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

France| Nov 22 2022
BoF Retail Survey Reveals That Sales Weaken Further
The Bank of France retail survey fell by 3.7% in October showing a significant decline in sales volumes in the month. The decline interrupts a two-month string of sales volumes rising as volumes rose by 0.2% in August and by 2.5% in September.

Across the seven product categories for the month, all of them decline in addition to a decline in all industrial goods sales volume and then overall volume. October was a bad month for French consumers. Food purchases fell by 3.3% in October following declines in three of the four most recent months. Industrial goods sales volumes declined 3.9%, which is only their first to decline in the last three months but the third decline in the last five months.

Among other selected nonfood categories, textile sales volumes fell by 6.1% in October, footwear sales volumes fell by 8.2%, furniture volumes fell by 2.9%, household appliances saw sales volumes fall by 2.5%, electronics volumes fell by 7%, and new auto purchases fell by 9%. The declines across the various categories are relatively large declines for a single month.

According to sequential change calculations, sales volume changes over three months, six months and 12 months show declines in volume for overall sales on all three horizons but not a worsening trend. Total sales volumes fall by 5.4% over 12 months; that worsens to an 8.2% rate of decline over six months, but then the decline slows to a 4.4% decline over three months. Well, that's not a progressive worsening, but a 4.4% decline over three months is certainly not a walk in the park for real sales.

Food purchases are disturbingly weak Sequentially food purchases are weakening and weakening progressively. Food purchases fall by 7.9% over 12 months, decline at an 8.9% annual rate over six months and then fall at a 12.7% annual rate over three months. Such a progression for food, the most obvious consumer staple item, is certainly vexing. Food prices have been among some of the strongest rising and most persistent showing increases globally with the combination of international supply problems, drought, interruptions due to the war in Ukraine, and the lack of availability of fertilizer to help stimulate agricultural production. Food prices have been rising relentlessly globally.

Industrial goods sales For the category 'all industrial goods' the 12-month decline logged a -3.8% pace, the six-month decline is at a -8.3% annual rate, but over three months there's an increase in the growth of sales of 0.8% annualized. That's not much of an increase, but it does interrupt the string of negative numbers. Looking across the six nonfood categories over three months, there are declines in only two categories: household appliances and new auto sales. Household appliances show declines on all horizons at a pace that is somewhat unsettling although not a clear progressive deterioration. Household appliance sales fall 10% over 12 months and fall at a 7.6% annual rate over six months, but then they return to an even faster decline at 10.5% over months. Auto sales are somewhat more mixed with a 9.2% decline over 12 months, a 5.8% increase over six months and a decline at only a 0.4% annual rate over three months.

Other categories in the nonfood retail area show annual rate increases in sales over three months such as the 10.6% annual rate increase in textile sales, the 9.9% annual increase in electronics, the 1.6% increase in footwear sales, and the 0.8% increase in furniture sales. However, textiles and footwear show declines over six months and over 12 months and declines that are relatively steep. Only furniture sales and electronic sales show any progression that seems to have any life to it.

Sales growth rate rankings are low The ranking of the year-over-year sales figures shows abject weakness across all the categories. A ranking above the 50th percentile represents a growth rate in sales volumes that is more than its median increase. There are no such increases for any category as of October. In fact, the strongest year-over-year increase is from furniture sales with a 31.6 percentile standing, followed by a 21.1 percentile standing for new auto sales, a 20.6 percentile standing for electronics, an 18.7 percentile standing for footwear and an 18.2 percentile standing for textiles. The weakest category is household appliances with only a 6.7 percentile standing for its 12-month growth rate. For all industrial goods, the sales volume standing is in its 16.7 percentile. For food, the percentile standing is the weakest on this ranking. The data in the table are ranked over a period since June 2005. The food ranking therefore is the weakest ranking in year-over-year food volume sales in the last 17 years, an extremely significant development, especially recognizing that over that span there's been population growth.
by:Robert Brusca
|in:Economy in Brief
Germany| Nov 21 2022
German PPI Breaks Sharply Lower
The German PPI broke sharply lower in October with the PPI excluding construction falling by 4.2% month-to-month; it rose 2.4% in September and 7.9% in August. The sequential growth rates for this headline PPI show a 34.5% rise over 12 months, a rise at a 30% annual rate over six months, and a gain at a 25.4% annual rate over three months. The inflation process shows a clear slowdown but still very high rates of change in headline producer prices.

