Introducing

Robert Brusca

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

Publications by Robert Brusca

Global| Apr 05 2023
Composite PMIs Pickup Despite All the Headwinds
The S&P Global composite PMIs moved higher in March as they improved significantly in some cases as well as broadly. For the 25 entries in the table, only 6 slowed month-to-month. The average composite PMI reading in March moved up to 50.4 from 49.7 in February ending a string of net declines that the series had indicated. The median moved up to 52.8 from February’s 51.6 continuing to show that growth overall was improving. For a group of developed economies including the United States, the United Kingdom, and the European Monetary Union, the March composite index average moved to 52.9 from February’s 51.6 also migrating up from a value of 49.1 in January. Who would have thought that a year after a relatively vigorous tightening by the Fed, joined by other central banks, would result in economic acceleration?

Month-to-month patterns Looking at the three most recent months, there's now scant evidence of declines in economic activity among of the 25 reporting jurisdictions. Only six show readings below 50 in March and in February. Meanwhile, 10 of 25 were below 50 in January indicating contraction. The PMI scores have moved up to indicate fewer countries with contracting activity. Looking at the changes in the composite PMI values from month-to-month, 6 of them showed slowing in March compared to February; in February 4 slowed relative to January, and in January 7 had slowed relative to December. That means for the bulk of the 25 reporting entities, conditions were expanding or unchanged indicating relatively robust activity across the group for these months.

Sequential trends We can further look at the sequential readings, the 3-month, 6-month and 12-month averages. Over three months on average, there were eight jurisdictions below 50, the same number over six months but only seven that were below 50 over 12 months. Few reporters in the table were contracting. The number slowing, however, stands at 7 over three months, compared to six months then jumps to 20 comparing 6-month values to 12-months values. The slowdown is much broader in this period. And the number slowing clocks 18 over 12 months compared to 12 months ago. These statistics suggest that the year-over-year and the six-month to 12-month periods both show broad slowing across the reporting member countries but that slowdown tendency was greatly attenuated over the most recent three months.

Standings/rankings since January 2019 Next we evaluate these indexes over a broader period. We do that by looking at the queue standings that take us back to January 2019. On that timeline, current readings show 8 jurisdictions where the queue percentile standings are below their 50% mark (that denotes observations below the median values for the period. Those reporters include the United States, Ireland, Brazil, Zambia, Kenya, Australia, Sweden, and Nigeria. The unweighted average standing is at its 54.8 percentile while the median standing is at its 61.2 percentile.
by:Robert Brusca
|in:Economy in Brief
Germany| Apr 04 2023
German Trade Surplus Holds Its Higher Ground in February
The German trade surplus in January had surged to nearly €16 billion. In February it had basically held to the gains made in January. The German surplus hit its low point and the later part of 2022 and has since been on the rise. During that time, both export and import growth had fallen very sharply, but import growth had fallen faster than export growth leading to the rise in the surplus.

German nominal exports in February rose by 4% after rising by 2.5% in January. So, the sequential growth rates show a 12-month growth rate in exports of 7.6% over 12 months, at an annual rate of 1.7% over 6 months and then even slower annual rate of 0.8% over 3 months.

German nominal imports rose by 4.6% in February after falling by 1.4% in January. Import growth is at 3.8% over 12 months, weaker then export growth, then declines at a -19.4% annual rate over 6 months. That pace of decline is slightly reduced over 3 months to -13.1% at an annual rate.

On balance, exports show signs of slowing but is still growing in nominal terms while imports are weak and declining over 3- and 6-month horizons.

Converted to real terms, we have export and import data available for January. January real exports grew 3.6% month-to-month while imports were flat. The profile of real export growth shows 12-month real exports up by 1.3%; over 6 months they are up at a 2.5% annual rate, but over 3 months they are falling at a -8% annual rate. Real imports on the same timeline are rising by 0.1% over 12 months, falling at a -9.4% annual rate over 6 months and falling at an even faster -13.5% annual rate over 3 months. The trends in inflation-adjusted trade show much more weakness than for nominal exports and imports, but the imports clearly are weaker than exports on a real basis.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 03 2023
Japan’s Tankan Weakens in Q1
The bellwether for Japan's Tankan report is the manufacturing sector for large enterprises. In the first quarter, the large firm index fell to a survey value of +1, down from +7 in the fourth quarter; the fourth quarter was slightly lower than the third quarter at +8, and the third quarter was slightly weaker than the second quarter at +9. In all, there are five quarters in a row in which the large enterprise manufacturing index weakens quarter-to-quarter. And there are six quarters since the Tankan for large manufacturing firms rose quarter-to-quarter (last done in Q3 2021).

