Introducing

Robert Brusca

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

Publications by Robert Brusca

Europe| Jul 13 2022
Euro Area IP Advances Again
Output in the euro area rose by 0.8% in May after rising 0.5% in April. The manufacturing sector logged a gain of 1.4% in May after rising 0.1% in April. However, for both metrics, output is now declining on balance over three months. Overall industrial production is declining at a 1.9% annual rate over three months while manufacturing IP is falling at a 1.1% rate over three months. Both measures show net declines in the current quarter-to-date that has two out of three months' worth of data in hand.

The manufacturing sector in the EMU shows increases in two of three sectors in May with intermediate goods output being flat, consumer goods output up by 1.6%, and capital goods output up by 2.5%. Consumer goods output rose for two months in a row and in two of the last three months. Capital goods output rose in May after declining in both March and April. Intermediate goods output rose in April but declined in March.

Over three months, consumer goods output is rising at a 6.1% annual rate, intermediate goods output is falling at a 4.8% annual rate, and capital goods output is falling at a 6.4% annual rate. Intermediate goods output shows ongoing decay: there is a 0.2% decline over 12 months, a flat performance over six months and then a 4.8% decline over three months. Capital goods output shows declines over all three periods: a 1.4% decline over 12 months, a 0.8% decline over six months, and a 6.4% decline over three months. Consumer goods alone show increases over all horizons, rising by 6.5% over 12 months, at a 10% pace over six months and at a 6.1% pace over three months.

In the quarter-to-date, consumer goods output is rising at the double-digit pace of 12.1% annualized, intermediate goods output is falling at a 1.7% annualized rate, and capital goods output is falling at an 8.8% annual rate. The strength in output clearly is concentrated in the consumer sector.

Output by nation
Of the 13 EMU countries listed in the table for May, five show output declining with the rest showing output gains on the month. Six countries show declines in output in April and five show declines in March. Output continues to increase in more countries than it decreases and that has been persistent. Still over the last three months, there is a substantial core of countries that are showing output declines marking the industrial sector as somewhat uneven.

However, taking the whole three-month period, there are output declines in only four of the 13 EMU members. Looking at output over six months, there are only three countries that have output declining on that horizon; those are Germany, Malta, and Portugal. Over 12 months, four countries show output declines. In the quarter-to-date, there are output declines in five of the 13 reporting EMU members.

Looking at the recovery in output compared to its pre-COVID level in January 2020, output has increased on balance in 9 of 13 countries; the exceptions are Germany, France, Malta, and Portugal. There are double-digit output increases as well: Ireland, the Netherlands and Belgium log double-digit gains since January 2020 and Austria and Greece log strong increases in output greater than 9%. Manufacturing in the euro area has progressed with firm output trends since COVID struck although the overall gain in the EMU-area manufacturing output on that period is only 1.1%.

Results for three European countries that are non-EU members, the U.K., Sweden, and Norway, demonstrate somewhat mixed results. Norway shows output declines over 12 months, six months, and three months, but the pace of decline is gradually dissipating over those horizons. Both the U.K. and Sweden show output increasing over all three horizons and accelerating increases.
by:Robert Brusca
|in:Economy in Brief
Global| Jul 12 2022
ZEW Experts Increase Their Negativism in July
If you were to accentuate the positive and eliminate the negative this month, there would be almost nothing left of the ZEW survey. In July, the ZEW assessments have generally weakened across the board except, of course, their perceptions of inflation which are stronger. A look at the chart at the top shows how much since COVID has struck the fortunes of the euro area have aligned with the assessments for Germany. Since COVID struck, the tracking of the two conditions indexes is extremely close, much closer than in the pre-COVID period.

