Economy in Brief

German industrial production in August fell by 0.8% as consumer goods output increased by 1.8%, capital goods output increased by 1.2%, but intermediate goods output fell by 2.4% month-to-month. In July output had been flat with output declines of 2.2% for consumer goods, 0.1% for capital goods and 0.5% for intermediate goods.

Sequential growth rates for German output do not reveal a clear sequential trend, but the path clearly is weak. Over 12 months output is up by 2.5%; over six months it's falling at a 5.7% annual rate. However, over three months output is rising but only at a 0.4% annual rate – rise that breaks the declining trend but still a weak rise.

Sector trends sequentially Sequentially consumer goods output falls by 0.1% over 12 months, falls at a 7.7% annual rate over six months then gains at a 0.4% annual rate over three months. Capital goods output fares much better with a 10.4% gain over 12 months, a 2.4% annual rate increase over six months and with a strong acceleration of 14.1% annualized over three months. Intermediate goods output shows clear weakness. It is declining by 2.2% over 12 months, which deteriorates to a decline at an annual rate of 9.8% over six months and that decline barely improves to an 8.8% annualized decline over three months. Intermediate goods output clearly is holding back output trends while capital goods is a sector trying to push things into the growth column.

Construction trends in Germany show deterioration with the decline of 2.4% for output in August, a decline of 0.9% in July and flat performance in June. Construction sequential growth rates show clear deterioration with growth of only 1.1% over 12 months, declining at an 11.7% annual rate over six months then declining faster at a 12.5% annual rate over three months.

Manufacturing output, demand, and orders Output in manufacturing shows the same mixed trend as the headline but with a little bit more lift over three months; the growth rate of 3% compares to a growth rate of 3.6% over 12 months. However, real manufacturing orders that fell in August by 2.4% continue to show slippage with a decline of 4% over 12 months, a decline of 14.1% at an annual rate over six months and a decline that is trimmed to a 3.4% annual rate over three months. Real sales in manufacturing are a relative bright spot increasing in August by 1% and increasing in two of the last three months, generally. Sequentially, real manufacturing sales are up by 7.6% over 12 months, up by 0.4% at an annual rate over six months but then accelerate to a 9.7% growth rate over three months. Demand is holding up better than output and much better than orders – at least for now.

German industrial indicators are weak German industrial indicators show weakening trends. The ZEW current index registers a - 47.6 net diffusion reading in August compared to a -45.8 reading in July. The IFO manufacturing reading ticks higher in August to 90.4 from an index reading of 90.3 in July although both of those are below the 93.6 reading in June. Expectations for manufacturing from the IFO show a slight uptick in August compared to July with a reading of 83.5 but that's still significantly weaker than the 87.3 reading for June. The EU Commission industry net diffusion index for Germany falls to 7.5 in August from 10.9 in July and 14.9 in June. Looking at the sequential averages of 12 months to six-months to three-months, each one of these measures weakens over that profile. In addition, each one of these measures weakens on a quarter-to-date basis; as of August, that's with two months into the current quarter completed. The ZEW index shows a decline of 11 points in its net index readings QTD. IFO manufacturing shows a decline of 2.6 points; IFO manufacturing expectations are down by 2.9 points. The EU Commission industrial index is down by 6 points. All of these are on a quarter-to-date basis.

Other Europe trends- EMU members For in Europe, we have industrial output readings in manufacturing for EMU members France, Spain, Ireland, and Portugal and for European countries Sweden and Norway. The EMU members show increases in August for all four of them but that follows declines in July for all four of them. Over three months, among the EMU member countries, only Spain shows an output decline and a fairly hefty one at a 12.8% annual rate. However, sequential growth rates for industrial production from 12-months to six-months to three-months show a clear acceleration process for France. That is opposed by a clear deceleration process in Spain with mixed conditions displayed for Ireland and Portugal; both of which show output increase from 12-months to six-months and then slowing from six-months to three-months. Quarter-to-date, however, three of the four European Monetary Union members show declining industrial production. France shows the lone increase at a 3.6% annual rate, while Spain shows a decline at a 24.7% annual rate, Ireland shows a decline at a 16.3% annual rate, and Portugal shows that a small decline at a 0.5% annual rate.