However, the nonmanufacturing index in the first quarter improved, moving up to 20 from 19. That index had improved in the fourth quarter as well. The nonmanufacturing index has been rising for four quarters in a row. Manufacturing and nonmanufacturing have been going their separate and quite different ways for some time now.

At a +1 reading in Q1 2023, the manufacturing index for large enterprises is weak; it has a 26.7 percentile standing that compares to nonmanufacturing at +20 in Q1 2023, where the index has a 74.7 percentile standing.

Nonmanufacturing industries Among the nonmanufacturing sectors, the weakest standing is for restaurants & hotels with a 44th percentile standing, although that sector made a strong improvement in the fourth quarter, moving from a -28 reading to 0 and staying there in the first quarter of 2023. Transportation has a sub 50% ranking with the standing at the 48th percentile mark; transportation weakened sharply in the first quarter falling to a +10 from a +17 reading in the fourth quarter. The strongest nonmanufacturing industries from a ranking perspective are personal services with a 76-percentile standing, retailing with an 90.7 percentile standing and wholesaling with a 98.7 percentile standing.

Outlook survey The outlook survey for the second quarter sees manufacturing weaker at a reading of +3, down from +6 in the first quarter; the outlook has weakened for four quarters in a row. Nonmanufacturing has strengthened its outlook for Q2, rising to a reading of +15 from +11 in Q4 2022. The outlook for manufacturing has a 26.7 percentile standing while nonmanufacturing has a standing in its 74.7 percentile.

Since COVID The table also offers longer comparisons on changes in the Tankan reading from Q1 2020 before COVID struck. On this timeline, manufacturing has improved by 9 points and nonmanufacturing is better by 12 points. The outlook for the quarter ahead is stronger for manufacturing on that timeline by 14 points while the nonmanufacturing outlook is stronger by 16 points..
by:Robert Brusca
|in:Economy in Brief
China| Mar 31 2023
China’s Manufacturing PMI Backs Off While Services Plow Ahead
China's manufacturing PMI in March was lower at 51.9, down from 52.6 in February. It continues to reside above the January level of 50.1. The table offers a look at 12-month, 6-month and 3-month averages; it also looks at point-to-point changes over 3 months, 6 months and 12 months. The momentum changes show that the headline of the index is higher over 12 months, higher over 6 months and higher over 3 months. The momentum changes are simple period-to-period changes; the table shows the largest increase in the manufacturing PMI by far is over 3 months gaining 4.9 points accounting for more than all the increase over 6 months and 12 months. The manufacturing PMI ranked on data back to 2005, presented as a percentile, is at a 67.7 percentile standing which places that reading just into the upper one-third of its range over this period.

The report shows a number of cross-currents, but mostly of a minor variety. For example, in March almost all the categories are weaker than they were in February, but the March values are almost all higher than they were in January. This marks February as a strong month more than it marks March as a weak month.

Trends on averages Data on averages over 3 months, 6 months, and 12 months show that there are month-to-month increases across most categories sequentially. The three-month averages compared to six-month averages show all categories are higher. Comparing 6-month averages to 12-month averages, all the categories are higher except employment that is slightly lower. Comparing 12-month averages to the 12-month average of 1 year ago, most of the categories are weaker; the exception is the ‘stocks of finished goods’ metric that is slightly higher on this average.

Period-to-period changes Applying the same process to simple changes, over three months the only category that is weaker is input prices. Looking at the six-month change, again, input prices are the only weaker category and the same is true looking at 12-month changes. China is showing expansion in all the activity categories compared to some weakness in input prices from 12-months to 6-months to 3-months.

