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

Japan| Oct 03 2022
Japan's Tankan Slips and the Outlook Weakens
Japan’s Tankan in the third quarter slipped to +8 from a reading of +9 in the second quarter. The headline most closely followed by Japanese investors and economists is the reading for large manufacturing firms. That index had previously slipped from 14 in the first quarter of 2022 to +9 in the second quarter; the third quarter extends this trend slippage that dates to peak readings of +18 in the third and fourth quarters of 2021. On data back to 2004, the manufacturing reading for the third quarter has a 48.5-percentile standing, putting it just below its median on that timeline.

By comparison, the nonmanufacturing reading rose to 14 in the third quarter from 13 in the second quarter; it had been as low as +9 in the first quarter of 2022, the same level as in the fourth quarter of 2021. The nonmanufacturing trend has been on an improving run while manufacturing has been under deteriorating run in Japan. The nonmanufacturing sector has a 51.5 percentile standing on data back to 2004, slightly above its historic median.

Looking across sectors in the report the nonmanufacturing area shows some significant industry improvements. Within nonmanufacturing, in construction and real estate there are monthly improvements. Improvement in wholesaling is modest on the month. There is substantial improvement in transportation, a slight improvement in services for businesses and a slight improvement in restaurants & hotels that still have a net negative reading but showed less of a negative reading in the third quarter. Deteriorating sharply quarter-to-quarter were personal services that fell from a +18 in Q2 to a +2 reading in Q3; however, that had been a negative reading in the previous two quarters (Q4 2021 and Q1 2022). Also weakening in the quarter is retailing; that industry fell to a reading of +3 in Q3 from +7 in Q2: it had only been at +2 in the first quarter and was at +3 in Q4 2021, so this is a return to retailing roots around the turn of the year.

On the positive side, construction and real estate both have 51.5 percentile standings over this period. Transportation has a 60.6 percentile standing; services for businesses have a 78.8 percentile standing, with wholesaling at an 87.9 percentile standing. Below median readings exist in retailing, restaurants & hotels, and personal services.

Medium-sized enterprises The Tankan also extends to smaller companies although these readings are not considered to be critical as bellwethers in this survey. However, for medium-sized manufacturing firms the Tankan in the third quarter was zero, the same as in the second quarter, down from stronger first quarter and fourth quarter readings. At the zero-percentile mark, the medium firm manufacturing standing is at the 33.8 percentile mark. Nonmanufacturing, however, has been improving for medium sized companies, moving up to a +7 reading in the third quarter from +6 in the second quarter and zero in the first quarter of 2022. Nonmanufacturing has a 60.8 percentile standing. The outlook for manufacturing for medium-sized companies slipped to -4 in Q4 2022 from -3 in Q3; that compares to a +1 reading in Q2. The standing for this reading is in its 33rd percentile- a weak reading in historic context. Nonmanufacturing showed an improvement in the outlook to +2 in Q4 from +1 in Q3 compared to -3 in Q2; it has an above median, 53.3 percentile standing.

Small enterprises Small enterprises also are surveyed. Small manufacturing firms registered another -4 net Tankan reading in Q3 2022, for the third quarter in a row. Their standing is in their 46.7 percentile of their historic queue of data. Nonmanufacturing for small enterprises improved to +2 in Q3 from -1 in Q2 and -6 in Q1. Nonmanufacturing has a queue standing that is firm at the 73.3 percentile mark. The outlook for manufacturing stayed at -5 for small manufacturing enterprises in Q4 2022, the same as in Q3 and Q2. This reading, however, has a 52-percentile standing; it is still above its median. Nonmanufacturing saw an improvement in the outlook to -3 in Q4 2022 from -5 in Q3; it previously was -10 in Q2, and the Q3 reading has a 69.3-percentile standing in its historic queue of data.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 30 2022
EMU HICP Tops 10% Over 12-months
Inflation in the Euro Zone continues to move ahead fast enough to churn up a cloud of dust. In September, the flash HICP for the monetary union rose by 1.1% taking the 12-month increase up to a 10% pace underlining the problems of inflation that lingers in the European Monetary Area. The September figure was an escalation from 0.6% increase in August in a 0.7% increase in July. However, all those numbers are excessive compared to the inflation target of around 2% at the ECB runs.

