Introducing

Robert Brusca

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

Publications by Robert Brusca

Global| Jun 03 2022
Composite PMIs Tend to Weaken in May
Composite PMI data from S&P Global show broad weakening in May with 10 jurisdictions in the table showing weaker results month-to-month compared to 8 showing improvement. The U.S. and China showed the largest service sector pull backs on an ongoing basis. China does not yet post a composite value, but its composite PMI has been currently caught up in China's zero COVID policy and the ongoing rolling lockouts that have permeated its economy have weighed heavily on economic performance in recent months.

In May, the 18 jurisdictions in the table show an unweighted average of 54.3, down from 54.8 in April but stronger than 53.5 in March. The median, however, fell to 54.2 in May, below April's median of 55.8 and below the March median of 54.6.

The number of jurisdictions reporting composite PMIs below 50 are few and far between for all these periods. In May only three jurisdictions are below 50, in April there are two, and there are no more than two or three for any monthly or sequential interval in the table.

There are, however, more jurisdictions that are slowing. In May 10 jurisdictions show slowing; that's a broader slowdown than in April when four reported slowing, but slightly fewer than March when 12 jurisdictions reported slowing. The sequential comparisons show that five are slowing over three months, 10 are slowing over six months, but only four slow over 12 months compared to 12 months earlier. The data on slowing are mixed although May shows broad deterioration and the median data confirmed that the slowing is ongoing in recent months. The counterpoint is that average data are less supportive of that trend.

Sequential data also give a mixed reading on slowing if we look at the averages and means for their different periods the average PMI shows a slowing from 12-months to six-months and then just a technical upturn over three-months. The median shows a slowing from 12-months to six-months and then a revival over three-months that brings the median almost back to its 12-month value. That is very weak evidence of slowing – but there is no evidence of acceleration.

We can obtain an assessment of performance looking at the queue standings. These are calculations that place the current composite value in its Q of data back to January 2018 expressing the result as a percentile standing. On this basis, over this period the weakest performance is in Ghana, followed by Russia, the U.S., and then Nigeria. The U.S. composite has only a 32-percentile standing, meaning it has been weaker than this May value only about 1/3 of the time over this period. Countries that have top ten percentile standings on this timeline are: Singapore, Brazil, and India. The average queue standing for the period is 61.7%; the median standing is 67.9%. These are moderately firm readings for the average in the median.
by:Robert Brusca
|in:Economy in Brief
Europe| Jun 02 2022
EMU PPI Inflation Is Blistering Hot
Producer price inflation in the euro area in April rose by 1.9% month-to-month. Capital goods prices rose 1%, consumer goods prices rose 2.4%, month-to-month, while intermediate goods rose by 3.7%. Month-to-month manufacturing overall prices rose by 2.3%.

PPI inflation in the euro area has been exceptionally high. It reaches 37.2% year-over-year with a six-month annualized rate at 43.3% and a three-month annualized rate at 43.6%. These are tremendous gains and accelerations. If we compare inflation over the last 12 months to what it was one year ago over the previous 12-months, inflation accelerated to a 37.2% pace from 7.6% in April of one year ago.

And what’s more it has done that without the ECB batting an eyelash…

One year ago, inflation was mostly a factor in the intermediate goods sector where inflation rose by 7.1% year-over-year. Consumer goods inflation had risen by 1% over 12 months; capital goods inflation was at 1.5% over 12 months. These are the 12-month increases from April of one year ago and they've accelerated extravagantly since that time.

Across the euro area inflation remains high and various reporting countries (see Table for EMU and EU countries) show year-over-year inflation that ranges from a high of 62.4% in Ireland and in Denmark (Denmark being an EU member) to as low as 22.2% in Sweden (an EU member). Finland, an EMU member, also has a ‘relatively’ low rate for the Monetary Union at 24.9%.

Year-over-year inflation accelerates in all the countries in the table. Over six months, inflation accelerates in 92% of the countries in the table. Over three months, inflation accelerates in 77% of the countries in the table. Inflation has simply been accelerating and continues to do so even from exceptionally high existing levels of inflation.

