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Japan's first quarter GDP beat expectations, rising 1.6% at an annual rate when a gain of less than one-half of 1% had been expected. However, the gain in the fourth quarter was revised to a slight decline taking some of the surprise value away from the first quarter reading.
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The annualized quarterly gain of 1.6% was the strongest growth since the second quarter of 2022 when GDP rose 4.7%. That second quarter growth rate is flanked by declines in the third quarter and in the first quarter just before it.
Introducing
Robert Brusca
in:Our Authors
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
Japan| May 17 2023Japan's GDP Beats Expectations Even as Net Exports Are Weak
Global| May 16 2023Zew Macroeconomic Expectations Turn Lower
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Economic expectations in Germany turned lower in May, with an up-minus-down net diffusion reading falling to -10.7 from +4.1 in April. The reading for the United States weakened as well to a reading of -29.6 in May from -23.3 in April. The deterioration in expectations comes, as inflation continues to linger high with central banks raising rates.
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Current economic conditions are mixed in May. For the Euro-Area there was an improvement to -27.5 in May from -30.2 in April. Germany, however, shows deterioration to -34.8 from -32.5 in April. The US also shows deterioration, as its net reading swings from a + 4.1 net in April to a -3.4 diffusion marker in May.
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Europe| May 15 2023EMU IP Falls Sharply in March
Industrial production in New York in monetary union fell by 4.1% in March after increasing in January and in February. Manufacturing output fell by 5.9% after two months of increases. During this three-month stretch the monitoring and manufacturing purchasing managers index weakened in each of the three months.
Sequential trends Looking at broader sequential changes, industrial production in the European Monetary Union fell by 2.1% over 12-months, fell at a 7.9% annual rate over 6-months, and fell at an 8.3% annual rate over 3-months. For manufacturing, output falls 1.7% over 12-months, at a 10.4% annual rate over 6-months, and at a 14.4% annual rate over 3-months. Both the overall and manufacturing definitions of industrial output in the monetary union are declining; output declining on all three horizons and it's declining at an accelerating pace both overall and in manufacturing.
By sector in March The results in March show an increase in output for consumer durables, a decline in output for consumer nondurables, a decline for intermediate goods output and a very sharp decline of 15.4% for capital goods output. For consumer goods output overall there is a decline of 0.9%. in March
Sectors sequentially Viewed sequentially, consumer goods output is decelerating, dropping from a 5.9% rise over 12-months, to a 0.8% annual rate decline over 6-months, to a 3% annual rate decline over 3-months. Intermediate goods show some spunk after declining by 4.9% over 12-months and accelerating that decline to a 5.8% annual rate over 6-months, intermediate goods output rises at a 2.9% annual rate over 3-months. Capital goods show a disastrous profile with output falling by 5.7% over 12-months falling at a 24.6% annual rate over 6-months and then imploding at a -44.3% annual rate over 3-months.
QTD (A completed first quarter) Quarter-to-date tracking for March gives us a completed profile for the first quarter. Total output is falling at a 0.6% annual rate in the quarter; manufacturing output is falling at a 2.9% annual rate. Consumer goods overall shows output falling at a 4.6% annual rate, intermediate goods output falls at a 0.9% annual rate, and capital goods output falls at a 14.1% annual rate. Intermediate and capital goods output both are below the levels of output that had prevailed in January 2020 before the COVID emergency struck.
Country details For the European Monetary Union, nine of the thirteen countries listed in the table log declines in March. Three other countries report output early, the UK, Sweden, and Norway: two of them, mark month-to-month declines in March with the UK being the exception posting an increase. This is a sharp turnaround from February when only three EMU countries showed declines and with the three other European countries showing output increases. In January nine EMU countries showed output declines while the three other European countries showed output increases. This has generally been a period of declining output in terms of breadth and in terms of overall weighted European output. The median for European Monetary Union countries shows an output decline in March as well, in January, with an increase in the median logged in between in February.
