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

Japan| Dec 28 2023
Japan’s Production Contracts in November after a Strong October
Industrial production in Japan fell by 1.3% in November after rising by 2.2% in October. Japan's production profile, however, shows an acceleration is in progress. Over 12 months production falls by 1.2%, over 6 months output is rising at a 3.7% annual rate, and over 3 months it's rising at an even stronger, at a 4.3% annual rate.

Manufacturing: The manufacturing sector echoes the results in the trends of the headline. Manufacturing IP is close to showing acceleration in progress but for a technical shortfall. Manufacturing output falls by 1.3% over 12 months, then it accelerates at a strong 5.6% annual rate, although there's a slight set-back to trend as the 3-month growth rate recedes to 5.2%; the 3-month and 6-month growth rates are nearly identical and much stronger than the year-over-year growth rate. Technically I can't say that this is ongoing acceleration, but it's certainly a strong picture for manufacturing output.

Product Group Performance: Product group results in Japan in November show widespread declines with a decline of 2.2% in consumer goods output, a decline of 0.1% in intermediate goods output, and a decline of 2.2% in investment goods output. All of these are changes, and are, for the most part, reversals, from the output that the sectors reported in October as consumer goods output expanded by over 5%, intermediate goods output expanded by 1.4%, and investment goods output was flat.

Sequential Growth trends by Sector: Checking the sector results for sequential trends and acceleration, we find: • Acceleration in intermediate goods where output falls by 0.9% over 12 months, rises 5% at an annual rate over 6 months, and accelerates to a 5.6% annual rate over 3 months. • Consumer goods show a tendency toward acceleration but do not show a clear unwavering acceleration path. Consumer goods output is up by 1.8% over 12 months; it then recedes, falling at a 4.7% annual rate over 6 months, but it follows that with a surge, growing at a 15.7% annual rate over 3 months. Consumer goods output has a hiccup in between its 12-month and 3-month rates of growth- with that decline over 6 months. • Paradoxically, investment goods are closer to showing ongoing deceleration. Output falls by 5.3% over 12 months, and then falls at a 15.7% annual rate over 6 months. Investment goods trim their loss over 3 months to an 11.4% annual rate of decline, but that's still a decline in double digits. Having double digit declines over 3 months and 6 months definitely is a buzzkill in terms of evaluating trends for Japanese industrial output.

Other Industry: Looking separately at other components of overall industrial production in November, there are increases in mining and in electric and gas utilities output on the order of growth rates of 2 to 2 1/2 percent. In each case, there are reversals of declines in output posted in October. Sequentially, mining output is recovering strongly with output falling 1% over 12 months, rising at a 2.2% annual rate over 6 months, then exploding for a 27.4% annual rate gain over 3 months. Utilities output is more questionable, falling by 0.2% over 12 months, rising over 6 months at only a 0.2% pace, and then falling at a substantial 16.8% annual rate over 3 months. It's hard to understand why electric and gas output falls so strongly over 3 months when other categories of output are all rising solidly or strongly over 3 months; industry clearly needs utilities output to advance. It's very possible that there's some sort of weather effect operating that has retarded the usage of utilities over the last 3 months. It's hard to take utilities out of the context of the report and treat it as something that is authentically weak or worrisome.

Quarter-to-date: In the quarter-to-date, overall output is expanding at a 7.5% annual rate with manufacturing up at 8.2% annual rate. These are data with two-months’ worth of observations in place calculating the two-month average gain over the third quarter base. Sector results for quarter-to-date data show strong gains in consumer goods, as well as intermediate goods and in mining. But there's a significantly strong decline in output in investment goods and an extreme decline in utilities output in the quarter-to-date.
by:Robert Brusca
|in:Economy in Brief
Finland| Dec 27 2023
Finland’s Confidence Continues Its Sinking Cycle
Consumer confidence in Finland fell to -13.3 in December from -12.4 in November. The confidence metric stands in the 2.9 percentile of its historic queue of values. It also stands at its 12-month low, its lowest mark of the year. One year ago, the consumer confidence measure stood at its lowest point on data back to January 2001. While the overall ranking for consumer confidence is improved in 2023 compared to a year-ago, the reading is still low, and momentum is poor.

The assessment of Finland's ‘economy now’ improved slightly to -41.4 in December from -42.5 in November. That's above its 12-month low of -50.3. The progression of averages from 12-month to 6-month to 3-month, doesn't show much ongoing improvement in this metric.

