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

United Kingdom| Sep 21 2022
U.K. Industrial Orders Rebound But Remain with a Net-Negative Assessment
The Confederation of British Industry (CBI) industrial trends survey for September registers an improvement in total orders. It moved up to a September reading of -2 from -7 in August. The reading had been +8 in July. The three-month average is zero, and that's against a six-month average of +10, and a 12-month average of +16. On that perspective, we can see that the assessment for orders has been deteriorating despite the small improvement month-to-month from August to September.

However, historically, the readings for orders tend to be weak. As a result, the -2 September reading is still strong-to-firm when measured against data from 1991 forward; September has a 75th percentile standing on that timeline. Over this period, orders have been higher than -2 only about one-quarter of the time. Over a more recent timeline, from 2015 forward, the ranking is at its 47th percentile, slightly below its median. The median for ranked data occurs at the 50th percentile. In broad historic context, this is still a relatively firm number; however, when compared to data since 2015, this is only an ordinary reading.

Export orders mimic the headline. They register a -8 in September which is an improvement from -12 in August; but August was unchanged from July. The August reading for export orders is stronger than its -11 three-month average although weaker than its -4 net reading for the six-month average and its -3 value for its 12-month average. The rank standings for export orders also mimics the rank standings for total orders. The ranking from 1991 is at a 70th percentile mark and the standing from 2015 has a slightly stronger but not too different at a 51st percentile mark. Once again, the orders are strong relative to the broader sample and weaker relative to the more recent sample since 2015 and the ranking on that latter period still registers near the neutral 50% reading.

The rating for the stocks of finished goods is stronger in September, up to +6 from +2 in August. This compares to a -7 reading in July and weaker readings over three and six months, but the much weaker 12-month average is at -9. The stocks readings are always hard to evaluate since rising inventories could be a sign of confidence or could be a sign of sales not going very well, leading to unintended inventory accumulation.

Looking ahead, industrial output volume for the next 3 months has a pronounced drop, falling to -17 compared to -2 for August. July had a + 6 reading making the three-month average -4; that compares to a six-month average of +8 and a 12-month average of +18. The outlook has deteriorated quite sharply over this period with September being a watershed, with the bottom falling out of the outlook. In fact, the ranking for the September value for the output outlook is in the bottom 5.8 percentile of its historic queue of data back to 1991. That's an extremely weak reading; over the more up-to-date comparison from 2015, the ranking is still in the bottom 7.7 percentile, not much different. Industry in the U.K. appears to be battening down the hatches and preparing for a storm ahead, a common theme among western European economies.

One reason for this dismal outlook on production may be the outlook for prices. Average prices expected over the next three months stepped up slightly in September to a reading of +59 from +57 in August. Like the data above, these are still net diffusion readings but with much higher values. Those recent readings compare to a reading of +48 in July. Compared to the sequential averages, the September reading is only slightly lower than the +61 reading for the six-month average and the +65 reading for the 12-month average. Given how much inflation has progressed, the outlook for inflation in the U.K. does not appear to have improved very much. There appears to be a lot of inflation pessimism there and that pessimism is also reflected in weak expected output.

The data for industrial production (IP) lag the CBI survey data which are quite up to date since it's only late-September and we have a September estimate in the CBI already. Industrial data on IP are up to date through July and on that basis the monthly July change in industrial production in manufacturing was zero. The change over three months was +0.4% at an annual rate; there's a roughly 2% annual rate decline over six months and a 1.1% rate of increase over 12 months. The performance of manufacturing industrial production during this period has been weak with a tangible decline. The ranking for the overall growth rate for manufacturing industrial production leaves it in its lower 36th percentile over both ranking periods since 1991 and from 2015. That’s a lower one-third reading and the economy is still growing- some fear recession lies ahead.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 20 2022
EMU Current Account Plunges Into Deficit
Make no mistake about it this is not the Nestea™ plunge - the pause that refreshes. The European Monetary Union (EMU) current account in July dives to a deficit of 19.9 billion euros after rebounding to a small €4.2 billion surplus; an earlier €6.9 billion deficit was logged in May. The balance on the goods account is at an €18.3 billion deficit in July after a €0.3 billion deficit in June. The goods balance has been eroding for quite some time. Changes in the current account balance over three months to six months to 12 months show consistent erosion. The goods balance has deteriorated by €46.6 billion over 12 months, by €28.2 billion over six months and by €18.2 billion EUR over three months. While current account transfers remain deeply negative, the change in transfers has been diminishing from €3.1 billion over 12 months, a wider €3.3 billion deterioration over six months which has shrunk to €1 billion of deterioration over three months.

