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

Italy| May 29 2025
Italian Confidence Rises/Stabilizes in May
Italian consumer and business confidence both rose in May. Consumer confidence rose sharply following a sharp drop in April; the main confidence level brings it back up above the level for March. Business confidence has been relatively stable; after a slight slouch in April, business confidence is back up and it too is slightly above its level for March. However, consumer confidence in Italy continues to be relatively firm relative to European standards. While consumer confidence in Germany is extremely low, Italy’s consumer confidence has a 70.7 percentile standing on data back to January 2006; Italian business confidence is much weaker with a 23.7 percentile standing. Italian consumers are feeling solidly but moderately confident while Italian businesses appear to be experiencing a great deal of anxiety. However, for Italian businesses while the level of anxiety may be high, a reading of 86.5 for confidence in May is the same as its average over the last 12 months.

The Past 12 Months Consumer confidence in Italy finds an improvement in the overall situation over the last 12 months, with a reading of -69 in May compared to -80 in April. Price trends over the last 12 months have a reading of 20.5 compared to 16 one month ago, showing that inflation pressures have increased. The household financial situation over the last 12 months was only slightly stronger than what it had been in April and continued at its 12-month average. On balance, the standing for these three readings over the last 12 months is between their 61st and 77th percentiles in terms of rankings; that means all of them are above their historic medians and moderately firm.

Currently The current situation finds household savings slightly better off in May compared to April, and the environment for making major purchases also improves to a reading of 33 compared to 31.5 in April. The major purchase reading is slightly above its 12-month average while the savings reading is slightly below. The ranking for the savings metric is in its lower 21-percentile while the ranking for the major purchase response is in its 66.8 percentile, a moderately positive and stable reading.

The Outlook Turning to the outlook for the next 12-months, the overall situation assessment improved to a -20 reading from -26 in April, putting it back at the same level it had in March and leaving it below its 12-month average as well as at a low rank-standing at its 10th percentile. That’s a far cry from what it had been over the past 12 months. Price trend eased after spiking a month ago and are below their March reading but above their 12-month average and with an 87.1 percentile standing. Inflation concerns clearly linger. Unemployment expectations in May are back to their 12-month average and nearly at their historic median on a ranking of 49.1%. Carrying the confidence readings higher, the household budget and planned purchase responses both rose in May and are above their respective 12-month averages with a budget ranking at its 97.4 percentile and a planned-purchase ranking at its 94.8 percentile. These are very strong reading components in the outlook measure.

The future savings reading stepped lower in May and is below its 12-month average, but it has a queue percentile standing in its 80.6 percentile and remains strong despite some monthly erosion.
by:Robert Brusca
|in:Economy in Brief
Germany| May 28 2025
German Confidence for June Shows Continuing Small Uptick
Germany has some degree of improvement and revival underway that has lasted for three months running on its headline GfK index. The degree of improvement monthly has been small, and the pace of improvement is slow. Economic expectations have improved for four months running, marking more improvement than for the GfK headline (GfK components lag the headline by one month). Income expectations have improved for three months running, marking some steady moderate-sized improvements. The propensity to buy has also logged a couple of monthly improvements but its recent observation for May shows a step back to -6.4 from -4.9 in April, ending its short winning streak.

Percentile standings The levels of these monthly variables show a weak headline with a standing in its 12.9 percentile historically, on data back to 2002. The component rankings fare better, with the economic expectations response above its historic median at a standing in its 65.1 percentile. Income expectations are rising and closing in on their own median (median of ranked data occurs at a ranking of 50%) with a standing in its 46.8 percentile. However, the propensity to buy index continues to lag with a standing at the one-third of queue mark, at its 33.1 percentile.

Other countries The table also presents data for consumer confidence for Italy, France, and the United Kingdom; the former two are fellow members of the Economic Union, and members of the EMU (U.K. is a former EU member). These reading lag, more like the components of the GfK survey. For Italy, the lag is larger, at two months. Italian confidence shows ongoing erosion with the current reading at a rank standing of 59.8 percent, above its historic median on the same timeline as for GfK in Germany. The French confidence reading shows signs of recent slippage and presents a monthly value with a standing at its 37.9 percentile. Italy, France, and the U.K. all reached recent local lows around August 2022 and have since mounted more or less synchronous rebounds. During this period, the Italian rebound was stronger. But the rebounding has largely ended and now the consumer indexes in Italy, Frane, and the U.K. are rolling over giving into weakness. And this is at a time that the Germany survey generally is strengthening – albeit mildly.
by:Robert Brusca
|in:Economy in Brief
Europe| May 27 2025
EU Indexes Small Rebound in May; Still Weak
Since mid-2023 there has been little change in the level of the EU indexes for the largest EMU economies. There has been slightly more fading for Germany, but then it has showed some revival over the past six months bringing it back into line. There is no clear evidence in these surveys that the U.S. tariff policy is having a major effect. But there is some inferential evidence from the drop in overall EMU consumer confidence although the results are still erratic across reporting countries. The economic situation for the next 12 months in the consumer survey is weaker since early-2025 and unemployment expectations have also risen. There is no discernible impact on consumers’ plans to make a new major purchase in the survey.

