What's going on?
According to data released on Friday, the eurozone’s factory production in August beat forecasts and bucked a two month negative trend – it looks like Europeans were working hard during summer’s hottest month this year.
What does this mean?
The eurozone’s industrial output – i.e. everything Europe’s factories made – rose by 1% in August after contracting in June and July, well and truly beating the 0.4% growth predicted. Historically, the eurozone has relied on Germany’s economic clout to drive production and keep the plates spinning (#GermanEfficiency) – but activity from the region’s biggest economy was flat in August (tweet this), so other countries were more than pulling their own weight.
The eurozone also (perhaps interestingly) increased production of “consumer discretionary” goods – things that people don’t necessarily need to buy but choose to, like jeans and t-shirts – and “capital goods”, a.k.a. machinery.
Why should I care?
The bigger picture: Investing in the future.
The surprise boost in capital goods production offers a glimpse into the future as things like machinery are expensive and durable. If companies are deploying tons of cash on big, heavy machines, they probably expect to use them for a long time. So they must have some confidence in future economic conditions – regardless of the nerves caused by an as yet undecided Brexit deal, Italy’s budget, and Greece’s bold move to defy the European Union and leave its pension system unreformed.
For markets: Reversing the slide in Europe.
There were concerns that parts of the eurozone were heading for an industrial recession by having two quarters of negative industrial production, with Italy partly at fault. That would likely weigh on the rest of the region, killing any chance of overall economic growth during the third quarter. But reversing the trend gives the zone hope amid a climate of anxiety over national economies and budgets (yes you again, Italy).