Sequentially inflation's trend is still somewhat ambivalent at a 9.7% annual rate over 3-months, up from an 8.3% annual rate over 6-months but that's down from the 10% annual rate over 12-months. The trend for inflation is not cemented, however, these three growth rates for prices are all exceptionally high and the 3-month inflation rate does exceed the 6-month inflation rate leaving little for optimism as far as the inflation trend is concerned.

In Germany, the inflation rate rose by 2.4% in September from a 0.8% increase in August and after a 0.6% increase in July. The sequential growth rates for Germany show a 16.2% annual rate over the recent 3-months up from a 10.6% pace over 6-months and that compares to an 11% annual rate over 12-months. Inflation in Germany has really heated up and stayed hot.

Some deceleration outside Germany For France, inflation was flat in September; it rose by 0.1% in August, and by 0.5% in July. The sequential growth rates have disinflation in play with prices rising at a 6.2% pace over 12-months, falling off to a rise at a 5.3% pace over 6-months and down to a pace of 2.5% over 3-months. France shows clear deceleration in the pace of headline inflation.

Prices in Italy rose by 0.6% in September, the HICP index gained 1.2% in August and 0.2% the month before that, in July. Italian sequential inflation also is deflating as annual rates of increase progress from a 9.6% pace over 12-months to a 9% pace over 6-months to an 8.4% annual rate over 3-months.

Spanish prices backtracked with the HICP price index falling by 0.5% in September after rising 0.3% the month before and 0.9% the month before that in July. Sequentially, Spanish inflation is also decelerating; it cooks at a 9.3% annual rate over 12-months but then slides to 4.3% pace over 6-months and runs at a 3.2% annual rate over the most recent 3-month period.

Environmental factors Apart from the headline and, apart from Germany, there are clear signs of inflation decelerating in the European Monetary Union. And that's probably because growth is slowing down and because there are concerns about energy availability as well as uncertainty over the ongoing war in Ukraine. There are lots of things to worry about to undermine confidence. Consumer confidence has weakened sharply in countries that have released early consumer confidence figures. Most importantly, commodity price pressures are easing. The situation in Europe is difficult and we also see it in the currency market where the dollar has been rising strongly against the European currency, the euro, as well as against the British pound-that has its own special problems.
by:Robert Brusca
|in:Economy in Brief
Europe| Sep 29 2022
EU Indices Continue to Fall Sharply
The EU Commission index for EMU in September fell to 93.7 from 97.3 in August. This is another sharp monthly drop as the index has fallen to its 26.7 percentile. That means the index has been weaker than this only about 26% of the time.

All the sector assessments in the month have weakened. The industrial reading fell to zero from +1, consumer confidence fell to -28.8 from -25, the retailing reading fell to -8 from -7, construction fell to + 2 from +3, and the services reading fell to + 5 from +8.

The percentile standings for the sectors are low as well; the industrial sector reading is firm with a 70th percentile ranking. The one strong reading on the table is for the small construction sector which has an 87.4 percentile ranking. Retailing comes in with a ranking above its median at 53.0. However, the consumer confidence ranking shows that that index is at the weakest level that it has seen on this time horizon. And the all-important services sector that is the major job creator has the 37.8% standing, well below its median. Rankings below their 50% mark are below the medians for each of these rank metrics.

An assessment of changes across all EU members shows that declines in the last three months have been extremely broad-based with a month-to-month increase being the exception rather than the rule. Only three countries showed month to month increases for their overall indices in September, in August only two showed increases and in July only three showed increases -this among a total monthly count of 18 changes The country rank standing is extremely weak as well. Only Greece and Cyprus have country level indices with standings above their historic medians (above 50%). All the other countries in the table show EU index readings that stand below their historic medians. This is widespread weakness. Nine countries have ranking below their 20th percentile. Another seven are below their 40th percentile (and above their 20th percentile).

In addition, all countries show changes in their EU indices that reveal weakness compared to their January 2020 levels before the COVID virus struck. All the sector metrics how below their January 2020 levels except for the industrial sector that is higher by 5 points. The overall EMU metric is lower on balance by 11 points.

