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| Apr 12 2023
Japan’s PPI Ticks Lower
Japan's PPI has ticked lower in March falling by 0.1% after falling by 0.3% in February and after coming up flat in January. The sequential percentage changes for the PPI show that deceleration has been well underway. The PPI is up by 7.2% over 12 months; that falls to a 4.5% annual rate over 6 months and becomes a decline of at a 1.3% annual rate over 3 months. Do I hear in the background the sound of a BOJ victory dance?

For manufactured goods, Japan's PPI rose by 0.2% in March after rising 0.3% in February and falling by 0.3% in January. Despite the higher gains, this index also shows clear deceleration in progress. Over 12 months, the all manufacturing goods PPI has risen at a 5.6% annual rate, compared to a 3.3% annual rate over 6 months and an annual rate increase of just 0.7% - under 1% - over the last three months.

Global trends This trend fits in with global trends where data are not quite as up-to-date as the data released for Japan. Nonetheless in European the European Monetary Union (EMU), there are progressive declines in the PPI for manufacturing; the same is true in the United States. Japan's own CPI also shows progressive declines underway and Japan’s CPI core deviates slightly as it shows a 2.1% gain over 12 months, a deceleration to a 1.6% annual rate over 6 months and then moves back up to a 2% pace over 3 months.

The bottom two entries in the table allow a comparison the Japanese PPI data directly with these other data series that are one-month older. On that basis, we see Japan’s PPI decelerations remain fully in place although the declines that are experienced with a one-month lag are not quite as robust which is not surprising because of the decline in place in the month of March which gets omitted when we calculate the data in this fashion as if updates ended in February.

In the quarter-to-date (QTD) on completed data for Q1 2023 for Japan, we see Japan's PPI is rising at a 2.6% annual rate; manufacturing PPI is rising at a 2% annual rate. The QTD annual rates for inflation in the EMU and the U.S., data that are one month older, show QTD increases of about 1% at an annual rate or less. Japan's own CPI in the QTD on data through February is rising in a 3.3% annual rate with its core at a 1.2% annual rate. And finally, reworking the statistics for Japanese PPI and for manufacturing to exclude the March data and put it on the same footing as the global data, we find a much higher 6.6% annual rate rise in the QTD through February for the total PPI and an increase at a 3.7% annual rate for manufacturing.

Impact of oil prices These data suggest strongly that the inflation progress that is underway is relatively recent. Sequential data on oil prices show that oil prices are lower by 26.2% over 12 months, falling at a 20.7% annual rate over 6 months and falling at a 16.4% annual rate over 3 months. While different countries will experience oil prices in different ways (because of exchange rates), the percentage changes we enter on the table are for Brent, expressed in euros. Setting aside exchange rate issues, we can see that oil prices have been generating negative inflation forces that are quite significant in each of these periods of 12 months, 6 months, and 3 months. And while the decline in oil prices have let up considerably (from falling at a 26% annual rate to a 16% annual rate), they are still substantial and we know that the impact of oil prices on domestic price levels is not instantaneous but occurs over some period of time so there's probably still some more inflation progress in the pipeline from past oil price declines.

The last column reminds us that oil prices tend to have a significant impact on PPIs, and we see correlations there that range from roughly 0.4 to nearly 0.7 but the largest being for finished goods PPI in the United States. However, notice that for Japan Brent oil prices have a negative correlation to the CPI essentially a negligible correlation for the headline and a correlation of -0.35 for the core.
by:Robert Brusca
|in:Economy in Brief
Europe| Apr 11 2023
European Retail Sales Continue to Be Challenged
Retail sales volumes in February in the euro area fell by 0.8% after rising 0.8% in January in the wake of a 1.5% drop in December. Food and beverage purchases fell after following the same pattern as overall sales in the previous two months.

However, sequential sales patterns show total retail sales volumes falling 3.1% over 12 months, improving to a 2.8% decline over six months and then falling sharply by 5.9% over three months.

Spending on food and beverages has been improving; sales fall at a 4.8% pace over 12 months but cut that pace of decline to a -3.9% pace over six months and then fall by just 2.7% at an annual rate over three months.

