Economy in Brief

German industrial production in February grows by a strong 2% after rising by a very strong 3.7% in January.

Context for German growth The January rise followed a 2.4% decline in December. Still, these are very strong month-to-month growth rates for German industrial production. In terms of its sequential growth rates, German IP grows 0.7% over 12 months, accelerates to an 8.9% pace over 6 months, and accelerates further to a 13.3% annual rate over three months. Germany certainly does not look like it's on the threshold of recession. With two months in the quarter, German IP is growing at a 15.9% annual rate. However, the growth in industrial production in raw terms, compared to January 2020 before COVID started, shows a 2% drop on that three-year timeline. German industrial production is still not back to where it was before COVID struck. Evaluating the year-over-year German growth rate against its historic norms, the standing of the current year-on-year growth rate is only in its 44th percentile, leaving it below its historic median. So, what we see from Germany is a very short-term spurt in progress which is authentically strong but comes in the context of a long period of weakness and even of lingering year-over-year weakness in the face of this strong growth over the last several of months. The jury is still out on what this means for German growth.

Sectors in February In February consumer goods output rose by 1.4%, failing to offset the 1.5% drop in January. Capital goods output rose by 3.4% month-to-month after a 0.1% rise in January. Intermediate goods output rose by 1.8% even after a huge 6% rise in January that is not so impressive when we look back to December and see there was a 5.9% drop in December. In addition to some strong near-term growth, there's also some considerable volatility in the German industrial output series. Manufacturing output taken as a whole grew by 2.4% in February after growing 1.9% in January; those two gains followed a 1.4% drop in December. Turning to construction, output grew strongly, rising 3.4% in February after a 9.9% gain in January, but January followed a 9.5% drop in December.

Context for recent sector growth The context for these growth rates finds an uneven path for consumer goods, where output is transitioning toward strength: output of consumer goods is falling 4.1% over 12 months, rises to a flat performance over six months and gains at a 4.9% annual rate over three months, a mild accelerating trend. Capital goods show a stronger tendency to accelerate with a 9.9% gain over 12 months, picking up to show gains of over 19% at an annual rate over six months and three months. Intermediate goods output falls at a 4.8% pace over 12 months, rises at a 1% annual rate over 6 months that steps up to a 6.3% annual rate over 3 months. Manufacturing output in total rises 1.6% over 12 months, accelerates to a 9% pace over six months and accelerates further to an 11.6% pace over three months, a clear accelerating trend. Construction output rises 1.7% over 12 months and then moves up to a 12% to 13% annual rate over six months and three months, a clear step up in activity.

QTD and queue standings for IP growth On a quarter-to-date (QTD) basis, the strength in industrial production comes from intermediate goods with a 15% rate of increase, capital goods with a 14% annual rate increase, and with the pace held back by a 0.2% annual rate increase for consumer goods. Construction is up at a 24% annual rate QTD; manufacturing output overall is up at an 11.7% annual rate.

Measuring the year-over-year growth rates by assessing them relative to historic trends, as we noted earlier, overall industrial production has a 44-percentile standing for that growth rate, consumer goods has a 10.8 percentile standing, intermediate goods has a 9.7 percentile standing, construction has a 31.5 percentile standing. All of these are below the 50% mark that represents the median result for year-over-year increases. Exceeding the median is capital goods with an 89.2% standing and manufacturing output overall, with a mild above-the-median result showing a 52-percentile standing for its year-over-year growth rate.

Real sales and orders trends We can also look at what's going on with real orders and real sales. Real manufacturing orders are accelerating sequentially from a 5.9% drop over 12 months to 32.6% annual rate increase over three months. Sales in manufacturing are more erratic and weak over three months, moving from a 2% growth rate over 12 months, strengthening over six months and then falling at a 3.4% annual rate over three months. The quarter-to-date growth in manufacturing real orders is at 16.7% pace; for real sales in manufacturing there's a decline of about 1% at an annual rate.

