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Economy in Brief

e-Zone IP drops sharply
by Robert Brusca  November 14, 2012

e-Zone manufacturing output fell by 2.6% in September, a sharper drop than had been expected. The drop comes after two months of increasing by 0.9% in each of them. Still IP in the zone is falling at a 3.6% annual rate over three months just a bit less severe than its 4.5% annual rate slide over six months. Yr/yr it is falling at a 3% annual rate. These are hard times.

The drop is led by intermediate goods where output is falling a 6.4% annual rate over three-months and 4.5% over 12-months. Consumer goods output is falling at a 4.3% annual rate over three-months and 2.9% over 12-months. Capital goods production is still showing an increase over three-months, rising at a 0.8% annual rate but output in that sector is off by 1.2% yr/yr.

Among the original EMU members that have reported MFG IP data only the Netherlands has three straight months of output increases in July, August and Sept. Italy is the only other country with a net output increase over three months (a rise of 1% at an annual rate) with one monthly rise in output sandwiched between two monthly losses. France and Greece each have two months of IP increases in the last three but have deep enough declines in September to dominate the direction.

Germany is experiencing its sharpest 12-month weakens in IP in well over a year. Finland's Oct decline is the worst in nearly a year. Ireland and Portugal are seeing their worst drops in over a year as well. There is a new bout of severe weakness in force in the Zone. In addition some of the monthly declines in output are huge.

And while there has been a lot of ink spilled on how there is some agreement to extend terms for Greece, EMU can't exactly figure out how to do that just yet. Today across Europe there are anti-austerity protests playing out across the continent. Germany does not want to fund any more excess. But all these economies have been stopped in their tracks and are now imploding with dire consequences for their national fiscal positions. It may well be that disciplining some isolated banana republics for its economic excesses works and sets an example for others who will want to avoid that fate. But across a huge continent of highly developed countries this sort of policy is nothing more than economic madness: it's Austrian economics gone wild on steroids.

This is one of the reasons I am so sure that the e-Zone will break part. There is a lot of pro-euro rhetoric even from the one who holds the purse strings, Angela Merkel. But when push comes to shove no one wants to finance it so austerity becomes the answer... an answer that is no solution.

The one clear solution that is an answer is for countries to break out of the e-Zone and to gain control of their finances again by gaining control of their currencies. Of course it will mean a period of European inflation! But that's just another way of not paying your bills. This way is proving much more painful. It's much easier for a nation to stick its creditors with the bill than to force all that adjustment down the throats of its own people. That's what the protests are all about. Austerity? No! Not for ME, anyway!

The longer that EMU goes without a real solution and not just for Greece but for Spain and Portugal and Italy -and also not fixing what's off track in France- the bigger will be the problem. As we can see, giving Greece (little old Greece!) two more years costs money and no wants to pay for that! So how will the other countries problems be remedied? Not I said the little red hen. Not I said the IMF; not without a lot of assurances. Not I said Germany (or, not 'til after 2013!). So what is left?

It's very hard to be a true optimist on Europe these days without a good stash of either legal or illegal drugs. I'm guessing if you live in Washington State these days, in the wake of marijuana being legalized, Euro-optimism is a bit easier to come by. For the rest of us it's a stretch.

E-zone MFG IP
SAAR except M/M M/M Sep 12 Sep 12 Sep 12 Aug 12
Ezone Detail Sep 12 Aug 12 Jul 12 3 Mo 6 Mo 12 Mo 12 Mo Q-3 Date
MFG -2.6% 0.9% 0.9% -3.6% -4.5% -3.0% -2.1% 2.1%
Consumer -2.7% 2.1% -0.4% -4.3% -3.0% -2.9% -0.8% 0.8%
  C-Durables -4.3% 3.0% -0.1% -6.2% -3.0% -3.9% -2.2%
  C-Non-Durables -2.8% 1.8% -0.4% -5.8% -4.1% -3.3% -1.0%
Intermediate -2.0% 0.2% 0.2% -6.4% -5.3% -4.5% -4.1% -2.1%
Capital -3.1% 1.3% 2.0% 0.8% -4.9% -1.2% -1.0% 6.8%
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