Economy in Brief: 2022

Japan's economy watchers index in March bounced back, rising to 47.8 from 37.7 in February. At that level, the economy watchers index has a 59.8 percentile standing above its historic median that occurs at standings mark of 50%.

The index showed improvement across all its components in the current reading. This marked a reversal month-to-month showing increases in every component compared to February when there were declines in every component except two; in February services and employment had improved.

Among the current components, the highest standing is for employment at an 88.3 percentile standing; that's followed by eating and drinking places that have a 66.9 percentile standing and retailing with a 64-percentile standing. The weakest current standing is for housing at a 38.1 percentile standing followed by the total for corporations at a 39.7 percentile standing.

The economy watchers future index also improved; that index rose to 50.1 in March from 44.4 in February. Its standing is at its 65.7 percentile mark, a moderately firm standing. The future readings all improved in March and this contrasts to February, when 4 component readings were weaker month-to-month while 6 improved by the month.

The future index shows the highest standings for services followed by eating and drinking places followed by the response by households. The weakest reading is for housing followed by manufacturers.

Still, the trends for the economy are not particularly strong. The three-month change still shows a decline in the current index and a net decline for all components. Over six months all the categories plus the headline increase excluding housing - that is weaker. Over 12 months everything in the current index has a weaker change than over the previous 12 months- but three components manage net gains on the comparison.

The future index shows only three components are stronger over three months, but only two components fall by more over three months than they fall over six months - those are housing and manufacturing. Over six months all the components are net lower and falling by more over six months than over 12 months. Over 12 months all components are showing bigger decline or smaller increases than they had over the previous 12 months – five categories manage outright gains but these are smaller than the gains logged 12 months ago-hence weaker momentum.

German industrial production advanced by 0.2% in February. Its rise followed a 1.4% gain in January and a 0.9% gain in December. Industrial output in Germany is accelerating from a 3% pace over 12 months to a 9.3% annual rate over six months to a 10.7% annual rate over three months. Despite infections with the virus and despite the increasingly dangerous situation in Ukraine during that period, Germany has continued to rebound. As the war in Ukraine started in late-February, the German economy seems to have put itself on firm footing.

German IP is accelerating and looks very solid The output gained in the headline is supported by all the main sectors on trend. In February, two of three sectors made month-to-month gains: consumer goods and intermediate goods saw output rise with capital goods output falling back by 2%. However, from 12-months to six-months to three-months consumer goods output is accelerating from an annual rate of 10.7% to 14.9% to 25.8%. Capital goods output falls over 12 months declining by 2.1%. But then it accelerates to a 9.8% pace over six months but does step back to a growth rate of just 4.2% over three months. Intermediate goods advance at a 1.3% pace over 12 months, accelerate to 5.2% over six months and accelerate further to 9.0% over three months. Two of three industrial sectors support the acceleration in the headline. German acceleration backsliding in capital goods interrupts the trend of sector acceleration in output over three months. And that backsliding is to a growth rate that sill registers 4.2% growth at an annual rate over three months-still quite solid.

German manufacturing gauges mostly show growth Manufacturing output was flat in February after gains of 0.6% in January and 1.6% in December. So, during this monthly period, the growth in manufacturing was slowing; however, more broadly, manufacturing output accelerates from 1.4% over 12 months to a pace of 8.6% over six months to a pace of 9.2% over three months. Similarly, real manufacturing orders in Germany grow by 2.9% over 12 months, accelerate to 4.8% over six months and accelerate further to 10.2% over three months. However, real sector sales are a little more uneven; they're growing on all the horizons, but the 4.3% growth over 12 months is still slightly higher than the 4% growth rate over three months.

German indicators are mixed German industrial indicators show mixed performance during the period. The ZEW index is an exception, logging negative readings in each of the last three months. Despite those negative readings, the ZEW index improved slightly to -8.1 in February from -10.2 in January. The IFO gauge for manufacturing improved in February and the expectations gauge for manufacturing also improved in February although the EU Commission industrial index slipped slightly from 24.2 in January to 23.7 in February. Looking at the averages of 12-months to six-months to three-months, the ZEW average is weaker over three months than it is over 12 months. The IFO manufacturing index is slightly weaker over three months as its average falls to 103 when averaged over three months compared to a 12-month average of 104.2. The IFO manufacturing expectations are also weaker at 101.8 over three months compared to a 12-month average of 103.7. The EU Commission index is slightly stronger at 24.4 average over three months compared to 21.8 over 12 months.

