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 13 2023
IP Gains in EMU in August- Sector Still Challenged
Industrial output in the European Monetary Union rose by 0.6% in August following a sharp 1.3% decline in July and a small 0.1% increase in June. Sequentially output remains weak but without any clear developing pattern. Output is down 5.3% over 12 months; it's falling at a faster 6.7% annual rate over six months; it is falling at a slower 2.6% annual rate over three months. However, in the quarter-to-date with two months of data in-hand, output is falling at a relatively rapid 4.6% annual rate. Turning away from the headline (which is for industrial production excluding construction), manufacturing shows a clearer deterioration in place with a 5% decline over 12 months, a decline at an 11.8% annual rate over six months, and a lesser, but still very rapid, decline of 10.3% at an annual rate over three months.

Sector results find industrial production output mostly increasing in August, with consumer goods output up by 0.7% and capital goods output up by 0.3% offset only by intermediate goods with an output decline of 0.3%.

Sequential sectors Sequential sector results from manufacturing shows consumer goods with output falling 2% year-over-year, falling at a 5.8% annual rate over six months and then rising at a 0.7% annual rate over three months. Intermediate goods output falls at fairly steady 5% pace over 12 months, falling at a nearly identical 5.1% annual rate over six months and falling just a slightly less rapidly 4.4% annual rate over three months. Capital goods has a consistent pace of decline over 12 months, six months and three months, with growth rates clustered near an extremely weak 10% annual rate over each horizon.

Monthly country results Thirteen European Monetary Union countries offer early results for manufacturing industrial production. In August only three countries show month-to-month declines: those are Belgium, France, and the Netherlands. However, in July six countries showed month-to-month declines, while in June ten countries showed month-to-month declines. In June the countries showing increases in industrial production were Italy, the Netherlands, and Ireland.

Sequential growth in IP across EMU members Sequentially these 13 countries show output accelerating in half of them over three months and in half of them over six months, but acceleration occurs in only about 8% of them over 12 months. The accelerations compare three-month growth to six-month growth, six-month growth to 12-month growth, and 12-month growth to the period of 12-months ago. Acceleration data look somewhat better with essentially neutral readings over three months and six months showing that only half of the countries are experiencing output growth that is decelerating. However, in many cases this is because the decline in output – which is still in train- is occurring at a slower pace. Over three months nine countries show output declines; over six months twelve of thirteen-countries show output declines; that is the same number as over 12 months. Output in the monetary union in the manufacturing sector is still broadly declining; however, the pace of decline is not clearly accelerating as over three months and six months we see that accelerations are worse in only half of the members. However, quarter-to-date data show that eleven of thirteen countries are showing output declining with two-month data in for the third quarter.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Oct 12 2023
U.K. Manufacturing Falls in August – Still Solid 12-Month Growth
Industrial production in the United Kingdom fell in August, dropping for the second month in a row. Manufacturing industrial production fell by 0.8% in August after falling by 1.3% in July. However, sequential growth rates over 12 months, six months and three months show expansion on each of those horizons, although without a clear tendency for growth to accelerate or to decelerate. In the quarter-to-date, industrial production is rising at a 0.5% annual rate with two months of data in place. The U.K. economy has generally struggled in the post-COVID period. Which also coincides with a post Brexit. Industrial production and manufacturing are down 3.9% in August 2023 compared with level on January 2020 before COVID struck.

Not only did headline growth rates fall in July and August, but sector growth rates also fell in both July and August. Sector growth rates fell in each one of the major sectors: consumer durables, consumer nondurables, intermediate goods, and capital goods. The largest decline was in consumer durables where output fell 2.5% in August after falling 3.7% in July; capital goods output fell by 1.4% in August after falling by 0.7% in July.

