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| Mar 11 2024
Japan Recession: Never Mind; ‘Down’ Revised to ‘Up’ and Life Goes on
Japan's GDP in the fourth quarter was revised from a decline to an increase of 0.4%, erasing the two consecutive quarters of negative growth that had previously been in play. With that development, the notion of a ‘rule-of-thumb’ recession in Japan has been set back on the sidelines. Still, growth in Japan fell at a 3.2% annual rate in the third quarter and only rebounded by 0.4% at an annual rate in the fourth quarter. The GDP revision is a pretty thin reed on which to hang optimism.

Year-over-year GDP growth in Japan is at 1.3%; that's down from a 1.6% year-over-year pace in the third quarter and down from a 2.3% pace that was logged in the second quarter. It’s not recession, but it is an ongoing loss in momentum.

In fact, Japanese growth, looking at the year-over-year rates averaged over a five-year period, comes in at only 0.2%, indicating what an extremely weak period this has been for the evolution of Japan's GDP.

Turning back to the quarterly data, real private consumption has fallen for three quarters in a row; this is not a good development. In the fourth quarter private consumption in real terms fell at a 1% annual rate, in the the third quarter it fell at a 1.4% annual rate, and in the second quarter, it fell at a 2.7% annual rate. If we take more perspective, Japan's private consumption fell by 0.5% year-over-year in the fourth quarter and fell by 0.1% year-over-year in the third quarter. Private consumption which is the bulk of GDP (53%) is extremely weak in Japan in the fourth quarter. Public consumption (another 21% of GDP) didn't help at all; public consumption fell by 0.7% at an annual rate after rising by 1.1% in the third quarter- but that had followed a 0.4% decline in the second quarter. The consumption portion of the Japanese GDP equation is quite weak.

The investment side shows some bounce back in the fourth quarter as gross fixed capital formation advances at a 4.2% annual rate in the fourth quarter after declining for two quarters in a row before that. Gross fixed capital formation is now up 2.2% over the last four quarters, a positive development. Investment on plant and equipment rose by a strong 8.4% at an annual rate in the fourth quarter, offsetting declines in the previous two quarters - a decline at a 0.5% annual rate in the third quarter and a decline at a 5.6% annual rate in the second quarter. This quarterly series has been particularly volatile as you can see from data in the table. However, if we look at year-over-year growth, the year-over-year percent change in plant and equipment are up at a 2.5% pace in Q4, an improvement from a 0.9% annualized drop in the third quarter; that drop is preceded by a string of increases.

Housing in Japan shows weakness with a decline of 3.9% at an annual rate in the fourth quarter and a decline at a 2.5% annualized rate in the third quarter after a series of quarterly increases and year-over-year gains for three quarters in a row. But residential investment is up by just 0.4%, annualized in the fourth quarter.

GDP-net exports turned positive in the fourth quarter after posting a small negative number in the third quarter and having put erratic numbers up over the last six quarters. Exports put in a good quarter in Q4, rising at a 10.7% annual rate after a 3.8% annual rate increase in Q3 and a 16.2% annual rate increase in the second quarter. Imports generally lag-behind exports, rising by 6.9% at an annual rate in the fourth quarter, more or less pacing with exports in the third quarter at 4%, and then declining sharply to fall at a 13.5% annual rate in the second quarter. Year-over-year quarterly exports are up 3.7% in the fourth quarter compared with 2.6% decline in imports. Imports are falling year-over-year for three quarters in a row while exports are putting in consistent moderate rates of real growth.

Domestic demand in Japan fell by 0.2% in the fourth quarter after falling by 3% in the third quarter and falling by 2.5% in the second quarter- all of these are annual rates. These three straight declines in domestic demand clearly are huge challenges for GDP looking ahead. Domestic demand in Japan is also lower year-over-year by 0.1% in the fourth quarter and by 0.1% in the third quarter; these numbers compare with 1% gain in the second quarter of 2023.

