Introducing

Robert Brusca

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

Publications by Robert Brusca

Europe| Nov 14 2022
EMU IP Gains in September for the Second Month in a Row
Industrial production in the European Monetary Area rose by 0.9% in September following a 2% increase in August. The pattern for industrial production shows declines over the usual sequential periods, but there is no indication of any change in trend. Over 12 months, the increase in industrial production is 4.3%. Over six months output rises at a 6.1% annual rate, over three months the annual increase is lower at 2.3%. Manufacturing output rose 1.5% in September after rising 1.7% in August and, again, there is no clear pattern of acceleration or deceleration. Manufacturing output increases over 12 months, over six months and over three months and does so without creating any tendency to accelerate or to decelerate.

Monthly results The components of manufacturing showed a decline in consumer durables output and a decline in intermediate output in September while nondurable output increased by 3.6% and capital goods output increased by 1.5%. In August, only intermediate goods output declined.

Sequential trends Looking at sequential trends, consumer goods output shows clear acceleration; output grows by 5.6% over 12 months; that steps up to a 12.2% annual rate over six months and up again to 27.7% annual rate over three months. That result is driven exclusively by nondurable goods where the acceleration is strong while output for consumer durables is showing clear deceleration from a 3.9% pace over 12 months, to a contraction of 1.2% at an annual rate over six months and giving way to further contraction at a 4.4% annual rate over three months. Within the consumer goods sector output is both accelerating and decelerating depending on the industry grouping.

Intermediate goods trends show clear deceleration. Intermediate goods output falls at a 2% annual rate over 12 months, falls at a 3.4% annual rate over six months, and falls at a 9.2% annual rate over three months.

Capital goods output, while showing increases in September and August, shows an unclear pattern when it comes to looking at acceleration or deceleration trends. Capital goods output is up at a 10.8% annual rate over 12 months; that accelerates to 14.6% at an annual rate over six months but then falls back to a 1.1% annual rate gain over three months.

QTD: Quarter-to-date (preliminary Q3 results) Quarter-to-date headline for the European Monetary Union is increasing at a 6.1% annual rate. This report is for September, so these figures represent preliminary closure for data for the third quarter. Manufacturing output is increasing at a 6.9% annual rate. Consumer goods output increases at a 14.5% annual rate; that result is the combination of a 15.4% annual rate rise for nondurables and a 3% annual rate drop for durable goods. Intermediate goods output is declining at a 7.6% annual rate while capital goods output expands and a 9.5% annual rate.

Output gains since Covid struck Looking at output trends back to January 2020 before COVID struck, the aggregate increase in output rises by 2.7%, manufacturing output is up by 3.3%, consumer goods output is up by 10.4%, led by nondurable goods: capital goods output is barely up rising by 1.5% and intermediate goods output is declining by 0.2%. These are the aggregate gains/losses over a period of 2 years and eight months.

The EMU PMI in comparison... Over the same span, the manufacturing PMI of the European Monetary Union is lower by 10% and that index is lower in each of the last three months as well as lower on balance over three months, over six months and over 12 months. The breath of output in the EMU is clearly on the decline. The level of the PMI reading for manufacturing is below 50 (an indication that output is contracting in the lexicon of the PMI report) in May, June, and July. The PMI is also below 50 on its three-month average. But its six-month average ekes out a reading of output expansion at a standing of 51.7 while the 12-month average reading is a robust 55.1. Compared to the manufacturing results for industrial output, a sequence that shows a steady menu of consistent increases, the PMI indicators have been pointing to weaker conditions than those that have been experienced.

EMU by country Country level data for 13 European Monetary Union members in the table and three other European members are available for comparison (the U.K., Sweden, and Norway). EMU members showed declines in output in September in 6 of these 13 members. August also showed a decline in six members. However, July produced declines in eight of 13 members.

Sequential data across these same 13 members shows increases in 12 of 13 countries over 12 months; over six months five countries showed declines in output. And over three months seven countries showed declines in output. The pattern for output is mixed across the European Monetary Union; it's hard to make any simple consolidating statement except by looking at the weighted overall European Monetary Union results at the top of the table which does show output is continuing to expand on a weighted basis. In the quarter-to-date, however, that marks the end of the third quarter on a preliminary basis, output is declining in eight of the 13 countries even as it increases for EMU overall. Annualized the 3.3% manufacturing gain implies growth rates averaging 1.2% per year over this period.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Nov 11 2022
U.K. GDP Declines in Q3; Is This the Start of Something Big?
The global economy has been slowing down and forecasts have been flirting with recession for some time. As 2022 kicked off, the United States began with two quarters of negative growth even though the unemployment rate in the U.S. remained low and the economy appeared to be relatively robust. However, as the year has gone on, the Federal Reserve, the Bank of England, and the European Central Bank have been raising interest rates to fight well-over-the-top inflation amid concerns that have arisen that recessions could visit all these countries and might do so soon.