Sequential growth rates show gathering downward momentum for consumer durables where output falls by 4.8% over 12 months, then falls at 6.6% annual rate over six months and then accelerates to a 15.9% annual rate drop over three months. Consumer nondurables output, however, takes the opposite tact, rising by 4.5% over 12 months accelerating to a 5.3% gain over six months, and then accelerating to an 8.1% annual rate over three months. The consumer sector is caught between two completely opposite trends. Intermediate goods output shows some repair underway as output falls by 3.6% over 12 months; that decline is reduced to a -2.2% pace over six months and then output logs a 1.4% increase over three months. For capital goods, there's no trend apparent except that output increases on all three horizons advancing by 7.6% over 12 months and then slowing to a 2.3% annual rate over three months with a slight speed-up in between.

Quarter-to-date sector output trends are not uniform, which is not surprising after looking at the sequential trends. Consumer durables are falling at a 13.1% annual rate while consumer nondurables are expanding at a 6.3% annual rate; intermediate goods output is falling at a 2.9% annual rate while capital goods output is rising at a 1.2% annual rate- all in all, it’s a pretty mixed performance.

The table also produces some industry-specific data. The most interesting thing in the industry data is the weak performance of utilities output in the U.K. This is attributed to a substantial transition to energy saving devices, particularly electricity. The output of electricity, gas and water utilities is lower by 42.6% from January 2020. Overall manufacturing output is down by only 3.9% on this same timeline. This is an incredible difference; much of this owes to to the transition to energy-saving devices, particularly electrical devices. Over the same period, mining & quarrying output is down relatively sharply as well, while the three other listed industries in the table show increases ranging from a 3.9% gain in motor vehicle & trailer output to a 47.2% increase in textiles & leather.
by:Robert Brusca
|in:Economy in Brief
Germany| Oct 11 2023
German Inflation Marks Progress to a Lower (Still Too-Hot) Pace
German inflation was zero in September as measured by the HICP. The core measure of the HICP fell by 0.2% month-to-month. These tallies compare to a headline gain in the German domestic CPI definition of 0.3% month-to-month and a CPI ex-energy that rose by 0.2%, also in September.

Sequential patterns The sequential patterns in German inflation differ for the HICP measure and the German CPI measure. The headline shows a 4.4% gain over 12 months, reduced to 3.4% at an annual rate over six months, then picking up to 3.9% at an annual rate over three months. The headline CPI pattern is not that different, with a 4.5% gain over 12 months, a 2.8% annual rate gain over six months, moving up to a 3.8% annual rate gain over three months. For core inflation, the HICP measure shows a steady deceleration from a gain of 5.4% over 12 months to a pace of 3% over six months, down to 2.3% at an annual rate over three months. The German CPI excluding energy posts a 4.8% gain over 12 months, reduced to a 2.5% annual rate over six months, but then creeping up to a 2.8% annual rate over three months. These two measures of the core inflation show steady deceleration for the HICP, while the domestic CPI excluding energy shows inflation moving to a lower range but not steadily decelerating.

Inflation breadth sequentially Diffusion measures the breadth of inflation. These diffusion metrics are formally constructed as half of the number of categories with unchanged inflation on the period and the full proportion of categories with inflation rising period-to-period. If inflation accelerates in half the categories and decelerates in half, the diffusion reading is 50%; if inflation is unchanged in all categories diffusion is 50%. The 50% mark is construed as inflation-neutral. Diffusion calculated on the domestic categories shows that year-over-year inflation rose more prominently with the diffusion measure of 63.6%; that value emerges by comparing inflation over 12 months with the inflation rate of 12-months ago across categories. Over six months, diffusion drops sharply to 27.3%. This measure compares the six-month inflation rates to the 12-month inflation rates across categories. However, over three months even though the headline and core inflation rates do not tick up by very much on the domestic measure, inflation diffusion comparing three-month inflation rates to six-month inflation rates posts a diffusion metric of 72.7%, indicating inflation accelerating broadly over 70% of the categories.

