Introducing

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

Europe| Jul 18 2024
Passenger Car Registrations Are Still Dead-in-the-Water
The chart of new passenger car registrations provides the best overview of the performance auto registrations and registrations in Europe through June of this year. Based on the numbers, there is a gain of 7.1% month-to-month in June, but there is also a decline of 10.8% in May and that follows an increase of 11.8% in April. The path of passenger car registrations is basically well sketched out by the head movement of a bobble-head doll attached to the dashboard of a ‘57 Chevy driving over a cobblestone street. And the chart is clear that there has been a lot of up and down in registrations, but the trend has been still very flat amid all the choppiness.

Cyclical behavior Vehicle registrations had begun a peaking action before COVID struck, but then the COVID episode took registrations down very sharply. They rebounded quickly and sharply post-COVID, but that didn't last very long. Russia's invasion of Ukraine took its toll on the outlook and on sentiment. As a result, another downtrend took place. That bottomed early in 2022 and there was a rebound; that rebound had pretty much run its course by mid-2023; from that point forward, we have simply been looking at this very volatile sideways performance with monthly registrations going back and forth, up and down but creating no trend.

Year-on-year growth clashes with volatility Still, over 12 months total European registrations were up by 3.1%. If we calculate that from a three-month moving average just to try to stabilize the calculation, it moves up slightly to 4.2%. The year-over-year comparison shows increases in registrations in each of the five countries detailed on the table. Registrations are strongest year-over-year in Italy where they rise 15.2%; they rise by 5.7% in Germany and by 5.1% in France. Registrations rise by a lesser amount in Spain and the U.K. as Spanish registrations are up by 2% over 12 months and U.K. registrations are up by 2.4%. Here note that the three strongest year-on-year gains are France, Italy, and Germany that had year-ago results that fell month-to-month or were only a tick higher by 0.1%. Spain and Italy, in contrast log month-on-month changes a year ago that rose 3% to 4%. So volatility haunts even the year-over-year calculations.

Even Broader calculations The big broad calculation that looks at the percent change of the most recent 12-month average against the previous nonoverlapping 12-month average shows European registrations up by 7.4% while registrations among the five countries detailed on the table show an 11.2% gain in the U.K., a 9.7% gain in Italy, a 10.7% gain in France, and a 7.7% gain in Spain; Germany puts in the weakest performance having registrations up by just 4.7%.

Performance since COVID For the sake of perspective, I also calculate the percent change in registrations compared to January 2020 before COVID struck. On that basis, European total registrations are lower by 12.7%. U.K. registrations are lower by 18%, Spanish registrations are lower by 10.7%, Italian registrations are lower by 5%, and French registrations are lower by 4.4%. Registrations in Germany are lowered by just 1.8%. Registrations in Germany have retained their level better than any other countries in the group.
by:Robert Brusca
|in:Economy in Brief
Europe| Jul 17 2024
Core HICP Shows Building Upward Pressure
Headline inflation in the euro area appears to be disciplined as it rose by 0.1% in June after rising 0.2% in May. Headline inflation is up 2.5% over 12 months, up to a 2.9% annual rate over six months but then simmers back down to a 1.8% annual rate over three months. There's some volatility there, but the three-month inflation rate is reassuring. However, is that what the ECB is really looking at?

Rotten in the core? The core inflation rate is an entirely different animal in June. It rose by 0.4% in June, it rose by 0.3% in May, and it rose by 0.4% in April. None of these month-to-month increases is acceptable. Looking at the performance of the core rate sequentially, the core is up by 2.9% over 12 months, it's up at a 3.2% annual rate over six months, and then it accelerates further to a 4.1% pace over three months. Each of these profile rates, taken on its own, is too-high; but the sequence taken together is even more disturbing because it shows that core inflation is too high and accelerating, from just short of 3% to just over 4% as the venue shifts from a 12-month calculation to a three-month calculation.

