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| 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
Global| May 03 2022
Has the Worm Turned? Is the Worm Turning?
The European Monetary Union (EMU) reached a peak unemployment rate of 11.7% early in the 2013 period. Since that point, the unemployment rate has been declining steadily, consistently across the European Monetary Union in the wake of the global financial crisis. And then COVID struck early in 2020; with COVID in play, the unemployment rate jerked back up to a peak of 7.8%, but has since returned to its downward path, and in fact, is carving out new lows. The unemployment rate in the EMU fell in March to 6.8% from 6.9% in February. The ongoing decline is good news and if it weren't for the virus, we would be on an extended long glidepath to lower rates - of consistently declining unemployment rates across the euro area.

However, in March there are some indications that the worm is starting to turn. March brings with it an increase in the rate of unemployment in four of the earliest members of the European Monetary Union: Spain, Ireland, Greece, and Portugal. All report increases in their unemployment rate in March. In Spain, the unemployment rate ticks up by one tenth of one percentage point to 13.5% from 13.4%. In Greece, it ticks up by one tenth of one percentage point to 12.9% from 12.8%. In Portugal, it ticks up by one tenth of one percentage point to 5.7% from 5.6%. But in Ireland, the unemployment rate rises to 5.5% from 5.2%. These are mostly small increases in the unemployment rate, perhaps no more than technical adjustments. However, Spain, Ireland, and Greece also post increases in their unemployment rates over the last three months. Ireland logs an increase in its unemployment rate over six months as well.

For the euro area as a whole, unemployment rates are continuing to fall, and these four countries are anomalies of sorts - but there are four of them - and these are among four of the weaker economies that are more likely to show economic distress sooner if conditions are changing. Consider them as the canaries in the coal mine…

Global conditions continue to be under a great deal of strain. The COVID virus is still circulating and creating issues that are being handled differently in different countries. Infections have spread, but that hasn't always increased hospitalizations or increased hospitalizations in a way that is alarming. There are ongoing dislocations stemming from when the COVID crisis is more severe, through its impact on supply chains. These are still being repaired. And even as these are being repaired, the supply chains are still being challenged anew by war in the Ukraine and by the economic sanctions that have been imposed on Russia. Russia seems determined to escalate the conflict and to intensify the combat if it can find the right cover to do so. The sense of risk is palpable.

Russia has started to cut off gas supplies to some of its customers in Europe; so far Bulgaria and Poland are on that list. Hungary, a country that tends to foster closer relations with Russia, has agreed to make its energy payments in rubles and has met with favor from Russia. It does not face the threat of having its energy cut off. However, even Germany is now making plans to decouple itself from the great intravenous pipeline flowing from Germany bringing the life blood of energy to its economy.

The European Monetary Union has seen the overall unemployment rate fall by 1.4 percentage points over the last 12 months; the number of unemployed in the monetary union has fallen by 14.6% and fallen by about the same amount (by 15%) in the larger group, the EU.

Unemployment over the last year has fallen the most sharply in Greece by 3.9 percentage points, in Austria by 2.4 percentage points and in Ireland by 2.2 percentage points. Unemployment has fallen by less than one percentage point in Portugal and France, and by one percentage point in Germany. The unemployment rate over the last 12 months is higher by one percentage point in the Netherlands.
by:Robert Brusca
|in:Economy in Brief
China| May 02 2022
China's PMIs Weaken Sharply
China continues to post weak and weakening PMI numbers in April. The manufacturing index fell to 47.4 in April from 49.5 in March. This marks the second month in a row that the manufacturing index is below 50, indicating that manufacturing activity is contracting in China. China's nonmanufacturing index fell extremely sharply to 41.9 from March's 48.4. This is also the second month in a row that nonmanufacturing (an amalgamation that includes the services and construction sectors) shows a decline in activity for that joint sector.

The drop in manufacturing in April was relatively sharp. Over the last 15 years, there are only ten months in which the manufacturing index fell more sharply in one month than it did in April. Nonmanufacturing fell by 6.5 points in April, marking it as the second largest decline in the history of this index going back to 2007. The largest nonmanufacturing decline came when COVID struck in 2020; in February of that years the manufacturing sector fell in one month by 24.5 points...of course, it also rebounded by 22.7 points the very next month.

These statistics tell us that the ongoing assessment of these two sectors in China is weak and that the near-term weakness has become more intense. China continues to suffer some great difficulties on the economic front because of its decision to continue to pursue a zero COVID policy. The zero COVID policy refers to a policy goal in China to eliminate COVID. China has no tolerance for any infection whatsoever.

