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| Sep 08 2022
Japan's GDP Is Revised Up from 2.2% Q/Q to 3.5%
Japan's second quarter GDP was revised up to show growth of 3.5% at an annual rate compared to the previous estimate of 2.2% - an upward revision greater than what had been expected. Japan's year-over-year GDP growth in the second quarter is now up to 1.4% from 1% previously. The 1.4% growth rate is the strongest since the second quarter of 2021 when GDP rose at a 7.3% year-on-year rate after declining in the first quarter under the pressure of COVID policies.

Japan's quarterly growth Private consumption growth in the quarter was revised up to a 4.8% growth rate from 4.6% previously. Public consumption in the second quarter grew at a 2.8% rate annualized compared to 2.2% previously. Private sector consumption continues to be the principal driver of GDP growth.

Gross fixed capital formation in the quarter grew by 4.9% at an annual rate compared to 3.4% previously. Plant & equipment spending rose to an 8.3% annual rate, up from 5.8% previously as investment demand heated up in the quarter. However, the housing estimate was little changed in the second quarter with revised housing investment falling at a 7.3% annual rate compared with decline at a 7.2% annual rate previously. Housing continues to lag and to contract.

Export growth was unrevised, rising at an annualized 3.7% pace quarter-to-quarter while imports were weaker, rising by 2.2% compared to 2.7% previously. Weaker import growth adds slightly to GDP growth.

Japan's domestic demand was stronger at a 3.2% annual rate in the second quarter compared with its 2% pace previously.

Annual rates of growth Upon revision Japan's economy is looking firmer and stronger than it was previously. Still, year-on-year growth is up at a modest 1.4% for GDP while domestic demand is up at a 1.6% growth rate over four quarters. Consumption continues to drive GDP; the year-on-year increase in private consumption is up by 3% compared to 1.9% for public consumption. Year-on-year gross fixed capital formation is falling at a 3% annual rate over four quarters marking the fourth straight quarter in which gross fixed capital formation logs a year-on-year decline. Plant & equipment spending is flat year-over-year in the second quarter, and that's an improvement from its previous pace of -0.8%. Year-on-year housing investment is down by 6.3%, marking the third quarter in which the year-over-year growth rate is negative for housing investment. The year-on-year trend for exports continues to diminish; exports grow at a 2.5% pace over four quarters; that's the fourth quarterly deceleration in a row for the year-over-year growth rate for exports. Imports are up by 3.3% over four quarters. Imports grew at a 7.3% pace in the first quarter; second quarter growth is the weakest annual import growth since the first quarter of 2021. Japan's domestic demand which rose 1.6% over four quarters is slightly stronger than the 1.4% gain it made on that same basis in the first quarter and stronger than the roughly half a percentage point gains logged in the fourth quarter of 2021 and in the third quarter of 2021. But domestic demand is only firmer and doesn't show any clear signs of acceleration.
by:Robert Brusca
|in:Economy in Brief
Germany| Sep 07 2022
German Manufacturing Output Falls in July; Unwelcome News Comes Early?
German industrial output fell by 0.3% in July after gaining 0.8% in June and falling by 0.1% in May. These figures, of course, do not reflect the freshest news in Europe concerning the shutting of the gas pipeline from Russia. Germany is beginning to take some steps as it has agreed to keep open two of three nuclear power plants that had been scheduled to be mothballed. Still, it's keeping open only two of three not three of three and it appears that Germany is still not willing to pull out all the stops to find alternatives to the gas that they're losing from Russia even though more nuclear power would mean that Germany could burn less gas to generate electricity and make up for some of the loss from the Russian pipeline. Green still has power in Germany. When winter comes, the new motto could be ‘let them burn furniture.’ That happened a year ago in the U.S. when Texas had a pronounced and severe cold snap and the electric grid failed. Reality lurks and action shirks. Germany needs to think right now about what winter is going to be like if the pipeline stays shut- it needs to act now.

Monthly results Energy is going to be a concern for the future; what's unfortunate is that as of July Germany logs a decline in industrial output, led by a 2.4% decline in consumer goods output, a 0.8% decline in capital goods output, and a 0.6% decline in intermediate goods output. All this is ahead of any energy shortage. Construction sector output also fell by 1.3% in July. Manufacturing output fell by 1.0% in July. What’s next when energy is in short supply?

German output trends German output trends are not quite as bleak, but they're not very encouraging either. Growth rates from 12-months to six-months to three-months show industrial output falls by 1.1% over 12 months, it falls at a 4.2% annual rate over six months, then it gains at a 1.6% pace over three months. Three-month output declines for consumer goods and intermediate goods, but those declines are dominated by a sharp rebound in capital goods output. Manufacturing output declines 1.4% over 12 months and drops at a 4.2% pace over six months; however, it expands at a 3.4% annual rate of increase over three months.

