Introducing

Robert Brusca

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

Publications by Robert Brusca

Europe| Oct 31 2023
EMU GDP Is Weaker Than Expected and Declining on the Quarter
Third quarter GDP in the European Monetary Union weakened and surprisingly contracted. GDP fell at a 0.4% annual rate in the third quarter after rising by a 0.6% annual rate in the second quarter. The unexpected drop has naturally raised questions about the possibility of a rule-of-thumb recession occurring in Europe (some report this as a ‘technical’ recession. However, there's nothing technical about two declines in a row {counting ‘all the way’ up to 2.} Rather, it is a rule-of-thumb that sometimes makes sense, and sometimes does not). We are reminded that in the first and second quarters of 2022, real GDP in the United States declined, with GDP falling at a 0.5% annual rate in the first quarter and then edging lower by a 0.1% at an annual rate in the second quarter. Almost no one called that a recession. Those that did probably did so more for political reasons than for economic reasons. The U.S. GDP drops were not considered to be part of a recession in the U.S. by anyone who looked at data seriously. The ongoing substantial growth in employment in the U.S. during those two quarters made the drops in GDP oxymoronic recession signals. This reference highlights the fact that recessions are more complicated than just a couple of numbers’ weakness quarter-to-quarter and it has a lot more to do with the economic processes that might be in play.

Europe....no recession but LOTS of weakness Right now, in the European Monetary Union, Italy reports a 0.4% GDP decline in the second quarter and flat GDP in the third quarter. Apart from that, no other early reporting country is flirting with a rule-of-thumb GDP definition. However, it's quite clear that there is a lot of weakness. • Germany, for example, shows low growth; it has GDP up by 0.1% in the second quarter after being flat in the first quarter and it has a decline in GDP in the third quarter, to go along with the decline in GDP in the fourth quarter of 2022. Germany, in the last four quarters, shows two declines in GDP, one quarterly increase of 0.1% (annualized) and another quarter which GDP growth was flat. We can certainly argue about whether this constitutes some kind of recession in Germany. It certainly constitutes an extremely weak period of growth for the German economy. • Ireland has two previous quarters of negative growth in the fourth quarter of 2022 and in the first quarter of 2023. That string is interrupted by a 0.5% increase in the second quarter and now a 1.8% annual rate decline in the third quarter. Ireland has three GDP declines in the last four quarters. • Portugal logs a decline in GDP in 2023 Q3 after an increase in Q1 of only 0.1% annualized. • The four largest European Monetary Union economies show tepid growth at a 0.1% annual rate in the current quarter after two quarters in which the annual rate for growth was 0.2%. They were preceded by one quarter in which GDP in the four largest economies fell at a 0.1% annual rate.
by:Robert Brusca
|in:Economy in Brief
Finland| Oct 30 2023
Finland’s Confidence Rebound Has Turned South; It’s Part of a Nordic Phenomenon
Consumer confidence in Finland moved lower again in October as a new round of weakening appears to be well underway. The graphic shows a clear turning in confidence although the clear turning is not yet represented in sequential averages in the table that show a -11.4 measure over 12 months, -9.8 over six months, a reading that reflects some improvement compared to the 12-month measure, and then further deterioration to -10.7 over three months. The failure of the sequential averages to show what appears to be ongoing and steady deterioration is an artifact of where we are in the cycle of deterioration. Ther is no waffling of the trend, as you can see.

The table (below) also presents the queue standing of confidence in October at 4% which tells us it's been lower historically only 4% of the time (ranking are on data back to 2000). However, this is an improvement from a year ago when the rank was 0.4%.

The Economy, now- The reading for Finland's economy now in October has improved slightly from September, moving up to -40.9 from -42. The expectation for the economy in 12 months, however, is weaker at -18.8 in October compared to -18.1 in September. These two economy readings, one for now, and the other for 12 months ahead, are both substantially weaker than the numbers that were posted in August just two months ago. The rankings, however, are improvements from what they were a year ago but are both still below their respective lower 15-percentile, marking the responses as still extremely weak.

Inflation- Consumer price inflation in one year is expected to be slightly higher. The move up is not so impressive; but what's impressive here is that there's no improvement expected. Meanwhile, Finland is a member of the European Monetary Union and is still subject to the ongoing tightening and efforts of the European Central Bank that claims to be focused on reducing inflation back towards its 2% target.