Expectations for Finland's economy in 12 months also improved in December to -16.8 from -19.1 in November. However, the progression of averages from 12-month to 6-month to 3-month does not show improvement in train; it shows deterioration.

Consumer price inflation over the past year improved slightly in December to 4.1 from 4.2 and there has been steady improvement on the inflation front as the year has gone by.

Unemployment in Finland has been steady over the last three months although it deteriorated slightly in December at -31.7 compared to -31.3 in November. The moving averages also show that there has been a gradual deterioration from 12-month to 6-month to 3-month. The personal threat of unemployment ‘now’ shows a sharply weaker number at -14.2 in December compared to -11.5 in November, and the threat of personal employment has been declining as well from 12-month to 6-month to 3-month.

The economic environment shows the favorability of the time to purchase durables deteriorated slightly in December at -25.7 compared to -23.7 in November. The 12-month, to 6-month, to 3-month progression of averages shows a slight ongoing improvement on this metric.

The favorability of time for saving worsened slightly at -13.6 in December compared to -13.4 in November. There has been little movement in this metric, but it has gradually worsened.

The favorability of time for raising a loan balance deteriorated slightly month-to-month and the 12-month, to 6-month, to 3-month sequence shows slight change in this measure.

The household financial situation deteriorated in December, falling to a 16.4 rating from 21.9 in November. The 12-month, to 6-month, to 3-month averages of this metric have been worsening.

Household possibilities to save over the next 12 months were worse in December compared to November. This metric has been sliding from 12-month, to 6-month, to 3-month.

Ranking perspectives The queue percentile rankings show consumer confidence overall at a 2.9 percentile standing, which is quite weak although a slight improvement from what it was a year ago. The economy ‘now’ and the economy in 12 months, both have standings in their 15th to 20th percentiles, up from what they were a year ago, but still clearly quite weak. The assessment of consumer prices shows an improvement in inflation that is down to its 87.7 percentile from its 97.7 percentile one year ago. Unemployment in Finland shows a standing at its 17.8 percentile while the personal threat of unemployment is at its 14.3 percentile; both are sharply lower than what they were a year ago when the standings were in their 40th percentiles, respectively.

The environmental standings showed the favorability of a time to purchase durables has only a 4.7 percentile standing although that's better than it was a year ago. The favorability of time for saving has a 2.2 percentile standing, above what it was a year ago when it was on its all-time low on data back to 2001.

The favorability of the time for raising a loan balance fell to an all-time low in December 2023. Households rate the possibility to save over the next 12 months at a 0.7 percentile standing, extremely weak, and far below what it was one year ago.
by:Robert Brusca
|in:Economy in Brief
Spain| Dec 26 2023
Spain’s PPI Drop Is Damped
Spain’s headline industrial PPI price index for all industries fell by 1.1% in November after falling by 0.8% in October. The PPI is showing ongoing deceleration similar to the performance of the PPIs from most developed economies.

Spain's headline PPI falls by 7.3% year-over-year, rises at a 1.2% annual rate over six months, and then falls at a 3.7% pace over three months. Consumer goods prices rise by 7.3% over 12 months, slow to a 6.1% pace over six months, and then accelerate gaining at a 14.6%, annual rate over three months. Intermediate goods prices fall by 5.4% year-over-year, fall at a 1.3% annual rate over six months, and then rise at a 2.1% annual rate over three months. Investment goods prices rise by 2.5% over 12 months, rise at a 1.4% annual rate over six months, and then accelerate to a 3.1% annual rate over three months. All the annualized three-month changes are stronger than their counterpart 12-month changes.

The headline change for total industry in Spain shows more weakness than in the components for manufacturing categories alone in the table detail. Consumer goods prices in the manufacturing sector are up strongly over three months compared to both their six-month and year-over-year gains. Intermediate goods demonstrate steady acceleration as their tendency to fall over 12 months and six months gives way to a rise over three months. Investment goods prices show steady expansion but no acceleration although the 3-month gain is the strongest gain over the usual sequence comparing 12-months, to 6-months, to 3-months.

On balance, Spain is experiencing sequential price pressures despite posting two months of declines and the headline industrial price index. The manufacturing sector seems to have more pressure than the more comprehensive industrial sector experiences.