Motor vehicle sales in the EU rose by 0.8% in February after falling in each of the previous two months. Registrations of motor vehicles are slowing sequentially. They rise by 11.5% over 12 months; that slows to a 5.2% annual rate gain over six months, then motor vehicle registrations fall at a 16% annual rate over three months. Registrations of motor vehicles are clearly on a weakening trend.

Quarter-to-date sales With two months of data in hand, total retail volume is falling at a 1.9% annual rate in the first quarter. Sales of food and beverages are rising at a 0.3% pace and motor vehicle registrations are falling at a 10.8% annual rate.

Country level performance Erratic monthly results- Looking at sales by country, there are ten European countries that are early reporting countries in the table; of these, 7 show sales declines in February. However, this follows January when eight of them posted increases; January, in turn, follows December in which eight of them posted declines. Retail sales patterns have been choppy over the last few months. No country on the table has three straight months of month-to-month sales increases or three straight months of month-to-month declines.

Accelerators vs. decelerators- Growth rates show there are three countries Germany, Portugal, and Belgium where the 12-month to 6-month to 3-month sales trends are getting progressively weaker. There are also three countries Italy, Denmark, and the United Kingdom, where the progressive sales from 12-month to 6-month to 3-month are getting progressively stronger (FYI: I do not consider Italy’s ‘technical’ slowing to a 6.3% annualized rate over three months to be a real slowing; it is the same as the six month pace of 6.5%). The remaining trends are mixed.

Growth vs. shrinkage- Acceleration and deceleration aside only Italy and Spain have positive growth rates over all three periods. However, Germany, Belgium, Sweden, and Norway all display declines in retail sales over all three horizons. Clearly, declines are dominating the data for European retail sales.

QTD by Country- Although total retail sales volumes decline on a quarter-to-date basis fall, there are quarter-to-date declines in only four countries in the table Germany, Belgium, Sweden, and Norway. Of course, the table includes several countries that are not members of the European Monetary Union. However, among EMU members, only Belgium and Germany show QTD declines in retail sales.

Sales compared to Pre-COVID levels- This has not been a period of strength for retail sales in Europe. Among the 10 countries in the table, looking back over a three-year period, results are uneven. Compared to January 2020 before COVID struck, six countries as of February have sales lower than they were then. Countries with sales higher than they were in 2020 include Italy, where sales are up by 9.2%, Portugal where sales are up by 3%, the Netherlands where sales are up by 3%, and Norway where sales are up by 1.6%. Total retail sales volumes in the euro area are higher by 1.7% and motor vehicle registrations are lower by 18.5%.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 10 2023
Japan’s Economy Watchers Like What They See
Japan's Economy Watchers index for March moved up to 53.3 on the current index compared to 52.0 in February; February had moved up from 48.5 in January. The future index is also on the move and rising. The March value moved up to 54.1 from 50.8. And the February value of 50.8 moved up from 49.3 in January. Both the current and the future indexes moved from readings that suggested conditions were contractionary in January to showing expansion in February and further expansion and strength in March. The two readings are moving together; they're moving higher and this is a good sign.

Standings: current and future headlines The indexes have also moved to show relatively strong readings with the current index having a 92.9 percentile standing and the future index having a 93.3 percentile standing. Both the March readings are higher than they have been except for 7% to 8% of the past observations, indicating considerable strength in the report.

The current index: standings and diffusion readings The current index provides 9 separate sectors or functional readings and of these nine readings five of them have standings in their 90th percentile range. Only one reading, housing, has a standing below its 50th percentile. A standing below 50% suggests that the sector (housing) is performing worse than its median performance. Housing in the current index format also has a 45.9 diffusion reading. Housing has the only current standing that's below 50 in addition to being below 50 on diffusion, indicating that it is contracting as well. In February, housing, the corporation index and the manufacturing index all showed contraction in progress. In January, contraction was in progress for the current index overall and for all sectors except for services where activity was neutral and for employment which was marginally above 50 at a reading of 51.0.

Future index metrics The future index gives very similar results with only housing showing a contraction in March and with a contraction in February indicated in housing, by corporations, for manufacturers, and for nonmanufacturers as well. In January, the future index showed contractions for the overall reading as well as for all the sector and functional readings except for nonmanufacturers where the reading came in at 50.4, just barely indicating some expansion in that sector. Over the last several months, the interpretation of the Economy Watchers has shifted noticeably and not so much dramatically as significantly from contraction to expansion even though the previous contractionary readings were not particularly deep and the recent expansionary reading is not particularly strong. However, it's significant that it's moved from contraction to expansion for both the current and the future readings. The percentile standing for the future index shows a headline standing of 93.3% and 90th percentile range readings for five on the nine component readings; none with standings below their respective medians. Housing has the lowest standing at 54.5%.