Inflation breadth monthly The monthly data show a slightly better picture looking at the domestic CPI patterns as the month-to-month changes in inflation in July compared to June post diffusion of only 9.1%; the August to July inflation comparisons show diffusion at 45.5%; the September diffusion measure that compares September inflation across categories to August is only at 27.3%. Inflation on a month-to-month basis looks a lot more calming than the three-month to six-month comparison; the latter shows a sharply higher diffusion metric.

Oil prices spurt However, one of the things to bear in mind is that Brent oil prices have been moving up very sharply over all these periods: over 12 months Brent oil prices measured in euros falls 5.3%; over six months oil price rises at a 37.3% annual rate; over three months oil price rises at a 136.1% annual rate! According to monthly data, the month-to-month gain for Brent oil is 4.1% in July, and moves up to 7.6% in August, and by 10.7% in September. So, the oil prices are moving up and this is going to have an impact particularly on the headline inflation for Germany. The knock-on effects to the core, however, are much less clear cut and there’s a good deal of buffering between the headline and the core impact of Brent oil.

Month-to-month changes in annual/annualized rates For the HICP core, however, the 12-month inflation rate has moved sharply lower to 5.4% from a year-over-year rate of 7% in August, and year-on-years rates of over 7% in June and July as well. The six-month inflation rate breaks lower to 3% in September compared to rates of over 5% in August through May and rates much higher for April and earlier. The three-month inflation rate in September moves to 2.3%, compared to 6.4% in August although it compares to even lower three-month rates in the 3.5% to 5% range from July through May. The HICP headline also broke sharply lower in September with the 12-month pace falling to 4.4% from 6.5% in August. The six-month headline pace fell to 3.4% in September from 4.2% in August while the three-month pace fell to 3.9% in September from 6.9% in August. The September 3-month headline pace is still higher than the three-month pace in May, June, and July.
by:Robert Brusca
|in:Economy in Brief
Germany| Oct 06 2023
German Orders Jump…But from a Pothole
The year-over-year chart of German order growth rates puts in context some of the wild changes in growth rates we've seen month-to-month over the past three months or so. But the chart makes clear that the year-over-year trends haven't changed very much although there's been a great deal of monthly turbulence recently. In June, orders jumped 7.6%. In July, they fell by 11.3%. In August, they rose by 3.9%. On balance, over this period there hasn't been much change in orders, but the monthly turbulence has been tooth-rattling.

Sequential growth rates aren’t particularly telling either, with 12-month growth at -4.4%, the six-month annualized growth rate at -11.3%, and the three-month growth rate stands at -3.1%. All these statistics show that over all the periods orders are declining, but there's no clear trend beyond that. Foreign growth shows some wild swings from -5.1% over 12 months, to -12.5% over six months, then jumping to +6.7% over three months (all annualized). Domestically there is deterioration as the 12-month growth rate of -3.2% gives way to a -9.3% pace over six months which then gives way to -15.4% pace over three months. The domestic picture is worth keeping an eye on.

Sector sales, adjusted for inflation, generally show declining trends and a tendency toward progressive deterioration apart from consumer durables and intermediate goods. For all the manufacturing, sales rise by 0.8% over 12 months, fall 1.9% over six months and then the drop accelerates to -7.2% over 3 months, a clear deteriorating pattern. So while the order patterns are indeterminate except for domestic growth, demand conditions are clearly worsening - the trend for demand shows the clear deterioration.

Industrial confidence for selected large European economies shows negative numbers and a worsening for the recent months apart from Spain and, even that is a minor exception. The averages for industrial confidence measures over 12 months, six months and three months are negative and show deterioration on those timelines.

Quarter-to-date trends are broadly negative with two months of quarterly data now available. For the European industrial data, the table presents instead of quarterly changes the queue percentile standings and here the standings are in the lower 30th percentile for three of the four countries with Spain logging a stronger 41-percentile standing.
by:Robert Brusca
|in:Economy in Brief
France| Oct 05 2023
French IP Extends Its Weak Streak; Output Declines in August
French manufacturing production fell by 0.4% in August, reversing a 0.4% increase in July after falling by 0.9% in June. Manufacturing in France shows a steady string of declines falling by 1.1% over 12 months, falls at a 0.7% annual rate over six months and accelerates that decline to a 9.7% annual rate drop over three months.