All evaluation methods show solid results Setting aside the weaker readings in March compared to February, the period average momentum changes show substantial firmness or strength indicated by changes. If we evaluate the same metrics on their average level changes, we get roughly the same interpretation. When we're evaluating all the components on a timeline back to 2005, we find the queue standings of delivery times, order backlogs, and the stocks of finished goods all have standings in their 80th percentiles. Imports and output have standings in their 70th percentiles. The new orders metric is on the threshold of a 70th percentile standing at 69.1. Purchases of inputs is right at a 69.1 standing as well. Only input prices have a standing below their midpoint (below 50) since 2005. That’s impressive.

But are the Chinese metrics really that impressive? On balance, Chinese showing a great deal of positive momentum and strength compared to where its PMI indexes have been in the past; however, a lot of this also appears to be illusory strength. What I mean by that is that in March the strongest category is output with a 54.6 reading; that's not a particularly strong raw diffusion index – and it’s the strongest one of the bunch. Its ranking is strong/high when we look at changes over various periods or when we evaluate its level compared to a time span since 2005- but this period has been a difficult time for the Chinese economy. The output rating of 54.6 in March has a 70th percentile standing; however, the delivery speed reading up at a 50.8 reading which is barely above 50 - barely above the break even for increasing or declining - has an 81.6 percentile standing! How could such a weak diffusion reading have such a high percentile standing? The answer is a legacy of weakness that makes moderate reading appear strong. China has a number of weak-to-moderate readings for March. The PMI components that wind up having strong momentum and strong readings from compared to their recent past are simply reading with weak historic baselines.

Component strength Looking at PMI levels, there are 4 of 11 readings in March that are below 50 - and ‘50’ is the diffusion value that is the dividing line between increasing or decreasing. So 4 of 11 readings have PMI diffusion values so low that they point to declines in those categories; yet, these four categories average a standing at the 73.8 percentile. There are another four components that have readings between 50 and 50.9 indicating very moderate increases in the underlying series. These moderately firm PMI readings have lower average standings than their weaker diffusion index counterpart at an average percentile standing of 62.3%. The only reading at 51 is the manufacturing PMI headline with a 67.7 percentile standing. There are no readings at 52. At 53, there are two readings: one for new orders and one for purchases of inputs; they have an average standing at the 69.1 percentile. Finally, there's output with the highest reading overall at 54.6 that has the 70th percentile standing.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 30 2023
EMU Indexes Show Common Large Country Behavior- Italy Leads the Shallow Rebound
The monthly EU Commission Index for the European Monetary Union showed slight slippage back to 99.3 in March from 99.6 in February. This compares to 99.7 in January and 97 in December. Obviously, the sense of rebound here reveals a very shallow and slow-taking rebound. The industrial sector had readings of zero for the past two months, weaker than the January reading. Consumer confidence was at -19.2 in March, not much changed from the -19.1 in February, but it's a slight improvement from -22 in December. Retailing slipped on the month with a March value of -1 compared to zero in February and a slight improvement from -3 in December. Construction eased lower with the reading of +1 in March after +2 in February that compares to a +4 reading in December. The services sector slipped on the month to a reading of +9 from +10 in February; February was unchanged from January, but the March reading of +9 was up from a reading of +8 in December.

These comparisons show a very tight clustering of values over the last four months or so; the ranking of the overall European Monetary Union index is at its 46.6 percentile, ranked on data back to 1990.

The industrial sector has a ranking in its 70.5 percentile. Retailing is at its 78th percentile. Construction is at its 85.4 percentile. Services are at their 58.5 percentile. The clear weak reading for the Monetary Union is consumer confidence which has just an 8.6 percentile standing; it has been this weak or weaker only 8.6% of the time back to 1990.