Sequentially six monetary union members show output declines over 3-months, seven of them show declines over 6-months and seven of them show declines over 12-months – a consistent proportion hovering around half of them.
Among European Monetary Union members 54% show growth rate improvement over 3-months, nearly 54% show growth improvement over 6-months as well, and 45% show growth rate improvement over 12-months. Quite apart from whether the underlying growth is negative or positive, there is some improvement in train for growth rates moving from 12-months to 6-months to 3-months for Monetary Union Members. Even so, these calculations are not adjusted for size, and we can see that overall the Monetary Union is still experiencing substantial output declines.
EMU-summing up The bottom line for the EMU is that the sectors are showing a great deal of weakness with a particularly intense weakness in the capital goods sector, which is not unusual with economic weakness encroaching. Firms worried about recession may have decided that it's not the best time to engage in capital expansion. In March the breadth of weakness is quite widespread although the breadth of weakness has not substantially encroached on growth rates measured from 12-months to 6-months, to 3-months - at least not on a broad basis across members. Although overall those growth rates (output-weighted in the EMU total) do sequentially deteriorate. Industrial output in the first quarter is weak, showing declines for the European Monetary Union as a whole and showing declines in 6 of the 13 reporting members in the table. Inflation continues to run quite hot in the Monetary Union. The ECB continues to raise rates and the outlook continues to be impeded by the ongoing war between Ukraine and Russia.
France| May 12 2023French Inflation Is Unrelenting
French inflation continues to be unrelenting and hot. The HICP measure of inflation rose by 0.6% in April. France’s domestic CPI measure rose by 0.6%, but its gain excluding energy is 0.5% in April. These continue to be very hot monthly readings.
France’s HICP inflation rate is high and it's accelerating. Over 12 months the pace is 6.9%, over 6 months it holds at 6.9%, and over 3 months it jumps up to an 8.4% annual rate.
France’s domestic CPI rises by 6% over 12 months, it steps up to a 6.3% pace over 6 months and runs at an annual rate of 7.9% over 3 months. The domestic CPI excluding energy gains 5.8% over 12 months, runs at a 6.1% annual rate over 6 months and jumps up to an 8.4% annual rate over 3 months. French inflation is not just high and stuck; it's high and accelerating.
France is not showing any sign of inflation progress even though the ECB continues to hike rates. And the whole of the European Monetary Union headline inflation has peaked and fallen off, but France is not following this pattern; France is now more or less the same pattern as the United Kingdom where inflation has gone up and refuses to come down. France’s ex-energy inflation rate continues to accelerate.
Inflation in April may have gotten some boost from oil prices where Brent measured in euros rose 6.4%. But that's after two months of declining oil prices. In fact, Brent oil prices are lower over three months, 6 months, and 12 months although the rate of change over those horizons is sequentially diminishing.
Besides being hot and accelerating, French inflation also remains quite broad. The diffusion calculation shows that over three months inflation is accelerating across 72.7% of the major categories compared to its pace of six-months ago. Over 6 months, it's accelerating in 63.6% of the categories compared to its pace over 12 months. Over 12 months the diffusion gauge drops below 50% indicating that inflation is not accelerating in most categories compared to the pace of 12-months previously; the 12-month diffusion metric is at 45.5% just below the neutral 50% mark
Japan| May 11 2023Japan’s Economy Watchers Index rises; Expectations Improve
Japan's economy watchers index improved in April to 54.6 from 53.3 in March. March had improved to 53.3 from 52.0. The index has been increasing steadily over 12 months. It is higher by 5.1 points over 12 months, by 3.8 points over 6 months and by 6.1 points over 3 months. A lot of improvement has come in the last few months.
In April, all the diffusion readings in the economy watchers current index are above 50, indicating expansion for the category, with two exceptions: housing and manufacturers. Housing has a 46.1 diffusion reading and has been below 50 for several months running. The manufacturing index has been vacillating, but the April value of 49.6 shows only a very slight contraction in progress in manufacturing.