Overall sentiment and sector readings Eight of eighteen reporting countries in the EMU have step-backs in their sentiment assessments in May. That compares to eleven stepping back in April and ten in March.

The overall EMU sentiment gauge improves in May to 94.8 from 93.8 in April, but it is still below the March level of 95.1. For all of the EMU, the industrial sector improves in May, along with consumer confidence and retailing sentiment. Construction and services readings were unchanged month-to-month.

Rankings by sector show only retailing and construction above their historic medians on data since 1990. The overall reading as well as the industrial reading, consumer confidence, and services all have rankings below their respective 30th percentiles. Consumer confidence is weakest among the sectors attaining only its 18.6 percentile, but at a standing in its 22.4 percentile, services are not far behind.

There is no evidence of a hammer blow from the tariffs or of any revival since the tariff threat was launched then lessened. We look for some stimulus from the added need for Europe to carry more of its own defense burden. There is a directive to Europe from the U.S. to take care of more of its own NATO defense. So far, only the German industrial sector shows any sign of improving.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| May 23 2025
UK Sentiment Improves in May-Remains Weak
Economic readings continue to ebb and flow as is common. In May, the UK GfK consumer sentiment index has improved to -20 from -23. However, at -20 it's still weaker than it was in March when its value was -19. The 12-month average for GfK sentiment in the UK is -18 leaving today's -20 reading from May still weaker on balance than it's been over the past year. All of this sort of ‘to and fro’ makes it a little bit more difficult to pin down what's happening. However, the chart on the GfK reading shows that the downtrend in consumer sentiment is still in place and with readings that continue to hover around -18 to -20 - good signals still are not being emitted and the trend has not been righted.

The GfK barometer has a 29-percentile ranking data back to 1996. So, this is a bottom 30% standing for the consumer sentiment rating for GfK.

Other economic readings continue to go back and forth just today the German GDP reading was up relatively sharply as US tariffs are being cited for stimulating German activity in the near term as firms tried to export goods before the tariff in the US went into effect. We had previously seen some improvement in the European manufacturing (PMI) indices that we speculated was due to that same sort of lead and lag, behavior surrounding the expected imposition of tariffs. For the UK itself, retail sales have been stronger than expected largely because of better weather. Yes, better sales but not on any fundamental improvement.

Economic readings are always back and forth, and readings are never gospel making it difficult to the central banks to discern trends and even to set policy if they are in a data-dependent mode. But that is nothing new. It may be a bit more of a problem now when so much uncertainty seems to hang in the air with the war in Ukraine unable to be stopped, the US pushing more defense responsibility onto Europe, and the US also brandishing tariffs to try to remake the world in a way it feels will be more fair and friendly for it. Of course, one man’s ‘friendly’ is often another man’s ‘unfriendly.’

The sentiment reading in the UK features strong readings for households’ current financial situation and savings environment…but the current economic situation is only at the 30% mark and, looking ahead, it has a modest 18-percerntile rank. By income groups upper income individual’s sentiment has a 75-percentile standing compared to an abysmal 3.8 percentile standing by lower income individuals.

Inflation over the next 12-months continues to have a high standing at an 86-percentile mark while unemployment prospects (that have diminished very recently) are at a 75-perntiel standing (higher only 25% of the time) and despite recent improvement on this score the unemployment response is still 9 survey points higher over the last 12-months.

The slight improvement in the GFK survey this month is even less than its monthly standard deviation for change. It is a rise, but not significant. The UK economy continues to face a difficult situation with sentiment, seeming to remain under pressure.
by:Robert Brusca
|in:Economy in Brief
Global| May 22 2025
S&P Global PMIs Show Little Change in May
S&P flash PMI readings for this selected group of early reporting eight countries continues to show relatively mixed performance across the eight countries in the table. Trends, however, suggest a phenomenon that is largely unexpected because it shows some strengthening in manufacturing against weakening in services. During this period, when US tariffs have been threatened (and counter tariffs mooted as well) - and only recently imposed. We might have expected manufacturing to be doing worse and for the services sector to be relatively steadier. It may simply be too soon for this trend to play out, or, it may be that manufacturing, in fact, has ramped up slightly in the months just before tariffs took effect as manufacturers tried to slip goods across customs portals before the tariff walls went up. In any event, the tariff walls that were threatened were not the ones that went up, and the more modest tariffs were put up in the United States except those imposed against China but even there the tariffs that eventually were set in place for the interim, we're lower than the ones that had initially been threatened.

