Economy in Brief

Manufacturing industrial production in France fell by 1.6% in July after advancing 0.9% in June and by 1% in May. Production is up by 0.2% over 12 months; however, it falls at a 3.1% annual rate over six months and then rebounds to rise at a 3.9% annual rate over three months. The French trend for production is not yet clear or established.

Sector performance in French manufacturing also shows mixed trends. Consumer durables output was up by 0.6% in July after falling in June; however, the June decline came after a strong surge in May. Consumer nondurables output fell by 1.5% in July after rising by 1% in June and falling by 0.3% in May. French capital goods output fell by 1.4% in July after rising by 1.2% in June and rising by 1.5% in May. Intermediate goods output fell by 2% in July after rising by 0.8% in June and rising by 1.0% in May.

The sequential trends for sector data also vary widely. Consumer durables output in France is accelerating strongly from a 5.3% annual rate over 12 months to an 8.9% annual rate over six months to a 30.1% annual rate over three months. Consumer nondurables, however, are losing momentum; that sector's output rises by 1.1% over 12 months, but falls at a 3.5% annual rate over six months and continues to fall at a lesser, 3% pace, over three months. Capital goods has output up by 0.5% over 12 months; it declines at a 0.7% annual rate over six months then rebounds to post a strong 4.9% annual rate of growth over three months. Intermediate goods output falls by 1.9% over 12 months and falls more substantially at a 6.8% annual rate over six months. That pace of the decline for intermediate goods output is sharply trimmed to -0.8% over three months but it's still a decline.

On balance, sector trends in manufacturing show great strength in consumer durables, with lingering weakness in consumer nondurables, moderation in capital goods that is topped up by strong three-month performance despite a decline in July. Intermediate goods show a steady diet of declines in output.

Japan's second quarter GDP was revised up to show growth of 3.5% at an annual rate compared to the previous estimate of 2.2% - an upward revision greater than what had been expected. Japan's year-over-year GDP growth in the second quarter is now up to 1.4% from 1% previously. The 1.4% growth rate is the strongest since the second quarter of 2021 when GDP rose at a 7.3% year-on-year rate after declining in the first quarter under the pressure of COVID policies.

Japan's quarterly growth Private consumption growth in the quarter was revised up to a 4.8% growth rate from 4.6% previously. Public consumption in the second quarter grew at a 2.8% rate annualized compared to 2.2% previously. Private sector consumption continues to be the principal driver of GDP growth.

Gross fixed capital formation in the quarter grew by 4.9% at an annual rate compared to 3.4% previously. Plant & equipment spending rose to an 8.3% annual rate, up from 5.8% previously as investment demand heated up in the quarter. However, the housing estimate was little changed in the second quarter with revised housing investment falling at a 7.3% annual rate compared with decline at a 7.2% annual rate previously. Housing continues to lag and to contract.

Export growth was unrevised, rising at an annualized 3.7% pace quarter-to-quarter while imports were weaker, rising by 2.2% compared to 2.7% previously. Weaker import growth adds slightly to GDP growth.

Japan's domestic demand was stronger at a 3.2% annual rate in the second quarter compared with its 2% pace previously.

Annual rates of growth Upon revision Japan's economy is looking firmer and stronger than it was previously. Still, year-on-year growth is up at a modest 1.4% for GDP while domestic demand is up at a 1.6% growth rate over four quarters. Consumption continues to drive GDP; the year-on-year increase in private consumption is up by 3% compared to 1.9% for public consumption. Year-on-year gross fixed capital formation is falling at a 3% annual rate over four quarters marking the fourth straight quarter in which gross fixed capital formation logs a year-on-year decline. Plant & equipment spending is flat year-over-year in the second quarter, and that's an improvement from its previous pace of -0.8%. Year-on-year housing investment is down by 6.3%, marking the third quarter in which the year-over-year growth rate is negative for housing investment. The year-on-year trend for exports continues to diminish; exports grow at a 2.5% pace over four quarters; that's the fourth quarterly deceleration in a row for the year-over-year growth rate for exports. Imports are up by 3.3% over four quarters. Imports grew at a 7.3% pace in the first quarter; second quarter growth is the weakest annual import growth since the first quarter of 2021. Japan's domestic demand which rose 1.6% over four quarters is slightly stronger than the 1.4% gain it made on that same basis in the first quarter and stronger than the roughly half a percentage point gains logged in the fourth quarter of 2021 and in the third quarter of 2021. But domestic demand is only firmer and doesn't show any clear signs of acceleration.