While the rest of the world is learning to live with COVID and with infections, to manage hospitalizations and illnesses, as well as to develop treatments, China's policy of complete intolerance and of shutting the economy down and literally fencing people into the places that they live so that they cannot mingle with other uninfected people is having dramatic impact on the economy and creating extreme distress among people in China.

Despite the extreme unpopularity of this program, China shows no signs whatsoever or backing off it and - quite the contrary – its leaders seem to be even more committed to the goal as time passes. China is pursuing this strange strategy of lockdowns and isolations and it is employing so much testing that it has stopped administering inoculations of the vaccine.

The new strains of COVID have proved to be far more transmissive than the earlier strains of COVID but not as dangerous and certainly not as lethal as the earlier strains. This explains why the rest of the world has found that it can make some sort of peace with the virus by controlling it and dealing with outbreaks when they occur.

An added problem here is that this is the well-known coronavirus. Science knows it is a class of virus prone to developing variants. As a result of this tendency to develop changes, it has been very difficult to develop truly effective vaccines against COVID. However western medicine has discovered vaccines and treatments that were developed for the earlier strains of COVID that generally have some usefulness in combating some of the later strains that have developed even though the vaccine may become less effective overtime. The vaccines are not very 'vaccine-like' as they only can stop infection for a brief period of time immediately after inoculation. That protection wears off quickly and then, people who are double vaccinated and boosted, can still get infected- but they have less risk of extreme illness or death.

China's approach to COVID has left it with a manufacturing PMI that shows a steady slide; its 12-month average slips to a lower six-month average and to a lower three-month average with a particularly sharp plunge in April. The nonmanufacturing index also shows the same sequential set of declines that are even clearer and more substantial with an even larger plunge in April.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 29 2022
EMU GDP Continues Strong Year-on-Year Pace
European Monetary Union (EMU) GDP growth logged a 0.8% gain in the first quarter of 2022 after rising by 1.2% in the fourth quarter of 2021. Both are annualized quarterly rates of expansion. The year-over-year growth rate in the first quarter of 2022 sits at 5%. This growth rate is substantially because of the extremely strong growth rates of over 9% logged in the third quarter of 2021 and the second quarter of 2021.

Beginning with Q2 2022 data, these very strong growth rates are going to begin to fall out of the year-over-year calculation and, at that point, we will start looking at annualized European growth rates that are going to be a little bit more like the annualized quarterly rates that we see in the table below. For the last two quarters, for example, we are seeing GDP average something more like 1% at an annual rate. However, having two quarters out of four with quarterly growth rates over 9% right now pushes the annual rise in GDP up very strongly.

The annual growth rate for the EMU shows 5% growth in the first quarter of 2022, up from 4.7% in the fourth quarter of 2021 and from 4.1% in the third quarter of 2021. That compares to a second quarter year-over-year growth rate at a 14.6% in the second quarter of 2021.

Obviously, what we're seeing now is the transition away from those COVID-affected growth rates. Comparisons with the weak readings of GDP during the period of COVID are falling by the boards; however, the strong rates posted in the expansion after the COVID recession are still embedded in the year-over-year calculations. They are still affecting substantially the year-over-year growth rates; meanwhile, the last two quarters are showing us European growth that is coalescing at a 1% annual rate

Yet, even with these lower growth rates of GDP, inflation in Europe continues to flare strongly. The European Central Bank still has a job to do. And based on the way GDP is evolving, it doesn't look like the excessive growth rate in GDP is to be blamed for the inflation pressures that have developed in Europe and have lingered. Supply chain problems, war, food scarcity and other industrial dislocations appear to be at work.

Among the early six reporting European Monetary Union members, only Portugal is really knocking down eyepopping growth rates. Portugal had first quarter 2022 GDP growth at a 10.8% annualized rate, up from a 7% pace in the fourth quarter and that compares to an 11.2% pace and the third quarter of 2021. However, two EMU members, France and Italy, log GDP declines in the first quarter with France's quarterly GDP declining at a 0.2% annualized rate and Italy's GDP declining at a 0.7% annualized rate.

The four largest EMU members (Germany, France, Italy, and Spain) grew at a pace of 0.3% annualized in the first quarter of 2022 and that compares to a 2.1% annual rate in the fourth quarter of 2021. For the rest of EMU, growth in the first quarter came in at 2.1% pace compared with a decline at a 1.4% annual rate in the fourth quarter of 2021. Both the four largest economies and the rest of the EMU had extremely strong rates of growth and the third quarter of 2021.

