Economy in Brief

Norwegian industrial production has been weak and struggling since late-2021 as the graphic clearly shows. And despite some ongoing struggles and clear problems in Europe with energy and with security, Norway shows signs of stabilizing its manufacturing sector.

Norway's headline industrial production measure, which excludes construction, is decelerating from 2.8% growth over 12 months to 1.3% over six months to a decline of 2.6% at an annual rate over three months. Utilities output declines at a 10.3% annual rate over 12 months, logs a decline at a 24.2% annual rate over six months, and plunges to a decline at a 41.1% annual rate over three months. But that may be more a function of energy availability than a reference on economic activity. Although mining & quarrying is also weakening, from a 2.1% pace over 12 months to a modest 0.8% annual rate of gain over six months to a 5.4% annual rate of decline over three months.

Manufacturing is a counterpoint to encroaching weakness In contrast to those metrics, manufacturing is up by 1.7% over 12 months, it is falling at a 0.5% annual rate over six months but then is increasing at a 1% annual rate over three months. The three-month rate of change isn't particularly strong; however, it clearly breaks the chain of declining activity and provides a counterpoint to overall production, to utilities trends, and to mining & quarrying trends. The production of food shows uneven trends although within manufacturing the production of textiles does show sequential weakness migrating from a 2.8% growth rate over 12 months to a -5.9% pace over six months and to a -8.9% pace over three months.

Manufacturing sectors are mixed However, looking at the sectors within manufacturing rather than individual industries, we see a lot more ambiguity about trends. The consumer goods sector overall does show weakening with the growth of 4% over 12 months, a modest gain of 0.8% over six months and flat performance over three months. This is clearly decelerating growth. Consumer durables show declines in output on all three horizons, but there is a pickup - less of a decline - over six months followed by a much more severe decline over three months. Durables trends do look troubled. Consumer nondurables, in contrast, show growth on all three horizons, rising at a 5.7% annual rate over 12 months, at a weaker, 1.5% pace over six months then stepping up to a 2.6% pace over three months. Intermediate goods showed declines on all horizons, falling 0.4% over 12 months followed by a 5.6% annual rate drop over six months and a 4.5% annual rate drop over three months. The sequential trends may be muddied but the direction here seems clear. The capital goods sector, in contrast, shows acceleration with a 5.1% rate of growth over both 12 and six months that steps up to a 5.7% pace over three months. Manufacturing is a mixed bag with more weakness than strength on these metrics.

While these trends are mostly permeated by declines and weakness, capital goods is a striking contrast and the fact that industrial production does show clear declining trends. Manufacturing does not show weakness across all the sectors - in fact, it doesn't show decelerating trends overall, only in the overall consumer goods sector which culminates over three months in flat performance, not in decline.

Inflation runs hot...some let up Meanwhile, inflation in Norway continues to run relatively hot. The pace year-over-year is 8.4%; it rises to a 9.7% pace over six months, and then barely cools to a 9.6% pace over three months. The core inflation measure is up at a lesser 6.1% annual rate over 12 months, but that accelerates to 7.5% over six months, then it cools to a 5.5% pace. Still, all these are excessive growth rates for inflation.

Quarter-to-date... Quarter-to-date (QTD) industrial production excluding construction is up a very robust 7.9% annual rate; manufacturing output is up at a 3.3% annual rate; manufacturing consumer goods shows expansion at a 3.3% annual rate; intermediate goods output falls at a 4.3% annual rate. But capital goods output is rising at an 8.3% annual rate. The QTD calculations are nascent calculations for the fourth quarter representing the growth in October over the third quarter average with the growth rate properly compounded over that third quarter base. Over that same third quarter base, inflation is rising at a 10% annual rate QTD with the core up at a 6.6% annual rate.

Since COVID... As a summary statistic, I have taken the ratio of current industrial production to the level of industrial production just before COVID began in January 2020. Overall industrial production is up by 8.7% on that timeline (a bit less than 2% per-year on average), manufacturing production is up by only 0.4% on that timeline, mining & quarrying is up nearly 50% on that period. While utilities output is only up by 2.5%. Looking at manufacturing sectors, consumer durables output as of October is lower than it was in January 2020 and capital goods output is still lower than it was in January 2020. The strongest gains in output among these sectors are for consumer goods at 3.1% and consumer nondurables at 3.1%. Intermediate goods output is up by 2.4%.

Real industrial orders in Germany rose 0.8% in October, led by a 2.5% rise in foreign orders. Domestic orders fell by 1.9% in October. While unexpected, this gain in orders can't be considered a surprise. The 0.8% order increase comes after a 2.9% fall in September and a 2% fall in August; the 2.5% gain in foreign orders in October follows a 5.2% drop in September and a 1.7% monthly drop in August. Domestic orders had risen by 0.5% in September but also fell by 2.6% month-to-month in August.