The disease
Table 1 provides verbal descriptions of the month-to-month changes of the various entries. Color coding is used to demonstrate whether the underlying reading is above its median or not. The color 'black' indicates an underlying rank reading (value in Table 2) that is greater than a 50th percentile standing which notes in each case the historic median value. Values in 'red' denote weaker-than-median standings. Bad news, if not weakness is expected everywhere, short-term rate expectations, and a weaker euro-the currency rate (stronger dollar), lower long-term rates, a weaker stock market performance except for stock prices in the U.S., and higher inflation all around (the exception to 'weakness but not to 'bad news'). Only short-term rates, long-term rates in Germany and the dollar (not the euro) have stronger-than-median percentile standings underlying their month-to-month readings.
by:Robert Brusca
|in:Economy in Brief
Global| Jul 11 2022
OECD Slowdown Signal Is Broad; The Covid Cycle: Drop-Rebound-Decay
The main regions of the OECD leading indicators show declines in June. The all-area OECD metric, EMU members of the OECD, and the U.S., show small 0.1% declines with Japan showing a flat reading month-to-month for the second month in a row. Over three months, all regions show declines ranging from 1.6% to 2% except for Japan that logs a 0.3% increase. Over six months, all regions except Japan also showed declines like their three-month declines. Over 12 months, all regions show increases. The leading economic indicators led by the U.S. have a 4.5% gain followed by the top seven OECD countries with a 4% gain. Japan shows the weakest gain at 2.7%. The data show weak economic signals as a recent event. Evaluating the current indexes according to their queue percentile standings, Japan has the highest standing with a 75.7 percentile standing; the other regions, the OECD, the top seven OECD countries, the euro area members of the OECD, and the U.S. have standings in their respective lower 30th percentile of their historic ranges. These rankings are based on the levels of the indexes in June. Current standings are broadly weak.

The second panel of the table shows changes in averages to smooth the process out. These panels give roughly the same signals as in the top panel, showing declines in May and June with the declines over the recent six months and even over six months ago. The six-month change of 12-months ago shows across the board increases.

Looking more closely at regions and individual countries and evaluating them by the level of their indexes in the bottom panel of this first table, we see indexes below 100, indicating below-normal growth for all entries except Japan. This is true for June and for May observations; in April, Germany shows a value that is not below 100. In March, only the OECD, the European Monetary Union, Japan, and Germany show values at or above 100. However, apart from these exceptions, we see evaluations of growth below normal for all these countries and regions. March is right after Russia invaded Ukraine and it is when the Fed's rate hikes began. The change column marked 'now' looks at the ratio of the current observations to six-months ago which is a favorite way to evaluate these leading indicators: on that basis, only Japan is higher in June then it was six-months ago. The far-right hand column evaluates these current indexes historically. On that basis, only Japan and Germany have standings above their 50th percentile; that level marks their historic medians. The weakness indicated by the economic indicators is broad-based and has worsened since March.
by:Robert Brusca
|in:Economy in Brief
Canada| Jul 08 2022
Canada Logs Two Different Job Trends
Job trends in Canada show employment gains picking up steam in the goods sector while they are slowing down in the services sector. However, much of that comes from the changes in the month of June where services jobs fell by 75,700 and goods sector jobs rose by 32,500 after two months of declining.

Service sector jobs declined by 76 thousand in June after logging solid gains in the previous two months. Service sector jobs show gains over three months, six months, and 12 months. Goods sector jobs show a decline over three months with gains over six months and 12 months. This month's drop is only the third service sector job decline in the last 14 months. The goods sector is coming off back-to-back declines that are its first back-to-back declines since mid-2021 when COVID was still a factor and when the sector experienced five monthly declines in a row.

Over 12 months, employment is up by 4.2% led by a 4.4% gain in the services sector with goods sector employment up by 3.7%. Over the broad 12-month period, both sectors are showing solid job growth.

Canada's unemployment rate fell to 4.9% in June from 5.1% in May, despite the decline in employment as there were fewer people seeking employment. The unemployment rate has fallen by 2.7 percentage points over the last 12 months. And over the last 12 months, the labor force participation rate has edged lower by 0.1 percentage points creating a minor tail wind for the unemployment rate to improve.

Job gains have been especially rapid in construction, where jobs are up by 8% over 12 months. Despite some increases in interest rates, construction jobs increased by 23,000 in June after several months of showing job declines.

Service sector jobs showed the strongest 12-month growth in information and culture followed by accommodation & food services, public administration, and professional & technical jobs. The category of “other" is the only major jobs category in services that shows job declines over 12 months. In the goods sector, agriculture shows a net decline over 12 months along with forestry and mining.
by:Robert Brusca
|in:Economy in Brief
Germany| Jul 07 2022
German IP Sequentially Weakens
German industrial production rose for the second month in a row in May. The headline for IP increased by 0.2% following an April rise of 1.3%. However, those two increases followed a substantial drop of 4.2% in March. As a result, the three-month annual rate decline in German industrial production is at a -10.3% annualized rate, the decline over six months is at a -1.6% pace and the decline over 12 months is -1.4%. German industrial production is declining; its decline is accelerating despite increases in output over the last two months

Monthly sector patterns
In May, consumer goods output fell by 0.9%, dropping for the third month in a row. Capital goods output rose by 2.2%, rising for the second month in a row, after a 3.7% increase in April. While that two-month string of increases seems impressive, it still does not get industrial production out of the hole since capital goods output in March fell by 7.8%. For intermediate goods, the output trend has been hot and cold: intermediate goods output fell by 0.4% in May, rose by 0.7% in April and fell by 3.3% in March

