Euro-Area IP Continues Its Gains But Trends Slow

While Euro-Area IP made strong gains in May again and its three-month growth rate picked up, the Yr/Yr rate of growth is giving back ground. It looks as though Europe's rate of industrial production growth is set to slow. The three major sectors each have a distinct flat spot at the end of their Yr-on-Yr growth profiles (see graphic).

It is not surprising to see that the consumer sector in the zone is still floundering. The output of consumer goods decelerated over three months compared to six months ago but is still better over three months that its 12-month growth rate. It has never gotten in gear in this expansion.

Intermediate and capital goods rates of growth for output are about five times stronger than for consumer goods and they are still showing acceleration. But how long that remains a trend is anyone's guess. I'd look for a slowdown in those hot sectors unless the consumer wakes up .

In the ongoing quarter with two months worth of data in hand, capital goods output is rising at a strong 15% annual rate. Intermediate goods output is rising at a 23% annual rate. Consumer goods output is rising at a puny 0.5% annual rate. The consumer sector is simply not in gear. And since this is a measure of industrial output it reflects weakness in all consumer goods output not just output for domestic consumption but for export markets as well. Taken as whole, the consumers in the Zone as well as those served by producers in the Zone are not very active. Unless they pick up their pace it is hard to imagine other industrial measures remaining strong.

On a country by country basis nearly all the large Euro-Area economies are all showing acceleration in output from 12-months to 6-months to 3-months. Germany's output has accelerated very sharply. Spain's industrial output often is volatile and may not be as reliable but it too is showing some real pick-up over the recent three months. In the quarter-to-date Germany's IP is rising at a 27% annual rate, Spain is up at a 17% annual rate and Italy's output is up at a pace just short of 9%. France and the UK are showing growth rates of 6.5% to 7% in the new quarter.

On balance Europe is still showing some strong rates of growth. But there also are some potent signs of slowing. Europe's growth is not balanced. It is not balanced across sectors nor is it balanced across the various zone member countries. The consumer continues to be a major problem area for growth and is missing in action.

Euro-Area MFG IP
Saar except m/m	Mo/Mo			May 10	Apr 10	May 10	Apr 10	May 10	Apr 10
Euro-Area Detail	May 10	Apr 10	Mar 10	3Mo	3Mo	6mo	6mo	12mo	12mo	Q-1
MFG	0.8%	0.8%	2.1%	16.3%	10.2%	8.0%	10.3%	9.3%	9.6%	12.6%
Consumer	0.7%	-1.2%	1.5%	4.1%	0.8%	5.0%	6.0%	3.7%	2.9%	0.5%
C-Durables	2.4%	0.1%	0.4%	12.4%	0.1%	4.1%	4.3%	5.9%	1.1%
C-Non-durables	0.6%	-1.3%	1.7%	3.9%	1.2%	4.9%	5.9%	3.5%	3.2%
Intermediate	0.8%	2.1%	2.5%	23.8%	22.9%	12.7%	16.6%	14.7%	15.8%	23.1%
Capital	1.0%	1.8%	1.9%	20.3%	9.5%	9.0%	10.7%	8.4%	9.1%	15.7%
Main Euro-Area Countries and UK IP in MFG
	Mo/Mo			May 10	Apr 10	May 10	Apr 10	May 10	Apr 10
MFG Only	May 10	Apr 10	Mar 10	3Mo	3Mo	6mo	6mo	12mo	12mo	Q:4 Date
Germany:	3.4%	1.1%	3.5%	37.2%	19.3%	17.8%	12.4%	13.6%	15.0%	27.3%
France: IPxConstruct'n	1.7%	-0.5%	1.3%	10.5%	4.5%	7.5%	6.4%	8.2%	8.1%	6.5%
Italy	1.2%	0.9%	0.2%	9.6%	5.7%	7.4%	6.8%	7.3%	7.8%	8.7%
Spain	1.9%	-1.4%	5.2%	24.7%	23.4%	6.4%	2.2%	5.8%	2.7%	17.7%
UK: EU member	0.3%	-0.8%	2.3%	7.4%	12.9%	6.0%	6.8%	4.3%	3.0%	6.9%