Year-over-year growth rates for the countries in the table are still quite strong. For the most part, they were in the 90th percentile or higher in their queue of annual growth rates back to late-1997. The exception is Germany whose growth rate is only at the 85.9 percentile; that's a minor exception although it is the European Monetary Union's largest economy.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Apr 25 2022
U.K. CBI Orders Index Moves Sharply Lower
The Confederation of British Industry (CBI) index for industry in April 2022 shows total orders in the U.K. industry falling back to a reading of 14 from 26 in March. It's a significant step back. It's also a step back that leaves the index in April much weaker than it has been for much of the year. The 12-month average for orders is a reading of 20; the six-month average has a reading of 22; and the three-month average has a reading of 20. So, the April reading is a reading that is significantly weaker than what industry has been showing over the last 12 months in general. However. April is not a weak reading. When April is ranked among all readings back to 1991, that CBI reading emerges as stronger only about 4% of the time. Despite the setback in April, the CBI reading for orders continues to show a strong advance.

Export orders in April show more weakness. There is a relatively sharp one-month step-back and a reading that is historically much less robust than the reading for total orders. In April export orders fell to a reading of -9 from a reading of plus 7 in March. March was a relative high point, however. Export orders average a reading of -6 over 12 months, -3 over six months as well as -3 over three months. The reading of -9 in April ranked on data back to 1991 stands in its 67th percentile, marking April as a top 33% reading which is not bad but certainly not as strong as the reading for total orders.

Stocks of finished goods are showing some improvement in April at a - 3 reading compared to -8 in March. The -3 reading compares favorably to the -12 average over 12 months. the -14 average over six months and the -8 average over three months. However, as a standing in the queue of data from 1991, April is still a bottom 4% reading for stocks of finished goods. Judging from this, it would appear that businesses continue to have problems getting output to respond to needs and are unable to build stocks back to normal levels.

Looking ahead, the CBI survey assesses expected output volume over the next three months to be weaker than had been expected in March. The reading for April falls sharply to 17 from 30 in the March reading; March is in line with February that had a reading of 31. Over three months and six months, expectation for output volume had an average of 26; those readings slipped from 29 over 12 months. The reading of plus 17 for April is weaker by the standards of the last 12 months. Although it's weak relative to those standards, it's still a moderately firm reading overall. Ranking the April level in the queue of data since 1991, the standing for April is in its 72nd percentile, which is a firm reading just outside of the top 25% of observations over that same period.

Average prices continue the show a great deal of pressure. The average price is expected over the next three months show some let up in price pressures with that index falling to 71 in April from 80 in March; that is also weaker relative to its level of 77 in February. Over 12 months the average for this reading has been 58; over six months the average has been 71; and over three months the average rose to 76. The current reading of 71 in April is at the six-month average and stronger than the 12-month average yet only slightly below the three-month average. However, when compared to the queue of data since 1991, the April reading has a top one-percentage point reading for expected prices. Inflation is high and it looks like it's expected to remain high over the period ahead.

Data on industrial production are not as topical as the CBI survey and are only up to date through February. In February, manufacturing production fell by 0.3% month-to-month. Over three months manufacturing production was up at a 5% pace, which was a step up from the 3.5% pace over six months; that compares which was like the 3.6% pace struck over 12 months. The year-over-year growth rate for industrial production has a 75-percentile standing among all year-over-year growth rates back to 1991; that's a firm standing for production.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 22 2022
Flash PMIs for April Are Mixed
The S&P Global flash PMIs for EMU in April advanced to 55.8 from a finalized 54.9 in March. The manufacturing reading slipped lower to 55.3 on a flash basis compared to its finalized March value of 56.5. The flash services reading rises to 57.7 in April compared to a finalized 55.6 in March. The service sector improves on the month while manufacturing steps back. Due to the weight of services, the overall composite index improves.

These readings are for April and by now they represent about two months of time that has passed since the Russia-Ukraine war broke out. The impact on the PMIs over this period is mixed. EMU manufacturing flash is at 55.3 in April compared to 58.2 in February; the services flash at 57.7 in April compares to 55.5 in February. Manufacturing is weaker and services is stronger in line with their respective month-to-month change as well. Of course, two months is not much time to pass, and the sanctions were not imposed exactly from the outset of the conflict and so we should be wary that there may be more repercussions to come in the months ahead.

In the discussion that follows, it will be understood that any reference to April data refers to a flash estimate and any estimate to historic data refers to finalized estimates.

For Germany, the results are slightly different. The composite is weaker month-to-month along with manufacturing while services are stronger month-to-month. Comparing April to February for Germany, the composite is lower, manufacturing is lower, but services are stronger.

For France, the composite is stronger month-to-month along with both manufacturing and services. Compared to their February values, manufacturing is weaker, but services are stronger and the composite is stronger overall.