Inflation in the large economies of the EMU and in the U.K. The four largest economies in the monetary union show headline inflation is generally not behaving. Germany, France, and Italy each show that inflation is increasing over three months compared to six months; while in two of those cases the six-month inflation rate fell compared to the 12-month inflation rate, the three-month inflation rate in each of these countries is higher than its 12-month counterpart. The three-month inflation rate in Germany runs at 5.4% compounded, in France at 3.5%, and an Italy at 3%. Among the largest four economies, the only one with inflation behaving is Spain where the 12-month inflation rate is 3.6%; then it drops to 2.9% over six months and logs a three-month pace of inflation at 1.7%. This is another disturbing sequence of numbers for the ECB. By comparison, nonmember U.K. shows headline inflation low and decelerating.

Core inflation is slightly excessive Core inflation shows inflation has accelerated in France and Italy relative to its 12-month pace. For France, the three-month core inflation rate is at 2.6%, up from 1.9% over 12 months; in Italy, the core is at a 2.8% pace over three months, up from 2.1% over 12 months. Spain shows inflation behaving at 2.1% over three months compared to 3% over 12 months. Germany shows ex-energy inflation behaving at 2.1% over three months, compared to 2.6% over 12 months. Nonmember U.K. shows a core inflation pace up to 3.6% over three months after a six-month lull and a 3.5% pace over 12 months.

Role and goal of the ECB Of course, the ECB targets inflation for the entire European Monetary Union (EMU) and is not particularly interested in the inflation performance in any specific country compared to the performance of the union. However, since we have country specific information, just as it's interesting to look at that inflation as at inflation across commodity categories. When we do this, we find that inflation is either not well behaved in its headline or not behaved in its core form. So the details are not confirming that overall inflation is behaving the way it ought to. And, as noted above, when we look at the headline, inflation appears to be behaving, but when we look at the EMU-wide core rate, which excludes the volatile food and energy components, we see a very different picture. The core is accelerating and running at a 4.1% annual rate over three months, approximately twice the target that the ECB has for inflation.

So where do the ECB policy trade-offs stand? These calculations raise question marks about whether the ECB is really close to cutting interest rates in this cycle or not. There's been a lot of talk about cutting interest rates; there's a lot of talk from the U.S. about cutting interest rates as well. We include the U.K. inflation rates in this table and U.K. core inflation appears to be stuck, stubborn, and possibly even accelerating. Having central banks that want to engage in a policy in which they cut interest rates, puts policy in a dangerous spot. They need to know cuts are fully supported by the underlying inflation dynamics. Neither the U.K. nor the ECB seem to be on very solid footing on that score. In the case of the U.S., inflation is beginning to trend in that direction but it hasn't firmly established the trend for the headline and core especially not for CPI as well as PCE rates. Of course, when we switch our gears to talk about the Federal Reserve, the targeted inflation rate is the PCE and not the CPI. Fed Chair Powell in the U.S. has recently referred to this and confirmed that the Fed's target is the PCE; however, he has also noted the unusual decoupling of the PCE rate from the CPI rate. Were the Fed to cut interest rates at a time that the PCE is behaving and the CPI is not, there's a good chance that could create some blowback in the markets. Whether we look at the U.S. or Europe, we see a good deal of policy dissonance.
by:Robert Brusca
|in:Economy in Brief
Europe| Jul 16 2024
EMU Trade Trends Reveal Export Weakness
EMU trade trends show a decline in both exports and imports in May; exports fall harder than imports. Exports decline in May, but log a small increase over six months; they are generally contracting or weak on all horizons. Contrarily, imports fall over 12 months, then step up to grow by 2.3% over six months and even faster growing at a 7.2% annual rate over three months.

We can divide export trends into manufactured goods vs. nonmanufactured goods. Manufacturing exports fall over three months, six months, and 12 months. The declines are in a rough range of -1.5% to -2.5%, annualized. Exports of nonmanufactured goods grow over all horizons but are also slowing steadily from 9.9% over 12 months to 4.6% at an annual rate over three months.

