Letter IEDI n. 861–Industry in May 2018: the dimensions of the fall
In May, industrial performance was badly affected by the disruption of road freight transport that occurred in the last weeks of the month. The Brazilian Institute of Geography and Statistics (IBGE) found that industrial output fell by no less than 10.9% compared to April (seasonal effects eliminated), reaching 24 of the 26 sectors surveyed. But it was not only that: above-the-desired inventories reached record levels, the use of installed capacity declined, entrepreneurs' confidence receded and exports of manufactures fell.
This is a very exceptional picture, if these negative events do not happen again; but, nevertheless, it is one more episode of interruption of the industrial recovery, whose trajectory already presents many fragilities and oscillations. It is worth remembering that, before the adversities of May, the first quarter of 2018 had already been weak.
Thus, although recovery is preserved, it is becoming difficult for industrial production, which accumulates a 2% increase from January to May, to avoid a slowdown in the first half of the year in relation to the overall result for 2017 (+2.5% compared to the same period of the previous year) and, especially, compared to the second half of last year (+4%). What was desirable was that the opposite was occurring, that is, that the industrial recovery showed, even if little by little, a certain gain of momentum.
Last May, the industrial sectors most affected by the truck drivers' standstill were those with longer production chains —such as durable consumer goods and capital goods— and therefore more dependent on a logistics system that, in Brazil, is mainly restricted to roads. In contrast, the extractive sector and the petroleum derivatives industry have managed to preserve themselves, since they rely on railroads and pipelines to move much of their production.
In durable consumer goods —largely due to the production of motor vehicles, trailers and bodies (-29.8%)— the drop reached 27.4% in relation to April, seasonal effects discounted, enough to take production to the level of April 2016. As a result, in May this macro-setor was 26% below the output level of December 2017.
Capital goods, in turn, the second most affected by the events of May, declined 18.3%. Its production was the lowest since February 2016 and represented a loss of 14.4% from the end of last year.
The third most affected and not far behind capital goods were semi-durable and non-durable consumer goods, whose decline reached 12.2%. Many of its most important branches, such as food products (-17.1%) and beverages (-18.0%), held leadership positions in terms of the losses recorded in May. Thus, its setback was the most significant, with production level becoming the lowest since May 2004 in the seasonally adjusted series. As a result, this macro-setor was 11.6% below the level of December of the last year.
Intermediate goods, on the other hand, showed the lowest rate of decline, -5.2%, but nevertheless their decline was still quite pronounced. Production returned to where it was in December 2008, implying a loss of 8% compared to the level at the end of last year.