Sequential trends in IP by sector
Looking at these three industrial production sectors, what we see is clear deceleration. For consumer goods, output rises by 2% over 12 months, eases to a 0.4% rate of increase over six months and then falls at an 8.5% annual rate over three months. Capital goods also show clear sequential deceleration with a 0.2% decline over 12 months, a drop at a 3.5% annual rate over six months that accelerates to a decline at an 8.9% pace over three months. Intermediate goods do not show sequential deceleration per se; however, they do show declines over all three sequential periods. They log a 4.1% decline over 12 months, a smaller decline over six months, then register an 11.4% rate of decline over three months. While the six-month decline is not as severe as the 12-month decline, the weakness steps up over three months. In fact, over three months, intermediate goods output is weaker than any of the other sectors that are showing sequential declines.

Manufacturing output orders and sales
Manufacturing output, taken by itself, shows that output increased by 0.5% in May after a 1.9% rise in April. Those increases compare to a 4.8% drop in March. Manufacturing output in Germany shows sequential deterioration from a -1.3% annual rate over 12 months to a -1.9% pace of decline over six months to a -9.8% annual rate over three months. Real manufacturing orders also show persistent and sequential decelerations with orders falling by 3% over 12 months, following a 5.2% annual rate drop over six months, and then falling at a 21.1% rate over three months. Sector sales in manufacturing adjusted for inflation rise by 1% over 12 months, fall at a 1.2% pace over six months and fall at an accelerated 5.5% decline over three months. Sector sales adjusted for inflation also are showing this persistent deceleration. Reports on German output and on manufacturing are consistently weak and all the sectors and all these metrics show declines in the quarter-to-date as well.

Other German indicators
We can also look at some industrial indicators for Germany: there's the ZEW current index, the IFO manufacturing index, the IFO manufacturing expectations index, and the EU Commission industrial index. Some of these are net diffusion indexes and some of these are just raw indexes so that the raw index level month-by-month isn't necessarily meaningful when compared across indicators. But if we look at the average levels for all these variables and how they change, we see secular deterioration: all four of these industrial gauges (1) the German current situation, (2) the manufacturing situation, (3) manufacturing expectations, and (4) the EU industrial index – all get weaker from 12-months to six-months to three-months.

Indicators quarter-to-date
In the quarter-to-date, the ZEW current index weakens by 4.1 points and EU Commission index weakens by 0.2 points. However, the IFO manufacturing index increases by 0.7 points and the IFO manufacturing expectations reading improves by 1.6 points in the current quarter-to-date.

IP elsewhere in Europe
Other early-reporting European countries, three of them European Monetary Union members, report manufacturing IP for May. None of them show the sequential deterioration that we see in Germany. France shows a 2.2% gain its index over 12 months that accelerates to a 2.9% annualized pace over six months but then collapses to a 0.3% decline over three months Spain shows persistent acceleration. Sweden, an EU member, shows persistent acceleration. Portugal shows a 3.1% gain over 12 months, a decline in output over six months, then a stronger 9.7% annualized gain over three months.

Quarter-to-date trends
The German economy, the largest in Europe, is showing some of the weakest and consistently weakest results in May in the quarter-to-date. Other early-reporting European economies show mixed trends. France shows a decline in the quarter-to-date with industrial production falling at a 3% annual rate. However, Spain, Portugal, and Sweden all show increases in industrial production in the quarter-to-date as of May.

IP growth since Covid struck
Germany also shows declines in industrial production for its headline, for manufacturing overall, for construction, and for the three main manufacturing sectors compared to where these indexes stood in January 2020, just before COVID struck. However, among other European reporters, trends are more diverse. Industrial production in France is weaker than it was in January 2020. Portugal is weaker than it was in January 2020 as well. But both Spain and Sweden show industrial production stronger than the indexes were over two years ago.
by:Robert Brusca
|in:Economy in Brief
Europe| Jul 05 2022
Composite PMIs Step Back But Most Still Show Expansion
The S&P global composite PMIs took a turn for the worse in June. Among a sample of 20 countries and regions, only seven improved month-to-month. That means nearly twice as many deteriorated as improved. However, among the twenty, there was only one observation with the diffusion value below 50 indicating that there was actual economic contraction in June - that occurred in Ghana.