And while the sequence of gains over 12 months, six months, and three months, seems quite tame for the overall industrial PPI in Spain, if we look at the trends for each of those horizons separately, the conclusion changes. Spain has a flattening trend for its industrial PPI with the declines in prices year-over-year having slowed down, begun to flatten out, and show lesser as well as diminishing declines. Over six months, the percent change profile shows clear acceleration after falling at close to a 20% pace for some periods; the six-month percent change now shows persistent small increases. The three-month percent change in May was falling at a rate in excess of a 20% pace; in recent months, the three-month percent change has been increasing although this month it dipped back into negative territory, showing a net decline over three months. Yet, it had risen over three months over each of the preceding three-month periods ended in August, September and October. The underlying trends for Spain’s producer prices are not as beneficial as the headline may suggest and this observation gives some weight to the notion that the rate of change of producer prices may be slowing or coming to an end.
by:Robert Brusca
|in:Economy in Brief
Japan| Dec 22 2023
Inflation: Japan Joins the Crowd
The CPI in Japan in November fell by 0.1% with the closely watched CPI excluding fresh foods up by 0.1%. The all-item CPI rose by 2.8% year-over-year as the metric excluding fresh food was up by 2.5%. The CPI for all items excluding food and energy rose by 2.8% over 12-months. And that core measure of the CPI shows a steady deceleration in Japan's inflation rate from 2.8%, to 2.2% over 6-months to 2% over 3-months.

That progression, however, does not necessarily end of the debate on Japan's inflation rate. Japan’s concerns on the pace of inflation run deeper than just some three-month inflation progression. Inflation in the services sector in Japan continues to spread, a well-known problem for inflation since goods sector inflation tends to be more responsive in the short run and service sector inflation tends to be stickier. Goods sector inflation also tends to be lower because international competition in the goods market keeps prices in line; whereas services are wholly a domestic sector as there are few items in the services area that are subject to any kind of international competition.

A key issue in Japan has been where inflation would be settling. Before COVID struck Japan had been struggling with a long episode of weak prices and deflation stemming from various shocks and a shrinking, aging, population that fostered declining domestic demand. The Bank of Japan has been one of the few globally important central banks to express concern about its consistent missing of its target before COVID. The Bank of Japan was consistently undershooting its target and it was concerned about what that would do with its credibility. In contrast the Federal Reserve has been over its target for over 2 1/2 years following period of chronically undershooting in a more modest way. The Fed only talks about how it remains committed to its 2% target and never entertains for a minute the notion that its credibility might be undermined by its persistent missing of its target and its slow return to its target range.

After Covid the Bank of Japan wound up facing a different world where its inflation rate eventually rose. However, that didn't convince anybody because, in the US, the Federal Reserve called inflation ‘transitory’ when in fact it turned out to be still accelerating and sticky. The Bank of Japan didn't so much take a position on what inflation would do, as it became skeptical and wanted to watch the development of inflation closely to see what kind of monetary policy would be appropriate based upon how inflation was developing. Its long run of weak prices, concern about deflation, and the modest nature of the inflation it faced, all combined to give the BOJ policy flexibility.

The chart shows that Japan's core inflation rate never rose as much as inflation increased in the United States or in Europe. And while the inflation rate in Europe and in the US has come down, the inflation rate in Japan has only risen more modestly and transitioned into a plateau where inflation has been steady, based on the core rate. In the US, the core rate has slowed its transition to a lower pace while in Europe the core rate continues to drop at a relatively rapid pace.

As a result of these developments Japan finds its core inflation rate more or less in the same situation as other major money center central banks. Japan is no longer the outlier with deflation although the future remains unclear. Current developments in Japan's inflation trends seem to suggest an inflation in Japan is going to be a little bit stickier in the post Covid world than it was in the pre-Covid world. The Bank of Japan, which has had extraordinary policies in place and has engaged in a policy of yield curve control, is anticipating transition back to more normal ways of making monetary policy. The international financial community is focused on when this transition is going to occur. The more normal Japanese growth and inflation begin to look and the less distressed the situation appears, the more likely that the Bank of Japan will make this transition sooner rather than later.