In the third quarter, the U.K. has posted a negative GDP number, -0.7% annualized. Year-over-year U.K. growth is still relatively firm at a 2.4% annual rate. But that is a clear deceleration from its second quarter (Y/Y) growth rate of 4.4% at an annual rate. Globally, economies are in this period in which GDP growth rates are still transitioning toward normal from what had been a boost provided in the recovery from the COVID recession. All of this makes it a little bit more difficult to focus on exactly how the economy is performing and on what the growth rate is, especially as growth is transitioning out of the COVID recession, into recovery, and, possibly, back into recession. What a mess.

Bubble, bubble, toil, and trouble Interest rates in the U.K. have gone up sharply. There's been political turmoil and two changes in the Prime Minister position in a relatively short period of time. The pound has come under a great deal of pressure and has fallen sharply on foreign exchange markets as the Bank of England has been hiking rates to reel in excess inflation.

Q3 growth: quarter-over-quarter The third quarter -0.7% (Q/Q) rate in GDP is largely the result of a 2.2% fall-off in private consumption. Public consumption rose at a 5.5% annualized pace. Capital formation continues to be strong up at a 10.6% annual rate overall. Investment was up at a 17.7% annual rate in the housing sector. U.K. exports have been strong because of weakness in the pound, rising at a 36% annual rate on a quarterly basis while imports have fallen at a 12.3% annual rate in the third quarter. Domestic demand has fallen at a 13% annual rate in the third quarter.

Central bankers try to have their cake and eat it too Despite strength in exports and resilience in investment spending with interest rates moving up and with consumer spending weak, we would not expect to see investment demand continue to be this strong. Clearly the U.K. is headed for more difficult times and the Bank of England still has work to do because the inflation rate continues to overshoot. The challenge for the central bank in the U.K. is the same as the challenge in the United States: central bankers are trying to figure out how much to raise rates to make sure inflation is brought to heel without bringing too much damage to the economy. But… do central bankers know enough to achieve such an objective? That is still a speculative matter. The question may still come down to whether central bankers really want to stop inflation or whether they really want to preserve growth. For the time being, they continue to talk as though they think they can achieve both objectives, but time will tell. And in the U.K., that negative GDP number makes it seem as though the Bank of England has lost this option and has the economy headed for recession.

Year-over-year growth Year-over-year growth rates are always smoother than quarterly results. In the U.K., GDP growth is up 2.4% year-over-year, and the economy logs 0.8% consumption growth. Public expenditures are flat over this span. While capital formation is up by 5.8% and housing is up at a 15.6% annual rate. Year-over-year exports are up 18% and imports are up 7.2%; but even on this basis, domestic demand is off by 0.4%.
by:Robert Brusca
|in:Economy in Brief
Italy| Nov 10 2022
Italian Industrial Output Turns to Decline
Industrial output for manufacturing in Italy fell by 1.4% in September after increasing by 0.5% in July and 2.4% in August. Italian output is flat over 12 months, falls at a 0.2% annual rate over six months and then posts this strong 5.8% annual rate of increase over three months. September’s drop interrupts a pair of gains in July and August to blunt the three-month gain which itself is an interruption of an incipient declining trend sequential trend.

Quarter-to-date growth September marks the end of the quarter so the quarter-to-date calculations give us the preliminary quarterly results for Italian industrial output. Manufacturing output is declining at a 0.2% annual rate in the quarter; the decline led by a 7.6% annual rate decline from intermediate goods, reinforced by a 2.7% annual rate decline in consumer goods output, but with capital goods softening the blow with a substantial 6.1% annual rate of increase in the third quarter.

Monthly data show one decline in the last three months for consumer goods output- that was in July. Capital goods show increases in each month of the quarter. Capital goods output is the weakest gain rising at a 0.1% month-to-month in September, after rising by 1.9% in August and in July rising by 2.2% month-to-month. Intermediate goods output is down by 1.8% in September, after rising by 0.8% in August, and after a decline of 0.7% in July.

Manufacturing trends are mixed across sectors Over the sequential period from 12-months to 6-months to 3-months, Italian output shows very different trends in train by sector. For output overall, there's no change over 12 months, a slight decline over six months and then strength over three months leaving this series without a clear trend in place. Consumer goods follow that same sort of pattern with a 3.4% gain over 12 months, a 1.1% annual rate increase over six months and a strong 7.4% annual gain over three months. Consumer goods output does not give any clear sense of trend, but it does show increases on all three horizons. Capital goods show increases on all three horizons and clear acceleration. Capital goods output rises at a 2% annual rate over 12 months, at a 2.5% annual rate over six months, ballooning to an 18.1% annual rate gain over three months. However, intermediate goods bring these trends back to earth with a 4.9% annual rate decline over 12 months, the same 4.9% annual rate decline over six months, and a decline of 6.8% at an annual rate over three months. These results leave the manufacturing trends mixed and the sector trends in some cases moving in opposite directions. It all adds up to no clear signal from manufacturing.