Sector trends- The output of consumer goods, however, shows mixed trends. Durable goods output moves in the other direction with consumer durables output up by 4% over 12 months, up at a 13.8% annual rate over six months and rising at a 16.8% annual rate over three months – a clear, strong, accelerating path. On the other hand, however, consumer nondurables output continues the weak streak that we see in the headline, falling by 2.7% over 12 months, falling at a 4.4% annual rate over six months, and falling at a 2.4% annual rate over three months. Capital goods output is declining in August on a month-to-month basis. But it rises by 3.8% over 12 months, accelerates to a 4.2% annual rate over six months, then drops back to gain at only a 2.5% annual rate over three months. Clearly, the sector that's driving negative industrial output overall is intermediate goods where output logs a 5.9% decline over 12 months, a decline at a 4% annual rate over six months and a decline at a 12.8% annual rate over three months.

The quarter-to-date- Data are up to date through August, so the quarter-to-date calculations are for two months into the third quarter. On that basis, output is falling at a 0.1% annual rate, consumer durable goods output is falling at a 1.3% annual rate in the quarter, consumer nondurable goods output is rising at a 1.2% annual rate, capital goods output is rising at a 3.8% annual rate, and intermediate goods production is falling at a 6.4% annual rate. Output trends in the quarter clearly have mixed characteristics; in fact, in the quarter-to-date numbers seem quite different than the trends that we see sequentially over 12-months to six-months to three-months.

Auto registrations- The registration (and, presumably, the purchase) of automobiles fell by 2.5% in August after rising 3.2% in July and falling by 2% in June. Sequentially registrations are mostly weak, falling by 2.8% over 12 months, rising at a 7.4% annual rate over six months, and then falling at a 5.3% annual rate over three months. However, this pattern compared to the second quarter base still generates a 15.1% annual rate gain in the quarter-to-date with two months of data into the third quarter.
by:Robert Brusca
|in:Economy in Brief
Global| Oct 04 2023
OECD LEIs Mostly Creep Higher in September
The OECD 7 and U.S. LEIs each gained 0.1% in September. Europe’s Big 4 and Japan were both flat. Asia’s Major 5 gained 0.1% in September. Progressive annualized growth rates calculated for these countries/regions from the normalized indicators show gathering strength for the OECD 7, Japan, and the United States. Asia’s Major 5 are on the cusp of progressive acceleration and should probably not be excluded on a technicality because their 3-month and 6-month growth rates are so much stronger than other regions even if the 3-month pace is a tick slower than the 6-month pace. And, only Japan and Asia’s Major 5 have queue standings of their LEI levels (top panel) that are above their historic medians (above a rank of 50%). The OECD 7, Europe’s Big 4 and the U.S. all are in or at the border of their bottom third rankings on the amplitude-adjusted level assessment.

Gaining traction... Recalibrating the ranking for growth rates of LEI measures, rather than ranking on levels, shows a 91.4 percentile rank standing for China, a 74.7 percentile ranking for the U.S., a 68.2 percentile standing for OECD 7, and a 64.7 percentile standing for Japan. Only Europe’s Big-4 grouping is below its median value. These are ranked on six-month growth for data back to mid-1999. All the six-month averages are gaining and the changes over six months on LEI levels also show gains across the board. The OECD prefers to assess its LEIs over six-month periods. On that basis, the LEIs are broadly GAINING TRACTION.

