We awake this morning -those of us who went to bed anyway- to a rather similar electoral position in the United States to the one before. President Obama does have a new mandate but he also faces a rather deadlocked looking Congress spilt between the two main parties. Also there is food for thought in the fact that over 2 billion US dollars were spent! However the media might like to turn its eyes now to Europe and in particular the Euro area where September has seen some disturbing news on the economic front.
Back on the 18th of October I discussed some official data on the Spanish economy which actually showed an improvement which made a pleasant change and as a reminder I have put it below.
The General Index of Turnover Industry (CNI) undergoes a variation annual 3.8% in August, almost six points higher than that recorded in July.
The General Index of New Orders in Industry (IEP) undergoes a variation annual 1.0% in August, more than three and a half points above the July.
So we saw an improvement reported and enough of one to turn the numbers into positive territory. Also we saw that new orders were reported as positive. I would like you to hold that thought in your mind as we see Spain’s latest industrial production figures.
The annual variation of the Industrial Production Index (IPI) stands at –11.7% in September, as compared with –2.5% in August
The annual rate of the IPI, adjusted for the calendar effect, stands at –7.0% in September, as compared with –2.5% in August
In case you are wondering about the size of the calendar effect I have just checked and there were 22 business or weekdays last year but only 20 this. However these are shocking numbers for an annual drop with adjusted industrial production some 7% lower than the year before. Back in January I created something of an online stir by suggesting that Spain was moving into an economic depression and these numbers were the sort of thing I feared. I have placed a link to that post below.
Also we need to take the new industrial orders numbers with at least a pinch of salt in future! For new readers I operate a system whereby I accept official figures until they are shown to be unreliable as otherwise you end up picking and choosing according to ones own biases and predilections.
What caused this drop?
We see that the falls were widespread.
Every industrial sector showed negative annual rates.
Also we see that the capital goods sector was the worst affected.
Capital goods, with an annual rate of –17.5%….Almost the totality of the activities of this sector registered a decrease in production. Among them, worth noting, by its effect, the Manufacture of metal elements for construction and Manufacture of motor vehicles.
The two categories quoted were 41.1% and 21.4% lower respectively and if we look outside of Capital Goods we see that the manufacture of other chemical products fell by 36.9%.
Is this an economic depression?
To examine this we need to take a look at the underlying index for industrial production and also the performance in 2012 so far. Starting with 2012 we have seen this.
The average for the Industrial Production Index registered a variation of –6.2% in the first nine
months of 2012, as compared with the same period the previous year.
So grim but this could be a recession so let us now examine the underlying position. The Spanish statistics office has chosen 2005 as its benchmark of 100 and the unadjusted index now stands at 75 and the calendar/seasonally adjusted one stands at 78.4. So seven years later output is between a quarter and a fifth lower and that to my mind qualifies as a depression.
If we look at another way and look at the unadjusted underlying index for September since 2005 we see this as a progression We start at September 2005 with 105.5 and we go 106.1,104.7,99.8,87.1,86.1,84.9 and now 75. So depression is now Depression.
Spanish readers might like to sit down at this point because I then thought that I would look back twenty years for a September which was lower than 75 on the underlying index and I did not find one. So we now move to DEPRESSION as a ranking for Spain’s industrial production and we have to face what is now two lost decades in this area. The underlying index was 78.6 in September 1992 so on a generous basis we could say that it was pretty much the same as this years calendar/seasonal adjusted number. Trouble is that even trying to be generous we are talking about going back twenty years.
Is there any relief in sight?
Only yesterday I referred to the latest Purchasing Manager’s Indices for the Euro area and here are the excerpts covering Spain.
Steep contractions were signalled for Spain, France and Italy in October, although the rates of decline eased slightly in each of these nations compared with one month earlier……..The big-four nations all reported reduced levels of service sector output in October, with the steepest contraction in Spain
The actual reading for Spain in October was 41.5 which is a long way from the benchmark of 50 so any month on month improvement needs to be taken in that light. This is for all or “composite” output so includes services and construction as well as manufacturing.
If we look for numbers which specifically cover manufacturing we saw this last week.
The Markit manufacturing PMI fell to 43.5 in October, from 44.5 in the previous month, and signalled a further marked deterioration of operating conditions in the sector. Furthermore, the latest decline was the fastest in three months.
So a higher absolute reading than overall but well below the benchmark 50 and also it is falling. If we consider that it is falling compared to the very weak September numbers discussed above we see the size and depth of the problem.
Eurostat has published numbers for retail trade in the European Union and the Euro area as I type this. The leaders of the Euro are probably a bit underwhelmed by this as it was not supposed to be this way.
In September 2012, compared with September 2011, the retail sales index fell by 0.8% in the euro area and
increased by 0.3% in the European Union
But we see yet more signs of depression in Spain and this time it is in her retail sector which has fallen by the amount below over the past year.
So as we have travelled through 2012 we have seen Spain slip inexorably towards the sort of economic depression that has been inflicted on Greece. In terms of retail sales and industrial production we have seen her go depression,Depression,DEPRESSION I am afraid. Not everything looks that grim as her export performance has offered a ray of light But as we look around and see that even German industrial production dropped by 1.2% in September compared to last year one has to wonder how long that can be sustained.
Unfortunately we also have more austerity to factor in and we know now from the Greek experience what that does to economic output.