Unemployment- The prospect for unemployment over the next year has been reduced in October from September and both October and September show weaker readings that are significantly weaker readings than in August. Bringing the unemployment question home to roost, we see that individuals are also less threatened by the more immediate prospect of personal unemployment; their concerns about personal unemployment are diminished in September compared to August and in October compared to September. Ranking these two unemployment measures historically, the risk of overall unemployment has an 18.5 percentile standing while the risk of personal unemployment has a slightly higher 24.2 percentile standing. Both standings are substantially reduced from what they were one year ago when concerns about unemployment were about twice what they are right now in October 2023.

Environmental perceptions Good time to purchase durable goods?- The favorability of the times to purchase durable goods have not changed very much over the span of the last three months although conditions have slightly improved. Nonetheless, the historic ranking of this metric is in its 3.6 percentile, marking it as rarely weaker and therefore marking the slight improvement as a Pyrrhic victory.

Favorable time for saving?- Perceptions of the favorability of the time for saving have worsened slightly over the last three months and the metric has a 1.1% standing. The rankings for the ‘favorability of the time to purchase durable goods’ and the ‘favorability of the time for savings’ one year ago both were at historic lows. Over the past year there has been some improvement but very little. The real story remains that consumers still seem to feel that their backs are to the wall.

Bank loans- The favorability of the time for raising a bank loan has worsened over the last three months. The historic ranking of that response is lower only 0.4% of the time. And the ranking of this metric is slightly worse than it was 12 months ago.

Household financial situation- The overall household financial situation eroded in October compared to September and is also lower than the August reading. At a level of 20.5, it's on its 12-month low. The queue standing for this measure is roughly in the lower 10% of its historic queue of values and it has deteriorated sharply from a year ago when the queue standing was still quite solid in its 81st percentile. This very sharp deterioration reflects a clustering of readings on the financial situation in the mid-20s for this metric historically so that a relatively minor-seeming drop (to 20.5 from 27.4) crashed the overall standing of the response from 80th to the 10th percentile in terms of its historic ranking! On one hand, the financial situation has not been assessed as that much weaker than before; on the other hand, it has still fallen to a historically weak reading. This phenomenon may have something to do with the socialistic nature of the economy and people seeing their lot largely as like everyone else, and with that may come some denial in the willingness of people to recognize deterioration when it happens. Certainly the 81-percentile ranking of one year ago seems more out of line with other year-ago responses than the current 10-percentile ranking amid the 2023 responses.

Savings- Household possibilities for savings over the next month are ranked as slightly stronger month-to-month but weaker in October than in August. September marked a 12-month low on this reading. The October ranking for this measure is low at 3.3% while a year-ago the ranking was at 13.6%. The assessment of the conditions for saving over the next 12 months has worsened over the year.
by:Robert Brusca
|in:Economy in Brief
France| Oct 27 2023
French Household Confidence Improves Slightly; The Slight Improvement Leaves Confidence Still Very Weak
In this situation, the Insee survey on household confidence in France showed a small uptick in October although that still leaves it short of its August level and leaves it at a weak ranking on data back to 2001. Ranked on that timeline, confidence currently has a 10.6 percentile standing, implying that it has been this weak or weaker only about 10% of the time during that period.

Strength in the survey is rare- Most of the components of this survey are weak. The exceptions are price developments, of course, because inflation is still high. Inflation over the last 12 months saw an uptick in the assessment in October compared to September and an overall ranking in its 95th percentile. However, expectations for the next 12-months show a slight reduction for inflation that's anticipated and a ranking that is only in its 12.8 percentile, indicating that inflation is broadly expected to be on a declining profile ahead. The other component that has higher standing is the assessment of savings. This is usually a negative barometer since when spending conditions are poor savings conditions turn out to be better and that's true this month in the Insee survey. However, month-to-month the assessment ‘favorable to save’ fell relatively sharply to 28 in October from 36 in November as the ‘ability to save’ for the next 12 months was unchanged. Even so, with the sharp drop this month, the ranking of the favorability for savings has an 82.8 percentile standing and the ranking of the ability to save has an 88.3 percentile standing.