Sequential growth rates out the truth As is usually the case, the sequential growth rates tell a clearer story about what is really going on with the trends in orders. One year ago, the year-over-year change in orders was a gain of 0.4%. This year the 12-month gain from that base is a decline of 3.1%, over six months it's a decline at a 6.5% annual rate, and over three months it's a decline at a 15.7% annual rate. Overall orders are decelerating and decelerating steadily on these time horizons. Foreign orders one year ago fell 0.7% over 12 months; this year the 12-month change in foreign orders is a fall of 0.4%, a fall at a 0.2% annual rate of decline over six months- only slightly smaller – and a drop at a 16.4% annual rate over three months. Clearly, another very weak growth rate profile. Domestic orders a year ago rose 2.1% year-over-year but over 12 months domestic orders are falling by 7.1%; over six months they're falling at a 14.9% annual rate; over three months they're falling at a 14.9% annual rate. Domestic orders clearly are weak and are not reviving as the monthly gain might otherwise suggest.

Quarter-to-date (QTD) The quarter-to-date calculations show trends with total orders falling at a 10.9% annual rate, one-month into the fourth quarter with foreign orders falling at a 9.4% annual rate and domestic orders falling at a 13.6% annual rate. These are sharp declines for annualized growth rates adjusted for inflation. Orders have not been strong in Germany for a while. Calculating growth in orders form just before COVID started, in January 2020, total orders are now 2.1% lower from that mark while foreign orders are 2.2% lower and domestic orders are 2.1% lower. These metrics reveal similar weakness across domestic and foreign entities.

Real sales by sector Real sales by sector show better life than orders, but orders are the leading series and sales are the trailing series…. As an overview, total real sector sales are rising at a 2.2% annual rate in the quarter-to-date with manufacturing sales rising at a 2.8% annual rate. Sales are being held back mostly by an 18.1% annual rate decline in consumer durables that has total consumer sales down by 1% at an annual rate in the quarter-to-date. In addition, intermediate goods sales are falling at a 10.8% annual rate QTD. Rising in the quarter-to-date are capital goods sales, up at a 15.3% annual rate and consumer nondurable goods sales rising by 3.1% at an annual rate.

Growth profiles for real sector sales are erratic weakening However, the details on real sector sales show widespread declines over the last two months; sales in six of the seven categories fall month-to-month in October and sales fall in five of seven categories in September. Sequentially real sales data grow by 5.5% over 12 months, accelerate to a 10.7% pace over six months, then decelerate back to a 5.3% annual rate over three months. That is fairly encouraging and stable. Consumer goods sales fall 0.6% year-over-year and fall at a 6.3% annual rate over six months, but then recovered to gain at a 7.1% annual rate over three months, complicating the picture. Still, this is against the weight of consumer durable goods where's sales rise by 1.6% over 12 months, fall at a 7.7% annual rate over six months, and then fall at a faster 8.3% annual rate over three months. Intermediate goods also show sequential deterioration and deceleration with a 1.4% decline over 12 months, a 3.1% decline over six months, and a 6.1% decline over three months. Capital goods show a great deal more strength, up by 15.1% over 12 months and up at a 33.4% annual rate over six months but then cool back to a still very strong 15.9% annual rate over three months. Consumer nondurable goods sales fall by 1% over 12 months and fall at a faster 6% annual rate over six months but then recover at a 10.3% annual rate over three months. The capital goods sector is the only exception and the only source of real strength in sales.

The trends in real sales by sector are a lot more confusing than orders. The quarter-to-date data suggests that the consumer sector and intermediate goods sector are still dragging things down while consumer nondurable goods by themselves are showing moderate growth against capital goods that are growing strongly – for however long that can last in the face of weakness elsewhere.

EMU's 'Big Four' Economies In the bottom panel of the table, the EU industrial confidence measures are presented for Germany, France, Italy, and Spain to compare German trends to the next three largest economies in the European Monetary Union. Germany has a positive reading of plus three in October compared to France at -6.7, Italy at -4.1, and Spain at -4.0. However, looking at the sequential averages of these EU diffusion readings, we see that each of these four countries shows its six-month gauge weakens compared to the 12-month gauge and the three-month gauge weakens compared to the six-month gauge. There is clear weakening going on across the European Monetary Union's largest economies. However, the queue standings that evaluate the levels of the October readings compared to recent history (in this case taken back to 1990) shows more strength than you might expect. The German reading has a 78-percentile standing which is quite firm. Spain has a reading at its 54.5 percentile which is above its historic median. France, at its 48.9 percentile standing, is only slightly below its historic median. Italy at 42.4 percentile standing is below its historic median and weak but far from collapsing.

Growth since COVID after the bust/boom cycle has been weak Evaluated from their level in January 2020 before COVID struck, the German industrial confidence measure is the relative strongest in this group, having risen 13.6 points from that mark; Spain has risen by 5.4 points, Italy has risen by 0.9 points, France has a net lower reading, falling by 3.8 points from its level on January 2020.