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Economy in Brief

EMU IP Drops Month-to-Month and Year-over-Year
by Robert Brusca  May 13, 2022

Industrial output among EMU members fell by 1.8% month-to-month in March following a 0.5% increase in February and a 0.8% decline in January. The corresponding S&P Global manufacturing PMI index for these three months shows declines in March and February but an increase in January.

Looking across the countries in the table, there are 13 European Monetary Union members and three non-EMU members. We see output declines in nine countries as of March. This is a step up from 6 declines in February and it compares to 8 declines in January.

Sequential growth rates show that six of the countries in the table have decelerating output over three months, only two have decelerating output over six months and five have decelerating output over 12 months.

The consolidated figures by sector showed that overall European Monetary Union output declines by 0.9% over 12 months, increases at a 1.2% annual rate over six months but then declines sharply at an 8.1% annual rate over three months. Quarter-to-date, output is rising at a 3.7% annual rate- with today’s report the first quarter data are complete on a preliminary basis. Manufacturing output in the quarter-to-date is even stronger, rising at a 5% annual rate. Looking at sector trends, the consumer sector shows output up at a 13.3% annual rate, led by a 15.1% annual increase for consumer nondurables compared to a 4% annual rate of increase for consumer durables in the quarter-to-date. Intermediate goods output rises at a 1.4% pace while capital goods output is falling at a 0.5% pace.

The sequential growth rates for sectors show clear cut acceleration for consumer durable goods output. Consumer nondurable goods output looks healthy but fails to go over the bar to have consistent acceleration since there's a small step back over six months but the three-month growth rate at a 12.3% pace is well ahead of its 12-month growth rate of 2.8%. Intermediate goods output falls over 12 months by 0.2%, runs flat over six months, and then falls at a 5.9% annual rate over three months. Capital goods output, similarly, falls over 12 months by 2.9%, marks an increase at a 2.7% pace over six months, then falls very sharply at a 21.2% annual rate over three months. These data show relatively healthy increases in the consumer sector with uneven or weakening trends for intermediate goods and capital goods with some severe encroaching weakness for capital goods.

Capital goods not only show that output is lower in the quarter, when compared to the pre-COVID level, output is also lower- that is over two years ago. Capital goods output is down 5.7% from its level in January 2020. All the other industrial sectors show increases. This decline in capital goods is enough to knock manufacturing output down by 0.4% on the same timeline well overall industrial output falls by zero point 7% on the same timeline.

Going back to country details of the 13 reporting European Monetary Union countries, six of them have declining output in the quarter-to-date; however, none of the declines are among the four largest EMU economies Germany, France, Italy, or Spain.

Five EMU countries still have levels of output that are below their levels of January 2020 before the virus struck. These include Germany, France, Malta, Luxembourg, and Portugal. In addition, non-EMU member, the U.K., has output lower by 0.5% on this timeline and Norway has output lower by 0.8% on this timeline.

The March report for industrial production shows that considerable weakness has crept into the picture as of March. This is notable because Russia's invasion of Ukraine occurred late in February; March is the first full month after that invasion began. The response of the West and among NATO countries has been to impose sanctions on Russia. Russia eventually responded by imposing scattered restrictions on its oil exports although for the time being these restrictions are relatively new and imposed only on Poland and Bulgaria.

Still, the war in Ukraine is a significant risk to the global economy. It is disrupting current food supplies and distribution while fertilizer shortages pose risks for harvests in the future.

Currently Finland and Sweden are pondering membership in NATO after Russia's action to attack Ukraine without provocation. It's looking like Finland is on the verge of making its decision this week to join NATO, while for Sweden the decision is still pending. Finland has an extensive border with Russia.

Between the lingering effects of COVID, the problem of dealing with the new strains of COVID, the war in Ukraine, and a new battle being waged by central banks against inflation, the economic outlook now has a great deal of risk injected into it. Central banks are still trying to get markets to keep the faith and to maintain some optimism, but the gauntlet that will have to be run by growth seems too risky to bet on its survival. More analysts are beginning to break with optimism and beginning to forecast some sort of recession although the trend now is for economists to forecast recessions that they tell us will be short and mild. With inflation running hot and heavy and with the risks from the war in Ukraine as substantial as they are, I don't know what would possess anyone to make such a Pollyanna forecast right now.

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