As the data above suggest, there's not much of a rebound building while the various metrics show some improvement relative to their December levels (except for construction). The clear message is that there's not much change in momentum at all and as we can see the rankings on the various metrics remain moderate with construction fading but still having a strong activity score. Retailing is quite solid, and the industrial sector is still firm with its 70.5 percentile standing. The chart at the top shows that the various sectors are rebounding. The Monetary Union metrics are off their mini-cycle lows; however, this is somewhat curious with the European Central Bank raising interest rates with inflation high, a war still cooking in Europe and what could be a nascent banking crisis waiting in the wings. There's been some concern about the onset of recession, but these data instead show a clear persistence and slow slog recovery underway. This certainly raises questions about what's next.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 29 2023
German Consumer Confidence Remains in a Deep Funk
Germany’s GfK climate measure continued to improve in April, but its improvement was only a gain of about one point on an index that remains severely weak. The climate index in April has been this week or weaker only 3.1% of the time since its inception. Even though there is now a string of six months in which consumer climate has been improving, these improvements are so small as to make the story, still a story about how weak conditions remain rather than about how there's a string of improvement underway.

The components for the climate index are made available to us with a one-month lag; we are looking at economic expectations, income expectations, and the propensity to buy in terms of values as of March. In March, economic expectations stepped back to 3.7 from a February value of 6; still the 3.7 reading was well above the January reading of -0.6 and the December reading of -10.3. The economic ranking has made a significant improvement and currently has a 44.1 percentile standing. That means that economic expectations have been this weak or weaker only about 44% of the time and they've been higher only about 56% of the time. The economic reading is closing in on a neutral reading which would occur at a rank or count percentile standing of 50%.

Income expectations improved slightly to -24.3 in March from -27.3 in February. Income expectations have been improving regularly: in December, for example, income expectations had a value of -43.4. Income expectations currently have a 4.3 percentile standing. That rank standing means that the income expectation reading has been this weak or weaker only 4.3% of the time.

The propensity to buy improved very slightly in March, rising to -17 from February’s -17.3. It improved in February compared to January; however, the current reading level is below December 2022 when the value was -16.3. The count or rank percentile standing for the propensity to buy is still weak at 19.3% indicating that this propensity has been this week or weaker about 19% of the time. That is roughly a bottom one-fifth standing.

Other Europe The table also presents some comparative readings for Italy, France, and the United Kingdom. The count or rank standing for Italy is at its 68.8 percentile. For France, the standing is at the 1.6 percentile. For the U.K., it's at the 5.9 percentile mark. Italy has a relatively robust ranking for consumer or household confidence at 68.8%. It has been higher only about 32% of the time. As for France and the U.K., the readings there have been lower rarely - on the order of less than 2% of the time for France and about 6% of the time for the U.K. In terms of month-to-month changes, Italy saw another increase in March, France saw a slight decline, and the U.K. saw a slight improvement. Compared March 2023 to December 2022, the Italian reading is at 105.1 compared to 102.5; the French reading is at 81.5, lower than December’s 82.4; the U.K.’s -36 reading in March is an improvement from its -42 reading in December.
by:Robert Brusca
|in:Economy in Brief
Italy| Mar 28 2023
Italian Confidence Ekes Out Small Gains
Italian consumer confidence moved up to 105.1 in March from 104 in February; this gain continues a 2-month string of increases for the confidence measure. Confidence has now climbed above its median for the period since late-1997 and has a 58 percentile standing in that queue of data on that timeline.

The overall situation for the last 12 months has improved to a -90 in March from a -96 reading in February. It shows a rise of 19 points over three months compared with decline of 23 points over 12 months and has a 44.3 percentile standing, below its median for this period.

Looking ahead over the next 12 months, the overall situation is slightly firmer, up by plus one compared to a -1 reading in February. Unemployment, at -8 is less feared than it was in February at a -6 reading; the household budget has a +15-reading compared to +11 in February. Each of these readings reflects a month-to-month improvement. Each reading has improved for two months in a row. The assessment of the overall situation for the next 12 months has a 59-percentile standing. Concerns about unemployment have only a 17-percentile standing, indicating relative security on the part of the labor force. The household budget has a 62.6 percentile standing, above its historic median and a relatively firm reading as of March.

The household financial situation over the last 12 months has improved to -39 from -47 in February and it has a 46.6 percentile standing, below its historic median. The outlook for the next 12 months improves slightly to -14 from -15 in February and continues to show a weak reading with a 17.4 percentile standing. The outlook for the household sector financial situation is still quite poor.