Data show that on year to year changes, there's been a broad strengthening that has occurred across this 8 country area with 24 sector observations recorded- that is 3 sectors (manufacturing services and a composite) for each country across eight countries. In this mix, there are only 5 sector readings that are weaker on a year over year comparison. However, over six-months compared to 12-months and over three-months compared to six-months the weakening dominates with 13 of 24 sectors showing weakening over six-months, and with 14 of 24 weakening over three-months.

The monthly data that are more volatile showed that there is more weakening in March than there was in February by a large factor, as 18 sectors weakened compared to six improving. But, after March, both April and May showed only 11 sectors weakening month-to-month with 13 improving. The monthly data, however, tend to hop around and the current monthly data are still available on only a flash basis and are subject to change.

More fundamentally we can evaluate these sectors by the queue standings of their flash readings. In May this entails ranking the sectors back to January of 2021. On this basis eight of the 24 sectors show standings above their 50th percentile, putting them above their medians for the period. Only 1/3 of the sectors are performing at a better than median level on comparison with data back to 2021, a period that has not been a period of any particular strength. The current median value for the queue standings for the overall (or the comprehensive) index is in and its 40th percentile. That compares to a 52-percentile standing for the manufacturing median and a 35-percentile standing for the services median. So, manufacturing is doing relatively better (relative to its median) and services are doing relatively worse they may have generally since 2021. On this group of countries, the manufacturing PMI has averaged 51.7 on the period compared to services averaging a slightly stronger 52.7. The comprehensive average has been 52.4. These are relatively low performance results for the full period.

This period of course includes the tail end of the COVID period, plus the recovery from COVID and then it includes the period when the Ukraine invasion by Russia began and its ongoing aftermath. And now, in early 2025, it's going to start including the period where the flirtation with tariffs began. We will be on the outlook to see how the tariff negotiations progress and how the imposition of whatever tariffs arise out of this works out. For now, the concerns are that the uncertainty over what will happen with tariffs is going to be adversely affecting activity, and, of course, there are geopolitical shifts, among them Europe becoming more responsible for its own defense which should push more economic activity generally into the European theater.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| May 21 2025
UK Inflation Rises
UK inflation is rising. Whereas weakening oil prices seem to be containing inflation everywhere else, particularly in the European Monetary Union, but also to some extent in the United States, we see in the United Kingdom that headline inflation is on an uptrend, core inflation is on an uptrend, too, not quite as discernible as this, but it's nonetheless on its own uptrend.

Headline inflation for the UK CPI-H measure rose by 0.6% in April after 0.2% in March and in February. The CPI-H version of core excluding food, energy, alcohol, and tobacco rose by 0.4% in April after rising 0.3% in March and 0.2% in February.

Sequential inflation rates show the CPI-H up 4% over 12 months, up at 4.7% pace over 6-months and up 3.9% at an annual rate over 3-months. All of these rates are excessive compared to the Bank of England's 2% target. A year ago, the headline was running at 3.1% year-over-year; conditions have worsened since then even in the face of what have been lower and falling global energy prices.

The sequential trend for the CPI-H core measure shows a gain of 4.3% over 12-months, a 4.6% annual rate rise over 6-months and a 4% annual rate gain over 3-months. The only clear pattern we have from these various periods is that in all of them the inflation rate is excessive; and one year-ago the core year-over-year pace was 4.4%. So, conditions appear as though they may have improved marginally since then, but again I would emphasize that I'm only saying that it appears so, and that the improvement is marginal.

Diffusion calculations show the breadth of acceleration period to period and demonstrate that inflation acceleration has become less common than it was a year ago when headline inflation was up 3.1%. The diffusion of inflation was only 9.1% then, that tells us that the overall inflation rate was 3.1% and that prices were not generally accelerating across most categories only in 9% of them. However, this year the diffusion gauge for the headline that has inflation up to 4% is at 54.5% and then the gauge over 6-months with the inflation rate is 4.7% has diffusion also at 54.5%. And both of those horizons’ inflation is accelerating slightly more than it's decelerating since the diffusion measures are above the neutral value of 50. However, over 3-months when the inflation rate settles down a bit to 3.9% the diffusion measure is only 36.4%, indicating that the breadth of inflation has narrowed and that there is now more deflation than there is inflation over 3-months. That comes from comparing the inflation rates when 3-month inflation was 3.9% to 6-months when it was 4.7%. The slightly improved diffusion gauge is therefore not surprising; however, it's also encouraging that it suggests that the slower inflation rate has more breadth to it and isn't just the result of one or two rogue categories that may have tipped the balance.

