Haver Analytics
Haver Analytics


Robert Brusca

Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media.   Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.

Publications by Robert Brusca

  • A Confederation of British Industry (CBI) survey has produced significantly and broadly better data in its March survey, both for sales and orders in March and for expectations for the month ahead in April.

    Comparing sales to a year ago in March, the reading relative to February was slightly weaker ticking down to a +1 from +2; however, both readings are leagues better than the January reading of -23 for sales performance relative to a year ago.

    Orders compared to a year ago improved sharply in March to -2 from -25 in February and -32 in January.

    Sales for the time of year in March moved up to a +12 reading from +6 in February and -3 in January.

    The performance of stocks of goods relative to sales showed inventories at a + 10 in March compared to +8 in February and that compared to +23 in January. The stock-sales ratios data have to be analyzed in conjunction with the performance of sales trends. The notion that inventories are still improving and sales are improving can regarded as a positive development. The stronger increase in inventories back in January when sales were declining probably referred to unintended increases in inventories and that was not a positive or a strong reading at that time.

    Looking ahead, expected April sales compared to a year ago have a + 9 reading compared to -18 in March and readings of -15 and -17 in the two earlier months.

    Orders compared to a year ago have a net zero assessment in April; that compares to a -23 reading for March, -19 for February, and -23 for January. Once again, we see significant improving trends even though the net reading for April is only zero.

    Expected sales adjusted for the time of year are at +13 for April, up from +11 in March and much stronger than -2 in February and +2 in January.

    Stock sales ratios have a +6 reading for April, below 23 for March, 12 for February and 8 for January. But significantly, the reading is still positive and it's occurring at a time when sales are advancing more strongly and when orders are no longer falling.

    In the far-right hand column, we can vet these readings for March for current data and for April for expected data compared to their historic trends. Even though we are looking at improvement, the state of the current readings is still relatively weak. Sales compared to a year ago have a 34-percentile standing, meaning that they have been weaker 34% of the time and stronger nearly 2/3 of the time. Orders compared to a year ago have a 41.6 percentile standing, closer to their median reading which occurs at a value of 50%. The time period being studied in this case is back to June 1998. Sales for the time of year are actually quite strong on this timeline; they have an 83.9 percentile standing indicating they are stronger less than 17% of the time. The stock sales ratio has an 18.5 percentile standing indicating that although positive it's still relatively low.

    Turning to expectations for April, we once again find a slew of relatively weak readings with standings below their 50th percentile in all cases except for once again sales for time of year. Expected sales for time of year in April have an 84.6 percentile standing, quite similar to the standing for current performance in March. Sales compared to a year ago have 38.5 percentile standing and orders compared to a year ago have a 42.1 percentile standing; both of these are about equally weak below their key neutrality value of a 50 percentile standing. The stock sales ratio has a 13.7 percentile standing for its April expectations, slightly weaker than its current standing in March.

    U.K. reports actual retail sales volume data through February; as of February, sales we're falling year-over-year by 3.5%, less weakness than the 5.1% 12-month decline logged in January. The 12-month percent change over the last 12 months has been on the order of 5% so U.K. real retail sales have been weak for some time. The queue standing for the U.K. retail sales series evaluates the year-over-year growth in sales volumes as at a 5.4 percentile standing – an extremely weak reading. This reading has been weaker only about 5% of the time. The CBI survey data are showing a lot more strength than that.

  • The S&P Global flash PMIs are continuing to show some resilience in the face of what have been some significant challenges. Commodity prices and inflation have been rising and high and in response central banks have been raising rates for about one year. The Russia-Ukraine war has been in progress for a year casting a pall of uncertainty across geopolitics as well as over the economic outlook. A more recent development is banking problems that have emerged, particularly in the United States and Europe and specifically in Switzerland. And, of course, it's too soon to see the impact of any banking sector problems in these data.