Since COVID… output lethargy Manufacturing has been weak since COVID struck. The aggregate increase in Italian output has been only 0.1% since January 2020 with consumer goods output up by 1.2%, capital goods output up by 0.6% and intermediate goods output lower about 1%.

Sector rankings With those kinds of trends, it's surprising that the rank standing for the 12-month changes in output are as strong as they are. For output overall and data back to the year 2000 show manufacturing output growth has a standing in its 52.7 percentile. Consumer goods have a standing in their 85.6 percentile- quite strong. Capital goods have a standing in its 60.6 percentile. Intermediate goods once again provide the counterpoint with a much weaker standing, in its 18.2 percentile - a standing clearly below its historic median which occurs at a ranking of 50%. Strength and weakness in manufacturing appears to be a tug of war between solid performance in the consumer sector and weak performance from intermediate goods.

Italian industrial indicators Three industrial indicators for Italy provide a bit more context as to industrial performance. The EU industrial confidence index, the ISTAT current orders and the ISTAT outlook for production, provide these references.

EU industrial confidence: The EU industrial confidence measure has negative readings for July, August, and September; these readings gradually erode over this sequence of months. The averages for the sequential readings, however, show improvement from -12.1 over 12 months to an average of -8.3 over six months to an average of -6.3 over three months. Still, in the quarter-to-date EU industrial conference had a negative reading; it is up by only 1.2 points since COVID struck. The ranking for industrial components is done on the level of the index (a net diffusion index); on that basis it has a 41.1 percentile rank standing, below its historic median.

ISTAT current orders: The ISTAT current order series (a net diffusion index) shows negative numbers in each of the last three months but negative numbers that transit toward less weakness moving from -7 in July to -2 in September. Sequentially, over 12 months, six months and three months, the sequential averages are barely changed. Compared with the level in January 2020 before COVID struck, current orders are higher by 11 points and, ranked on data from the year 2000, the current order series has a 79.5 percentile standing, a relatively high reading for orders.

ISTAT production outlook: The production outlook index shows negative readings declining from -3 in July to -6 in September with an improvement in August in between. The sequential averages show a 12-month average of -18, a six-month average of -8 and a three-month average of -9 indicating there has been some improvement over three and six months compared to the conditions that prevailed over 12-months on average. In the quarter-to-date, the index has a reading of -4.3. Compared to the level since before COVID struck, in January 2020, the outlook is lower by eight points. The rank standing for the level of the orders index in September is at its lower 11th percentile, a very weak reading.
by:Robert Brusca
|in:Economy in Brief
Global| Nov 09 2022
OECD LEIs Unmatched Assessment of Widespread Weakness and Declines
The OECD leading indicators this month are painting an extremely weak and worrisome picture of the world economy spanning both developed and developing economies. The overall OECD measure declines in October and September. It declines on balance over three months, and it declines on balance over six months. The index does increase by 1.9% over 12 months. In fact, all the major aggregates on the OECD index have that same property that they increase over 12 months and decline on the other horizons. Among developed economies, Japan is the sole exception and Japan shows a flat October and a flat September; its index declines over three months and declines over six months and logs a 1.5% increase over 12 months.

The U.S., the largest of the OECD economies, logs an index decline in October and September; the index declines over three months and over six months although its three-month decline is less than its decline over six months and the U.S. index increases by 1.8% over 12 months. That is still much more weakness than it is mixed.

As a further reference I take these OECD measures and I rank them measures historically for the whole of the OECD, the level standing has been this weak or weaker 7% of the time, the top seven OECD economies have been this weak or weaker about 7% of the time. The euro area has been this weak or weaker 5.5% of the time. Japan has been this weak or weaker 54.5% of the time and is the only country above its historic median on this timeline. The U.S. has been this weak or weaker about 14% of the time.

Looking at changes in the six-month averages which is one of the preferred ways to look at the performance of the OECD data, we find declines in October and September. Over the recent six months the previous six months we find declines. For 12 months ago the six-month decline was showing increases although smaller increases than for most of the other OECD aggregate metrics.

