Economy in Brief: 2022

Industrial sector performance in the European Monetary Union has turned decidedly dicey. In July total output excluding construction foundered, falling by 2.3%: manufacturing output fell by 2.1%, consumer goods output rose by 1.2%, with intermediate goods output falling by 0.8%, and capital goods output falling by a large 4.2% month-to-month. This is a lot of weakness. Within the consumer goods sector, durable goods output fell by 1.6% as nondurable goods output rose by 1.2%. Across these same sectors, output mostly fell in June while output rose uniformly in May. As a result of these comparisons, we don't have any clear trend, but we do have a lot of volatility in output with the best of strength in the oldest observations.

Divergent overall and manufacturing trends Turning to sequential growth rates, overall industrial output falls by 2.2% over 12 months. The fall is nearly the same at minus 2.3% annualized over six months while over three months the pace of decline is reduced to -0.4% at an annual rate. For manufacturing, output actually accelerates. Over 12 months output falls by 2.6%, over six months it falls at a 1.9% annual rate, and over three months it increases at a 1.1% annual rate.

Suspicious manufacturing trend However, the manufacturing results don't appear to be particularly robust. For example, over three months manufacturing output may be rising, but overall consumer goods output is falling. Within consumer goods, durables, and nondurables output both log output declines. Output falls for intermediate goods. The increase in industrial output comes entirely from an outsized rise in the output of capital goods of 5.7% in annual rate. As a result of those numbers, the manufacturing IP progression from weakness to strength is created by only one sector. Only capital goods output has a progression of accelerating growth among the three sectors (and the two consumer sub-sectors). Capital goods output falls by 3.5% over 12 months, falls at a 1.9% annual rate over six months and then rises at a 5.7% annual rate over three months.

Quarter-to-date trends indicate more pronounced weakness In the quarter-to-date (QTD) - a calculation that looks at the growth rate in July over the second quarter average calculating a true growth rate from the middle of that quarter - there's a decline in output overall at a 6.8% annual rate. There's a decline in manufacturing output at a 6.2% annual rate as well; there are declines in each manufacturing sector, and sub-sector, over the QTD period. This, of course, is different from the three-month calculation that you look only at output this month compared to the level of three-months ago. The QTD growth rate, calculated over the second quarter base, has the advantage that as further quarterly data come are released, each new observation compares output to that same base in Q2. As we add another month and then finally a third month of data and the change is driven by the new data not by a shift in the base. The QTD calculations give us a bit of a better idea how growth is evolving in the quarter per se.

The dispersion of growth Among the 13 early reporting European Monetary Union members, 8 show output the declines in July, 7 show output declines in June, and 5 show output declines in May. That's a clear progression toward worse results. Sequential data show 7 countries with output declining over three months, 6 with output declining over six months, and 6 with output declining over 12 months. However, as is the case for manufacturing output, the QTD calculations find more weakness with 9 countries showing declines in output on a QTD comparison. Here it's easiest to point to the exceptions. The exceptions are Malta with a 55% growth rate, output in Greece logs a 28% growth rate, and output in Belgium posts a 6.6% growth rate in output with Germany at a 0.2% growth rate of output growth. The median change in output for the quarter to date is minus 7.6% annualized. In the quarter-to-date calculations, 3 of the 4 largest EMU economies show declines for early Q3, with Germany, obviously, being the exception. Across all the monthly and sequential periods in the table, there are output declines persistently in two or three of the four largest EMU economies (Germany, France, Italy, and Spain)

The goods trade deficit for the United Kingdom struck £19.36 billion from £22.85 billion in July compared to June. The deficit has been steady with an average of £18.5 billion over 12 months, £21.5 billion over six months and £21 billion over three months.

U.K. export growth has been volatile but has been strong. Nominal exports are growing at a 26.6% pace over 12 months, at a 58.1% annual rate over six months, and at a 23.9% annual rate over three months. Nominal imports are up by 29.4% over 12 months, slowed to a 10.7% pace over six months and slowed further to a 1.1% annual rate over three months.

Real flows monthly Real trade flows for the U.K. demonstrate very different patterns from the nominal flows. Real exports still outperform imports in July, growing by 6.8% over June compared to a 3.7% drop in real imports. In June both real exports and real imports fell with real exports falling 9.3% month-to-month and real imports falling 3.2% month-to-month.

Real flows sequentially The sequential trends for real exports and real imports show real exports persistently growing while real imports have turned to a pattern of declines. Real exports are up by 4.3% over 12 months, up at a 26% annual rate over six months and up at a 3.4% annual rate over three months. This compares to real imports that are up by 8.8% over 12 months and are stronger than real exports. But over six months real imports fall at a 13.6% annual rate, and they fall again over three months at a 16.4% annual rate.

Commodity composition of real trade flows Real exports Commodity categories tell a significant story about trends in the U.K. Exports show steady gains in capital goods with the 3.2% gain over 12 months, and an annual rate of growth at 14.5% growth over three months. Road vehicles show a steady to strong acceleration, rising at a 9.9% annual rate over 12 months, gaining at a 40.9% annual rate over six months and accelerating again to a 72.1% annual rate over three months. Basic materials fail to trend consistently but fall by 4.8% over 12 months and are declining at a 44.7% annual rate over three months. Foods, feeds, beverages & tobacco echo the trends for basic materials although they rise by 3.2% over 12 months and then fall at a 16.6% annual pace over three months. Both basic materials and foods, feeds, beverages & tobacco show solid gains over six months, then give those gains up over three months. Those gain keeps those flows from having any kind of a steady trend in play.

Real imports On the import side, capital goods imports grow at a 12.7% pace over 12 months, which increases slightly to 14.2% at an annual rate over six months and then slips to a 6% annual rate decline over three months. Road vehicles show steady deceleration of imports, logging growth of 25% over 12 months, falling to a pace of 11.3% annualized over six months and logging a 39.5% annual rate decline over three months. Basic material imports are also in a fairly steady state of decline. They decline over all horizons, falling and 11.8% annual rate over 12 months, the slowing that drop only very slightly to a 10.5% annual rate of decline over six months and then accelerating sharply to a 61.3% annual rate decline over three months. Food, feeds, beverages & tobacco show declines over two of the three horizons; imports rise by 3.8% over 12 months, then slip at a 6.8% annual rate over six months and then decline at a more moderate 1.5% annual rate over three months.

Trends in perspective What these trends clearly show is extremely weak import growth over three months; all three-month growth rates for the import categories are negative over three months. Overall imports decline over six months too although that decline is not as broad based. Over 12 months imports see a somewhat broader increase in real terms. By comparison, exports grow at a moderate 3.4% pace in real terms over three months with the declines in only two of the categories while over six months the export gain is solid at 26% with increases across all the commodity categories. The 12-month performance of exports is moderate with the growth rate of 4.3% and with a decline in only one of the featured categories.