    What we do see is stronger PMI readings across the board, except for the U.K. We see stronger readings for the services sector everywhere, once again except the U.K. There are weakening manufacturing responses for the European Monetary Union overall, for Germany, and for the U.K. in March. However, there is a widening count of sector or overall readings of weakness in progress and a surprising period of strengthening that came well into the rate hike cycle. In January, only three of the 18 readings registered month-to-month weakening. In February, there are four indications of month-to-month weakening. In March, there are five indications of month-to-month weakening. However, with 18 sectors represented in the table, the number recording weakness has only risen to five in March from three in January. In terms of changes in PMI data, it doesn't appear that tightening monetary policies are having all that much impact, certainly not a rapid impact on these economies.

    If we look at the strengthening versus weakening responses over 12-month, 6-month and 3-month periods, we find overwhelming evidence of weakening over 12 months and over 6 months, not so much over 3 months. Over 3 months, Germany and the European Monetary Union show strengthening in all their measures along with the U.K. France and Japan show weakening over 3 months compared to 6 months in two sectors with manufacturing strengthening in France and services strengthening in Japan. The U.S. is the exception to all these rules with 3-month, 6-month and 12-month weakness in all the sectors on all the horizons. Let me point out again that the 3-month, 6-month and 12-month averages are applied only to hard data and so they are applied to data beginning in February not the data from March.

    If we set aside our obsession with the changes and look instead up the levels of the PMI data where the nomenclature focuses on values above 50 showing expansion and below 50 showing contraction, we find that services sectors in all six of these reporting units in March and in February show expansion. In contrast, manufacturing shows contraction - that is levels below 50 for the diffusion indexes- in March and February in all six cases. Regardless of whether manufacturing did a little bit better or worse on the month than the month before, manufacturing broadly is declining while services broadly are showing ongoing expansion.

    The queue percentile standing is presented in the table. These readings measure the standings of the March PMI values across all values reported since January 2019. They show percentile readings below the 50% mark in manufacturing for all reporting entities in the table. The 50% mark in ranking represents the median for the period over which data are ranked. So what we are seeing is below median values for manufacturing everywhere with rankings clustered around the 20% mark although with France below the 10% level and the U.S. at the 13.7% level. Services rank above their 50th percentile everywhere with an extremely strong reading at the 98th percentile in Japan and a strong 82nd percentile in the European Monetary Union. Those compare to a relatively weak standing for services at about the 53% level in the U.S. and a 55th percentile standing in the U.K.

    The table also presents diffusion point changes month-to-month and over 3 months as well as the change versus January 2020 before COVID struck. These data show that all manufacturing readings are weaker than they were in January 2020 while most service sector readings are stronger; however, the U.K. and Germany are exceptions with small service scepter decrements to their January 2020 levels in March. The U.S. has a service sector gain of only 0.3 points on that timeline. However, over 3 months, we see service sector readings mostly better, stronger by 2.3 to 8.4 points over that span. Japan shows the smallest composite increase at 2.3 points while the U.S. shows the largest composite increase over 3 months of 8.4 points.

  • Consumer confidence in Denmark in March improved slightly, moving up to -23.1 from -25.1 in February after logging a -26.1 in January. These improvements are not strong, but they are movements toward ‘better’ rather than toward ‘worse.’ The absolute reading is extremely weak with the ranking of 2.7% on data since 1995. That means that since 1995 readings have been this weak or weaker only 2.7% of the time.

    The past year… The data assessing conditions over the last 12 months are generally quite weak; the financial situation for the last 12 months has a 0.6 percentile standing. The general economy reading for the last 12 months has a 3.3 percentile standing. The assessment of consumer prices over the last 12 months, of course, has a high 97-percentile standing telling us that inflation had been higher historically only about 3% of the time. That's not surprising and it's not good news. That summary sets the stage for the responses for this month.

