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

United Kingdom| Apr 26 2023
U.K. Distributed Trades - Upswing in Effect and Expected to Persist
The U.K. distributive trades survey provides sector surveys for retailing and wholesaling in the United Kingdom in April as well as look-ahead observations or expectations for May.

Retail sales and orders currently: In April, retail sales, compared to a year ago, picked up to +5 compared to + 1 in March and +2 in February. Orders compared to a year ago were also stronger at a reading of +1 compared to -2 in March and a much weaker -25 in February. Sales for the time of year are quite upbeat with the survey value of 21 compared to 12 in March and 6 in February. The stock-to-sales ratio fell in April compared to March.

Wholesale sales and orders currently: For wholesaling, sales compared to a year ago were slightly weaker, falling back to a +13 reading from +18 in March, but still are much better than the -28 logged in February. Orders compared to a year ago were slightly improved month-to-month at -2 compared to -3 in March, and much better than the -23 logged in February. Sales for the time of year were down sharply at +15 but from an extremely elevated +35 in March; moreover, they compare favorably to zero in February and rank solidly in April. The stock-to-sales ratio has risen steadily from February to March to April.

Current sales and orders queue rankings: The queue ranking data reported sales in retailing and distributive trades show sales for the time of year extremely strong at a 93-percentile standing for retailing and at a firm 52-percentile standing for wholesaling. In retailing sales compared to a year ago have a 40-percentile standing and orders compared to a year ago have a 46.5 percentile standing; each of those metrics is below its respective historic median- on percentile ranked data the median lives at the 50-percentile ranking. The stock-to-sales rank in retailing is low at a 3.5 percentile standing. For distributive trades sales compared to a year ago, sales log a 46-percentile standing and orders compared to a year ago have a roughly 40-percentile standing; these are not too different from the standings for retail sales. The big difference is in the stock-to-sales ratio which is above its historic median for wholesaling at a 64-percentile standing compared to a very weak standing in retailing.

Expectations Expected retail sales and orders: Expected retail sales for the month ahead project a decline in sales compared to a year ago on a -7 reading in May compared to +9 in April. Orders compared to a year ago are also expected to weaken to a -8 reading compared to zero for orders relative to a year ago as assessed last month. However, both these metrics are stronger in May than their March and February values. Moreover, sales, adjusted for the time of year, are expected to rise to +16 in May from +13 in April. This also compared to +11 in March and -2 in February. Expected retail sales for the time of year are strong. The stock-to-sales ratio is expected to be slightly lower.

Expected wholesale sales and orders: Expected wholesale sales year-over-year are stronger at +9 in May compared to +2 in April and compared to values of -22 in March and February. Wholesale orders expected compared to a year ago are improved to -1 compared to -13 in April and compared to much weaker values in March in February. Expected wholesale sales for the time of year are expected to step back to a +14 reading from +17 in April, leaving them even with March’s +14 but stronger than a -8 reading in February. The stock-to-sales ratio is expected to step up in March and to continue with a step-up trend.

Expected retail and wholesale sales and orders queue rankings: The rank standings for expectations are somewhat similar as retailing has an 89-percentile standing for sales for the time of year while wholesaling logs an above median 60th percentile standing- not as strong- but a reading also well above its median. Retailing expectations for sales and orders compared to a year ago are weaker than in wholesaling; the retailing rank for sales compared to a year ago has a 17.5 percentile standing and expected orders compared to a year ago have a 28th percentile standing. For wholesaling expectations, the rankings are 43.2% for sales and 40.7% for orders. Retailing also has a low ranking for the stock-to-sales ratio on expected data while wholesaling has a 75.4 percentile standing; that is firm.
by:Robert Brusca
|in:Economy in Brief
Germany| Apr 25 2023
German IFO Climate Edges Higher; More Cross Currents Than Trends
The Germany’s IFO index moved higher in April to a reading of +0.3 from a reading of -0.8 in March. Two of the five components among the sectors log positive values in April; those are manufacturing and services; manufacturing showed a small improvement as services, while staying positive, backtracked from its reading in March. Retailing had a stronger value at -11.3 in April compared to -13.5 in March. Construction also improved to -16.7 from -17.5 in March. The wholesaling sector, however, deteriorated to -10.3, down from -7.5 in March. On balance, the climate readings in April were mixed in terms of their month-to-month changes but remained weak in terms of their standings. Only two sectors show standings above their historic medians on data back to 1991: those are construction and retailing with construction at a standing at 52.2% and retailing at a standing of 53.9%. Manufacturing has a standing of 45.5%, wholesaling is at 38.3% and services at 21.6%. However, based on the weighting scheme, the all-sector index surpasses 50% with a reading of 50.3%, bringing climate overall to an above-median reading by a small margin.