And that's what it looks like is developing. It's beginning to look like the inflation picture in Japan is transitioning to something that is more normal globally and the Bank of Japan will soon be able to transition to a more normal monetary policy and drop its extraordinary policy of yield curve control. Along with this the BOJ will be able to transition monetary policy to a more normal level of rates and begin to hike rates to that end. To make this decision central banks are always focused on market expectations. And the case of Japan, something called the spring wage round will be key in determining what inflation expectations are like. The Bank of Japan will be able to see what bargaining between labor and management produces in terms of a wage rate. That will help to determine not just what inflation expectations are, but the pressures that will exist on inflation for the period ahead.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Dec 21 2023
UK Distributive Trades: Retail & Wholesale Both Weaken
The Distributive Trades Sector - Distributive trades weakened in the UK in December. The responses are from a survey by the Confederation of British Industry (CBI). It logged a -32 response as an assessment of year-over-year sales in retailing in December, down from -11 in November. For wholesaling, the index for sales compared to a year ago also fell to -24 in December from -11 in November. The guidance or the estimate for sales expected in January compared to a year ago registered -41 for retail and compared to -6 in December. The same outlook for wholesaling registered a - 18 in January compared to -4 in December. Sales as evaluated in December or sales expected in January in both retailing and wholesaling show substantial weakness as well as weakening on a month-to-month basis. The picture is clear: conditions are weak; there are no caveats.

Retailing Currently reported - Looking at retailing beyond sales, orders, compared to a year-ago, register -54 in the survey for December compared to -22 for November. Sales evaluated for the time of year register -25 in December compared to -16 in November. All of these survey signals point to weakness and deepening weakness. The queue ranking of the December observations has sales at a 6.7 percentile standing, orders at a 1.4 percentile standing, and sales, adjusted for the time of year, at a 15.5 percentile standing all are extremely weak standings.

Expectations for January - I've already mentioned expected sales compared to a year ago that are sharply lower in January compared to December. Orders in January compared to a year-ago slipped a -29 reading from -26 in December, a modest weakening. Sales for the time of year weakened much more sharply in January, to - 37 from -15 in December. The rank standing of these three metrics finds sales for a year-ago in January at a 3.2 percentile standing, orders at a 7.4 percentile standing, and sales for the time of year, at a 5.3 percentile standing - all of these quite weak.

Wholesaling Current reported - As noted, wholesale sales year-on-year fell sharply in December. Wholesaling orders compared to a year-ago also fell sharply with -36 reading for December compared to -8 in November. Sales for the time of year slipped to -6 in December from +16 in November. The standings for these three metrics find sales compared to a year ago with a 9.5-percentile standing, orders compared to a year ago at a 4.2-percentile standing, while sales for the time of year at a 22.2-percentile standing.

Expected in January - As noted, wholesale sales year-on-year fell sharply in January compared to December. Orders in January, compared to a year ago, slipped to -24 from -18 in December. Sales for the time of year in January slipped to -12 from +2 in December. Each one of these is weakening month-to-month. The queue rankings for these variables show sales at a 15-percentile standing, orders compared to a year ago at a 14-percentile standing, and sales for the time of year at a 16-percentile standing. Each of these represents a clear weak standing for each respective series.

Summing up The retailing and wholesaling survey data for December and for the expectations in January can all be lumped together as data that are weak. They are data that are weakening as well. The queue percentile standings are very weak for both retailing and for wholesaling and weak for the current results as well as expected results for January.

There are in this report lots of clouds and no silver linings. Distributive trades show weakening in the behavior of the UK consumer as determined by both the retailing and wholesaling merchants contributing to these surveys. Merchants are cutting back their assessment of activity, and their expectations for the period ahead. It may be too soon to say that it is time to batten down the hatches on growth expectations, but the ranking data are extremely weak and there's nothing on the horizon to provide any stimulus to these weakening trends. Inflation is making some progress in being reduced but the Bank of England continues to be vigilant and to be engaged in inflation fighting rather than having turned to the job of growth resuscitation. That has yet to happen in the UK. Current reported weakness is not deep enough to signal recession, but that signal could yet be in the works.
by:Robert Brusca
|in:Economy in Brief
Germany| Dec 20 2023
GFK Index Has Slow Rebound from Its Lows in Progress for 2024
The GfK survey for Germany improved to -25.1 from -27.6. It's the largest month to month rise and the climate index since May of 2023. The level of the climate index in January of 2024 at -25.1 is the strongest reading since August of 2023. The reading has a ranking in the 6.8 percentile of its ordered queue of observations, keeping it as a bottom 10 percentile reading to start the new year.

