Letter IEDI n. 917–No Steam
From 2018 to 2019, the industry lost steam and shut down its engines. Output declined in the final quarter of last year and in January this year. In February, the result was again positive, but the recovery of the level of activity was timid, resulting in a near stagnation in the first two months of 2019.
February's growth was of +0.7% in relation to the previous month (seasonal effects eliminated); that is, merely enough to compensate for the -0.7% downturn of January. Compared to the same period last year, the fact that Feb/19 had two business days more than Feb/18 contributed to the +2.0% increase. Even so, this performance was weak given the previous sequence of negative rates.
For now, interpreting the growth of February as a sign of better days would be hasty. It may have resulted from inventory replenishment only, which alone does not guarantee the improvement will be sustainable. In fact, the CNI indicator shows that inventories fell from Nov/18 to Jan/19, but were again virtually stable in Feb/19.
What we know for sure is that -0.2% was the industrial performance in the first two months of 2019 when compared to the same period of the previous year. Some other information also corroborates the stagnation of the sector:
• Of the 26 branches surveyed by the IBGE, 14 were in the red in Jan-Feb/19 versus Jan-Feb/18, 64% of which had also recorded losses in Q4/18. This suggests more systematic rather than one-off problems.
• Capacity utilization remains below the historical average and has not improved. According to the FGV indicator for manufacturing, it was 74.7% in Feb/19, that is, the same level of Oct/17. Hard to imagine, then, a consistent revival of industrial investment.
• Industrial entrepreneurs' confidence fell in March 2019, according to both the ICI-FGV and the ICEI-CNI, indicating the risk of another unfavorable result, which would jeopardize the first quarter of the year.
In the first two months of 2019, the most serious case of loss of dynamism among the industrial macro-sectors was intermediate goods. Not so much for the magnitude (-0.9% versus Q1/18), but for the sequence of falls observed repeatedly since Sep/18. Since intermediate goods consist of inputs to other activities, this macro-sector occupies a central position in the industrial system. This is why its enduring difficulties are further evidence of the weakening of industrial dynamism in general.
Capital goods, in turn, presented a clear deceleration. After growing +11.1% in Q1/18, the sector ended last year with a rate of only +3.6% in Q4 and stagnated in Jan-Feb/ 19 (+0.1% vs. Jan-Feb/18). Much of this was due to capital goods for the industry itself, but, according to the IBGE, capital goods for agriculture, energy and mixed use contributed, too.
Semi-durable and non-durable consumer goods also grew little in Jan-Feb/19 (+0.5%), but at least avoided the negative ground in which they were in the second half of 2018. Nonetheless, there are branches in a much worse situation, such as textiles, clothing and accessories, and leather and footwear, which already accumulate several months of falls. This is a bad sign for employment, since they are all labor intensive.
Finally, it does not seem that the durable consumer goods macro-sector will repeat the negative sign of Q4/18. The rise of only +3.7% against Jan-Feb/18, meanwhile, signals that a change in the pattern of growth is occurring, largely due to the more modest evolution of the automobile industry. In other words, it is possible that the double-digit highs in durables are a thing of the past.