To evaluate these diffusion indexes by seeing where they stand relative to historic data, refer to the queue standing column at the far-right hand portion of the table. Among the ten entries under the current index, six have queue percentile standing in the top 10% of values since April 2002. All readings stand above the 50th percentile signaling that all are above their historic medians for this period. Among the headline and the nine components, the headline and seven components show increases on all horizons: over 12 months, over 6 months and over 3 months.
The future readings for the economy watchers index also show steady increases with the 55.7 diffusion index in April, better than its 54.1 diffusion reading in March which exceeds the 50.8 reading for February. The future headline also shows gains over all three horizons: over 3 months, over 6 months and over 12 months. Like the current index, all the percentile queue standings for the future index are above the 50th percentile mark - all categories are above their historic medians. In addition, the headline and six components have standings in their top ten percentile.
The raw diffusion readings for April in the future index show only housing below 50 in its diffusion value. And like with the current index, housing has a string of sub-50 diffusion readings. However, its queue standing remains above its 50th percentile on data back to 2002.
Not only is the current assessment quite upbeat but so is the outlook assessment from the future index.
Europe| May 10 2023Industrial Output in EMU/Europe Remains Distressed
Industrial output in Europe continues to be challenged in March. The median percentage change for the early reporting European Monetary Union members shows a drop of 1.1% following a gain of 1% in February and a drop of 1.7% in January. There are still net declines over three months, over six months, and over 12 months for the median, based on the grouping of countries in the table.
Of the 14 European economies listed in the table, 11 of them show month-to-month declines in industrial production in March. That is very substantial breadth. The countries showing increases in March are Luxembourg, Spain, and Finland. Among the rest of the countries, industrial production declines show small drops only in Norway and Italy where IP sheds just of 0.4% month-to-month; all the rest of the declines are month-to-month declines of one full percentage point or more (nine in all).
The median calculation shows a steady pace of decline over three months, six months, and 12 months at annual rates. The decline over 12 months is 1.2%; the decline over three and six months, in both cases, is at -1.3%. Over three months, six of the 12 European monetary union economies are showing declines in industrial production; eight of them show declines over six months and seven show declines over 12 months. The breadth underlines that output trends remain consistent across each of these spans.
For the quarter-to-date, which is for the first quarter, since March data complete the quarterly results, a decline in the median of -0.4% is indicated. There are declines in six of the reporting European Monetary Union economies in the first quarter (QTD).
The manufacturing PMI for the entire European Monetary Union shows month-to-month declines in March and February although it shows a net rise over three months juxtaposed against net declines over six months and 12 months.
France| May 09 2023French Trade Deficit Shrinks
The French trade deficit contracted to 9.95bln euros in March from 11.37bln euros in February.
French exports show more resilience than imports, but they have a complicated trend in play. Exports rise by 9.5% over 12 months, fall at a 6.5% annual rate over 6 months and edge up at a 0.7% annual rate over 3 months. This semi-weakening profile is still considerably stronger than for imports.
Import trends are simply decelerating progressively. Imports fall by 2.4% over 12 months. They fall at a faster, 29.4% annual rate over 6 months, and then they fall at an even faster 36.7% annualized rate over 3 months. The import picture in France is much more worrisome than for exports, but there also are special issues there.
As for components, exports show a consistent but not uniform pattern of the various flows advancing over 12 months, contracting over 6 months then rebounding over 3 months. The ‘other’ category is the exception to this set of trends.
Imports show a consistent withering trend overall that is echoed by two of the three components as ‘food’ and the ‘other’ categories show steady deceleration. Transportation equipment imports decelerate sharply from 12-months to 6-months then reduce their rate of contraction over 3 months. The sector is still weakening but not at progressively faster rates of change.
Germany| May 08 2023German IP Drops Sharply in March; Trend Is Unclear and Muddied by Component Trends As Well
German industrial production fell by 3.4% in March driven lower largely by a 4.4% decline in capital goods along with a 3.5% decline in the output of intermediate goods. Consumer goods output backtracked by 0.1% in March.