During this period, the European Central Bank has been in denial and earlier this year Christine Lagarde, the head of the central bank, was saying that it was unlikely the policy would be reacting and raising rates this year. She has had to recant that statement and the ECB is now on a path to begin securities sales and rate hiking sometime between July and September of this year. With PPI inflation at 33% year-over-year in Germany and accelerating to a 46.7% pace over three months, the Germans are clearly apoplectic about inflation pressures. The ECB was supposed to be modeled after the Bundesbank and was given a charter that was supposed to give it similar insulation from political pressure, but it hasn't worked out that way – has it?
by:Robert Brusca
|in:Economy in Brief
Global| Jun 01 2022
Manufacturing PMIs Cluster in the 'Sweet Spot' But Are Losing Momentum
In May, most of the manufacturing PMI indicators in the table for a sample group of 15 countries showed some backing-off from April levels. Nine of the 15 entries in the table are weaker in May, the same number is in April and those totals compare to 11 weaker in March. The graph for select countries shows a gradual reduction in the S&P global manufacturing PMI indexes overtime for the United States, China, and the EMU.

Looking at the sequential metrics, the averages over 12 months, six months and three months reveal that over 12 months seven of the entries show worsening conditions while eight saw improving conditions. Comparing six-months to 12-months, there are four entries showing improving conditions with 11 showing worsening conditions. Comparing three-months to six-months, there's an overwhelming worsening with only three entries showing month-to-month improvement; those are for the U.S., Canada, and Brazil.

We can also look at PMI rankings for the full data period; two of them are suggested in the table, one is the high/low percentile ranking that positions the current observation between the highest and the lowest values in the sample (back to January 2018). While that metric can be useful, it is a metric that is derived from only three observations. I prefer the other measure, the queue rankings, which position the current observation in the full sample of data available expressing the result again as a percentile standing (Rank % or Queue %). Viewed in this way, only Vietnam has a top ten percentile standing with a 90.6 percentile metric in May while Turkey, China, Taiwan, and Germany have percentile metrics that rank below 50% putting them below their respective medians for the period. Still, Germany is close to its median. Turkey is somewhat farther below its median and Taiwan is weaker still, but China has the lowest relative reading in the table with a 5.7 percentile standing – a standing that has been lower since January 2018 less than 6% of the time.

The far-right hand column measures the total gain in the current manufacturing index compared to February 2020 before the virus struck. Only Turkey has yet to get back to that level although India and Taiwan have barely gotten back to those respective marks. Manufacturing sector recovery under COVID has been the most successful for China and Germany, followed by the U.S.
by:Robert Brusca
|in:Economy in Brief
Europe| May 31 2022
Sticker-Shock Inflation Hits Europe Hard
Inflation in the European Monetary Union (EMU) rose 0.8% in the preliminary reading. Inflation remains strong across the four largest European economies with inflation in Germany up by 1.1% in May, with Italy at 1.2%, with France and Spain both showing 0.7% increases month-to-month in their headline inflation rates. However, Germany reports an ex-energy rate which was up by 'only' 0.6% in May; Italy's core reading is up by 0.8% month-to-month.

Over three months, EMU inflation is at an 11% annual rate, with German inflation at a 15% annual rate, French and Spanish inflation at a 9% annual rate, and Italy's rate at a pace of about 6%. These are still high rates and showing acceleration over three months. Italy and Spain are exceptions to inflation accelerating over three-months compared to six-months.

Inflation does accelerate steadily from 12-months to six-months to three-months in the EMU, Germany, and France. For Italy and Spain, inflation accelerates from 12-months to six-months and then tails off over three-months.

The increase in inflation is striking. The month-to-month rates picked up in May across the board with the lone exception being German inflation excluding energy. The year-over-year inflation rate in May compared to April accelerates for every comparison in the table except for Brent oil prices.

One striking feature is the substantial acceleration for inflation over the last 12-months compared to what it was over 12-months one-year ago. In May 2022, the year-over-year inflation rate is 8.1%; one-year ago the year-over-year inflation rate was 1.9%. That is a massive acceleration. The acceleration compared to a year ago is striking for every single comparison except for Brent oil in euros; for that measure inflation 12-months ago was up 118.5% over 12-months compared to being up 80% over 12-months in May 2022. Both are still quite sizeable increases.

But now China is showing some signs of revival, and oil prices have started to get a lift from that. The ongoing war between Russia and Ukraine raises pricing risks, creates availability problems, and particularly will be hitting food prices very hard. Because of this environment, it makes the outlook for inflation still very difficult. Despite the clear overheated headlines and lesser gains for inflation excluding energy, the outlook for inflation remains uncertain. Everyone 'expects' inflation will be reduced…but how low and how fast?