Pooling all these signals together, what we see is an area in which the index standings are weak. They are weak across the board for nearly all countries. Readings are weak or moderate in most sectors. The readings are extremely weak in the job creating sector. And there has been substantial weakening in recent months.
by:Robert Brusca
|in:Economy in Brief
Germany| Sep 28 2022
GfK German Confidence to a New Low; European Confidence Broadly Lower
Consumer climate on the GfK measure for Germany, a forward-looking estimate for confidence in October, shows a drop to -42.5, a new low in the series that dates to early-2002. GfK confidence has been dropping sharply and consistently from -27.7 in July to -30.9 in August to -36.8 in September and finally to -42.5 in October. This deterioration is coming in the face of ECB rate hikes, stubborn high inflation, threatened energy supplies, and the ongoing war between Russia and Ukraine. The recent drop reflects a more complete reaction to the shutting of the energy flow through the Russian Nord Stream pipeline. However, there may be even worse pipeline news ahead. A day ago, an undersea rupture in the pipeline that is being called an act of sabotage or terrorism, has created an undersea leak that may more thoroughly cripple the pipeline and nullify its capabilities for some time to come.

The components of the GfK index are released with a lag of one month. GfK reports values for September as the most up-to-date readings for components. Economic confidence fell in September to -21.9 from -17.6 in August. It was a strong as -11.7 in June.

Income expectations weakened even more sharply, falling to -67.7 in September from -45.3 in August. This reading had been as strong as -33.5 in June.

The consumer's propensity to buy reading also fell in September to -19.5 from -15.7 in August. Its June value was -13.7. The slippage on the buying gauge has been much more measured than for other GfK components.

Standings among components The economic gauge stands in its 6.4 percentile. Income expectations are at their all-time low on data back to January 2002. The propensity to buy reading is down to its 17.7 percentile standing, the highest standing of the lot, but still an exceptionally low reading that has been lower historically less than one-fifth of the time.

Successive new lows for GfK The last six monthly headline GfK values have set successive new lows in for that index. Clearly, this is a period of severe confidence weakness on data back to 2002 – a period that contains the Great Recession as well as the brief but sharp negative impact from Covid.

Elsewhere in Europe Germany is not alone in this weakness. Confidence gauges for Italy, France and the U.K. also weaken in the most recent month- that reflects data up to date though September. In Italy, the confidence index fell to 94.8 from 98.3 in August. In France, confidence fell in September to 79.1 from 81.9 in August. The U.K. index fell to -49 in September from -44.0 in August. Evaluated on the same timeline as the German GfK headline back to 2002, the Italian reading stands at its 18.1-percentile, the French reading is at its 0.4-percentile, while the U.K. measure is at a new low on this timeline.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 27 2022
Real and Nominal Global Money Growth Slows Except in EMU Where Nominal Money Growth Remains Strong
Nominal money growth is slowing in global money center areas except for the EMU. U.S. nominal money growth has decelerated to a three-month 0.5% annual rate from 4.1% over one year and 8.8% over two years- a sharp pull back. In the U.K., money growth has decelerated to a three-month pace of 3.6% from 4.7% over 12 months and 5.4% over two years. In Japan, money growth that has been better-controlled; it pitches a 3.9% pace over three months compared to 3.4% over 12 months and 4% over two years- more or less steady growth.

By comparison in the EMU, three-month nominal money growth has accelerated to an 8.7% pace from 6.6% over 12 months and 7.2% over two years. These are clear accelerations to the strongest three-month money growth in this grouping- adding that distinction to the strongest six-month pace and the strongest 12-month pace.

The ECB has been a late comer to the monetary tightening parade. Of course, this is a parade Japan has yet to join – but for good reason, its inflation remains moderate. Europe faces unique and significant challenges to its outlook with the energy pipeline from Russia having been damped and then shut- as Russia complains that economic sanctions prevent the shipment of needed equipment to keep the pipeline running.

Credit in the EMU mirrors money growth rates. Private credit is up by 6.6% over 12 months, up at a 7.0% pace over six months and up at a 7.5% annual rate over three months.

Real flows Real money supply has slowed everywhere although less definitively in Japan. EMU money growth is at a 1.1% pace over two years, it then contracts at a 2.3% pace over 12 months, at a 3.7% pace of contraction over six months. Over three months EMU money growth has ticked up to a 0.2% annual rate. Real private credit growth in the EMU shows a drop at 1.4% pace over two years, a drop at a 2.3% pace over 12 months, a drop at a 2.9% pace over six months, and then a lesser pace of decline of 1.0% over three months.