On the import side of the ledger, manufacturing imports are gaining pace and accelerating. Growth logs -8.1% over 12 months, then registers at a -1.8% annual rate over six months before imports break out to grow at a 5.5% annual rate over three months. Imports of nonmanufactured goods have generally stepped up from a 1.8% growth rate over 12 months to a 12.9% pace over six months then stepping back to a still-strong 11% annual rate over three months.

Export and import data for the EMU is for the region’s trade with areas outside of the EMU. All intra-community trade is netted out. The strength in imports suggests that some recovery may be afoot in the community with both imports of manufactured and nonmanufactured goods improving. Exports, on the other hand, show that the EMU export markets may still be quite weak since manufacturing exports are widely contracting and exports of nonmanufactured goods are slowing. Both hint at demand weakness.

Select data for a few European economies show German exports and imports both declining and both decelerating. France shows a tendency for imports to slide as its exports gain footing and accelerate. U.K. exports and imports are transitioning from declines over 12 months to increases over three months. Export data show a slippage with growing declines and weakness for Finland and Portugal. In contrast, Belgian exports are gathering strength and accelerating modestly, sequentially.

Trade trends show mixed results with manufacturing data underlining ongoing weakness while manufacturing imports are growing at a stepped-up, strong pace. The EMU trade balance has been relatively steady over 12 months, six months, and three months. The balance on manufactured goods is exceptionally steady at a surplus of €37bln to €39bln. The balance on nonmanufacturing trade has been steady over 12 months, six months and three months at €23bln.
by:Robert Brusca
|in:Economy in Brief
Europe| Jul 15 2024
EMU IP Trends Are Weak Except for Consumer Goods
European IP trends are muted in May as the headline fell by a sharp 0.6% month-to-month after coming up flat in April. Manufacturing output fell by 0.8% month-to-month. Output in May fell in consumer durable industries, for intermediate goods and for capital goods. In seven of thirteen EMU members presented in the table output also fell in May. Month-to-month changes in output, while admittedly are quite volatile, show flip-flopping as 46.2% of table reporters demonstrate accelerating output in May compared to 53.8% in April and 30.8% in March.

EMU output is in the process of a ‘soft acceleration.’ I term it as such because growth rates get progressively larger from 12-months, to 6-months, to 3-months. But all these growth rates are negative. So, the declines are becoming less pronounced. Manufacturing displays the exact same general characteristics.

Sector growth rates sequentially show consumer goods output growing on all horizons and engaged in a steady sequential acceleration. Consumer durables are closer to showing a declining trend on all negative sequential rates of growth. Nondurable consumer output is close to a pure sequential acceleration on very strong growth over three months and positive growth over all three sequential periods. Intermediate goods have no clear trend, but output does decline on all horizons. Capital goods output is also trendless but logs a rise over three months after significant declines logged over six months and 12 months.

The EMU median shows three negative numbers across the 13-reporting members. With acceleration across these members fading from 58.3% over 12 months and 66.7% over six months to 33.3% over three months.

Quarter-to-date (QTD) growth shows a gain for the EMU over all as headline IP is up at a 0.2% pace and manufacturing is up at a 0.7% annual rate. However, across 13 members in the table, eight report QTD declines in manufacturing sector output. However, there are three showing growth QTD that is very strong growth, of 20% or more, and another showing growth of nearly 17% (Belgium).

Output in EMU countries flounder through May. The trends are mild or muted even where they are somewhat positive.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Jul 12 2024
EMU Inflation: Headline Is contained; Core Is the Issue; Services Prices Are Nettlesome
EMU inflation ticked up by 0.1% in June after also rising by 0.1% in May – good stuff! The large countries show May changes ranging from 0.3% to -0.1%. May saw inflation rising in a range of 0% to 0.2% for the Big Four economies. That’s a nice, tight, low range.