Amplitude adjusted assessments- The third panel of the table shows ratios to trend for the LEIs on an amplitude-adjusted basis. Only the U.K., Japan, and China are consistently above 100 indicating above normal expansion. The LEI level standing shows above median performance for the U.K., Japan, Germany, France, and China.
by:Robert Brusca
|in:Economy in Brief
Global| Oct 03 2023
Manufacturing PMIs Are Split in September, But Mostly Weaken
Momentum: In September, 10 of 18 manufacturing PMI observations across countries and areas listed in the table deteriorated. Over three months, half of the observations deteriorated compared to their values over six months. Over six months, 8 of 18 diffusion metrics-slightly less than half- deteriorated compared to their value over 12 months. However, over 12 months, only four observations improved leaving 14 in the deteriorating mode. Conditions are still considerably mixed between improvement and deterioration, but they are clearly tilted toward more deterioration than toward more improvement, indicating that globally manufacturing continues to be under pressure.

Sequential comparisons of expansions vs. contraction: As to actual expansion or contraction on the PMI gauge, 14 of 18 show contraction in September while 12 show contraction in August and 14 show contraction in July. The preponderant result shows contraction, meaning PMI values are below 50. Looking at broader comparisons, over three months 13 of 18 reporters have values showing contraction, over six months 12 of 18 show contraction and over 12 months 11 of 18 are indicating contraction.

Assessment favors WEAKNESS: While the statistics about improvement versus deterioration are somewhat more mixed, it's clear that for most countries whether they are improving or deteriorating slightly they are nonetheless still in the contraction zone as far as the manufacturing sector is concerned. The global manufacturing economy remains under pressure.

The strongest: Only Mexico, Russia, Indonesia, and India register manufacturing PMI values above 50 over all three horizons of three months, six months, and 12 months. In the case of Russia, I would say that statistic is suspect, but it's the one that's reported and having the alternative it's the one that I use.

The weakest: Germany is the only country with readings over three months, six months, and 12 months that all are below a diffusion value of 45.

Broader, five-year rankings- The queue percentile standings for this group of countries are extremely weak; the median reading, in fact, is 26.9%. The median sits barely above the lower quartile which is an extremely weak position. Russia has the strongest percentile standing at 98.1% but probably only if you're willing to suspend disbelief. After that, the highest reading is India's 82.7%, Indonesia's 73.1%, and Mexico's 69.2% China has a 59.6 percentile standing in September. However, among the largest industrialized countries, the readings are the weakest. The euro area has a standing in its 7.7 percentile, which includes Germany at a 7.7 percentile standing, and France at a 5.8 percentile standing. The U.S. has a 25-percentile standing. The U.K. has a 5.8 percentile standing - the same as Canada. Large economies have extremely weak readings for the most part. China is the exception as the only large economy with a standing above its 50th percentile.

Relativity... And while I like the standings data because it accounts for structural historic differences, it's also true that relativity in some cases is not the bets metric. This high standing for China, for example, refers to a manufacturing PMI value of 50.2 which places it barely in expanding territory. Since we have been in a prolonged period of impacted growth, when rankings over the last five years we are comparing everything to a period in which most of the readings have been extremely low except for a few relatively strong observations that occurred when countries temporarily broke out strongly from the Covid lockdowns.
by:Robert Brusca
|in:Economy in Brief
Japan| Sep 29 2023
Japan’s Industrial Production Is Mixed in August
Industrial production in Japan in August rose by 0.2% after falling by 1.6% in July. Manufacturing output in August fell by 0.2% after falling by 2.4% in July. Overall industrial production has made a gain while manufacturing production is pulling back slightly.

Sequential growth rates from 12-months to six-months to three-months show lessening weakness culminating in a small positive growth rate over three months for total industry output. Overall industrial production falls at a 3.4% annual rate over 12 months, falls at a 1.1% annual rate over six months, and then makes a 6% annual rate positive gain over three months. Manufacturing follows suit. Its sequential rebound shows output falling by 3.8% over 12 months, falling at a 2.7% annual rate over six months, then advancing at an 8.5% annual rate over three months. While the monthly data are somewhat chaotic, both overall and manufacturing industrial production are showing accelerating sequential growth.