Domestic demand in Japan is weak; in fact, exports are playing a key role and holding GDP growth up. Exports help to contribute to a positive stimulus from the trade balance that boosts growth. However, it's surprising that even with domestic demand down by 0.2% at an annual rate in the fourth quarter, imports in real terms still increased by 6.9%.
by:Robert Brusca
|in:Economy in Brief
Canada| Mar 08 2024
Canada’s Job Situation Remains Firm
Canada's job market turned out 41,000 jobs in February compared to 37,000 in January and about 7,000 in December. Job creation has gradually stepped up. Sequential trends show the job growth has been quite stable in Canada with employment creation over three months averaging 28,000 per month, six-month gains average 31,000 per month, and over 12 months, gains are averaging 31,000 per month. Year-over-year employment has increased 1.8% in Canada.

Goods sector job creation has slowed and turned to contraction. Goods sector jobs have declined in February, and they've declined on balance over three months, six months and 12 months- this is an enduring feature of the Canadian economy right now. Despite goods sector weakness, service sector jobs in the Canadian economy are quite robust and healthy with the 12-month gain averaging 34,000 per month, a six-month gain of nearly 35,000 per month, and the three-month gain averaging 49,000 per month.

Looking at recent months, the percentage of categories showing jobs accelerating is at 52.6% in February compared to 63.2% in January and 57.9% in December. These statistics show that jobs are accelerating consistently in more sectors than they are decelerating. Looking at sequential data, jobs accelerate over 12 months in only 42% of the categories; over six months that statistic improves to 47% of categories, but still signals more categories seeing employment reductions than increases. However, over three months the percentage of sectors showing employment acceleration rises to 57.9%, a solid reading that shows substantially more acceleration and job creation than deceleration.

Over three months, eight of the categories in the table- out of 19 total including the headline in major sectors as separate observations- show declines. Over six months, seven of these categories show declines. Over 12 months, six categories show declines, with one category unchanged. These statistics underpin the notion that job declines are relatively rare across industries. However, that's not to deny that the goods sector has more chronic and special kind of weakness in progress that has been there for at least the last year. Persistent recurring goods sector job losses stated around November 2022- but average 12-month declines that are negative have been a feature for only two months in a row.

Canada's unemployment rate has fluctuated recently. It rose to 5.8% in February from 5.7% in January. January saw the unemployment rate fall to 5.7% from 5.8%. Over 12 months the unemployment rate in Canada averaged 5.5%; over six months it moved up to 5.7%; over three months it averages 5.8% which is where it sits in February. The consistent firm levels of job growth from 12-months to six-months to 3-months have not been sufficient to hold the unemployment rate at the 5.5% mark. However, over the last six months the unemployment rate has been relatively stable fluctuating between 5.7 and 5.8%. In this cycle, Canada's unemployment rate reached a low point at 4.8% in July 2022; however, it quickly rebounded the very next month to a rate of 5.2% and after that sunk to a low of 5% in January 2023. It did not revisit that 4.8% low point again. On data back to 1990, the unemployment rate of 4.8% is the low for Canada's unemployment rate. The current rate of 5.8% that has crept up, is still a rate that's in the lower 10-percentile of all unemployment rates on that same timeline back to 1990.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 06 2024
German Trade Surpluses Rising- Exports and Imports on an Upswing
German trade showed a monthly supply widening to €27.5bln from €23.3bln in December. Goods exports advanced by a strong 6.3% month-to-month in January as imports also rose by a strong 3.6% even though imports trailed exports by a large margin.

However, those are simply monthly data and monthly trade figures ae quite volatile. The table also offers perspective with 12-month, 6-month and 3-month growth rates also presented. On that profile, exports show strong acceleration in train with the 12-month growth at 0.3%, moving up over six months and culminating in a very strong 23% annualized pace over three months. Import trends do not exhibit their monthly strength of January sequentially. Imports fall by 8.3% over 12 months, fall slightly more slowly over six months, and then trim that pace of decline to -6.2% over three months.