But there is a huge gap between the PPI and the PPI excluding energy. The PPI ex-energy did not move lower this month. It rose by 0.5% in October, the same as in September; in August it rose by 0.4% month-to-month. The German PPI excluding energy is up by 13.4% over 12 months; it's up at a 6.1% annual rate over six months, and that drops off to a 5.4% annual rate over three months. I have plotted the ex-energy PPI in the chart above.

Like the headline PPI, the PPI ex-energy shows a deceleration in progress despite the much lesser role of oil and the exclusion of energy prices from this index. Most interesting is the huge gap between the growth rates of the PPI excluding energy and the headline PPI. The PPI ex-energy rises 13.4% over 12 months while the headline PPI rises by 34.5%. That's close to three times faster. Obviously, energy and commodity prices have a lot to do with what's been going on with inflation.

The October reading marks the first observation in the fourth quarter. Fourth quarter-to-date inflation for the headline is falling by 1.3% at an annual rate, but for the core it's still rising at a 5.5% annual rate, in line with its sequential progression.

Monetary policy and prices Monetary policy of course is made at the European Monetary Union level by the European Central Bank not in Germany by the Bundesbank. However, Germany has a high weight in the monetary union and its price developments are important period; it's instructive to look at the difference between the German CPI and the PPI to see what's going on with different metrics for inflation. Through October the German CPI is rising at a 10.4% rate year-over-year, the same as over six months; the pace rises to a 15.8% annual rate increase over three months. The CPI does not show the same headline drop-off that the PPI does since it accelerates. The PPI gives energy and commodities a much greater weight and the services sector is substantially diminished. The CPI and PPI are quite different.

Likewise, the CPI excluding energy is up by 6.5% over 12 months; that pace accelerates to 7.8% over six months and accelerates further into double digits at an 11.3% annual rate over three months. One month into the fourth quarter, the CPI is rising at a 16.7% annual rate where the core is up and 11.5% annual rate.

Oil and OPEC Underlying these statistics is oil. Brent oil prices are up by 10.8% over 12 months; they fall at a 23.3% annual rate over six months and fall at a 38.3% annual rate over three months. Clearly the weakness in oil prices has been helping the headline prices to behave. However, oil prices fell by 7.2% in August and by a further 7.5% in September but then rose by 3.2% in October. OPEC is trying to put a floor under oil prices and that may make the progressive results for the PPI headline just a little bit less relevant.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Nov 18 2022
UK GFK Confidence Reading Makes A Weak Bounce
The UK economy has been under pressure and its politics have been under peril. Markets have a challenging time dealing with the circumstances of the economy and the policy choices made by various UK politicians in the wake of what can only be termed its Brexit fiasco. I don't know how history is going to look at the British exit from the European Union; it certainly isn't going to be something that will be applauded for its economic results. Although that wasn't the reason for doing it. I suppose part of it was a warning to the rest of Europe of how EU membership was spreading political influence through the economic union, something that wasn't supposed to happen which is the reason fiscal policies were never connected. The UK in asserting its independence and autonomy has had to foot a big bill associated with leaving as well as, find a life on its own, and construct a way to deal with Northern Ireland. That was the problem that was the death knell for Theresa May, as Boris Johnson claimed he had a solution that he did not really have. And now, a new Prime Minister is in place, to try to sort it all out all over again. Have we already seen this movie?

