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Economy in Brief

Manufacturing IP in EMU Shows Signs of Heading for Normalcy; Is It Possible?
by Robert Brusca  September 10, 2021

The year-on-year trend shows that manufacturing production (IP) in the EMU is in a slowdown mode across sectors with growth rates coming back down after spiking earlier in the year. However, month-to-month IP gains are logged in 11 of 13 EMU members in this table with only Spain showing a decline. Sixty-nine percent of the EMU members in the table show accelerating manufacturing output in July compared to June (on month-to-month changes). While that is down from 76.9% accelerating in June, it is still a higher-than-average number (typically about 47% accelerating month-to-month). However, the median gain made among EMU members in July is a monthly rise of 1.2%, greater than the median of 0.4% logged in June. In June while more countries saw output accelerate, six still saw output fall. That result stems from the comparison with May, a month that was weak with only 15.4% of countries showing output accelerate, and that showed a median change of -1.4% month-to-month and had only three countries with outright month-to-month output gains. Acceleration statistics can be tricky to pigeonhole.

These monthly facts made July a rather strong month but still only a cog in a trend that is showing a slowing.

We also see this in the three-month trend that has seven EMU members with output falling on balance over three months. It also shows the median output metric as falling by 0.8% (at an annualized rate). Only 30.8% of EMU reporters showed an acceleration in output on the period compared to their growth rate over six months.

Over six months, the results are much brighter. On that horizon, only three EMU members have falling output although that group includes the two largest EMU economies, Germany and France. The median gain in manufacturing output over six months is 6.7% at an annual rate, a rather strong result. And all countries show accelerating output growth compared to their pace over 12 months.

Over 12 months, manufacturing output is higher in all EMU countries (as well as non-EMU, incidentally) in the table. The median annualized output gain is 7.7% and the recovery effort continues as all countries show an acceleration in output over 12 months compared to the annual pace logged 12-months ago.

The sequential growth rates this month may paint a picture that seems somewhat convoluted, but it is in fact simply an artifact of a not-so-unusual growth profile in which growth has a very weak period followed by a strong recovery then simmers back down to some sort of trend. The weak three-month growth is an artifact of growth rates slowing after being super-heated over the previous six-months and 12-months. The three-month data pattern that displays such weakness, encompasses a weak May is followed by a mixed June and then a more solid July. July looks more like the month in which growth is beginning to settle into a sustainable path after having gone through all the ups and downs of acceleration and deceleration.

The quarter-to-date column shows only three EMU members with output lower in July than for the previous three-month average (Q2). It shows Belgium, the Netherlands and Ireland with compounded growth rates early in Q3 above the 20% mark with small Malta at the 11% growth mark. The remaining six countries average growth of 4.5%, a respectably strong pace.

Also to create another context, the final column in the table looks at the level of output in July relative to January 2020, before Covid struck. On that measure, only Portugal, Germany, France, Malta, and Spain show output levels in manufacturing that still have not recovered to their respective pre-Covid levels. Italy and Luxembourg are only 0.5% or less above their January 2020 level. Ireland and Belgium have gains of 20% or more on that timeline. For the rest of the reporters (four: Austria. Finland, the Netherlands, and Greece), their net growth on the timeline is 4.5% for a sustainable-looking compounded growth pace of 3% since January 2020.

These statistics show that growth is back at least on a moderately strong track. Of course, some are doing better and some are doing worse. Interestingly, in the EMU, the large economies are generally doing worse which means that the EMU total (which is a size weighted metric) will come in weaker than the median data for individual reporters.

All of this discussion has been couched in terms of placing the output rebound in some sort of position relative to the Covid-created bust-boom cycle. But that is not to assume that the Covid effect is over. It does seem to be diminished and people are deciding in their own ways and with constraints from government policy how to live with Covid still lurking.

Delta is only an example of the problem, not the whole problem
The Delta variant has raised the stakes again with infections picking up as we receive the 'bad news' that vaccine protection may wear off after 8 months. That seems to call for booster shots, but WHO is opposed to that until more of the less wealthy countries are more substantially vaccinated with a first round. However, the WHO demand seems to be falling on the deaf ears of policymakers. What we have discovered about the virus is in fact quite unsettling since it may mean that it will be living amongst us for some time and that managing immunity will be an ongoing fact of life. So far, health authorities have not really branched out at all to deal with that. The dictates they issue and continue to look at, just focus on current needs and promote booster shots ignoring the broader and potentially longer term implications of having such poor-performing vaccines. Do we really want to inject people again and again with a poor performing vaccine and one that has risks?

Will booster shots secure the future?
We have no evidence that booster shots will be more effective against the Delta variant just that boosters create more antibodies of some sort. Are they the right sort of antibodies? Maybe health officials should be looking beyond vaccines to some of the drugs than can be used to boost immune systems? Maybe such drugs should be promoted to encourage those who are shy of taking vaccines to acquire immunity in a different way? Shouldn't health officials try to promote health among the whole population instead of posing one treatment -one that has many problems at that- and forcing it onto the pubic? Maybe assuaging the needs of those with vaccine fears is better than branding them as 'anti-vaxxers…' Maybe there is a more cooperative way to get people immunity than just strong-arming them and denying them their personal freedom in return for taking the 'treatment' that the CDC has chosen. As governments' singular strategy to promote vaccines appears to be a strategy to promote things that no longer seem to act like vaccines and seem instead to be renewable treatments of some sort, will the CDC and other health agencies broaden their nets and their focus? There may be a long road ahead on this for us. I hope we have options. There is life beyond the jab.

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