Looking at the OECD amplitude adjusted indicators, we see four months of a steady diet of indicators for the 12 entities the table including developed economies and economic units that include both the OECD, the OECD7, and the European Monetary System all with values below 100 indicating growth is subpar in all these regions and countries. The sole exception to this is Japan. However, when we look at the ratio of the current index compared to six-months ago in Japan produces a ratio below unity which indicates a slowdown in progress along with the other readings in the table.

The queue or ranked standings of these countries and areas are applied to their levels and shows readings below the 50% mark for all countries except for Japan and Germany. France has a reading at its 45.9 percentile but after that there was no reading above its 20th percentile except for China in its 20.2 percentile. The readings are weak; the momentum is weak; weakness simply abounds, and all the OECD area is affected across its most developed economies.
by:Robert Brusca
|in:Economy in Brief
Europe| Nov 08 2022
EMU Retail Sales Make Gains in September
Retail sales in the European Monetary Area rose by 0.4% in September after being flat in August and falling by 0.2% in July. Still, it's only a one-month reprieve and the outlook doesn't necessarily look that bright in the wake of this unexpectedly strong report that substantially rides on the back of a stronger German report. Germany that carries a very high weight in the European Monetary Union had a gain in retail sales on the month of 0.9%.

Sequentially, the growth of retail sales in the euro area falls by 0.3% over 12 months that transitions to a 2.1% decline over six months but then sales log a gain at a 1.1% an annual rate over three months.

Separately, motor vehicle sales rose by 2.1% in September after rising by an outsized, 19.2%, in August. Motor vehicle sales experienced explosive acceleration logging a 10.7% growth rate over 12 months, a 71.8% annual rate gain over six months and a 112.5% annual rate gain over three months. Computer chips are becoming available again and cars are being produced and sold. That's a major factor in boosting motor vehicle sales in the euro area area as well as in the United States and elsewhere.

Q3 sales data are complete This retail sales report marks the completion of retail sales in the third quarter. According to data statistics for this report are therefore completed third quarter statistics on a preliminary basis. Eurozone retail trade falls at a 2.9% annual rate in the third quarter with motor vehicle registrations up at about a 100% annual rate. In the quarter-to-date of the 6 early reporting European monetary union countries (Germany, Italy, Spain, Portugal, the Netherlands, and Belgium), there are quarter-to-date gains in sales for three of them. Italian sales are up at a 4.9% annual rate in the quarter-to-date, in Portugal sales are up at a 1.3% annual rate, and in Belgium they're up at a 0.8% annual rate. These gains contrast to a 4.2% annual rate decline in Germany, a 7.3% annual decline in Spain, and a 6.3% annual rate decline in the Netherlands.

The table also includes quarter-to-date sales for Denmark, an EU member, Sweden, Norway and the United Kingdom. Danish quarter-to-date sales are falling at a 5.3% annual rate, Sweden lags a nearly 17% annual rate fall, in Norway sales fall at a 7.7% annual rate. In the U.K., sales volumes fall at a 7.3% annual rate. Not only does the EMU headline show quarter-to-date decline, but the preponderance of retail sales data across European Monetary Union and non-monetary union members show sales falling in the quarter-to-date.

Lumping all the sales together, across the ten countries reporting in the table, finds only three show gains over 12 months; those three are EMU members Italy, Spain, and Portugal with Spain logging an increase of only 0.1%. Over six months there are increases in only 3 countries: Italy, Spain, and Belgium – all EMU members. Over three months there are gains in five of the ten reporting countries with one country Germany showing unchanged real sales over three months.

Sales since Covid came to town Looking at the gain in sales in the EMU since January 2020, before the COVID virus struck, sales have risen by 4.2% over that 33-month period. Despite recent strength, motor vehicle sales are still 15.2% lower than they were in January 2020. Sales growth has not been very strong in Europe, rising quickly after the drop-off during the Covid recession, then slowing abruptly.

Sales in Italy are up 6.7% over this period; in Belgium they are up 5.4%; in Norway sales gain 4.4%; in Germany sales rise by 3.5%; in the Netherlands sales are higher by 2.3%. Then Portugal, Denmark and Sweden show gains less than 2% each, while Spain and the U.K. log sales totals lower on balance over that period.

Retailing may be a bright spot this month. But it does not have good momentum or good fundamentals. With the energy picture in Europe so uncertain and with the ECB still fighting a too-high inflation and hiking rates, September could prove to be a Pyrrhic victory for good news on the retail sales front.
by:Robert Brusca
|in:Economy in Brief
Germany| Nov 07 2022
German IP Rises by 0.6% in September; Enjoy It While It Lasts
German industrial output rose by 0.6% in September, led by a 1.4% gain in consumer goods output and a 1.1% rise in capital goods output as intermediate goods output slipped by 0.1% month-to-month. Conditions in manufacturing remain 'in flux.'