Current conditions in April slipped with the all-sector index falling back to 16.4 from 17.5 in March. April saw slippage in each of the five sectors. Each sector logged a positive reading in April but in each case, it was lower than the positive reading in March. Current conditions showed most sectors- 4 out of five of them; in fact, with readings above their historic medians. Manufacturing, construction wholesaling and retailing all were at percentile standings above 50%. However, the services sector standing at 26.0% is weak enough and the sector is important enough to hold the overall all-sector current conditions ranking at a 28.2 percentile standing.

The month in perspective What improved in the month were expectations. The all-sector expectations reading rose to -6.7 in April from -9.3 in March. There were improvements in three out of five of the sectors. Manufacturing improved, construction improved and retailing approved. Backtracking on the month were wholesaling that barely tipped lower to -26.3 from -26.2 and services that fell back to a 7.2 reading from a -4.0 reading in March.

The percentile standings for expectations are uniformly weak with only one reading among the five sectors is above its 20th percentile: in manufacturing with the 36.2 percentile standing. Construction has a 5.1 percentile standing, wholesaling an 8.2 percentile standing, services a 13-percentile standing, and retailing a 15.2 percentile standing.

The bottom line for the IFO is that climate improved marginally on the month as the current conditions index backtracked and its expectations logged a less negative reading. The percentile standings of the current conditions and the expectations components are for the most part still extremely weak. Within current conditions, two sectors have moderately strong readings and two others have moderately firm readings. But within expectations, all the readings are unequivocally and significantly weak. Comparing the readings in April 2023 to the pre-COVID January 2020 readings, we find very mixed results; the all-sector climate reading is better by only 0.9 points, the all-sector current conditions index is stronger by 12.7 points and the all-sector expectations index is stronger by just 1.6 points. Three sectors in expectations are weaker than they were in January 2020 and two are weaker on balance under current conditions. Climate is weaker for three sectors.
by:Robert Brusca
|in:Economy in Brief
Europe| Apr 21 2023
Flash PMIs: Divided We… Survive?
The S&P Global flash PMIs are for April that show strengthening in the composite readings for each of the reporting economic units in the table. Manufacturing, however, is weakening in three of the five reporting areas including the European Monetary Union and its two largest members, Germany and France. Manufacturing also weakens in the United Kingdom. Japan shows manufacturing strengthening after weakening a month ago. The U.S. is posting ongoing strengthening in its manufacturing sector. The composite PMIs are stronger in every reporter in April and March, and in all-but France and the U.K. in February. Also, in February services strengthen in all reporters, except France and the United Kingdom.

Tightening usually is procyclical; but usually does not spur growth These are surprising developments although they are still ongoing developments. It's not surprising in this report, per se, but it's surprising that this trend of improvement continues with this report far into an ongoing tightening by all the central banks represented in the table except for the Bank of Japan.

The old sequential switcheroo Sequential growth rates that over three months - and these sequential calculations are for finalized and lagged data so they're up-to-date through March not through April - conditions continue to strengthen in the European Monetary Union, Germany, and the United Kingdom for the composite. France also has strengthening in the manufacturing sector while Japan has strengthening in the services sector and the U.S. displays weakening across the board over three months (with a one-month lag). Looking at changes over 6 months and 12 months, with very few exceptions, the record shows weakening in the composite and manufacturing and in services across all these reporting units only Japan offers any exception to this. Compare the sequential change over lagged three-month data to the most recent 3-months reported in February, March, and April…stunning differences… amid monetary tightening and the highest real interest rates seen in well over a year and, in fact, much longer. No wonder the economy is strengthening?

April showers bring May flowers…but tightening? What we see in April is a culmination of a rebound that has been in progress in recent months and that is completely contrary to past trends. It's occurring after weakening in an environment where manufacturing has been and continues to weaken and in which inflation is extremely high and in conditions under which central banks have raised rates - and in most cases - rather significantly. It is probably not a result that would be predicted by many, if any, macroeconomic models. Of course, it's the strength in the services sector that is supporting ongoing strength in job growth since the services sector is the job creating sector and all these reporting regions.

How strong are the current PMIs? Beyond the monthly data and the sequential data, we can move to look at the position of the April reports relative to their historic queue of data back to January 2019. The rank standings of all the composite indexes average 68.1%. The rank standings of the services sectors average in the 74th percentile. The average for manufacturing is in the 11th percentile. Apart from differences in momentum, that are clear from looking at the results in the table, the standings of the two sectors are completely different. Manufacturing sectors have rankings near the bottom 10 percentile of what they have scored historically since 2019 with individual country standings ranging from a low of 5.8% in France to a high of 48.1% in Japan. Service sector standings range from a low of 53.8% in the United States, to 96.2% in Japan and to 90.4% in the European Monetary Union. The composites rank from a low of 51.9% in the United States to a high of 92.3% in Japan.