Inflation and growth trends Real money growth in the U.S., the U.K. and Japan show clear decelerations from two-year to one-year with the U.S. and the U.K. both logging money growth declines over 12 months at -3.8% in the U.S. and -3.9% in the U.K. Over six months, the U.S., the U.K., and Japan all log declines in money growth as well as growth decelerations. Over three months growth rates for real balances decline at a lesser pace than over six months in all three countries, but in the U.S. and the U.K. the three-month pace of decline is still a more substantial decline than the pace over 12 months. In Japan, the three-month growth in money is only 0.7%, but that is the strongest on these horizons since the two-year pace of 2.8%.
by:Robert Brusca
|in:Economy in Brief
Germany| Sep 26 2022
Germany's IFO Survey Continues to Sink
The all-sector IFO climate gauge fell to -20.1 in September from -13.4 and August, a sharp decline that represents erosion in all major categories. The manufacturing sector registered a -14.2 reading on climate in September, down from -6.8 in August; construction is at -21.6, down from -14.8 in August; wholesaling is at -26.4, down from -21.6 in August; retailing is at -39.8, down from -31.9 in August; and services fell into negative territory at -8.9 after logging a +1.4 reading in August. The readings are lower across the board and all the readings show net negative figures in September.

The percentile standings for the climate readings show how weak the rankings are. The all-sector index is at the 5.3 percentile on data back to 2005, manufacturing has a 7.7 percentile ranking, construction is at a 15-percentile ranking and that's the strongest sector overall. Wholesaling has a 4.3-percentile ranking, retailing has a 0.5-percentile ranking and services have a 1.6-percentile ranking. There is extreme cloudiness, thunderstorms in progress, with no silver linings.

There is simply relentless bad news in the German survey. It's been weakening for quite a period of time after peaking in 2018 and falling for Covid then peaking at a lower post-Covid peak in 2021. This month, rather than slowing down its pace of decline or beginning to reach a low point and flattening out, conditions have eroded and continued to deteriorate by a strong amount on the month. While there has been some let up in the relentless commodity price inflation, and oil prices have fallen from their high, Germany is being threatened by the shutting of the pipeline. That could result in severe energy source shortages over the winter. I believe people are starting to factor in a belief in the worst rather than to hope for the best as the war in Ukraine has turned worse for Russia. That worsening is going to put even more pressure on Russian President Vladimir Putin as it increases the probability that he will try to create as much disaster, dislocation, and chaos outside of his borders as he can using economic warfare- and other means.

The current conditions index also shows declines month-to-month. All sectors weakened on a month-to-month basis in September based on current condition assessments. However, only retailing has a net negative reading at -14. The all-sector current reading falls to 15.4 in September from 22.3 in August. Manufacturing falls to 12.8 from 18.4. The construction sector weakens to 6.9 from 12.6. Wholesaling weakens to 5.8 from 11.0. Services weakens to 22.7 from 30.9. The rankings by sector show readings that are uniformly in the lower 25th percentile or weaker in their respective historic queues of data. The sole exception is the construction sector that hovers above its median reading at 62.8 percentile.

Expectations readings also fell across the board on the month. The all-sector expectations reading fell to -42.3 in September from -31.3 in August. That reading has a -49.2 all-time low; this month's reading is at -42.3. The all-sector expectation reading has a 0.5 percentile standing; it has been weaker only 0.5% of the time since 2005. In fact, all the components have 0.5 percentile standings except manufacturing that has a 2.9 percentile standing and retailing that is at its historic low point.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Sep 21 2022
U.K. Industrial Orders Rebound But Remain with a Net-Negative Assessment
The Confederation of British Industry (CBI) industrial trends survey for September registers an improvement in total orders. It moved up to a September reading of -2 from -7 in August. The reading had been +8 in July. The three-month average is zero, and that's against a six-month average of +10, and a 12-month average of +16. On that perspective, we can see that the assessment for orders has been deteriorating despite the small improvement month-to-month from August to September.

However, historically, the readings for orders tend to be weak. As a result, the -2 September reading is still strong-to-firm when measured against data from 1991 forward; September has a 75th percentile standing on that timeline. Over this period, orders have been higher than -2 only about one-quarter of the time. Over a more recent timeline, from 2015 forward, the ranking is at its 47th percentile, slightly below its median. The median for ranked data occurs at the 50th percentile. In broad historic context, this is still a relatively firm number; however, when compared to data since 2015, this is only an ordinary reading.