German orders point to weakness Manufacturing orders, which are highly correlated with manufacturing output, show a 13.7% decline in real orders over 12 months, at 17.8% annual rate decline over six months and a slower, 6.2% annual rate decline over three months. The pace of decline does diminish over three months, but it's still a significant pace of decline. Meanwhile, the monthly data show increasingly large declines in orders from May to June to July.

Sales trends Real sales in manufacturing show a convoluted pattern with a 1.1% gain over 12 months, a 4.1% annual rate drop over six months, and a sharp 17.3% rate of increase over three months. The three-month increase is based on a 2.5% increase in May, a 3.4% increase in June, but then tempered by a 1.8% drop in July.

Industrial indicators German industrial indicators are not encouraging. The ZEW current index weakens from 12-months to six-months, to three-months. The IFO manufacturing index, the IFO manufacturing expectations index, and the EU Commission industrial index all follow suit. The monthly patterns are equivocal, but they generally show declining activity month-to-month from May to June to July.

Other Europe Other European countries have issued early industrial output reports: they show mix patterns. Portugal shows declines in each of the last three months compared to Sweden where there are increases and accelerating increases across the last three months. Norway shows accelerating activity over each of the most recent three months as output moves from a 2.2% decline in May, to a 0.2% increase in June, to a 1.4% rise in July. However, the sequential performance of these countries across broader spans is mixed and less encouraging. From 12-months to six-months to three-months, Norway shows sequential deterioration. Sweden shows sequential acceleration- and some real strength. Portugal shows a mixed pattern ending in weakness over three months. Only Sweden shows an increase in output over three months, while Portugal and Norway report declines in output over three months.

QTD: Quarter-to-Date July marks the start of data in a new quarter; the early read shows an increase in output at 1.2% annual rate in the third quarter over the second quarter base for Germany. Sweden and Norway show significant increases over their second quarter output bases while Portugal shows a sharp decline. German indicators, early in the third quarter, also report declines compared to their second quarter values. The German construction sector shows a decline QTD as well. All manufacturing orders show a decline QTD; manufacturing output rises at a skinny 0.2% annual rate. Real sales in manufacturing are up at a robust 7.5% annual rate- a marked contrast.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 06 2022
Composite PMIs Weaken in August
Among the 25 entries in the table for composite PMI values in August, only 6 show month-to-month increases in August. Those showing improvement are Italy, Sweden, India, Saudi Arabia, the UAE, and Egypt. Three of them are countries in the Middle East, India was another, Sweden, a northern European economy, and Italy, a Mediterranean European Monetary Union member, was the final member of this group. There's nothing special that stitches them together apart from the three Middle Eastern countries that are geographically concentrated and that benefit from the ongoing high oil prices in the world economy.

In July only seven countries had improved month-to-month and in June on the eight countries had improved month-to-month; for the most part these were different groups of countries although Russia improved in July and June, Saudi Arabia improved in August and June, Ghana improved in July and June, Egypt improved in August and July, all of the rest of the cases were isolated.

Similarly, over three months only nine countries have improved compared to six-months; none of them were among the group of the largest economies in the table. Over six months nine countries improved compared to 12-months and year-over-year 11 countries improved compared to the 12-month period earlier; that count still falling short of representing half of the group.

The percentile standings show that a large proportion of the August values still reside in the upper portion of the full range of values these countries have had in their PMI composites from January 2018 to date. However, if we look at the queue percentile standings that place the August value in a particular spot in its historic queue based upon the number of observations above and below it, rather than based upon the maximum and minimum values in the range, we get a very different result. That result reveals the month's readings to be quite a bit weaker than range standings suggest. Fully 16 of the 25 values in the table reside below their historic medians which means on a queue percentile basis they have rankings below their 50th percentile. Most of them, in fact, are far below their 50th percentile indicating extremely weak standings. Nine of the 25 members have percentile standings in the lower one-fifth up their historic queue of data. That means that they have been stronger than their August values 80% of the time or more. Only two countries have percentile standings in the top 10% of their queues: those are India and Saudi Arabia.

The composite – service sector plus manufacturing sector- PMI paints a picture of the global economy that is weakening and paints a picture of a global economy that is already weak. At the bottom of the table, average and median data for benchmark countries and aggregates provide more perspective. The unweighted average for the U.S., the U.K., the European Monetary Union, and Japan has a PMI value of 48.2 in August and 49.8 in July; both indicate that those countries on an unweighted average basis are showing contracting economies based on the averaged composite PMIs.

These are composite PMIs not just the manufacturing sector; they include the broad services sector and therefore they're broad gauge of these economies. PMI data can differ from ordinary economic data which I referred to as accounting data since GDP and traditional statistics tend to count the data rather than to deal with the sorts of breath statistics that PMI data are based on. However, the two data presentations do tend to give us many of the same signals and the PMI data based on breath are well known to be sensitive to changes in economic conditions; they can serve the role of a canary and a coal mine to warn us when something is starting to go wrong.