Manufacturing and service sectors occupy what appear to be completely different economic habitats. Only in Japan is there some semblance of similar economic conditions for manufacturing and services where the services sector has a 96-percentile standing compared to a near-50% standing for manufacturing. Even there, the ranking of the two sectors is in some sense wrong since manufacturing tends to lead and Japan is clearly still undergoing some rebound that's being supported by its services sector.
by:Robert Brusca
|in:Economy in Brief
France| Apr 20 2023
April French Sector Metrics from INSEE Show Slippage
The manufacturing climate reading for France fell to 101.1 in April from 103.5 in March and an elevated 104.5 in February. After having several months of more elevated readings, the French manufacturing gauge is reverting to weaker readings. The gauge still is not weak; its rank standing is below its historic median (below a 50-percentile rank standing). It has a moderately weak ranking value of 43.8% which is roughly 6 percentage points below its historic median on data back to 2001. However, looking at the change in this index back to January 2020 before COVID struck, the index is, on balance, lower in April 2023 than it was at that time.

Manufacturing readings Manufacturing components show that production expectations weakened in April compared to March and have weakened for two months in a row (and have net negative readings in 11 of the last 12 months). Industries report the personal likely trend for production, that is the trend applicable to the individual industries rather than to industrial production overall has weakened for three months in a row and logged a relatively sharply weaker 4.7 in April, down from 10.0 in March. The recent trend for manufacturing overall has weakened for two months in a row and is below both its January and February levels.

Orders and demand fell sharply in April; the -17 net negative reading follows a -12.7 response for March. March had improved relative to February and a two month move to stronger readings (smaller negative readings) was in progress until April. Foreign orders and demand have also weakened to -9.3 in April from -8.7 in March. That reading had improved for three-months running until April. However, the April to February readings remain clustered in a tight range. But February, March and April are significantly stronger than January.

The inventory metric shows a jump in April compared to March and gives us the highest ranking of the year at plus 21.7; it’s also the strongest reading since December.

As for prices, the ‘own likely price trend’ moved sharply lower compared to manufacturing prices in March; April was down to 12.8 from 28.1 in March. The inflation reading was stronger in January as well. Weakening price pressures have come about since these pressures peaked in December 2022. Overall, the manufacturing and industrial price level also fell to 46.8 in February from 55.9.in January; Industrial prices as a group reached peak pressure in April 2022 and pressures have been easing month-to-month since then with only one small exception in September 2022.

Standings of March readings The rank percentiles for manufacturing climate show overall industry climate below its median at a 43.8 percentile standing. Manufacturing production expectations are also below their median at a 44.9 percentile standing. The recent production trend, however, is slightly better than it's been over the previous period with 61-percentile standing, above its median. But the own-industry, or personal likely trend, shows only a 28-percentile standing, sharply below its median. Interestingly, contributors to this survey on average see their own industry performing a lot worse than for production overall. Orders and demand have a 45-percentile standing, below their historic median while foreign orders and demand have been above average, with a 61.9 percentile standing, a moderately firm reading. Inventory levels are now high in March with a 98-percentile standing; they are rarely higher. The ‘own’ expected price trend has a ranking in its 79th - nearly 80th -percentile. The manufacturing price level trend is slightly firmer near an 83-percentile standing.

Most activity readings are below their level of January 2020 before COVID struck; the exceptions are an 11.1-point change for the recent production trend and the 14.7-point change for inventory levels. Prices, of course, are much higher with the likely price trend 10.3 points higher than in January 2020 and the manufacturing sector price level higher by 27.3 points.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 19 2023
Global Inflation Cools but U.K. Inflation Remains Stubborn...or Worse
U.S., Euro Area and U.K. inflation lose momentum, but U.K. inflation is the most stubborn U.K. inflation, on its CPIH measure, rose 0.6% in March, a disappointingly large increase after gaining 1% in February. Inflation in the U.K. is 8.9% over 12 months, decelerating to an 8.4% annual rate over 6 months and then trimming down to 7.2% annualized pace over 3 months. This is still very hot inflation. In addition, the core measure of inflation rose 0.5% in March after rising 0.9% in February. The progression of core inflation goes from 5.6% over 12 months, rising by 5.8% when annualized over 6 months and rising again to a pace of 6.1% over 3 months. This is exactly the wrong progression for the U.K.