Growth rules but slowing encroaches That set of generalizations is true over all the timelines in the table where we look at the most recent three months and we look at a period of three months, one of six months and another of 12- months, in each case, compared to earlier periods to assess the changes and the levels of the various composite PMIs. Looking at these various slices of time, there is no period in which more than three composite PMIs are below 50 at the same time. So, 17 out of 20 of these jurisdictions have diffusion values above 50, demonstrating that growth prevails in every one of these timelines. However, of the six comparisons (three individual months and three periods), there are three comparisons of period changes that show that more than half or half of the jurisdictions are slowing; two other periods show a significant amount of slowing while only one period - that period is the comparison of 12-months to 12-months ago - in which only a few of the jurisdictions are weaker than they were in the previous period.

The clear overview for the composite PMIs is that growth remains the order of the day although there is some significant slowing. There's slowing in 13 of 20 areas in June, 11 slow in May and seven slow in April. The tendency to slowing has been expanding in the last three months. On the other hand, looking at the net changes over three months we find that 9 jurisdictions have slowed, slightly less than half, but over six months 12 have slowed.

The table also gives us averages and medians for the PMI measures in the table over the last three months; the average has fluctuated between 53 and 55 while the median has been between 52.7 and 55.8. For this group of 20 countries, these are moderate or normal composite PMIs. Over three months, six months and 12 months, the averages fluctuate between 53.7 and 54.4 with the median fluctuating between 53.8 and 54.9, looking at the same sort of range.

High-low percentile standings The average percentile standing in June for the various countries is a 79.9 percentile standing while the median is at 81.5. These percentile standings place the current PMI value for each country or region in a percentile positioning in its high-to-low range of values since January 2018. So that on this period we see that when placed within the range of recent values current performance is relatively closer to the top of the range than to the bottom. However, the second ranking statistic, and the one I prefer, is the queue standing.

Queue percentile standings The queue standing places the current observation expressed as a percentile standing among all observations from January 2018 to date – not just positioning it between the highest and lowest. It is an ordinal measure which is what the headline ‘queue’ stands for; it tells you whether the current value is at the head of the queue or at the end of the queue or near the middle. For both the average and the median we see very middle of the road queue percentile standings. The average is at its 50.2 percentile while the median is at its 52.8 percentile. These queue standings (or ranking statistics) position the current crop of PMI readings near the middle of the distribution they had occupied during this period. That assessment abstracts from the particular level reading is this month. It is the ranking that places the current observation as a position and its queue of historic data and focuses our attention on its relative position rather than on the absolute value of diffusion itself. That gives the reading much more context.

When we put these various findings together, what we see is that we have a group of twenty countries whose current performance is what it has been on average since early-2018. We see that recently there has been some tendency for the composite PMIs to register slower growth. And not surprisingly giving these middle sorts of ranking assessments, there are very few members of this group that show contracting growth. In fact, over the various time segments, we look at here there have been very few that have shown contraction. Still, there are seven jurisdictions with queue standings below – and in some cases well below - their respective historic medians. The U.S. and Germany are among countries with PMI queue standings in the lower one-quarter of their queue of observations since January 2018 - that is not reassuring.
by:Robert Brusca
|in:Economy in Brief
Global| Jul 01 2022
Developed Economies Manufacturing Sectors Hit Hard in June
Among the 18 countries in the table that report manufacturing PMI data in June, only four show month-to-month improvements. These countries include China, Russia, Malaysia, and Mexico. In June, developed economies seemed to be hit much harder than developing economies.

Over three months, there are six countries of the 18 that improve compared to their PMI readings of six months ago; these include Mexico, Russia, India, Brazil, Malaysia, and Vietnam. None of the G7 countries are on that list either.

Over six months compared to 12 months, six countries improve including Mexico, Japan, Indonesia, Malaysia, Vietnam, and South Korea. Among G7 countries, only Japan appears on that list.

Recent data have been showing broad improvement of manufacturing areas when compared to 12 months ago. However, as of June the breadth of this improvement is being challenged. Eight countries or regions improve over 12 months compared to 12 months ago. Those include the euro area, France the U.S., Canada, Mexico, Japan, India, and Malaysia. Based on these longer-term comparisons, developed economies are faring much better among the largest G7 countries in the table; only Germany and the U.K. fail to show improvement over 12 months.

There are also eight countries in the table that show rank percentile standings also known as queue percentile standings below their 50% mark. The 50-percentile mark designates the median observation over the sample. Our data period extends back to January 2018. Among those countries and regions that are below their 50% mark are the euro area, Germany, France, the U.S., the U.K., Indonesia, Taiwan, and Turkey. Once again you see a proliferation of G7 countries on this list.

