French IP Bounced Back and Is on the Road to Repair

French IP is up by only 0.1% over 12 months, a rather disappointing result. However, the graph shows that the PMI value for France has been extremely high. The PMI boomed as IP itself rose year-over-year by nearly 50%! But then as IP cooled and as year-on-year growth withered to a negative result, the manufacturing PMI gave back some ground but continued with readings above 50 showing ongoing expansion. In the last several months as year-on-year IP has floundered, the MFG PMI has strengthened. Maybe the message from the manufacturing PMI is that manufacturing is stirring again despite its year-on-year weakness.

That notion is corroborated by the sequential growth rates for manufacturing IP. The tiny 0.1% 12-month gain in growth gives way to a pace of 2.6% over six months and to a further step up to a pace of 3.4% over three months. The production process is still less than smooth as August IP rose by 1%, September IP fell by 1.6%, and October IP was up by 0.9%. But those are the relevant of economic data, with weather, Covid and supply issues combined with transportations problems all mixing-together to play a role in the output process.

In terms of driving the steady progression of output higher, the backbone of that effort is from capital goods where output falls by 1% over 12 months then advances at a 1.7% pace over six months then accelerates to a 3% pace over three months.

Intermediate goods show roughly steady growth with 12-month and three-month growth both at 1.4% with a weakening over six months.

Consumer goods shows the output of consumer durables working irregularly to higher growth rates with growth over 12 months of 4.1% then accelerating sharply over six months to 8.3% and settling to a lower growth rate of 5.8% over three months, a pace that is still higher than its 12-month pace. Consumer nondurable goods output is flat over 12 months; it rises to a pace of 5.6% over six months then slips and contracts at a 1.8% pace over three months.

One interesting trend is that even with the ongoing chip shortage, the output of automobiles in France has been steadily improving from a decline of 29.9% over 12 months to a decline at a 19% pace over six months to an advance at a 2.1% pace over three months.

The overall French trends are clear; but they are not fully supported by all the component sectors. And in the quarter-to-date, we see that unevenness at work again. Early in Q4 (October) aggregate output is rising by only a 1% annualized rate. Consumer durable goods output is up at a 3.1% annual rate, consumer nondurable goods are falling at a 2.7% annual rate while capital goods output continues to perform and expand at a 3.3% annual rate. Intermediate goods output continues to cruise along posting a 1.7% growth pace. However, in the new quarter, auto output is falling at a 29.1% annual rate. Now these are only quarter-to-date trends and since it is early in the quarter, they still can change a lot.

As always, the trends are subject to outside influence either from supply disruptions or Covid issues. The Omicron variant is the newest worry and thus far we know little about it. It’s a risk and that may mean a large one or a small one.