    Looking ahead The look-ahead responses from March show the financial situation for the next 12 months slightly stronger at a net 0.4 reading, up from -0.3 in February, but still with only a 3.6 percentile standing. The outlook for the general economy improved to -0.7 in March from a -6.4 reading in February, logged at a 38.8 percentile standing much better than the other standings noted to date; however, it is substantially below the 50% break even mark. Consumer prices over the next 12 months have a -8.5 assessment for March below the -8 assessment for February; the standing for this metric is the 27th percentile which is certainly a lot weaker than the 97th percentile standing for the previous twelve months. There is some expectation that inflation is going to be coming down; it is hard to tell from this whether that sort of decline is sufficient or not. The unemployment trend expected for the next 12 months has a lower net 18.6 reading in March, down from 28.4 in February (which had a small uptick compared to January). The standing still has an 87-percentile mark which is relatively high.

    The environment Assessments of the environment in March change very little from February. All responses have rankings below historic midpoints (below 50%). The favorability of the time to purchase improved slightly to -39.6 in March from -41.8 in February; the favorability the time to purchase over the next 12 months improved to -15.5 from -17.9. The favorability of the time to save ticked ever so slightly higher to 64.4 from 64.3; the March favorability of the time to save over the next 12 months eroded to 22 from 23.8 logging a lower 10-percentile standing. The general financial situation of households is unchanged at 19.8, a 2.4 percentile standing. The environment is weak.

  • The chart on U.K. CPIH core inflation rate that looks at annualized sequential growth rates of inflation over 12 months, six months and three months shows some remarkable stability. High inflation rates remain in force in the U.K. across horizons. All the different tenors show some slight tendency toward deceleration; however, there's a pronounced flat spot after the acceleration of inflation in early-2022. This ‘flat spot’ embodies a weak downslope that has an extremely mild downward gradient. It is nothing like the speed with which inflation had accelerated in the U.K. It's hard to imagine the authorities would be content with inflation declining at the speed depicted by gradient in this chart. The Bank of England clearly is going to feel that it needs to do more, that it hasn't done enough, that inflation is not declining rapidly enough, and remains too high. The headline and core gains in February underscore those statements.

    Got banking issues? On the other hand, there are banking issues. The events in the United States do not reflect something that would have simply passed over the United Kingdom on the way to Switzerland. Any bank operating in the global environment has faced the same circumstances. They've operated in a very low inflation, low interest rate environment. The inflation rate rose sharply. During this period, monetary policy did not react much to the inflation. Suddenly central banks got religion and started raising interest rates. This would have put a great deal of pressure on any security held as the banks would have purchased them under the conditions of a lower interest rate environment. While we can assume that more sophisticated banks have operated more smoothly during this environment, employing various strategies including hedging and the use of financial futures, undoubtedly there are a number of less sophisticated institutions that didn't act that way, didn't see the rate hikes coming, and that may have doubted that the central banks were going to take the aggressive actions they eventually did take. To the extent that there was any denial in the trading room it has been replaced with losses.

    Central banks making decisions about policy have to be concerned about the condition of financial institutions under their purview. So far, the Bank of England assess no risk to the U.K. banking system.

    Headline inflation in the U.K. shows clear deceleration. The CPIH is at 9.2% over 12 months, declining to an 8% pace over 6 months and to a 6.6% annual rate over three months. For headline inflation, the deceleration is in gear. However, for the core inflation rate, the year-over-year pace is at 5.8%, the six-month pace edges down to only 5.6%, and then, what's worse, is that the three-month pace edges back up to 5.8%. Inflation over this period barely budges. And a 5.8% inflation rate is too high.

    The diffusion calculations on the categories in the table show that monthly month-to-month inflation rates are accelerating more than they're decelerating. Diffusion in February is up to 63.6% which says that inflation is accelerating in more categories than it's decelerating. In January, diffusion was 54.5% which also shows net acceleration anything above 50% shows an accelerating tendency. In December, the diffusion index had been better behaved at 45.5% showing a slight tendency for more categories to decelerate than to accelerate.

