Volatile Spanish Industrial Output Declines in April

The trend for Spain’s industrial output shows ongoing increases since 2014. The headline index for industrial production, the mining sector and the index for all manufacturing show secular deterioration in their respective growth rates. But that is an unreliable signal for Spain where large monthly changes can dominate even a three month growth rate. Still, Spain shows sequential declines in growth rates of output for consumer goods intermediate goods and for investment goods. On a monthly basis there are declines in at least two and in most cases three of the three most recent three months by sector. So while volatility plays a role in Spain, weakness recently is also the result of a more protracted soft spot in the data. That explains why the monthly annualized growth rates by sector are all in the neighborhood of -30%.

However, both Spain’s manufacturing index and the Markit manufacturing PMI index for Spain are showing deteriorating trends over 12-months. Moreover, recalculating the data in the table from three-month averages does not change the pattern of weakness nor reverse the sequential deterioration in all three industrial production manufacturing sectors. Spain appears to have an authentic manufacturing slowdown in place not just one that is the artifact of one month’s severe weakness. The growth rates are damped by the averaging of the data but the progression to weakness is still very readily apparent.

The change in the PMI index shows more weakness than does the IP gauge. But plotting the two together gives the volatility in industrial production a bit more of a framework that helps it to fit the paradigm of weakness to strength to weakness apparent in the PMI gauge since 2015.

Spain is having its own political problems. Long-serving Prime Minister Mariano Rajoy has just been forced out of office. A minority Socialist government has taken control. But even this new government needs a lot of help from its friends. Spain, for the time being, is next to rudderless. The socialists are minding their Ps and Qs and promising to stay in the Great European experiment and in EMU; they are making none of the noises we had previously heard from the new Italian governing arrangement. Still, the Right no longer rules; it has been replaced by the Left and that has to put Spain at greater risk to events, come what may.

Separately ECB Executive Board Member Peter Praet today said that the EMU was making progress toward its goal of just under 2% inflation. Maybe that’s true and maybe it’s wishful thinking. But that is the message that the ECB wants to convey. With political instability spreading in Europe and with the economic expansion losing steam central bank watching takes on a new and more important dimension. For now every central bank claims to be holding the course. We’ll see how long that can last.