The backward glance Notice that the UK economy was hit particularly hard by Covid, and while the confidence numbers show that there was a recovery in confidence it wasn't lasting and there has been a leg down since then that has brought confidence to even a deeper pit than it was in during the worst of Covid. The UK consumer confidence metric at -44 has been weaker over the last 20 years only 1.3% of the time. This is an extremely rare and extremely weak reading. In November, perceptions of the household financial situation over the past 12-months picked up slightly, however, it's still weak with a 22-percentile queue standing. Over the past 12-months households assessed their financial situation as having been in the bottom 4.7 percentile over the last 20 years; the general economic situation is assessed as being in the bottom 8.1 percentile compared to all situations over the last 20 years. The performance of inflation is assessed as having been worse less than 2% of the time. The Covid ‘cure’ appears to have been worse than the disease.

Looking ahead More importantly, looking ahead to the next 12 months, the financial situation, and other metrics regarding consumer satisfaction are even worse. The household financial situation was slightly better month-to-month, still it has been worse only 1.3% of the times over the last 20 years. The expected general economic situation, which also improved slightly month-to-month, has been worse over the last 20 years 1.3% of the time. The unemployment situation expected over the next 12 months worsened in November and has a 75-percentile standing- it's been worse only 25% of the time that's a chilling metric for sure. And looking ahead at inflation, consumers find the outlook for inflation has been worse historically only about 5% of the time. Clearly consumers are concerned, and the economy has a long way to go to be put on level footing

There was little respite by income with lower income people assessing conditions as worse less than 1% of the time while upper income people assess conditions is having been worse about 6% of the time.

The UK is going to deal with this situation by implementing a policy that will be aimed at increasing tax revenue and hoping that that doesn't damp growth. Policymakers always have a hard time making a choice between doing something that they think will pay off right now and doing something that will have a bigger payoff in the future even though it's immediate payoff Cannot be quite so clear or might even be controversial.
by:Robert Brusca
|in:Economy in Brief
Germany| Nov 17 2022
German Orders Sink on Foreign Order Weakness
German real orders fell by 4% in September driven into negative territory in September by a 7% decline in foreign orders while domestic orders advanced by 0.5%. Orders in August had fallen by 2% as both foreign orders and domestic orders fell, foreign orders by -1.7% domestic orders by -2.6%. In July overall orders advanced, rising by 1.3% as foreign orders were strong, rising 5% on the month and as domestic orders fell by 3.7%. Clearly this has been a period of some volatility in orders both domestic and foreign orders are swinging around rather widely. However, the preponderance of significant large negative orders is somewhat worrisome.

Turning to the sequential pattern of orders that is the percent change over 12 months and the rates of change over three months and six months, we find total orders falling at a 17.6% annually over three months, at a 12.7% annual rate over six months and by 10.7% over 12 months. Total orders are showing at clear decelerating pattern with weakness growing over the shorter time periods. Foreign order weakness, however, has been fairly steady during this sequence of time: over 12 months foreign orders fall 15.7%, over six-months they fall at a 14.2% annual rate and over three-months they fall at a 14.9% annual rate. There's no steady deceleration here but there is quite steady and quite significant ongoing weakness in German foreign orders. Domestically German orders have gotten progressively weaker and progressively much weaker. Over 12 months domestic orders fall by 2.6%, however, over six-months they fall at a 10.8% annual rate, and over three-months they fall at a 21.1% annual rate. While foreign orders are responsible for the weakness in September the trend decline in orders and the decelerating pattern itself is a function of domestic economic conditions. Today's report finalizes orders for September and that makes the quarter to date the preliminary results for the third quarter period. In the third quarter German orders fall by 6.1% at an annual rate with foreign orders rising at a 3.3% annual rate and domestic orders declining at an 18.4% annual rate. Once again, it's the domestic portion of the economy that's looking so weak.

Real sales are performing better than real orders with manufacturing sales in September rising 0.2% after rising by 1.2% in August and followed by a 2% drop in July. Sequentially sales don't trace out a particular trend but they rise by 7.4% over 12-months and they're rising at a 12.3% annual rate over six-months and then the bottom falls out and orders fall at a 2.3% annual rate over three-months.