Current momentum The table also shows momentum: look at the current index. These are sequential readings for changes point-to-point over three months, six months, and 12 months. For the current index over each of these horizons, all of the changes are positive. For each reading, the evaluation compared to the previous period (3-month compared to 6-month, 6-month compared to 12-month, and 12-month compared to 12-month ago) show an improvement. Over six months the changes decelerate across all categories, compared to the year-on-year changes reported over 12 months. But over 3 months all reading show an even larger increase over 3 month than over 6 months except for households and retail. Japan’s current Economy Watchers index shows not just improvement but acceleration.

Momentum for the future index The future index also shows nothing but positive readings on its sequential changes. Over 12 months, all increases are larger than their change of a year ago. But over 6 months, performance is spottier with the headline slowing its gain, and with six of nine categories showing less gain than over 12 months. The accelerating readings for 6-months are retailing, housing and employment. Over three months the sectors show acceleration with only two of nine changes weaker than their change over six months. The two lagging sectors are for corporations overall and for manufacturing.
by:Robert Brusca
|in:Economy in Brief
USA| Apr 07 2023
Japan’s LEI Rises to Four-Month High
Japan's leading economic index in February has risen to a four-month high. The index is still falling at a 3.4% annual rate over 12 months, and at a sharper, 7.5% annual rate over six months. But over three months the index is gaining, rising by 0.4% at an annual rate.

However, the OECD amplitude-adjusted index is slightly lower in February and the OECD index shows a decline of 0.6% over 12 months, a decline at a 1.1% annual rate over six months and a declined at a 1% annual rate over three months.

Four of the five available components for the leading economic index show increases over three months and over six months and three of five show increases over 12 months. Japan's LEI metric has reasonably broad support based on the performance of these five components that are available at this early date. The full index includes other components that are not available quite yet.

The chart shows us that the rebound on the month is not very vigorous and of course the data calculated in the table tend to reinforce that view. It is too early to say that Japan is having any kind of a revival because this is something that on the graph looks more like a flat spot in the index rather than an actual rebound because the rebound itself is so faint.
by:Robert Brusca
|in:Economy in Brief
Germany| Apr 06 2023
German IP Puts on a Show- Rises Strongly
German industrial production in February grows by a strong 2% after rising by a very strong 3.7% in January.

Context for German growth The January rise followed a 2.4% decline in December. Still, these are very strong month-to-month growth rates for German industrial production. In terms of its sequential growth rates, German IP grows 0.7% over 12 months, accelerates to an 8.9% pace over 6 months, and accelerates further to a 13.3% annual rate over three months. Germany certainly does not look like it's on the threshold of recession. With two months in the quarter, German IP is growing at a 15.9% annual rate. However, the growth in industrial production in raw terms, compared to January 2020 before COVID started, shows a 2% drop on that three-year timeline. German industrial production is still not back to where it was before COVID struck. Evaluating the year-over-year German growth rate against its historic norms, the standing of the current year-on-year growth rate is only in its 44th percentile, leaving it below its historic median. So, what we see from Germany is a very short-term spurt in progress which is authentically strong but comes in the context of a long period of weakness and even of lingering year-over-year weakness in the face of this strong growth over the last several of months. The jury is still out on what this means for German growth.

Sectors in February In February consumer goods output rose by 1.4%, failing to offset the 1.5% drop in January. Capital goods output rose by 3.4% month-to-month after a 0.1% rise in January. Intermediate goods output rose by 1.8% even after a huge 6% rise in January that is not so impressive when we look back to December and see there was a 5.9% drop in December. In addition to some strong near-term growth, there's also some considerable volatility in the German industrial output series. Manufacturing output taken as a whole grew by 2.4% in February after growing 1.9% in January; those two gains followed a 1.4% drop in December. Turning to construction, output grew strongly, rising 3.4% in February after a 9.9% gain in January, but January followed a 9.5% drop in December.