Current household savings backtrack slightly in March and that series has backtracked for a number of months in a row but still has a 62-percentile standing. Household savings for the future backtracked in March compared to February, but February had improved sharply compared to January. That series has a 97.7 percentile standing, an extremely strong mark, indicating confidence in being able to save in the future.

The environment for making major purchases in March improved slightly to -42 from -45 in February; that in turn had improved from a -51 in January. That series has improved over three months by one point on a net basis although it's weaker by 9 points over 12 months and has a percentile standing in March of 35.1%, significantly below its median and close to the bottom 1/3 of its range of values experienced since late 1997.

Italy's business index improved to 104.2 in March from 103 in February and it's riding a string of small increases. Over three months the index has increased by 2.5%, but over 12 months it's declined by 6.1%. An improvement in the business index is a relatively nascent event. The percentile standing of the March reading is in its 56.9 percentile; that places it slightly above its historic median leaving it and what I would call tepid territory.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Mar 27 2023
U.K. CBI Survey - Retail Deterioration Reverses in March
A Confederation of British Industry (CBI) survey has produced significantly and broadly better data in its March survey, both for sales and orders in March and for expectations for the month ahead in April.

Comparing sales to a year ago in March, the reading relative to February was slightly weaker ticking down to a +1 from +2; however, both readings are leagues better than the January reading of -23 for sales performance relative to a year ago.

Orders compared to a year ago improved sharply in March to -2 from -25 in February and -32 in January.

Sales for the time of year in March moved up to a +12 reading from +6 in February and -3 in January.

The performance of stocks of goods relative to sales showed inventories at a + 10 in March compared to +8 in February and that compared to +23 in January. The stock-sales ratios data have to be analyzed in conjunction with the performance of sales trends. The notion that inventories are still improving and sales are improving can regarded as a positive development. The stronger increase in inventories back in January when sales were declining probably referred to unintended increases in inventories and that was not a positive or a strong reading at that time.

Looking ahead, expected April sales compared to a year ago have a + 9 reading compared to -18 in March and readings of -15 and -17 in the two earlier months.

Orders compared to a year ago have a net zero assessment in April; that compares to a -23 reading for March, -19 for February, and -23 for January. Once again, we see significant improving trends even though the net reading for April is only zero.

Expected sales adjusted for the time of year are at +13 for April, up from +11 in March and much stronger than -2 in February and +2 in January.

Stock sales ratios have a +6 reading for April, below 23 for March, 12 for February and 8 for January. But significantly, the reading is still positive and it's occurring at a time when sales are advancing more strongly and when orders are no longer falling.

In the far-right hand column, we can vet these readings for March for current data and for April for expected data compared to their historic trends. Even though we are looking at improvement, the state of the current readings is still relatively weak. Sales compared to a year ago have a 34-percentile standing, meaning that they have been weaker 34% of the time and stronger nearly 2/3 of the time. Orders compared to a year ago have a 41.6 percentile standing, closer to their median reading which occurs at a value of 50%. The time period being studied in this case is back to June 1998. Sales for the time of year are actually quite strong on this timeline; they have an 83.9 percentile standing indicating they are stronger less than 17% of the time. The stock sales ratio has an 18.5 percentile standing indicating that although positive it's still relatively low.

Turning to expectations for April, we once again find a slew of relatively weak readings with standings below their 50th percentile in all cases except for once again sales for time of year. Expected sales for time of year in April have an 84.6 percentile standing, quite similar to the standing for current performance in March. Sales compared to a year ago have 38.5 percentile standing and orders compared to a year ago have a 42.1 percentile standing; both of these are about equally weak below their key neutrality value of a 50 percentile standing. The stock sales ratio has a 13.7 percentile standing for its April expectations, slightly weaker than its current standing in March.

