Economy in Brief: March 2023

Industrial production in Germany rose by 3.5% month-over-month, but it continued to decline year-over-year as it remains lower than its January 2022 level by 1.2%. However, over six months IP is growing at a 2.5% pace and over three months it is advancing at a 5.4% pace. German industrial output is accelerating and climbing out of a year-over-year hole.

Despite the clear, strong, acceleration in overall industrial output and in manufacturing alone, the three sectors consumer goods, capital goods and intermediate goods fail to produce one sector with output that is sequentially accelerating, like the headline.

Month-to-month, while overall industrial output was up sharply, output fell for consumer goods and capital goods; however, intermediate goods output grew by a sharp 6.9% month-to-month.

Construction sector output also rose strongly in January after a nearly equally strong drop in November. Sequential growth rates for construction are mixed.

Real sales rose by 0.2% in January and came close to showing sequential acceleration. Certainly demand is showing a strong recovery in progress.

The current ZEW assessment of Germany’s industrial sector has a deep negative value. However, ranking each of the industrial gauges produces rank standing below the 30th percentile for the ZEW current index, the IFO manufacturing gauge and IFO manufacturing expectations. The EU Commission index has a stronger standing at its 71.8 percentile.

Elsewhere the year-on-year growth rates show only the capital goods sector with a standing above its 50% percentile on data back 2000. The construction sector has sub-50-percentile standing as do real sales. Standings below the 50% mark are standings below their respective medians. In contrast, German real manufacturing order growth is strong.

For reference, two other early reporting European countries Portugal (an EMU member) and Norway, experienced very different recent trends and percentile standings.

The financial column shows changes in the various metrics either their index levels for IP gauges or index levels for surveys in January 2023 to performance in January 2020. Output is broadly lower than it was in January 2020, putting the industrial performance of the last three years in perspective.

German factory orders rose by 1% in January following a 3.4% increase in December. Of course, that gain came out the heels of a 4.4% decline in November. As a result, German factory orders are still declining over 12 months, over six months and over three months. The order pattern shows clear deceleration as the 12-month drop is at a -11% pace, the six-month drop is at an -8.9% pace and the 3-month drop is at a pace of less than -1%.

Foreign orders substantially carried the day in January with a 5.5% increase on the heels of a 2% increase in December, but that's after a 6.9% decline in November. Foreign orders show an increasing profile against a -12.3% pace over 12 months, a -8.9% annual rate over 6 months, and a rise at just less than 1% over 3 months.

Domestic order trends are poor German domestic orders on the other hand were weak in January, falling by 5.3% after a 5.3% rise in December; that compares to a 0.5% drop in November. Domestic orders also show an improving profile but not as dramatically improving as for foreign orders; over 12 months domestic orders posts a decline at a -9.2% rate; that pace lets up slightly over 6 months at -8.9%, and that gives way to a -3.3% annual rate over 3 months.

Quarter-to-date In the quarter-to-date with only one month of data in hand, total orders are growing at a 10.6% annual rate led by a 29.1% surge in foreign orders and held back by a -12.6% annual rate drop in domestic orders. This has been a difficult period for German orders. Calculating growth back since COVID struck in January 2020, total orders, foreign orders, and domestic orders all are lower with the declines on the order of 2.5% or so.

Real sales by sector Real sales show more resilience with manufacturing sales off by 0.1% over 12 months, rising at a 4.9% annual rate over 6 months, and holding out a 4.9% annual rate gain over 3 months. Consumer goods categories show declines over 3 months for consumer goods overall, and for consumer durables and consumer nondurable sales. Over 3 months the strength comes from capital goods where there's an increase at a 27.1% annual rate, after a 20.7% annual rate increase over 6 months, a 7.1% annual rate increase over 12 months. Intermediate goods output, however, is still declining and decelerating with the -7.3% rate drop over 12 months, a -10.9% annual rate drop in sales over six months and a -15.7% annual rate drop over three months. For consumer goods, the sequential patterns are mixed.