The components of the climate index, economic and income expectations, and the propensity to buy index, each improved in December. The components lag the headline by one month. The economic index rose to -0.4 in December from -2.3 in November income expectations rose to -6.9 from -16.7 in November. The propensity to buy improved to -8.8 in December from -15.0.

Economic expectations were at their strongest since July of 2023 and the same is true for expectations. However, the propensity to buy measure was last stronger back in March of 2022.

The GFK headline as well as its components show improving trends. The chart at the top shows that climate has been engaged in a climb out from a very deep negative reading that bottomed out approximately one-year ago.

The buying index is making a nice jump after a long period of flatness at lower levels. Income expectations are rising back and the neighborhood of a peak that they had seen back in July; economic expectations are making a slow climb up but are still well short of their best readings from earlier of 2023 that were experience in April. There has been some oscillation in the German economic and income expectations readings.

Other Europe Confidence measures for other European countries in the table are stronger than for Germany. Italy and France have observations that are up to date only through November. Italy and France show month-to-month improvements in November compared to October. The Italian measure has a 63-percentile standing while the French measure has a 26 percentile standing. In Italy the standing is above its historic median whereas for France the index is well below its median and barely above the lower quartile compared to historical data back to 2002. The UK has a confidence rating up to date through December. The UK reading strengthened in November and in December rising to the level of -22 and December from -24 in November and from -30 in October before that. That is nearly back to the reading of -21 from September of 2023. However, it still has an extremely low percentile ranking in it's 29th percentile stuck between the Borders of the lower quartile and the lower third of its historic range.

The GfK measure still shows a lot of weakness as the new year begins although there is a dig out in place; we can see the GfK climate measure it is gradually clawing its way to higher levels. Italian consumer confidence is the best of the lot in this table; French confidence is still weak and close to weakness we see in the UK. But in the UK at least is on a strong movement higher over the 12-months; much stronger than the gains being made by confidence in Italy and in France. However, for the most part, I characterize European confidence as weak and still challenged.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Dec 19 2023
UK Industrial Orders Remain Weak but Improve in December
Orders in the United Kingdom (UK) log a -23 reading in December, a weak reading that has a 29th percentile standing on data back to 1991. However, it's a significant improvement from November's reading at -35. It also represents a small improvement from October's reading of -26 for total orders. Still, compared to the 12-month average orders are weaker in December than what they averaged over the last 12-months.

Export orders sketch a similar pattern as they rose to a - 23 reading in December from -31 in November and stand at the same level as in October. December export orders are just a tick weaker than what they have averaged over the past 12-months. Export orders register a 39-percentile standing in their historic queue of data.

Finished stocks in the UK rose but continue to signal modest overall readings. The December reading of +11 has a 43 percentile standing; it's up from a reading of +3 in November and +4 in October. Inventory-building is only slightly faster than its 12-month average pace.

The outlook for output volume in the next three months improved to +5 in December from -7 in November but that's still weaker than the +15 value from October. Historically the standing is weak, residing in the 36th percentile of its historic queue of data. However there is no new weakness signaled here; at + 5 the month’s reading is at the same level as its12-month average.

Average prices in the next three months log a + 7 reading, weaker than November's +11 and identical with the October’s value of +7. The reading is lower than the 12-month average of 20, reflecting that inflation ran higher earlier in the year and it has been coming down. Inflation still has an elevated reading above its historic median; its queue percentile standing on data from 1991 is at a 56.9 percentile, leaving it at a small margin above its historic median on this timeline.

Summing up The UK industrial report suggests expansion continues. Output volume is looked at as continuing to expand in the future and price pressures are expected to be less than what they've been - inflation will linger. Stocks are being built modestly. Total orders and export orders continue to sag, residing in the lower one-third of their historic range of values. The UK economy is still plodding along, however, it's still growing, and the industrial sector is expected to continue to grow.
by:Robert Brusca
|in:Economy in Brief
Germany| Dec 18 2023
German IFO Weakens Again in December
Germany's IFO Climate gauge slipped to -21.2 in December from -18.3 in November. There was significant climate slippage in the manufacturing sector, in construction, in wholesaling, and in retailing. Only the service sector improved slightly in December compared to November, advancing to a - 1.7 reading from -2.5 in November. This is a common theme for the month as the service sector is the only one that is constantly resilient across the three IFO categories of Climate, Current Conditions, and Expectations.