There are still several countries that haven't improved their manufacturing position compared to where it was before COVID hit. These include India, Taiwan, and Turkey. The countries whose manufacturing sectors have improved the most since COVID struck are Germany, Canada, the euro area and Japan.

The data shows some widespread weakness in manufacturing particularly among the developed economies that we think of as the demand centers for global growth. China has a relatively stronger queue-ranking compared the G7 countries and it is also an important source of demand as well as supply. But China has been weak for some time and its outright manufacturing diffusion reading continues to be weak even though it ranks well on this timeline. To underscore this, China shows that since COVID struck its manufacturing reading is only 0.7 points higher, making it one of the weaker economies recovering since COVID struck.

Table 1
by:Robert Brusca
|in:Economy in Brief
China| Jun 30 2022
China's PMIs Improve in June
China's economy has been under pressure. Its approach for attacking COVID known as zero COVID has implemented rolling lockdowns across the country that have interfered with manufacturing and economic activity as COVID itself has proved to be extremely hard to eradicate. The rest of the world has decided that it will live with COVID since COVID turns out to be not as lethal as once thought nor for the most part as debilitating. But China's different approach means that a portion of the world economy is at risk to COVID and that supply chain interruptions from the disease are still possible as well as a setback to global aggregate demand as China's own demand wanes under the strain of lockdowns.

China, however, now shows signs of being able to emerge from some of its difficulties. It hasn't changed its zero COVID policy at least not formally, but there appears to be some ability of the economy to find some footing. China has implemented some targeted lockdowns that have locked down smaller more precise areas- a less ham-handed approach.

In June, the manufacturing PMI index has moved up to 50.2 from May's 49.6. The manufacturing sector is now showing expansion (its strongest since February). In fact, the sector's average reading over 12 months is below 50 so it has been indicating a depressed or barley growing manufacturing sector for quite some time. Nonmanufacturing has jumped very sharply in June. It has reached a value of 54.7 on its diffusion index in June, up from 47.8 in May. Looking at the chart, you can see how sharp this jump appears. The nonmanufacturing index was at a reading of 41.9 just two months ago so nonmanufacturing is making great strides. And this is the part of the economy that tends to be the most harmed by COVID lockdowns. Manufacturers have found ways to run their businesses and even to keep people in the factories living and working in the factories while they are under their lockdown orders. Some factories can continue to operate under lockdown orders. But service sector businesses are businesses that are out in the open, out in the economy, out in that area that gets locked down. When a lockdown occurs, a worker can't get to that business and consumers can't get there either. Service sector businesses simply get locked down too.

The one month rebound in nonmanufacturing is the second largest one month rebound in that index in the last 15 years. It's a very significant jump. The two-month jump, which is also the second largest on record, is the largest increase after COVID struck China.

The manufacturing and nonmanufacturing sectors are showing significant improvements. Whether they continue to do this will depend a lot on what happens with COVID and attitudes toward it in the days ahead.
by:Robert Brusca
|in:Economy in Brief
Global| Jun 29 2022
Globally Money Supply Slows or Contracts in Real Terms
Money supply trends show that slowing is widespread across the major monetary center countries. In the European Monetary Area, for example, M2 growth logs 6.2% growth over 12-months, grows at a pace of 5.6% annualized over 6-months and by 3.4%, annualized, over 3- months - a clear deceleration in nominal money growth is in progress.

In the United States, the slowdown is much more dramatic, with the 12-month growth rate for M2 at 6.5%, slowing to a pace of 3.9% over 6-months, and to a skinny 0.1% pace over 3-months. In the UK money growth is at 5.4% over 12-months; it ticks slightly higher to 5.6% over 6- months then slows to 4.8% pace over 3-months. In Japan where inflation has been much less of an issue overall money supply statistics are much steadier and the growth rates of money are lower… Japanese growth show M2 plus CD's up at a 3.2% annual rate over 6-months, that becomes slightly stronger at a 3.6% pace over 6-months and then backs down to the 12-month pace again at 3.2% over 3-months.

Real balance growth is contractionary The growth rates cited above are nominal money growth rates. They are the same as the statistics that are plotted in the chart that accompanies this article. However, we can also calculate ‘real money balances’ which reflect the local currency value of money deflated for the effects of inflation and then we can calculate growth in these ‘real balances’ after inflation effects are accounted for.