European industrial performance compared Indicators of industrial confidence for the EU Commission allow us to compare Germany's performance with France, Italy, and Spain. All four countries listed in the table show improvement in January compared to December. France and Spain also show improvement in December relative to November. The queue standings for these metrics, however, are moderate. Germany has the best performance is this EU survey with a 79.3 percentile standing. Italy has a 56-percentile standing, about the same as Spain, while France has a 50.5 percentile standing. Indicators show small improvements since January 2020 for Spain and for Italy against a substantial improvement for Germany; only France shows a net weaker industrial reading of January 2023 compared to January 2020.

Sales in the European Monetary Union rose by 0.3% in January after falling by 1.7% in December and rising by 0.7% in November. Sequential growth rates, however, still show sales withering at an increasingly weak pace.

Sequential sales show a 12-month decline rate of -2.4% that steps up to -2.6% over six months when annualized and again to -2.8% annualized over three months. On a quarter-to-date basis and calibrating the January sales level as a growth rate over the fourth quarter average, real retail sales in the euro area are falling at a 3.7% annual rate.

It has generally been a period of weakness for retail sales in the euro area. The chart shows separate retail and auto sales trends plotting sales levels rather than growth to highlight actual performance. At one point, auto sales had recovered and began to expand more or less on trend. But that expansion ran out of gas late in 2021. The level of real sales continues to move lower in the euro area. Currently EMU total sales volumes are higher than they were in January 2020 before COVID struck by only 2%. Food & beverage sales, that tend to be more stable, saw declines over 12 months, 6 months, and 3 months, but they are declines of diminishing intensity. Food & beverage sales are even increasing on a quarter-to-date basis in January. However, the volume of food & beverage sales is lower by nearly 1% than it was in January 2020, a testament to the current degree of weakness in sales in the euro area.

Country by country trends in key early reporters At this early date, the large European Monetary Union members have not reported separate figures, but the monetary union reports an aggregate based on whatever early estimates it has been able to make and by other early reporting members.

Among the seven countries that report in the table, only the Netherlands and Portugal report sales increases over 12 months, 6 months, and 3 months. The Netherlands reports accelerating sales on that timeline with sales expanding by 0.3% over 12 months, at a 4.5% annual rate over 6 months, and at a very strong 17.1% annual rate over 3 months. Denmark reports sales accelerating as they dig out of a hole from a decline rate of -5.5% over 12 months, at a -2.6% annual rate over 6 months and finally rising at a 1.5% annual rate over 3 months. Similarly, Sweden shows sequential improvement but doesn't get sales into positive territory with growth at -7.1% over 12 months, at a -3.8% annual rate over 6 months, and then at a -0.4% annual rate over 3 months. Interestingly, none of the reporters in the table show sales on a continuing decelerating path; however, there's still substantial weakness being reported from Belgium, Sweden, Norway, and the U.K.

Quarter-to-date sales show sales increases in Netherlands, Denmark, and Portugal. Their quarter-to-date declines in sales reported from Belgium, Norway, the U.K., and Sweden.

Sales volumes gauged in total from the January 2020 date before COVID struck show sales up by 3.5% in the Netherlands, by 2.9% in Portugal, by 1.4% in Norway, and barely higher gaining 0.2% in Denmark. However, in Belgium, the U.K. and Sweden, sales are lower in January 2023 than they were in January 2020.

The performance of motor vehicle registrations (sales) is a bit of a counterpoint, but it doesn't change the general picture or tone of weakness in consumer spending. Motor vehicle sales fell by 4.4% in January after falling 0.6% in December. The pace for motor vehicle sales for 15 economies in the European Union shows a 12.6% gain over 12 months, a stronger 29.7% gain over 6 months, and then a much weaker 6.1% gain over 3 months. These contrast with overall retail sales that show declines and even declines that are decelerating over that timeline. While auto sales are showing sporadic growth they are certainly not accelerating. And according to date basis, motor vehicle sales are much weaker than retail sales falling at a 15.3% annual rate QTD and vehicle sales are lower by 19.1% compared to what they were in January 2020.