Central banks are obsessing about the difference between headline and core inflation for policy purposes. In Germany, for example, headline year-on-year inflation is 8.8%, but ex-energy inflation is only 4.6%. For Italy, headline inflation is 7.4% while core inflation is 3.5%. The excluding energy or core inflation rates are still uncomfortably high, but they don't carry the sticker shock that headline inflation has.
by:Robert Brusca
|in:Economy in Brief
Italy| May 26 2022
Italian Confidence Makes Small Bounce in May; Is It a Signal or Is It Noise?
Italian business and consumer confidence indexes both are substantially lower in May than in February before the Russia invasion of Ukraine occurred. Both business and consumer confidence eroded in March and in April; business confidence eroded further in May but consumer confidence in Italy has rebounded in May. This is a different pattern from what we've seen in Germany where confidence fell very sharply in May after more gradual erosion. The confidence figures for Italy also have much higher standings than those for Germany, indicating that Italy is showing less anxiety over the ongoing conflict and may be impacted less by adverse economic forces.

Confidence and survey metric standings The percentile standing for consumer confidence in May is at its 51.1 percentile. For business confidence, it is at the 79.7 percentile, a much higher and even firm standing. Consumer confidence is barely above its median reading; the median occurs, of course, at a ranking of the 50th percentile. And while consumer confidence is above its median in Italy, it is below its mean.

The components for confidence show us conflicted patterns. The percentile standing for the overall situation over the last 12 months is placed at 51.1%. However, over the next 12 months, the overall situation has a ranking at the 18th percentile, a much lower the expectation. For unemployment over the next 12 months, there is a 71.8 percentile standing, an extremely high reading. Household budgets for the period ahead are assessed in the 73rd percentile, a firm standing for that variable.

We see the same dichotomy in our assessment of the household financial situation with the last 12 months assessed barely above the median value at a 50.5% while the standing for the next 12 months at a 5.6 percentile standing. The future clearly is a matter of concern for in households. However, the assessments for savings in the current and future periods are roughly the same with rankings in the mid to upper 80th percentile for both. The current environment for making a major purchase has a 59% outstanding, slightly firmer than the assessment of the overall situation or for confidence overall - but that is still a relatively modest reading.

Changes since February The changes in the readings versus their levels in February show deterioration in almost all cases. The prospect for unemployment, for example, is up by 9 points; the overall situation of the past 12 months is 24 points worse while the overall situation over the next 12 months is assessed as 31 points worse. The household financial situation over the previous 12 months is 3 points worse while the assessment for the next 12 months is 17 points worse. Household savings is the lone exception to the worsening trend with the current reading 2 points better, but the future reading follows a familiar pattern and is three points worse. The environment for making major purchases in May is 12 points worse than it was back in February.

Tying things together The standing rankings in some cases are still relatively firm; yet, the outlook for unemployment is dismal and then the reduction in readings between February and May is striking and consistent. The pick-up in the readings between April and May is a curiosity and will have to be watched to see if there's any reason for it or whether it's a part of normal volatility. However, an increase of 2.7 points in consumer confidence month-to-month is a significant improvement and should have some rationale behind it.
by:Robert Brusca
|in:Economy in Brief
Germany| May 25 2022
German Climate Reading Continues to Skid Toward the Abyss
Germany's GfK consumer climate reading improved ever so slightly in June to -26 from -26.6 in May. This look-ahead view of climate for June improves but is nonetheless still extremely weak. The May reading is lower than the June reading, but the June reading has been weaker historically only 0.4% of the time less than 1/2 of 1% of the time (that translates into once before, namely in May 2022). Consumer climate in Germany is literally scraping the bottom of the barrel in 2022.

Climate in Germany continues to be extremely weak. Climate had peaked about one year ago; however, much of the deterioration is quite recent. In February, for example, the climate reading was only -6.7 and only slipped to -8.5 in March, then, in April, it stumbled badly to -15.7 and then May registered minus 26.6. Since the Russian invasion of Ukraine, the deterioration in climate has been greatly expedited.

The component readings for climate in the GfK consumer confidence framework lag by one-month so we have our most current readings as of May. In May the economic expectation reading improved from -16.4 to -9.3, the income expectation reading improved from -31.3 to -23.7, but the propensity to buy deteriorated slightly from -10.6 to -11.1.

Regardless of the month-to-month changes in the underlying components, the components all rank at weak levels in their respective historic queues of data. The economic index has been lower than it's May value 21.6% of the time, the income reading has been lower 0.8% of the time, and the propensity to buy has been lower only 22.4% of the time. These are uniformly week readings all of them below their respective medians (remember medians for ranked data occur at the 50th percentile). These readings are well below their medians and all of them in at least the lower quartile of their respective ranges.