Sequential inflation shows headline inflation running at 2.5% over 12 months and at 2.8% over six months, that decelerates to 1.7% over three months, more good news. But across the large economies in the EMU, inflation generally accelerates over three months to a 5.4% pace in Germany, 3.5% in France, and 3.0% in Italy. Only Spain shows a slower 1.7% pace. However, the year-on-year rates are more target-friendly. There, Spain has a high gain at 3.6%, Germany and France have 12-month rates that cluster around 2.5%, and Italy has a gain of 1%.

However, when we look at the core – excluding food & energy or just ex-energy - the results are much less target-friendly. Year-over-year France and Italy are close to target, with France at 1.9% and a 2.1% pace in Italy. German inflation is up at a 2.6% pace ex-energy while the core in Spain has inflation up by 3%. However, the tables are turned over three months where Germany and Spain show inflation as moderate at a 2.1% pace and France and Italy have core inflation up at a 2.6% to 2.8% pace. Still, these numbers are getting closer to the ‘two-percentish’ target the ECB current has.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Jul 11 2024
U.K. Manufacturing: Output Trend Eases
U.K. manufacturing output rose by 0.4% month-to-month in May, reversing the output drop from April. Sequentially output is in a low-growth profile gain at a pace of 0.6% over six months and 12 months. The three-month growth rate registers a negative 4.2% at an annual rate. Quarter-to-date IP is falling at a 4.5% annual rate. Manufacturing output is still 4.2% below its level of January 2020, before COVID struck. That’s four years and output is still lower on balance.

April showers; still few May flowers Sectors show mixed results with consumer durables output lower in May, nondurable goods output higher month-to-month by 1.1%, intermediate goods output higher, and capital goods output lower. It’s a mixed bag in May.

Sequential Growth Rates Sequential growth rates from 12-months to 6-months to 3-months show consistent negative growth rates for consumer durables. They tend toward weaker results but do not progress steadily since there is less weakness over six months than over 12 months. Similarly, consumer nondurable goods output shows consistent growth and tends toward acceleration except for a weakening in growth over six months. Intermediate goods output runs a pattern like that for consumer durables, growth rates that are consistently negative and tending toward more weakness. Capital goods output growth is positive over 12 months and six months, but growth slows over six months and declines over three months, exhibiting clear sequential deterioration.

Key Industries Key industries are mixed as well. Sequentially only food, beverages & tobacco output grows over each horizon. Textile & leather output declines on each horizon. Textile & leather is sequentially deteriorating along with vehicles and essentially utilities where 12-month and 6-month output growth is at nearly the same pace before dropping over three months. Only mining and quarrying has output stronger over three months than over 12 months.
by:Robert Brusca
|in:Economy in Brief
Australia| Jul 09 2024
Australian Business Confidence Runs a Downtrend Despite Uptick
Aussie business confidence Business confidence in Australia rose to 3.6 in June from -2.3 in May. Its rank percentile standing at the 31-percentile mark remained in the lower third of its historic queue of values. The 3-month moving average (MAV) is rising, but the 12-month MAV is falling. Business conditions eroded in the month.

The rank percentile standings (Rank %) for the headline of business conditions has a 31-percentile standing. Apart from prices, the highest percentile standings are for capacity utilization (87.3% standing), exporter sales (54.3 percentile), and exports (49.0 percentile). But prices and costs have standings of 86th percentile, 75th percentile, and 69th percentile.

The final column shows changes among the 13 components of the index are higher for 9 items and lower for 4 items, but this is after more than four years and the strongest gain is 2.4 points for inventories. On the negative side, capital expenditures are lower by 10.1 points, forward orders are lower by 8.9 points, profitability is lower by 2.2 points, and business conditions are lower by 0.4 points.
by:Robert Brusca
|in:Economy in Brief
Japan| Jul 08 2024
Economy Watchers Survey Rebounds in June But Still Reads as Weak
Japan’s economy watchers index current reading moved up to 47.0 in June from 45.7 in May. This move leaves the current index below its April value and continues a string of readings below 50, indicating ongoing contraction in the current index – that string is now at four months.

The future index for the economy watchers similarly rose to 47.9 in June from 46.3 in May and it's still below its April value of 48.5. Once again there's a month-to-month improvement and the continuation of a three-month string of readings below 50, indicating expected contraction in the future by the economy watchers survey.