The German export progression speaks of a recovering global economy. We have seen the Global PMI data stabilizing and slightly improving in recent months. Germany exports are rising on the back of that development. But German imports are contracting and doing so over each of these horizons.

Import weakness reflects the weakness in Germany’s economy. A new forecast from the IFO underscores the reality of that weakness. The IFO outlook sharply downgrades its own previous prediction for German growth. The institute trimmed growth outlook for this year to 0.2 percent from 0.9 percent. Its projection for 2025 was lifted somewhat to 1.5 percent from 1.3 percent.

The IFO offers up a melting pot of reasons explaining why the outlook is for further weakness. The IFO warns that there has been consumer restraint, high interest rates, government austerity in Germany, and a weak global economy in addition the higher prices brought by inflation have combined to damp growth and reduce the IFO outlook. Still, the IFO looks for inflation to slow and drop back into its target in 2025.

The table offers up-to-date nominal export and import figures as well as a spectrum of more detailed export and import trends as well as data expressed in real terms. For comparison, the table offers one-month lagged real data along side the more detailed lagged nominal data.

The sequential growth of the lagged nominal data vs. the unlagged data show a huge differences as three-month export growth runs at a 23% annual rate, but when lagged by one-month that some growth rate drops to -4.2%. The view of exports strengthening sharply is a very new phenomenon. The same comparison with imports also shows much weaker import growth on a lagged basis. When we look at the real flows near the bottom of the table, we find the real export and export trends mirror closely the lagged nominal data referred to above. The real data do not embrace the same degree of rebound and growth as the up-to-date nominal data at this time.
by:Robert Brusca
|in:Economy in Brief
Global| Mar 05 2024
Composite PMIs Mostly Improve
Composite global PMIs in February show more widespread improvement than deterioration. Only 6 of 24 reporting jurisdictions show composite PMIs below 50 indicating contraction. Only 36% of the reporters are slowing in February, month-to-month; that compares to 40% in January, and 36% in December.

If we look at the average tendencies over three months, six months, and 12 months, we see that the number of jurisdictions contracting varies between 7 and 10 over these three horizons. Looking at the tendency for slowing over 12 months 56.5% of the reporters slow compared to 12-months ago, over six months 87% slow compared to their values over 12 months, and over three months only 30.4% slow compared to their values over six months. There's a clear tendency for global composite PMI readings to improve.

The data show that the advanced economies are most uniformly getting better; the most advanced economies are the top panel of the table. Of the six jurisdictions, five of them are getting better in February, six are getting better in January. Over three months all six of them are getting better and this is after all six of them worsened over six months.

However, there is also more consistent weakness among the developing economies particularly for the Monetary Union, for Germany, and for France. For those 3 jurisdictions, the readings are persistently below 50 over the last three months as well as over three months on average, six months, and 12 months. Italy has some sporadic readings below 50; Spain keeps its composite readings above 50 on all those timelines; the U.S., also among the advanced economies, has readings above 50 on all those horizons. The only other group that shows the preponderance of readings below 50 is a scattering of countries in Africa: Zambia, Egypt, and Kenya.

The queue standings that rank these current standings over data from the last four years show persistent positive rankings below the 50th percentile for four of the six advanced economies in the top panel; these include the U.S., the Monetary Union, Germany, and France. Again, only Africa has a clustering of values that are below the 50-percentile mark and those include Zambia, Ghana, Egypt, and Nigeria. Qatar, a Middle Eastern nation, also has a standing below its 50th percentile.

