French Manufacturing Continues to Struggle

French industrial production has hovered around a zero annual growth rate for several years. May's 2.1% month-to-month drop leaves IP shrinking by 3.7% year-over-year. Sequential growth rates show that recent IP trends have become even weaker than their declining year-over-year pace.

While some (and slightly more up to date) PMI gauges show some progress in French industry, the industrial output report itself is still less than encouraging.

Trends for consumer durable goods output are negative and deteriorating. Trends for consumer nondurable goods are negative and becoming increasing weaker. Capital goods output also is showing declines on all horizons and declines that are getting progressively steeper. The same is true of nondurable goods trends. The picture for industrial production is bleak on all horizons and for any type of goods. A separate look at auto production shows negative growth rates on all horizons, but they are not progressively deteriorating.

When we compare these output trends to spending trends in France, we see that output trends are far weaker than are French spending trends. Year-over-year output is down by 3.7% while real retail spending (ex-autos) is up by 1.3% and motor vehicle registrations are up by 5.6% (auto output is down by 5.9%).

Two months into Q2, French IP growth is shrinking at a 1.9% annual rate and all components are falling faster. French spending is rising in the new quarter.

The French industrial sector is still struggling. The weaker euro exchange rate has not helped the sector to recover. France may still be finding competition within the euro area (where the euro devaluation does not help it) be too much for it.