The unweighted average for the U.S., U.K., EMU and Japan readings progressed from 53.4 over 12 months to 52.6 over six months to 50.2 over three months that's a clear weakening. For the Bric excluding Russia, the pattern is different: 52.3 for the 12-month average, slipping to 52.2 for the six-month average, but then rising to 54.7 over three months. The average for the full 25-member group slips to 53.0 over six months from 53.6 over 12 months and again to 52.3 over three months. The median for the full set of countries also shows slippage from 53.8 over 12 months to 53.0 over six months and to 51.8 over three months. Both the median and the average measures for the full data set show slippage.

However, when it comes to contraction, August shows only 10 of 25 jurisdictions below 50 compared to 7 in July and 4 in June. Over three months only six averages show below 50 values compared to five over six months and 5 over 12 months. This is a starkly different comparison from slowing. Statistics on slowing show 19 jurisdictions slowing in August compared to 17 in July and 17 slowing in June compared to May. Over three months 16 jurisdictions slow compared to six-months, and in six-months 16 slow compared to their 12-month values. Over 12-months, however, only three jurisdictions slow compared to 12-months earlier. Slowing is extremely widespread; but contraction is still not very widespread, occurring in its most frequent month of August in only 10 of 25 of these reporting jurisdictions – still that's 40%.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 01 2022
Global Manufacturing Slows Further (S&P Global PMIs)
Among the 18 countries and regions surveyed in August, 13 of them worsened month-to-month. That’s a clear bias in terms of numbers of countries that saw manufacturing weaken in August. Among the exceptions were Indonesia, China, Russia, France, and Turkey.

Over three-months compared to six-months, once again there are 13 members of this group that show worsening. Over six-months compared to 12-months, there are 16 members that show worsening. Over 12-months compared to the average from 12-months ago, there are eleven members out of 18 that show worsening.

The median observation in August deteriorates only 0.2% from the month before. Over three-months, the median observation deteriorates by two points from the six-month average. Over six-months, even though there are more worsenings than improvements, there is a slight, 0.4%, improvement in the median observation compared to the 12-month average. And over 12 months, despite the lowest worsening count of all these horizons, there was a decline in the median of 1.7 points.

Queue rankings On balance, the worsening is gradual and ongoing, but it is bringing the manufacturing PMI levels down to much lower levels. If we look at the queue rankings over the last 4 ½ years, there are only four out of 18 members whose August observations rank above their median values over the last 4 ½ years. Those are Russia, India, Indonesia, and Malaysia. As for large economic areas, the euro area has a 32.1 percentile standing, the U.S. has a 22.6 percentile standing, the U.K. has a 3.8 percentile standing, Japan comes close to its median with the 49.1 percentile standing, and China has a 17-percentile standing.

PMI values since before Covid struck Half of the respondents in the table have higher manufacturing PMI standings than they did in February 2020 on the brink of COVID striking. However, the euro area, Germany, France, and the U.S. show increases that are improvements of barely one point or less over this span of 2 ½ years. The strongest gains from February 2020 are from Japan that’s up by 3.7 PMI points, and Russia that’s up by 3.5 points. After that, Vietnam is up by 2.2 points (based on its July reading), and Malaysia is up by 1.8 points. All-in-all conditions have not been very robust over the last 2 ½ years.
by:Robert Brusca
|in:Economy in Brief
France| Aug 31 2022
France: the Developing Inflation Cycle Bends Lower
The French statistical agency has released its preliminary HICP estimate for August; the month shows a flat inflation performance compared to July. Unfortunately, August shows only the observation on French inflation for the headline. We really can't dig into the details on why things changed that much in August compared to July. However, the headline shows the 12-month inflation rate in August dipped to 6.5% from July's 6.8%. For France in August the year-on-year inflation rate is decelerating. And the gain of 6.5% year-over-year in compares to a 2.4% pace in August one year ago. While inflation was excessive a year ago, it was excessive in a moderate sense. This makes it clear that the overshoot from inflation is really a recent phenomenon with these very high inflation rates reflecting events mostly over the last 12 months. Sequentially inflation now shows a 6.5% pace over 12 months, a 7.6% pace over six months and a lower 5.7% pace over three months. That is the new August profile.

Trends as of July The rest of the table concerns how French inflation looks at the up-to-date statistics through July and earlier. In July, the core rate had increased by 0.8% from June's 0.2%, an acceleration even as the headline had cooled to a 0.5% July gain compared to 0.8% in June.

The sequential calculations on the HICP core show inflation have accelerated from a 4.3% pace over 12 months to 5.8% over six months to 6.2% over three months. On that same timeline, the CPI excluding energy for France accelerated from 4% over 12 months to 5.4% over six months to 5.6% over three months-roughly like the core path in the HICP framework. The CPI headline for France is on the same time dimension in the other data in the table, except of course for the headline of the HICP.

