Economy in Brief

Japan's industrial sector sputters and declines looking like a car that is running out of gas in January. January output fell by 4.3%, that is a sharp drop, after being flat in December and rising 0.7% in November. Progressive growth rates show that output growth is declining and decelerating. Japanese output is down by 3.2% over 12 months, falling at a 10.6% annual rate over six months, and then falling at a 13.5% annual rate over three months.

Manufacturing- This weak result is driven by manufacturing which saw output fall by 4.6% in January and where the sequential growth rates for overall manufacturing mirrors the path for industrial production and is getting progressively weaker as well.

Sector performance- Sector growth rates in Japan for consumer goods, intermediate goods, and investment goods show output on the decline and clearly decelerating across all of these categories. In January, output falls in all three sectors as it dropped 3% for consumer goods, 5.2% for immediate goods, and 4% for investment goods. Consumer goods output is holding up better than output in other sectors; still, the increase in output is just 3% over 12 months, it's up at a 1.1% annual rate over six months and it's dead flat over three months. Intermediate goods output falls 7.5% over 12 months, drops at a 14% annual rate over six months and declines at a 21.5% annual rate over three months. Investment goods output falls 1.1% over 12 months, then falls at a 20.3% annual rate over six months, and at a stunning plunge at 35.7% annual rate over three months. Manufacturing in Japan is unequivocally weak and output is unequivocally declining and it's declining in all sectors and it's declining on all tenors.

Two industries- Two industries saw increases in output in January. Mining output increased 1.3% and electric & gas output increased by 0.2%. Mining still shows sequential weakness with output down 6.2% over 12 months, followed by a 6.4% annual rate decline over six months, then accelerating to a 12.5% annualized rate decline over three months. Electric & gas output falls 4.2% over 12 months, accelerates to a 9.6% annualized rate decline over six months, but then logs an 8.1% annualized increase over three months, largely on the back of a one-month rise in December.

QTD Output is falling on a quarter-to-date (QTD) basis early in the first quarter. These calculations take output in January and gauge its annualized growth rate centering the calculation’s base on the average for the fourth quarter while compounding the growth rate. Early in the first quarter, output is falling at a 22% annual rate with manufacturing output falling at a 23% annual rate. Consumer goods output is falling at about a 10% annual rate, with intermediate and investment goods output each falling at a rate of 30% or faster. The decline in output in the first quarter is deep and broad.

In February, the EU index for overall activity in the European Monetary Union ticked slightly lower to 99.7 from 99.8 in January. While there is little-change month-to-month, it shows that the improvement is holding up since December had a value of 97.1 and November, a value of 95.1. EMU economic assessments are moving higher, but in January and February gains are consolidating.

Sector stories The industrial confidence measure registered plus-one in both February and January, compared to readings of minus-one in both December and November. Consumer confidence improved in February moving to -19 from -20.7 in January, reflecting improvements from both December and November levels. The retailing assessment at zero in February, improves from -1 in January, -3 in December, and -6 in November - a clear ongoing trend of improvement for retailing. The construction sector is more waffling. Its February reading of +2 is above the January reading of +1, but that's below the readings for both December and November. Construction has remained relatively stronger than the other sectors; however, it is not advancing now. The services sector at +10 in February is at the same level as it was in January, but it's up from an assessment of +8 in December and of +4 in November.

Sector summary On balance, the sector readings in the European Monetary Union are stable or higher; construction is a minor exception. However, these are not high readings. The overall European Monetary Union index has a standing in its 47.9 percentile (below 50 and therefore) below its historic median level. Consumer confidence sits at an extremely weak 9.1 percentile reading, in the lower 10 percentile of its historic queue of values. The industrial sector has a 73-percentile standing; it's in the top 30% of historic readings; services have a 62-percentile reading, just inside the top 40% of readings but the sector is above its median and that's still a positive situation. Retailing and construction have the two strongest readings: retailing has a reading in its 82.9 percentile with construction in its 87.7 percentile; both are quite strong readings in historic comparison.

Since COVID... If we look at changes since the Covid situation developed, the overall index is lower by five points compared to January 2020 and all the sectors are lower compared to January 2020 except the industrial sector which is higher by six points. On balance, there has been little growth and for the most part weaker conditions over the last three years since COVID came to town.

Country-level conditions There are 18 early reporting European Monetary Union members reporting and among these 18 members all but 7 showed month-to-month improvement in February; all but two had shown improvement in January. These metrics of breadth reinforce the notion that conditions in the monetary union have been improving even if they're not strongly reflected in the aggregate data. Clearly, conditions are better in January and February, taken together, than they were in November and December, although there's scant improvement in February compared to January. That finding is echoed across the various industries as well as across countries. Country level data are, for the most part, still very weak among these 18 reporting countries. Only four have percentile standings above their medians - above a level of 50%. Among the big-four economies Germany has a rank standing as 37th percentile, France is at its 40th percentile, Spain is at its 41.6 percentile; only Italy, in its 62nd percentile, has a reading above its historic median. Among the weakest standings are Estonia at a 5.7 percentile standing, Slovakia at an 8.2 percentile standing, Belgium at a 14.9 percentile standing, and Finland at a 15.6 percentile standing.