At the bottom of the table as a reference we have the unemployment rate as well as the UK claimant rate of unemployment and on these measures we you can see that the economy has been weakening slightly The year ago unemployment rate was 4%, the claimant rate was 4.1% over the last 12-months it moved up to 4.3% with the claimant rate still at 4.1% over 3-months. The unemployment rate is up to 4.4% compared to 4.5%; the claimant rate shows the unemployment rate has been creeping up although there's nothing draconian in train. This is not a happy report for the Bank of England. Inflation is still not under control and while the breadth of inflation may have been cut over three months all of the inflation data suggest that inflation is stubborn and that it has been stubborn and that there's a slightly accelerating trend that is still underway. This is an unfriendly report.
by:Robert Brusca
|in:Economy in Brief
Germany| May 20 2025
German PPI Shows Inflation Dichotomy - Excluding Energy Is Misbehaving
Headline German inflation has logged another stellar number showing prices down 0.7% in April after falling 0.7% in March and dropping by 0.2% in February. German inflation over three-months is falling at a 6.4% annual rate, over six-months it is falling at a 2.6% annual rate, and year-over-year it is falling by 0.9%. That progression shows clear discipline for German headline inflation and, in fact, raises the specter that inflation might be too weak with year-over-year inflation falling -1% at an annual rate, however, that's only part of the story

Polar opposite trends for the headline vs ex-energy In April the PPI excluding energy rose by 0.3%, it rose by 0.2% in March, and by 0.2% in February. The same progression for the PPI X-energy shows inflation running at 2.7% annual rate over three-months at a 1.9% annual rate over six-months now to a 1.7% annual rate year-over-year. This means, of course, instead of decelerating with prices receding, inflation is accelerating and rising. These are not just slightly different takes on inflation, these are polar opposite events, calling for polar opposite concerns, and polar opposite policies.

The role of oil When we wrote about CPI results earlier, we pointed out the same phenomenon was in place with headline CPI inflation very well behaved and core inflation not doing quite as well (see the CPI data in the table above). However, with the PPI this dichotomy is even clearer and it comes with the same source of divergence, the fact that Brent oil prices have been falling sharply the table shows Brent oil prices (adjusted into Euro terms) falling in April and March and in February and further shows the euro cost of Brent oil prices prices falling at a 60% annual rate over three months, following the 25% annualized drop over six-months, and the the 28% annual rate over 12-months. Oil prices are the engine that is making the inflation performance look good. However, beyond energy, the forces of inflation are still firm, still percolating, and in PPI terms, while they are at an acceptable year-over-year pace, they are beginning to accelerate as the three-month pace for inflation at 2.7% is too high.

Inflation by sector Inflation statistics by category shows consumer goods (NSA) inflation at 3% over 12 months, 4.5% over 6-months and at a 4.8% annual rate over three-months - excessive and accelerating. For investment goods inflation runs at 2% year-over-year up at a 2.8% pace over 6-months and then at a 2.4% pace over 3-months not exactly accelerating but both three- and six-month inflation rates rise above the preferred 2% year-over-year pace. Intermediate goods show inflation at 0.3% over 12-months, rising to 1% at an annual rate over 6-months and at a 3.5% annual rate over three-months.

The table includes the CPI as a reference point and there we see that the CPI sequentially is running at a fairly steady 2.1% to 2.3% annual rate. The ex-energy inflation rate is higher although still relatively flat in the 2.6 to 2.8% range- roughly one-half of one percentage point hotter than the headline.

Q2 Inflation Starts the quarter mixed Inflation in the second quarter, a quarter that data-wise is just beginning, shows the headline PPI falling 6.1% at an annual rate with the PPI ex-energy rising 3.1% at an annual rate sector readings show consumer goods, investment goods, and intermediate goods inflation runs between slightly- to substantially-excessive early in the second quarter. The German CPI and CPI ex-energy readings are running slightly hot even though on this time horizon Brent-euro-based oil prices are falling at nearly 50% annual rate.