German industrial output fell by 0.3% in July after gaining 0.8% in June and falling by 0.1% in May. These figures, of course, do not reflect the freshest news in Europe concerning the shutting of the gas pipeline from Russia. Germany is beginning to take some steps as it has agreed to keep open two of three nuclear power plants that had been scheduled to be mothballed. Still, it's keeping open only two of three not three of three and it appears that Germany is still not willing to pull out all the stops to find alternatives to the gas that they're losing from Russia even though more nuclear power would mean that Germany could burn less gas to generate electricity and make up for some of the loss from the Russian pipeline. Green still has power in Germany. When winter comes, the new motto could be ‘let them burn furniture.’ That happened a year ago in the U.S. when Texas had a pronounced and severe cold snap and the electric grid failed. Reality lurks and action shirks. Germany needs to think right now about what winter is going to be like if the pipeline stays shut- it needs to act now.

Monthly results Energy is going to be a concern for the future; what's unfortunate is that as of July Germany logs a decline in industrial output, led by a 2.4% decline in consumer goods output, a 0.8% decline in capital goods output, and a 0.6% decline in intermediate goods output. All this is ahead of any energy shortage. Construction sector output also fell by 1.3% in July. Manufacturing output fell by 1.0% in July. What’s next when energy is in short supply?

German output trends German output trends are not quite as bleak, but they're not very encouraging either. Growth rates from 12-months to six-months to three-months show industrial output falls by 1.1% over 12 months, it falls at a 4.2% annual rate over six months, then it gains at a 1.6% pace over three months. Three-month output declines for consumer goods and intermediate goods, but those declines are dominated by a sharp rebound in capital goods output. Manufacturing output declines 1.4% over 12 months and drops at a 4.2% pace over six months; however, it expands at a 3.4% annual rate of increase over three months.

German orders point to weakness Manufacturing orders, which are highly correlated with manufacturing output, show a 13.7% decline in real orders over 12 months, at 17.8% annual rate decline over six months and a slower, 6.2% annual rate decline over three months. The pace of decline does diminish over three months, but it's still a significant pace of decline. Meanwhile, the monthly data show increasingly large declines in orders from May to June to July.

Sales trends Real sales in manufacturing show a convoluted pattern with a 1.1% gain over 12 months, a 4.1% annual rate drop over six months, and a sharp 17.3% rate of increase over three months. The three-month increase is based on a 2.5% increase in May, a 3.4% increase in June, but then tempered by a 1.8% drop in July.

Industrial indicators German industrial indicators are not encouraging. The ZEW current index weakens from 12-months to six-months, to three-months. The IFO manufacturing index, the IFO manufacturing expectations index, and the EU Commission industrial index all follow suit. The monthly patterns are equivocal, but they generally show declining activity month-to-month from May to June to July.

Other Europe Other European countries have issued early industrial output reports: they show mix patterns. Portugal shows declines in each of the last three months compared to Sweden where there are increases and accelerating increases across the last three months. Norway shows accelerating activity over each of the most recent three months as output moves from a 2.2% decline in May, to a 0.2% increase in June, to a 1.4% rise in July. However, the sequential performance of these countries across broader spans is mixed and less encouraging. From 12-months to six-months to three-months, Norway shows sequential deterioration. Sweden shows sequential acceleration- and some real strength. Portugal shows a mixed pattern ending in weakness over three months. Only Sweden shows an increase in output over three months, while Portugal and Norway report declines in output over three months.

QTD: Quarter-to-Date July marks the start of data in a new quarter; the early read shows an increase in output at 1.2% annual rate in the third quarter over the second quarter base for Germany. Sweden and Norway show significant increases over their second quarter output bases while Portugal shows a sharp decline. German indicators, early in the third quarter, also report declines compared to their second quarter values. The German construction sector shows a decline QTD as well. All manufacturing orders show a decline QTD; manufacturing output rises at a skinny 0.2% annual rate. Real sales in manufacturing are up at a robust 7.5% annual rate- a marked contrast.