    Sequential diffusion is a little bit kinder to the trends over 12 months diffusion is that 63.6% showing that inflation clearly has accelerated over 12 months compared to 12-months ago. Diffusion over six months compares inflation over six months to the pace over 12 months: here we see a decline in diffusion to 9.1% indicating a sharp tendency to decelerate over six months compared to 12 months (that was not reflected in the pace of either headline or core inflation). However, over three months that marked pace of deceleration in diffusion no longer exists; instead, there is lingering deceleration with a diffusion index of 45.5%. It is rather more modest and only slightly below the neutral 50% mark. And as we just saw, the monthly figures are showing that inflation is accelerating month-to-month so it's not clear exactly how much stock we should place in this three-month index. The headline, remember, showed that inflation had cooled from an 8% pace to a 6.6% pace, but the core had found that inflation accelerated slightly to 5.8% from a 5.6% pace. Diffusion is an unweighted concept looking at the unweighted breadth of acceleration across categories. The main thing that the data are telling us over three months and in the recent months is that there is no strong tendency for inflation to decelerate; the monthly data warn of further acceleration.

    U.K. macro data have been a bit touch and go, but the unemployment rate continues to show a tight labor market. But the December rate of unemployment at 3.7% among some of the lower rates we've seen in recent months.

    Inflation remains a global phenomenon running at a very high pace in Europe and it's running strongly in the United States. The U.K. core shows little tendency to decelerate, and we also see stubborn inflation in Canada, and even Japan has acquired some inflation although it's skeptical about the longevity of the rate that it's experiencing today.

  • Canada's inflation trends are looking a lot like the trends in the United States. The headline inflation rate has rolled off relatively sharply. The year-over-year pace is 5.3%; that falls to 3.3% expressed at an annual rate over six months. The annualized pace logs a 1.6% gain over three months. Magically inflation goes from extremely strong to under the pace prescribed by its target. Canada’s CPIx, which excludes the most volatile components of inflation, shows a 4.9% increase over 12 months, a 3.7% annual rate increase over six months and a slightly slower 3.4% annual rate increase over three months. Those metrics track closely the U.S. CPI path. Meanwhile, Canada's core CPI rate (excluding food and energy) shows a 6% gain over 12 months, a 4.3% annual rate increase over six months and a 4.1% annual rate increase over three months that echoes the pattern of the U.S. core. Although Canada has a lower inflation rate on each of its shorter horizons compared with the U.S. core with the three-month inflation rate pace that's a percentage point below the 3-month pace in the U.S., Canada's year-over-year pace for the core is 1/2 of one percentage point higher than in the U.S. It's too soon to say exactly what this means in terms of policymaking and whether we should be paying more attention to the year-over-year pace or to the 3-month pace. But the differences here are not huge.

    When the 3-month inflation rate drops sharply, it's an encouraging sign about where inflation is headed next. However, it is not a guarantee. The ‘problem’ with annualized 3-months inflation is that the series is volatile. A drop in inflation over 3 months is a welcome signal, but it is not one that can be relied on up. That is the policy dilemma.

    Canada’s year-over-year inflation rate on the CPI peaked at 8.1% in June and has declined to a pace of 5.3% in February. The CPIx pace that excludes the six most volatile items peaked at 6.2% in June and is down to a pace of 4.7% in February. Canada’s core CPI peaked at 5.5% in July and is down to a 4.9% pace in February, the same as its year-on-year pace in January.

  • The EMU trade deficit has been contracting for a number of months. The deficit declined in January to €11.3bln from €13.4bln in December. The 12-month average for the deficit is €27bln. To analyze EMU trade, I look at manufacturing and nonmanufacturing trade and trends separately. Viewed that way, the manufacturing trade surplus was lower in January as it fell to €26bln from €31bln in December. That means trade improvement was driven by performance on the nonmanufacturing accounts, and it was. The nonmanufactures deficit shrank to €37.3bln in January from €44.3bln in December. The manufactures surplus worsens by €5bln month-to-month while the nonmanufactures account improved by €7bln month-to-month causing the overall trade balance situation to improve. The improvement on the nonmanufacturing account traces back to August of last year while the drop off in the manufacturing surplus is a new development.