The headline of the CPI shows both acceleration and the deceleration. The 6% annual gain over 12 months accelerates to 8.4% over six months then it decelerates to 7.5% over three months. This, of course, is a contrary pattern to both core measures both of which are in the same timeline as the CPI headline.

The French domestic CPI could be translating the recent weakness in Brent oil prices into a somewhat slower headline gains for the CPI. Brent prices have decelerated over the three months ended in July, rising only at a 12.8% annual rate after rising at a 72% annual rate over six months and at a 61% annual rate over 12 months. In fact, in July the month-to-month change in the price of Brent expressed in euros fell by 10.8%. One thing all central banks are looking forward to is getting some relief on their inflation from what has been weakening energy prices even though the longer-run outlook for energy remains quite difficult as many countries have stuck to their ‘Green agendas' despite the pain of it. In the euro area, there is added concern about energy supplies let alone price.

In the most recent month for which we have detailed data (i.e., July 2022), we see declines in three categories among the 11 detailed and the CPI report. Prices fall month-to-month for healthcare, transportation, and communications. Healthcare prices have been weak for some time in France; they fell by 0.6% over the last year and in the previous 12-month period they had fallen by 1.7%. This is a structural change in healthcare prices. Transportation prices fell by 0.4% in July after rising by 3.3% in June; they have been ramping up at a double-digit pace over three months, six months and 12 months because of the contribution to energy costs from rising energy prices. Communication goods include a lot of technology. Technology alone helps to moderate communications prices; those prices are up by 0.1% over 12 months and up by 1.9% in the previous 12 months. In addition to their fall in July, communication prices were flat in June.

France saw some inflation pressures too. Month-to-month inflation for restaurant & hotel prices rose by 1.8% in July after rising 0.4% in June. Food prices are still strong rising at 1.3% month-to-month after June's 1.3% rise. Food price gains are still in double digits over three months and accelerating. Restaurant & hotel prices are also in double digits over three months and six months, and they also are accelerating. This reflects the return by consumers to the restaurant and hotel sector after COVID had essentially redlined that sector for a prolonged period.
by:Robert Brusca
|in:Economy in Brief
Japan| Aug 29 2022
Japan's LEI Waffles Sideways-Sets a Weak Path
Japan's leading economic index for June was at 100.9, down slightly from May's value of 101.2. The index has been waffling and in a sideways motion (see Chart) since early-2021. The growth rates show a 12-month growth rate of minus 2.5%, a six-month annualized decline of 3.8%, and a three-month annualized increase of 0.4%. Over 24 months, there's an increase of 21.9%- not annualized.

The LEI report still has two components missing for June, the loan/deposit ratio change and the normalized overtime in manufacturing metric. Only four of the six components are up to date in June. While they call this statistic a 'leading indicator,' it is working off data from May and June and here we are just a few days from September.

Monthly changes Share prices moved slightly lower in June compared to May, falling by a skinny one tenth of a percentage point. The interest rate spread was unchanged in June holding at 100.2. The dwellings-started metric is also unchanged at 100.3. The export-import balance shows a slight improvement to 99.9 in June from 99.8 in May. The April to May shift in the two lagging components finds the loan-to-deposit ratio a tick higher and manufacturing OT (overtime) unchanged.

Overall, the LEI and its components paint a picture of a Japanese economy that is very little changed on several of fronts. The biggest change in the economy has been the ongoing decline in the yen because of monetary policy in the United States. U.S. monetary policy has been moving rates up sharply and progressively; that has had a substantial impact on the dollar that has been moving up against all major world currencies especially against the yen and the euro. At some point, Japan should reap some benefits in terms of export growth although it's going to cost Japan in terms of import prices and that becomes more of a problem because as Japan does import a lot of energy that is priced in world markets in dollar terms. However, Japan is taking steps to revive its previously mothballed nuclear facilities to reduce its dependence on imported hydrocarbons.

Trends Looking at the trends across the components of the leading economic index, among the six components, three of them show increases and three of them show declines over three months. Two of the indexes showing increases over three months are the lagging metrics; only one of the topical indexes shows an increase; i.e., the export-import balance. Over three months, share prices are down at a 0.8% annual rate, the interest rate spread is down at a 0.2% rate, and dwelling-starts are declining at a 0.5% annual rate. The two lagging indicators show little change over three months in May. The loan/deposit ratio is up by 0.4% annualized over three months while the OT gauge (overtime) for manufacturing is up at a 0.2% pace.

Over six months, only one of the components declines and that is share prices. However, the interest rate spread and dwellings have very small 0.1% to 0.2% increases. The export-import balance index improves by 0.5% while the lagging loan/deposit index is up at a 0.7% pace and manufacturing OT is up at a 1.3% pace.

Over 12 months, share prices decline by 0.7%; all other metrics show improvement.