For the U.K., month-to-month the composite and services are weaker while manufacturing is stronger. Compared to February, both sectors as well as the composite are weaker in the U.K.

In Japan, the composite is slightly stronger, and services are slightly stronger ticking up to a diffusion value of 50.5 showing expansion which is a reversal from earlier months. Manufacturing, however, is weaker month-to-month in Japan. Compared to February, all the Japanese readings are stronger in April.

The U.S. shows mixed performance with the composite weaker month-to-month, manufacturing stronger and services showing significant weakness compared to March. Comparing the April values to February, the U.S. composite is weaker and services are weaker, but the manufacturing sector is stronger.

The S&P Global PMIs show mixed patterns for broader changes as well. Over three months, all the EMU readings are weaker; the same is true for the U.S. However, for Germany, the composite, the manufacturing and the service sectors all are stronger over three months; France, the U.K., and Japan show mixed conditions. Over six months, the European Monetary Union shows the composite, the manufacturing sector, and the service sector are weaker. Germany, the U.S. and the U.K. show that same result. In contrast, Japan shows three stronger readings. France shows weakness except for services that are stronger over six months.

Over 12 months, all sectors and all these reporting units have stronger readings.

The queue (or rank) standings show some significant differences across countries and areas. The European Monetary Union has a composite ranking in its 80th percentile, France is at its 94th percentile; the U.K. is at its 82nd percentile. However, Germany has only a 64-percentile ranking. The U.S. is only at its 56th percentile with Japan in its 66th percentile standing. For France, the composite index is very strong; for the U.K. and EMU there's significant strength; however, elsewhere, composite indexes show only moderate firmness.

Manufacturing is in its 80th percentile or better in the U.S., Japan, and France. The standing is in the 60th percentile for the European Monetary Union and for the U.K. For Germany, the standing for manufacturing is only in its 47th percentile, below its historic median for this period.

However, it is the service sectors that show the most disparity. In the European Monetary Union, the services sector has a 92-percentile standing; the same standing holds for Germany. For France, the standing is even higher at the 98th percentile, marking an all time high for this period. In the U.K., the service sector has an 84-percentile standing, but in Japan, the service sector only has a 52-percentile standing. In U.S., the service sector has an anemic 45-percentile standing, below its historic median.
by:Robert Brusca
|in:Economy in Brief
Germany| Apr 21 2022
German Orders Sink After Strong Run
Total German industrial orders fell by 2.2% in February after gaining 2.3% month-to-month in January and 2.4% in December. This decline ends a strong run for orders in Germany. February, of course, is the month in which the invasion of Ukraine began - it was in late-February - so we are likely still looking ahead to the impact of that invasion on German orders. As things stand, over 12 months German orders are rising 2.9%, over six months the annual rate bumps up to 4.8%, and over three months the annual rate of expansion is at 10.2%. German orders are still on an accelerating trend, but it looks like that's about to be cut short by war.

Foreign orders German foreign orders have been a little bit more irregular month-to-month; they fell by 3.3% in February after rising 9.5% in January and falling by 3% in December. Foreign orders are up by 4.1% over 12 months, they rise at an 8.6% annual rate over six months and accelerate to an 11.2% pace over three months.

Domestic orders German domestic orders fall by 0.2% in February after falling by 7.2% in January and rising by 10.5% in December. Domestic orders rise by 1.3% over 12 months, they fall at a 0.6% rate over six months and then they rebound to rise at a 9.4% annual rate over three months. German domestic orders are weaker overall than foreign orders and their path is one that is more erratic.

Quarter-to-date In quarter to date basis, which is two months into the current quarter, total orders are rising at a 19.8% annual rate. Foreign orders are rising at a 41.5% annual rate while domestic orders are falling at a 6% annual rate.

Real manufacturing and mining sales patterns Real sales by sector are more erratic than orders have been. Real sales from mining and manufacturing fell 1.4% in February after rising 1.5% in January and gaining 0.8% in December. Sequentially, mining and manufacturing sector sales are rising, but apart from showing growth there is no acceleration. Over 12 months sales gain 4.2%, that accelerates sharply to 17.2% over six months then backs down to a 3.6% annual rate over three months. Manufacturing sales by themselves show the same pattern.