In the European Monetary Area real money balances grow at a - 1.7% annual rate over 12-months, at a - 4.4% annual rate over 6-months, and at a -7.6% annual rate over 3-months. This is a progressive contraction that is not good for growth. Of course, The ECB is trying to slow the economy down and even in the European Monetary Area where official interest rates have not yet begun to rise, the impact on money supply growth – especially on real balances- is quite clear.

In the United States over 12-months real money balances (RMB) contract by 1.8%, over 6-months RMB contract at a 5.1% annual rate and over 3-months it contracts and a 9.6% annual rate. This is very rapid shrinkage in the real money stock.

In the UK. Real money balances fall at a 2.6% annual rate over 12-months, at a 6% pace over 6-months and then they contract at an 8.5% rate over 3-months. The UK pattern of contraction in real balances is also severe.

The more severe the contract of real money balances the greater will be the risk of recession and the less likely a soft landing will be generated…

In Japan real money balances grow by 0.7% over 12-months, they grow by 0.2% over 6-months but then they contracted a 0.8% annualized rate over 3-months. Japan is just starting to experience some monetary contraction over the last three months.

Credit trends in EMU In the European Monetary Area, we can also look at the impact inflation has had on lending as well. In nominal terms lending continues to accelerate as credit to residents grows at a 4.8% pace over 12-months, at a 6.2% annual rate over 6-months and at a 6.3% annual rate over 3- months. If we convert these to real terms, credit to residents is falling by 3% over 12-months, it's falling at a 3.8% annual rate over 6-months and it's falling at a 5% annual rate over 3-months.

Credit to residence is drying up as well and credit is one of the channels through which monetary policy is going to slow economic growth. Since businesses need to invest and pay for inputs and services in real terms the real balance trends are most important. Of course, firms will pay a nominal, dollar, pound, euro, or yen price, but that ‘nominal’ price is going reflect the inflation rate. By deflating the credit stock numbers for inflation, we get a sense of how much liquidity is available for firms to use in an inflationary economic environment. This is true for the credit data in each country, but we only present EMU data here.

The second measure of credit in the European Monetary Union is private credit. Private credit is growing at a 5.3% pace over 12-months, at a 6.5% annual rate over 6-months and at a 6.7% annual rate over three months. Nominal credit shows some acceleration. But, once again, converted to real balance terms, private credit growth is contracting by 2.6% over 12-months, it's contracting at a 3.6% annual rate over 6-months and it's contracting at a 4.7% annual rate over 3-months.

Inflation in the euro area continues to be relatively strong. Nominal interest rates have risen as the markets are bracing for policy changes by the ECB itself and those are still to be forthcoming. However, the impact on liquidity and on credit provision clearly have been contractionary for some time in fact in the euro area credit to residence is shrinking at a 1.5% annual rate over two years and private credit is shrinking at a 1.2% annual rate also over two years. That longer term shrinkage is created by the rise of inflation rather than by specific credit tightening actions by the Monetary Authority.

The global outlook continues to be for slowing. The IMF has recently reduced its forecasts and central bankers continue to talk about slowing inflation and avoiding recession as though it's possible. Such things are possible in the world of theoretical economics, but in the real world in which we live, significant inflation has never been slowed by anything other than a recession. So, if central bankers try to promise that there's a way to balance the needed austerity with the desire for growth, be sure to listen carefully to exactly what they're saying. Are they promising results, or speaking hypothetically or hyperbolically?
by:Robert Brusca
|in:Economy in Brief
France| Jun 28 2022
French Consumer Worries Intensify in the Wake of Russia Attack
French confidence is weak in June 2022. The value for June at 82.2 is lower than its 85.4 rating in May. The confidence indicator has been slipping since at least February. Late in February Russia, after a prolonged period of tension, invaded Ukraine and after that invasion the French confidence measure weakened sharply dropping from 96.7 in February to 89.6 in March and then continuing to drop.

French household confidence has a percentile standing in its queue of data since 2001 in the lower 3.5% of its historic queue of data. That means confidence has been this lower or lower only 3.5% of the time over the last 20 or so years- that's an extremely depressed reading.

Living standards for the past 12 months fell in June to -75 from -68 in May; this series has been somewhat slower to fall, but of course it's the backward-looking series of the last 12-months and it's about actual living standards not about expectations. As such, it is benchmarked to how the economy has been performing. Still, this index has fallen to a weak 8.2 percentile standing, another extremely low reading.

The forward-looking assessment of living standards shows a much more immediate and sharper reaction to the invasion as it has a -34 reading in February then it dropped to -61 in March. The June reading, at -69, reflects a 0.4 percentile standing and an extremely weak reading.