We include consumer readings for Italy, France, and the United Kingdom on concepts of consumer or household confidence as well. These readings also show their recent cyclical peaks to have occurred roughly one year ago; they all show some degree of deterioration since February coinciding with the invasion of Ukraine by Russia.

All of these consumer confidence metrics show weakness setting in from a relative peak of just about one year ago. However, all of them also show confidence getting much weaker after February 2022 in the wake of the invasion of Ukraine. Confidence in Italy has a 48.6% standing, confidence in France has a 17-percentile standing, and confidence in the U.K. has a 1.6 percentile standing. However, don't take these differences in standing as too literal because the Italian data lag the French and U.K. data by one month and the French and U.K. data lag the German data by one month. As we see with the German data, there is a substantial deterioration that occurred in May compared to April and then remained in place in June compared to May. The higher reading, we see in Italy is probably just because the Italian data are not as up-to-date and aren't getting a more current reading on the mood of the Italian household.

What seems clearest from these data is that consumer attitudes have been greatly affected and substantially affected by the invasion in Ukraine and that the current mood of consumers is not going to be conducive to better growth ahead and potentially leaves the economies even more vulnerable to what is expected to be a new round of tightening by central banks. Inflation is clearly out of control, Whether central banks are able to raise rates fast enough to cut off and reduce inflation but slow enough and not high enough to precipitate recession is the great unanswered question of the day. But this is something all investors are watching. The apparent vulnerability of consumers makes this objective an unlikely success for central banks.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| May 20 2022
U.K. Consumer Sentiment Hits Lowest Reading since 1996 (When the GfK Survey Began; Also Lowest Reading 'Ever')
Consumer sentiment in the United Kingdom fell in May of 2022 dropping to its lowest reading since 1996 when the GfK survey began. GfK consumer sentiment in May fell to a level of -40 from -38 in April. The reading had been at -31 in March it has fallen steadily over the past six months. The GfK metric average is -19 over 12-months. -28 over 6-months and -36 over 3-months. Sentiment in the U.K. has been steadily falling.

What is most disturbing about the U.K. sentiment figures is that this is a new low, meaning that it is even below the low levels reached when COVID struck and also below the low levels for sentiment during the period of Brexit uncertainty. These are two recent major events quite apart from the recessions run since 1996 that occurred over this span, and, in May, with a lot of uncertainty and global issues in the mix, the U.K. now shows the lowest sentiment reading on record. This is a rating that's competing with some pretty stiff company historically for 'worst ever,' making the new low against this competition is a disturbing phenomenon.

Including the headline there are 13 readings in the table for sentiment. Of these 13 readings eight of them declined on the month in May three of them improved and two of them were unchanged. This compares to April when ten fell and three rose and to March when eight of them fell and five rose. The clear tilt has been for more of the components to show weakness than strength each month. The headline has declined for six months in a row. So sentimentally U.K. has seen a very steady ongoing erosion. OF course some of the reading that rise recollect bad news such as for inflation, expected inflation and expected unemployment. Over the last six months of these 3 categories (inflation expected inflation and expected unemployment) there are 18 observations of which 13 have gotten worse month to month.

Turning to the standings most of the readings are weak. The exception, of course, is the ranking for CPI inflation over the last 12 months which is in its 99th percentile as well as expectations for the CPI over the next 12 months which is also in its 99th percentile. Another exception that is unfortunate is the 74.7 percentile standing for unemployment expected over the next 12 months. That's a relatively high standing. We can take it as an 'approximation' of people's fear of recession. After that, the next highest reading is the current reading for savings which has a 54.6 percentile standing, just above its historic median.

The remaining indicators show extreme weakness. I refer you to the table to see the specific numbers but the percentile standings for the range of observations not yet discussed consist of a range from a high at the 22nd percentile to a low at the 0.3 percentile. All of these are undeniably weak and clearly and substantially below the median reading that occurs at a ranking of 50th percentile for each category. The household financial situation is weak the environment for making major purchases also is weak and that environment has worsened in each of the last three months, and it's part of a string of weakening that extends back for the last six months.

Looking at the last 12-months the environment for making a major purchase and the general economic situation for 12-months ahead have both worsened for five months in a row. The household financial situation ticked up slightly in May after three consecutive months of falling significantly in each of those months

Looking ahead to other metrics for the next 12 months, prospects for unemployment have been rising or unchanged for six months in a row, a chilling development.