U.K. reports actual retail sales volume data through February; as of February, sales we're falling year-over-year by 3.5%, less weakness than the 5.1% 12-month decline logged in January. The 12-month percent change over the last 12 months has been on the order of 5% so U.K. real retail sales have been weak for some time. The queue standing for the U.K. retail sales series evaluates the year-over-year growth in sales volumes as at a 5.4 percentile standing – an extremely weak reading. This reading has been weaker only about 5% of the time. The CBI survey data are showing a lot more strength than that.
by:Robert Brusca
|in:Economy in Brief
Global| Mar 24 2023
Flash PMIs Are Mostly Firmer in March
The S&P Global flash PMIs are continuing to show some resilience in the face of what have been some significant challenges. Commodity prices and inflation have been rising and high and in response central banks have been raising rates for about one year. The Russia-Ukraine war has been in progress for a year casting a pall of uncertainty across geopolitics as well as over the economic outlook. A more recent development is banking problems that have emerged, particularly in the United States and Europe and specifically in Switzerland. And, of course, it's too soon to see the impact of any banking sector problems in these data.

What we do see is stronger PMI readings across the board, except for the U.K. We see stronger readings for the services sector everywhere, once again except the U.K. There are weakening manufacturing responses for the European Monetary Union overall, for Germany, and for the U.K. in March. However, there is a widening count of sector or overall readings of weakness in progress and a surprising period of strengthening that came well into the rate hike cycle. In January, only three of the 18 readings registered month-to-month weakening. In February, there are four indications of month-to-month weakening. In March, there are five indications of month-to-month weakening. However, with 18 sectors represented in the table, the number recording weakness has only risen to five in March from three in January. In terms of changes in PMI data, it doesn't appear that tightening monetary policies are having all that much impact, certainly not a rapid impact on these economies.

If we look at the strengthening versus weakening responses over 12-month, 6-month and 3-month periods, we find overwhelming evidence of weakening over 12 months and over 6 months, not so much over 3 months. Over 3 months, Germany and the European Monetary Union show strengthening in all their measures along with the U.K. France and Japan show weakening over 3 months compared to 6 months in two sectors with manufacturing strengthening in France and services strengthening in Japan. The U.S. is the exception to all these rules with 3-month, 6-month and 12-month weakness in all the sectors on all the horizons. Let me point out again that the 3-month, 6-month and 12-month averages are applied only to hard data and so they are applied to data beginning in February not the data from March.

If we set aside our obsession with the changes and look instead up the levels of the PMI data where the nomenclature focuses on values above 50 showing expansion and below 50 showing contraction, we find that services sectors in all six of these reporting units in March and in February show expansion. In contrast, manufacturing shows contraction - that is levels below 50 for the diffusion indexes- in March and February in all six cases. Regardless of whether manufacturing did a little bit better or worse on the month than the month before, manufacturing broadly is declining while services broadly are showing ongoing expansion.

The queue percentile standing is presented in the table. These readings measure the standings of the March PMI values across all values reported since January 2019. They show percentile readings below the 50% mark in manufacturing for all reporting entities in the table. The 50% mark in ranking represents the median for the period over which data are ranked. So what we are seeing is below median values for manufacturing everywhere with rankings clustered around the 20% mark although with France below the 10% level and the U.S. at the 13.7% level. Services rank above their 50th percentile everywhere with an extremely strong reading at the 98th percentile in Japan and a strong 82nd percentile in the European Monetary Union. Those compare to a relatively weak standing for services at about the 53% level in the U.S. and a 55th percentile standing in the U.K.

The table also presents diffusion point changes month-to-month and over 3 months as well as the change versus January 2020 before COVID struck. These data show that all manufacturing readings are weaker than they were in January 2020 while most service sector readings are stronger; however, the U.K. and Germany are exceptions with small service scepter decrements to their January 2020 levels in March. The U.S. has a service sector gain of only 0.3 points on that timeline. However, over 3 months, we see service sector readings mostly better, stronger by 2.3 to 8.4 points over that span. Japan shows the smallest composite increase at 2.3 points while the U.S. shows the largest composite increase over 3 months of 8.4 points.
by:Robert Brusca
|in:Economy in Brief
Denmark| Mar 23 2023
Danish Confidence Bottoms and Stabilizes
Consumer confidence in Denmark in March improved slightly, moving up to -23.1 from -25.1 in February after logging a -26.1 in January. These improvements are not strong, but they are movements toward ‘better’ rather than toward ‘worse.’ The absolute reading is extremely weak with the ranking of 2.7% on data since 1995. That means that since 1995 readings have been this weak or weaker only 2.7% of the time.