The net change over 24 months reveals declines in the loan/deposit ratio and in the export-import balance. The lagging manufacturing OT is up by a strong 3.7% with a 1.4% rise in dwellings-started, a 0.8% improvement in share prices, and a one tick rise in the interest rate spread.

LEI vs. Confidence Comparing the LEI to the consumer confidence readings, we find that consumer confidence also fell in June. And it also declined over 12 months, six months and three months. The LEI and consumer confidence measures demonstrate shared weakness over the last year. Yet, both are up strongly over 24 months, by 10.3% for confidence and by 21.9% for the LEI.
by:Robert Brusca
|in:Economy in Brief
Germany| Aug 26 2022
GfK Backs Down Again in September
The GfK consumer climate index for Germany has fallen, reaching a new lower low in September at -36.5. This is a drop from August when the index was at -30.9. The index dropped from its previous all-time low to a new lower low in September. The monthly decline of 5.6 points is the biggest monthly decline since May of this year and represents real month-to-month deterioration, not just some further slippage. A month-to-month decline larger than 5.6 points occurs less than 2% of the time…and this is a drop from what had been an all-time low

The components for the GfK index lag by one month; we have component values for August as the most up-to-date readings. The August reading for economic expectations improved slightly to -17.6 from -18.2 in July. The August reading for economic expectations stands in the lower 11th percentile of its historic queue of data. Income expectations also improved slightly, logging a -45.3 reading in August compared to -45.7 in July. The July reading was the all-time low for the income series so the ranking for August income expectations is in the lower 0.4 percentile of its historic queue of data. The propensity to buy reading for August slipped further to -15.7 from -14.5 in July; this reading has a lower 17.6 percentile queue standing.

All the components are weak. The propensity to buy is in the lower 20th percentile of its queue of data, economic expectations are in their lower 11-percentile while income expectations are just a few ticks off their all-time low, logging the second lowest reading on record. These are not encouraging signs for Germany or for the consumer.

Other Europe There are also readings for Italy, France, and the U.K. in the table; these are up to date through August. In Italy, consumer confidence improved to 98.3 in August from 94.8 in July. In France, the INSEE reading moved to 82.2 from 79.6. But in the U.K., there was deterioration as the consumer confidence reading fell to -44 from -41 to reach a new all-time low for U.K. confidence.
by:Robert Brusca
|in:Economy in Brief
France| Aug 25 2022
INSEE Business Indicator Falls; An Unremarkable Report But One That Urges Vigilance
The INSEE business indicator for French industry climate fell to 103.6 in August from 105.6 in July. The index had been at 107.9 in June and 106.3 in May. The decline in August brings it down to a significantly lower level compared to where it's been in recent months. The indicator has a 63.3 percentile standing in its historic queue data back to 2001. This is a moderate standing above the median which occurs at a ranking of 50.

Manufacturing production expectations post a -1.6 reading in August, an improvement from July's -5 reading and from the readings of June and May as well. The ranking on data back to 2001, however, is at the 51.8 percentile of its historic queue of data, marking it as barely above its historic median value – a more or less 'average' reading.

The recent trend for production has a 4.2 reading in August compared to much stronger readings in May, June and July. However, the percentile standing in August is only at a 40.5 percentile standing in its historic queue of data back to 2001. This marks the reading as substantially below its historic median.

The 'personal likely trend' for production is meant to get the survey participant to look at their own industry rather than at industry overall. Respondents to the survey expect their personal likely trend will improve in August to 13 from what were much weaker values over the previous three months. This improvement to 13 has a queue percentile standing at its 71.7 percentile which is a reasonably strong reading.

Orders & demand in August have slipped to a -10 reading in August from -4.7 in July, compared to stronger readings in June and May. At -10, orders & demand have a 70.4 queue percentile standing, a moderately firm reading. Foreign orders & demand also weakened in August, falling to -7.6 from a reading of -4.9 in July and stronger values in June and in May. The August queue standing is at its 70th percentile, like the standing for orders & demand overall.

August inventory levels are up to 16.6 in August from 9.3 on July and represent an elevated level compared to June and May as well. This is a high reading at the 94th percentile of its historic queue of data.

Price trends show their own likely price trend at 39.7 in August, up from 35.3 in July. However, this is a weaker reading than in June and in May by a substantial margin. However, the August reading still has a queue percentile standing in the 96.8 percentile: that is within the top 4% of all observations back to 2001. Firms clearly are raising their own prices.

Manufacturing prices overall are seeing weakening month-to-month as August has a 55.3 reading compared to July at 63.3 and even stronger levels in June and in May. The manufacturing price level has a 95.5 percentile standing, just slightly weaker than for own prices. These readings indicate continued price pressures for the period ahead.