Weak living standards: But unemployment expectations are a positive- The rest of the surveyed components show anything from substantial to extreme weakness. The living standard assessments show past living standards unchanged month-to-month and with a 2.2 percentile standing. This implies that living standards over the last 12 months have been that bad or worse only about 2% of the time. Over the next 12 months, living-standard expectations improve slightly but still only register at 18.6 percentile standing - a standing in the bottom 20% of the historic queue of data looking back to 2001, a period of just over 20 years. Unemployment expectations over the next 12 months fell slightly in October to a reading of 17 from a reading of 20 in September. This has a 29.9 percentile standing. In this case, the low standing is relatively good news because it means expectations for unemployment are relatively low.

Spending environment has rarely been worse- The environment for spending deteriorated slightly on the month with an October reading that fell to minus 45 from minus 44 in September. The ranking of this reading is in the bottom one-percentile of all readings back to 2021. French respondents to this series find this an extremely unfavorable time and make major purchases, having been this bad or worse only about 0.7% of the time over the last 20 years – the third worst year for major purchases back to 2021 (worse only in June 2023 and in April 2020).

The financial situation is poor- Given the poor outlook for the spending environment, it's not surprising that the financial situation also gets low marks. The situation over the past 12 months improved just a tick from September, but the response has a low, 9.9 percentile standing implying that it's been this bad or worse only about 10% of the time historically. Looking over the next 12 months, there's another small two-tick improvement in the survey that produces a ranking in its 35th percentile. That's still nearly a bottom 1/3 standing for the expected financial situation – an improvement compared to the bottom 10-percentile. It's a weak reading, but not as weak as some of the other assessments in the table.

Weakness in past living standards, spending and the past finical situation seem to play a large role in setting the bar of assessments so low in October. The overall confidence indicator has a 10.6 percentile standing.

The turbulent wake of COVID- Much of this weakness has come in the wake of COVID. Comparing household confidence, for example, in October 2023 to its level in January 2020 before COVID struck, the measure is 20.4 points lower than it was in early-2020. The assessment of past living standards is 41.9 points lower and the expected living standards are 26.5 points lower. The response on the unemployment rate is about 11 points higher than it was in January 2020. The inflation, of course, is much worse with past price developments up by nearly 100 points, but then, of course, the expected future expectations are lower only because inflation is high, and it's expected to unwind to some extent. The spending environment is worse than it was in January 2020 by some 38 points. The financial situation in the past 12 months is worse by 16.8 points than it was in January 2020 and the financial situation expected in the 12 months ahead is worse by 12.9 points – what they did not know in January 2002 nonetheless hurt them badly. Remember that expectations are just that and nothing more.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Oct 26 2023
U.K. Retailing Slips as Wholesaling Improves; Outlooks both worse; All Survey Response Rankings Are Weak
The U.K. distributive trades survey covers retail sales and wholesaling, providing assessments of current activity as well as expectations for the month ahead. October is a mixed report with retail sales weakening and wholesaling showing some improvement. However, the outlook for both retailing and wholesaling deteriorates in November. All ranking statistics are weak except for inventories.

U.K. retailing Current assessment- In retailing, sales compared to a year ago in October fell to -36 rating from -14 in September. The sales responses have been somewhat volatile recently; however, the October reading of -36 is well below the 12-month average of -13. Orders compared to a year ago also slipped to -37 from -19; that response compares to a 12-month average of -24. Sales assessed for the time of year slipped to -10 in October from +5 in September. Those readings compare to a 12-month average of zero. Stocks relative to sales moved up to +27 in October from +6 in September, above the 12-month average of +17. An increase in the stock to sales ratio while sales are weakening is not generally a good sign. The ranking statistics on the table rank the current responses on the timeline back to March 2000. On that timeline, the performance of sales over a year ago has of 5.6 percentile standing. Orders compared to a year ago have a 6.3 percentile standing. Sales assessed for the time of year have a 36.6 percentile standing. The stock-sales metric has a 91.2 percentile standing. These are all quite weak assessments, and the stock sales ranking does not appear to be good news with sales weakening.

Retail outlook- The retail outlook for the categories listed above all show deterioration month-to-month except stock stock-sales response which rose. The outlook assessments are below their 12-month averages but only slightly below the average for sales performance over one year. The ranking metrics and the responses are all still extremely weak. The stock-sales ratio again has a strong standing in its 86.7 percentile.

