Economy in Brief

Japan's Economy Watchers index slipped ever so slightly in January to 48.5 from 48.7 in December after reaching 49.4 in November. The future index has continued to creep up to 49.3 in January from 46.8 in December and 46.3 in November. Both the current index and the future index diffusion values reside below ‘50’ indicating that current growth and expected future growth is still expected to be weaker rather than stronger. However, the decrement for future growth is shrinking.

The rankings for these two current and future index headlines are quite similar with the current index having a queue standing at its 62.8 percentile while the future index has a 62.5 percentile standing. Although both show activity declining, the levels of the diffusion indexes are above their respective medians for the period of comparison. The data look backward over values since January 2002, a span of 21 years.

Current Index The current index does feature some strength. Eating and drinking places have a ranking in their 83.8 percentile, household responses have a ranking in their 73.5 percentile, retail has the ranking in its 75.9 percentile, services have a ranking at their 69.2 percentile, while nonmanufacturing corporations as a whole have a 54.5 percentile standing. All of those are above their 50th percentiles and therefore above their period medians. On the weaker end of things, are the overall corporate standing at a 47.4 percentile standing, that is clearly dragged down by manufacturers with a 43.1 percentile standing. Employment overall has a 39.9 percentile standing. Housing is also weak at a 40.3 percentile standing. These standings apply to the current diffusion values. They show employment, with the highest diffusion value at 51, and yet the lowest ranking among all the components. Services have a diffusion reading of 50, but the ranking that is firm, at its 69th percentile. All the rest of the current diffusion readings are below a value of 50 and signal contraction. That just gives you some idea the nature of the period that we're comparing these values with that values with diffusion this low nonetheless read as relatively firm or strong standings when compared to history.

Future Index The future index shows the most strength in retailing at a 76.3 percentile standing, followed by nonmanufacturing corporations with the 68.8 percentile standing, eating and drinking places at a 67.6 percentile standing and households at a 66th percentile standing. On the weaker end of things, again, we have employment as the weakest standing at its 38.3 percentile followed by housing with a 47.8 percentile standing and services with a 48.2 percentile standing. Looking at the diffusion values across the board, only nonmanufacturers have a reading above 50 and their reading is at 50.4 barely above the breakeven 50 mark for diffusion.

Output in Europe continues to struggle as exemplified by German industrial production, that fell in December continuing its erratic pattern in 2022. German production has fallen in four of the last six months. Annualized growth rates, calculated sequentially, show output decelerating in German manufacturing with output down by 4.2% over 12 months, down at a 6.8% annual rate over six months, and down at an 11.7% annual rate over three months. The output of consumer goods follows that same progression, and the output of intermediate goods follows that progression but with much more severely negative rates of growth. Intermediate goods are down by 10.3% over 12 months, down at an 18.4% annual rate over six months, and down at a 24.6% annual rate over three months. The exception to all this weakness and progressive weakness is capital goods where output accelerated from 12-months, to 6-months, to 3-months, and where growth rates have become relatively strong. Capital goods output is up by 3.5% over 12 months, up at a 10.5% annual rate over six months and then up at nearly the same growth rate of 10.6% annualized over three months.

But the quarter is now finished; the quarter-to-date calculations are now for the fourth quarter. They show industrial production falling at a 2.7% annual rate, consumer goods output falling at a 4.7% annual rate, intermediate goods output falling at a 15.2% annual rate, and capital goods output expanding at a strong, 16.3% annual rate.

Construction shows a decline in output in December, and it shows sequentially declining and decelerating growth rates with output contracting and sequentially greater negative rates from 12-months to 6-months to 3-months.

Manufacturing Manufacturing orders are declining on all but horizons, but the declines are progressively diminishing with the 12-month growth rate for real orders at -9.6%, diminishing to -8.7% over six months, and diminishing further to -3.1% over three months. Real orders are not becoming progressively weaker; however, they are contracting on all timelines.

Demand shows that real sales have been somewhat erratic. They are up by 1.1% over 12 months, down at a 0.2% pace over six months, and then up at a 0.8% annual rate over three months.

Manufacturing and industry Various surveys show a slight amount of firming in the October to December period. The ZEW current index is slightly stronger for two months in a row. The IFO index for manufacturing also is higher for two months in a row. IFO expectations have been stronger for two months in a row. The EU Commission index for the industrial sector has been relatively unchanged over the past three months.

Elsewhere in Europe… Other early reporting countries in December show mixed results. France logs a gain in output of 0.3%, Spain shows a decline of 1.8%, Ireland shows a drop of 8.5%, Portugal posts a gain of 4.1%, Norway shows IP declining by 0.6% in December. The sequential growth rates show persisting decelerations for France, Ireland, and Norway. France, while showing persistent deceleration, still reports positive rates of growth over 12 months, six months, and three months. Ireland reports accelerating contractions over that timeline, while Norway transitions from growth over 12 months to a decline in output over three months. Spain’s pattern is inconsistent, while Portugal shows strength with positive growth rates on each horizon and with industrial output accelerating from 2.4% over 12 months, to a pace of 11.8% over six months and to 26.1% over three months.