Export orders mimic the headline. They register a -8 in September which is an improvement from -12 in August; but August was unchanged from July. The August reading for export orders is stronger than its -11 three-month average although weaker than its -4 net reading for the six-month average and its -3 value for its 12-month average. The rank standings for export orders also mimics the rank standings for total orders. The ranking from 1991 is at a 70th percentile mark and the standing from 2015 has a slightly stronger but not too different at a 51st percentile mark. Once again, the orders are strong relative to the broader sample and weaker relative to the more recent sample since 2015 and the ranking on that latter period still registers near the neutral 50% reading.

The rating for the stocks of finished goods is stronger in September, up to +6 from +2 in August. This compares to a -7 reading in July and weaker readings over three and six months, but the much weaker 12-month average is at -9. The stocks readings are always hard to evaluate since rising inventories could be a sign of confidence or could be a sign of sales not going very well, leading to unintended inventory accumulation.

Looking ahead, industrial output volume for the next 3 months has a pronounced drop, falling to -17 compared to -2 for August. July had a + 6 reading making the three-month average -4; that compares to a six-month average of +8 and a 12-month average of +18. The outlook has deteriorated quite sharply over this period with September being a watershed, with the bottom falling out of the outlook. In fact, the ranking for the September value for the output outlook is in the bottom 5.8 percentile of its historic queue of data back to 1991. That's an extremely weak reading; over the more up-to-date comparison from 2015, the ranking is still in the bottom 7.7 percentile, not much different. Industry in the U.K. appears to be battening down the hatches and preparing for a storm ahead, a common theme among western European economies.

One reason for this dismal outlook on production may be the outlook for prices. Average prices expected over the next three months stepped up slightly in September to a reading of +59 from +57 in August. Like the data above, these are still net diffusion readings but with much higher values. Those recent readings compare to a reading of +48 in July. Compared to the sequential averages, the September reading is only slightly lower than the +61 reading for the six-month average and the +65 reading for the 12-month average. Given how much inflation has progressed, the outlook for inflation in the U.K. does not appear to have improved very much. There appears to be a lot of inflation pessimism there and that pessimism is also reflected in weak expected output.

The data for industrial production (IP) lag the CBI survey data which are quite up to date since it's only late-September and we have a September estimate in the CBI already. Industrial data on IP are up to date through July and on that basis the monthly July change in industrial production in manufacturing was zero. The change over three months was +0.4% at an annual rate; there's a roughly 2% annual rate decline over six months and a 1.1% rate of increase over 12 months. The performance of manufacturing industrial production during this period has been weak with a tangible decline. The ranking for the overall growth rate for manufacturing industrial production leaves it in its lower 36th percentile over both ranking periods since 1991 and from 2015. That’s a lower one-third reading and the economy is still growing- some fear recession lies ahead.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 20 2022
EMU Current Account Plunges Into Deficit
Make no mistake about it this is not the Nestea™ plunge - the pause that refreshes. The European Monetary Union (EMU) current account in July dives to a deficit of 19.9 billion euros after rebounding to a small €4.2 billion surplus; an earlier €6.9 billion deficit was logged in May. The balance on the goods account is at an €18.3 billion deficit in July after a €0.3 billion deficit in June. The goods balance has been eroding for quite some time. Changes in the current account balance over three months to six months to 12 months show consistent erosion. The goods balance has deteriorated by €46.6 billion over 12 months, by €28.2 billion over six months and by €18.2 billion EUR over three months. While current account transfers remain deeply negative, the change in transfers has been diminishing from €3.1 billion over 12 months, a wider €3.3 billion deterioration over six months which has shrunk to €1 billion of deterioration over three months.

The three largest EMU economies Germany, France, and Italy show that Germany still has a surplus in July, but France and Italy both post deficits on their current accounts. For France the deficit is €5.3 billion; for Italy it is €3.8 billion. However, when we look at the period-to-period sequential changes, each of these three countries shows deterioration over each of the three horizons; Germany may still have a surplus but it, too, is eroding. If we annualize the changes over the respective periods, the deteriorations are also getting progressively worse - except for Germany.
by:Robert Brusca
|in:Economy in Brief
Portugal| Sep 19 2022
Portugal and Europe: Inflation Pressures Wither But Are Complicated
PPI Inflation in Portugal Portugal's PPI falls by 0.9% in August after rising 0.4% in July and by 2.4% in June. This sequential growth rates for producer prices in Portugal show an annual rate of 22.5% over 12 months that eases slightly to 21.7% over six months, then it falls dramatically to an 8.2% annual rate over three months.