Confidence expressed by general income classes the 'lower' and the 'upper' income classes show little difference with both of them giving extremely low rankings. Upper income class sentiment has fallen in four of the last five months and lower income class sentiment has fallen in four the last six months.

The GfK barometer is worrisome. It's worrisome because it competes with some bad events and still gives us a weaker reading than any of those historic events. It comes with the Bank of England fighting a very difficult inflation fight along with other global central banks. It comes at a time when there is a war being waged by Russia on Ukraine that is straining the global economy. It's a war that Russia is using to degrade global feedstock and to spread hunger and panic globally because countries will not roll over and accept its desire to dominate and control Ukraine.

This may not be a situation that qualifies as a 'World War'. But this is a situation in which there are two countries at war and one of them is acting to put the entire world in a disadvantaged state by helping to drive up oil prices, other commodity prices, and by purposely depriving non-combatant countries access to needed food stocks. The impact on low income developing countries is going to be severe. There will be hunger. Some will die of hunger. All of this comes because Russia refuses to abide by the Budapest memorandum which had signed, pledging to defend Ukraine's borders. And further because of its refusal to abide by Post War conventions that outlawed cross border incursions to seize territory. It is still not clear how China, a country that lays strong territorial claims to Taiwan, is absorbing the news of how the world has come together to defend Ukraine. However, the impact of these global events on U.K. consumer sentiment is nothing short of disastrous.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| May 18 2022
UK Inflation Jumps
The Office of National Statistics (ONS) in the UK reports that inflation accelerated to 9% in April from 7% in March. This puts inflation at the highest rate since the series began in January of 1989 and the statistical authorities say that it would have last been last higher sometime around 1982- that puts UK inflation at a 40-year high.

In the table above we memorialize the CPIH rate which is currently at 6.3% year-over-year with a core reading of 5.2%. This gauge accelerates from 12-months to 6-months to 3-months both in terms of the headline and in terms of the core rate where the core is the CPIH excluding energy, food, alcohol, and tobacco.

The rise in inflation is creating plenty of blowback pressure on both the Bank of England which is being accused of moving too slowly and on the administration of Boris Johnson that has been under fire for several different reasons. Inflation, when it rises, becomes a political problem for just about everybody involved. Let the finger-pointing begin!

For its part, the Bank of England has expected inflation to accelerate; at its recent meeting it looked for inflation to rise to about 9% in April and it looks for some further increases in the coming months and for inflation to peak somewhere around 10% in the fourth quarter. What we see from the BOE apparently is the same tact taken in the US where the Fed seems to be raising interest rates steadily with intent to corral and eventually control inflation. But the plan does not seem to be to jump rates up to create a more traditional ‘positive real interest rate’ based on the current level of inflation. Central bankers are being more cognizant of the impact of rate hikes on growth- for better or for worse.

Inflation is a global phenomenon and there's not too much debate about that. Highly developed economies that are not suffering an inflation problem are unusual, Japan is the best example of it. Japan is a country that has had a challenging time getting inflation up to its inflation target for some time so it's not surprising that in an inflationary environment Japan would be the country that doesn't run much of an inflation rate. However, Japan now has the problem of a sinking exchange rate which should encourage more inflation and could change this calculus.

Inflation in the UK shows that inflation has accelerated in March compared to February with the diffusion reading of 54.5. This diffusion reading is constructed by taking all the accelerations of inflation across product categories month-to-month and half of the observations that are unchanged as a percentage of an 11-category framework that includes the 10 categories in the table plus the core as if it were a separate observation. This diffusion rating marks an increase from the 45.5 percent logged in February and compares to the 54.5 level logged in January. Inflation diffusion measures have been slightly pro-inflation (above 50%). Diffusion is the metric that compares the number of industries where inflation is accelerating to the number of industries where inflation is decelerating. However, the presence of inflation itself is clear with the headline of 1% in March compared to a monthly rise of 0.5% in February and 0.5% in January. The core rate is up 0.8% in March compared to 0.4% in February and 0.6% in January. Inflation diffusion may not be mushrooming but inflation itself is entrenched at an elevated level and showing an ongoing tendency to rise further, even is that tendency is slight in diffusion terms. A less discussed aspect of diffusion is that UK inflation is already very high and is not backing down in many categories after rising.

Inflation diffusion over broad time horizons shows that inflation had accelerated very broadly but has since reduced its breadth. Over 12-months for example inflation has risen in 90% of the categories compared to the inflation rate of 12 months ago. Over 6- months once again inflation is up in 91% of the categories compared to the increase in inflation over 12-months. But then over 3-months inflation is up in only 54.5% of the categories compared to its 6-month pace. However, as we showed at the very beginning all these inflation rates, the headline, and the core rates, accelerate from 12-months to 6-months to 3-months despite diminishing breadth.

