German Manufacturing Contracts- Continuing Its Erratic Pattern

Output in Europe continues to struggle as exemplified by German industrial production, that fell in December continuing its erratic pattern in 2022. German production has fallen in four of the last six months. Annualized growth rates, calculated sequentially, show output decelerating in German manufacturing with output down by 4.2% over 12 months, down at a 6.8% annual rate over six months, and down at an 11.7% annual rate over three months. The output of consumer goods follows that same progression, and the output of intermediate goods follows that progression but with much more severely negative rates of growth. Intermediate goods are down by 10.3% over 12 months, down at an 18.4% annual rate over six months, and down at a 24.6% annual rate over three months. The exception to all this weakness and progressive weakness is capital goods where output accelerated from 12-months, to 6-months, to 3-months, and where growth rates have become relatively strong. Capital goods output is up by 3.5% over 12 months, up at a 10.5% annual rate over six months and then up at nearly the same growth rate of 10.6% annualized over three months.

But the quarter is now finished; the quarter-to-date calculations are now for the fourth quarter. They show industrial production falling at a 2.7% annual rate, consumer goods output falling at a 4.7% annual rate, intermediate goods output falling at a 15.2% annual rate, and capital goods output expanding at a strong, 16.3% annual rate.

Construction shows a decline in output in December, and it shows sequentially declining and decelerating growth rates with output contracting and sequentially greater negative rates from 12-months to 6-months to 3-months.

Manufacturing Manufacturing orders are declining on all but horizons, but the declines are progressively diminishing with the 12-month growth rate for real orders at -9.6%, diminishing to -8.7% over six months, and diminishing further to -3.1% over three months. Real orders are not becoming progressively weaker; however, they are contracting on all timelines.

Demand shows that real sales have been somewhat erratic. They are up by 1.1% over 12 months, down at a 0.2% pace over six months, and then up at a 0.8% annual rate over three months.

Manufacturing and industry Various surveys show a slight amount of firming in the October to December period. The ZEW current index is slightly stronger for two months in a row. The IFO index for manufacturing also is higher for two months in a row. IFO expectations have been stronger for two months in a row. The EU Commission index for the industrial sector has been relatively unchanged over the past three months.

Elsewhere in Europe… Other early reporting countries in December show mixed results. France logs a gain in output of 0.3%, Spain shows a decline of 1.8%, Ireland shows a drop of 8.5%, Portugal posts a gain of 4.1%, Norway shows IP declining by 0.6% in December. The sequential growth rates show persisting decelerations for France, Ireland, and Norway. France, while showing persistent deceleration, still reports positive rates of growth over 12 months, six months, and three months. Ireland reports accelerating contractions over that timeline, while Norway transitions from growth over 12 months to a decline in output over three months. Spain’s pattern is inconsistent, while Portugal shows strength with positive growth rates on each horizon and with industrial output accelerating from 2.4% over 12 months, to a pace of 11.8% over six months and to 26.1% over three months.

Summing up The German data on the month reveal weak German output in the fourth quarter is and declines across the board except for the capital goods sector which has suddenly become solid and dependable. The Output declines in the German construction sector and, while manufacturing real order growth is negative, the trend is not worsening; real demand shows sales with a waffling behavior, generally at small positive rates of growth. Industrial surveys, that mostly present diffusion data, show some stability or even improvement in the industrial sector over the last 3-months in Germany. While Europe shows mixed conditions but centered on weakness and weakening. In general, 2022 ends on a weak trend for Germany and for the part of Europe that reports in this table. The fourth quarter shows a great deal of weakness when we compare the metrics for the completed quarter relative to the third quarter. The central bank is still raising rates and the European monetary union inflation rate is still high. The outlook for Europe is still guarded.