Context for recent sector growth The context for these growth rates finds an uneven path for consumer goods, where output is transitioning toward strength: output of consumer goods is falling 4.1% over 12 months, rises to a flat performance over six months and gains at a 4.9% annual rate over three months, a mild accelerating trend. Capital goods show a stronger tendency to accelerate with a 9.9% gain over 12 months, picking up to show gains of over 19% at an annual rate over six months and three months. Intermediate goods output falls at a 4.8% pace over 12 months, rises at a 1% annual rate over 6 months that steps up to a 6.3% annual rate over 3 months. Manufacturing output in total rises 1.6% over 12 months, accelerates to a 9% pace over six months and accelerates further to an 11.6% pace over three months, a clear accelerating trend. Construction output rises 1.7% over 12 months and then moves up to a 12% to 13% annual rate over six months and three months, a clear step up in activity.

QTD and queue standings for IP growth On a quarter-to-date (QTD) basis, the strength in industrial production comes from intermediate goods with a 15% rate of increase, capital goods with a 14% annual rate increase, and with the pace held back by a 0.2% annual rate increase for consumer goods. Construction is up at a 24% annual rate QTD; manufacturing output overall is up at an 11.7% annual rate.

Measuring the year-over-year growth rates by assessing them relative to historic trends, as we noted earlier, overall industrial production has a 44-percentile standing for that growth rate, consumer goods has a 10.8 percentile standing, intermediate goods has a 9.7 percentile standing, construction has a 31.5 percentile standing. All of these are below the 50% mark that represents the median result for year-over-year increases. Exceeding the median is capital goods with an 89.2% standing and manufacturing output overall, with a mild above-the-median result showing a 52-percentile standing for its year-over-year growth rate.

Real sales and orders trends We can also look at what's going on with real orders and real sales. Real manufacturing orders are accelerating sequentially from a 5.9% drop over 12 months to 32.6% annual rate increase over three months. Sales in manufacturing are more erratic and weak over three months, moving from a 2% growth rate over 12 months, strengthening over six months and then falling at a 3.4% annual rate over three months. The quarter-to-date growth in manufacturing real orders is at 16.7% pace; for real sales in manufacturing there's a decline of about 1% at an annual rate.

Other indicators Other indicators that are presented in a diffusion index format include the ZEW current index, the IFO manufacturing index, IFO manufacturing expectations and the EU Commission industrial index. The ZEW current index, the IFO manufacturing index and IFO manufacturing expectations index each show progressive increases from December to January to February. The EU Commission industrial index shows a step up from December to January and then a weaker result for February. The sequentially calculated averages over 12 months, six months, and three months for the indicators paint a mixed picture. The ZEW current index shows more of a tendency to weaken. The IFO manufacturing index manages to increase slightly from its 12-month average to its three-month average, weakening in between over six months. IFO manufacturing expectations, likewise, weaken over six months but strengthen on balance comparing three-months to 12-months. The EU Commission index shows a steady weakening from a reading of 8.3 over 12 months, to 3.4 over 6 months, to 3.1 over 3 months. The queue standings of these indexes and their historic context shows readings below the 50% mark for the ZEW current index, the IFO manufacturing index, and for IFO manufacturing expectations. However, the EU Commission index, the one index that is weakening sequentially, has a queue standing at its 67.5 percentile at about the two-thirds mark of its historic queue of data.

Other Europe Industrial production data from France, Spain, Portugal, and Norway are moderate to weak. These countries generally show a mixed picture of industrial output developments in the last three months. The sequential growth rates show a tendency for output declines and for weakening across most of these countries; Spain is a minor exception because after showing declines over 12 months and six months, it posts an increase over three months. Spain also logs a strong quarter-to-date growth rate at 8%, compared to 1.6% for Norway, 0.8% for Portugal, and a 0.2% annual rate decline for France. However, comparing these standings continues to be somewhat convoluted as Spain, which is showing the strongest growth in the quarter-to-date and the best sequential growth rate picture, has the weakest queue standing with output at a 36.5% standing based on its weak year-over-year growth rate. Spain’s weak standing compared to 70.8 percentile standing for France and a 67.8 percentile standing for Portugal against a 54.5 percentile standing for Norway. There simply are few consistencies here. All trends and developments are idiosyncratic.
by:Robert Brusca
|in:Economy in Brief
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