    European trade trend overview The overpowering trend for EMU trade overall as well as for individual countries in Europe is that trade flows are slowing. Despite inflation being high, the growth rates of nominal trade flows are slowing. Year-on-year growth is faster than 3-month annualized growth for exports of manufactured and nonmanufacturing; the same is true for EMU imports. For another eight European economies, we see the same slowing in annualized 3-month trade flow growth compared to year-over-year growth.

    EMU trade flow trends EMU export trends show exports of manufactures are slowing transiting from 5.8% growth over 12 months to a -13.6% annualized pace over three months. Nonmanufactured exports are more resilient slowing only modestly to a 19.1% annual rate over three months from 21.3% over 12 months. Together these flows cause overall EMU exports to slow sequentially from 12-months to 6-months to 3-month, logging a 3-month decline at a -8.2% annual rate.

    EMU import flows show imports of manufacturers decelerating from 5.1% growth over 12 months to a 3-month pace of -19.1%. Nonmanufactures imports slow from an 11.8% gain over 12 months to an annualized three-month drop at a -45.5% annual rate. As a result, overall imports in the EMU also decline sequentially from growth of 7.2% over 12 months to a contraction at a -16.6% pace over 6 months to a -29.4% pace over 3 months.

    Country patterns Germany and France echo the pattern of decline in the EMU with exports and imports in both countries showing sequential decelerating trends from 12-months to 6-months to 3-months. In the U.K., exports fall sequentially and at an alarmingly fast pace over 3 months, while the decline in imports is muted by comparison. Although the U.K. also shows a decline in imports over 12 months which is a weaker result than for either Germany or France - or EMU for that matter – U.K. exports are much stronger than for Germany, France, or the EMU.

    Exports only We include export only trends for five other European nations. They all show weaker growth over 3 months than over 12 months, but also show a great deal of variation in their growth rates compared over each horizon. Belgium and Finland have the weakest three-month growth, registering sharp declines. In comparison, exports by Spain, Portugal, and Italy log rates of growth in double digits or rates that round up to double digits over three months. Spain, Portugal, and Italy also log export increases over 12 months while Belgium and Finland log modest declines over 12 months.

  • Japan machine orders are lower by 10.2% in January month-to-month. They rose by 4.7% in December after ticking higher by 0.2% in November. Orders are lower by 8.1% year-over-year.

    Japan core order, however, rose by 9.5% in January rising for two-months in a row. Year-over-year core orders are up by 3.5%.

    Orders split between domestic/foreign show opposite results month-by-month. Over one-year domestic orders are up by 5.9% while foreign orders are lower by 16.7%.

    Year-on-year growth trends show overall and foreign demand with standings below their 20th percentiles. Core orders and domestic demand each have standings of moderate-to-above median amounts, a 53.1 percentile standing for core orders and a 63.6 percentile standing for domestic demand.

    Other indicators produce different results. The Economy Watchers complex of responses shows January readings barely at or below the 50 level for diffusion. The growth ranks of the Economy Watchers readings, however, all show above median expansion; most show strength. Index levels on the Economy Watchers indexes all are above the 50-percentile mark except for weakness in employment. Employment is showing sub-median readings.

    The Teikoku indexes are generally weaker than the Economy Watcher diffusion indexes and they are mostly weakening month-to-month in January. The growth ranks show below-median standings for growth rates in manufacturing, wholesaling, and construction. Above median standings exist for services and retail in the Teikoku index framework. The index level of the Teikoku indexes show above 50 expansionary readings in retailing and wholesaling, a neutral 50 standing in services and below median weakness logged in construction and manufacturing.

    The METI index for manufacturing is weaker in January with a growth ranking in its 16th percentile and a standing for the index level at its sixth percentile. There is clear weakness in manufacturing based on this index, the Teikoku survey and machinery orders.

    The Leading Economic Index has weakened in each of the last three months. It has a 22-percentile standing for its growth rate over 12 months. The rank level of the LEI index has a 25.6 percentile standing.