U.K. comparative inflation Comparing U.K. inflation to inflation in the European Monetary Union and to the United States, the U.K. has currently the highest year-over-year inflation rate by a large margin. It also has the smallest decline in the year-over-year inflation rate when all are measured on an HICP basis. Year-on year inflation on an HICP basis in EMU is 6.9%, U.K. HICP inflation is at 10.1% and U.S. HICP-basis inflation is at 5.3% (the U.S. HICP is up to date though February). Year-on-year EMU inflation is lower by 0.6%, U.K. inflation is higher by 3% and U.S. inflation is lower by 3.6%. The U.K. is a clear laggard on inflation progress. The U.S. is making the most progress in this grouping.

U.K. inflation dynamics The U.K. inflation progress for the headline is poor and for the core, it’s in the wrong direction. Not surprisingly the diffusion statistics for U.K. inflation that measure inflations breadth across the components in the table also is poor. One year ago, the year-over-year inflation rate had accelerated from what it had been a year before in 90% of these categories. Currently, over 12 months, the 12-month inflation rate is still accelerating in 64% of the categories compared to what it was one year ago. Over 6 months, there's a break, as inflation accelerates in only 27% of the categories compared to the inflation rate over 12 months. But then, over 3 months, the trends are back to broad deterioration as diffusion is again at 64% comparing the 3-month inflation rates to inflation rates over 6 months. These statistics do not show that there is much progress in train in the U.K. Over 3 months, the inflation rates that are deteriorating compared to 6-months are for housing & household expenditures, furniture outlets, transportation (reflecting the oil price weakness), and for restaurants & hotels (where, despite decelerating, the 3-month inflation rate is still 10.7% annualized).

U.K. economy: In terms of the performance, there has been a slight tendency for the unemployment rate to increase. In January, the unemployment rate is up to 3.8%; six months prior to that it had been as low as 3.5%. The unemployment rate in the U.K. has crept higher, but it doesn't show strong signs of accelerating.

On balance: The Bank of England still has work to do. In fact, its situation is somewhat worrisome because of the acceleration that we see in core inflation. Global trends (that we will look at below) are moving in the right direction; they will provide a better environment for inflation fighting ahead. They can provide some assistance in gaining control of inflation. But the current situation in the U.K. is that (1) inflation is too high, (2) it's stubborn, or in terms of the core measure, (3) it's simply moving in the wrong direction and (4) still too high. The main burden for success falls on the BOE.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 18 2023
ZEW Expectations Retreat
The ZEW survey by German financial experts continues to show widespread negative readings in April. The economic situation gets substantial negative readings for the euro area and Germany while the United States gets a small positive reading. Expectations for Germany are positive while expectations for the U.S. are negative. In all, the expectations and economic situation diffusion readings have weak rankings below their 50% mark, meaning that they are below their respective medians on data since 1992 – a 30-year stretch.

Nonetheless, the economic situation according to the ZEW experts improved between March and April in the euro area and Germany with readings changing from the negative mid-40s to the negative low-30s in diffusion terms. For the U.S., a positive reading of five in March gives way to a positive reading of 4.1 in April, a small setback. Expectations deteriorated month-to-month in Germany and in the U.S. on readings ranging from a ranking below the 30th percentile to below the 20th percentile.

Inflation expectations are deeply negative implying that inflation is strongly expected to fall from where it is now. The month-to-month numbers even became slightly more negative indicating that inflation progress is slightly more strongly expected. The ranking for the inflation metrics is well below the 5% level for the euro area, Germany, and the U.S. The expectation for inflation to decelerate is extremely strong.

Interest rate expectations for short-term rates moved up slightly in the euro area and moved down in the U.S. For the euro area, there's above-median reading with diffusion at 68.5 in April having moved up from 67.9 in March. In the U.S., the April reading moved down rather sharply to 44.7 from 55.3 as the ZEW experts are looking for below median rate changes compared to March. However, in both cases, the queue standing for interest rates is above the median, but much higher, at an 85.5 percentile queue standing for the euro area, compared with a 54-percentile standing in the U.S., where some are beginning to see the end game insight for the Federal Reserve.

Long-term interest rate expectations saw their month-to-month diffusion readings decline, in Germany from 28.4 in March to 21.8 in April; in the U.S., expectations fell from 18.6 in March to 9.2 in April. The queue standing for the German expectations are in their 28th percentile. For the U.S., the queue standing is in its 14th percentile. The outlook for long-term interest rates is clearly moderating.