The current index Still, the month is striking for its degree of improvement. The current headline improved month-to-month in six of nine components. Weakening on the month is the reading for housing that slipped to 45.3 from 46.7 in May; the assessment for corporations slipped to 47.3 in June from 47.9 in May; nonmanufacturers fell to 47.6 in June from a reading of over 50, at 50.1, in May. As a result of these changes, there are no readings in June in the current index above 50, which in the lexicon of diffusion index would reflect an assessment that activity was unchanged. All the sectors and categories assessed in the current index, even though many improved in the month, are still indicating ongoing contraction.

The future index The future index shows six of nine categories improving in June as well. And the futures index shows no sector in June with a reading at or above 50, underscoring that expectations are for continuing contractions in the future. The readings that weaken month-to-month are for housing that slipped to 44.0 in June from 45.7 in May, and for nonmanufacturers that slipped to 48.0 from 48.7 - these two slips match the declines and their current index as well. However, the future index also showed a slip in employment a reading that had been running read above 50, but it slipped to 49.9 in June from 50.3 in May.

Queue standings… We can further try to understand the meaning of the economy watchers index by looking at the queue standings of the diffusion readings for June. The queue standings are presented as percentages, and they reflect the percentile standing of the June economy watcher diffusion readings relative to observations back to January 2002.

Current queue Assessed in that way, the current index has four readings that are above 50% which puts them above their medians for that historic period. The strongest reading is for eating and drinking places, followed by services. However, the headline reading is only at 44.7 percentile and the weakest component is for employment with a 20.6 percentile standing. That tells us that the employment reading has been weaker than its June diffusion value of 46.2 only about 20% of the time, marking this as a significantly weak reading. The employment reading is important. However, for both current and future readings, the household, retail, and nonmanufacturer readings (in that order) are the most important.

Future queue The future index has a slightly weaker standing with its queue reading at a 41.9 percentile position. The future index has only one reading above its median and that's for manufacturers that have a 51.0 percentile standing for June. The weakest percentile standing among the future components is for housing with a 34-percentile standing, but not far off is employment with a 34.8 percentile standing, and services with a 39.1 percentile standing. The future assessments show that a great deal of weakness is still expected according to the economy watchers that were surveyed.
by:Robert Brusca
|in:Economy in Brief
Germany| Jul 05 2024
German IP Falls; Trends Are Weak As Well
German industrial production fell by 2.5% in May, continuing a sawtooth pattern over the last few months. Reductions in headline output, consumer goods output, capital goods output, represent reversals from gains in April; for intermediate goods, the May decline is the second month in a row of output declines.

Trends are clear Sequential trends for German output are poor. The progression in growth rates from 12-months to six-months to three-months isn't always pointing to a steady deterioration, but the case for weakening German growth can be made comparing the three-month growth rates that are weaker to their 12-month growth rates. For the headline, for consumer goods, for capital goods, and for intermediate goods, for construction, all show that tendency. That's also true as construction, as output falls at a 26.8% annual rate over three months compared to a drop of 8% over 12 months. The pattern for manufacturing is illustrative with output down by 7.1% over 12 months, improving slightly to a loss of 5.1% annualized over six months, and then dropping at a 10% annual rate over three months. While the decline in the manufacturing pattern is not clear sequential deterioration, it certainly leans in that direction.

Real orders and sales Real orders for manufactured goods also lean the direction of weakening, with declines of about 8.5% over six months and 12 months that mushroom into a decline of 11.7% at an annual rate over three months. Real sales in manufacturing fall by 6% over 12 months, reduce that pace of drop of 3.3% over six months, and then fall at a stepped-up 8.3% annual rate over three months.

Surveys are mixed but highlight some weakness Surveys of the German economy show secular deterioration from 12-months to six-months to three-months in the ZEW current index. On the EU Commission industrial sector index, there is sequential deterioration as well. Contrarily, the IFO manufacturing index shows sequential improvement and the IFO expected manufacturing index echoes sequential improvement, rising from 86.6 over 12 months, to 88.7 over six months, to 92.7 over three months.