Other indicators Other indicators that are presented in a diffusion index format include the ZEW current index, the IFO manufacturing index, IFO manufacturing expectations and the EU Commission industrial index. The ZEW current index, the IFO manufacturing index and IFO manufacturing expectations index each show progressive increases from December to January to February. The EU Commission industrial index shows a step up from December to January and then a weaker result for February. The sequentially calculated averages over 12 months, six months, and three months for the indicators paint a mixed picture. The ZEW current index shows more of a tendency to weaken. The IFO manufacturing index manages to increase slightly from its 12-month average to its three-month average, weakening in between over six months. IFO manufacturing expectations, likewise, weaken over six months but strengthen on balance comparing three-months to 12-months. The EU Commission index shows a steady weakening from a reading of 8.3 over 12 months, to 3.4 over 6 months, to 3.1 over 3 months. The queue standings of these indexes and their historic context shows readings below the 50% mark for the ZEW current index, the IFO manufacturing index, and for IFO manufacturing expectations. However, the EU Commission index, the one index that is weakening sequentially, has a queue standing at its 67.5 percentile at about the two-thirds mark of its historic queue of data.

Other Europe Industrial production data from France, Spain, Portugal, and Norway are moderate to weak. These countries generally show a mixed picture of industrial output developments in the last three months. The sequential growth rates show a tendency for output declines and for weakening across most of these countries; Spain is a minor exception because after showing declines over 12 months and six months, it posts an increase over three months. Spain also logs a strong quarter-to-date growth rate at 8%, compared to 1.6% for Norway, 0.8% for Portugal, and a 0.2% annual rate decline for France. However, comparing these standings continues to be somewhat convoluted as Spain, which is showing the strongest growth in the quarter-to-date and the best sequential growth rate picture, has the weakest queue standing with output at a 36.5% standing based on its weak year-over-year growth rate. Spain’s weak standing compared to 70.8 percentile standing for France and a 67.8 percentile standing for Portugal against a 54.5 percentile standing for Norway. There simply are few consistencies here. All trends and developments are idiosyncratic.

The S&P Global composite PMIs moved higher in March as they improved significantly in some cases as well as broadly. For the 25 entries in the table, only 6 slowed month-to-month. The average composite PMI reading in March moved up to 50.4 from 49.7 in February ending a string of net declines that the series had indicated. The median moved up to 52.8 from February’s 51.6 continuing to show that growth overall was improving. For a group of developed economies including the United States, the United Kingdom, and the European Monetary Union, the March composite index average moved to 52.9 from February’s 51.6 also migrating up from a value of 49.1 in January. Who would have thought that a year after a relatively vigorous tightening by the Fed, joined by other central banks, would result in economic acceleration?

Month-to-month patterns Looking at the three most recent months, there's now scant evidence of declines in economic activity among of the 25 reporting jurisdictions. Only six show readings below 50 in March and in February. Meanwhile, 10 of 25 were below 50 in January indicating contraction. The PMI scores have moved up to indicate fewer countries with contracting activity. Looking at the changes in the composite PMI values from month-to-month, 6 of them showed slowing in March compared to February; in February 4 slowed relative to January, and in January 7 had slowed relative to December. That means for the bulk of the 25 reporting entities, conditions were expanding or unchanged indicating relatively robust activity across the group for these months.

Sequential trends We can further look at the sequential readings, the 3-month, 6-month and 12-month averages. Over three months on average, there were eight jurisdictions below 50, the same number over six months but only seven that were below 50 over 12 months. Few reporters in the table were contracting. The number slowing, however, stands at 7 over three months, compared to six months then jumps to 20 comparing 6-month values to 12-months values. The slowdown is much broader in this period. And the number slowing clocks 18 over 12 months compared to 12 months ago. These statistics suggest that the year-over-year and the six-month to 12-month periods both show broad slowing across the reporting member countries but that slowdown tendency was greatly attenuated over the most recent three months.

Standings/rankings since January 2019 Next we evaluate these indexes over a broader period. We do that by looking at the queue standings that take us back to January 2019. On that timeline, current readings show 8 jurisdictions where the queue percentile standings are below their 50% mark (that denotes observations below the median values for the period. Those reporters include the United States, Ireland, Brazil, Zambia, Kenya, Australia, Sweden, and Nigeria. The unweighted average standing is at its 54.8 percentile while the median standing is at its 61.2 percentile.