More on Climate The standings find the Climate readings exceptionally weak. The all-sector queue standing is at its 9.9-percentile, manufacturing is at its 8.6-percentile, construction has the strongest standing in its 25th percentile, wholesaling is at its 8.3-percentile, retailing is at its 21st percentile and services are at their 11.6-percentile. The readings are all in the bottom quartile or right at the border of that quartile as of December. All readings are in double-digit points below where they were in January 2020 just before Covid struck. The climate all-sector reading, the manufacturing reading, and the construction reading all are on their weakest marks since Russia's invasion of Ukraine took place. The wholesaling gauge is up 4.3% from that point, retailing is up 34%, and services are improved by 26% on that comparison. But on the comprehensive IFO gauges we see clearly that since Covid and the Russian invasion Germany has been reeling.

Current Conditions The IFO current conditions gauge also showed broad weakness in December with the all-sector reading weakening and four of the five sectors weakening once again with services being the exception. The service reading crept up to 13.5 in December from 12.5 in November. The rankings for the current indices are stronger than for the climate gauge but still weak; only construction and retailing have current standings above their 50th percentiles which puts them above their medians. The all-sector index has a 13.6 percentile standing which is still quite low, manufacturing has a 25-percentile standing, services have an 18.7 percentile standing, and wholesaling has a 31.5 percentile standing.

Expectations The expectations readings weaken across the board except for services. The services reading moves up slightly to -15.8 from -16.4. However, the all-sector summary reading falls to 23.2 in December from 21.7 in November; the all-sector standing is at its 8.8 percentile, once again, a very weak reading. All the percentile standings for expectations are in the lower 10% of their respective historic ranges. Expectations show an even more downbeat view the economy in Germany in December, worse than the readings for their current conditions or climate.

Germany has been weak for some time these weak IFO readings are not coming out of the blue; they're not a surprise, and they're not different from the gauges we've been seeing from other German measures. However, the data from Germany currently are coming in weaker than data from most other European Monetary Union members. That's a problem since the German Economy is the largest economy in the monetary union. The IFO is ending the year on an extremely downbeat fashion with a set of extremely weak readings across the board.
by:Robert Brusca
|in:Economy in Brief
Global| Dec 15 2023
PMI Weakness Finds Its Stasis
The PMI flash data show essentially flatlining, steady, responses over the last six months. There is a hint of uptrend in the EMU manufacturing series but not much more than a hint. Across reporters in the table, three-month changes in the individual gauges are small everywhere, except the U.K. where relatively strong gains are posted.

Over three months all services gauges are weak with Germany’s 5.6 points decline the largest and the U.K.’s one point decline the smallest. Manufacturing shows two declines over six months, one in France and one in Japan. The U.S. and Germany show the largest gains, posting a rise over six months of about 2 points. However, services gauges dominate the total PMI measure that show declines across the board over six months, with Germany, the EMU, and France logging the largest drops over six months. These point-to-point changes might exaggerate the trend. The average PMI gauges are far more stable.

The 6-month vs. 3-month averages were consistently weaker by about one point or less for the PMI total index except for the U.S. where a near 2-point drop prevailed. Manufacturing 6-month vs. 3-month PMI averages differ by small inconsistent amounts of change across table reporters – the U.S. logs a drop of one point. And the services 6-month vs. 3-month average difference fell by about one point across the board across table entries, but nearly double that in the U.S.

The color-coded table shows strengthening and weakening on the monthly and period sequential data. Monthly data show a good deal of chaos. The 54 observations over those six reporters with 3-metrics each (Composite, Manufacturing, and Services) over 3-months tallied 25 monthly weakening observations vs. 29 strengthening observations. That is quite mixed.

However, the broader sequential changes are much more consistent, showing over the three periods 45 weakening observations vs. nine improvements over 54 observations. The sequential data show clear-cut weakening. Only manufacturing shows strengthening over three months – three of them: for the EMU, Germany, and the U.K. Over six months only the U.S. shows an improvement- it was also in manufacturing. The upshot is that monthly data may be chaotic, but there is a clear trend there.

The queue standings show an average composite standing across members in their 28th percentile. Manufacturing stands in its 11th percentile and services in its 35th percentile – all quite weak. However, only the EMU, Germany, and France had composite PMI diffusion index levels below 50 in December. This underscores that to be weak (in a ranking sense) the PMI does not need to show a decline (reading below 50). PMIs are usually above 50 because services and manufacturing usually expand. Even over this weak-stretch, the service sector PMIs across the reporters in the table were above the breakeven level of 50 about 64% of the time vs. 53% of the time for manufacturing.