Sequential growth paths The sequential growth rates for output in Germany paint a mixed picture with 12-month growth at 1.6%, 6-month performance showing a decline of 0.4%, at an annual rate, and 3-month growth surging at a 9.5% annual rate, despite the sharp drop in March. The 3-month period is largely bolstered by substantial increases in January and February when output rose by 3.7% in January and 2.1% in February. As a result, the March drop is a partial backtracking from that strength.
Sector trends in German output However, the components of German industrial production do not paint a particularly strong picture with a good deal of weakness portrayed over 6 months and 12 months, largely offset by some strength over 3 months; the exception is capital goods that reverses those patterns. Capital goods output is strong over 12 months and 6 months then falls at a 4.8% annual rate over 3 months. Intermediate goods have the opposite pattern, with output falling over 6 months and 12 months then rising at a 21.2% annual rate over 3 months. Consumer goods output declines over 6 months and 12 months, then makes a marginal increase at a 1.6% annual rate over 3 months. As a result of these scattered trends, the true trend for production overall in Germany is simply too turbulent to nail down.
Construction gains momentum In the construction sector, output fell by 3.1% in March after sharp gains in February and January. Construction does show acceleration and progress with 12-month rate at -2.7%, 6-month growth at 4.3% annualized, and 3-month growth at a stunning 39.8% annual rate.
Real sales and order trends Real manufacturing orders, however, show sequential weakness with a sharp drop of 10.7 March and with 12-month growth at -11%, 6-month growth at -13.2% annualized, and 3-month growth at -22.5% annualized. Real manufacturers’ sales also are challenged. Real sales in manufacturing point lower with growth of 3.8% over 12 months, a 3.7% annual rate decline over 6 months, and a sharper 8% annual rate drop over 3 months. Real sales in manufacturing also fell in March by 2.9%.
Other industrial indicators Other industrial indicators for Germany also create a mixed picture.
ZEW: The index from ZEW remains negative and it weakened in March compared to February. Its sequential readings show deterioration. The 6-month average deteriorates from the 12-month average, but then an improvement occurs over three months compared to six months.
IFO: The IFO manufacturing index shows some tendency to increase with the 6-month and 12-month readings nearly identical and some improvement over 3 months; the monthly sequence from January to February to March, strengthens steadily. The IFO manufacturing expectations reading strengthens steadily from 12-months to 6-months to 3-months and strengthens from January to February to March. The IFO is the most upbeat reading for German manufacturing in the table.
EU Commission Indexes: The EU Commission industrial survey for Germany contrarily shows sequential weakening from 12-months to 6-months to 3-months and that signal is further reinforced by monthly sequential weakness from January to February to March.
The industrial indicators, as a group, paint a mixed picture of German manufacturing.
Other European IP reporters Other early reporters of industrial production data in Europe include France, Spain, Portugal, and Norway. France reports sequentially weakening output. Spain reports sequentially strengthening output. Portugal reports somewhat mixed trends but shows output declining on balance over all three horizons. Norway shows declines in output that worsen slightly over 6 months compared to 12 months; it still logs a gain over 3 months in the face of a small decline posted in March and no change at all in February.
Canada| May 05 2023North American Jobs Trends Continue Strong
Jobs in Canada rose by 41,400 in April, an acceleration from the approximately 35,000 gain made back in March. This compares to a gain of 21,800 in February and it shows acceleration in overall employment growth on that timeline. On a broader timeline that looks at average gains over 12 months, versus six-months and versus three months, we find gains accelerate over 6-months compared to 12-months, then decelerate over three-months compared to 6-months.
Looking at month-to-month changes, job growth across sectors, and major groupings, accelerates from February to March and from March to April. And although job growth overall does not accelerate on a broader timeline, job diffusion shows that the breadth of accelerations improved from 12-months to 6-months, to 3-months. That means it accelerated in an increasing proportion of categories.
Canada, much like the U.S., with an inflation problem, and a central bank that is hiking rates, has a resilient labor market.