Sales weakness is pronounced over three-months with real sales falling for consumer goods overall led by declining consumer nondurables sales that fall at a 6.4% annual rate, and intermediate goods sales that fall at a 3.1% annual rate. But capital goods sales rise at a 2.4% annual rate and within the consumer sector durable goods sales also rise by 4% but are dominated by the weakness in non durables.

Sequentially real sales show deteriorating patterns for consumer goods but the 1.1% rise over 12 months as 0.2% annual rate fall over six months and a 4.9% annual rate fall over three months this is driven by consumer non durables where sales rise by 0.3% over 12 months fall at 1.7% pace over six-months and then fall at a 6.4% pace over three months. Intermediate goods also show steady deceleration rising by 0.6% over 12-months falling at a 1.9% annual rate over six-months and then falling faster at a 3.1% annual rate over three-months. However strength in capital goods sales which rise by 17.4% over 12 months and at a 32.2% annual rate over 6-months keeps the weakness in intermediate goods consumer goods from dominating the headline for this report- especially over 6-months.

The bottom panel of the table presents order surveys for Germany and the largest European Monetary Union economies. The German industrial confidence measure from the EU Commission show steady slippage from 11 in July to 7.5 in August 4 in September France also shows slippage from -0.8 in July to -4.8 in August to -6.7 in September Italy slips from a small net positive at 0.6 in July to -1.4 in August to -3.8 in September and Spain rounds things out with not quite the same degree of slippage but with a - 4.9 July result a - 5.5 August reading and then a very slight improvement to -5.2 in September. However clearly the rule in play for Europe is that industrial confidence has been slipping from July to August to September with Spain has only a technical exception of small dimension.

The sequential reading is for the European Commission industrial confidence indicators applies to period average indices; these show the German reading at 16.2 over 12-months, averaging 11.4 over 6 months and averaging 7.5 over 3-months. Once again we have this secular deterioration. France fits into that same framework as does Italy and this time Spain fits into the framework as well. The simple change in these indicators over 12 months shows a 19.6 point drop in the German index an 11.4 point drop in the Italian index and 8.9 point drop in the French index and a 7.9 point drop in the Spanish index. In terms of the queue standings for these readings the German reading in September still has a 79 percentile standing, relatively, firm; however, France, Italy, and Spain all have standings below the 50th percentile although not by a large margin.

On balance there's a good deal of weakness in Europe there's clear encroaching weakness for sales and for orders in Germany and this report is in broad terms in line with the weakening trends we've seen from the PMI reports. The high rate of inflation, rising interest rates from the European Central Bank, are situations that are going to continue for some time. The ongoing war in Ukraine which has just showed a new dimension of risk with what may have been a Ukrainian anti-missile missile going off course and exploding in Poland showing exactly what the risks are starting to look like in Europe. Keeping the toothpaste inside the tube is going to be difficult as new investigations into drones supplied to Russia from Iran reveal that the Iranian supply chain has fingerprints on it of all sorts of western European companies who are supposed to be obeying sanctions and preventing these sorts of materials from getting into Iran in the first place. Not only are they getting to Iran they're getting into Iranian drones they're going to Russia and they are attacking Ukraine. Just another example of how hard it is to really get control of and understand what supply chains are doing in a complex global economy. I suspect this is one supply chain that's about to undergo disruption.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Nov 16 2022
UK Inflation Is Still Cooking Hot
Inflation in the UK continues to cook hot. In October, the CPIH rose by 1.6% month-to-month, a strong acceleration from the 0.4% gain in September and the 0.3% rise in August. The CPIH core, which excludes energy, food, alcohol, and tobacco, rose by 0.5% after a 0.4% gain in September and a light 0.5% gain in August.