Other Europe is mixed Turning to early-February reports from other European countries, there are five others that are reporting. Norway and France show output declines in February; Ireland, Portugal, and Sweden show increases in February. However, the countries that show increases in February show declines in January and vice versa. So, what we're looking at in Europe is monthly volatility. Looking at annualized growth rates over 12 months, six months and three months, there is not a lot of strength. Portugal, Sweden, and Norway log three-month growth rates that are all negative Norway, in fact, shows negative growth rates over three months, six months and 12 months. In contrast, France shows positive growth rates throughout; it is improving over three months compared to 12 months, rising from 3.4% over 12 months to a 7.3% pace over three months. Ireland shows acceleration, moving from -15.4% over 12 months to -12.1% over six months to log a spectacular annualized gain of 32.9% over three months.

Quarter-to-date German IP orders and real sales: In the quarter-to-date, most German IP responses are strong. Germany shows industrial output increasing in a 9.1% pace QTD, led by consumer goods that are rising strongly at a 37.6% annual rate but held back somewhat by capital goods where output is declining at a 5.5% annual rate. Manufacturing output is increasing at a 5.8% annual rate in the quarter-to-date with real manufacturing orders up at a 0.5% pace, but real sector sales are falling at a 0.4% annual rate.

German indicators: German indicators show mixed performance QTD; the ZEW index is down by 6.4 points in the quarter-to-date and the EU Commission index is down by 0.4 points in the quarter-to-date. The two IFO gauges for manufacturing and manufacturing expectations each show a gain of 2.4 points on the quarter.

Other Europe QTD-the good, the bad, and the homely: Turning to other Europe, Ireland shows an outstanding rise of 69.2% in an annual rate followed by France at an 8.4% pace of gain QTD; Norway’s rise is at a 5.8% pace, Portugal shows output receding at a 15.2% annual rate, Sweden shows output declining at a 4% annual rate.

European industrial data are firm ahead of the Ukraine-Russia outbreak These data set us up to assess the pre-Ukraine-Russia war standing of industry in Germany and select countries in Europe. Conditions rate firm-to-strong amid some variability- as always. The March reports will be more telling.

Industrial production rose by 0.2% in February after declining for two months in January and in December 2021. Manufacturing output has declined in only one of the last three months falling by 0.9% in January flanked by minor increases of 0.2% or less in December 2021 and February 2022.

Data for three key industries in Sweden show mixed trends. For food beverages and tobacco, there is a steady deceleration as growth drops from 5.4% over 12 months to a pace of 3.9% annualized over six months to -6.8% over three months. However, for textiles, the pattern is irregular with the declines over three and 12 months versus a solid increase over six months. For motor vehicles, there's a 16.4% decline over 12 months, a 7.2% annual rate of decline over six months followed by a 7.1% decline over three months. That marks a technical acceleration even though all the growth rates are negative.

Sector weakness trends are mostly mixed: intermediate goods show a mixed pattern but with 12-month growth and three-month growth nearly the same at -3% annualized. Investment goods also show a mixed trend but with the 12-month declining pace at -1.8% and the three-month annualized decline at -1.7%. Nondurable consumer goods output shows an ongoing deceleration from a 14.7% annual rate increase over 12 months to a 6% pace over six months to a declining pace at -13.2% over three months. Consumer trends have pulled back steadily and sharply.

Quarter-to-date trends for Sweden show at a -3.9% annual rate of decline; that's for two of three months hard data in the first quarter. Manufacturing output is falling at a 4% pace in the quarter-to-date. By industry, there are declines in the quarter-to-date of 7% for food, beverages & tobacco and of 9.3% for textiles although for motor vehicles there is an increase at 11.6% annual rate. Sectors show declines throughout with intermediate goods falling at a 1.8% annual rate, investment goods at a 4.2% annual rate, and nondurable consumer goods at a 4.5% annual rate.

Comparing output to January 2020, before the virus had struck most places, overall industrial production excluding construction has risen by 2.2% on that timeline; manufacturing is up by 2.8%. On that same timeline, output in all three industries in the table is lower and two of the sectors are lower: intermediate goods and investment goods. The overall result for manufacturing has been pulled up by nondurable consumer goods where output has advanced by 18%.

Inflation data are also contained in this table as a point of reference. Inflation continues to accelerate from 4.4% over 12 months to 5.9% over six months to 6.3% over three months. The core rate also accelerates from 2.8% to 4.2% to 5.4% on the same timeline. Sweden is caught up in the global inflation problem.