The Canadian unemployment rate at 5% in April is unchanged for five months in a row and that unemployment rate is tied for the seventh lowest unemployment rate on data back to 1990. Canada’s unemployment rate hit is low on this timeline of 4.9% in June and July of 2022. On this timeline, the Canadian unemployment rate has been this low or lower only 1.5% of the time.
Jobs in Canada accelerate steadily only in the transportation sector looking at changes over 12-months to six-months to three-months. However, there are slowing job gains sequentially for the goods sector, in construction, and for professional and technical workers.
While job market aggregates in Canada remain strong, there clearly is also some evidence of softening as we certainly would expect given the inflation overshoot and the actions by the Bank of Canada to try to rein inflation back in.
Canada's labor force participation rate at 65.6% in April is unchanged from March and only slightly lower than it was in February 2023. The overall rate continues to cruise slightly below its pre-COVID pace when the participation rate was as high as 66.1%.
Global| May 04 2023Service Sectors Support Global Composite PMI Firmness
The average unweighted composite PMI readings from S&P Global for April show another monthly increase as the average ticks up to 51.5 from 50.5. The median moved up to 53.8 in April from 52.8 in March.
Small, if against the grain, changes The movement in the various series are small; however, what is striking is that they are movements against the grain at a time that inflation is high and central banks are still raising interest rates – and have been doing so for some time. Just yesterday, the Federal Reserve hiked interest rates and today the ECB put in another rate hike on top of its rate profile. In both cases, inflation is still well above their targets and only now is the U.S. short-term interest rate starting to be on an even-keel or slightly higher than the major inflation indexes used to gauge inflation in the U.S.
Resilience or bad analytics? The perception that economies have been resilient in the face of rate hiking is a perception that comes largely from the fact that rate hikes have gone on for such a long time. In the case of the U.S., it's a record increase of interest rates in this rate hike cycle. While, on the face of it, that sounds impressive, the fact of the matter is simply that the U.S. had allowed itself to get so far behind the inflation rate when it rose, that it has taken a record run of rate increases to get the federal funds rate marginally above the trailing 12-month rate of inflation… on a few measures. And the ECB is not there yet. So, people who like to look at rate increases and gnash their teeth over how the market is performing, and growth has endured, have been somewhere between surprised and disturbed at economic resilience. But, if you're the kind of person who looks at the levels of real interest rates relative to inflation, then you have understood what's been going on and why there's nothing particularly remarkable about this. Even so, it's surprising that as central banks, the Fed in particular, have taken away stimulus - even though rates haven't really gotten to a restrictive mark - growth has held up as well as it has.
A unique paradigm It is difficult to compare these times to any other times because the world's economies are so much on the same cycle because of COVID having struck. COVID struck all countries that about the same time and from that point countries have had slightly different experiences with their economic recoveries, but all of them are recovering from the same sort of shock not so much from the disease but from the policies that were pursued to try to contain the disease.
So… how good is growth? To assess the global PMI data, please shift over to the right-hand column; it shows very moderate queue percentile standings. The average standing is at the 63rd percentile with the median at a 69th percentile standing. Percentile standings place the current observation for each economic unit in the queue of data from January 2019 to date. The queue percentile expresses the position of the current observation in that queue of data. On this metric, the median for the period occurs at a ranking of 50%. So, these rankings this month are ‘firm’ rankings of 63% in standing, 13 percentage points above the median which means that 13% of the observations lie between the median and the current value. It also means that the highest value lies some 37% above the current value. In contrast, the range percentiles position the current observation between the highest and lowest values of the period expressing the current reading as a percentile of the high-low range.
Momentum Momentum is also telling, and we see a big difference between what's happening in the last few months and the broader trends. In the current month of April, there are only five out of twenty-five jurisdictions that show slowing; this compares to nine in March and five in February. In April, there are only four jurisdictions with PMI values below 50 (where PMI diffusion values say activity is contracting); there were only six in March and only six in February. Looking at averages over three months, we get similar sorts of statistics with five jurisdictions below 50 and five jurisdictions that are slowing. But over six months, eight of the twenty-five jurisdictions are below 50 and fourteen of twenty-five are slowing. Over 12 months compared to 12-months ago, there are seventeen jurisdictions that are slowing and six with PMI values below 50.