Looking at these survey responses compared to what they were before COVID struck, in January 2020, we have the industry climate index higher by only one point. Manufacturing production expectations are higher by less than one point. The recent production trend is higher by 5.4 points while the personal likely trend is up by 4.2 points. Orders & demand as well as foreign orders & demand are both weaker by 0.2 points. Prices, however, are hugely stronger than they were before COVID struck. The price index for the own likely price trend is up by 37 points; the manufacturing level is up by 49 points. Clearly firms have experienced a lot of inflation since COVID struck and their perceptions of prices remain high as we've seen from the percentile standings.
by:Robert Brusca
|in:Economy in Brief
Finland| Aug 24 2022
Finland's PPI Edges Lower
Inflation in the euro area is and continues to be excessive. Finland continues to follow along with the pack. Finland’s PPI is up by 28.9% over 12 months, it's up at a 36.4% annual rate over six months and then it has “cooled" to a 27.3% annualized pace over three months. Ranked among a group of 14 European countries - mostly European Monetary Union members- Finland's year-over-year inflation rate in June stand at 9th among this group of 14 members. At that time, Finland's year-over-year inflation rate was 31.6% compared to 35.9% for the European Monetary Union overall at that time; the highest inflation rate among this group of countries in Europe was Belgium where inflation was up 50.5%, followed by Spain at 43.4%, and then Italy at 42.0%. Finland’s PPI inflation ranks ninth among these 14 members in June; that means that Finland is one of the middling inflation countries in Europe (This comparison group consisted of Germany, France, Italy, Spain, Portugal, Austria, Denmark, Greece, Ireland, the Netherlands, Finland, Sweden, Belgium, and Luxembourg).

In July, Finland's producer price index fell by 1%; it had risen by 3.2% in June and by 4% in May.

The price of manufacturing goods fell by 2.1% in July after rising 3.2% in June and 3.1% in May.

Within the manufacturing sector, consumer durable goods prices rose by 0.5% in July, consumer nondurable goods prices rose by 2.1% and investment goods saw prices rise by 0.3%. These increases show continued acceleration. Consumer durable goods prices had fallen by 0.2% in June, consumer nondurable goods prices had risen by 1.3% in June, and investment goods prices in July rose at the same pace as in June of 0.3%. The relief of headline price pressure in Finland reflects intermediate and raw goods whose prices are reflecting weakness in oil and other raw materials.

Manufacturing price momentum Demand continues to pull other prices higher. For all of manufacturing, prices gained 28.2% over 12 months and accelerate to a 44.3% annual rate over six months but then price gains dropped back sharply to a 17.2% annual rate over three months.

This progression is echoed ever so slightly by consumer durable goods where prices rise by 11.4% over 12 months, accelerate to rise by 17.4% over six months and then prices barely cool their trend rising by a 16.6% annualized over three months.

Consumer nondurable goods prices are up by 13.3% over 12 months, they accelerate to a rise of 18.3% annualized over six months and accelerate further rising at a 23.7% pace over three months. Nondurables are still experiencing clear price acceleration.

Investment goods prices rise at a 10.4% annual rate over 12 months and 11.3% annual rate over six months, a small acceleration, and then decelerate to an 8.8% pace over three months.
by:Robert Brusca
|in:Economy in Brief
Global| Aug 23 2022
PMIs Weaken in August
The S&P Global manufacturing PMIs and services PMIs on a flash basis weakened in August. The European Monetary Union, Germany, France, the United Kingdom, Japan, and the United States each show a weaker composite, a weaker manufacturing reading, and a weaker services reading in August compared to July. Dialing back one month, July saw that out of the 18 assessments possible only four showed month-to-month improvements. The U.K. was an exception having an improvement in its service sector in July that also strengthens the headline; Japan was an exception in July having an improvement in services that also strengthened its headline. In June, there are only three of 18 comparisons that improve month-to-month; they include manufacturing in Germany and the services sector in Japan.

The unweighted average manufacturing PMI value in August has slipped to 49.5 showing contraction on average. This compares to an average level of 51.6 in July and at 54.4 in June. The average services reading for the six entries in the table has slipped with a diffusion rating of 49.2, indicating minor contraction. This is a slippage from a level of 53.4 in July and 54.8 in June. The deterioration for both manufacturing and services has been relatively recent and relatively rapid. Viewed as stand-alone readings in August, the EMU services sector at 50.2 still shows expansion, France at 51.0 shows expansion, the United Kingdom at 52.5 shows expansion. Manufacturing in August shows expansion in the U.S. and in Japan with Japan’s 51.0 diffusion reading and the U.S. reading of 51.3. Where there are exceptions, they are not glaring exceptions.

On balance, over these three months viewed individually and collectively, the weakness is broad.

When we compare the three-month, six-month and 12-month averages, we are comparing them from a base in July, not in August which still has preliminary data.

Over three months on this basis, there are 9 of 18 readings that strengthen - a split decision. Over six months, there are 8 of 18 readings strengthen. Over 12 months, most of the readings strengthen with only four of them weakening.