The trends for overall German industrial output are mixed with output up at a 2.5% annual rate over 12 months, rising to a 3.1% pace over six months then falling to a decline at a 2.4% annual rate over three months.

Trends for output remain mixed— but there is a lot of weakness mixed in The two sectors, consumer goods and capital goods, do not clarify trends, as consumer goods output rises by 0.5% over 12 months, falls at a 4% pace over six months and rises at a 3.6% rate over three months. Capital goods output rises at 11.8% annual rate over 12 months and at a 21.7% annual rate over six months then slips to grow at a 6.7% pace over three months. But capital goods output is increasing over each of the three horizons.

By comparison, intermediate goods output does show a clear trend and the trend is for deceleration and shrinkage. Intermediate goods output falls by 2.3% over 12 months, falls at a 3.9% annual rate over six months and then falls at 11.7% annual rate over three months.

The output of the construction sector in Germany shows a 0.8% rise in September after two months of drops. The sector shows declines with a -0.7% rate over 12 months, a step back pace of -9.7% over six months and then a less aggressive fall but still a substantial fall at a -7.8% annual rate over three months. Clearly the construction sector isn't doing well although it does not have a clear sequential trend. The absence of sequential deterioration is different from the absence of ongoing. Deterioration — there is ongoing deterioration; it's just not persistently worsening.

Manufacturing showed an increase in output of 0.8% in September after two months of declines. Manufacturing output is up by 4.2% over 12 months; that accelerates to a 6.7% rise over six months then deteriorates to a 1.2% annual rate of decline over three months. The path for manufacturing, like its components, remains unclear.

Real orders are real weak Real manufacturing orders, however, do trace out a clear path and it's not encouraging. Orders fall at a 10.7% annual rate over 12 months, fall at a 12.7% annual rate over six months and then the decline accelerates to 17.6% over three months. Real orders also have contracted for two straight months.

Sales are a mixed bag but more positive Real sales rose by 0.2% in September after rising by 1.2% in August. Still, sales trends remain murky with a 7.4% increase over 12 months, a 12.3% gain over six months and a decline at a -2.3% annual rate over three months.

Indicators are weak... period Other indicators about industrial performance in Germany paint a clear picture of deteriorating trends. All four indicators, the ZEW current reading, the IFO manufacturing index, the IFO manufacturing expectations index, and the EU Commission industrial index show German deterioration on averaged metrics over 12 months to six months to three months. On monthly data, the two IFO measures show a minor increase month-to-month in August compared to July before falling to levels in September even below their, respective, July levels by clear margins.

**All the German metrics in the table are weaker than their January 2020 levels before Covid struck except for the EU Commission reading - that one is higher. ** Quarter-to-date data: the completed third quarter Quarter-to-date data (which are now for the completed third quarter) show mixed readings with clear consistent reading of weakness from the indicators. Real orders are weaker in the QTD period. Overall output and manufacturing output are stronger along with real sales. For industrial output by sector, there are declines in consumer and intermediate goods offset by a strong increase in capital goods output. There is sharp weakness in construction in the quarter.
by:Robert Brusca
|in:Economy in Brief
Europe| Nov 04 2022
EMU PPI Pressures Intensify Except for Intermediate Goods
The PPI inflation backed off its obvious blow-out gain of 5.1% in August to score an increase of 1.3% in September – still sizeable. The headline PPI (PPI excluding construction) is up by 42% over 12 months, up at a 33% annualized pace over six months and up at pace of 48% annualized over three months. Only Italy, Austria, Luxembourg, and Belgium have a lower year-on-year inflation rate in September than in August.

Goods news... Capital goods and consumer goods prices post strong annualized gains over 12 months, six months, and three months, with both sectors showing a small let up over three months. It's not enough of a step-down to call it a real change in trend. But for intermediate goods the 12-month gain of 19% dwindles to an annual rate of 13% over six months, then plunges to an annual rate gain of 1.1% over three months. That's good news.

Manufacturing goods prices also show a step down from 17% to 10% to -1.4% at annual rates from 12-months to six-months to three-months -more good news there.

Bad news... But core EMU prices (prices excluding tobacco, alcohol, food, and energy) show steady annual rate acceleration from 5.7%, over 12 months to 6.7% over six months, to 7.9% over three months. And that is not good news - in the face of the other trends - it's particularly bad news.

Lower energy prices are no panacea That's a complication. Clearly energy prices have broken lower. Brent oil prices are up by 20% over 12 months but falling at an annual rate of -36% over six months and by -65.5% over three months. This is a major factor behind the de-escalation of intermediate goods inflation, but that has not spread so much to other sectors yet and as of yet, not a factor in the core at all.
by:Robert Brusca
|in:Economy in Brief
China| Nov 03 2022
China PMI Readings Are Mixed in October; The Message Is Not
Both manufacturing and services PMIs trend lower after a hiccup of growth China's manufacturing and services PMIs are split in October. Manufacturing is improving and services eroding. The movements on the month are small. The composite weakens on the month.