Wrap on inflation: a dichotomy, but not a real problem A German PPI is not disturbingly strong but once again it's slightly strong and only the headline is really behaving and that's under the influence of some extraordinarily supportive news from oil prices. The headline, in fact, looks worrisome in the other direction because of the ongoing oil price collapse. On balance inflation in Germany appears to be still somewhat stubborn. Germany continues to be buffeted by the forces of war and the uncertainty over US tariff policy as well as the prospect of its own recently inherited burden to take care of its own defense expenditures, something that is likely to underpin growth in Germany and possibly to stoke more inflation pressures. These factors continue to be the main forces to keep an eye on in Germany. For its part, the ECB has warned that the future may be shaping up with different risks.
by:Robert Brusca
|in:Economy in Brief
Europe| May 19 2025
EMU Core Inflation is Mostly Stable and Mostly Too High
European Monetary Union inflation rose by 0.1% in April but the core is rising by 0.3%. The headline rate rose by 0.2% in February and was flat in March; the core has slightly accelerated in April from its 0.1% gain in February and its 0.2% rise in March.

The progressive headline inflation sequence shows inflation stable to accelerating with a 2.2% annual rate over 12-months, a slight uptick to 2.3% annual rate over 6-months and then down to a pace of 1.4% over 3-months. The EMU core shows a steadier deceleration with a 2.7% rise over 12-months, a 2.5% annual rate gain over six-months, and a 2.3% annual rate gain over three-months.

In April the largest monetary union economies show that monthly inflation has been well-behaved with no change in Germany, a 0.1% increase in Spain, and a 0.1% decline in Italy; all of that is juxtaposed against the 0.4% rise in France but France's increase comes after several months of the headline inflation declining. France is not really an outlier in this process.

Looking at sequential inflation rates across the largest monetary union economies, Germany shows inflation decelerating with the 1.9% annual rate over 12-months and six-months then showing prices declining 0.6% at an annual rate over three-months. France shows inflation at 0.9% over 12-months down to a 0.5% at an annual rate rise over six-months and with prices falling at a 1.4% annual rate over three-months. Italian inflation, contrarily, is accelerating from 2% over 12-months to 3% over six-months to an annual rate of 3.3% over three-months. Italian inflation expands 2.1% over 12-months, rising to a 3% pace over six-months, then with shows prices falling at a 0.8% annual rate over three-months. These are unclear trends, however, for three of the four largest economies, prices are falling over three-months on balance. However, that kind of optimism doesn't carry through to core inflation. Clearly, the driving good-inflation news is falling Brent oil prices. Brent prices, expressed in euros, fell 10.7% in April after falling 7% in March and falling 4.3% in February. Over the sequential periods we have Brent oil prices down 27.7% over 12-months falling at a 25% annual rate over six-months and falling at a 60% annual rate over three-months. It's no surprise whatsoever that headline inflation in the monetary union is behaving in the face of such oil price weakness.

Core inflation in the monetary union tells a very different story. For Germany we have inflation excluding energy prices; on that basis data show some deceleration but from 2.8% over 12-months to 2.6% over 6-months and then a slight back up to 2.7% at an annual rate over three-months. French core inflation is stuck but it appears to be stuck below the 2% mark with a 1.5% gain over 12-months, a gain of 1.8% at an annual rate over six-months and a gain at 1.6% get an annual rate over three-months. In Italy inflation is up 2.1% over 12-months, up at a 2.2% annual rate over six-months and up at a 2.7% annual rate over three-months. Core Spanish inflation is cruising just above the ECB's desired mark at a 2.3% annual rate over 12-months, at 2.1% annual rate gain over six-months and a 2.3% annual rate gain over three-months.

More Progress to come! The inflation news for the monetary union is not particularly bad, it just simply hasn't conformed to its target yet. A year ago, year-over-year inflation was 2.2%. That's the same as year-over-year inflation now, in April of 2025. A year-ago core inflation for the monetary union was up at a 2.7% annual rate over 12-months, and now, in April, it's rising at the same 2.7% annual rate. Still, for all of 2025 inflation is expected to be only slightly above the 2% mark, reaching its target pace by mid-year. Annual 2.1% inflation is expected for all of 2025; it then is predicted to dip below 2% in the next two years. Clearly what happens with the United States tariff negotiations will have a big impact on these estimates.
by:Robert Brusca
|in:Economy in Brief
Europe| May 15 2025
EMU IP Rises Solidly in March …As PMI Gauges Indicate Contraction
Strong gains in IP - Industrial production in the European Monetary Union rose by 2.6% in March with manufacturing output up by 2.5% I'll put a manufacturing rose across all of the main manufacturing sectors led by a 3.2% month to month gain in capital goods output with intermediate goods output at 0.6%, the weakest sector increase.