The past year… The data assessing conditions over the last 12 months are generally quite weak; the financial situation for the last 12 months has a 0.6 percentile standing. The general economy reading for the last 12 months has a 3.3 percentile standing. The assessment of consumer prices over the last 12 months, of course, has a high 97-percentile standing telling us that inflation had been higher historically only about 3% of the time. That's not surprising and it's not good news. That summary sets the stage for the responses for this month.

Looking ahead The look-ahead responses from March show the financial situation for the next 12 months slightly stronger at a net 0.4 reading, up from -0.3 in February, but still with only a 3.6 percentile standing. The outlook for the general economy improved to -0.7 in March from a -6.4 reading in February, logged at a 38.8 percentile standing much better than the other standings noted to date; however, it is substantially below the 50% break even mark. Consumer prices over the next 12 months have a -8.5 assessment for March below the -8 assessment for February; the standing for this metric is the 27th percentile which is certainly a lot weaker than the 97th percentile standing for the previous twelve months. There is some expectation that inflation is going to be coming down; it is hard to tell from this whether that sort of decline is sufficient or not. The unemployment trend expected for the next 12 months has a lower net 18.6 reading in March, down from 28.4 in February (which had a small uptick compared to January). The standing still has an 87-percentile mark which is relatively high.

The environment Assessments of the environment in March change very little from February. All responses have rankings below historic midpoints (below 50%). The favorability of the time to purchase improved slightly to -39.6 in March from -41.8 in February; the favorability the time to purchase over the next 12 months improved to -15.5 from -17.9. The favorability of the time to save ticked ever so slightly higher to 64.4 from 64.3; the March favorability of the time to save over the next 12 months eroded to 22 from 23.8 logging a lower 10-percentile standing. The general financial situation of households is unchanged at 19.8, a 2.4 percentile standing. The environment is weak.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Mar 22 2023
U.K. Inflation Has Slowed But Remains High As February’s Spurt Surprises
The chart on U.K. CPIH core inflation rate that looks at annualized sequential growth rates of inflation over 12 months, six months and three months shows some remarkable stability. High inflation rates remain in force in the U.K. across horizons. All the different tenors show some slight tendency toward deceleration; however, there's a pronounced flat spot after the acceleration of inflation in early-2022. This ‘flat spot’ embodies a weak downslope that has an extremely mild downward gradient. It is nothing like the speed with which inflation had accelerated in the U.K. It's hard to imagine the authorities would be content with inflation declining at the speed depicted by gradient in this chart. The Bank of England clearly is going to feel that it needs to do more, that it hasn't done enough, that inflation is not declining rapidly enough, and remains too high. The headline and core gains in February underscore those statements.

Got banking issues? On the other hand, there are banking issues. The events in the United States do not reflect something that would have simply passed over the United Kingdom on the way to Switzerland. Any bank operating in the global environment has faced the same circumstances. They've operated in a very low inflation, low interest rate environment. The inflation rate rose sharply. During this period, monetary policy did not react much to the inflation. Suddenly central banks got religion and started raising interest rates. This would have put a great deal of pressure on any security held as the banks would have purchased them under the conditions of a lower interest rate environment. While we can assume that more sophisticated banks have operated more smoothly during this environment, employing various strategies including hedging and the use of financial futures, undoubtedly there are a number of less sophisticated institutions that didn't act that way, didn't see the rate hikes coming, and that may have doubted that the central banks were going to take the aggressive actions they eventually did take. To the extent that there was any denial in the trading room it has been replaced with losses.

Central banks making decisions about policy have to be concerned about the condition of financial institutions under their purview. So far, the Bank of England assess no risk to the U.K. banking system.

Headline inflation in the U.K. shows clear deceleration. The CPIH is at 9.2% over 12 months, declining to an 8% pace over 6 months and to a 6.6% annual rate over three months. For headline inflation, the deceleration is in gear. However, for the core inflation rate, the year-over-year pace is at 5.8%, the six-month pace edges down to only 5.6%, and then, what's worse, is that the three-month pace edges back up to 5.8%. Inflation over this period barely budges. And a 5.8% inflation rate is too high.