The sequential acceleration is borne out by the chart at the top of this report; however, it's part of a still very flat growth process where we can see that three-month, six-month, and 12-month growth rates for industrial output have been in a narrow range and have been somewhat arbitrarily changing places for a relatively long period of time. The chart traces data back to September 2022 and on this timeline no clear pattern of acceleration over any sustained period can be identified.

The paradox here is that quarter-to-date all industry and sector as well as aggregate measures are showing a decline in output, two months into the third quarter. The sequential growth rates, on the other hand, give us some sense of an acceleration in progress. These two measures conflict with one another.

The manufacturing industries, textiles, and transportation, show sequential growth rates that are getting progressively weaker from 12-months to six-months to three-months. These are contrary to the trends for manufacturing overall.

By sector, consumer goods output is up by 1.3% over 12 months and gains at a 2% rate over six-months but then drops at a 13.2% annual rate over three months – it is decelerating. Intermediate goods show the progressive acceleration that we see in the headline as output falls by 2.6% over 12 months, falls by 0.4% at an annual rate over six months, and then advances by 4.4% at an annual rate over three months. Investment goods show an unclear sequential pattern falling by 11.1% over 12 months, reducing that drop to -4.7% annualized over six months, but then having an accelerated drop at a -20.1% rate over three months.

Mining shows a pattern that looks close to progressive weakness, with an 8.6% decline over 12 months, a similar 7.6% decline over six months, followed by an accelerated 17.3% annual rate fall over three months.

Not surprisingly electric & gas utilities output shows persistent strength with output rising 2.2% over 12 months, advancing at a 9.5% pace over six months, and rising at a a 24.9% pace over three months. Utilities output simply feeds current activity and demand and there is less ability to stockpile output from the sector.
by:Robert Brusca
|in:Economy in Brief
Europe| Sep 28 2023
EC Commission Indexes for EMU Slide Lower Again
The European Commission indexes of overall confidence and sector assessments for September slipped lower and the European Monetary Union (EMU) with the overall gauge dropping to 93.3 from 93.6 in August. At that level, the overall index has a ranking among historical observations back to 1990 in its lower 24th percentile, an extremely weak reading.

Component or sector readings for EMU The component readings for the index show slippage or unchanged values for all components except the industrial sector where there was a month-to-month improvement in September to -9 from a -10 reading in August. The service sector assessment was unchanged in September at a level of 4.0. The retail and construction indexes each slipped to a reading of -6 in September from a reading of -5 in August. Consumer confidence in the EMU fell to -17.8 in September from -16 in August; it has the lowest component ranking among the five components at a 14.1 percentile standing in September. Confidence in the EMU is doing very badly. The industrial and services assessments also have standings below their 50th percentiles. Retailing and construction have percentile standings above their historic medians (which means they're above the 50th percentile). Construction has a relatively firm standing at a 70th percentile standing; retailing has a 58.7 percentile queue standing.

Country level performance in September 18 of 19 members report country level confidence readings for September; 8 of 19 members show month-to-month declines, the same number as in August and one more than July. Among the largest countries (Germany, France, Italy, and Spain), Italy and Spain showed declines in September while Germany, France, and Italy showed declines in August. Germany and France showed declines in July as well. The large countries have consistently been showing weakness. Because the overall European monetary union gauge is weighted for economic size, this weakness among the largest economies weighs on the overall index.