**Accelerating trends **- Output on the monetary union is also accelerating but the headline series up at a 20% annual rate over three months stepped up from a 9.6% annual rate increase over six months and from a 3.9% increase over 12 months the acceleration and manufacturing it's quite similar to the crowd profile on the headline series capital goods output accelerates from 12 months to six months to three months as doesn't media code output consumer goods output rises by 13.5% / 12 months still matches the double digit gain over six months at 11.1% but then also grows in only 8.2% in an annual rate over three months we'll lose our strong and solid growth rates they reflect a deceleration

Survey vs accounting data - very different stories: There's another interesting nugget in this report… I summarize, using text descriptions, the behavior of the PMI gauges for EMU. Comparing the recent three-months of data as well as readings over the three sequential periods, what we see is that, while output in the monetary union is rising and rising strongly and accelerating over this time profile in IP data, the S&P PMIs for manufacturing in the monetary union are below 50 in each of the sequential time periods as well as each of the recent months – that is quite a disconnect. We look at these PMI gauges largely because they are the earliest data that we have on economic statistics. But here we have an example of how the accounting data that reflect output numbers that are counted up by national statistics bureaus compare to privately generated survey data that are inferential. We find that the two series give us very different results. The PMI data are useful and can often be early warning signs of things changing direction, however, for the Euro-Area it's clear that the PMI data have been unduly pessimistic over the last year. Meanwhile, in the US, the point is being made that the survey style data < sometimes called ‘soft data’> have been much weaker. Perhaps this is a warning that you should be aware you're placing too much emphasis on those data.

Quarter-to-Date: Output to date in the current quarter is also strong but the headline series is up at a 9% annual rate. Manufacturing is up at an 8.3% annual rate and the only consumer durable goods are showing a decline in output in the quarter. Rankings of year-over-year growth rates on data back to mid-2007 show the current year-over-year growth rate rankings above their respective 50th percentiles, which means they're above their historic medians for this period. This is true for all the EMU-wide characteristics except capital goods.

Some output declines linger, but they do not dominate - Country level data for 13 monetary union members focus on the manufacturing sectors and show 5 manufacturing sectors with output declining in March, in February, and in January, out of 13 reporting countries that is not extreme but is significant. Looking at the 3-month, 6-month, and 12-month periods, output contracts on those horizons and only for three to four of the reporting countries. Among the four largest monetary union members only Italy shows output declines sequentially and those declines are for 12-months and 6-months as Italy posts a strong, 7.2% annual rate increase, over 3-months.

Only three monetary union countries show quarter-to-date declines; these data are now complete data for the quarter. Countries with declining output QTD are Spain, Malta, and Greece.

However, all is not completely well in the monetary union… when we rank IP growth rates on data back to June 2007, the three largest monetary union economies show growth rates that rank below their historic medians. Only Spain, among the largest economies, has a growth rate that ranks above its historic median and that's by a narrow margin with a ranking of 51.4%.

On balance it's a good manufacturing report for Europe in March. This report shows manufacturing sector to be in solid shape despite all of the concerns and drum beat of weak readings form the PMIs. These data, of course, draw from the period before tariffs were mooted, implemented, and then reduced, so there still may be a bumpy road ahead for industrial output. But we can see that, as of March, conditions are fairly strong for output in Europe, which will continue to be underpinned by the fact that Europe will be spending more to provide for its own defenses from here on out. The tariff impact, whatever it is or isn’t, lies ahead.
by:Robert Brusca
|in:Economy in Brief
Germany| May 14 2025
German Inflation Affirmed as Stable
Measured on the HICP headline scale, German inflation has reached the promised land. Sequentially Germany’s HICP measure is up 1.9% over 12-months up at a 1.9% annual rate over six-months and much weaker at a -0.6% annual rate over three-months. A year ago, the pace of the HICP was 2.6% so this slide of German inflation into its overall target zone for European Monetary Union-wide inflation rate has been slow and relatively consistent.

The German domestic inflation measure isn't quite as well behaved and shows more signs of simply being stable skimming just above that hallowed 2% mark. A year ago, German domestic inflation ran at a 2.2% annual rate, currently, year-over-year it's at 2.1%, the six-month pace is at 2.3%, the same as the three-month pace, which is 2.3%. None of these are deal-breakers for monetary policy since German inflation has been within a couple of ticks of the desired path even on this domestic scale now for over a year, tracking the target that the ECB seeks for the monetary union as a whole.