Europe| May 03 2023Unemployment Rate in EMU to Fresh Record Low in April
The unemployment rate in the European Monetary Union had reached a new low at 6.5% in March, down from 6.6% in January and February. On data back to the year 2000, Germany and France both have new low levels of unemployment. All the members of the monetary union listed in the table with the exception of Luxembourg report unemployment rates that are below their historic medians. Luxembourg is above its median by a small amount with a rank percentile standing at its 52.9 percentile; it's median occurs at its 50th percentile.
Among the twelve countries that report in the table, only two show about employment rates that are not below the 30th percentile in ranking; Luxembourg and Spain whose standing is at its 31.7 percentile. Portugal is close at the 29.4 percentile, Austria is at the 25.6 percentile with Greece at a 24.8 percentile standing.
There also are rank percentile standings below their 16th percentile – seven of them. Unemployment rates continue to broadly fall in the European Monetary Union despite high inflation and despite ongoing rate hikes by the European Central Bank. There are other central banks in Europe hiking rates as well as a substantial array of hikes is being executed in the United States – hikes from the U.S. continued at the Fed’s meeting today.
Rate declines in EMU Among the 12 reporting EMU countries, all but four have unemployment rate declines over three months; two of them, the Netherlands and Luxembourg, have no change in their unemployment rates over three-months. Over 6 months all but three countries have declines in their unemployment rates and over 12 months all but five countries have declines in their unemployment rates among the twelve European Monetary Union countries listed in the table.
In comparison, the United States has a decline in the unemployment rate in March. On the same timeline, it has an unemployment rate that is in the bottom 2% of all unemployment rates since 2000. The U.S. employment rate is unchanged over three months and six months, but it's lower by one-tenth of one percentage point over 12 months.
The unemployment rate profile that we see in Europe is surprising in part because inflation rates in Europe remain so high - although the rate hikes in the United States have been more extreme than in Europe and the U.S. unemployment rate has remained low, unemployment rates in Europe surprise in the wake of ECB policy as well. In the European Monetary Union, the unemployment rate has fallen by 3-tenths of a percentage point over 12 months, more than it's fallen in the U.S.
Global| May 02 2023Manufacturing PMIs Show Some Improvement But Amid Clear Ongoing Weakness
Month-to-month manufacturing PMI changes were mixed in April with increases in eight of 18 observations (two unchanged by assumption because of missing data). Except for the U.S., the largest economies generally worsened in the month (Euro Area, Germany, France, the U.K, and China).
The progression to better (or less bad) conditions is clearer looking at three-month changes. The three-month averages of the manufacturing PMIs show weakening compared to 6-months in only 5 of 18 categories. Over six months things shift again, and PMIs are better in only 6 of 18 categories. Over 12 months, this trend continues as only 5 of 18 are better.
These metrics underscore that the current progression to ‘better’ (...or not as bad) is relatively recent and that the concept of ‘better’ applies just to comparisons over very recent months since over 6 months and 12-month conditions broadly are worsening.
That is hardly surprising… When we turn to engage with the column on rank or queue standings of the level of diffusion readings, weakness is the overpowering result. The median standing is a 24-percentile standing; that places the median for the group in the bottom 25 percentile of all observations since January 2019 – that is an extremely weak median.
One version of this month’s data is that there is some sort of revival going on… another version is that… “Well, yes, things are better, but not by much.” I am much more in the second camp than in the first camp. Still, it is notable that central banks have been hiking rates and inflation remains far too strong in most countries/regions and yet there has been some improvement in economic activity. Even if it is a minor effect, it is contrary to expectations and for that reason still notable.
The median manufacturing PMI value for each of the last three months as well as each of the three sequential periods referred to above, the PMI medians all are below 50 – indicating that contraction is most common.
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