Wholesaling survey Current assessment- In wholesaling, in October sales compared to a year ago improved to -15 from -23 in September. The October -15 reading compared to a 12-month average of -11. Orders compared to the year ago, however, deteriorated to -25 from -15 and those figures compared to a 12-month average of -15. Sales for the time of year improved to -1 in October from -3 in September but compared to a stronger +8 average over the last 12 months. The stock-sales ratio response in October fell to 10 in October from 43 in September and compared to an average of 18 over 12 months, indicating a very different inventory conditions and dynamics for wholesaling than in retailing. In terms of rankings, the performance of sales compared to a year ago reveals a 16.5 percentile ranking. Orders have a 10.9 percentile ranking. Sales for the time of year have a 29.9 percentile ranking and the stock-sales ratio has a 39.1 percentile ranking. All these are still quite weak with the stand-out feature being that the stock-sales ratio isn't moving in the opposite direction as it is for retailing.

Wholesale outlook- The outlook portion of the wholesale survey for November shows weakness across the board. All these metrics show month-to-month deterioration and much weaker performance in November than over the last 12 months. The stock-sales ratio for November falls to a metric of +16 from +37 in October but October clearly was an outlier strong-reading. The November value of +16 is only slightly above the 12-month average of +14 - an exception among this month’s responses. Looking at the rankings of these various metrics, we continue to see weak readings for the outlook across the board. The stock-sales standing at a 65.6 percentile is firm but not a worrisome reading, particularly with the stock-sales ratio in November being close to its 12-month average.
by:Robert Brusca
|in:Economy in Brief
Global| Oct 25 2023
Globally Money Supplies Shrink in Real and in Nominal Terms
EMU money and credit growth contract Money supply growth in the European Monetary Union (EMU) continues to contract over three months as well as over six months and 12 months. In real terms, money supply declines as well on all horizons although the 12-months contraction is at a more severe pace than it is over 3-months and six-months.

Credit in the EMU is weak; it registers weak, but positive, growth over three months in nominal terms. Credit to residents, as well as private credit, both contract over 3-months and 6-months in nominal terms. In real terms, both credit measures decline on all horizons; the pace of the credit decline has slowed slightly over three months and six months compared to 12 months – perhaps a sign that economic excess have been or are being boiled out more than a sign that economic deterioration is getting out hand.
by:Robert Brusca
|in:Economy in Brief
Global| Oct 24 2023
Flash S&P PMIs Are Mixed in October
Manufacturing slides as services waffle and ease The S&P PMI flash survey this month is difficult to summarize since its message is split. There are six respondent areas with three sectors each; and of these 18 observations, 9 are stronger this month and nine are weaker – split decision! The three EMU sectors are weaker in October while the three U.S. sectors are stronger. The manufacturing sector is stronger on the month except in the EMU and France. Services are weaker everywhere month-to-month except in the U.S. and in France. The U.S., the U.K., and the French composite indexes are stronger month-to-months while the EMU, German, and Japanese composites are weaker.

Sequential readings: comparing averages The sequential readings are constructed on historic averaged data that do not include flash observations for October; they show weakening across the board – all regions all sectors - over three months. Over six months, conditions are mixed with 8 worsening and 10 improving. France is alone in weakening across all three sectors over six months. Japan improves across all three sectors. Manufacturing deteriorates over six months in all reporting jurisdictions except Japan. Services are stronger in five of six jurisdictions with France the exception. The composite over six months worsens only in France and the EMU. However, viewed year-on-year, all sequential jurisdictions in all sectors weaken compared to their year ago 12-month averages, except in Japan where services and the composite improve on balance. There is a broad weakening comparing the last 12 months to the 12 months before that – a powerful generalizable result.

Other trend observations Manufacturing weakened over six months broadly as well as over three months, everywhere, strengthening in four of six monthly observations in October. Looking at a two-month comparison, the U.S., the U.K., and Germany show slightly stronger readings for manufacturing in October compared to August- the EMU, France, and Japan are weaker on balance. Service sectors show stronger reading for October than for August in the U.S., France, and Germany but only by quite small amounts. The composite reading is stronger in October compared to August only in the U.S. and Germany.

Weakness prevails for queue standing data However, the overpowering sense of the survey is that of weakness- momentum aside. There is not much push to the momentum that exists in the first place. But beyond that, the rankings for October levels of activity have extremely low percentile standings with the composite average standing at its 19th percentile, across respondents. Manufacturing averages a 9th percentile and services average a 26-percentile standing across respondents. Japan generally has the strongest rankings, but that is only a 47-percentile composite, a 19-percentile manufacturing sector standing, and a 57-percentile services sector standing. The U.S., however, as a slightly stronger manufacturing sector standing than Japan at its 23rd percentile, putting Japan in second place on that metric.