Despite the clear deterioration in expected living standards, unemployment for the next 12 months has not been greatly affected. This is somewhat surprising. The reading for unemployment was -2 in February, it improved slightly to +7 in March and since had a reading of +8 in June 2022. Its percentile standing is still weak, in the lower 17.9 percentile of its historic queue of data, but not as dramatically week as for living standards or for the overall confidence indicator. What is odder is that it has improved from its February reading.

Price developments show that inflation has been creeping up and is expected to continue to move up. In February, the assessment of past developments over the previous 12 months stood at 46; that was not changed very much as of March. However, by June that assessment had moved up to a reading of 60. Price developments are expected to generate pressure over the next 12 months as well. They were at a reading of -14 in February 2022; that moved up extremely sharply in March to a reading of +39. However, the reading has migrated back down to a level of +23 in April and to +10 in May, then to +4 in June. The current reading is still extremely high as both past and expected inflation developments have 97 percentile standings in their respective historic use of data. The expectation for future inflation is relatively high in rank but not as absolutely high as it was in terms of the level of the reading.

Assessments for savings are generally more upbeat. The assessment of the favorability to save was 31 in February and had slipped to 23 in June. The ability to save over the next 12 months looking ahead once had a reading of 12 in February, but that had slipped to -1 in June. The favorability for savings has a 72-percentile standing whereas the ability to save for the next 12 months has a higher 81.3 percentile standing. The savings assessments continue to be relatively strong.

The spending environment for making major purchases has been hit quite hard. In February, the assessment was at a -17, that deteriorated to a -22 in March and that continued to slip. By June, the reading had fallen to -35. That -35 reading has a 3.1 percentile standing in the historic data back to the year 2001, marking it as an extremely weak reading. Clearly French consumers are concerned about the war, they're concerned about the ECB’s ability to fight inflation, and all of this is having a detrimental impact on their willingness to spend.

The financial situation looking backward was assessed at -20 in February; it slipped slightly in March and continued to deteriorate. It now stands at a -30 reading in June. The financial situation looking ahead to the next 12 months had been a -6 back in February. It slipped sharply to a -22 reading in March and currently sits at a -24 reading. Those survey assessments show the financial situation for the past twelve months had a 15-percentile standing and for the next 12 months it has a 4.7 percentile standing – more extremely weak standings.

The timing of the deterioration in the French survey quite clearly connects it with Russia's invasion of Ukraine. The current assessments remain very low reflecting the risk from inflation and war as well as the ECB prepares for fighting inflation in the euro area.

Conditions are weak the overall household indicator. Confidence is 22 points lower than it was before COVID struck in January 2020. Expected living standards are 42 points lower than they were before COVID struck. Past inflation developments are 93 points higher than they were before COVID struck although price developments for the next 12 months are only 28.8 points higher than they were before COVID struck. The spending environment is 28-points weaker than it was before COVID struck and the financial situation looking backward is worse by 15-points than it was before COVID struck although the forward-looking financial situation assessment is even weaker, nearly 22-points lower compared to where it was before COVID struck.
by:Robert Brusca
|in:Economy in Brief
Finland| Jun 27 2022
Confidence in Finland Continues to a New Record Low
After peaking late in 2021, confidence on the part of Finland's consumers has continued to move lower over 12 months. The confidence indicator averages -2.9 points over 12 months, it averages -8.2 points over six months, it averages -12.5 points over three months, and in June, it logs a reading of -14.3 points. This is a new historic low reading. Consumer attitudes obviously are being greatly affected by the war that is going on in Ukraine and by the potential for that war to spread because of Russia's aggressive posture and threats.

The June reading of -14.3 is the weakest reading for that index on data back to July 1999. For the economy, the current assessment is a reading of -43.2; it has a low 8.7 percentile standing, another very weak reading. The rating for the economy in 12-months has a June value of -30.4 and a percentile standing in the 1.4 percentile mark near the bottom of its historic queue of values.

Garnering a strong response is the reaction to consumer price inflation for 12 months ahead, which is at a 6.3 reading in June compared to a 5.9 response in May. That resonates as a 99.6 percentile standing in its historic queue of data. On data back to 1995, there has not been a stronger response for expected inflation.

Unemployment in Finland in 12 months registers a -8.5 compared to -8.1 in May. It is slightly higher, compared to April's -11.2 value and it marks a 59.1 percentile standing for the response. Clearly there are concerns about unemployment, but for the moment these concerns aren't as pressing as more general concerns about the economy and inflation. The individuals' personalized threat of unemployment this month rose slightly, moving to -2.3 from -2.6 and has a historic standing in its 60.5 percentile which is very close to the 59.1 percentile standing for the overall economy. At this time, Finish people don't seem to see any greater or lesser personal risk of unemployment than they see for the economy at large.