Composite readings However, we can see from the table that August, once it gets into the mix, is going to be another weakening force that is going to weigh on these sequential trends. We can already see that the ranking of the August levels is extremely weak with the headline or a composite index ranging from the strongest value of a 36.4 percentile standing in Japan to the weakest standing at a 5.5 percentile standing in U.S. The average composite standing for the group is at a 22.5 percentile standing; it is in the lower 4th to lower 5th of the countries’ historic pooled queue of values.

Manufacturing and Services Manufacturing standings on the other hand range between a high of a 45.5 percentile standing in Japan to a 3.6 percentile outstanding in the U.K. The average percentile standing for the group is at the 24.4 percentile mark in the lower one-fourth of its historic queue of values. Services standings range between a high of 45.5 percentile in the U.K. to a low of 5.5 percentile in the U.S. The average percentile standing is at the 30.2 percentile.

These readings all are weak. Not only are the preliminary readings all weak or weakening month-to-month but the queue standings all reside below the 50th percentile; that's across all countries and for all three sectors of the composite for manufacturing and for services. It means all sectors are performing at less than their median rate.

Looking at the changes the composite indexes back to January 2020 before COVID struck, all the composite indexes in this table are weaker than they were in January 2020. All the services sectors are weaker than they were in January 2020; only three manufacturing sectors are stronger than they were in January 2020 and those are for the European Monetary Union as a whole, for Germany, and for Japan.

The magnitudes of change The one-month change in the composite indexes averages -3.9 points for manufacturing, the drop is -2.2 points, for the service sector it’s -4.2 points. In August, the services sectors were easing twice as fast as manufacturing. Over three months, the change in conditions is much flatter. The composite indexes declined by 5.5 points across these 6 table entries. The manufacturing sector is receding on average by 5.3 points over three months while the services sectors unwind by 5.6 points on average. Over three months, we're seeing roughly the same rate of erosion or deterioration in services as in manufacturing.

Over 12 months, conditions are a little bit different again. The 12-month average drop in the composite indexes is 6.8 points, while for manufacturing the average drop is 9.8 points and for the services sector the average drop is 6 points. Over 12 months, the manufacturing sectors are deteriorating faster than services. Germany is a minor exception to this trend. The U.K. conforms to it more significantly than any other country with a -14.1 drop in its manufacturing index over 12 months compared to just a -3.1 drop for services. Japan is the only country in the table that shows a 12-month improvement in services against a 1.7 drop in manufacturing.
by:Robert Brusca
|in:Economy in Brief
Belgium| Aug 22 2022
National Bank of Belgium Consumer Confidence Languishes
The National Bank of Belgium index for consumer confidence rose to -11 in August from -13 in July, returning to its June level. Three months ago, the index stood at -13. Six months ago, it stood at +1. Twelve months ago, it stood at +5. Despite the month-to-month improvement, the index has been on a weakening trend; it has weakened most sharply over three months. The index positions itself in the lower one-third a of its values since 1991 with a 32.1 percentile queue standing. This reading means that the index has been weaker than its current value about one-third of the time, marking this as among some of the weaker readings for Belgium since 1991, roughly the last 30 years.

The economic situation for the last twelve months made an improvement to -57 in August from -63 in July. This is a weak assessment. The August trailing assessment of -57 has a queue standing in its lower 7.6 percentile. The companion rating this month, for the next twelve months, looking ahead, has a reading at -32, which is a slight improvement from July's minus 37 rating. The 12-month ahead August reading is even (slightly) weaker in its historic queue than the evaluation of the past twelve months with a 5.8 percentile standing. Clearly the economic situation has been poor, and is expected to remain poor, despite the slight month-to-month improvement. This month's report earns the sound of one-hand clapping.

Price trends in the BNB survey over the previous 12 months more or less stabilized with a reading of 86 in August compared to 84 in both June and July. Over the next 12 months, some progress on inflation is expected with the index falling to 19 compared to 25 in July and 34 in June. Nonetheless, the broad progression of this index has been for deterioration with the 12-month-ago reading at 19, the six-month-ago reading at 33, and the three-month-ago reading at 41. Clearly, this shows a local trend of improvement that is resisting a broader trend of deterioration. The standing for price trends for the next 12 months is at its 52.6 percentile mark. This is an extremely sharp improvement from the 99.7 percentile standing that evaluates price trends over the last 12 months. The standing assessments show that inflation has progressed from some of the very weakest reading in the history of the survey to readings that are far more centrist near the middle of the distribution. That level of assessment might seem surprisingly high given the height of inflation in the EMU relative to target that prevails today. It may be colored partly by encouragement that the past extraordinary inflation environment is being put to rest.

The unemployment forecast shows some heightened risk of unemployment in the August index as it climbs to 16 from a level of 12 where it stood in both June and July. The unemployment forecast has had an uneven progression from twelve-months to six-months to three-months. Its current standing, at a value of 16, has a 34.7 percentile standing in its historic queue of data marking unemployment expectations is being close to the lower one-third of values in its queue of ordered data since 1991. Unemployment is more greatly feared, but the fear is not pronounced.