Groupings of countries show the overall averages have been slightly improving over the last three months logging an average of 52.0 in February. The medians have been improving as well and the group median logs a value of 51.3 in February from 12-months to three-months to six-months. The progression is mixed for the average and there is increased weakness on that timeline for the median.
by:Robert Brusca
|in:Economy in Brief
Switzerland| Mar 04 2024
Switzerland Shows the Way Ahead for Low Inflation
Swiss inflation both headline and core as well as HICP and its own domestic index (core and headline as well) have been showing sub-2% inflation for a quite a string of months. HICP inflation is 2% or less for the last seven months in a row with only one exception (2.1% in December). HICP core inflation, not yet available for February, is below 2% for five months in a row with no exceptions. The Swiss domestic inflation headline is below 2% for nine months in a row while core inflation on that index is below 2% for 10 months running. Of course, inflation in Switzerland is ‘always low.’ Over the past 18 years, inflation has averaged 0.5% with a median of 0.3%. While Switzerland is a success story to the rest of the world, Swiss inflation is still in the high side for, well, Switzerland.

These low rates of inflation are on the year-on-year gauge: no funny business- no three-month or six-month calculations and no disregarding special categories to engineer a 2% touch-down as some are trying to do in the U.S. Switzerland gets there with an unemployment rate at 2.2% in January. That unemployment rate is among the lowest 13% of all unemployment rates reported back to the year 2000.

Switzerland is proof that inflation can get back to normalcy. Of course, Swiss inflation had only peaked at 3.3% and its unemployment rate peaked at 3.5%. Switzerland had a much more muted Covid cycle than either the EMU or the U.S. And one cautionary note might be that Swiss unemployment bottomed one year ago and is currently engaged in a very modest up-creep, but an up-creep, nonetheless. The unemployment rate is still below the steady pace it had adhered to before Covid struck in 2019.

Inflation trends in Switzerland are on an accelerating trend but a slight one. Over 3 months, inflation accelerates in two-thirds of the categories in the table, according to diffusion calculations. Over 6 months, we find neutrally as inflation accelerates in only half of the categories; over 12 months, inflation is still broadly decelerating with acceleration present compared to the year-ago pace in only 16.7% of the categories – a marginal proportion.

Monthly inflation shows equivocation with the December diffusion rate at 58.3% (above 50% more categories are accelerating than decelerating), January is at 41.7%, and February’s diffusion is back at 58.3%. Over those recent months, we see some tendency for acceleration to become more prevalent than deceleration. However, this is happening with overall inflation at a very low pace: a 0.4% gain in December- that one is uncomfortable. But that is followed by a flat January and a rise in February of just 0.1% month-to-month. The compounded annualized pace over this three-month period has been just 2%.
by:Robert Brusca
|in:Economy in Brief
Global| Mar 01 2024
MFG PMIs Largely Improve in February
The S&P Global manufacturing PMIs are showing more improvement than deterioration in February. 11 countries in the table show improvement month-to-month while 6 show deterioration. The median reading in February is a PMI value of 50 which is right on the cusp of showing declines in manufacturing. That reading compares to readings of 49 over three months, and six months vs. a reading of 48.8 over 12 months.

In February, 61.1% of the respondents show improvement month-to-month. Over three months, 77.8% show improvement compared to six-months; over six months 72.2% show improvement compared to 12-months; over 12 months 50% show improvement compared to one-year ago. What we see from these metrics is that manufacturing has been on an improving path even though the three-, six-, and 12-month readings linger below the neutral 50% mark.

The queue standings position the February reading in each case among the last four years of monthly observations for each reporting unit. Mexico and Russia show the highest percentile standings on the data they report; Russia is showing a standing in its 98th percentile. Mexico reports a 94th percentile standing. The weakest standings are in Japan that has a 10-percentile standing, China that has a 13.3 percentile standing, and Germany that has a 14-percentile standing. The median standing among all the countries in the table is at the 47th percentile mark which is below ‘50’ telling us that the median reading for this cross section of countries a generally a reading below the individual reporters’ medians over the last four years.