However, a good deal of inflation progress continues to reside in the behavior of oil prices Brent oil prices are down for three-months in a row and they've certainly helped to contribute to good performance on the overall and domestic inflation measures. Germany's domestic CPI excluding energy was up 2.6% a year ago, currently it's up by 2.8% over 12-months it's up at a 2.6% annual rate over six-months, and at a 2.7% annual rate over three-months. Once energy is excluded, Germany's domestic inflation measure is steady, much like its headline measure, however it's skimming somewhere between half a percent and eight-tenths of a percentage point above the 2% target that the ECB sets for the European Monetary Union as a whole.

The point of saying it that way, talking about German inflation compared to the target for the monetary union as a whole, is to remind everyone that there is no target for inflation in Germany there's only a target for the monetary union as a complete entity. But Germany is the largest economy in the monetary union; what Germany does goes a long way toward putting the overall European measure in its proper place. Currently Brent inflation is down 27.7% over 12 months, it's falling at a 25.4% annual rate over six-months, and dropping at a 60.3% annual rate over three-months. These sharp declines in energy prices certainly go a long way toward making the headline inflation pace for Germany as well as for EMU behave.

The HICP measure doesn't give us up-to-date energy readings yet so we cannot calculate comparable statistics for the monetary union as a whole. However, the German data are quite suggestive that if we were to do that, we would find a similar outcome, that the HICP headline appears to be well behaved but that the core would probably appear to be a little more stubborn. Regardless of that fact, the question is where the ECB would come down with its discretion. And recently central banks have been quite tolerant about inflation-overshooting. However, that worm may have turned.

A new future…unfolds or unravels Economies now face different challenges. Europe is going to be in charge of more of its own military defense and that's going to require more spending; that will create more stimulus and possibly generate more inflation pressures. In addition, there is this tariff imbroglio that could resolve either with a closer-to-free-trade result with tariffs being reduced, or a worse-result with more tariffs being imposed. A world with more tariffs or higher tariffs would be a world that was likely to be flirting with inflation a little bit more, at least over the next year or so. The ECB might still continue to be tolerant of that. However, a lot about these economic circumstances remains unknown. There's a lot of uncertainty about the performance of the US economy that can help to set the stage for how the global economy is going to perform. So, the future still offers the potential for more economic drag from a high tariff world or lower inflation performance from a lower tariff world and it's still hard to judge which of these worlds we're going to be in over the next 12- to 24-months. And now, German headline inflation is behaving quite well although the core reminds us that Germany may be farther away from its goal than the headline makes it appear, like that famous rearview mirror image in the movie Jurassic Park. Looking at things through mirrors can distort them. And at this point I don't think policymakers know exactly how to look at the future whether they know the rearview mirror from the windshield or the future from the present. There's a great deal of uncertainty, a great deal of disagreement and very little trust. Stirred together, it's not a good combination for policymakers. Double, double toil and...trouble? We shall see.
by:Robert Brusca
|in:Economy in Brief
Global| May 13 2025
ZEW Experts Shift Forecasts Less Pessimistic on Europe
Forecasting is an ordinary part of economic analysis. And to a large extent, it gets taken for granted as we realize different people are making different forecasts and that there always are differences. We come to accept that, and we realize that there may be some economists who are more optimistic and some who are more pessimistic, some who favor growth more, some who fear inflation more. There are almost always some sorts of biases involved when people make forecasts simply because it's very hard to eliminate bias completely no matter how hard an economist tries to be objective. At the very least, economists usually feel somewhat bound by the previous forecast that they made in order to provide some stability in the guidance that they present.

The ZEW Forecasts In this month’s ZEW survey, there is an example of this with what I consider to be somewhat quizzical forecasts being offered by the ZEW financial experts, who are largely European experts, at a time that the United States is threatening tariffs. Now this, of course, makes the U.S. the aggressor in this campaign and according to the ZEW experts the U.S. is going to suffer from this more than European economies. However, the U.S. is much less trade-dependent than Europe and certainly far less dependent than Germany which is one of the most trade-dependent large, advanced economies in the world. We measure trade dependency by looking at exports plus imports as a percentage of GDP. By this measure, trade-dependency is around 90% to 95% of for Germany; U.S. dependency is around 30% to 35%. The ZEW experts see the tariff situation making the U.S. economy much worse off than the European or the German economy- why?