The table below shows slightly different trends from manufacturing and services, but both series are flat from 12-months to 6-months to 3-months based on their averages. And the bottom line is that the queue ranking of the two series puts both in their 14th percentile - quite weak overall.

Manufacturing strengthens a little bit over six months before weakening over three months where the index falls below its 12-month average. For services, the 12-month average at 49.1 gives way to a six-month average of 50.7, strengthening over six months, as the manufacturing index did. But then the services index strengthens again to gain over three months with the three-month average ticking up to 50.9 from 50.7, demonstrating sector expansion. The composite index moves up from 48.9 over 12 months to 50.2 over six months then falls back to 49.9 over three months, signaling overall economic contraction.
by:Robert Brusca
|in:Economy in Brief
Denmark| Nov 02 2022
Denmark's manufacturing Is Slowing Despite a Monthly Gain
Denmark's manufacturing purchasing managers index (from the Danish Purchasing and Logistics Forum) has risen to 52.1 in October from 49.6 in September. This ends a three-month streak of the index being below 50 indicating a contraction in the sector. And it's coming off a period of extremely high readings - readings as high as of 70 back in June 2022 and readings of over 60 from March through May before that.

In October, there was an increase in the headline PMI, an increase in new orders, and an increase in production which we tend to view as the most important readings for the index. However, they are not the totality of the index. Weaker on the month was the employment reading, delivery speeds slowed, purchased inventories weakened, purchase prices weakened, the quantity of purchases weakened, and inventories of finished goods also weakened. Out of 8 components only 2 strengthened.

Looking at momentum, the month's increase in October has tended to put a more positive spin on trend. The three-month change in the Danish manufacturing PMI index is positive; in fact, the three-month change is higher for all the components as well, except for the prices of purchased goods. This is less because of the gain in October and more because the three-month comparison is off a base in July that showed exceptional and not-representational weakness. Over six months conditions are slightly more mixed. The headline is still stronger, orders and production are stronger; in fact, most of the components are stronger, except for a weakening of employment and for purchase of inputs and for the prices of purchased inputs. The 12-month change shows lower readings everywhere: the headline is lower, and all the components are lower.

Over the last 12 months the headline has an average rating of 57.7 which is stronger than the October reading of 52.1. Most of the components have readings above 50 for their 12-month averages indicating expansion. The exceptions are inventories of purchased inputs and the inventories of finished goods. Both of those inventory figures are below a diffusion value of 50 indicating that on balanced there has been ongoing contraction for inventories. Both inventory measures are decreasing, firms are holding smaller volumes of finished goods and as a result they're also holding smaller volumes of purchased inputs. However, the quantity of purchases has been holding up with the 12-month reading average of 58.7 although that metric takes a beating this month as it falls to 26.2.

While the manufacturing sector shows that there has been expansion and expansion in most of the categories over 12 months on average, in October we see some significant weakening compared to the average. The quantity of purchases, in fact, has the weakest reading with the diffusion value of 26.2 in October; the next weakest reading is delivery speeds indicating that firms can fill orders extremely quickly, hinting at some spare capacity. Inputs of inventory are at 49.9 in October, stronger than the inventories of finished goods which are at a reading of 41.5. While we found that there were increases across most components on the month, a closer look at this finds the new orders reading only at 51.0, barely showing expansion after weak readings showed contraction in the earlier three months.

The Danish data are confusing since we see some important topical weakness in October and yet we see broad improvements over the last three months. The reasons it's broad improvements over the last three months is that four months ago in June there was an extremely strong diffusion reading for the headline at 70 and corresponding strong readings up and down the line for the components. Still, the base for the three-month comparison is distorted sapping these gains of their meaning

Moreover, when we look at the current readings compared to values of 12 months ago, we find declines up and down the line with the exceptions ironically only for the two inventory measures. Over 12 months the manufacturing PMI itself is lower by some 19 diffusion points, new orders are lower by some 25 diffusion points, delivery speeds are lower by 50 diffusion points, and the quantity of inputs purchased is lower by nearly 48 diffusion points.