Manufactured goods at the producer level show a decline of 1.4% in August after a 1.4% increase in July and a 3.5% rise in June. Manufacturing prices were at a 23.4% pace over 12 months then accelerate to a 36.3% annual rate over six months then decelerate sharply to 14.8% pace over three months. Clearly the hallmark for inflation here is ‘different strokes for different folks.'

Looking at PPI sectors in Portugal monthly, consumer goods prices rise by 0.7% in August, the same as in July but are down from the 1% gain in June. Broader sequential growth rates show consumer goods inflation up 13.9% over 12 months, rising to a 16.6% pace over six months and easing back to a 10% pace over three months. Intermediate goods prices rise by 0.4% in August, by 0.2% in July, and by 0.6% in June. Its broader sequential growth rates show a 19.8% annual rate gain over 12 months, nearly the same gain at a 20% pace over six months, slowing sharply to a 4.9% annual rate gain over three months. Capital goods show a 0.5% increase in prices in August, after 0.3% drop in July, and a 0.5% drop in June. Capital goods sequential patterns show prices rise by 4.7% over 12 months, the pace picks up very slightly to a 5.2% pace over six months then plunges to decline at a 1.1% annual rate over three months.

Portugal shows very different inflation performance and trends for different sectors for data up to date through August. Intermediate good (followed by consumer goods) have the highest inflation rates among sectors over 12 months and six months; consumer goods lead the way higher over three months. Capital goods inflation is the lowest on all horizons, showing a sharp deceleration over three months and logging a net price decline. Capital goods run a rather moderate increase over 12 months of 4.7%.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Sep 16 2022
U.K. Retail Sales Weaker Than Expected
Retail sales in the United Kingdom fell by 1.7% in August after rising 1.5% in July and 1% in June. Sequentially growth rates for nominal retail sales grow by 5.3% over 12 months, at the same 5.3% annual rate over six months, and slow to a 2.9% annual rate over three months.

However, that doesn't begin to tell the story since inflation is raging and driving the nominal numbers higher. Retail sales volumes fell by 1.6% in August, rose by 0.4% in July and fell by 0.2% in June. Retail sales volumes are falling by 5.3% over 12 months, falling at a 6.3% annual rate over six months and falling at a 5.4% annual rate over three months. In each of these sequential periods, retail volumes decline. They decline at a pace of 5% or somewhat greater in each period. While retail sales in the U.K. continue to deteriorate, the pace of deterioration remains more or less steady; it's not increasing and it's not diminishing. However, compared to a year ago, the decline in sales volumes is greater because the year-over year-volume decline of one year ago was at a 4.4% annual rate.

In the current quarter-to-date (QTD), retail sales are posting a strong-seeming gain at a 7.3% annualized rate. However, these are nominal sales and the inflation rate in the U.K. is high. Retail sales volumes QTD show a contrary 3.9% annual rate decline. These calculations are for the months of July and August taken over the second quarter base for sales. They reflect an ongoing contraction in retail sales volumes. Based on the two (of three months) quarterly data, there may be a slight let up in the pace of decline in retail sales in the third quarter.

Economists have an expression for nominal values particularly when inflation is high. The references to something called ‘money illusion.’ It's the illusion that because something costs a lot more money there's more of it. For example, the standings of the growth rate of nominal retail sales is in the 84.6 percentile. The gain in nominal retail sales would seem to be in the top 15% of all sales gains since August 2001 the period of overwatch these standings are calculated. That would be strong. However, if we apply the same ranking criteria to the growth in sales volume, retail sales volume has quite the opposite 2.4-percentile standing. It is real sales- sales once we account for the effects of inflation- that are weak. They have been weaker than this only about 2.4% of the time and they have been higher than this over 97% of the time.

Passenger car registrations have rebounded after a prolonged period of weakness they rose by 9% in August and 17.8% in July after falling by 5.9% in June. Past year car registrations are up by only 0.9% over 12 months; they're falling at a 23.9% annual rate over six months, and they are rising at a 113.3% annual rate over three months. Clearly there is a recent surge in registrations that still hasn't elevated the level of passenger car registrations materially.

