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

Global| Sep 01 2023
Manufacturing PMIs Show Mixed Results in August
The global manufacturing sector showed uneven results in August with some of the larger economies showing some improvement, such as the euro area, Germany, France, and Japan. However, the U.K. and the U.S., both relatively large economies, show backtracking.

Among these 18 early reporting economic units, 10 of them show improvement in August. Looking at the changes in the manufacturing diffusion indexes between three-months and six-months shows improvement in six countries. Looking at the changes between six-months and 12-months, 10 countries show improvement. Looking at the changes between now in 12 months ago, there are only four that show improvements. Those four are Mexico, China, Russia, and India, but the data from Russia at this point are quite suspect since it is on a war-time footing. China, on the other hand, had been a long period of struggling as it has an entangled exist from Covid problems; it began to make some recovery. However, now it still struggles with various problems. China may not be an example of an economy on the upswing despite what the PMI trends are telling us. China does show deterioration over three months as does Russia.

We look at the median reading. The median for August is 48.8; this is slightly reduced from July's 49.2. However, August is still above June's level of 47.8. There's no discerning a trend from this choppiness. It's just clear that the manufacturing PMIs have been chopping around in an area below 50 showing some slight deterioration in the manufacturing sector, but there doesn't seem to be any trending in place. If we look at three-months compared to six-months compared to 12-months, we find the three-month average is at 48.5, just a tick higher than the six-month average at 48.4 which is the same as the average of 48.4 for 12-months. Once again, we get this sense the global economy has been frozen in this slight contraction phase that hasn't gotten better and hasn't gotten worse but with central banks fighting inflation and with this disruptive war going on between Ukraine and Russia. Given other geopolitical tensions, it's made the economic situation seem even more tenuous.
by:Robert Brusca
|in:Economy in Brief
Europe| Aug 31 2023
Unemployment in EMU Stays Put in July
Unemployment rates in the European Monetary Union are stationary at 6.4% in July after falling in June to 6.4% from 6.5% in May.

Country level results: Among the twelve European Monetary Union members who report unemployment rates early, individual country unemployment rates fell in Belgium, Spain, Ireland, and Greece in July. Unemployment rates rose in Austria, Finland, France, Italy, and in the Netherlands. Broadly speaking, unemployment rates in the monetary union are trending lower. However, the data for July offer a cautionary tale regarding where trends are headed. At the bottom of the table, we provide reference unemployment rates for the United States, the up-to-date claimant rate of unemployment in the United Kingdom, and the unemployment rate for Japan. The U.K. and Japan both saw elevated unemployment rates in July compared to June. The U.S. rate continued to snake down after having seen a relatively sharp increase in the unemployment rate in May that has since unwound.

Sequential trends Sequential trends for unemployment rates show that for the overall European Monetary Union rate the unemployment rate is down by 0.3 percentage points over 12 months; it's also down by 0.3 percentage points over six months; it is lower by 0.1 percentage points over three months. Trends across countries show declines in the unemployment rate over 12 months, six months and three months for Italy, Ireland, Greece, and Spain. Portugal shows an increase over 12 months, with declines over six months and three months. Other countries show increases on all horizons; those are Austria, Finland, France, and Luxembourg. The Netherlands shows an increase over 12 months and three months, with no change over six months.

Ranking countries by their level of unemployment We can also look at the broad rankings for the unemployment rate. Here we find that all the monetary union countries except Luxembourg and Austria have an unemployment rate that ranks in the lower 50% of its distribution of unemployment rates (on data since 1994) marking them all as below their historic medians on this timeline. Belgium, Germany, France, and Ireland all have unemployment rates that are in the lower 10 percentile of their respective historic queues of unemployment rate observations. These are countries with exceptionally low unemployment rates compared to their own historic standards. Make no mistake: European labor markets are tight! Among the countries with unemployment rates below they're medians but somewhat higher, we have Greece with the 40.7 percentile standing, Spain with a 25.9 percentile standing and Finland with the 22.4 percentile standing. All of these are moderately low to still exceptionally low unemployment rates indicating strong labor market conditions across the monetary union- just about everywhere.
by:Robert Brusca
|in:Economy in Brief
Europe| Aug 30 2023
EU Indexes Continue Their Descent
The EU sentiment indexes for the EMU in August fell to 93.3 from 94.5 in July, continuing a steady decline as depicted in the chart. Industrial reading eroded, consumer confidence eroded, construction eroded and services eroded; only the retail reading at -5 was unchanged on a month-to-month basis. The percentile standing with the overall index is at its 24.2 percentile, putting it in the lower quartile of its queue of values. The industrial EMU readings are in the bottom 26-percentile, consumer confidence is in its bottom 19th percentile and services are in the lower 34th percentile of their historic queue. And the two readings stand above their respective medians, retailing at its 62nd percentile reading and construction at its 72nd percentile reading.