Diffusion readings mostly show weakness In raw diffusion terms, the strongest composite reading is 51 in the U.S. followed by 49.9 in Japan. The weakest composite diffusion is 45.3 in France. The strongest manufacturing diffusion gauge is at the edge of breakeven with a 50 reading in the U.S. followed by 48.5 in Japan. The weakest manufacturing reading is a 40.7 reading in Germany. Services have the highest standing in Japan at 51.1 with the U.S. at 50.9. The weakest service sector diffusion reading is 46.1 in France followed by 47.8 for the EMU.

In addition, diffusion readings mostly signal contraction The diffusion data remind us that most of these readings are signaling some degree of contraction not just weakness. Only the U.S. and Japan have sectors with diffusion readings of 50 or more and the U.S. has all sectors at or above 50 in October. Japan has only services above 50, but its composite is on the verge at 49.9.

One year-ago comparison Compared to one year-ago composites (month-to-month not average comparisons) are higher, significantly higher, in the U.S. and modestly higher in Germany and the U.K. The composite is substantially weaker over the past year in France, weaker in Japan and slightly weaker in the EMU. Manufacturing is weaker everywhere year-on-year except in the U.K. where the sector makes solid year-on-year improvement but still bears a very weak queue standing. Services are weaker in the EMU, France, and Japan and stronger in the U.S., the U.K. and Germany viewed year-on-year.
by:Robert Brusca
|in:Economy in Brief
Canada| Oct 23 2023
Canadian Consumer Continues a Long Cool Down
Canada’s nominal sales show some overall resilience; however, when adjusted for inflation, sales show deepening weakness in August.

Headline nominal trends are resilient- Canadian retail sales declined in August, falling by 0.1% after rising by 0.4% in July and gaining 0.1% in June. The progression of retail sales growth from 12-months to six-months to three-months shows gains across all horizons with no clear trend. The 12-month growth rate of 1.6% is the same as the annualized 3-month growth rate with a pickup to 3% over six-month horizon in between.

Industry trends show mixed nominal results- Looking at industry level sales, new car dealers show a steady slowdown in nominal sales from 7.2% over 12 months to 2.9% annualized over six months to less than 1% annualized pace over three months. Supermarket sales show a general slowdown with growth rates at 4% or more over six months and 12 months before contracting at a 2.3% annual rate over three months. Clothing store sales gained 5.7% over 12 months and then declined at a rate of 1% or less over six months and three months.

Nominal sales excluding motor vehicles- Taking motor vehicles out of total nominal retail sales leave sales tending towards slightly stronger growth with a gain of only 0.3% over 12 months, rising to 3% over six months and settling back to 2.2% at an annual rate over three months.

Real sales show a clear declining trend- The industry trends for nominal Canadian retail sales are not particularly clear; however, when we take the inflation out of the picture, the overall results clarify themselves. Over 12 months real retail sales rise 1.2%, over six months real retail sales fall at a 0.1% annual rate, and over three months real retail sales fall at a 3.4% annual rate. Moreover, real retail sales fall by 0.6% in August, fall by 0.1% in July, and fall by 0.1% in June. The recent monthly picture is unambiguously weak as monthly reports show that the real retail sales continue to contract.

The real thing... As always, during times when inflation is high and particularly when the inflation rates are changing, it's important to look at the inflation adjusted data instead of just the nominal data. But nominal data can sometimes provide a bit more detail sooner that adds to the flavor of the real signal. Canada's nominal data show unevenness on their own but not real clarity. The real retail sales data show substantial clarity.

Canadian sales quarter-to-date- On a quarter-to-date basis, Canadian retail sales rise by 1.8% in an annual rate with two months data in from the third quarter; excluding motor vehicles, that growth rate rises to 3.4% at an annual rate. However, including motor vehicles but then adjusting for inflation leaves quarter-to-date real retail sales for Canada falling at a 3.6% annual rate with two months of data in hand. In addition, nominal sector sales show that new car dealer sales fall 2% at an annual rate, the quarter-to-date supermarket sales fall by 0.2% at an annual rate, and clothing store sales fall at a 1.2% annual rate.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Oct 20 2023
U.K. Retail Sales Volumes Deflate
U.K. retail sales fell by 0.2% in September. Monthly sales have been erratic, rising by 0.9% in August after falling by 0.8% in July.