Real manufacturing sales by sector While sales by sector are also erratic, they show growth. Consumer goods sales rise 5.8% over 12 months, slip back to 4.8% at an annual rate over six months and then jump to an 8.5% annual rate over three months. The strength in sales comes from consumer durables that rise by 7% over 12 months, increase their pace to 12.6% over six months and then accelerate further to 22.7% annual rate over three months. In contrast, consumer nondurable goods sales are more erratic, rising by 5.5% over 12 months, slowing into a 3.2% annual rate over six months and then rising at a 6.1% annual rate over three months. Capital goods rise by 1.4% over 12 months, accelerate to a sharp 28.3% annual rate over six months and then decline at a 5.2% annual rate over three months. Intermediate goods show a 3.7% growth rate over 12 months, rising to a 6.9% pace over six months following back to a 3.9% pace over three months. Real sector sales are much more sluggish than orders. Orders usually lead, but this gap could also reflect supply chain problems.

Quarter-to-date by sector Quarter-to-date growth rates by sector show a 12.9% annual rate for manufacturing with overall consumer goods at a 5.4% annual rate, led by a 17.2% annual rate for consumer durables and held back by a 3.5% annual rate for consumer nondurables. Capital goods sales are rising at a 17.2% annual rate; intermediate goods gain at just a 0.9% annual rate.

Big Four EMU economies and their EU metrics The industrial readings according to the EU industrial confidence index show different patterns for the largest economies in the European Monetary Union. For Germany, the net readings are strong, but they decay from December to January to February; they also show sequential monthly decay in Italy. France shows an erratic monthly pattern while Spain shows monthly acceleration. The queue standings for each of these countries that place the current reading in a ranked queue of data since 1990 show all of them to be strong, in their 90th percentile or higher for this period. Spain has the highest relative standing at 99.7%, followed by Germany at 98.7%, France at 94.7%, and Italy at 92.8%. According to the EU data, the industrial sectors are strong in all these countries – this is ahead of the outbreak of war...

Compare to the pre-Covid situation Looking at changes back to January 2020 before the Covid struck, we see the largest gain and the German industrial sector where its EU index is up by 36.5 points; for France, Italy and Spain, the indexes are up by 12 to 14 points for the period. On the same timeline, German orders are up by 7% with foreign orders up 7.1% and domestic orders up by 6.9%; these metrics reveal a tightly clustered sense of rebound. However, sector sales are very different matter. For Germany, mining and manufacturing sales are down by 1.3% on this timeline while manufacturing alone has sales down by 1.2%. Consumer goods sales are down by 0.4% although durable consumer goods sales are up by 6.1% and consumer nondurables sales are down by 1.5%. Capital goods sales are down by 5.8% while intermediate goods post an increase of 2.9%. Order-versus-sales metrics look very different.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 20 2022
Japan's Trade Deficit Remains But Shrinks Slightly
Japan's trade deficit remained in force in March. While it improved slightly month-to-month, it continued to hover near its largest recent deficit reading. Japan now has a string of 12 consecutive monthly deficits on its trade account. These deficits are back in force after a previous string of 22 monthly deficits over 25 consecutive months in 2018-2020. Japan, once the most dominant exporter globally with seemingly structural trade surpluses, has become a persisting-deficit country. What happened?

Japan's trade deficit shifts – explained by oil In 2008, spiking oil prices pushed Japan's trade into deficit. Then oil prices backed off and the Japan's surplus returned. In 2011, Japan was hit with a Tsunami, an earthquake, and a nuclear accident – a trifecta-storm of trouble. With world oil prices fluctuating around $100 per barrel, Japan's trade deficit plunged deeper into the red-ink zone as Japan began to import more oil. By 2012, all Japan's nuclear power stations were shuttered, in response to the natural-disaster-induced nuclear accident and Japan was back dependent on oil imports. In mid-2014, with Japan's deficit well-established, oil prices suddenly collapsed, helping to swing Japan's trade deficit back into surplus. After spot oil fell to a low in May 2016, Japan's surplus shot up. Then, again in April 2020, oil prices fell briefly below $20/barrel and Japan's deficit contracted sharply- and briefly. Since then, Japan's deficit has re-emerged and grown as oil prices have surged. The story of Japan's trade balance is largely a story of oil and Japan's experiences in shutting down its nuclear power plants. Today Japan's trade picture is still painted by the whims of global oil.

The chart (above) shows only the recent deficit behavior. Export and import growth rates each have flattened out with imports holding to higher growth than exports. As a result, the trade situation is deteriorating with the deficit is plunging again and a good part of that is because of oil prices.

The yen has been steadily weakening without much impact on trade flows so far.

Real trade flows Export and import prices both rise at a 20% annual rate over three months, but over 12 months import prices are up by a much stronger 33% compared to 13% for exports. Meanwhile, real export growth has been flat or negative while real imports have accelerated, logging a 14.6% annualized gain over three months.
by:Robert Brusca
|in:Economy in Brief
Sweden| Apr 14 2022
Sweden's CPI Soars As Transport Costs Escalate
Sweden saw inflation jump in March, rising by 2% month-to-month on the HICP measure. This is a much stronger gain than the 0.2% rise in February and even the 0.5% increase in January.