Across countries Percentile standings across the monetary union are weak with only three countries Greece, Malta, and Cyprus - all of them small economies- sporting EU index values above their respective historic medians (above a 50-percentiel standing). In August, there are declines in eight of the reporting 18 monetary union members. However, the three largest economies in the monetary union, Germany France, and Italy, each experienced sharp declines in August. Germany posted a decline of 2.6% on the month, France, a decline of 2.7%, and Italy dropped 1.1%. The fourth largest economy in the monetary union, Spain, posted its second monthly increase in a row, rising by 1.5% in August. But among the countries that saw declines, most of them were quite severe declines as we can see in the table below. Portugal saw a drop of 3.4% month-to-month, Austria logged a drop of 4.6%, Malta fell by 4.8%, and Belgium fell by 1.2%. Among all the negative month-to-month values, only Lithuania had a modest decline of 0.2%.
by:Robert Brusca
|in:Economy in Brief
Germany| Aug 29 2023
German Confidence Stuck in a Low Rut Since May; Economic Sentiment Is the Worst Since December 2022
The GfK survey of the consumer climate in Germany’s economy weakened in September and has held to a narrow range of values since May 2023. German climate hit its lows in the cycle between May 2022 to April 2023 reaching negative values and the GfK headline was as low as -42.8, logging three straight months with a -40 (or greater) negative value for the headline. However, that super-weak stretch came between October and December of 2022. Then, from January 2023 through April, the numbers repaired to reside in the range around a -30 reading. But since May 2023, readings of around -25 have held sway and have been relatively steady in this survey.

Climate components Economic expectations, like other components in the GfK survey, lagged by a month; its most recent value is for August 2023 at -6.2; it's the weakest reading since December 2022. Income expectations also slipped in August, falling to -11.5 in August from -5.1 in July. Income expectations were last weaker in March 2023. The assessment of the propensity to buy has also slipped, falling to -17 in August from -14.3 in July; it was last weaker in February 2023. Clearly, the German economy has slipped into another weak patch at a time it is already quite weak.

Graphic tale of German consumer climate erosion The graph of the GfK climate measure shows that prior to the onset of COVID, the German economy had been pumping out very steady positive readings for confidence. And then with the development of Covid, confidence/climate fell sharply, recovered, waffled, and struggled back to weigh in logging several small positive readings before the end of 2021. After that, it’s more serious nosedive. We can see that economic expectations had fallen ahead of the arrival of Covid, and we're not worsened dramatically by Covid itself; economic expectations improved after Covid struck and we're rebounding to substantially higher readings than they had seen- even in the five years before Covid struck. With the invasion of Ukraine by Russia, the economic survey for Germany collapsed and it has been waffling, low, with weak monthly responses ever since.

Weak percentile standings The queue percentile standing for the climate gauge is in the lower 5% of its historic queue of values. Economic expectations reside in their lower 26-percentile, income expectations are in their lower 15-percentile and the propensity to buy is at its lower 19th percentile. All of these are unambiguously low readings, in or very near the lower quartile of their respective distributions of observations. Some stand quite low within that lower quartile. The overall climate gauge has the lowest standing of all. It also is the freshest observation and the only one for the month of September.