Nominal trends- Sequentially retail sales have weakened, rising by 4.7% over 12 months and at a similar 5.1% pace over 6 months then running dead flat over 3 months. Industry sales of food, beverages & tobacco as well as clothing & footwear also have slowed, 12-months to 3-months.

In the quarter-to-date, U.K. retail sales are rising at a 1.2% annual rate. The nominal year-on-year growth rate ranked on data back to 2002 has a 75.1 percentile standing in its historic queue of data.

U.K. sales volumes- U.K. retail sales adjusted for inflation show more weakness as well as contraction in the quarter-to-date. U.K. real retail sales (sales volume) fell in September and in July just as they do for nominal sales. Sequentially retail volumes contract by 0.9% over 12 months, at a -0.8% pace over six months, and at a -6% annual rate over three months. Real retail sales are falling at a 3.1% annual rate in the just completed third quarter. The queue standing for the nominal growth rate is much stronger than the queue standing for the real growth rate; the latter stands at its 18.8 percentile, a far cry from the 75.1 percentile standing for nominal growth. Sales volumes in the U.K. are weak.

Passenger cars- Passenger car sales/registrations have been rising year-on-year for over 14 months. Even so, monthly setbacks have occurred but have been sporadic. Registrations are up at a 20% pace over three months, six months and 12 months despite weakness elsewhere in retail sales.

Survey results for retailing The CBI surveys show sales and orders rebounded in September. While both series are declining in the third quarter, the rankings are mixed. Sales for this time of year have a 77-percentile standing. However, the volume of orders year-over-year has only an 18.8 percentile standing.

Consumer confidence in the U.K. on the GfK measure edged lower in September (it has since fallen harder in October) and it has a September standing at its 31st percentile, a lower-one-third standing in its ordered queue of historic data.
by:Robert Brusca
|in:Economy in Brief
France| Oct 19 2023
France’s INSEE Survey Shows Weaker Manufacturing and Services
The INSEE industry climate gauge as a 29.6 percentile standing and the index fell month-to-month to boot. The index is still below (by 3.6 points) its level of January 2020 before the pandemic struck.

The INSEE manufacturing survey The manufacturing production outlook fell back to -10.3 in October from -6.1 in September, only slightly weaker than the August reading of -9.0. These expectations have been weaker since 2001 about 31% of the time and stronger nearly 70% of the time.

Production has a ‘recent trend’ that has worsened in the month as it fell to a diffusion value of -11.3 in October from -6.4 in September and -4.0 in August. This trend has been weaker historically by less than 10% of the time. Survey respondent also supply expectations for their own firm/industry as a ‘personal likely trend.’ This assessment fell to 4.8 in October from 16.6 in September – but it is higher in comparison to August. The reading for the own-firm trend is at a 29.1% standing, much better than for manufacturing overall but still a lower one-third of ranking value.

Orders and demand remained sub-par in October but improved to -17.3 from -21.5 in September and similar weakness in August. This entry has a percentile standing below its historic median at its 44.1 percentile. Foreign orders and demand have shown more persistent progress, rising to -2.9 in October from -13.0 in September; this series, quite contrarily, has a very strong 81-percentile standing. The French, in some sense, expect to be boosted by foreign economies. That remains to be seen since it is far from clear where this stronger growth is going to occur.

On the price front, the own-price responses are weaker than their August levels while for overall manufacturing prices, the expectation is for net stronger pressures. The own price ranking is at 34.8% with the manufacturing index at a 44.9 percentile.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Oct 18 2023
U.K. Inflation Ticks Higher in September -RELAX
Inflation in the United Kingdom moved higher in September with the month-on-month CPIH headline rising by 0.5% after rising by 0.4% in August and falling by 0.1% in July. The core CPI, which is a measure excluding energy, food, alcohol beverages, and tobacco, rose by 0.4% in September after being flat in August and logging a 0.5% gain in July. The monthly trends of these inflation metrics are not particularly impressive; however, longer trends are more reassuring.

Headline inflation rises by 6.4% over 12 months, at a 4.4% pace over six months and at a 3.4% annual rate over three months. For the core CPI, the 12-month gain is 5.9%, moving higher to 6% over six months and then decelerating to 3.6% at an annual rate over three months. The 5.9% increase in the core-CPIH year-over-year is the same as it was in August. This pair of monthly observations shows the slowest increase in year-over-year inflation since March of this year. Similarly, the headline has become more disciplined even as the year/year pace rose to 6.4% from 6.3% in August. But this is the same as the 6.4% in July and prior to that inflation was running at a pace of greater than 7%, greater than 8%, and greater than 9%! Apart from this recent monthly stretch, inflation was last below 7% in March 2022. Even with the slight backtracking in the headline rate and the flat year/year result in the core, the trends for inflation progress in the U.K. remain in place.