Standings show broad and intense weakness The monetary union gauge itself has a 24.2 queue percentile standing; this compares to a 15.9 percentile standing in Germany, the largest economy in the EMU. France, the second largest economy, has a standing at its 37.5 percentile. Italy, the third largest economy, logs a 41.1 percentile standing. Spain, the fourth largest economy, has a 39.5 percentile standing. Among the remaining 14 countries, only three have queue percentile standings above their 50% mark. Those are Malta with a 99.6 percentile standing, Greece with the 71.5 percentile standing, and Cyprus with a 62.7 percentile standing. Most countries large or small have overall sentiment standings below their 50th percentile and generally substantially below their 50th percentiles. Among the largest four economies, the highest percentile standing is from Italy with a 41.1 percentile standing; among the other 14 in the table, setting aside the three that have readings above the 50% mark, the highest percentile standing is 39.2% in Lithuania, followed by 33.6% in Slovakia, 29% in Latvia, and 28.5% in Luxembourg.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 27 2023
EMU Money and Credit Decline Broadly in August; Globally Money Growth Remains Weak and Largely Contracts
Monthly money and credit developments in July hinted at a possible reversal in the ongoing global declines in money and credit trends one month ago. However, in August the data for money and credit in the European Monetary Union (EMU), as well as money supply data from the U.S. and the U.K., show that the declines in money on the month are back in force. Only Japan shows an increase in money supply in August and that's not surprising since Japan has a legacy of positive money growth rates unlike other major monetary centers in this table.

EMU conditions Nominal growth- The European Monetary Union shows negative money supply growth in both July and August as well as over 12 months, six months, and three months. Money supply trends are flat with growth declining mostly at about a 2% pace or a little more over the three-, six-, and 12-month intervals. Credit growth in the EMU remains weak and registers tiny growth rates over 12 months compared to negative growth rates of about -1% over both three- and six-month horizons for overall credit and private credit.

Real growth- Inflation-adjusted growth rates for credit and money in the EMU show a table full of negative numbers. The steepest negative growth rate is over 12 months at minus 7% for M2, that gives way to -5.7% over six months and then steps back up to minus 6.8% over three months. So, we're not able to say that the decline in real balances is tapering off in the monetary union. Credit to residents has its steepest sequential growth rate over three months at -5.9%, compared to -4.9% over 12 months. Private credit posts nearly identical growth numbers to total credit as well as nearly identical trends. Money and credit in the EMU, looked at sequentially, looked at in nominal terms or looked at in real terms, show significant ongoing weakness and possibly stepped-up weakening.
by:Robert Brusca
|in:Economy in Brief
Europe| Sep 26 2023
Early Read on EMU PPI Suggests Growing Pressure
Price trends in the early reporting European Monetary Union countries show a mixed bag of results for the PPI. In August, we have six countries listed in the table of which five are monetary union members. Only two show PPI declines in August. Germany shows a decline of 0.1% and Denmark, a member of the economic union, not of the monetary union, shows a decline of 1.1%. In August, the consumer price index core HICP gains 0.3%, building on a 0.5% gain from July. The early inflation data from the monetary union suggest that the pace of the inflation decline is shifting and slowing.

Tail wind becomes head wind- Some of this pressure undoubtedly stems from Brent oil prices that rose by 6.1% in August and by 6.3% in July, both are month-to-month gains. Brent oil prices are up at a 56.8% annual rate over three months and a 3.5% annual rate over six months, compared to dropping by 12.7% year-over-year. Energy prices are no longer a tailwind for falling inflation in the monetary union.

Hints on core inflation- While the consumer price core measure shows increases in each of the last two months, for Germany at least, the ex-energy PPI gauge shows a 0.3% decline in August and a 0.4% decline in July. The German PPI excluding energy is showing a faster deceleration as it rises 1.4% year-over-year, falls at a 2.3% annual rate over six months and then falls at a 3.3% annual rate over three months.

Oil impacts the PPI and CPI- Inflation trends are somewhat confused and complicated, which is not surprising after having seen such a burst of inflation and then an unwinding of oil prices. Now, as oil prices begin to firm and rise, we're going to see an upside to headline inflation; it's unclear exactly how core inflation is going to navigate in this environment. We would expect core producer price inflation to be somewhat more sensitive to price pressures from oil and consumer prices to be less sensitive to energy pressures. But when we look at some, admittedly limited, core readings, what we're seeing in August for Germany are core prices ex energy continuing to fall while the HICP for the EMU, excluding tobacco food & energy, is rising, and slightly accelerating over three months compared to six-months.