Other Europe The table also includes assessments for Italy, France, and the United Kingdom; these are less up-to-date than the GfK reading for Germany. For Italy, the most recent observation is for July. For France and the U.K., the most recent observations are for August. Italian consumer confidence has a 74-percentile standing and it slipped in July to 106.7 from 108.6 in June. In France, the August reading for conference slipped to 84.9 from July’s 85.3 as confidence logged a 14-percentile standing. U.K. confidence improved to a -25 reading in August from a -30 reading in July; there, confidence has a 26.7 percentile standing, another weak reading. European economies are struggling, and this is reflected in uneven consumer confidence assessments. Manufacturing is under pressure. There is still high inflation, as central banks are raising interest rates. Concerns over the still roaring war between Ukraine and Russia are still rife. These conditions have not changed in a number of months and the consumer confidence readings continue to be impaired by these conditions.
by:Robert Brusca
|in:Economy in Brief
Global| Aug 28 2023
Money and Credit Trends in EMU and Globally Remain Weak But Stir
In July, global money supplies and credit demands continued to be weak or to decline- for the most part. However, on the oil front, prices rebounded strongly after a step back in June. The impulse to prices coming from money supplies is very weak despite this reversal.

Euro area trends In the euro area, money supply (M2) is falling 1.5% at an annual rate in July and credit measures are growing at less than 1/2 percent at an annual rate. Over three months money and credit growth in the European Monetary Union are declining. Over six months money and credit measures are declining, and over 12 months money is declining with credit measures up by barely 1% year-on-year. However, sequentially, the progress of growth rates to continually lower level has been truncated over three months compared to six months but not by much since we're still seeing declining growth rates, they're just smaller declines than over six months.

Turning to real balances in the monetary union, the growth of money and credit is negative over three months, six months, twelve months, two years, and three years - on all those horizons for all three measures. The decline in the demand for inflation-adjusted credit rolls on and real money balances continue to contract. For the most part, the peak negative growth rates are over twelve months with M2 money supply in the monetary union falling at a 6.2% annual rate, logging a -6.1% annual rate decline over six months and then a 4.9% annual rate drop over three months. That's a slight diminishing of downward pressure but the emphasis is on slight. Credit to residents falls by 4.3% over twelve months, slips at a 3.9% annual rate over six months and falls at a 2.9% annual rate over three months. Similarly, private credit falls at a 4.1% annual rate over twelve months, falls at a 3.8% annual rate over six months, and falls at a 2.9% annual rate over three months; these are all substantial negative growth rates, but there's evidence across all three measures of slightly diminishing downward pressures.
by:Robert Brusca
|in:Economy in Brief
Germany| Aug 25 2023
German IFO Survey Continues to Weaken
Overview IFO climate, current conditions, and expectations all slipped to lower readings in August compared to their levels in July. The rankings of the August indexes for climate, current conditions, and expectations are all extremely weak. The climate index has a 7.5 percentile standing, current conditions have a 14.3 percentile standing, and expectations have a 5.4 percentile standing. Over the last four months, there has been a cumulative drop in the diffusion gauges of 20 points for climate, 14.1 points for current conditions, and 19.8 points for expectations.

Climate Climate rankings by sector show the highest standing for construction at a 31.8 percentile standing compared to the lower 6.8 percentile standing for services. None of the sectors displays a climate reading above the 50% mark that designates, in each case, the median for the sector. Climate changes are negative in each of the last four months across all sectors. Wholesaling and retailing are weaker month-to-month for five straight months.

Current Conditions Current conditions erode and erode significantly in each sector compared to July. The current business situation shows declines across each of the last five months for the headline as well as in manufacturing, construction, and wholesaling. Retailing and services have shown month-to-month declines in four of the last five months. Construction actually has declined for six months in a row. Over the last 14 months, manufacturing, construction and wholesaling have seen diffusion fall month-to-month in 11 of those 14 instances. Retailing and services have declined in 8 of those 14 instances. There has clearly been an intense period of weakness over the past five months, there was some respite 6 to 9 months ago, and then 10 to 14 months ago, there was a previous heavy menu of persistent month-to-month declines. The current period represents another significant step down in current activity.