  • Spain’s harmonized inflation on the euro area measure rose 1.1% in February, accelerating from a 1% gain in January after logging ‘no change’ in December. The inflation picture in February and over three months largely shows inflation pressures are lingering and remain relatively intense. However, the broad sequential path of inflation has been interrupted and does not show clear acceleration although there still is clearly pressure.

    The HICP is still hot Spain's inflation over 12 months shows a gain in the HICP of 6%; over six months the rate of increase is only at 2.5% pace; however, over three months the annual rate is up to 8.3%, a sharp gain. Inflation has not only accelerated over three months, but the pace of the advance exceeds the 12-month pace of a year ago when the 12-month inflation rate was 7.7%. The three-month pace is still above that as well as the current 12-month pace.

    Spain’s ex-energy gauge is accelerating Spain’s domestic measure of inflation rose by 1.1% in February, up from 0.7% in January and 0.1% in December. The Spanish domestic CPI excluding energy rose 0.7% in February, less than the 1.2% gain in January but the same as the 0.7% increase in December. The sequential path of inflation in Spain shows the headline running at 6.1% over 12 months, then slowing to a 2.5% pace over six months, before speeding up to a 7.9% annual rate over three months. The ex-energy inflation rate is up by 7.6% over 12 months, ticking higher to 7.7% over six months, then accelerating further to a 10.8% annual rate over three months.

    Inflation’s breadth confirms its presence The table also offers a view on inflation diffusion over three months, six months, and 12 months. These metrics show that over 12 months inflation accelerates in 72.7% of the categories. Over six months that falls back to 45.5%, slightly less than half of the categories show a step up. However, over three months inflation is back to accelerating in 72.7% of the categories again. Spain continues to have an issue with inflation accelerating. The acceleration is present not only in the headline measure which shows a clear step up and reflation over three months compared to six months. The ex-energy measure shows the steadier acceleration from 12-months, to six-months, to three-months with a significant jump in three-months compared to six-months as inflation remains broadly felt.

  • Japan’s Ministry of Finance (MOF) business outlook survey for Q1 2023 showed a relatively sharp drop to -3 for all enterprises from +0.7 in the fourth quarter. The bellwether manufacturing index fell to -10.5 in Q1 2023 from -3.6 in the fourth quarter, while the nonmanufacturing index dropped to 0.6 from 2.7 in the fourth quarter.

    For medium-sized companies, the manufacturing index plunged to a reading of -17.2 in Q1 2023 from -3.9 in the fourth quarter. For small enterprises, the manufacturing index plummeted to -23.9 in the first quarter from -4.2 in the fourth quarter.

    The assessments of activity for enterprises of all sizes were cut back and cut back relatively sharply. The biggest declines were among the medium and small-sized enterprises in manufacturing.

    The changes for the quarter-ahead also revealed losses that were relatively sharp although they were better balanced across enterprises of different sizes. For one quarter-ahead, large enterprise manufacturers cut their outlook by 13 points, medium sized enterprises cut their outlook by 13.3 points while small enterprises in manufacturing cut their outlook by 10.4 points. Nonmanufacturing enterprises cut their outlook for the quarter-ahead by 2.7 points for large enterprises, by 4-points for medium-sized enterprises, and by 1.4 points for small enterprises.

    Looking ahead by two quarters, we continue to see reductions in the outlook compared to the outlook that was made one quarter ago. And here the outlooks are once again progressive with the smaller firms cutting their outlooks more. Manufacturing large enterprises cut their outlook two quarters ahead by 4.8 points compared to a reduction of -7.9 points from medium-sized enterprises and a cut of -9.4 points for small enterprises. For nonmanufacturers, large enterprises cut their outlook by -0.3 points, a medium-sized enterprises cut theirs by -3.4 points and small enterprises cut theirs by -5.4 points.

