Letter IEDI n. 869–Industry in June 2018: overcoming obstacles, but losing strength
In June, industrial recovery was broadly consistent enough to overcome the momentary but serious adversities observed in May due to the shutdown of road freight transport. Production increased 13.1% compared to the previous month, seasonally adjusted, as a result of positive rates in the vast majority of industrial sectors.
Twenty-two of the twenty-six branches surveyed by the IBGE were able to react, with fifteen of them fully offsetting their previous falls, as was the case of motor vehicles, trailers and bodies (+47.1%), food products (+19.4%) and beverages (+33.6%). The normalization of the situation came not only from the production side, but also from distribution, as shown by stock data. Few were the sectors whose companies reported excessive inventories in June.
This favorable evolution, however, did not prevent the continuation of the progressive loss of dynamism that the industry has been showing since the beginning of 2018. In the seasonally adjusted series, performance went back to negative territory in the second quarter: -2.5% compared to the previous quarter. Considering the figure of +1.6% in Oct-Dec/17 (in the same type comparison), the deterioration of the industrial picture is evident.
In light of this, it is not surprising that the confidence of industrial entrepreneurs remained at levels below those of the beginning of the year. This was especially so in June, due to the repercussion of the truckers' strike, but also happened in July because, in relation to the previous month, the improvement was very tenuous. Optimism seems to have given way to another more neutral picture, that is, businessmen —who are typically more skeptical— are neither optimistic nor pessimistic.
Compared to the same period of the previous year, industrial performance has not been encouraging either: from +4.9% in Q4/17 to +3.0% in Q1/18 and only +1.7 % in Q2/18. This movement has also been accompanied by virtually all industrial macro-sectors, suggesting the weakening of the recovery is a general process.
Intermediate goods were practically stable in the second quarter of 2018, with a variation of only 0.4% compared to the same period last year. It is worth remembering that in the final quarter of 2017 it had reached 3.9%, retreating to +1.6% in the first three months of 2018. As a consequence, this macro-sector, the core of the industrial system for establishing interactions with all other industrial activities, is the one that more clearly presents a trajectory of deceleration.
Durable consumer goods, which continued to lead industrial growth in the second quarter of 2018, also showed a loss of momentum, but in this case more concentrated in the last three months. Output increased 18.2% in Q4/17, falling to 17.1% in Q1/18 and finally to 11.6% in Q2/18. That is, the level of expansion is still significant, but the trend is clearly unfavorable.
Also in sharp deceleration in Apr–Jun/18 were capital goods, which until then had been able to preserve output's pace of expansion at its best levels since recovery started: +11.2% in Q4/ 17, +11.1% in Q1/18 and +8.1% in Q2/18. One of the causes of the lower growth was the fact that production of capital goods for the industry returned to the red in the second quarter: -2.5% compared to the same period of the previous year.
Lastly, the only exception was the macro-sector of semi- and non-durable consumer goods, whose performance improved from +0.6% in Q1/18 to +0.9% in Q2/18. This case, however, deserves two comments: firstly, the strengthening of the result was not very expressive and, secondly, 2018 brought involution for this macro-sector, since it had been able to grow almost 3% in the last two quarters of the past year. In other words, despite avoiding the general trend of deceleration, the picture of semi- and non-durable goods is also not the best.