In terms of the averages for various groupings of countries, the U.S., U.K., European Monetary Union, Canada, and Japan show general improvements. The average PMI manufacturing values from a year ago through February show that three-month, six-month, and 12-month values don't show much change, but there is a more significant improvement in February. The BRIC countries also show stasis for the most part for three-, six-, and 12-months, a little more significant move up in February. The Asian average follows that same pattern. In terms of the percentile standings, the more highly developed countries have the lower standing. The U.S., U.K., EMU, Canada, and Japan group is the weakest; Asia occupies a middle ground on the average ranking, and the BRIC countries have the highest percentile queue standings at about the 65th percentile.
by:Robert Brusca
|in:Economy in Brief
Japan| Feb 29 2024
Japan’s IP Falls Hard in January
Weakness is broad across sectors Japan’s industrial production fell hard in January, dropping 7.4% (month-to-month!) after rising 1.2% in December; the December gain followed a drop of 1.3% in November. Japan's industrial output has been unstable for a number of months: manufacturing production has fallen month-to-month in 11 of the last 16 months. During that span, there was only one episode of industrial production rising month-to-month in consecutive months and one of those two months was an extremely small gain of only 0.1%. The changes in industrial output have been choppy during this span. The last five monthly increases in industrial production averaged a month-to-month rise of 2.6% while the last 11 declines averaged a month-to-month drop of 2.1%. These are extremely volatile numbers, and it makes it very hard to pin down an exact pattern for industrial production except that the preponderance of declines makes it clear that the direction is lower, and the speed is ‘too-fast.’

The table makes it clear that there are declines in industrial production over three months, six months and 12 months for all the categories in the table with one single exception - that is transportation output over 12 months. And the progression is to faster and faster declines with exception of utilities output over the last three months that fell at ‘only’ a 5.6% annual rate while declining at an annual rate of 13.8% of six months.

In the quarter-to-date, industrial production is falling overall in manufacturing and in each category at astonishingly strong paces; even utilities output is falling at a double-digit rate early in the first quarter at a 12% annual rate of decline.

The authorities are giving guidance for some recovery in industrial production ahead although that's not particularly reassuring. After such sharp declines, Japan is really staring in the eye a great deal of weakness.

In addition to that, there's not anything queued up that is boosting industrial production in any obvious way for the road ahead.
by:Robert Brusca
|in:Economy in Brief
Europe| Feb 28 2024
EU Index Erodes; Germany Lags; Questions Are Raised...
In February, the European Commission economic sentiment index from the monetary union declined to 95.4 from January’s 96.1, a surprise development. This drops the reading below even its December level but above its November level. Declines are logged in three of five sectors with the industrial sector, the retail sector, and the services sector, each weakening month-to-month. The construction assessment was unchanged between January and February while consumer confidence increased to a -15.5 reading in February from -16.1 in January.
by:Robert Brusca
|in:Economy in Brief
Global| Feb 27 2024
Money Growth Weakness Begins to Abate in EMU As Well As Globally
Money and Credit in EMU- Money growth rates in the European Monetary Union are starting to show clear acceleration although the move higher is moderate. M2 growth in the Monetary Union shows a decline of 1.2% over 12 months, an increase of 0.3% at an annual rate over six months, and a 1.2% annual rate increase over three months-- a clear moderate accelerating pattern. Credit to residents in the Monetary Union continues to waffle as it declines over 12 months and three months but manages an uptick over six months; private credit shows the same pattern.

Real balances in EMU- Real money balances that reflect money supply indexed for the effects of inflation also shows a tendency to move higher although it is still contracting on all horizons. Real money growth declines at a 3.9% annual rate over 12 months, declines at a 1.9% annual rate over six months, and declines at a 1% annual rate over three months. Real credit to residents in real terms shows no clear pattern but declines on the order of 2% to 3% over three months to 12 months. The same is true for real private credit.