    Absolute assessments I also construct ranking statistics in the table to compare the standings of establishments of different sizes, and also to facilitate comparison between current, quarter-ahead and two quarter-ahead assessments. Among all enterprises in the current quarter the assessment stands at its 27th percentile, below the 29.7 percentile standing for the quarter-ahead and the 33.8 percentile standing for two quarters ahead. Large enterprises in manufacturing have only a 13.5 percentile standing, the quarter ahead standing is worse at the 11th percentile while the two-quarter ahead assessment has a 27th percentile standing. Nonmanufacturers that are large enterprises have a 41.9 percentile standing compared to a 29.7 percentile standing for the quarter-ahead and a 47.3 percentile standing for two quarters ahead. The rule we find here is that the two quarter-ahead standing is generally better than the current quarter standing for large and medium enterprises; however, for small enterprises the two-quarter ahead standing is lower than the current quarter standing; that could be because the current quarter standing for smaller enterprises is a relatively stronger standing than the current quarter metrics for large enterprises.

  • German inflation continued to run hot in February. The HICP gain in the month of 0.6% was stronger than January's 0.4% while the core rate accelerated to 0.7% from January's 0.3%.

    Overview- Germany logs a year-on-year HICP gain of 9.2% in February which is stronger than January's 9.1% but lower than its string of increases from September to December of last year; a string in which the German headline year-on-year inflation rate peaked out at 11.5%. The core year-over-year rate of 7.4% in February is a sharper rise than its 7.0% year-on-year increase in January. That marks a new cycle high for the annual core inflation rate! That's certainly not a good development for inflation prospects in Germany.

    HICP some deceleration some mixed performance- However, because of a slowdown and, in fact, the decline in the headline month-to-month HICP in December, Germany's headline inflation rate shows deceleration in its broader sequential trends. Its 9.2% gain over 12 months softens to 8.9% over 6 months, and over 3 months the annual rate increase is at just 1.6%. The core rate is a bit less cooperative with a 7.4% gain over 12 months rising to an 8.7% gain over 6 months but edging down to a 5.9% annual rate over 3 months.

    CPI excluding energy- Germany's domestic CPI measure shows a similar deceleration in the headline. But for the CPI excluding energy the German domestic CPI shows a year-over-year gain of 7.6%, rising to 8.3% over 6 months and then falling back only to a 7.1% annual rate over 3 months. That 3-month pace for the CPI excluding energy is below the 12-month pace, but the 7.1% compared to 7.6% is still not much progress and still a very high rate of inflation for an ex-energy measure.

    Diffusion of inflation monthly- On balance, the German headline and core trends are not very encouraging this month. Looking at the diffusion that measures the tendency for inflation to accelerate, there was a great step down in December where diffusion fell to only 9% which means 91% of the categories were showing inflation decelerated in December compared to November. in January diffusion stepped up to 36% and in February it stepped up again to 45%. But both these gauges show that inflation is accelerating month-to-month and in fewer than half of the categories. These calculations do not use any weighting.

    Sequential diffusion- Sequentially the diffusion indexes show that inflation is accelerating over 12 months compared to 12-months ago in about 82% of the categories. Over 6 months inflation is accelerating compared to its 12-month pace in about 64% of the categories. Over 3 months inflation has accelerated in only about 45.5% of the categories. Still 45.5% is not that decisively below the break-even which is at 50%. Diffusion trends are somewhat encouraging but given the height of inflation I would mark them as still inadequate.

    Oil prices- Underlying a lot of what's going on with inflation is oil prices and we have Brent prices denominated in euros memorialized at the bottom of the table. Brent prices are down compared to a year ago by 5.9%, they're down over 6 months at a 34% annualized rate, and they're down over 3 months at a 42% pace. Monthly data show Brent prices fell by 13.6% in December, they rose month-to-month by 1.4% in January and then they fell by just 0.3% in February. The help on inflation reduction that's been coming from oil prices appears to be diminishing substantially for Germany. Meanwhile, inflation diffusion while showing some deceleration is not showing very impressive results.

  • Sweden's GDP, fell at a 2% annual rate in Q4 2022 with private consumption falling at a 1.5% annual rate and public consumption rising by nearly a percentage point at an annual rate. Capital formation has become suddenly very weak, falling at a 3.8% annual rate. Exports are expanding at a 1.8% annual rate; imports are falling at a 3.6% annual rate, undoubtedly reflection of the weak private sector demand and the decline in capital formation. Domestic demand in Sweden falls at a 9.8% annual rate in the fourth quarter adding to a 2.3% annual rate decline in the third quarter. Both of these followed a super-sized 12.5% annual rate gain in Q2 2022.