Inflation in Sweden continues to accelerate sharply. Sequentially, Swedish inflation starts at 6.3% over 12 months; that pace rises to a 9.4% annual rate over six months and that, in turn, further escalates to an 11.5% annual rate over three months. Sweden's inflation has jumped ahead and is showing extreme pressure in March.

Inflation diffusion (breadth) A look at the summary statistics on inflation diffusion at the bottom of the table shows that inflation over three months compared to six months rises in 87% of the categories -there are eight of them in the table. Diffusion also rises in 87% of the categories over six months compared to 12 months, and it rises in 87% of the categories over 12 months compared to the previous twelve months. Inflation is accelerating broadly over each of these timelines and the increase in inflation from period to period is significant.

Monthly pressures In March, Sweden posts deceleration in a select few categories: inflation for clothing & shoes with a 0.5 month-to-month drop that is a larger drop than in February shows deceleration; recreation & culture prices decelerate to a 1% pace down only slightly from 1.1% in February month-to-month; in education there is a technical month-to-month drop that does not register rounded to one decimal-both months rad ‘zero' in the table. The upward pressure on inflation in February remains high and broad-based. In February, there are three month-to-month inflation decelerations against a series of much larger increases. January saw decelerations in only two of eight categories while six of eight registered acceleration.

Sequential pressures Of the 24 observations on inflation changes period-to-period (that's eight items over three periods: three-months, six-months, and 12-months), only three show period-to-period deceleration. Obviously over the past year inflation has spread broadly in Sweden. Housing costs gains while high at 7.9% year-over-year (above the HICP pace of 6.3%) proceeded to lose momentum over six months and again over three months. That makes housing a substantial outlying reading. The only other weaking of inflation over these periods is over 12 months compared to the 12-month period of 12-months ago - that is for clothing & shoes. Apart from those three exceptions, price gains accelerated over all three periods in 21 of 24 comparisons – led in each period by transportation costs because of rising energy prices.

Quarter-to-date The quarter-to-date inflation pressures show inflation for the finished quarter at an 8.6% annual rate. This is lower than the three-month rate and lower than the six-month rate. But quarter-to-date figures tend to be more sluggish because they are for the current quarter that's a three-month average compared to the quarter before which is another three-month average. These broad average figures are still compounded at an annual rate and 8.6% is still a particularly high inflation rate. The inflation rate for the first quarter of 2022-to-date is now completed; it compares to a fourth quarter rate of 6.4%. Inflation is still accelerating quarter-to-quarter, a gain of more than two percentage points on the quarterly period. Looking down the line items at quarter-to-date metrics, inflation eases a little bit for housing QTD, for recreation & culture, and for education. However, all other categories show inflation accelerating in the first quarter compared to the fourth quarter. This is not surprising given the strong sequential trend that we see although the quarterly averaging process can produce slightly different reports from the sequential data.

Summing up for Sweden On balance, Sweden is in the grip of the same kind of inflation that we've seen in Germany, the United Kingdom, and the United States. Clearly a good deal of this inflation is driven by energy, by heating oil costs, by natural gas costs, by gasoline costs and by knock-on effects which are a little harder to gauge. However, Sweden, a country with its own currency and not part of the European Monetary Union, continues to show that these same sorts of forces are impacting its economy and its inflation rate. Having a floating exchange rate is not giving it any insulation from imported inflation. Sweden is part of this global process where inflation has moved up and continues to require responses from central banks everywhere except Japan.
by:Robert Brusca
|in:Viewpoints
United Kingdom| Apr 13 2022
U.K. Inflation Continues Its Spurt
Inflation in the United Kingdom surged, rising by 1.1% in March after gaining 0.6% in both February and January. Inflation, using the HICP measure- which is also the CPI for the U.K. - continues to accelerate from a 7% pace over 12 months to 9.3% over six months to a 9.5% annual rate over three months. Inflation in the U.K., like in the U.S. and like in Germany, is running loose and it's too hot for the central bank’s inflation target of 2%. And in the U.K., that target continues to apply to the CPI (or HICP) although the official inflation rate in the U.K. is the CPIH which also includes an estimate for housing services much like the U.S. CPI. The CPIH rose by 1% in March, accelerating from 0.5% in February and 0.5% in January. It is accelerating and a little bit less sharply from 6.3% over 12 months to 8.3% over six months to an annual rate of 8.7% over three months. The rate of change of the CPIH is a little bit less than for the CPI and its acceleration from 12 months ago is also tamer. But the signals and changes are broadly similar.