The three largest EMU economies Germany, France, and Italy show that Germany still has a surplus in July, but France and Italy both post deficits on their current accounts. For France the deficit is €5.3 billion; for Italy it is €3.8 billion. However, when we look at the period-to-period sequential changes, each of these three countries shows deterioration over each of the three horizons; Germany may still have a surplus but it, too, is eroding. If we annualize the changes over the respective periods, the deteriorations are also getting progressively worse - except for Germany.
by:Robert Brusca
|in:Economy in Brief
Portugal| Sep 19 2022
Portugal and Europe: Inflation Pressures Wither But Are Complicated
PPI Inflation in Portugal Portugal's PPI falls by 0.9% in August after rising 0.4% in July and by 2.4% in June. This sequential growth rates for producer prices in Portugal show an annual rate of 22.5% over 12 months that eases slightly to 21.7% over six months, then it falls dramatically to an 8.2% annual rate over three months.

Manufactured goods at the producer level show a decline of 1.4% in August after a 1.4% increase in July and a 3.5% rise in June. Manufacturing prices were at a 23.4% pace over 12 months then accelerate to a 36.3% annual rate over six months then decelerate sharply to 14.8% pace over three months. Clearly the hallmark for inflation here is ‘different strokes for different folks.'

Looking at PPI sectors in Portugal monthly, consumer goods prices rise by 0.7% in August, the same as in July but are down from the 1% gain in June. Broader sequential growth rates show consumer goods inflation up 13.9% over 12 months, rising to a 16.6% pace over six months and easing back to a 10% pace over three months. Intermediate goods prices rise by 0.4% in August, by 0.2% in July, and by 0.6% in June. Its broader sequential growth rates show a 19.8% annual rate gain over 12 months, nearly the same gain at a 20% pace over six months, slowing sharply to a 4.9% annual rate gain over three months. Capital goods show a 0.5% increase in prices in August, after 0.3% drop in July, and a 0.5% drop in June. Capital goods sequential patterns show prices rise by 4.7% over 12 months, the pace picks up very slightly to a 5.2% pace over six months then plunges to decline at a 1.1% annual rate over three months.

Portugal shows very different inflation performance and trends for different sectors for data up to date through August. Intermediate good (followed by consumer goods) have the highest inflation rates among sectors over 12 months and six months; consumer goods lead the way higher over three months. Capital goods inflation is the lowest on all horizons, showing a sharp deceleration over three months and logging a net price decline. Capital goods run a rather moderate increase over 12 months of 4.7%.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Sep 16 2022
U.K. Retail Sales Weaker Than Expected
Retail sales in the United Kingdom fell by 1.7% in August after rising 1.5% in July and 1% in June. Sequentially growth rates for nominal retail sales grow by 5.3% over 12 months, at the same 5.3% annual rate over six months, and slow to a 2.9% annual rate over three months.

However, that doesn't begin to tell the story since inflation is raging and driving the nominal numbers higher. Retail sales volumes fell by 1.6% in August, rose by 0.4% in July and fell by 0.2% in June. Retail sales volumes are falling by 5.3% over 12 months, falling at a 6.3% annual rate over six months and falling at a 5.4% annual rate over three months. In each of these sequential periods, retail volumes decline. They decline at a pace of 5% or somewhat greater in each period. While retail sales in the U.K. continue to deteriorate, the pace of deterioration remains more or less steady; it's not increasing and it's not diminishing. However, compared to a year ago, the decline in sales volumes is greater because the year-over year-volume decline of one year ago was at a 4.4% annual rate.

In the current quarter-to-date (QTD), retail sales are posting a strong-seeming gain at a 7.3% annualized rate. However, these are nominal sales and the inflation rate in the U.K. is high. Retail sales volumes QTD show a contrary 3.9% annual rate decline. These calculations are for the months of July and August taken over the second quarter base for sales. They reflect an ongoing contraction in retail sales volumes. Based on the two (of three months) quarterly data, there may be a slight let up in the pace of decline in retail sales in the third quarter.

Economists have an expression for nominal values particularly when inflation is high. The references to something called ‘money illusion.’ It's the illusion that because something costs a lot more money there's more of it. For example, the standings of the growth rate of nominal retail sales is in the 84.6 percentile. The gain in nominal retail sales would seem to be in the top 15% of all sales gains since August 2001 the period of overwatch these standings are calculated. That would be strong. However, if we apply the same ranking criteria to the growth in sales volume, retail sales volume has quite the opposite 2.4-percentile standing. It is real sales- sales once we account for the effects of inflation- that are weak. They have been weaker than this only about 2.4% of the time and they have been higher than this over 97% of the time.

Passenger car registrations have rebounded after a prolonged period of weakness they rose by 9% in August and 17.8% in July after falling by 5.9% in June. Past year car registrations are up by only 0.9% over 12 months; they're falling at a 23.9% annual rate over six months, and they are rising at a 113.3% annual rate over three months. Clearly there is a recent surge in registrations that still hasn't elevated the level of passenger car registrations materially.

The table also presents some survey data on U.K. retail sales. The survey data show retail sales for the time of year assessed as slightly stronger in August than in July; the volume of orders year-over-year has made a significant improvement compared to July showing a change of 14 compared to a change of -5. By comparison, consumer confidence in August fell by 3 points after being flat in July; these are calculations of month-to-month changes in underlying indexes.