Sequential inflation Sequentially the CPIH is still running extremely hot; the gauge is up by 9.6% over 12-months, it steps back to an 8.8% annual rate over 6-months and then it accelerates to a 9.4% annual rate over 3-months, nearly the same as it's hot 12-month pace. The core CPIH is up by 5.8% over 12-months, that dials back to 5.2% at an annual rate over 6-months then surges to a 5.9% annual rate over 3-months that pace exceeds even the 12-month pace. Both the headline and the core continue to give the UK authorities hot inflation readings indicating that there is more work to be done on the inflation front in the UK.

Breadth of inflation monthly The inflation rate had moderated, reducing the breadth of its gains, in September and August. In September inflation accelerated only about 45% of the categories; in August breadth was at 54.5%. These both represent middling breadth in terms of inflation. However, in October, the breadth of inflation (diffusion) is at 90.9% indicating that inflation is accelerating in almost every single category and is not succumbing to the narrowing spread indicated in September's result.

Sequential inflation breadth Sequentially the diffusion has varied to some extent; over 12-months diffusion is strong with an 81.8% value indicating inflation accelerates in all but about 20% of the categories compared to its pace of 12-months ago. Over 6-months, the breadth steps back to 45.5%, indicating that there's slightly more slowdown of inflation over 6-months then there is acceleration compared to the trend over 12-months. But, over 3 months, diffusion is back at a strong reading of 72.7%, indicating that inflation is accelerating in most categories compared to its 6-month pace.

Sequential inflation's breadth by categories Sequentially there's only one category that shows a persistence of deceleration in inflation; that's transportation, there the inflation rate is up by 9.3% over 12-months, up at a 4.9% pace over 6-months and then declines at a 7.6% annual rate over 3-months. On the other hand, sequentially inflation is accelerating in healthcare and in restaurants and hotels.

Breadth over the last 3-months Looking at inflation over the last 3-months - taking each month as an individual vector of observations - there's no industry that has inflation persistently accelerating or decelerating on that timeline. There's a lot of mixture in the inflation rate although; the commonality is that inflation is generally high and too high.

The chart shows big picture trends topping but not so much declining The chart for the CPIH inflation rate underscores these statistics. I have plotted the sequential rates of change for the CPIH core. These show that inflation has accelerated and then, in recent months, it has vacillated bobbing up and down and currently runs at a pace somewhere in the midst of this recent zone where inflation has been more or less contained. Twelve-month inflation obviously lags the most and it shows the most trend gain still in play, while 3-month and 6-month inflation show inflation has broken lower and has begun to vacillate in a somewhat lower region. All of this suggests that inflation may have seen its peak but there's nothing here to suggest that inflation is ready to move to lower levels to appease the desires of the central bank.

The unbearable fact of stuck, high, inflation Looking at the inflation rate over the last 3-months, in fact, inflation is intolerably high most everywhere apart from the decline in prices in the transportation sector and the increase at a 1% pace in communications. Communications is a tech category, that chronically tends to run a lower inflation rate. After those two industries, inflation in education reaches a 4.2% pace, recreation and culture reaches a 6.3% pace along with miscellaneous goods and services. Price pressures go up from there. Food prices are rising at a 20.6% annual rate, housing and household expenditure items see inflation at a 17.3% annual rate, and for health care inflation is at a 12% annual rate with restaurant and hotel prices gaining an 11.9% annual rate right on their heels. There's nothing in the distribution of these increases- over 3-months - that gives us reason to believe that inflation is simmering down.

But, 'stuck' also means not accelerating The most encouraging news from the CPI H core is that over 3-months the inflation rate's 5.9% pace is close to the year-over-year pace of 5.8% even though it's accelerating from 5.2% over 6-months. The clustering of these inflation rates around the 5%-6% level is encouraging, especially in view of some of the very high inflation rates we see prevalent within the body of this report. Sometimes the 'good news' is still not 'great news.'
by:Robert Brusca
|in:Economy in Brief
Japan| Nov 15 2022
Japan’s GDP Slips in Q3
GDP in Japan fell by 1.2% at an annual rate the third quarter after rising 4.6% at an annual rate in the second quarter. Year-over-year growth in GDP still progressed, rising to 1.9% in the third quarter compared to a year-over-year gain of 1.6% in the second quarter. The year-over-year calculation benefits from a data quirk that finds the third quarter one year ago simply much weaker than this third quarter in 2022. The effect of that is to cause year-on-year growth to benefit despite the growth slide in Q3 of 2022 – even though that seems counter-intuitive. It is counter-intuitive, but it is also arithmetic. The change in the year-over-year growth is being driven by the shift in the base period much more than the new data release of today.