Stock market expectations between March and April did not change very much. They stepped up in the euro area to a reading of 13 from 9.9, and also in Germany to 13.5 from 12.7. The United States’ expectations slid to 12.2 from 16.1. However, all of these are historically weak readings. The queue standings for the euro area are at its 7.2 percentile. For Germany, the standing is at its 6.6 percentile. The U.S., with a lower diffusion reading, has a stronger standing at its 24.7 percentile. The outlook for the stock markets remains subnormal and guarded.

The final metric is for the dollar against the euro and here while the reading for the U.S. dollar is still at a -6.6 in April, that's an improvement from -10.4 in March, with the queue standing at its 44.7 percentile, below its historic median but not by much. Exchange rate changes have not been much in the limelight recently.
by:Robert Brusca
|in:Economy in Brief
Italy| Apr 17 2023
Italian Consumer Prices Fall in March, But They Don’t Behave
Italy's headline inflation report, the HICP, showed that prices fell by 1.1% in March. The core measure for the HICP showed prices falling 0.3% in March. These changes came after a headline increase of 0.5% and a core increase of 1.2% in February.

The sequential percent changes in the HICP show that Italian headline inflation is moving lower. Prices are up 8% over 12 months, up at a 6% annual rate over 6 months and falling at a 4.6% annual rate over 3 months. In contrast, core inflation shows some but much less inflation progress. The core deceleration is much more moderate as prices are up by 6.8% over 12 months, they soften to gain 6.5% at an annual rate over 6 months and then slow to a 6.2% annual rate over at 3 months. For the most part, core inflation has a very, very, small deceleration built into it.

Domestic vs. HICP inflation Italy also reports out a domestic CPI; the domestic CPI for Italy fell by 0.5% in March, but the core CPI did not follow suit and was up by 0.4%. Italy's headline CPI report shows inflation falling sequentially parroting the HICP result. Headline inflation rises by 7.5% over 12 months, rises at a 6.7% annual rate over 6 months and then it falls at a 2.3% annual rate over 3 months. Core inflation for the domestic measure shows more of a decline than it does in the HICP measure. Italy's domestic core inflation is up by 6.3% over 12 months, up at a 6% annual rate over 6 months, and up at a 5.5% annual rate over 3 months. The difference between the 12-month and the 3-month inflation rate is just a little bit less than a percentage point at minus 0.8% comparing annual rates. It’s a modest pace of deceleration.

Inflation diffusion is not linear Diffusion calculations (performed on domestic CPI data) show that Italian inflation over 12 months is broadly higher than it was 12-months ago with inflation accelerating in 83.3% of the categories. However, over six months inflation accelerates in only 41.7% of the categories compared to their pace over 12 months. Over 3 months inflation accelerates in 62.5% of the categories compared to their inflation rate over 6 months. Therefore, while the inflation rates have stepped down from 12-months, to 6-months, to 3-months, diffusion calculations show that these trends are not uniform across categories and that over 3 months, despite the sharp decline in inflation compared to earlier metrics, there are a number of categories where inflation is still rising when compared to its pace of 6-months ago.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Apr 13 2023
U.K. Manufacturing Recovery Hangs on
Manufacturing output in the U.K. came to a standstill in February, the same as in January, but upward momentum more broadly continues in place.

Manufacturing output is falling by 2.3% over 12 months, rising by 1.4% at an annual rate over 6 months and then slowing to a gain of 0.4% over 3 months – but it is still rising. This sequence falls short of being an ongoing sequential acceleration; however, the results for output are clearly on the upswing and better than what they've been over the past year by a long shot.

In February, consumer durables output rose by 4.3%, consumer nondurables output fell by 1.1%, intermediate goods output was flat while the output of capital goods moved up to 1% after falling 0.7% in January.

Sequential growth characteristics by sector The sequential growth rates for output shows consumer durables output continues to fluctuate. Output is flat over 12 months, declines by 5.3% at an annual rate over 6 months, then expands at a 2.7% annual rate over 3 months. Consumer nondurable goods likewise have a trendless profile with output lower by 0.3% over 12 months, rising at a strong 4.7% annual rate over 6 months, then falling at a 3.9% annual rate over 3 months. Intermediate goods show acceleration, rising from a 5.4% decline over 12 months to register a 4.7% annual rate drop over 6 months, then climbing to a 1.2% annual rate gain over 3 months. The highlight of industrial production is capital goods which falls short of having a clear sequential acceleration; nonetheless it's quite clear that output is progressing toward that goal. Capital goods output is lower by only 0.1% over 12 months, up at a 5.5% annual rate over 6 months, then, the 3-month annual rate slips slightly to 4.8%. The 3-month and 6-month growth rates are both still quite strong and impressive.