The Bank of England is taking steps to head off inflation just as the Federal Reserve has been taking steps in the US while the European Central Bank is only making plans to head off inflation. Because the pandemic struck globally every country at about the same time there was a squashing of demand and then a ballooning of demand everywhere on the same timeline. The increase in demand has been particularly concentrated in the goods sector creating excess demands and shortages and interacting with supply chain problems that developed first in the wake of the pandemic and then, that have been exacerbated, by the war waged by Russia against Ukraine. Fiscal and monetary policy were used to try to soften the blow from the pandemic but in combination with the excess demand this has proved a potent brew to slake the thirst of inflation.

Central banks now have a daunting task to try to get the toothpaste back in the tube after an extended period of price stability- one in which inflation was not only low but for an extended period inflation was too low undershooting central banks targets. Historians eventually will decide whether central banks compensated too much for their past undershooting or whether they simply made errors in trying to offset the weakness in the pandemic and forgot to account for the stimulus from fiscal policy. Another potential aspect of policy error is simply that everybody in the world was on the same business cycle with exactly the same things going on and the stress of demand on supply was just simply too great.

In the meantime, however, central banks must make policy. The Bank of England is raising rates the Fed is raising rates the ECB is making plans. Countries are recovering from COVID and they're also just a little more than a decade distant from the Great Recession where a great deal of damage was done to economies. In the mid-1970s when inflation grew and mushroomed there was a national consensus that inflation had been too high for too long and there was a will to bear the cost to reduce inflation to a more sustainable level. Now, however, central bankers struggle with inflation and with the timeline for controlling it. They also face less political support and even political opposition. That makes the job of central banks much harder.

When inflation becomes a problem for the public it becomes a problem for politicians. However, absent inflation, politicians tend to prefer pro-growth policies and will pressure central banks to create an environment that will create more growth. However, when that strategy backfires and inflation goes up, politicians will be the first to wash their hands of responsibility and to blame the central banks and the fiscal authorities for their unreasonable and outrageous behavior. How could you, sir! Such is the state of the world in which we live the pressures and the realities that central banks now face and must deal with. These also are global realities.
by:Robert Brusca
|in:Economy in Brief
Europe| May 13 2022
EMU IP Drops Month-to-Month and Year-over-Year
Industrial output among EMU members fell by 1.8% month-to-month in March following a 0.5% increase in February and a 0.8% decline in January. The corresponding S&P Global manufacturing PMI index for these three months shows declines in March and February but an increase in January.

Looking across the countries in the table, there are 13 European Monetary Union members and three non-EMU members. We see output declines in nine countries as of March. This is a step up from 6 declines in February and it compares to 8 declines in January.

Sequential growth rates show that six of the countries in the table have decelerating output over three months, only two have decelerating output over six months and five have decelerating output over 12 months.

The consolidated figures by sector showed that overall European Monetary Union output declines by 0.9% over 12 months, increases at a 1.2% annual rate over six months but then declines sharply at an 8.1% annual rate over three months. Quarter-to-date, output is rising at a 3.7% annual rate- with today’s report the first quarter data are complete on a preliminary basis. Manufacturing output in the quarter-to-date is even stronger, rising at a 5% annual rate. Looking at sector trends, the consumer sector shows output up at a 13.3% annual rate, led by a 15.1% annual increase for consumer nondurables compared to a 4% annual rate of increase for consumer durables in the quarter-to-date. Intermediate goods output rises at a 1.4% pace while capital goods output is falling at a 0.5% pace.

The sequential growth rates for sectors show clear cut acceleration for consumer durable goods output. Consumer nondurable goods output looks healthy but fails to go over the bar to have consistent acceleration since there's a small step back over six months but the three-month growth rate at a 12.3% pace is well ahead of its 12-month growth rate of 2.8%. Intermediate goods output falls over 12 months by 0.2%, runs flat over six months, and then falls at a 5.9% annual rate over three months. Capital goods output, similarly, falls over 12 months by 2.9%, marks an increase at a 2.7% pace over six months, then falls very sharply at a 21.2% annual rate over three months. These data show relatively healthy increases in the consumer sector with uneven or weakening trends for intermediate goods and capital goods with some severe encroaching weakness for capital goods.