Global money trends- Real money balances in the Monetary Union have been declining over the last three years, the same pattern is pretty much true for the U.S., the U.K., Japan, and the other major monetary center countries. U.S. and U.K. monetary growth are calculated through December rather than January because they are not yet updated. For both the U.S. and the U.K., real balances do not decline over the most recent three-month period. U.K. real balances are flat; U.S. balances increased at a 0.2% annual rate, a very small rate of increase. Only Japan, among the major monetary center countries, shows flirtation with growth in real balances even over the three years. Over three years Japan real balances grow by 0.6%; over two years they fall by 0.6%; over 12 months they rise by 0.2%; over six months they fall a 0.5% annual rate; over three months real Japan money balances are growing at a 1.7% annual rate.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Feb 26 2024
U.K. Retail-Is It Recovery or Just Volatility?
The Confederation of British Industry Survey of retailing and wholesaling showed that retail and wholesaling sales declines slowed sharply in the U.K. in February.

Retailing Retail sales compared to a year ago were at a -7 reading in February, compared to -50 in January and -32 in December. This is a sharp improvement compared to the numbers sales had been posting; however, it is still in the lower 26-percentile of monthly reported metrics since 2000. But it is also the fifth largest month-to-month improvement on that that timeline of 284 monthly changes reported since mid-2000. This is a sharp monthly gain but still a very weak number. Orders compared to a year ago locked-in another declining figure at -14 in February, but again it was sharply better than the -36 logged in January and the -54 in December. Orders compared to a year ago have a 22.5 percentile standing. Sales, for the time of year, also improved sharply, logging a -1 reading in February compared to -47 in January and -25 in December. Sales, for the time of year, moved up above their median for this timeline to log a percentile standing in the 61st percentile. The month-to-month gain was sharp, ranking as the sixth largest change in the month-to-month survey value since mid-2000. On ranked data, the median occurs at a ranking at the 50th percentile. The reading for stocks rose slightly to 17 in February from 15 in January and also has a rank standing above its historic median, which is a standing at its 56th percentile.

Expectations March expectations for retail sales compared to a year ago also improved sharply- still logging a negative figure at -15 in March compared to -50 in February and -41 in January. However, the reading had been as strong as -6 in December of last year. Still, the month-to-month jump in the survey is the fourth largest month-to-month change in the survey value on data back to mid-2000. The ‘sales for a year-ago’ figure, despite its extraordinarily sharp improvement from February and January, still has a lower 13th percentile standing when placed in their historic queue of ranked data. Orders, for the time of year, were not much changed from February, logging another deeply negative number at -36 in March compared to -35 in February and -29 in January. The standing for the March reading is in its lower 5.6 percentile, an extremely weak reading. This is the one category that occupies a middle ground standing and does not have a strong monthly improvement. Expected orders are weak and have been bottom-scraping and weak for the last three to four months in a row. These survey responses are perplexing. On one hand, we are seeing ‘near record’ improvement month-to-month in several important categories but are still left with what are generally quite weak readings in the aftermath of those sharp improvements.
by:Robert Brusca
|in:Economy in Brief
Germany| Feb 23 2024
Germany’s IFO Confidence Measure Weakens in February
The German IFO diffusion survey weakened broadly in February. The index survey is over 5 industries plus provides an overall all-sector reading and applies itself to three venues: climate, current conditions, and expectations. We assess the readings on these 3 broad environments across the five industries on data back to 1991 and on that basis only one reading out of 18 has a standing above its median. That reading is under current conditions and the sector is construction. The construction standing; its 53.7th percentile standing places it barely above its historic median; the median on ranked data occurs at the 50th percentile mark.

Turning to the three broad areas that are surveyed, the all-sector standing for climate in February is at its 5.7 percentile. The All-sector standing for current conditions is at its 11.7th percentile and the all-sector standing for expectations is at its 9.1 percentile. In all three of these environments the readings are exceptionally weak. The climate is weak, the current conditions are weak, and they've been weak for a prolonged period. Despite that extended weakness, there continues to be weakness in expectations. This extended period of weakness has not been used successfully to repair the view of the future.