Expectations Expectations weakened in August compared to July for overall expectations as well as all sectors except retailing. Month-to-month expectations have weakened for four months in a row for overall expectations, manufacturing and construction. Expectations have weakened for three of four months in wholesaling and service and in two of four months in retailing. Expectations also have been through cold, warm, cold cycling phases with sectors generally showing persistent declines from September 2022 to March 2022, improving more persistently form December 2022 to April 2023, and then eroding consistently over the last four months.
by:Robert Brusca
|in:Economy in Brief
France| Aug 24 2023
French Economic Sectors Erode in August
French manufacturing and services sectors weakened in August. The climate indicator for industry fell to 96.2 from 100.7 and sits in the lower 20% of its historic range of values. The services indicator fell to 100 from 101.6 and has a queue percentile ranking in its 42.7 percentile, a standing below its historic median, but relatively stronger than the standing for industry.

Manufacturing Manufacturing production expectations weakened in August to -9.5 from -8.7 in July.

For production itself, the recent trend fell sharply to a -5.4 reading in August from 9.2 in July. Survey respondents present their own industries’ likely trend as stronger, giving it a +1 reading in August compared to a -4 reading in July. This means respondents were considerably more negative on the economy overall while expectations for their own individual industries were for conditions to improve.

Orders and demand in August fell sharply to -21.4 from -14.8 in July. Foreign orders and demand also fell sharply on the month to -15.3 from -5.1 in July. Inventory levels in general crept higher in August from July as July had crept higher from June.

Price trends in their own industries are still showing pressure, but less than in July, as the August reading was 2.8 compared to 6.9 in July. However, for the overall manufacturing price level, respondents saw overall stronger pressures, logging a 5.0 reading in August compared to 4.3 in July.

All the components show weaker values in August 2023 than in August 2022 with the sole exception of a slightly larger reading for inventories.

The percentile standings are calculated on data back to 2001; that process produces an overall percentile standing in manufacturing at the 20th percentile. For manufacturing production expectations, a 33-percentile standing emerges; the recent trend and the own industry or ‘personal likely trend’ for production are both weak standings, at their respective 16th and 18th percentiles. The orders and demand category has a 32.8 percentile standing with foreign orders and demand at a 36.8 percentile standing. Prices shown as ‘own industry’s likely trend’ are at a 47-percentile standing with the manufacturing price level at a 40.9 percentile standing. The only strong ranking in the table is for inventories; they have a 95-percentile standing and are rising. An environment where everything else is weak as inventories rise likely suggests undesired building. The INSEE manufacturing survey is weak and weakening.
by:Robert Brusca
|in:Economy in Brief
Europe| Aug 23 2023
Flash PMIs Mostly Weaken in August
The S&P Global flash PMI for August shows broad weakening with a couple of warmer spots as France and Japan showed stronger composite PMIs month-to-month. However, decaying on the month were the composite PMIs from the European Monetary Union, from Germany, from the United Kingdom, and from the United States. Only Japan showed strengthening across the board with improvement in manufacturing, services, and, of course, the composite. France showed resilience in the composite supported by manufacturing. Both Germany and the European Monetary Union showed month-to-month improvements in manufacturing, but they were not strong enough gains to translate to the composite index in the face of service sector weakness.

In August, only the U.K. and the U.S. show weakening in manufacturing, services, and the composite. The U.K. also shows triple weakening on those metrics in July as well. The U.S. does not follow that pattern because in July there was an improvement in manufacturing; however, in June the U.S. showed weakening in all three measures.

The overriding theme for the month, despite some mixed signals in month-to-month changes, is that the queue percentile standings are broadly and severely weak with the single exception of Japan where the services sector has a 92.5 percentile standing and the composite has an 88.7 percentile standing. Japan still has a subpar manufacturing sector with a 47.2 percentile standing. All the rest of the metrics in the table have queue percentile standings below the 50th percentile, meaning they're below their medians on data since January 2019, and for the most part, very substantially below their medians. For every reporting unit in the table, the standings for manufacturing are weaker than for services; the partial exception to that is France where the percentile standings for manufacturing and services are identical at a pathetically weak 9.4 percentile standing.

Compared to the responses in July, August does reflect some scattered improvements and August is also improved relative to the June period. In June there were only two sectors that were stronger; they were for manufacturing in the U.K. and in France.

Over three months there are net declines for all the countries and all the diffusion readings but the one exception being manufacturing in France which is up by 0.3 diffusion points over three months.