There's also available, currently, an ex-food, ex-energy (and ex-alcohol) core measure for the CPIH. That metric is also accelerating, the 0.8% gain in March is up from 0.4% in February and 0.6% in January. The CPIH core accelerates from a 5.2% pace over 12 months to a 6.3% pace over six months to a 7.6% pace over three months. This gauge is running a little bit less hot than the CPI and the CPIH, but its acceleration is nearly the same as for the CPI measure.

Turning to the 10 categories of the CPIH in the table, inflation is accelerating in March in five of them. In both January and February, inflation accelerated month-to-month in five of them as well. In addition, inflation in the various headline series also accelerated month-to-month except for February when the CPIH and core measures did not accelerate - but only the core rate backed down.

The diffusion indicators at the bottom of the table capture the breadth of acceleration; these are calculated using even the headlines in the table to provide a little bit more weight to those categories that deserve more weight. The aggregate diffusion measure shows inflation in January, February, and March that has continued to run with pretty much the same breadth with inflation accelerating at about 60% of the categories with some slight let-up in February when that percentage fell to 46%.

Looking at sequential behavior, inflation from 12-months to six-months to three-months we see that over three months there's acceleration across the 10 categories in half of them. Over six months we see acceleration everywhere with one exception that being communication. And over 12 months we find the same thing with acceleration everywhere except for communication.

At the same time, the diffusion statistics show the breadth of inflation over 12 months has moved up to 92% which is sharply higher than it had been over 12 months for the 12-month period previous to this when inflation was only rising in 23% of the categories and the headline for the CPI was up only 0.7%. Inflation over the last 12 months has accelerated extremely sharply and extremely broadly. Over six months inflation has continued to accelerate, running up to a very high pace and accelerating by more than two-percentage points between 12-months and six-months with the breadth of acceleration in 92% of the categories. Over three months there is some backing off as the headline continues to accelerate slightly to a 9.5% pace from a 9.3% pace. The CPIH shows slightly more acceleration (six- to three-months) and the CPIH core measure shows even more acceleration, but the details of the report show that across all inflation readings inflation only accelerated and about 61% of the categories over three months. That is still broad, well above the neutral reading of 50%, but well back of the 92% marks set over six and 12 months.

Over three months in those categories where inflation has backed off accelerating, the results have not been particularly dramatic. For food & nonalcoholic beverages, the inflation rate nicked lower to 8.1% from 8.2%; for housing and household expenditures the inflation rate annualized over three months stands at 5.1% compared to a 6.2% pace over six months. Health care costs rose by only 1.7% at an annual rate over three months compared to 2.6% over six months. Education costs rose at a 3.3% pace over three months compared to 5.3% over six months. And miscellaneous goods & services prices rose at a 1.5% pace over three months compared to 2.5% over six months. While there are 5 categories where acceleration backed off, half of the detailed categories, over three months the backing off was modest and in the end dominated by acceleration in other categories.
by:Robert Brusca
|in:Viewpoints
Germany| Apr 12 2022
German Inflation Jumps Sharply in March
German inflation surged in March, jumping by 2.1% month-to-month in March alone. In ECB parlance, the HICP target is for a gain of 2% over 12 months, not in one month. The German contribution to EMU-wide inflation is way over the line. German core HICP inflation is more modest in March but still excessive. It is up by 0.5% month-to-month for an annualized rate of 6.1%.

Headline inflation trends Over 12 months, the German HICP is up by 7.6%. Over six months, the annualized pace is 11.4%. Over three months, the pace is up to a whopping 17.6% - I won't try to annualize the month-to-month gain for you, but that is going to be in the stratosphere.

Core inflation trends The core rate is up by 3.7% over 12 months and its annualized pace over six months rises to 4.2%. But over three months, the HICP core pace is back down to 3.7%. That is good news and evidence of inflation resilience in the face of a raging headline. However, the German domestic CPI is not so upbeat as its 3-month core pace accelerates from three-months to six-months to 12-months, with no drop-back.

Inflation diffusion – a hopeful sign? Inflation diffusion, the breadth of inflation acceleration across the main CPI categories, is at 81.8% for year-over-year inflation-that metric compares the 12 month-rise in price changes across categories to their respective 12-month increases of 12-months ago. Over six months diffusion drops to 54.5%, a comparison of inflation acceleration over six-months relative to 12 months. That acceleration is modest despite the actual very strong gain of inflation over six months. Over three months as well the diffusion reading is 54.5%; that metric compares inflation acceleration over three months compared to over six months. Diffusion at 100% indicates inflation accelerating in all categories; diffusion at zero percent indicates inflation accelerating in no categories. 50 percent is the 'point of neutrality' where inflation acceleration and deceleration are balanced. At 54.5% diffusion three- and six-month inflation acceleration this month is showing some net increased inflation pressure, but not much. Certainly, diffusion suggests that the breadth of inflation is not as intractable as inflation strength suggests. Whether this is good news or evidence that inflation must spread further before it can settle down, only time will tell.