Capital goods not only show that output is lower in the quarter, when compared to the pre-COVID level, output is also lower- that is over two years ago. Capital goods output is down 5.7% from its level in January 2020. All the other industrial sectors show increases. This decline in capital goods is enough to knock manufacturing output down by 0.4% on the same timeline well overall industrial output falls by zero point 7% on the same timeline.

Going back to country details of the 13 reporting European Monetary Union countries, six of them have declining output in the quarter-to-date; however, none of the declines are among the four largest EMU economies Germany, France, Italy, or Spain.

Five EMU countries still have levels of output that are below their levels of January 2020 before the virus struck. These include Germany, France, Malta, Luxembourg, and Portugal. In addition, non-EMU member, the U.K., has output lower by 0.5% on this timeline and Norway has output lower by 0.8% on this timeline.
by:Robert Brusca
|in:Economy in Brief
France| May 09 2022
French Trade Deficit Deepens As Exports Slow
The French trade deficit slipped deeper into the red ink zone in March at €14.4 billion compared to €12.5 billion in February. The deficit has eroded gradually over the year with a 12-month average of €10.3 billion, a six-month average of €12.2 billion and a three-month average of €12.5 billion. These numbers compare to a trade deficit of €7.9 billion over the previous twelve months- a clear on-going deterioration as the chart documents.

French exports in March fell by 0.1% after falling by 3.6% in February; these compared to imports that rose by 3.4% in March after rising by 0.5% in February. Clearly trade flows are working in the past couple of months to make the deficit larger.

Sequential growth rates show more stability for exports than for imports. But that's little solace since the export growth rates are below the growth rates for imports even though the import growth rates are decaying somewhat.

Exports grow at a pace of 14.3% over three months, 15.7% over six months and 15.1% over 12 months. These are growth rates annualized over the various periods. They compare to imports where the three-month growth rate is 19.2% which is down from 39.7% over six months and lower than the 26.5% pace over 12 months. But clearly, over each of these horizons, imports are growing faster than exports and therefore each of the horizons shows pressure on the trade deficit to get larger.

Export details for France show that food, beverages & tobacco exports have been accelerating slightly from 12.6% over 12 months up to a 25.6% pace over three months. However, transportation equipment exports that fell by 0.1% over 12 months is falling at a 13.1% pace over three months. For other exports, the growth rate is hardly changed, sitting at 19.4% over 12 months and then logging a pace of 19.7% over three months.

For imports, food, beverages & tobacco imports rise by 15.4% over 12 months and by 12.2% over three months. Transportation equipment show imports falling by 0.4% over 12 months and then falling at a much more rapid 29.1% pace over three months. For other imports, the 12-month pace is 33.2%, nearly the same as the 30.7% pace over three months.
by:Robert Brusca
|in:Economy in Brief
Germany| May 06 2022
German IP Drops...and Leads Europe Lower?
German industrial production fell 3.9% in March. There were declines in all three manufacturing sectors: consumer goods output fell by 1.5%, capital goods fell by a large 6.6%, while intermediate goods output fell by 3.8%. Construction output bucked the trend, rising by 0.9% in March.

These declines followed February where two of three manufacturing sectors advanced and January where all three manufacturing sectors advanced. Construction output has increased in each of the last three months: January, February and March.

Sequential growth rates raise more questions than they determine reliable trends. Consumer goods output is an exception to this with output rising at a 5.2% pace over 12 months, accelerating to a 10.6% pace over six months, and accelerating further to a 19.9% annual rate over three months. Intermediate goods decline on each of these same horizons, but the declines are not clear decelerations. Intermediate good output has a 3.5% decline over 12 months; that's reduced to a 1.2% pace of contraction over six months and then there is a clear step-up in the pace of decline to an annualized 10.5% pace over three months. Similarly, capital goods output trends generally show deterioration and deteriorating patterns but have a break in the wrong direction over six months. Capital goods output falls by 8.2% over 12 months and then posts a small 0.5% rate of increase over six months and goes on to log a large 29% annual rate of decline over three months.

Each of the manufacturing sectors seems to have its own trend or trajectory underway; however, these do not combine for any sense of a clear picture for manufacturing overall. Construction on the other hand shows acceleration as output falls by 0.6% over 12 months, rises at a 10.7% pace over six months then accelerates to a 30.2% annual rate over three months. Still, we are not left with a clear picture of where German production is headed.

Other horizons In the quarter-to-date (now the completed first quarter), German output shows increases in all sectors except capital goods where there's a 5.4% annual rate of decline. Consumer goods output spurts at a 19.1% annual rate and intermediate goods output increases at a 2.7% annual rate; in construction output rises at 18.5% annual rate.