Assessing the PMI standings from January 2020 before COVID struck, all the sector readings for all the countries are weaker on balance except Japan. The composite in Japan is higher by 2.5 points, manufacturing is better by 0.9 points and services are better by 3.3 points over that period. But that is the exception. The U.S. composite is lower by 2.8 points, the European Monetary Union composite is lowered by 3.9 points, the U.K. composite is lower by 4.5 points, the French composite is lower by 5.0 points, and the German composite is lower by 6.4 points. After three and two-thirds years, most of the sectors were reporting weaker conditions than those that prevailed before COVID struck. It gives you some idea of the impact of COVID on the global economy. It created a short sharp recession in a lot of countries, but it has more broadly created a legacy of lethargy; the countries have had a very difficult time breaking out from it. The average percentile standing in manufacturing in August is a 9.7 percentile standing with services at a 29.9 percentile standing and the composite and a 22.6 percentile standing. Conditions are not only weaker than they were in January 2020, but compared to where they've been since 2019, they rank as extremely weak.
by:Robert Brusca
|in:Economy in Brief
Belgium| Aug 22 2023
Mixed Bag for Belgian Confidence Indicator
Belgian consumer confidence in the National Bank of Belgium consumer survey slipped to -7 in August from -6 in July. However, that is still slightly better than the June reading of -9. The queue standing of the consumer confidence metric on data back to 1991 places the indicator at a 48.3 percentile, marking it is just slightly below its median reading over that period. Tracking Belgian consumer confidence since January 2020 before Covid started, the indicator is one point lower than it was prior to the onset of the Covid episode.

The economic situation over the next 12 months for Belgium is assessed as weaker at -17 compared to -13 in July and -15 in June. The readings from 12 months ago and 6 months ago showed that there had been some improvement and that there was backtracking over 3 months, but the current reading is still slightly better than the reading from 3 months ago. However, the standing for the August reading is at its 25th percentile right at the border of the lowest quartile of its queue of data since 1991, not a very impressive result. The economic situation has a stronger diffusion index than the assessment over the last 12 months; however, the percentile standing for the next 12 months is weaker than it was for the last 12 months; the previous 12 months had a standing in its 30th percentile.

The trends for the next 12 months have a -1 diffusion reading which is a reading showing higher price pressure than in June or July. However, the longer progression for prices from 12-months to 6-months to 3-months shows expected pressure being relieved. And the standing for price trends in August is only at the 4th percentile, an extremely weak reading of expected inflation. This compares to the last 12 months where the reading had a massive 96-percentile standing.

Unemployment expectations according to the survey are going up. The response for June was +17 and July settled back at a + 15, but August sees a reading of +20. The progression from 12-months to 6-months to 3-months is flat but with a small uptick to +18 from +16 one year ago. The percentile standing for the unemployment gauge in August is at a 40.8 percentile; unemployment expectations are still below their median.

Household purchasing assessments slipped for both the next 12 months and in the current period. Apart from the month-to-month changes, the 12-month, to 6-month, to 3-month metrics show slight slippage in both of those categories. The environment for household purchases over the next 12 months, however, has a 66.6 percentile standing, at the border of the top third of its historic queue of data. The favorability of buying at present has only a 6.2 percentile standing, extremely weak.

The financial situation for households over the last 12 months were range-bound oscillations over 6 months and 3 months, but those reading in August now have a lower 5.9 percentile standing. Over the next 12 months, the August reading is near its median with a 49.3 percentile standing; August shows a net assessment at zero, the same as it was in July. Twelve-months ago this assessment was -8 with improvement in train, very weak. The outlook is for something much better. The standing for the household financial situation currently has improved sharply from this lower 5.9 percentile over the last 12 months, to a standing of 49.3% over the next 12 months. The current situation standing is at its 86th percentile.