IP elsewhere in Europe Industrial production elsewhere in Europe shows mixed trends with France, Spain, and Portugal logging positive growth rates over three months, six months and 12 months although without any clear patterns for acceleration or deceleration. Norway shows sequential deterioration with output falling at a 1.4% pace over 12 months, at a 3.2% annual decline rate over six months, and at a 6.6% annual decline rate over three months.

Quarter-to-dates (QTD) growth Quarter-to-date growth rates (or changes in survey indexes) show mostly declines. For the traditional gauges of industrial output, output by sector in Germany, as well as for orders and real sales, the exception is an increase in the output of consumer goods in Germany. German surveys, on the other hand, tend to improve in the quarter, except for the EU Commission index. Industrial production in other European economies shows a strong gain in Spain, a gain in France, a decline in Portugal, and a sharp developing decline in Norway where output is falling at a 14.5% annual rate in the quarter-to-date.

Growth rankings are weak The queue standings that rank the annual growth rates or are applied to the levels of the variables for surveys, show all these metrics with rankings below their 50% mark putting them below their historic medians for data ranked over the last 24 years. The exception to this is output in Spain and Portugal; their output, contrarily, has very strong standings at the 98th percentile for Spain and a companion standing for Portugal at its 93rd percentile.

Results since before COVID struck We compare results in May 2024 to levels of performance in January 2020. The final column compares changes in these metrics to their levels as of January 2020 before COVID struck. All metrics show weak readings in May 2024 below January 2020 except for IFO manufacturing expectations and industrial output in Spain. All the other metrics are showing net lower readings compared to their values more than four years ago (ouch!).
by:Robert Brusca
|in:Economy in Brief
USA| Jul 03 2024
PMI Composites Worse on Balance in June
In June, the S&P PMI composites improved in 6 of 25 countries and regional jurisdictions reporting in the table. Fifteen improved month-to-month in May and eleven improved month-to-month in April.

Over three months, 14 jurisdictions improved compared to their six-month averages. Over six months, 18 improved compared to their 12-month averages. Over 12 months, 14 improved compared to their average readings of 12-months ago.

The sequential averages show a significant trend toward improvement. However, monthly comparisons are not as upbeat.

In June, there was a relatively sharp increase in the number of jurisdictions with PMI values showing decline (PMI<50) as the raw count increased to 8 out of 25 from four in each of the two preceding months. The period averages have been showing fewer output declines with the number dropping from 9 over 12 months to 6 over six months and to 5 over three months. PMI readings below 50 had been becoming scarcer.

Average and median PMI reading had been improving with higher diffusion reported over six months compared to 12 months and another improvement over three months for the average but a step back for the median. Monthly there is no trend for the change, but the June readings are weaker than the April readings.

Queue percentile standings classify standings against all past readings expressed as a percentile positioning on data back to 2020. The average queue standing is in its 43.7 percentile while the median standing is at its 42.9 percentile. Only India and Egypt have queue percentile standings in their 80th and 90th percentile ranges. Spain manages a reading in its 70th percentile, Brazil comes close at a 69-percentile standing. But only eight of 25 percentile standings are above the 50% mark, which means above their historic median readings.
by:Robert Brusca
|in:Economy in Brief
Europe| Jul 02 2024
EMU Unemployment Holds at Lows
Unemployment in the EMU in May stayed at its cycle (and all-time) low of 6.4%. There is evidence of small backtracking in Germany, but that is modest backtracking. Trend unemployment is still low and broadly low across the EMU.

In May unemployment rates fell relative to April in Finland, Greece, and in the Netherlands- in each case the rate fell by one tenth of one percentage point. Unemployment rates rose month-to-month in Austria, Belgium, France, Luxembourg, and Portugal. The rate also rose in Europe’s non-EMU/EU member U.K., a rise of 0.2 percentage points.