Non-EMU Europe For the other European countries in the table, Sweden and Norway both showed declines in output in August but those follow increases in both June and July. Sweden shows a tendency for output to decline logging 2.1% annual growth rate over 12- and six-months compared to a larger 5% decline when annualized over three months. Norway shows acceleration as output declines by 0.9% over 12-months, increases at a 0.9% pace over six months then accelerates to a 2.4% annual rate over three months. On a quarter-to-date basis, output in Sweden, however, is stronger than in Norway despite the trends. Swedish output is rising at a 12.3% annual rate QTD, while Norwegian output is rising at just a 1.4% annual rate.

Trends for the volume of retail sales in the European Monetary Area continue to slip. Sales have fallen month-to-month for three months running and in four of the last five months. However, the amount of the decline has been decelerating with June sales falling 1%, July sales falling 0.4%, and sales in August falling by 0.3%.

Sequential sales show the opposite pattern, with the rate of decline getting progressively larger. Year-on-year volumes fall by 1.8%; that pace steps up to a pace of -3.3% over six months annualized, and again to -6.1% over three months.

Food & beverage sales fall in each of the last three months and the decline gets progressively larger. They also fall sequentially over the three horizons with a tendency for declines to get larger. Sales weaken from their -2% pace over 12 months to an annualized pace of -5.3% over six months and to a pace of -4.4% over three months.

Quarter-to-date (QTD) sales volumes with two of three-month’s data in hand are falling at a 5.2% annualized rate with food & beverage purchases falling at a similar 4.5% annual rate.

The exception to the trend of weakening sales is from vehicle sales where sales rise strongly by 19.2% month-to-month in August and log progressive growth rates that rise 6.4% over 12 months then rocket to a gain of 26.6% annualized over six months and further to 118.4% annualized over three months!

The chart at the top presents the ex-auto sales volume figures and the auto registration figures plotted on a two-scale chart as levels in both cases. Because growth has been so subdued this is an effective way to see sales trends and to compare vehicle sales with other retail volume trends especially given the impact of Covid over this period. Percentage change data would be harder to explain.

The chart shows the clear mutual drop in sales during the Covid period, followed by a rebound that was extended for non-vehicle sales volumes, a rebound that continued to elevate sales to new highs post-Covid. Vehicle registrations, however, never made such a recovery. They failed to reach pre-Covid sales levels and have instead continued to drop, in part, because of supply chain issues as well as demand issues.

The current strong gain in vehicle registrations still leaves them well short of the recovery nonvehicle retail sales have experienced. While total retail sales are up by 2.6% compared to their January 2000 level and food & beverage sales are up by 0.4%, vehicle registrations are still lower on balance by 16.9%. Of course, over this stretch of time, none of these sales figures is very impressive. Europe has continued to limp ahead in the wake of Covid, now threatened with energy supply problems with winter coming, with war on its doorstep and high inflation.

EMU and other country retail trends In the EMU and the rest of Europe, individual countries are experiencing sales declines broadly. All countries in the table show declines over three months. Six of eight countries show declines over six months. Six of eight countries show declines over 12 months; one of the two countries where sales don’t decline logs a change that rounds to zero. Portugal shows sales volumes increase over 12 months and six months with a decline at a 2.2% annual rate over three months. Belgium shows an increase in sales values over six months flanked by a 12-month decline of 2% and a three-month drop at a 1.5% annual rate. These are references to the only sales increases over the 24 sequential calculations (eight countries over three horizons each). Over three months, sales decelerate everywhere except for the Netherlands and in the U.K. Five of eight countries show deceleration over six months compared to 12 months. The exceptions are Denmark, Belgium, and Norway.

Over the quarter-to-date, sales are falling in all countries except Portugal where there is a 3.2% annualized gain. Five of eight countries show sales have increased on balance since January 2020 before Covid struck. The exceptions are Spain, The Netherlands, and the U.K.