In the quarter-to-date, U.K. output is still struggling. Manufacturing output 2 months into the first quarter is falling at a 0.6% annual rate, durable consumer goods output is falling at a 2.5% annual rate, nondurable consumer goods output is falling at a 7.2% annual rate, but the output of intermediate goods is rising at a 0.9% annual rate and the output of capital goods is rising at a 3.4% annual rate. For the time being, consumer goods industries are having the most difficult time finding the road to recovery.

Since COVID struck, U.S. industrial production has been struggling and of course Brexit also overlaps with this adjustment. The U.K. is still undergoing its adjustment to its Brexit exit. But compared to January 2020, overall manufacturing output three years later is only higher by 0.7%. Consumer durable goods output is higher by 1.5%, nondurable consumer goods output fares much better, rising by 8.1% from its level of January 2020. But on this timeline, the output of intermediate goods is lower by 1.6% and the output of capital goods is also lower by 2.8%. All in all, COVID and post-COVID has been a difficult time for industrial production in the U.K.

The table also shows performance of a few industries in the U.K. Food, beverages & tobacco show declines in February along with textiles & leather industries, electricity, gas & water (utilities) where output fell by 2.2%. However, motor vehicle & trailer output rose by 2.6% and output in mining & quarrying rose by 3%.

Sequential growth rates for these industries show negative growth rates on all horizons for food, beverages & tobacco. There is sequential contraction underway for textiles & leather where there's an increase of 3.2% over 12 months, but then a decline at a 3% annual rate over 6 months, then a decline at a 7.8% annualized rate over three months and a clear sequential deterioration and contraction for textiles & leather. Motor vehicle & trailer output, on the other hand, are volatile and largely growing; sector output is down by 0.8% over 12 months but growing at a 24.5% annual rate over 6 months and at a 3.3% annual rate over three months. Mining & quarrying shows an 8.9% decline over 12 months, a 4% annual decline over 6 months, and a drop at a 19.6% annual rate over 3 months. Output in this sector is clearly declining on all the horizons but without a clear trend. Utilities output in the U.K. just declines in all three horizons although once again without any clear trend; the decline over 12 months is 5.4% while the annualized decline over 3 months is only at a 1.9% pace.

Industries QTD On a quarter-to-date basis, only one of these industries shows an increase of any significance; that's motor vehicles & trailers where output is up at a 1.4% annual rate; food, beverages & tobacco has a minor 0.1% uptick in the QTD. Utilities output is falling at a 2.8% annual rate, textiles & leather output is falling at a 4.1% annual rate, and mining & quarrying output is falling at an 18.7% annual rate.

The COVID period These industries have also been challenged in the COVID period. Among them, only food, beverages & tobacco shows an increase from January 2020; that industry shows an increase of 8.7%. On the other hand, textiles & leather is lower by 9%, motor vehicle & trailer output is down by 29.8%, mining & quarrying is off by 15.8%, and even utilities output – which is unstockable and usually experiences trend growth- is down by 0.7% over this three-year period.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 12 2023
Japan’s PPI Ticks Lower
Japan's PPI has ticked lower in March falling by 0.1% after falling by 0.3% in February and after coming up flat in January. The sequential percentage changes for the PPI show that deceleration has been well underway. The PPI is up by 7.2% over 12 months; that falls to a 4.5% annual rate over 6 months and becomes a decline of at a 1.3% annual rate over 3 months. Do I hear in the background the sound of a BOJ victory dance?

For manufactured goods, Japan's PPI rose by 0.2% in March after rising 0.3% in February and falling by 0.3% in January. Despite the higher gains, this index also shows clear deceleration in progress. Over 12 months, the all manufacturing goods PPI has risen at a 5.6% annual rate, compared to a 3.3% annual rate over 6 months and an annual rate increase of just 0.7% - under 1% - over the last three months.

Global trends This trend fits in with global trends where data are not quite as up-to-date as the data released for Japan. Nonetheless in European the European Monetary Union (EMU), there are progressive declines in the PPI for manufacturing; the same is true in the United States. Japan's own CPI also shows progressive declines underway and Japan’s CPI core deviates slightly as it shows a 2.1% gain over 12 months, a deceleration to a 1.6% annual rate over 6 months and then moves back up to a 2% pace over 3 months.

The bottom two entries in the table allow a comparison the Japanese PPI data directly with these other data series that are one-month older. On that basis, we see Japan’s PPI decelerations remain fully in place although the declines that are experienced with a one-month lag are not quite as robust which is not surprising because of the decline in place in the month of March which gets omitted when we calculate the data in this fashion as if updates ended in February.