The environment for household savings is positive over the next 12 months; the assessment has a 65.8 percentile standing. The favorability for savings at present has a 73.7 percentile standing. However, favorability of saving responses often reflect negativity on the outlook. If it's favorable to save, it's often not favorable to spend. And we see that less in the outlook for the next 12 months and more in the current assessment of conditions.
by:Robert Brusca
|in:Economy in Brief
Germany| Aug 21 2023
German PPI Is Off Sharply But It’s the Usual Dilemma
The German PPI is falling by 1.1% in July compared to June. The PPI now has a string of months in which prices are falling. This in fact looks even more persuasive because the PPI ex-energy fell by 0.4% in July, and it also has a string of months in which inflation is falling. But it’s only PPI inflation, not the sky. Central banks do not target producer prices. Table 1 also shows for comparison what's going on with the CPI; it has increased in two of the last three months. The CPI ex-energy has also increased in two of the last three months. As you look at these trends more broadly, producer prices are in fact coming to heel very sharply. And more than that, PPI prices are weak. However, consumer prices have hardly benefited from this trend at all.

The PPI excluding construction in Germany has fallen by 6% over 12 months; it falls at a 10.1% annual rate over 6 months and falls at a 10.4% annual rate over 3 months. That's impressive weakness. The PPI excluding energy rises 2.1% over 12 months, falls at a 1.1% annual rate over 6 months and falls at a 3.9% annual rate over 3 months indicating ongoing deceleration in the PPI ex-energy.

In comparison, the CPI, which is emphasized by the ECB (it targets the HICP), is up by 6.1% over 12 months; however, the pace slows to 3.5% over 6 months and slows further to 1.7% over 3 months. This declining progression brings the 3-month growth rate inside the target range for the ECB, but again central banks do not typically place a great deal of weight on these shorter-term compounded inflation rates. Looking at the CPI ex-energy we also see a 6.1% gain over 12 months, a 4% annual rate gain over 6 months, and a 2.5% annual rate gain over 3 months. Once again, we see clear inflation deceleration and progress but less deceleration than for the headline and even over 3 months there is less good news when the CPI ex=energy fails to drop inside of the ECB target range.

The chart (on the right) plots the PPI ex-energy against the CPI ex-energy. The chart is perhaps the best way to understand the stark difference and the difference in trend between these two metrics. The chart gives you a hint that historically the PPI is more volatile than the CPI and that it goes through exaggerated cycles in comparison with the CPI. In other words, just because the PPI accelerates sharply or decelerates sharply doesn't mean the CPI will run the same magnitudes; however, usually, the accelerations and decelerations of the PPI are reflected in some acceleration or deceleration in the CPI. It's just less pronounced. That seems to hold in this cycle as well.
by:Robert Brusca
|in:Economy in Brief
Japan| Aug 18 2023
Japan’s Inflation Remains High and Stubborn
Japan’s inflation in July continues at a pace in excess of the target sought by the Bank of Japan. However, inflation is not running wild; it's simply running hotter than the BOJ wants it to. Inflation had moved quite low in May with the headline of 0.1% and then picked up to 0.2% in June. The core rate, that had risen by 0.4% in May, slipped to a weaker rise of 0.1%. July shows the headline pace continues to accelerate with an increase of 0.4% and the core (all items excluding food & energy) logs the somewhat neutral 0.2% increase on the month.

July was an empty pinata for the hopeful On balance, the progression of inflation through July is disappointing. The monthly patterns are no longer encouraging and their progression of inflation from 12-months to 6-months to 3-months is neither disturbing nor encouraging and instead depicts an inflation rate that is wandering at a pace that's simply too high but without a clear trend. Headline inflation is up 3.2% over 12 months; that pace slips to 1.9% over 6 months but then moves back up to 2.7% over 3 months. The core pace that excludes food & energy shows the 2.6% increase over 12 months, rising to a 3.6% annual rate over 6 months, then settling back to a 2.8% annual rate over 3 months. While the core rate decelerates from 6-months to 3-months, the 3-months the rate is still above the 12-month pace which is not the signal that the Bank of Japan is looking for from the inflation rate.

Monthly inflation patterns If we rummage through the details of monthly inflation by industry, in July there are strong gains in reading and recreation as prices rose by 1.5%; also, for food and beverages as prices rose 0.8%; for clothing and personal items prices rose by 0.5%. In June there are not as many pressures present, but the largest month-to-month gain in these major categories is 0.3%. Categories with the max gain include food & beverages, clothing & personal items, and the miscellaneous category. Meanwhile, housing costs were flat in June as reading & recreational prices slipped by 0.2% month-to-month. In May when headline inflation was so low, four categories had increases of 0.4%; those were food & beverages, medical care, reading & recreation, as well as transportation & communication.