Assessments of the environment cluster around weak values. The favorability of the time to purchase durables has been slipping steadily; it fell to a -20.7 mark in June from -14.8 in May that had been -8.8 in April. That slippage has been steady and quite dramatic drop; it brings the reading to its lowest ranking in the history of the report.

The favorability at this time for saving also has slipped to -6.9 in June from -1.1 in May and +3.5 in April. This June response has a 3.6 percentile standing, a very weak standing for the favorability of the ‘time for savings.' It's not a good time to purchase durables and it's not a good time to save.

The favorability of this period for raising a loan balance has also slipped; it fell to -34.2 in June from a reading of -28.5 in May that was at roughly the same level in April. The June value has a 2.2 percentile standing in the historic queue of data on this response. Consumers clearly don't see this as a good time for raising a loan balance and increasing debt, or for saving or for buying durable goods.

However, on the matter of household financial situation, the assessment readings have eroded only slightly over the last three months. At 27.6 in June, the rating is only marginally weaker than 29.5 back in April and it still has an 83.3 percentile standing overall. Households' current financial situation is still quite good by historic standards, in the top 20 percentile of the various assessments that Finns have given it. They are concerned about the future and concerned about executing transactions in this economy even though they have solid current financial situations.

The prospects for savings over the next 12 months show some slight erosion; the June value is 45 and that compares to an April value of 49.7. Its percentile queue standing is at its 47.5 percentile which is below its 50th percentile, marking it as a below median response. However, it's not below the median by very much and that marks the possibilities for savings to be not too different from the historic median and characterizable as ‘normal.'
by:Robert Brusca
|in:Economy in Brief
Italy| Jun 24 2022
Italian Consumer Confidence Remains Hammered Down; Business Confidence Is Off Peak and Still Strong
Italy's consumer confidence fell month-to-month. Consumer confidence is down 12.5% over three months and down by 14.6% over 12 months. The mean for consumer confidence in Italy is at a value of 102 so that its level of 98.3 is well below its mean. The percentile ranking of the June reading is at 28.2% which means that it has been lower than this 28.2% of the time and since the median occurs at a 50% reading, it means it is significantly below its median as well as the mean.

Month-to-month the overall situation has fallen off sharply. Evaluated over the past 12 months compared to where it stood last month, the reading is at -112 compared to -78 last month. However, the overall situation for the 12 months ahead improved slightly with a -15 reading where the May reading is -17. The mean reading for this category is at -2 making its -15 reading (although better than it was in March 2022) quite weak and well below its mean. Unemployment expectations have fallen back to reading of 5 in June from 6 in May and from 13 in March. Household budget considerations have eroded to a mark of 16 in June down from 19 in May and that compares to 18 in March.

The household financial situation over the last 12 months is now assessed as worse than it was back in May; the June -42 assessment is below the -36 in May and also below the -32 for back in March. The next 12-month outlook has -26 assessment in June, worse than May's -24 although not as bad as the March reading of -34.

The environment for savings has improved a bit month-to-month with a reading of 66 in June compared to 64 in May. Future savings are unchanged at -12 compared to -12 last month and compared well to a -10 reading it back in March.

The business index rose to 110 in June from 109.4 in May; it's only slightly below its March 2022 value which was 110.2. Over three months the business index is lower by 0.2%; over 12 months it's lower by 2.9%.

That percentile standing for the overall situation is at 19% in the lowest 1/5 of its range for the assessment of the overall situation in the last 12 months; for the next 12 months the overall situation is assessed at a 23.9 percentile standing- better but not by much. Unemployment is at a very high 70.8 percentile standing. Clearly there are concerns of higher unemployment. The household budget has a 64.6 percentile standing, more or less a midstream position. The financial situation over the last 12 months has a 35.4% outstanding, a week result but much stronger than the assessment for the next 12 months which is at 5.6 percentile. Household savings currently are considered easy to have at a 92.8 percentile standing and only slightly harder to come by in the future at an 85.2% standing. The environment to make major purchases is at a weak 29.8% standing, in the lower 1/3 of its range. Quite apart from consumer responses, the business index has an 82.3 percentile standing; businesses are not feeling or fearing anywhere near the pressure or concerns about the current environment compared to consumers- that's quite a split.
by:Robert Brusca
|in:Economy in Brief