The table also presents some survey data on U.K. retail sales. The survey data show retail sales for the time of year assessed as slightly stronger in August than in July; the volume of orders year-over-year has made a significant improvement compared to July showing a change of 14 compared to a change of -5. By comparison, consumer confidence in August fell by 3 points after being flat in July; these are calculations of month-to-month changes in underlying indexes.

Sequential data show simple changes over each period in the heading; for example, retail sales for the time of year show the index improved by 3 points over three months, while it fell by 13 points over six months and fell by 23 points over 12 months. The volume of orders year-over-year survey value fell by one-point over three months, compared to falling by 10 points over six months and 67 points over 12 months. Consumer confidence fell by 4 points over three months, by 18 points over six months, and by 36 points over 12 months. Clearly the year-over-year results show a great deal of weakness in each of these survey metrics. The quarter-to-date shows some increase in retail sales for the time of year as there is an 11.3-point change for the better, compared to the volume of orders series that declines by 1.7 points, and consumer confidence that decline by 2.8 points. The queue standings for the surveys are executed on level data, not on change data. Retail sales for the time of year has a standing at its 71.9 percentile. Volume of orders year-over-year are assessed at 49 percentiles standing, just below its historic median. The consumer confidence reading stands at an all-time low on data back to August 2001.

U.K. retail sales are weak. The nominal numbers dress up the results, but the volume numbers speak clearly to the reality of weakness and enduring weakness and U.K. retail sales. The series on passenger car registrations has been extremely weak but is undergone some significant rebound over the last two months. Inflation in the U.K. continues to run hot; that means there will be more rate hikes ahead and more weakness for the economy and for retail sales in the future.
by:Robert Brusca
|in:Economy in Brief
Europe| Sep 14 2022
EMU IP Falls in July, Driving 3-Mo Growth Rate to a Decline
Industrial sector performance in the European Monetary Union has turned decidedly dicey. In July total output excluding construction foundered, falling by 2.3%: manufacturing output fell by 2.1%, consumer goods output rose by 1.2%, with intermediate goods output falling by 0.8%, and capital goods output falling by a large 4.2% month-to-month. This is a lot of weakness. Within the consumer goods sector, durable goods output fell by 1.6% as nondurable goods output rose by 1.2%. Across these same sectors, output mostly fell in June while output rose uniformly in May. As a result of these comparisons, we don't have any clear trend, but we do have a lot of volatility in output with the best of strength in the oldest observations.

Divergent overall and manufacturing trends Turning to sequential growth rates, overall industrial output falls by 2.2% over 12 months. The fall is nearly the same at minus 2.3% annualized over six months while over three months the pace of decline is reduced to -0.4% at an annual rate. For manufacturing, output actually accelerates. Over 12 months output falls by 2.6%, over six months it falls at a 1.9% annual rate, and over three months it increases at a 1.1% annual rate.

Suspicious manufacturing trend However, the manufacturing results don't appear to be particularly robust. For example, over three months manufacturing output may be rising, but overall consumer goods output is falling. Within consumer goods, durables, and nondurables output both log output declines. Output falls for intermediate goods. The increase in industrial output comes entirely from an outsized rise in the output of capital goods of 5.7% in annual rate. As a result of those numbers, the manufacturing IP progression from weakness to strength is created by only one sector. Only capital goods output has a progression of accelerating growth among the three sectors (and the two consumer sub-sectors). Capital goods output falls by 3.5% over 12 months, falls at a 1.9% annual rate over six months and then rises at a 5.7% annual rate over three months.

Quarter-to-date trends indicate more pronounced weakness In the quarter-to-date (QTD) - a calculation that looks at the growth rate in July over the second quarter average calculating a true growth rate from the middle of that quarter - there's a decline in output overall at a 6.8% annual rate. There's a decline in manufacturing output at a 6.2% annual rate as well; there are declines in each manufacturing sector, and sub-sector, over the QTD period. This, of course, is different from the three-month calculation that you look only at output this month compared to the level of three-months ago. The QTD growth rate, calculated over the second quarter base, has the advantage that as further quarterly data come are released, each new observation compares output to that same base in Q2. As we add another month and then finally a third month of data and the change is driven by the new data not by a shift in the base. The QTD calculations give us a bit of a better idea how growth is evolving in the quarter per se.