Longer inflation patterns Looking at these industry patterns, sequentially there's scant evidence of categories with inflation accelerating or decelerating for the most part inflation is just gyrating. Inflation changes look more chaotic or somewhat random. Over 3 months inflation decelerates for food & beverages, for educational costs, for medical care, for reading & recreation, and for transportation & communication. There are two decelerations in a row only for food & beverage prices that slip from an 8.7% gain over 12 months to an 8.6% gain annualized over 6 months, to a 6.2% annual rate over 3 months. That's the only category that shows clear directional progress; it's also the category with the hottest 3-month inflation growth rate.

Inflation steps into a new quarter With the July report, we're one month into a new quarter and looking at the rise in inflation in July relative to the previous quarterly average. The quarter-to-date headline inflation at 3.3% with core inflation running at a 2.4% annual rate, finds inflation is excessive for food & beverages at 7% in the quarter, clothing and personal items inflation is at 4.4%, reading & recreation prices are up at a 9.4% annual rate, while transportation & communication prices are up to a 3.6% annual rate. However, housing prices, education, medical care, and miscellaneous items are all running inflation rates in the one to 1 ½ percent range, quite subdued.
by:Robert Brusca
|in:Economy in Brief
Japan| Aug 17 2023
Japan’s Trade Trends Wither…to the Delight of GDP
Japan's trade trends continue to show deterioration. The early press reports on Japan's trade picture have focused on weak Japanese exports and how this weakness is going to constrain domestic growth. But such analysis dwells on only half of the picture in trade.

International trade and the theory of relativity The international contribution to GDP comes from the current account and with some small adjustments it becomes something called GDP net exports. This measure is the difference between exports and imports- as always expressed in real terms since we are always interested in real GDP growth. When exports exceed imports, there's a boost to GDP from trade; if imports exceed exports, there's a subtraction from GDP. It is not just exports that matter, or just imports; it’s one flow relative to the other. They both matter. Like any other flow quarter-to-quarter, the impact of the flow, in this case the net flow, on GDP, depends on the change in this balance or net. The second quarter in Japan saw that trade made an enormous impact on GDP; in fact, trade accounted for all the growth in GDP in the second quarter by itself. As we look at Japanese trade trends, July is starting the third quarter with the same forces as those in gear during the second quarter.

Strength though weakness… Seasonally adjusted exports were up by 0.5% over 12 months and that's a weak showing. However, imports are falling by 14.7%. That means imports are weaker than exports and it implies that the contribution from imports to GDP is going to be larger than the contribution of exports to GDP. Since imports are a subtraction from GDP, the weaker import number implies a positive kick to GDP, even as exports slow. Of course, we're very early in the third quarter and we're going to be concerned with the year-over-year change but what happens in the third quarter compared to the second quarter. In July itself, exports and imports each rose by 2% marking a sort of standoff in terms of their impact on GDP. But I simply do not see the rationale for being worried about Japanese growth because Japanese exports are weak. Global trade is weak. It looks like Japan is having weaker imports than exports which should be a positive development for Japan's GDP accounts.

Foreign exchange Japan's exchange rate against the dollar has deteriorated only slightly; based on year-over-year changes it's only 3.1% weaker. The real broad exchange rate that is trade weighted and price adjusted yen against all of Japan's trading partners is weaker by only 1.7% over the past 12 months. There is some evidence of growing weakness in the exchange grade from 12-months to 6-months to 3-months.

Export and import yen prices and volumes Export and import prices show export prices down 0.2% over 12 months. Import prices are down by 14.2% over 12 months. This means a lot of the weakness in imports has come on the price side rather than on the volume side. However, the volume statistics echo what we see in the nominal data as well with real exports growing by 0.8% over 12 months and real imports falling by 0.5%. Over 3 months exports fell at a 0.3% annual rate in real terms while imports fell at a 5.1% annual rate in real terms.
by:Robert Brusca
|in:Economy in Brief