Where inflation is most intense Over three months inflation accelerates in six categories: a 46.8% annual rate in transportation, a 26.8% annualized gain for rent & utilities, a 9.7% pace for food, a 8.8% for restaurants & hotels, a 6.6% pace for alcohol, and a -1.3% pace for communications (since over six months prices in that category had fallen even faster, the 1.3% drop is technically a period-to-period acceleration). Over six months the same categories accelerated except that communication drops out replaced by recreation & culture. Over 12 months acceleration is broad based; it accelerates everywhere except for two categories: education and 'other.'

Brent oil prices During this sequence of dates, Brent oil prices measured in euros have accelerated from a rising pace of 85.3% over 12 months to 156.8% over six months to 461.1% over three months. A great deal of the inflation acceleration impulse is coming from oil and commodities and through food. Transportation and 'rent & utilities' are the leading two inflation categories in each time segment with food in the third position each time. Still, food and energy are important and just because inflation is intense there does not mean it will stay there and not migrate to other categories. When food and energy cause cost pressures, that often generates broader price pressures as well. So, while the breadth of inflation in Germany is restrained since so much of the inflation has been recent, it is not yet clear how much of it has yet to be transmitted into final product prices before prices can stabilize and inflation can settle down.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 11 2022
LEIs Sour: Growth Rules Prospects Drool...
The OECD leading economic indicator for the entire OECD region fell by 0.1% in March, matching its 0.1% decline in February. Over three months the index is falling at a 0.7% annual rate, the same pace as its decline over six months. Over 12 months it's rising by 2.7%. The standing of the index level is at the queue percentile standing at the 50% mark putting at exactly at its median - a neutral standing overall for growth prospects.

The index for the OECD-7 was flat in March after being flat in February. The index shows two declines, one over three months and another over six months with a 3% increase over 12 months. The index level standing is slightly better than for the whole of the OECD region at its 52.7 percentile.

The euro area shows a -0.1% reading for March, the same as February. Hit declines at a 1.4% annual rate over three months compared to minus 1.2% over six months and the 2.9% gain over 12 months, the index is at a 57.2 percentile standing for the euro area, a more moderate position.

For Japan, the OECD index is flat in both March and in February. It's flat over three months; it declines at a 0.1% pace over six months and is up by just 1.5% pace over 12 months. Its index logs a 65.8 percentile standing, marking it as stronger than the other OCED standing in the table. Japan's economy has been and remains sluggish.

The U.S. metric shows no change in March and no change in February with a 0.1% rise over three months. It logs a -0.2% change over six months and over 12 months at a 2.9% increase. The U.S. LEI has a 51-percentile standing based on its index level, leaving its leading economic index just slightly above its historic median and pointing to a 'normal' outlook for growth.

Evaluating six-month growth rates in the LEI Taking a second look at these LEIs looking at them in terms of their six-month growth rates, which is the way the OECD likes to look at the indicators for their leading index properties, we find that in March all of these countries and these groupings show declines; when we add China to the mix it also shows a decline. In February, there is weakness across the board apart from Japan that's flat and the euro area that logs in at a 0.1% increase. Looking at the growth rates over six months for six-months ago, we see negative values for the U.S. and for China with small to modest positive percent changes for Japan, the euro area, and the OECD group as a whole as well as for the OECD-7. Looking at the assessments for 12-month growth that existed one-year ago, we see positive values across the board for all the countries and all the groupings including China.

However, we can also rank these growth rates. And ranking the growth rates on their recent six-month growth leaves every single one of them below their historic median that means a ranking below 50%. The strongest rankings from March are from Japan and the U.S. with each of them sporting a 44.2 percentile standing. The weakness ranking comes from the euro area at a 21.2 percentile standing, followed by a 27.4 percentile standing for the OECD area as a whole and a 29.8% standing for China alone.

The OECD leading indicators show great deal of sluggishness globally. The economies for the most part rank somewhere in the range of sluggish, weak, or declining. That is in terms of their outlook. We continue to see actual economic growth positive across the OECD area and even in China where the zero COVID policies have held back growth by quite a lot. However, the leading indicators warn about the future and these indications come amid a period where inflation has been flaring and with central banks beginning to become more restrictive. It continues to be an uneven patch for the global economy.
by:Robert Brusca
|in:Economy in Brief