Letter IEDI n. 888–The Industry in September 2018: nothing to celebrate
As far as the industry is concerned, there is nothing to celebrate in the third quarter of 2018, especially in September. We had three months of recurring production losses in the seasonally adjusted series, which had not happened since late 2015, a year of acute crisis for the sector. In September, the contraction reached -1.8% against August and ended up contaminating the performance of most of its segments and important industrial parks in the country.
If this pattern is repeated in the coming months, as industrial confidence indicators for October predict, the 2018 recovery will be even weaker than 2017's. It should be noted that performance in January-September is already of only +1.9% and that the expectations summarized in the Central Bank's Focus bulletin, whose optimism has been frustrated throughout the year, point to a +2.2% rise until December. That is, in both cases the figures are below the result of 2017: +2.5%.
Considering the third quarter, the growth pace of the Brazilian industry is even weaker: +1.2% compared to Q3/17, indicating a clear reversal from the final quarter of last year, when it grew 5%. It is for no other reason that the improvement in industrial employment, which led the employment reaction nationwide, was interrupted, stagnating in July-September (+0.3% compared to Jul-Sep/17).
Even more serious is the situation in several of the country's major industrial parks. Production in São Paulo, for example, registered the first negative quarterly result since the beginning of 2017, falling 1% in Q3/18. Thus, the contraction of the Brazilian industry in July-September 2018 is the contraction of São Paulo's industry; but not only.
Amazonas, Minas Gerais, Mato Grosso and Bahia also went into the red in Q3/2018. Rio de Janeiro grew, but lost momentum. Even those locations where there was improvement —such as Rio Grande do Sul, the Northeast as a whole (thanks to Pernambuco), as well as Goiás and Espírito Santo— were only able to recover the lost time, since previously they had anemic —when not negative— results.
In other words, regionally the "hard core" of Brazilian industry did not do well in the third quarter. What, then, of industrial macro-sectors? Practically every one of them suffered a slowdown. The only exception was intermediate goods, which in the last six months operated in semi-stagnation, as indicated by Q2/18 and Q3/18 figures: only +0.6% and +0.7%, respectively. This means a blatant loss of pace in light of the 4.2% increase in Q4/17.
Also in a similar situation of very low dynamism is the macro-sector of semi-durable and non-durable consumer goods; even worse, it has been there since the beginning of the year, with 0% and +0.6% in the first two quarters. Now, in the third, it slipped to negative field: -0.2%, due to falls in both August and September.
Thus, capital goods and durable consumer goods continue to lead industrial growth, but they did not escape a sharp slowdown in 2018. Durable consumer goods grew +7.1% in Q3/18, i.e., a rate that is less than half the +17.8% of Q4/17. This behavior influenced the production of household appliances and furniture, which returned to the negative range (-7% and -5.1%, respectively), but also automobiles, which, despite still growing in double digits, suffered a slowdown.
Capital goods, in turn, advanced +6.8%, well below the result of Q4 last year (+11.5%), largely due to the latest decline in capital goods for the industry (-2.7% in Q2/18 and -0.5% in Q3/18) and the deceleration in mixed use products (from +16.4% to only +1.2% in the same period). This is a bad sign for industrial investment.