Quarter-to-quarter growth Private consumption slowed sharply in the third quarter from a 5.1% annualized quarterly rate from a 1.1% rate in the third quarter. Public consumption also slowed from a 3.4% annual rate of expansion in Q2 to being flat in Q3. The slowdown with consumption spans both the private sector and the public sector at the same time and both slowdowns were quite significant. Fixed capital formation also slowed, falling to a 4.8% annual rate pace in the third quarter from a 6% pace the quarter before plant and equipment spending slowed its 6.3% pace from a 9.9% annual rate the quarter before. Housing contracted, falling at 1.7% annual rate but that was actually an improvement from a 7.4% annual rate fall in the second quarter.

On the trade front, exports improved to a 7.9% annual rate of growth after a 7.2% growth rate in the second quarter; imports however had only grown by 3.3% at an annual rate in the second quarter but surged, gaining 22.6% at an annual rate, in the third quarter helping to drive the trade account into deficit.

Domestic demand in Japan slowed to 1.4% annual rate from a 3.9% pace in the second quarter.

The quarter-to-quarter slowing of the economy is pervasive with slowing in most of the categories, exports are an exception and housing is another exception; although housing investment declined it declined by less than it had in the second quarter. Consumption was especially weak in the third quarter- Domestic demand slowed yet imports surged by 22.6% at an annual rate, a sharp increase in import demand particularly with domestic demand slowing.

Year-over-year data quirks drive an improvement The picture from year-over-year growth in Japan is quite different from the quarter-to-quarter results. Most categories in GDP show stronger growth in Q3 than in Q2 on a year-over-year basis. Looking at year-over-year growth, the consumption picture is mixed with private sector consumption speeding up to a 4.3% pace from a 3% pace. The second quarter saw public sector consumption slowing to 0.9% pace from a 2.1% pace in Q2.

Capital spending picks up the third quarter compared to the second quarter on a year-over-year basis: gross capital formation rises by 0.9% after falling 2.8% in the second quarter; plant and equipment spending rises at a 4.2% annual rate after edging ahead by just 0.2% year-over-year in the second quarter. Housing declines in the third quarter falling at a 4.9% annual rate, but that's an improvement from the 6.2% annual decline in the second quarter continuing the theme of improved quarter-to-quarter performance in the year-over-year growth rates.

On the trade front exports expand at a 5.6% annual rate year-over-year after slipping to a 2.9% annual rate in the second quarter; imports rise even more strongly at a 10.6% annual rate after a 3.8% annual gain in the second quarter.

Domestic demand rises to 2.9% in Q3 after a 1.8% increase in the second quarter in the year-on-year framework

The year-on-year surprise Year-over-year results are somewhat curious since the base for the third quarter year-on-year calculation gets weaker, the year over year numbers improve instead of decay. The reason for that is the base of these calculations which is the third quarter of 2021 saw extreme weakness in GDP on a quarterly basis one year ago with GDP falling 2.5% in that quarter and other components are showing weakness as well. As a result, the weakness that is posted and Q3 of 2022 is actually less than the weakness that occurred a year ago and that drives the year-over-year growth rate stronger. In this case the year-over-year numbers are misleading in terms of what's going on with the economy even though we often prefer to look at year over year numbers as being smoother and more indicative than quarterly numbers. Not so this quarter in Japan…
by:Robert Brusca
|in:Economy in Brief
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