Economy in Brief

Industrial output in Japan foundered drooping by 1.2% in April, with manufacturing output declining by 0.9% on declines spanning consumer goods, intermediate goods, and investment goods. Mining and electric and gas output fell in the month as well. Declines spread across all of manufacturing and all the major industrial production sectors. The textile industry managed a month-to-month rise.

In recent months manufacturing output and overall industrial output have both been up and down by month. Sequentially, output may have broken out from a weak trend. Over 12 months output fell by 4%, over 6-months it fell at a 7.3% annual rate, but over 3-months overall output is up and 11.5% annual rate, a strong showing. Manufacturing output fell by 4.3% over 12-months, it fell at the 6.8% annual rate over 6-months and then surged at an 11.9% annual rate over 3-months. And while these patterns are encouraging, the impact on year-over-year growth has only been to stabilize output at around the -4% mark of contraction.

By sector, consumer goods output continues to be weak but has trend with some of its weakness back. Consumer goods output falls by 4% / 12 months falls at a stepped-up pace of 8.3% at an annual rate over six months but then reduces its decline to less than 1% than an annual rate over three months. Intermediate goods output falls 4.8% / 12 months and follows at a 10.2% annual rate over six months but then manages to log an increase at a 0.4% annual rate over three months - that marks more of a reversal of trend than it does signal much of A gain. Investment could output falls by 3.9% / 12 months improve slightly by falling at only a 2.4% annual rate over six months and then jumped to a 24.2% annual rate gain over three months, that's a clear sequence of improvement but with most of the improvement coming over three months.

Outside of manufacturing, mining output showed a similar pattern. Mining output fell by 4.4% over 12-months, fell by 6.8% at an annual rate over 6-months, and then logged a 9.1% rate increase over 3-months.

Electric and gas output logs increased over all horizons and showed steady improvement over the sequential periods, rising by 0.8% over 12-months, rising at a 1% annual rate over 6-months, and then at a much-stronger 8.6% annual rate over 3-months.

There's significant agreement across the manufacturing categories and other industrial categories that show that over 3-months something positive is stirring in Japan's economy; but, as yet it's not enough to dominate the existing declining 12-month trend.

In the quarter industrial output is increasing at a9.9% at an annual rate, manufacturing output increases an 11.2% annual rate. However, the manufacturing result is driven by investment goods that are rising at a 30% annual rate in the quarter while consumer goods output falls by 3.6% at an annual rate and intermediate goods output falls at a 0.8% annual rate.

Mining and electric and gas output both fall in the quarter to date, as well. But now the quarter is in a nascent phase with only one month of data in. Results for the quarter can still change quite markedly as there are still two-months-worth of data plus the potential for revision to reveal themselves. The quarter to date growth calculation involves taking the current month and calculating its trajectory over the first quarter average by compounding it; that tends to exaggerate its impact so early in the quarter. That will change significantly when the next several months of data are added in to complete the quarter.

Output overall as well as manufacturing and all its sectors show output levels are still below what they were in January of 2020 when COVID first struck the world economy. The short-falls are significant, indicating that after four years Japan's economy still has not recovered from that body blow. The only industry that has improved relative to January 2020 is electric and gas and that's only because there's always a steady need for the output from utilities. This report highlights the potential for recovery in Japan's economy. Most of the gain stems from a revival in March, April's contribution is that it wasn't weak enough to wipe out the March gain. Still, the year-over-year change in output remains negative. Quarter to date output is stepping into positive territory but on the on the strength of one sector. Japan's economy still has a long way to go to put itself back on two feet.

Industrial production in the European monetary area fell by 0.1% in April after climbing by 0.5% in March and 0.1% in February. For manufacturing the April fall was greater at -0.4% although March had posted a gain of 1% and February’s gain is 0.8%. Uptrends are still intact for the headline excluding production as well as for manufacturing.

Sequential growth rates for overall industrial production excluding construction show a decline at a 2.9% annual rate over 12-months, a gain of 0.2% at an annual rate over six-months and the three-month rise of 2.1% at an annual rate - a progression showing improvement for manufacturing. The manufacturing drop is also 2.9% over 12-months, the six-month rise is at a 1.2% pace and the three-month gain is at a 5.9% annual rate, an even stronger progression toward better growth.

In April Euro-Area manufacturing sectors showed increases month-to-month except for intermediate goods that logged that a decline of 0.4%. Consumer goods output rose by 0.3% led by nondurables and capital goods registered an increase in output of 0.7% month-to-month.

The growth rates for manufacturing sector show clear acceleration only in capital goods where output declined by 4.8% over 12-months, then deduced its decline to a 3.8% annual rate over six-months but then exploded to a 15.3% rate of increase over three-months. By comparison consumer goods output shows revival but not clear acceleration, gaining 0.4% over 12-months accelerating to a 4.4% pace over six-months but then slowing to a 3.5% annual rate over three-months. Consumer durables are a marginal candidate for acceleration as output falls at a 3.4% annual rate over 12-months and a similar 3.8% rate over six-months, but then shifts to a gain at a 3.8% annual rate over three months. Consumer nondurable goods show increases on all three horizons, but output gains slow over three-months compared to six-months. Intermediate goods output shows declines on all three horizons; the declines are gradually diminishing but not sequentially diminishing.

Quarter-to-date growth rates for industrial production show headline production rising at a 1.7% annual rate early in the second quarter compared with three-point 3% annual rate gain for manufacturing. Both consumer output and capital goods output are rising at double digit rates, consumer nondurable goods are advancing at 8.4% annual rate; only intermediate goods output is declining on the quarter-to-date, falling at a 2.8% annual rate.

Comparing output levels, the level of output on January 2020 shows overall output is still 1 1/2 percentage points below what it was over four years ago in January 2020. Manufacturing output is still lower by a little less than 1/2 of one percentage point. Durable goods output is lower by about two percentage points, while intermediate goods output is lower by about 7 percentage points. Capital goods output is slightly higher by about six-tenths of a percentage point; nondurable goods production is higher by 7.7 percentage points. Consumer goods overall show production higher by nearly seven percentage points. The consumer is king.

We rank the performance of industrial production by its year-over-year growth rates as well. On performance back to 2007 total output and manufacturing output rank around their 18th percentile, that's in the lower one-fifth of their historic queue of growth rates - a poor performance. Consumer goods output overall has a 42-percentile rank, consumer nondurables output is the strongest industrial category with a 48.8 percentile standing, close to its median, but just below the median reading at 50%. Intermediate goods rank at about their 34-percentile standing just above the lower 1/3 of their historic queue of results. Capital goods output during this period has been especially weak, having only a 13.2 percentile standing, when ranked against its historic year-over-year growth rates.

The chart above actually provides a good summary and description of what's happening. It shows that the various sector growth rates are still contracting, however, it shows progress being made by intermediate goods and consumer goods while it shows there's still erratic performance in the capital goods sector. The capital goods sector has been especially important to the German economy that continues to flounder. This report suggests that there is improvement in train and that Europe's industrial sector also remains irregular. Improvement is still in train. In the unfolding quarter it appears the growth is beginning to take hold.