    Sweden’s year-over-year trends show that the robust gains in domestic demand that held through the second quarter of 2022 have come under pressure and given way to a year-over-year decline by the fourth quarter. This is also reflected in a weakening of imports that were running double-digit growth rates until the fourth quarter when the pace slowed to 4.2%. Reflecting conditions abroad, Sweden's exports also have slowed, but not as dramatically as imports. They have backed off from growth rates of 8.5% to 6.5% to a 5.3% annual rate in the fourth quarter. Capital formation growth rates are about half of what they were and in preceding quarters on a year-over-year basis. Public consumption has been slowing. It had been relatively strong through the fourth quarter of 2021 but in 2022 it slowed quite dramatically and it's growing only 0.3% year-over-year in the fourth quarter. At the same time private consumption has slowed sharply from growth rates of 5% to 9% to year-over-year growth of just 0.2% in the third quarter and -2% in the fourth quarter. All of these swings in GDP components translate into a GDP number overall that is faltering. It had seen growth since the third quarter of 2021 fluctuate between growth rates of 4% to 6%; then it suddenly slipped in the third quarter to a 2.5% growth rate and in the fourth quarter to a decline of 0.1%. Clearly Sweden is struggling in terms of GDP growth although the recent monthly tally is looking better.

    Sweden's monthly GDP estimate shows a gain of 2% monthly in January reversing what was a 0.7% fall in December. Exports and household consumption added to the positive momentum from government production. The January gain brought the year-over-year gain to 3.6% following what was a 1.5% drop in the previous month on the same basis.

    The monthly gaining GDP was boosted by a rise in industrial production; it showed a 4.4% gain in January over its year-ago level, much stronger than the 0.3% rise seen in December. In January manufacturing output rose by 2.2% month-to-month led by investment output which rose 8% followed by intermediate output that rose by 4%. Consumer nondurables output, however, fell very sharply by 13.1% on the month.

  • Industrial production in Germany rose by 3.5% month-over-month, but it continued to decline year-over-year as it remains lower than its January 2022 level by 1.2%. However, over six months IP is growing at a 2.5% pace and over three months it is advancing at a 5.4% pace. German industrial output is accelerating and climbing out of a year-over-year hole.

    Despite the clear, strong, acceleration in overall industrial output and in manufacturing alone, the three sectors consumer goods, capital goods and intermediate goods fail to produce one sector with output that is sequentially accelerating, like the headline.

    Month-to-month, while overall industrial output was up sharply, output fell for consumer goods and capital goods; however, intermediate goods output grew by a sharp 6.9% month-to-month.

    Construction sector output also rose strongly in January after a nearly equally strong drop in November. Sequential growth rates for construction are mixed.

    Real sales rose by 0.2% in January and came close to showing sequential acceleration. Certainly demand is showing a strong recovery in progress.

    The current ZEW assessment of Germany’s industrial sector has a deep negative value. However, ranking each of the industrial gauges produces rank standing below the 30th percentile for the ZEW current index, the IFO manufacturing gauge and IFO manufacturing expectations. The EU Commission index has a stronger standing at its 71.8 percentile.

    Elsewhere the year-on-year growth rates show only the capital goods sector with a standing above its 50% percentile on data back 2000. The construction sector has sub-50-percentile standing as do real sales. Standings below the 50% mark are standings below their respective medians. In contrast, German real manufacturing order growth is strong.

    For reference, two other early reporting European countries Portugal (an EMU member) and Norway, experienced very different recent trends and percentile standings.

    The financial column shows changes in the various metrics either their index levels for IP gauges or index levels for surveys in January 2023 to performance in January 2020. Output is broadly lower than it was in January 2020, putting the industrial performance of the last three years in perspective.