In the quarter-to-date (QTD) on completed data for Q1 2023 for Japan, we see Japan's PPI is rising at a 2.6% annual rate; manufacturing PPI is rising at a 2% annual rate. The QTD annual rates for inflation in the EMU and the U.S., data that are one month older, show QTD increases of about 1% at an annual rate or less. Japan's own CPI in the QTD on data through February is rising in a 3.3% annual rate with its core at a 1.2% annual rate. And finally, reworking the statistics for Japanese PPI and for manufacturing to exclude the March data and put it on the same footing as the global data, we find a much higher 6.6% annual rate rise in the QTD through February for the total PPI and an increase at a 3.7% annual rate for manufacturing.

Impact of oil prices These data suggest strongly that the inflation progress that is underway is relatively recent. Sequential data on oil prices show that oil prices are lower by 26.2% over 12 months, falling at a 20.7% annual rate over 6 months and falling at a 16.4% annual rate over 3 months. While different countries will experience oil prices in different ways (because of exchange rates), the percentage changes we enter on the table are for Brent, expressed in euros. Setting aside exchange rate issues, we can see that oil prices have been generating negative inflation forces that are quite significant in each of these periods of 12 months, 6 months, and 3 months. And while the decline in oil prices have let up considerably (from falling at a 26% annual rate to a 16% annual rate), they are still substantial and we know that the impact of oil prices on domestic price levels is not instantaneous but occurs over some period of time so there's probably still some more inflation progress in the pipeline from past oil price declines.

The last column reminds us that oil prices tend to have a significant impact on PPIs, and we see correlations there that range from roughly 0.4 to nearly 0.7 but the largest being for finished goods PPI in the United States. However, notice that for Japan Brent oil prices have a negative correlation to the CPI essentially a negligible correlation for the headline and a correlation of -0.35 for the core.
by:Robert Brusca
|in:Economy in Brief
Europe| Apr 11 2023
European Retail Sales Continue to Be Challenged
Retail sales volumes in February in the euro area fell by 0.8% after rising 0.8% in January in the wake of a 1.5% drop in December. Food and beverage purchases fell after following the same pattern as overall sales in the previous two months.

However, sequential sales patterns show total retail sales volumes falling 3.1% over 12 months, improving to a 2.8% decline over six months and then falling sharply by 5.9% over three months.

Spending on food and beverages has been improving; sales fall at a 4.8% pace over 12 months but cut that pace of decline to a -3.9% pace over six months and then fall by just 2.7% at an annual rate over three months.

Motor vehicle sales in the EU rose by 0.8% in February after falling in each of the previous two months. Registrations of motor vehicles are slowing sequentially. They rise by 11.5% over 12 months; that slows to a 5.2% annual rate gain over six months, then motor vehicle registrations fall at a 16% annual rate over three months. Registrations of motor vehicles are clearly on a weakening trend.

Quarter-to-date sales With two months of data in hand, total retail volume is falling at a 1.9% annual rate in the first quarter. Sales of food and beverages are rising at a 0.3% pace and motor vehicle registrations are falling at a 10.8% annual rate.

Country level performance Erratic monthly results- Looking at sales by country, there are ten European countries that are early reporting countries in the table; of these, 7 show sales declines in February. However, this follows January when eight of them posted increases; January, in turn, follows December in which eight of them posted declines. Retail sales patterns have been choppy over the last few months. No country on the table has three straight months of month-to-month sales increases or three straight months of month-to-month declines.

Accelerators vs. decelerators- Growth rates show there are three countries Germany, Portugal, and Belgium where the 12-month to 6-month to 3-month sales trends are getting progressively weaker. There are also three countries Italy, Denmark, and the United Kingdom, where the progressive sales from 12-month to 6-month to 3-month are getting progressively stronger (FYI: I do not consider Italy’s ‘technical’ slowing to a 6.3% annualized rate over three months to be a real slowing; it is the same as the six month pace of 6.5%). The remaining trends are mixed.

Growth vs. shrinkage- Acceleration and deceleration aside only Italy and Spain have positive growth rates over all three periods. However, Germany, Belgium, Sweden, and Norway all display declines in retail sales over all three horizons. Clearly, declines are dominating the data for European retail sales.

QTD by Country- Although total retail sales volumes decline on a quarter-to-date basis fall, there are quarter-to-date declines in only four countries in the table Germany, Belgium, Sweden, and Norway. Of course, the table includes several countries that are not members of the European Monetary Union. However, among EMU members, only Belgium and Germany show QTD declines in retail sales.

