German IP Recovery Progresses

German industrial output rose by 1.6% in September, faster than its 0.5% rise in August, keeping the expansion in output and recovery on track. German output is accelerating from 12-months to six-months to three-months and it is expanding in the just completed third quarter at a very robust 50% annualized rate. It is still a recovery in progress despite those strong figures as the level of output in October is 8.4%% below where it stood in February.

Sector recovery is afoot
All three sectors consumer goods, capital goods and intermediate goods have output lower than their respective February levels. Manufacturing as a whole has output lower by 9.2%. Construction sector output is lower by 0.5%. However, all three sectors and manufacturing as whole show output is accelerating from 12-months to six-months to three-months. Construction output is not quite on that same path, but its pace over three months is faster than over 12 months.

Manufacturing, real sector sales, and the Markit manufacturing PMI all show progressive acceleration for manufacturing, underpinning this notion of ongoing recovery. The Markit manufacturing PMI is even stronger in September than it was in February, showing essentially a 'complete' recovery.

Other metrics show substantial progress
A few indicator metrics also chime in with stronger readings for September than in February. This includes the IFO for manufacturing, the IFO manufacturing expectations index, and the EU commission industrial index. These indexes, which are formally more about breadth than strength, indicate that the breadth of the expansion has progressed faster than its strength. We know this since the IP itself measures strength and manufacturing is lower by 9.2% from its February level.

Elsewhere in Europe
There are also four other early reporters of IP results in Europe. Of these four, only Spain shows a rise in IP in September as Portugal, Sweden and Norway log declines on the month. However, all but Sweden still show progressive acceleration from 12-months to six-months to three-months. All show strong growth in the quarter as well. Norway's IP growth is 'strong' but not on a par with the other economies listed here. And all four show that IP in September is below its level as of February but by smaller percentages than Germany ranging from a shortfall of 3% in Norway to a shortfall of just 0.3% in Portugal.

As always the future is about the virus...
Of course, the way forward depends less on the statistics of momentum in the table and more on the virus which has spread again and is requiring widespread counter-policies across Europe. In this process manufacturing tends to be less affected than the service sector yet it, too, will be affected by the reductions in activity.

Everyone is watching and waiting to see how effective these more limited closures will be is stopping the spread compared to early in the year when they fell like a hammer blow and knocked the global economy out. There is every effort being made to avoid that this time around but still the policy aim is to block the spread – that has not changed.