Recent Updates

  • China: Industrial Profit (Aug)
  • US: Advance Durable Goods (Aug)
  • Italy: Business & Consumer Surveys (Sep), Contractual Wages (Aug), Large Firms Employment, Earnings & Hours Worked (Jul)
  • Luxembourg: International Trade (Jul)
  • more updates...

Economy in Brief

French and Italian IP Show Common Threads: VIRUS!!
by Robert Brusca  September 10, 2020

Europe's September 10 Covid-19 update has France and Italy both 'in the Mix': 4,006,374 cases; the five countries reporting most cases are Russia (1,035,789), Spain (543,379), United Kingdom (355,219), France (344,101) and Italy (281,853). And… deaths attributed to the virus: Europe: 212,697 deaths; the five countries reporting most deaths are United Kingdom (41,594), Italy (35,577), France (30,794), Spain (29,628), and Russia (17,993).

Sorry to start your thinking about Italian and French IP trends by referencing the virus, but that's the game plan these days. Everything goes through the virus. No economic trend trumps the virus. The virus is king. And in Europe the virus is spreading…slowly it turns inch by inch step by step…

In both Italy and France, the curves are arcing higher. So the IP trends, favorable as they are, could be cut short by any new polices instituted to control the spread of the virus (genuflect here, and any place where I say 'control the spread of the virus').

The chart shows the nearly lockstep behavior in France and Italian IP as the virus swept through Europe. Let's not kid ourselves these are not economic data; these are virus diagnostic statistics. As long as the global approach is to 'stop the spread' economic growth will be held hostage to the spread of virus in a world that keeps shutting economies down to control the spread and leaving plenty of uninfected people to remain at risk and become infected for the next round. The most significant recent virus news was that AstraZeneca halted its vaccine trial because of an unexpected illness by a trial participant. The path to a vaccine remains the stuff of science fiction and we keep hoping it will cross the line to become actual science. But it has not done so yet.

French and Italian IP trends show the same sort of drop in IP over 12 months and six months with both showing almost incalculable strength over three months. The auto sector is the most amazing as auto production, especially in France was really shut down and has since sprung back to life creating an amazing growth rate when annualized. Italian transportation output has similar phenomena and both show motor vehicle registrations pushing through the roof to the troposphere, the stratosphere, the mesosphere, the thermosphere, and the exosphere and beyond over three months. Never before have we seen growth rates like these.

These sorts of extreme calculations are belied by the normal-looking (but strong) growth rates logged over the past two months in both Italy and in France. The virus plunged growth into the despair of the dark ages then as the restrictions on movement were lifted, and since the economies were healthy, growth sprang back up nearly as fast (but not as fully). Now as revival progresses, the pace of growth is settling down.

Both Italy and France show enormous quarter-to-date growth rates with France posting the more eye-popping numbers. Each country, however, logs a July manufacturing PMI reading in the neighborhood of 52.

Over the last two months, capital goods output is up by about 20% in Italy, compared to a 30% gain in France. Intermediate output in Italy is up by about 15%, compared to about 15% in France. But Italian consumer goods output is up by about 17% over two months while in France consumer nondurables output is up by about 10% and durable goods output is up by nearly 50%. The consumer sectors for industrial output in Italy and France are experiencing very different rebounds. Over three months, the Italian manufacturing sector has a gain at an 813.5% annualized rate compared to France at a 6,551% annualized rate. You can understand why I look at these more as Covid-19 diagnostics than as real economic data. Even output trends have 'gone viral.'

However, if you live by the virus you die by the virus and that is the message of the spreading virus in Europe with both France and Italy suffering rising infection curves. Even Germany, with much less infection overall, has a slight rise in its infections in progress. Spain has a sharply rising curve to fill out the news on the virus trends in the EMU's four largest economies. The U.K., another large European economy, also has a rising curve of infection. As I noted in yesterday's report, Sweden's infections are off and the trend is low and stable. The debate on the best way to deal with the virus will go on and on, but the fact of the situation is that containment strategies are strategies that keep economies vulnerable to new outbreaks and therefore to repeated shutdowns as long as the virus is still circulating (or even feared to be circulating).

I have little confidence that these economic statistics really mean anything. They are a look back in the rear-view mirror as they always are. But what is different is that we cannot assess likely trends from them at this time because trends will be determined by the virus not by momentum. National stop-the-spread policies can snap the trap on a surging economy and drop it dead in its tracks as though it had stepped in a bear trap.

I hope wherever you are, you have found a way to stay safe and to psychologically and economically cope with the risks and strains of the virus. If you are reading this, at least you are probably still employed. At some point, the unknown but seemingly moderate costs of the infection will have to be compared to the growing and significant collateral damage that economic shutdowns do to people, to their lives, to their economic fortunes, to their children, to their psychological disposition and to other aspects of their heath. So far, the reaction to the virus has been wholly virus centric (what would an epidemiologist do?). This approach, given the extremely low morbidity rates among healthy people, has made little sense to me. But this approach has been rather uniform globally with Sweden alone choosing a different path among developed economies.

The development of a vaccine that is effective and accepted would be a game-changer but even that would change the game slowly since everything takes time and vaccines do not spring fully formed out of the head of Zeus… at least not as far as I know. But when someone tells you to 'trust science' that is code for 'do it my way' much more than it is telling you to do it 'the right way.' In truth remember what 'science' is, how many disciplines 'it' embraces and that regardless what you may be told by the CDC, also embraces differences of opinion. So, which 'science' and which 'scientists' do you want to trust? It matters. Nothing is as simple as 'trust science,' trust me, I'm a doctor (well, PhD, anyway).

Commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
close
large image