Tariff impact To put this in perspective, in the U.S., high tariffs, if they are binding, will cause imported goods to be more expensive. U.S. firms and consumers will have the choice of deciding whether they want to pay the higher costs to consume those items or to replace them in consumption or their production process. In the case of consumers, it's probably easier because a consumer can switch from an expensive French champagne to a less expensive but still quite good California sparkling wine or Chardonnay- or pay the higher price and enjoy French champaign! However, if U.S. consumers shift, that is going to leave France with a lot of unsold champagne and they need to sell it someplace else and that's a problem since the U.S. is a huge high-income market; that’s the reason that it's sought after by so many countries who export to the United States. U.S. consumers may choose to be satisfied with a different product. In this example the French, or it could be the Germans, or anyone whose exports are distained because of higher prices, might find that they have goods piling up in the shelves that they are not selling. This could cause an unemployment problem that could really snowball- a more severe problem than drinking Chardonnay instead of French champaign!

The U.S. side On the U.S. side, if people continue to buy these goods, the U.S. will have more inflation that may cause the Fed to stop cutting rates. The Fed might even raise rates, and this could slow the economy down. However, as we know, tariffs are one-time increase in the price level and it's only if the Fed runs ‘bad monetary policy’ that the price bump caused by the tariffs would become inflation… inflation is a persisting increase in prices.

The new ZEW in May In this new survey, we see the economic situation in May improving relatively substantially in the euro area, as well as worsening slightly in the U.S. and in Germany. We see macroeconomic expectations sharply higher in Germany in May and while they also improve substantially in the U.S., the U.S. is left with economic expectations that are weaker less than 5% of the time, while German macroeconomic expectations are above their historic median (above a ranking of 50%).

Got inflation? Inflation expectations are falling in the euro area in May and in Germany and, while they edged slightly lower in the U.S., they rank very high - higher only 8% of the time in the U.S. Whereas inflation expectations are lower only about 20% of the time in the euro area and in Germany. What's interesting, is that we see a big decline in inflation expectations in the euro area and in Germany despite the fact that growth conditions either improve or hardly unchanged and macro-expectations for Germany get sharply higher and yet inflation is improving. This has to be viewed as a curiosity.

Interest rates Short-term rate expectations in the euro area are more negative than they are in the U.S. with both the euro area and the U.S. having low rank standings for short-term interest rate expectations. Long-term rate expectations in Germany and the U.S. show a decline both in Germany and in the U.S., but the German rank-standing is at its 15th percentile and the U.S. standings in its 36th percentile. That, at least, matches with the inflation expectations outlook.

Through all this, stock markets are improving in May compared to April. The European stock market and the German market are doing better than they are than the U.S. on a queue standing basis. And the dollar is expected to get weaker.
by:Robert Brusca
|in:Economy in Brief
Global| May 06 2025
Global Composite PMIs Erode
Not many respondents are showing absolute slowing. Only five this month. Only six over the last three months on average. The median total PMI score fell to 49.7 showing contraction in April from 51.1 in March. The average fared slightly better. The 12-months to 6-months to 3-months show a moderate but consistent slowing. The breadth of slowing is wide with 60.9% of survey respondents slowing over three months compared to six months.

The percentile standings show the most strength for the BRIC group with reading above 50% (that marks the median). All other groupings have standings below the 50% mark indicating that they are below their respective medians of the last four-plus years.

Over every horizon from 12-months to 6-months to 3-months, more than 50% of the respondents show a weakening (slowing) in their PMI responses.

Among the largest economies, only Italy has a composite PMI standing above its median (above 50%).

Only 9 of 24 respondents have PMI ranked percentile standings above the 50% mark. That underlines the weakness in composite conditions and the breadth of the weakness.

Services sectors no longer are providing the lift to offset ongoing weakness in manufacturing. The differences among countries are narrowing.

Economic conditions across countries may be narrowing for several reasons, one being that the COVID period and then the shock reaction to Russia's invasion from Ukraine put all countries on the same timeline as central banks have been leaning against the shockwaves from those 2 events. As a result of those events, inflation flared but has more recently been falling. Still, inflation continues to be over the top of targets with the European Monetary Union right now making the most progress and Japan facing more late cycle weakness with excessive inflation than other countries in the mix. More recently aggressive tariff policy the United States has put all countries on their back foot and puts everyone on notice that the future has become a lot more uncertain. Central banks that were progressing toward rate cuts now are worried about the possibility of more inflation from tariffs or from the possibility of recession from tariffs - tariffs up the ante on uncertainty as well as on risk. What we see in this month's PMI statistics is a gradual continued erosion as the perceived risk here is that things get steadily but slowly worse as firms, investors, and consumers began to pull in their horns and prepare for something bad to happen not knowing what that might be.
by:Robert Brusca
|in:Economy in Brief