Ranking the Danish PMIs in October The ranking of the October data on values back to the year 2000, a better than 20-year frame of comparison, gives us a headline PMI with a 28.8 percentile standing which places that well below its historic median. The median for the ranking statistics always occurs at a ranking of 50. Values above 50 are above their median and values below 50 are below their median. For Danish manufacturing, our values are below their median except for inventories of inputs which have a 73-percentile standing. After that, the next strongest reading is for the prices of purchases, which have a 43.4 percentile standing still, below their median. The weakest reading in October over this 20 plus year period is for the quantity of purchases with a 1.1 percentile standing. These data clearly began to look like Danish manufacturers are starting to batten down the hatches and prepare for demand slowdown. The quantity of purchases is extremely weak, and their delivery speeds are extremely fast with a 5.8% standing; low readings on delivery speeds mean that delivery speeds are fast- slow readings and delivery speeds indicate more heated economic activity. In this case, no lags have crept into the process. New orders have only a 21.2 percentile standing, and employment has only a 25.5 percentile standing.
by:Robert Brusca
|in:Economy in Brief
Global| Nov 01 2022
Manufacturing PMIs for October Worsen As Central Bankers Face a Dilemma
In October, the manufacturing readings worsen in 16 of the 18 reporting countries/regions. However, of 18 countries and regions reporting in the table, only eight show manufacturing PMI values above 50 indicating that their respective manufacturing sectors are still expanding.

The countries that show manufacturing expanding in October according to the S&P manufacturing PMIs are India, the United States, Brazil, Indonesia, Vietnam, Japan, Russia, and Mexico. Taiwan has the weakest manufacturing reading in the table in October at 41.5, Germany’s reading is 45.7, Turkey registers 46.4, and the European Monetary Union comes in at 46.6. Those best-worst comparisons show the economic performances mixed between the largest and the smallest economies as of October; however, nothing is particularly strong. The strongest reading in the table is India at 55.3 and after that Indonesia at 51.8. These are not impressive numbers.

The sequential comparisons show that over three months there are only three countries that are improved over three months compared to their six-month averages; over six months there are only four countries that are improved compared to their 12-month averages; over 12 months there are seven countries that are improved compared to their 12-month averages from 12-months ago. The breadth of improvement is on the decline from 12 months to six-months to three-months that's clear. Over three months the countries that report improvement are Russia, India, and Indonesia. Over six months the countries that report improvement are Mexico, Russia, India, and Brazil. Over 12 months the countries that register improvement are Japan, China, Russia, India, Indonesia, Malaysia, and Vietnam. Given the sanctions imposed on Russia, and other anecdotal evidence, the Russian PMI reports for manufacturing are suspect….

The percentile standing data on the far right of the table show that there are only three countries that have readings this month that are above their historic medians calculated over the last 4 ½ years; those three countries are Mexico, Russia, and Indonesia. Taiwan is showing the weakest reading of this period. France’s reading is a bottom 6% and it is joined by Canada, the U.K., the U.S., and the euro area as countries or economic units that have standings in the lower 10 percentile of their historic ranges. The median standing for the full queue rankings in October is a 20.8 percentile standing, an extremely weak figure for the median.
by:Robert Brusca
|in:Economy in Brief
Global| Oct 31 2022
Europe Slows As Inflation Cooks Hotter Than Ever
Growth in the European Monetary Union in the third quarter gained 0.7% at an annual rate quarter-to-quarter. This is a sharp deceleration from the 3.3% annualized growth rate in the second quarter as well as from the 2.4% annualized growth rate in the first quarter. Growth year-over-year has now decelerated to 2.1% in the third quarter compared to a 4.3% growth rate in the second quarter.

Inflation rises Not only is growth slowing but the inflation rate has risen. Inflation in October has risen to a 10.7% annual rate, its highest increase year-over-year in this cycle. Despite the slowing in GDP, there is no break on the inflation side. Over six months inflation escalates further to an 11.1% annual rate and over three months inflation cooks at a 13% annualized rate. The inflation situation remains intense while growth is slowing.

Among members growth mostly decelerates in the quarter Only a handful of countries' specific GDP numbers are available for the third quarter. In France, GDP is up at a 0.6% annual rate, slowing from a 2% pace in the second quarter. Germany's growth accelerated to 1.1% quarter-over-quarter pace, compared to 0.4% in the second quarter. Italian growth slows to 2% annual rate in the third quarter from 4.4% in the second quarter. Growth in Portugal is up to 1.6% annual rate compared to 0.4% in the second quarter, and finally Spain grows at a 1% annual rate in the second quarter, a sharp shift from the 6% annual rate in the second quarter.

Large EMU economies do better The four largest economies in the European Monetary Union have growth at 1.1% in the third quarter compared to 2.4% in the second quarter. For the rest of the euro area, growth in Q3 declines by 0.3% at an annual rate in Q3 compared to gaining 5.9% at an annual rate in the second quarter.