Diffusion that looks at the propensity of inflation to pick up on a period-to-period basis shows mild readings for month-to-month data from July through September. September diffusion is at 54.5%, it was as low as 36.4% in August, and it was at 54.5% in July as well. The neutral reading for inflation is 50%. And the reading of 50% inflation is accelerating in as many categories as is decelerating period-to-period. A reading slightly above 50% indicates a slight tendency for inflation to accelerate across categories. These diffusion results are broadly in the zone of neutrality; in the case of August, there is a clear signal that inflation decelerated broadly.

Applied to the sequential data where we look at three-month inflation compared to six-month inflation, and six-month inflation compared to 12-month inflation, and 12-month inflation compared to a-year-ago inflation, we find diffusion measures at 36.4% over three months, at 45.5% over six months, and at 36.4% over 12 months. All of which indicate that inflation is slowing down period-to-period across categories. This means that inflation across the various CPI categories is behaving and giving the same signals as headline inflation, which is not always the case. In this case, the confluence of inflation trends, assessed in different ways, is reassuring.
by:Robert Brusca
|in:Economy in Brief
Global| Oct 17 2023
Most ZEW Metrics Backtrack in October
The ZEW survey in October is little changed from the views offered in recent months. The macroeconomic assessment for October shows a relatively sharp deterioration in the euro area, a minor monthly deterioration in Germany, and a small amount of progress in the United States, according to the surveyed experts. Averaged three-month, six-month and 12-month data show the euro area largely unchanged in its negative assessment. Germany is assessed as progressively worse while the U.S. progresses to minor improvement in six-months compared to 12-months and in three-months compared to six-months. Assessed based on their queue data standing, the U.S. has the stronger economic situation at a 42-percentile standing, the euro area has a 30-percentile standing, while Germany has a much weaker 13-percentile standing. All of these are below the 50% mark that registers the median value for each individual sovereign area.

Macro-expectations Macroeconomic expectations for the U.S. and Germany find negative expectations in October for both but an improvement in Germany against a deterioration in the United States; both in magnitude of about 10 points (plus for one minus for the other). The averages from 12-months to six-months to three-months show Germany deteriorating to slightly weaker conditions over three and six months. The U.S. gives erratic but consistently negative and slightly more deeply negative readings than in Germany at least based on average diffusion readings. However, the ranking of the October German figure is only slightly higher at 25.8% than the ranking of the U.S. figure at 24.4%. Both reside at or near the bottom 25-percentile in their historic queue of data.

Inflation expectations Inflation expectations fell in the euro area, Germany, and the United States at a time that inflation is excessive in all regions relative to target, indicating that inflation reduction progress is still in gear and progressing more rapidly than it was a month ago. However, on averaged 12-months to 6-months to 3-months data, the metrics all have taken on slightly stronger readings indicating that in the big picture inflation reduction is occurring but that the expected pace of progress may be slowing down.

Monetary policy As for monetary policy, short-term interest rate expectations in the U.S. have gone flat at zero while in the EMU region, there is a sharp reduction in the average diffusion value indicating that some rate hikes are still expected but fewer than before. Both the U.S. and euro area 12-month to 6-month to 3-month averages show steady and large reductions in value, sequentially.

Long-term rate expectations Interestingly, long-term rate expectations turned negative in Germany compared to earlier months while, in the U.S., the reading retained its ongoing negative diffusion value. Recently bond yields have moved higher, contrary to these survey expectations. The progression for averages from 12-months to six-months to three-months shows a steady significant reduction in long-term rate expectations transitioning from positive readings over 12 months to negative readings over three months in both the U.S. and Germany.

Stock market expectations Stock market expectations largely weakened. In the case of Germany, the weakening was slight. The U.S. and the euro area showed sharper reductions in their diffusion indexes that nonetheless remained positive in October. Sequential values show little evidence of changed momentum in any direction.
by:Robert Brusca
|in:Economy in Brief
Europe| Oct 16 2023
Euro Area Trade Surplus Surges Higher through the Backdoor
The European Monetary Union has logged its 4th trade surplus in a row and the 5th surplus in the last six months. This follows a long stretch of deficits that arose in the early post-COVID period.