From May 2021 to June 2022, the proportion of reporters with both services and manufacturers at PMI values above 50 in the same month, was above 50% consistently. After July 2023, fewer than 20% of the reporters have both services and manufacturing above 50 in the same month. This has been a period of protracted weakness - and it continues.
by:Robert Brusca
|in:Economy in Brief
Global| Dec 14 2023
Dropping Inflation Puts Central Banks in an Undesired Spotlight
All of the countries in this table have inflation targets of some sort set up at the 2% mark. While inflation rates clearly have worked lower, this has only come after an extended period of inflation having overshot in each of these countries. However, central banks have generally raised interest rates quite a lot and concerns have been raised globally about the potential for recession- the Bank of Japan has been the exception to these circumstances, having expended effort trying to recover from deflation and avoid a low inflation trap.

Something in the water?- I don't know if there is something in the water- which I should note would imply the oceans- or more properly the global aquifers as well as the impact of global rainfall (climate change at work?). Something has caused central banks to change their tune as central bankers, in this cycle, have clearly acted differently than in the past and have not aggressively gone out to contain inflation overshooting. Instead, central banks have been slow to act and tolerant of inflation over their respective targets. I'm not aware of global monetary conference that established that this was now the correct way to approach inflation in the new millennium. However, this is the situation that has simply developed and seemingly developed in each country on its own.

Fed policy puts Europe’s central bankers on the spot- Key central banking decisions have been made over the last several days with the Federal Reserve opting to not change policy but to provide statements about its intent in the future as well as a procedure known as forward guidance that is encompassed in a collection of forecasts that the Fed makes public four times a year in a presentation known as the Summary of Economic Projections (SEPs) or sometimes somewhat more colloquially called ‘the dots.’ With its new guidance, the Federal Reserve put markets on notice for a likely easier policy in the period ahead and this caused expectations to ramp up for the policy meetings today at the Bank of England and the European Central Bank. However, neither of these banks took the bait that the Fed went for. The ECB went out of its way to say there was a large distance between raising rates and cutting rates and that rate reductions were not even discussed at this meeting.

Central bankers’ dilemma- Central banks are in this somewhat curious position where inflation has fallen sharply. Although I've only presented year-over-year, three-month, and six-month calculations for some of the more ‘popular’ inflation measures, there is also core inflation, which is inflation excluding food and energy, and there are inflation calculations that make other exclusions that can cause the short-term inflation rate to look much lower. This fact has raised pressure on central banks particularly on the Fed in the U.S. to begin to consider an easier policy. The Federal Reserve, of course, is in a different position than these other central banks because while the Fed has an inflation target, it also has a dual mandate. The ECB, for example, has no such dilemma. It only has an inflation mandate to keep inflation at 2%.

Saying you do not believe in gravity does not allow you to escape its pull- While the Fed in the U.S. always says it doesn't react to political pressure, the Fed has been under tremendous political pressure especially by progressive Democrats to do nothing to cause the unemployment rate to rise despite the height of inflation that U.S. economy has been laboring under. In addition, the U.S. faces presidential elections within the next year and that's been a burden that the Fed has had to deal with. And it simply isn't possible to have been involved in policy economics in the United States to not think this has been a factor regardless of what Jerome Powell or anybody at the Fed says about making policy.

An uncomfortable reality- The situation all the central banks find themselves in is that inflation has been too high for too long. Year-over-year inflation is still too high, but over shorter periods inflation is running at a much lower pace and coming closer to their desired targets. And, of course, politicians in all countries whether they're running for office this year or not, want to keep the unemployment rates low as do other policymakers- hey it’s everyone’s objective, but within reason and context. Unemployment rates globally remain low; the European Monetary Union is experiencing among the lowest unemployment rates it has seen in its life; the U.S. unemployment rate is not far from the lowest it has experienced in the last 50 years; U.K. unemployment is not so well positioned. It may seem somewhat curious that in the case of the U.S. central bank that has a dual mandate it is protecting an unemployment rate near a 50-year low and tolerating an inflation rate that has had horrific overshoot that has been above its target for 34 months in a row -and may remain out of range for another 24 months – if you miss it for five year in a row, is it still relevant as a target? Still, we're supposed to believe that this set of decisions has occurred without any reference to politics.