Looking at these sectors since January 2020 when the virus struck, total output, capital goods output, and intermediate good output are all lower than they were in January 2020. However, consumer goods output is 3.7% higher and the output of construction it's up by 1.8% on that two-year plus timeline.

Orders and sales In March manufacturing output fell by 4.6%, real manufacturing orders fell by 4.7%, and real sales in manufacturing fell by 5.9%. These weaknesses add to the weakness in industrial production overall and point to problems with orders and demand quite apart from output. Over three months real manufacturing orders are showing clear deceleration as they fall by 3% over 12 months, fall at a 7.5% rate over six months, and then accelerate that decline, falling 12.6% at an annual rate over three months. Real sector sales make a familiar detour to slightly stronger numbers over six months; otherwise they also trace a weakening pulse. Real sector sales for manufacturing fall by 6.2% over 12 months, rise at a 2.4% annual rate over six months and then decline at a sharp 23.7% annual rate over three months.

Germany, among European countries, has been very locked into the Russian economy not only for its energy but also for commerce and with the sanctions put in place and the war going on between Russia and Ukraine, it's not surprising that the German economy is doing poorly; its orders are falling quite sharply, and sales are weak or consistently pulling back.

Industrial indicators Industrial indicators from ZEW, the IFO manufacturing survey, IFO manufacturing expectations and from the EU Commission industrial indexes all show weaker conditions in March than in February across the board. Sequential readings typically show greater weakness over shorter periods; however, the EU Commission indexes are remarkable for their stability. There is little-change in the EU Commission indexes when we look at its average levels over three months, six months and 12 months; however, we know that in March there is in this one month a substantial deviation and drop from previous averages,

Other Europe Turning to the industrial situation in other Europe, we have three European Monetary Union (EMU) members in France, Spain, and Portugal reporting early and then we have EU member Sweden reporting as well. Among these countries in March, only France shows output declines. Spain, Portugal, and Sweden show increases in output. Looking at their sequential results, output in France is accelerating from 12 months to six months to three months. The same pattern holds for Spain. Portugal starts out with some acceleration but then conditions fall off over three months with output declining at a 0.8% annual rate. Sweden also starts off with accelerating trend; it fails to produce stronger growth over three months compared to six months although it does produce another positive growth number.
by:Robert Brusca
|in:Economy in Brief
Global| May 05 2022
Manufacturing PMIs Continue Extended Softening Streak
The S&P Global manufacturing PMIs continue to show slippage for worldwide manufacturing. The chart highlights three main areas: China, the United States, and the euro area. Each of these areas shows consistent slippage from early-2021 onward and for China a bit longer.

The two tables below show manufacturing PMI readings and summary data for 18 countries in April. Half of them show worsening in April and half of them show improvement. This is an improvement from March when 12 showed month-to-month weakening; it compares to February when seven showed month-to-month weakening. Those statistics mark this as a period of unevenness tending to weakness.

Over three months compared to six months, 12 members in Table 1 show weaker results. Over six months compared to 12 months, 11 members in this table show weaker results. However over 12 months compared to 12 months ago, only 5 show weaker conditions. These five are China, Brazil, Malaysia, Vietnam, and Turkey, a selection of developing economies.

There are 7 reporters and the table with manufacturing percentile standings (cast form data back to January 2018) that are below their medians; these are identified by any queue standings that reside below their 50% mark. Countries in this situation include Germany, China, Russia, Brazil, Taiwan, Vietnam, and Turkey. Countries with queue percentile standings high in their respective ranges are led by Malaysia with a 90.4 percentile standing, followed by the U.S. with an 86.5 percentile standing and Japan with 82.7 percentile standing.

Table 1 also evaluates manufacturing sectors for their strength since COVID hit. The final column of the table shows the change in manufacturing PMIs from January 2020. On this timeline, Germany and the euro area had the two strongest gains, followed by the U.S., the U.K., and Canada that also have relatively strong gains. However, there are still four countries in the table that show net declines on this timeline. China leads them, with a decline of 5 points, Turkey with a decline of 2.1 points and declines by manufacturing in India and Taiwan.

The 18 countries in the table show the queue percentile standings average 58.9 percentile which is a reasonably firm but not a particularly strong reading. If we position them on this timeline between their respective high and low values, they stand relatively higher in their range than in their queues with a 74.3 percentile standing on average.
by:Robert Brusca
|in:Economy in Brief