The dispersion of growth Among the 13 early reporting European Monetary Union members, 8 show output the declines in July, 7 show output declines in June, and 5 show output declines in May. That's a clear progression toward worse results. Sequential data show 7 countries with output declining over three months, 6 with output declining over six months, and 6 with output declining over 12 months. However, as is the case for manufacturing output, the QTD calculations find more weakness with 9 countries showing declines in output on a QTD comparison. Here it's easiest to point to the exceptions. The exceptions are Malta with a 55% growth rate, output in Greece logs a 28% growth rate, and output in Belgium posts a 6.6% growth rate in output with Germany at a 0.2% growth rate of output growth. The median change in output for the quarter to date is minus 7.6% annualized. In the quarter-to-date calculations, 3 of the 4 largest EMU economies show declines for early Q3, with Germany, obviously, being the exception. Across all the monthly and sequential periods in the table, there are output declines persistently in two or three of the four largest EMU economies (Germany, France, Italy, and Spain)
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Sep 12 2022
U.K. Trade Deficit Shrinks As Exports Outpace Imports
The goods trade deficit for the United Kingdom struck £19.36 billion from £22.85 billion in July compared to June. The deficit has been steady with an average of £18.5 billion over 12 months, £21.5 billion over six months and £21 billion over three months.

U.K. export growth has been volatile but has been strong. Nominal exports are growing at a 26.6% pace over 12 months, at a 58.1% annual rate over six months, and at a 23.9% annual rate over three months. Nominal imports are up by 29.4% over 12 months, slowed to a 10.7% pace over six months and slowed further to a 1.1% annual rate over three months.

Real flows monthly Real trade flows for the U.K. demonstrate very different patterns from the nominal flows. Real exports still outperform imports in July, growing by 6.8% over June compared to a 3.7% drop in real imports. In June both real exports and real imports fell with real exports falling 9.3% month-to-month and real imports falling 3.2% month-to-month.

Real flows sequentially The sequential trends for real exports and real imports show real exports persistently growing while real imports have turned to a pattern of declines. Real exports are up by 4.3% over 12 months, up at a 26% annual rate over six months and up at a 3.4% annual rate over three months. This compares to real imports that are up by 8.8% over 12 months and are stronger than real exports. But over six months real imports fall at a 13.6% annual rate, and they fall again over three months at a 16.4% annual rate.

Commodity composition of real trade flows Real exports Commodity categories tell a significant story about trends in the U.K. Exports show steady gains in capital goods with the 3.2% gain over 12 months, and an annual rate of growth at 14.5% growth over three months. Road vehicles show a steady to strong acceleration, rising at a 9.9% annual rate over 12 months, gaining at a 40.9% annual rate over six months and accelerating again to a 72.1% annual rate over three months. Basic materials fail to trend consistently but fall by 4.8% over 12 months and are declining at a 44.7% annual rate over three months. Foods, feeds, beverages & tobacco echo the trends for basic materials although they rise by 3.2% over 12 months and then fall at a 16.6% annual pace over three months. Both basic materials and foods, feeds, beverages & tobacco show solid gains over six months, then give those gains up over three months. Those gain keeps those flows from having any kind of a steady trend in play.

Real imports On the import side, capital goods imports grow at a 12.7% pace over 12 months, which increases slightly to 14.2% at an annual rate over six months and then slips to a 6% annual rate decline over three months. Road vehicles show steady deceleration of imports, logging growth of 25% over 12 months, falling to a pace of 11.3% annualized over six months and logging a 39.5% annual rate decline over three months. Basic material imports are also in a fairly steady state of decline. They decline over all horizons, falling and 11.8% annual rate over 12 months, the slowing that drop only very slightly to a 10.5% annual rate of decline over six months and then accelerating sharply to a 61.3% annual rate decline over three months. Food, feeds, beverages & tobacco show declines over two of the three horizons; imports rise by 3.8% over 12 months, then slip at a 6.8% annual rate over six months and then decline at a more moderate 1.5% annual rate over three months.

Trends in perspective What these trends clearly show is extremely weak import growth over three months; all three-month growth rates for the import categories are negative over three months. Overall imports decline over six months too although that decline is not as broad based. Over 12 months imports see a somewhat broader increase in real terms. By comparison, exports grow at a moderate 3.4% pace in real terms over three months with the declines in only two of the categories while over six months the export gain is solid at 26% with increases across all the commodity categories. The 12-month performance of exports is moderate with the growth rate of 4.3% and with a decline in only one of the featured categories.
by:Robert Brusca
|in:Economy in Brief