Japan’s unique state- The Bank of Japan now faces the most consistent persisting inflation among this group of countries; however, it's in a different circumstance because prior to the impact of COVID and the global recession that resulted, it was chronically undershooting its inflation target and worried about that. In Japan, the concerns are rather opposite to those in the European Monetary Union, the U.K., and the U.S., as in Japan policymakers wonder if the increase in inflation is going to be permanent or not. Japan is still relatively more worried about a possible return to low inflation or even deflationary circumstances - although you can't see any evidence of that in the data presented in the table.
by:Robert Brusca
|in:Economy in Brief
Europe| Dec 13 2023
EMU Industrial Production Falls Again
Industrial production in the European Monetary Union fell by 0.7% for the headline series that excludes construction. Output on this gauge also fell by 1% in September. It is also the second month in a row of manufacturing output declining. Output trends for manufacturing, for manufacturing sectors and for 13 of the oldest members of the union show broad declines and ongoing declines in industrial production.

Manufacturing- The headline series shows a negative growth rate over 12 months, six months and three months; while the declines are of a slightly lesser magnitude over shorter durations, that trend shift is minor. For manufacturing, there is an IP decline of 6.1% over 12 months, a decline at a 7.4% annual rate over six months and then a slower decline at a 3.4% annual rate over three months.

Sector trends- Looking at sectors, consumer goods hint at a slowdown in the rate of contraction with a 7.6% decline in output over 12 months that's reduced to a 1.6% annual rate decline over six months and to a 2.5% annual rate decline over three months. Intermediate goods output shows a less optimistic trend, but not a clear changing trend with output falling 4.1% over 12 months; the decline scales back to an annual rate of -3.6% over six months and then the decline steps up to a 5.2% annual rate over three months. Capital goods output shows a decelerating pace amid an ongoing contraction of output, with output falling 7.4% over 12 months, backing down to a -6.3% annual rate over six months and reduced further to a 2.9% decline over three months.

Member country trends- Among the 13 monetary union reporters on the table, six of them show declines in output in October that's after ten reported declines in September, and six reported declines in August. Over three months seven of these members show output declines; over six months eight members show output declines; and over 12 months nine members experience output declines. The quarter-to-date calculations, one month into the fourth quarter, show six of these reporters with output declining early in the quarter.

Growth rate rankings- The far-right column in this table ranks growth rates by country and by overall manufacturing sector on data back to October 2006. On this basis, all the sectors report growth rates that rank at least in the bottom 20% of their respective historic queues on this timeline. Consumer goods output, and particularly consumer goods output for nondurables, is especially weak. Among the EMU member countries reporting in this table, Ireland alone reports the weakest growth in manufacturing IP it has had during this whole period. Greece, surprisingly, logs growth that's in the top 4% of all its historic growth rates on this timeline. Only four countries report growth rates above their 50th percentile rank, which means only four have growth rates that are above the median growth rate for this span. Growth rates rank extremely low with an average ranking of about 36% and the median ranking in the 30th percentile.
by:Robert Brusca
|in:Economy in Brief
Global| Dec 12 2023
ZEW Readings for Germany Improve Slightly
The ZEW economic situation assessment for December improved slightly for Germany but worsened for the EMU and for the United States. Still, Germany has a lower rank standing for its December reading at a 14.8% mark compared to a 22.7 percentile reading for the EMU and a 38.4 percentile standing for the U.S.

Macroeconomic expectations for Germany rose while expectations for the U.S. just ticked higher. German expectations surpass the U.S. reading with a 38.4 percentile standing versus U.S. expectations at a 23 percentile standing.

Interestingly, on the month inflation expectations for the U.S., Germany, and the EMU all rose and did so rather decisively (smaller negative expectations all around).

However, short-term rate expectations still are impressively more negative in December than in November for the EMU, Germany, and the U.S. The queue standings are below their historic 15th percentile levels for all three countries/areas indicating still very strong prospects for lower rates despite the inflation lift.

For long-term rates, expectations have low rankings as small declines in expectations on the month – quite small compared to the change in short-term rate expectations. On balance, percentile standings of rates are low but are also little-changed on the month.

Stock market expectations were cut sharply in the EMU, for Germany, and for the U.S. Market expectations still have a 43.88 percentile standing, but the EMU and Germany have stock market expectations around or below their respective 15th percentiles- relatively poor readings.
by:Robert Brusca
|in:Economy in Brief