The diffusion calculations on the categories in the table show that monthly month-to-month inflation rates are accelerating more than they're decelerating. Diffusion in February is up to 63.6% which says that inflation is accelerating in more categories than it's decelerating. In January, diffusion was 54.5% which also shows net acceleration anything above 50% shows an accelerating tendency. In December, the diffusion index had been better behaved at 45.5% showing a slight tendency for more categories to decelerate than to accelerate.

Sequential diffusion is a little bit kinder to the trends over 12 months diffusion is that 63.6% showing that inflation clearly has accelerated over 12 months compared to 12-months ago. Diffusion over six months compares inflation over six months to the pace over 12 months: here we see a decline in diffusion to 9.1% indicating a sharp tendency to decelerate over six months compared to 12 months (that was not reflected in the pace of either headline or core inflation). However, over three months that marked pace of deceleration in diffusion no longer exists; instead, there is lingering deceleration with a diffusion index of 45.5%. It is rather more modest and only slightly below the neutral 50% mark. And as we just saw, the monthly figures are showing that inflation is accelerating month-to-month so it's not clear exactly how much stock we should place in this three-month index. The headline, remember, showed that inflation had cooled from an 8% pace to a 6.6% pace, but the core had found that inflation accelerated slightly to 5.8% from a 5.6% pace. Diffusion is an unweighted concept looking at the unweighted breadth of acceleration across categories. The main thing that the data are telling us over three months and in the recent months is that there is no strong tendency for inflation to decelerate; the monthly data warn of further acceleration.

U.K. macro data have been a bit touch and go, but the unemployment rate continues to show a tight labor market. But the December rate of unemployment at 3.7% among some of the lower rates we've seen in recent months.

Inflation remains a global phenomenon running at a very high pace in Europe and it's running strongly in the United States. The U.K. core shows little tendency to decelerate, and we also see stubborn inflation in Canada, and even Japan has acquired some inflation although it's skeptical about the longevity of the rate that it's experiencing today.
by:Robert Brusca
|in:Economy in Brief
Canada| Mar 21 2023
Canadian Inflation Turns the Corner…But Not on Two Wheels
Canada's inflation trends are looking a lot like the trends in the United States. The headline inflation rate has rolled off relatively sharply. The year-over-year pace is 5.3%; that falls to 3.3% expressed at an annual rate over six months. The annualized pace logs a 1.6% gain over three months. Magically inflation goes from extremely strong to under the pace prescribed by its target. Canada’s CPIx, which excludes the most volatile components of inflation, shows a 4.9% increase over 12 months, a 3.7% annual rate increase over six months and a slightly slower 3.4% annual rate increase over three months. Those metrics track closely the U.S. CPI path. Meanwhile, Canada's core CPI rate (excluding food and energy) shows a 6% gain over 12 months, a 4.3% annual rate increase over six months and a 4.1% annual rate increase over three months that echoes the pattern of the U.S. core. Although Canada has a lower inflation rate on each of its shorter horizons compared with the U.S. core with the three-month inflation rate pace that's a percentage point below the 3-month pace in the U.S., Canada's year-over-year pace for the core is 1/2 of one percentage point higher than in the U.S. It's too soon to say exactly what this means in terms of policymaking and whether we should be paying more attention to the year-over-year pace or to the 3-month pace. But the differences here are not huge.

When the 3-month inflation rate drops sharply, it's an encouraging sign about where inflation is headed next. However, it is not a guarantee. The ‘problem’ with annualized 3-months inflation is that the series is volatile. A drop in inflation over 3 months is a welcome signal, but it is not one that can be relied on up. That is the policy dilemma.

Canada’s year-over-year inflation rate on the CPI peaked at 8.1% in June and has declined to a pace of 5.3% in February. The CPIx pace that excludes the six most volatile items peaked at 6.2% in June and is down to a pace of 4.7% in February. Canada’s core CPI peaked at 5.5% in July and is down to a 4.9% pace in February, the same as its year-on-year pace in January.
by:Robert Brusca
|in:Economy in Brief