Economy in Brief: 2023

Industrial production in Japan in August rose by 0.2% after falling by 1.6% in July. Manufacturing output in August fell by 0.2% after falling by 2.4% in July. Overall industrial production has made a gain while manufacturing production is pulling back slightly.

Sequential growth rates from 12-months to six-months to three-months show lessening weakness culminating in a small positive growth rate over three months for total industry output. Overall industrial production falls at a 3.4% annual rate over 12 months, falls at a 1.1% annual rate over six months, and then makes a 6% annual rate positive gain over three months. Manufacturing follows suit. Its sequential rebound shows output falling by 3.8% over 12 months, falling at a 2.7% annual rate over six months, then advancing at an 8.5% annual rate over three months. While the monthly data are somewhat chaotic, both overall and manufacturing industrial production are showing accelerating sequential growth.

The sequential acceleration is borne out by the chart at the top of this report; however, it's part of a still very flat growth process where we can see that three-month, six-month, and 12-month growth rates for industrial output have been in a narrow range and have been somewhat arbitrarily changing places for a relatively long period of time. The chart traces data back to September 2022 and on this timeline no clear pattern of acceleration over any sustained period can be identified.

The paradox here is that quarter-to-date all industry and sector as well as aggregate measures are showing a decline in output, two months into the third quarter. The sequential growth rates, on the other hand, give us some sense of an acceleration in progress. These two measures conflict with one another.

The manufacturing industries, textiles, and transportation, show sequential growth rates that are getting progressively weaker from 12-months to six-months to three-months. These are contrary to the trends for manufacturing overall.

By sector, consumer goods output is up by 1.3% over 12 months and gains at a 2% rate over six-months but then drops at a 13.2% annual rate over three months – it is decelerating. Intermediate goods show the progressive acceleration that we see in the headline as output falls by 2.6% over 12 months, falls by 0.4% at an annual rate over six months, and then advances by 4.4% at an annual rate over three months. Investment goods show an unclear sequential pattern falling by 11.1% over 12 months, reducing that drop to -4.7% annualized over six months, but then having an accelerated drop at a -20.1% rate over three months.

Mining shows a pattern that looks close to progressive weakness, with an 8.6% decline over 12 months, a similar 7.6% decline over six months, followed by an accelerated 17.3% annual rate fall over three months.

Not surprisingly electric & gas utilities output shows persistent strength with output rising 2.2% over 12 months, advancing at a 9.5% pace over six months, and rising at a a 24.9% pace over three months. Utilities output simply feeds current activity and demand and there is less ability to stockpile output from the sector.

The European Commission indexes of overall confidence and sector assessments for September slipped lower and the European Monetary Union (EMU) with the overall gauge dropping to 93.3 from 93.6 in August. At that level, the overall index has a ranking among historical observations back to 1990 in its lower 24th percentile, an extremely weak reading.

Component or sector readings for EMU The component readings for the index show slippage or unchanged values for all components except the industrial sector where there was a month-to-month improvement in September to -9 from a -10 reading in August. The service sector assessment was unchanged in September at a level of 4.0. The retail and construction indexes each slipped to a reading of -6 in September from a reading of -5 in August. Consumer confidence in the EMU fell to -17.8 in September from -16 in August; it has the lowest component ranking among the five components at a 14.1 percentile standing in September. Confidence in the EMU is doing very badly. The industrial and services assessments also have standings below their 50th percentiles. Retailing and construction have percentile standings above their historic medians (which means they're above the 50th percentile). Construction has a relatively firm standing at a 70th percentile standing; retailing has a 58.7 percentile queue standing.

Country level performance in September 18 of 19 members report country level confidence readings for September; 8 of 19 members show month-to-month declines, the same number as in August and one more than July. Among the largest countries (Germany, France, Italy, and Spain), Italy and Spain showed declines in September while Germany, France, and Italy showed declines in August. Germany and France showed declines in July as well. The large countries have consistently been showing weakness. Because the overall European monetary union gauge is weighted for economic size, this weakness among the largest economies weighs on the overall index.

Standings show broad and intense weakness The monetary union gauge itself has a 24.2 queue percentile standing; this compares to a 15.9 percentile standing in Germany, the largest economy in the EMU. France, the second largest economy, has a standing at its 37.5 percentile. Italy, the third largest economy, logs a 41.1 percentile standing. Spain, the fourth largest economy, has a 39.5 percentile standing. Among the remaining 14 countries, only three have queue percentile standings above their 50% mark. Those are Malta with a 99.6 percentile standing, Greece with the 71.5 percentile standing, and Cyprus with a 62.7 percentile standing. Most countries large or small have overall sentiment standings below their 50th percentile and generally substantially below their 50th percentiles. Among the largest four economies, the highest percentile standing is from Italy with a 41.1 percentile standing; among the other 14 in the table, setting aside the three that have readings above the 50% mark, the highest percentile standing is 39.2% in Lithuania, followed by 33.6% in Slovakia, 29% in Latvia, and 28.5% in Luxembourg.