Far right-hand columns, in addition to the long-dated percentile standing column, present a column determining changes in these various metrics since January of 2020 just before COVID struck. None of the 18 readings is higher than it was in January 2020. The all-sector summary statistic for climate is lower by 24 points, for current conditions it's lower by 29 points and expectations are lower by 17 points. In all cases the stepdown compared to the pre COVID period is quite substantial. This means all these German metrics continue to run substantially below their performance of four year ago.

The far-right hand column of this table ranks data on a different timeline from the period just before Russia's invasion of Ukraine. The three venues show conditions are weak across the board although they are starting to see some stabilization on expectations. The all-sector climate index is at its low point right now at a ranking of 0. Current conditions have a ranking of 4%, extremely low and rarely lower. However, expectations have a ranking at the 48th percentile. This reading is close to the median - and recall that these statistics are being generated only since the invasion of Ukraine by Russia, so this is still a period in which the readings are going to be low - the assessment is that in February expectations are still hovering at the median for this period. And that's better than the other functional assessments for current conditions and climate by a long shot.

The chart gives us a means to understand this. If you look at the plot for the three functional surveys for climate, current conditions, and expectations note that at the very time of the invasion expectations fell very sharply immediately, while current condition and climate readings continued to erode somewhat slowly. Expectations fell to a low point and have hovered there persistently near that low, while current conditions and climate have proceeded to erode as time has passed.

The IFO survey does not paint much of an optimistic picture for this month period conditions continue to be quite weak and then the current conditions framework only services improved month-to-month. Expectations continue to show extremely low net negative readings across industries with only minor change. Climate weakened month-to-month I February except in three industries, those being construction, services, and wholesaling but only to a very minor extent. There is little reason for optimism in the wake of this survey.
by:Robert Brusca
|in:Economy in Brief
France| Feb 22 2024
French Industry Climate Improves Production Outlook Weakens
Climate improved for industry in February. Manufacturing production expectations nonetheless weakened in February falling to -8.1 from -7.0 in January.

The recent trend for production is a net negative reading in February but it is improved from its weaker reading in January. The own-industry likely trend is assessed as stronger in February, that metric is the respondents’ assessment for the performance of his own industry, but that one too is weaker in February than in January. Both are below their historic means.

Orders and demand are a net negative in February, that reading is still above its historic mean. Orders and demand in February are slightly stronger than in January. Foreign orders improved in February and are well above their historic average.

The own prices and manufacturing prices overall weakened in February. Both are substantially weaker than a year ago, as well as below historic means.

Evaluated over the sample period back to 2001 all entries in the table are weak, below their historic medians, (a ranking of 50); foreign orders are the exception, they have a high 72nd percentile standing.

Foreign demand is an important factor supporting the French economy. Domestically the economy is struggling and politically dealing with farm protests. European conditions remain touch and go with the war on its door-step and new pressures to generate support for Ukraine while the US sorts out where it will stand in the middle of a political impasse.

The recent trends and expectations for production have weak standing and momentum. The good news is that inflation has weak momentum and a low standing, too. It is being driven back. The ECB is determined to reduce it further. A recent ECB communication has deemed the greater risk to be the risk of turning to ease too soon. Like in the US at the 11th hour central bankers in Europe may finally be waking up to the idea that reducing inflation from extremely elevated levels can be done but getting it all the way back down to target is more difficult and will require a more concerted effort. For a while it appeared that central bankers would be willing to cruise with inflation in an uncomfortable zone still above target. Now maybe they are deciding that they really need to get to their target values sooner rather than later. However, the state of the French economy is a reminder as to why this is difficult. The French economy is weak and in recession. It wants interest rate help. Markets have been looking for rate reductions for some time. But central banks had been so reluctant to hike rates further when inflation peaked, that they are left with inflation progress to proceed slowly, and this could also mean lingering high rates to go the final mile on inflation progress. This is not what markets want now. But it is a reminder that policy choices that seem to avoid the hard policy options, often wind up paying the piper in a different way that may also turn out to be painful.
by:Robert Brusca
|in:Economy in Brief