However, across the 12-representative EMU members in the table, the median rank standing of the unemployment rates is in its 19th percentile, the average is in its 26.9 percentile – both rankings confirming low rates of unemployment. The weighted rate for all of the EMU is much lower because the coincidence of having all these rates at relative lows at the same is so unusual. Only Luxembourg has an unemployment rate that is strong, about its historic median (above a ranking of 50%). The lowest rankings are still below their respective 10 percentiles for Ireland, Italy, and France. In addition, the Netherlands, Germany, and Belgium have rankings below their 20th percentiles. While many measures showing industrial data have not done so well compared to their pre-covid levels, for unemployment rates across countries have unemployment rates below their January 2020 levels except for four countries: Austria, Belgium, Germany, and Finland. Luxembourg’s rate is unchanged.
by:Robert Brusca
|in:Economy in Brief
Japan| Jun 28 2024
Japan’s Production Struggles to Make and Keep Gains
In the graph that accompanies this article, I have chosen to plot industrial production as a level instead of as a growth rate- the latter treatment would be more common. The reason for it, as you can see, is that industrial production has been without a positive trend for some time. The prevailing trend over a longer period (back to 2021 or further depending on how you construct a trend) is clearly negative although the short-term trend shows a very clear revival in progress from early this year.

These complications make growth rates less useful to calculate because production has contrary long-term and short-term trends, and its path is peppered with a good deal of volatility which increases the chance that any growth rate you calculate is not very meaningful.

Having said that, I also included table that calculates growth rates! Seeing the chart and plotting industrial production as a level together allows us to understand what's going on with the growth rates a little bit better.

Industrial production declines over 12 months and over six months but then makes a very strong recovery over three months for both total IP and for manufacturing. Total industrial production is rising at a 19.3% compounded annual rate over three months while manufacturing output rises at a 28.5% annual rate over three months. However, both show that output falls by 0.4% over 12 months, and for the year before that both headline industrial production and manufacturing rose on 12-month growth rates of 2.2% and 5.3%, respectively.

Looking at manufacturing sectors for consumer goods, intermediate goods, and investment goods, we have all three sectors showing output advancing in May, falling in April, and advancing in March. The recent months have been volatile. Looking at growth rates over 12 months, six months and three months, all the sectors have slightly different growth characteristics. Consumer goods output declines over 12 months and six months but grows strongly over three months. Intermediate goods output rises over 12 months, falls over six months, and then rises strongly over three months. Investment goods output declines over 12 months, grows at nearly a 4% pace over six months, and then explodes at a nearly 50% annual rate over three months. The output of investment goods is the only sector that shows persistent acceleration.

Moving out of manufacturing to mining and electric utilities & gas, we find that mining shows declines over 12 months and six months, with a nearly 10% annual rate increase logged over three months. Electricity & gas show that persistent acceleration from minus 0.2% growth over 12 months, to nearly identical ‘zero growth rate’ over six months and to a nearly 10% annual rate of growth over three months.

Despite the turbulence and the inconsistency across different timelines and in comparing timelines across different sectors, the one constant here is that over three months Japan's output is doing quite well no matter what sector you look at. Despite that, it's still true that, for the most part, industry shows increases in March, versus declines in April, topped by increases in May. It isn't exactly like Japan is now on this steady recovering platform; it's just that the data line up this way and because of that it doesn't give us any confidence that even with the strong trend over three months that it's going to have staying power.

Still, in the quarter-to-date the annual rate increase of overall industrial production manufacturing and all the sectors is impressively and consistently large.

However, as the chart at the top reminds us Japan has been in a period of relatively difficult growth. If we look at the level of output now calculating the percent change in output from where it was in January 2020, we are looking at a period slightly in excessive of four-years. And yet overall and manufacturing output both are lower, the output of intermediate goods is lower, consumer goods output is flat, and only investment goods output is up by 3.1% over that four-year span. Mining output is down, and the output of electric and gas utilities is lower on balance as well.
by:Robert Brusca
|in:Economy in Brief