Sales compared to Pre-COVID levels- This has not been a period of strength for retail sales in Europe. Among the 10 countries in the table, looking back over a three-year period, results are uneven. Compared to January 2020 before COVID struck, six countries as of February have sales lower than they were then. Countries with sales higher than they were in 2020 include Italy, where sales are up by 9.2%, Portugal where sales are up by 3%, the Netherlands where sales are up by 3%, and Norway where sales are up by 1.6%. Total retail sales volumes in the euro area are higher by 1.7% and motor vehicle registrations are lower by 18.5%.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 10 2023
Japan’s Economy Watchers Like What They See
Japan's Economy Watchers index for March moved up to 53.3 on the current index compared to 52.0 in February; February had moved up from 48.5 in January. The future index is also on the move and rising. The March value moved up to 54.1 from 50.8. And the February value of 50.8 moved up from 49.3 in January. Both the current and the future indexes moved from readings that suggested conditions were contractionary in January to showing expansion in February and further expansion and strength in March. The two readings are moving together; they're moving higher and this is a good sign.

Standings: current and future headlines The indexes have also moved to show relatively strong readings with the current index having a 92.9 percentile standing and the future index having a 93.3 percentile standing. Both the March readings are higher than they have been except for 7% to 8% of the past observations, indicating considerable strength in the report.

The current index: standings and diffusion readings The current index provides 9 separate sectors or functional readings and of these nine readings five of them have standings in their 90th percentile range. Only one reading, housing, has a standing below its 50th percentile. A standing below 50% suggests that the sector (housing) is performing worse than its median performance. Housing in the current index format also has a 45.9 diffusion reading. Housing has the only current standing that's below 50 in addition to being below 50 on diffusion, indicating that it is contracting as well. In February, housing, the corporation index and the manufacturing index all showed contraction in progress. In January, contraction was in progress for the current index overall and for all sectors except for services where activity was neutral and for employment which was marginally above 50 at a reading of 51.0.

Future index metrics The future index gives very similar results with only housing showing a contraction in March and with a contraction in February indicated in housing, by corporations, for manufacturers, and for nonmanufacturers as well. In January, the future index showed contractions for the overall reading as well as for all the sector and functional readings except for nonmanufacturers where the reading came in at 50.4, just barely indicating some expansion in that sector. Over the last several months, the interpretation of the Economy Watchers has shifted noticeably and not so much dramatically as significantly from contraction to expansion even though the previous contractionary readings were not particularly deep and the recent expansionary reading is not particularly strong. However, it's significant that it's moved from contraction to expansion for both the current and the future readings. The percentile standing for the future index shows a headline standing of 93.3% and 90th percentile range readings for five on the nine component readings; none with standings below their respective medians. Housing has the lowest standing at 54.5%.

Current momentum The table also shows momentum: look at the current index. These are sequential readings for changes point-to-point over three months, six months, and 12 months. For the current index over each of these horizons, all of the changes are positive. For each reading, the evaluation compared to the previous period (3-month compared to 6-month, 6-month compared to 12-month, and 12-month compared to 12-month ago) show an improvement. Over six months the changes decelerate across all categories, compared to the year-on-year changes reported over 12 months. But over 3 months all reading show an even larger increase over 3 month than over 6 months except for households and retail. Japan’s current Economy Watchers index shows not just improvement but acceleration.

Momentum for the future index The future index also shows nothing but positive readings on its sequential changes. Over 12 months, all increases are larger than their change of a year ago. But over 6 months, performance is spottier with the headline slowing its gain, and with six of nine categories showing less gain than over 12 months. The accelerating readings for 6-months are retailing, housing and employment. Over three months the sectors show acceleration with only two of nine changes weaker than their change over six months. The two lagging sectors are for corporations overall and for manufacturing.
by:Robert Brusca
|in:Economy in Brief
USA| Apr 07 2023
Japan’s LEI Rises to Four-Month High
Japan's leading economic index in February has risen to a four-month high. The index is still falling at a 3.4% annual rate over 12 months, and at a sharper, 7.5% annual rate over six months. But over three months the index is gaining, rising by 0.4% at an annual rate.

However, the OECD amplitude-adjusted index is slightly lower in February and the OECD index shows a decline of 0.6% over 12 months, a decline at a 1.1% annual rate over six months and a declined at a 1% annual rate over three months.

Four of the five available components for the leading economic index show increases over three months and over six months and three of five show increases over 12 months. Japan's LEI metric has reasonably broad support based on the performance of these five components that are available at this early date. The full index includes other components that are not available quite yet.

The chart shows us that the rebound on the month is not very vigorous and of course the data calculated in the table tend to reinforce that view. It is too early to say that Japan is having any kind of a revival because this is something that on the graph looks more like a flat spot in the index rather than an actual rebound because the rebound itself is so faint.
by:Robert Brusca
|in:Economy in Brief