial measures Various industrial measures are presented at the bottom of the table including the EU industrial confidence measure, the Istat current orders and Istat outlook for production. In the most recent 3 months, there are nine of these observations and of these nine observations only one is positive and another is zero; the rest are negative, showing widespread weakness across these industrial metrics.

The industrial metrics show persistent negative readings over 3 months, 6 months, and 12 months. But that generally is not a pattern of worsening deterioration. The industrial confidence measure and the Istat current orders measures both show readings that are less weak over 3 months than over 12 months although the Istat outlook for production metric is weaker over 3 months and over 12 months.

Rankings Turning to the final column of the table, the rank standings show all these metrics are below their historic medians (that means below a ranking of 50%) except for capital goods output. Manufacturing industrial production has a 28-percentile standing, consumer goods output has an extremely weak 6-percentile standing, intermediate goods have a 31.6 percentile standing, while capital goods have a 60.7 percentile standing, above its historic median. For transportation output, there's also a reading that's above its 50-percentile at 69.5. However, the industrial measures at the bottom of the table have very weak standings for the most part with the EU industrial confidence measure having a standing just under its 20-percentile. The Istat outlook for production reading is at its 14.1 percentile and the Istat current orders reading is at its 37.3 percentile.

Japan’s economy watchers survey has declined broadly in recent months, but recent weakness may overstate the degree of weakening present in the economy at this time.

Japan’s economy watchers current reading, a diffusion index of assessments, dropped in October to 49.5, down from 49.9 in September and from 53.6 in August. The future index also slipped to 48.4 from 49.5 in September and 51.4 in August. Both the current and the future indexes are slipping, although the current index still has a queue standing in its 67th percentile, barely on the top one-third of values it has experienced since 2002. The future index has a queue standing at its 49th percentile which places it just below its historic median; queue standing statistics put the median at a standing value of 50%.

The weakness in the indexes recently is quite striking with diffusion data shown at the bottom of the table. The monthly diffusion data calculate the proportion of indexes that are improved month-to-month. Diffusion values for October, September and for August all are at or below their 30th percentile indicating that even in the best month no current or future responses improved for more than 30% of the observations. This tells us that the deterioration is broad based over the last three months.

The sequential calculations in this table look at point-to-point changes as well. Since these are diffusion data, there's no sense in trying to annualize these data; these are just point-to-point changes and diffusion data. For the current observations, we have a decline of -4.9 points over 3 months, -5.1 points over 6 months and -1.3 points over 12 months. The slippage over 12-months is relatively small; the slippage over 6 months is substantial and because there's a 4.9-point decline over 3 months we can see that most of that slippage has occurred in the last 3 months.

The future index shows a decline of -5.7 points over 3 months, a decline of -7.3 points over 6 months and an increase of +1.3 points over 12 months. Expectations were slightly better over 12 months than they were a year ago. And once again the bulk of the slippage in this index has occurred over 3 months where 5.7 diffusion points are lost with only 1.6 diffusion points lost over the previous three months (to total -7.3 over six months).

Inflation in Germany fell by 0.2% in October on the HICP measure; the core rose by 0.2%. The German domestic measure inflation was zero while the domestic CPI excluding energy rose by 0.1%. On all these metrics inflation performed quite admirably in the October report.

Not only was the October report good, but in terms of the HICP measure September was excellent as well. In September the HICP had been zero, but the core fell by 0.2%. On the German domestic measure, the CPI was up by 0.3% in September while the CPI excluding energy was up by 0.2%. September numbers for the domestic measure were not as stellar; they were mixed with the 0.3% headline gain being too strong (3.7% annualized).

Germany’s HICP- Okay, the sequential inflation numbers are behaving- trending. The HICP headline rises by 3% over 12 months, at a 2.4% annual rate over 6 months, and it decelerates to a 1.3% annual rate over 3 months. The core rate on the HICP measure is up 4.9% over 12 months. It settles down to a 3.2% annual rate over 6 months and clocks in at 1.6% at an annual rate over 3 months. That is good progression and once again it brings the 3-month inflation rate down to within the target that the European Central Bank seeks for the euro area as a whole.

The German domestic gauge- The inflation rate for Germany's domestic measure does not perform quite as well. The inflation rate is at 3.7% over 12 months, that decelerates to a 2.4% pace over 6 months then picks up to a 3.1% annual rate over 3 months. It refuses to dip down inside of the ECB's preferred target band. The German domestic measure for ex-energy inflation rises at a 4.5% annual rate over 12 months, cruises at a 2.7% annual rate over 6 months and then picks up to a 2.8% annual rate over 3 months, once again refusing to fall into the prescribed target range of the European Central Bank.

Diffusion- Diffusion calculations are executed on detailed domestic data. They show some progress but not the same excellence as the HICP. The HICP is a measure crafted to fit across all EMU members and since members could not agree on how to treat housing costs, they are absent from the HICP. Diffusion values over 50% indicate prices increasing period-to-period faster more than slower while under 50% prices are slowing more than accelerating.

Diffusion results- Diffusion in the domestic measure shows a reading of 63.6% comparing 12-month price increase to those of one year ago across all major commodity groups. The diffusion measure falls to 27.3% when applied across groups to 6-month price changes annualized against 12-month changes. However, over 3 months the diffusion metric rises to 45.5% comparing the 3-month trend to the 6-month trend across categories- close to the neutral 50% mark. These diffusion data are poor for the 12-month gauge, excellent over 6 months, but then giving a constructive, but weak signal over 3 months.