Inflation trends- Central banks tend to focus on year-over-year inflation rates and for the monetary union we're looking at PPI prices that are declining sharply over this group of countries although for Germany the core ex-energy is up by 1.4% and, of course, the ECB is looking at consumer prices union-wide. There we see the core is up at a 5.3% annual rate, decelerating only to a 4.8% annual rate over six months and then ticking back up to a 4.9% annual rate over three months. Oil prices are wreaking havoc with these trends. Producer prices generate massive declines in inflation over 12 months and over six months; then, there are scattered results over three months as oil prices begin to turn and as the lags apparently work through different countries at different speeds. Over three months PPI prices are falling at a double-digit rate (or at least nearly so) in Germany, Denmark, and Ireland. Over three months producer prices are rising at a 3.3% annual rate in Finland, at a 6.3% annual rate in Spain, and at a 7.7% annual rate in Portugal.
by:Robert Brusca
|in:Economy in Brief
Germany| Sep 25 2023
German IFO Remains Extremely Weak
IFO survey remains quite weak: The IFO survey of the German economy in September continues to generate extremely weak readings. The all-sector climate reading in September edges slightly stronger to -20.2 from -20.4 in August. At that level, the all-sector climate index ranks in the bottom 7.8% of all observations on data back to December 1991. Ranking the al-sector metric from February 2022, when Russia invaded Ukraine, the ranking is in the lower 5% of all readings since then. Climate is unambiguously weak. And it has essentially no momentum or negative momentum.

Climate readings are weak The climate readings in September for manufacturing, construction, wholesaling, retailing, and services are little-changed. There's a small improvement in construction month-to-month, a small improvement in wholesaling, and a very small improvement in manufacturing. The other metrics worsened slightly. The strongest queue standing among any of the sectors for climate in September is for construction at a 29.6 percentile standing, followed by retailing at a 25.4 percentile standing; the weakest reading is for manufacturing at a 5.6 percentile standing and services at a 6.3 percentile standing.

Current readings are weak Current conditions in September generate a positive reading of 2.0, but that slips from 2.7 in August. The September reading has a 13.8 percentile standing on data from December 1991 and it is the weakest reading since Ukraine was invaded by Russia in February 2022. Current conditions in September improved slightly in manufacturing, while deteriorating, and all other sectors. The services sector posts a net positive reading at +9.2 in September, but that's weaker than the +12.2 reading in August. Queue standings for the sectors show the strongest reading is for construction at the 54th percentile and at retailing at about its 54th percentile as well; the weakest current reading is from services with a 14.7 percentile standing, with manufacturing and wholesaling having standings in their 30th percentiles, respectively. Of the five sectors, three of them have the weakest readings since Ukraine was invaded by Russia; manufacturing is an exception with a bottom 5 percentile standing and retailing with a bottom 10 percentile standing. Despite being ‘exceptions’ these all are very weak readings.

Expectations have abysmally weak rankings Expectations show rankings that show weaker rankings than their current rankings for every sector up and down the line with the all-sector ranking at the 6.2 percentile mark; and no sector has a reading higher than a 7.1 percentile standing. However, month-to-month there are some hints of improvement with the all-sector index improving to -26.2 in September from -26.6 in August. Wholesaling, retailing, and services all make small improvements month-to-month as manufacturing and construction show essentially unchanged or weaker readings month-to-month. One difference in the expectations column is that the ranked standings since the invasion occurred are stronger than for the current readings, although this doesn't amount to much because the global rankings are still even weaker. But compared to values over the period since the invasion occurred, the ranking for wholesaling in September has a 50th percentile standing and retailing has a 65th percentile standing. The all-sector index has a 30-percentile standing with the weakest reading from manufacturing at a 15-percentile standing. Nonetheless, it's hard to characterize any of this as good news. It’s just not vying for a ranking as the worst news.
by:Robert Brusca
|in:Economy in Brief