Large vs. Small EMU economies Year-over-year growth rates are slower across the European Monetary Union; for the four largest economies the growth rate averages 1.7% in the third quarter compared to 3.7% in the second quarter. For the rest of the EMU, a third quarter rate of 3.2% year-over-year compares to 5.8% in the second quarter. Both the largest and the smallest economies show a downshifting and growth of two percentage points or more based on the year-over-year growth rates. Year-on-year growth rates favor the smaller economics that are nonetheless weaker in the current quarter.

Growth slows broadly across countries Growth slows in the third quarter for each of the five economies that separately report data as well as for the European Monetary Union measure based on 19 countries. However, each country has its own tendency to grow; the table evaluates the growth rate for each of these units compared to its historic tendency. The European Monetary Union's growth ranking for the year-over-year rate for the third quarter is in its 64th percentile. For the four largest economies, the growth rate is in the 60th percentile. Portugal's growth has a 93.5% standing while Italy's growth has an 85.9 percentile standing. Growth in Spain has a 75-percentile standing. However, Germany has only a 40.2 percentile standing, and France has only a 29.3 percentile standing.

U.S. trends are different During the same time, U.S. growth has a 35.2 percentile standing on a year-over-year growth rate of 1.8% that is essentially unchanged from its second quarter pace and for a third quarter growth rate of 2.6% that accelerates from a -0.6% rate in the second quarter. Comparing the U.S. to Europe, it's clear that there are very different things going on in Europe compared to the U.S. although both economic units are showing elevated and difficult inflation outcomes.
by:Robert Brusca
|in:Economy in Brief
Europe| Oct 28 2022
EMU PPI 3-Month Back Off Still Large 12-Month Gains
Among the 11 early reporters of the PPI (or in the case of Austria, the wholesale price index), the median increase in September was a rise of 0.2%. This is a downshift from the 3.6% increase in August but an improvement from the 0.2% decline in July. Europe is clearly in a period where prices are somewhat volatile in the wake of some energy price and commodity price instability.

However, the overall median for 12-months, 6-month, and 3-month price changes for the PPI excluding construction among EMU members shows a deceleration in the pace from 35.6% over 12 months to 25.6% over six months to 20.8% over three months. This is some significant deceleration; however, the pace of inflation is still tremendously high.

The results in the table are for September 2022. They show an increase of 35.6%. One year ago, the year-on-year increase was 17.4%. The year before that, the 12-month period ended September 2020 had the year-over-year PPI median fall by 3.2 percentage points.

The PPI is most volatile of the 'major' inflation statistics because it's weighted toward commodities and oil, goods that have been bearing the brunt of the inflation process recently. In the table, Ireland shows some of the most outrageous increases for the PPI over three months, six months, and 12 months. Setting its wild numbers aside, Germany has the highest percent gain over three months at 84.6%. Over six months, again, Germany posts the largest gain at 53.5%. But over 12 months the largest annual gain is from Italy at 53.2%, followed by Belgium at 49.5%, and then Germany at 46.9%. On the same profile, the weakest increase over three months is from Austria at -8.9%; over six months there's a decline of 6.1% in Greece; over 12 months there's much more clustering but the weakest gain is from Austria at 20.6% followed by Portugal at 21.6% and Finland at 24.6%.

The PPI for 12-months ago - its 12-month increase for the period ended in September 2021 - shows a median gain of 17.4%. However, clustered around that median gain, the lowest increase in the table is France at 11.9%, stepping up to Germany at 13.4% and Portugal at 15.5%. At the top end, the biggest gainers are Ireland's 82%, a 25.6% increase in Belgium and a 23.9% increase in Spain.

Inflation shows some significant variability but clearly the pace has been high and one of the key reasons has been oil prices.

We have two early observations on a PPI excluding energy; one comes from Germany and the other is the number from the U.K. (which is no longer an EU member). The U.K. number is a core number excluding food, tobacco, beverages, and petrol. Both the German and the U.K. figures increase by 0.5% in September and by 0.4% in August. They diverge in July with a 0.4% increase in Germany and a 1.3% increase in the U.K. Sequential data show a tendency for the ex-energy or core inflation rates to abate but the progression is not absolute. In Germany and the ex-energy pace for inflation goes from 13.8% over 12 months up to a pace of 15% over six months then down sharply with a 3.8% pace over three months. In the U.K., the core rate goes from a 16.4% increase over 12 months up to 18.9% pace over six months and then down to a pace of 12.2% over three months. In both cases, the three-month pace is sharply lower than either the six-month or the 12-month pace.

The ex-energy or core inflation reported by Germany and the U.K. show an annual rate pace that hovers around the 15% area more or less and that is considerably better than the median, 35.6% annual rate, for all the countries in September.
by:Robert Brusca
|in:Economy in Brief