The major purchase index for the next 12 months has stabilized over three months at a reading of -20 in August. It had steadily eroded from twelve-months to six-months to three-months. Similarly, the present index has eroded and shows only a one-month improvement after a string of erosion.

The financial situation for the last 12 months stabilized at readings of -17 in each of the last three months. However, that represents a deterioration since 12 months ago the reading was -5, six months ago it was -11 and three months ago it was -13. The assessment of the last 12 months has deteriorated and then stabilized. It has stabilized at a level that is in the lower one percentile of its historic queue up data! The assessment of the past 12-months has been extremely poor for a household's financial situation. Over the next 12 months, the household financial situation garners a -8 reading in August compared to -7 in July and -8 in June. The broader progression shows that twelve months ago, the household assessment was at zero, six months ago it was at -5 and three months ago it was at -9. The current -8 rating has a 1.6 percentile standing, once again an extremely weak reading, among the weakest 2% of ratings by households of their financial situation looking ahead to the next twelve months since 1991.

Households rate their ability to save over the next twelve months more favorability this month; the favorability of saving currently improved slightly as well. Their respective standings, however, are moderate. The next twelve-month reading has a 63.9 percentile standing and the assessment of the current ability to save has a 52.2 percentile standing. These are mid-range assessments.
by:Robert Brusca
|in:Economy in Brief
Japan| Aug 19 2022
Japan's Inflation Shows Mixed Gains
Japan's inflation rose by 0.4% in July after slowing to a 0.1% gain in June. The category, all prices excluding fresh food saw prices grow by 0.5% compared to a 0.2% June gain. All items less food & energy rose by 0.2% after gaining 0.1% in June. Western economies would kill for these trends…

Across the eight major components listed in Japan's CPI, four of them show extremely weak (or no) gains month-to-month in July. Education, medical care, and miscellaneous goods show prices rising by 0.1% while housing showed no gain at all month-to-month. Food & beverage prices rose by 0.5% month-to-month. Clothing & personal items prices rose by 0.5% and transportation & communication prices rose by 0.4%, while reading & recreation prices surged by 0.7% but that followed a 0.6% June drop.

For the headline and for most components, in fact - for nearly all components, Japan shows no tendency- no clear trend - for inflation to either accelerate or decelerate. The one significant departure from this is for all items excluding food & energy where prices rise 0.3% over 12 months, at a 2.2% annual rate over six months and at a 2.4% annual rate over three months completing a clear sequential cycle of trend acceleration for the core CPI.

However, the headline and the headline excluding fresh food do not show any such pattern nor do any of the 8 major components of Japan's CPI. None of the 8 main components show either inflation clearly accelerating or decelerating. All of the components have a mixed pattern. Only when in the core, with food & energy stripped out, does this trend emerge. Over 12 months compared to the year ago, headline and core inflation both accelerate as does the total CPI excluding fresh food. And among the eight major categories inflation accelerates for food & beverages, medical care, and for transportation & communication. This is despite the fact that the inflation rates actually are negative for medical care and for transportation & communication but those prices fall at a slower pace over 12 months than they did one year ago, hence ‘acceleration.'

Six-month trends show acceleration for the headline to the core CPI and for the total CPI excluding fresh food. Food & beverage prices accelerate, housing costs accelerate, miscellaneous prices accelerate, reading & recreation prices accelerate, and transportation & communication prices also accelerate over six months compared to 12 months. Among the eight components of the CPI, five of them accelerate and three of them decelerate.

Three-month trends show a weakening of inflation compared to six-months for the headline CPI and for the headline excluding fresh foods. The core rate continues to accelerate. Among the eight detailed categories, prices accelerate in half and they decelerate in the other half. Prices accelerate for clothing & personal items, for education, for medical care, and for reading & recreation.

If we calculate acceleration in a truncated fashion, by skipping the six-month to one-year change and just comparing the three-month annualized change to the 12-month change, then Japan's inflation rate accelerates in the headline categories as well as in all 8 detailed product categories. I supposed we can conclude that inflation is lurking in Japan and rising with some degree of subtlety.

We see the strength in prices in the quarter-to-date developments. The current data are for July, so that's the first month of the third quarter. These calculations compute the annualized inflation rate by taking the July gain over the previous quarter's average and compounding that gain from the center of the quarter. On that basis, headline inflation runs at 3.2% early in Q3. The CPI excluding fresh foods runs at a 4.2% pace. The core rate rises at a 2.2% rate which is actually a pace slightly below its three-month pace. The quarter-to-date calculation across the eight detailed components of the CPI show price gains that generally are slightly weaker than the gains calculated over three months.
by:Robert Brusca
|in:Economy in Brief