The surplus: The surplus in August has moved up to €11.9 billion from €3.5 billion in July. The 12-month average is still at a deficit of €7.8 billion. The current account surplus/deficit situation is chronically a balancing act between a manufacturing surplus and the deficit logged on the nonmanufacturing account. In August, the manufacturing trade balance among monetary union members moved up to €34.9 billion from €29.9 billion in July. That compares to a deficit of €23 billion in August versus €26.4 billion in July for the nonmanufacturing trade balance. The larger surplus in manufacturing, of course, causes the overall trade balance to be positive.

Month-to-month: Exports in the monetary union rose by 1.6% in August after falling by 1.7% month-to-month in July; imports fell by 2% in August after rising by 0.1% in July.

Sequential trends: Sequentially export growth in the monetary union is still negative but at more or less steady negative paces running at -3.8% over 12 months, at a -4% pace over six months and at a -3.6% pace over three months. Imports also show consistent and essentially trendless negative growth rates, but they are much weaker growth rates (larger negative growth rates) that coalesced around declines of 20% at an annual rate or a little bit more.

Sequential manufacturing trends: Focusing on manufacturing doesn't change the trends very much. Manufacturing exports over 12 months to six months to three months show all-negative growth rates in a range of -1.8% to -4.0% annualized. Similarly, manufacturing imports show consistent and much larger negative growth rates of -12.8% over 12 months, of -9.7% annualized over six months and of -20.2% at an annual rate over three months. Germany's trade performance is not being achieved on the back of strong exports; rather it's been done on the back of continuing weakness in exports with even weaker conditions in imports.

Sequential nonmanufacturing trends: However, trade performance is a result of manufacturing and nonmanufacturing trends. Nonmanufacturing trends for exports also show consistent negative results for slightly higher negative growth rates in the range between -4.3% and -11.7% over three months, six months and 12 months- again without a clear pattern. For imports, the nonmanufacturing trends show still-gigantic negative numbers, but in this case, they are tending towards slightly less weakness with -41.9% growth over 12 months, -25.3% growth annualized over six months, and -20.9% over 3 months annualized. Comparing nonmanufacturing trends, we basically get the same result as for trade in manufactures. Nonmanufactured exports are weak, but nonmanufactured imports are even weaker and that also tends to drive the trade picture more toward surplus. Clearly, it's demand weakness in the monetary union plus price weakness on the commodity price front that are helping to cause the trade picture to improve in the monetary union.

Germany: The German trade is slightly different from the EMU trend with exports logging positive growth on all these horizons, although showing weakening growth with a 7.6% gain over 12 months, a 1.7% annual rate gain over six months, and only a 0.8% annual rate gain over three months. Compared to the European Monetary Union trends, Germany also has imports weaker than exports, with imports rising 3.8% over 12 months, falling at a 19.4% annual rate over six months and then falling at a 13.1% annual rate over three months.

France: France shows some similarity to the German situation with the growing exports although in the case of France exports are accelerating from 4.3% over 12 months to a pace of 5.3% annualized over six months, to an 11.9% annual rate over three months. French imports are also declining on all these horizons although with a much weaker negative growth rate over three months as French import growth transitions from -9.2% over 12 months to -19.9% annualized over six months to an annual rate of just -2% over three months.

United Kingdom: The U.K. that is completely independent and no longer a part of the European Union shows decaying trends for exports that grow by 24.2% over 12 months, decline at a 14.6% annual rate over six months and then decline at a 54.9% annual rate over three months. U.K. imports fall by 1.2% over 12 months, then fall at a 10.1% annual rate over six months, but then only fall at a 7.1% annual rate over three months. The weakness in exports over three months completely dominate the weakness in imports for the United Kingdom over that period.

Other Selected European exports: Export data for Finland, Portugal, and Belgium show very mixed trends: all of them share declining export trends over 12 months, but then over six months Finland posts an export gain of 1.3% while exports from Belgium and Portugal continue to show substantial negative growth rates over six months. Over three months Finland’s exports declined at a 27.8% annual rate as Portugal and Belgium each saw exports increasing over three months by 7.4% in Portugal and at a 5.3% annualized rate for Belgium.
by:Robert Brusca
|in:Economy in Brief