Sequential data show simple changes over each period in the heading; for example, retail sales for the time of year show the index improved by 3 points over three months, while it fell by 13 points over six months and fell by 23 points over 12 months. The volume of orders year-over-year survey value fell by one-point over three months, compared to falling by 10 points over six months and 67 points over 12 months. Consumer confidence fell by 4 points over three months, by 18 points over six months, and by 36 points over 12 months. Clearly the year-over-year results show a great deal of weakness in each of these survey metrics. The quarter-to-date shows some increase in retail sales for the time of year as there is an 11.3-point change for the better, compared to the volume of orders series that declines by 1.7 points, and consumer confidence that decline by 2.8 points. The queue standings for the surveys are executed on level data, not on change data. Retail sales for the time of year has a standing at its 71.9 percentile. Volume of orders year-over-year are assessed at 49 percentiles standing, just below its historic median. The consumer confidence reading stands at an all-time low on data back to August 2001.

U.K. retail sales are weak. The nominal numbers dress up the results, but the volume numbers speak clearly to the reality of weakness and enduring weakness and U.K. retail sales. The series on passenger car registrations has been extremely weak but is undergone some significant rebound over the last two months. Inflation in the U.K. continues to run hot; that means there will be more rate hikes ahead and more weakness for the economy and for retail sales in the future.
by:Robert Brusca
|in:Economy in Brief
Europe| Sep 14 2022
EMU IP Falls in July, Driving 3-Mo Growth Rate to a Decline
Industrial sector performance in the European Monetary Union has turned decidedly dicey. In July total output excluding construction foundered, falling by 2.3%: manufacturing output fell by 2.1%, consumer goods output rose by 1.2%, with intermediate goods output falling by 0.8%, and capital goods output falling by a large 4.2% month-to-month. This is a lot of weakness. Within the consumer goods sector, durable goods output fell by 1.6% as nondurable goods output rose by 1.2%. Across these same sectors, output mostly fell in June while output rose uniformly in May. As a result of these comparisons, we don't have any clear trend, but we do have a lot of volatility in output with the best of strength in the oldest observations.

Divergent overall and manufacturing trends Turning to sequential growth rates, overall industrial output falls by 2.2% over 12 months. The fall is nearly the same at minus 2.3% annualized over six months while over three months the pace of decline is reduced to -0.4% at an annual rate. For manufacturing, output actually accelerates. Over 12 months output falls by 2.6%, over six months it falls at a 1.9% annual rate, and over three months it increases at a 1.1% annual rate.

Suspicious manufacturing trend However, the manufacturing results don't appear to be particularly robust. For example, over three months manufacturing output may be rising, but overall consumer goods output is falling. Within consumer goods, durables, and nondurables output both log output declines. Output falls for intermediate goods. The increase in industrial output comes entirely from an outsized rise in the output of capital goods of 5.7% in annual rate. As a result of those numbers, the manufacturing IP progression from weakness to strength is created by only one sector. Only capital goods output has a progression of accelerating growth among the three sectors (and the two consumer sub-sectors). Capital goods output falls by 3.5% over 12 months, falls at a 1.9% annual rate over six months and then rises at a 5.7% annual rate over three months.

Quarter-to-date trends indicate more pronounced weakness In the quarter-to-date (QTD) - a calculation that looks at the growth rate in July over the second quarter average calculating a true growth rate from the middle of that quarter - there's a decline in output overall at a 6.8% annual rate. There's a decline in manufacturing output at a 6.2% annual rate as well; there are declines in each manufacturing sector, and sub-sector, over the QTD period. This, of course, is different from the three-month calculation that you look only at output this month compared to the level of three-months ago. The QTD growth rate, calculated over the second quarter base, has the advantage that as further quarterly data come are released, each new observation compares output to that same base in Q2. As we add another month and then finally a third month of data and the change is driven by the new data not by a shift in the base. The QTD calculations give us a bit of a better idea how growth is evolving in the quarter per se.

The dispersion of growth Among the 13 early reporting European Monetary Union members, 8 show output the declines in July, 7 show output declines in June, and 5 show output declines in May. That's a clear progression toward worse results. Sequential data show 7 countries with output declining over three months, 6 with output declining over six months, and 6 with output declining over 12 months. However, as is the case for manufacturing output, the QTD calculations find more weakness with 9 countries showing declines in output on a QTD comparison. Here it's easiest to point to the exceptions. The exceptions are Malta with a 55% growth rate, output in Greece logs a 28% growth rate, and output in Belgium posts a 6.6% growth rate in output with Germany at a 0.2% growth rate of output growth. The median change in output for the quarter to date is minus 7.6% annualized. In the quarter-to-date calculations, 3 of the 4 largest EMU economies show declines for early Q3, with Germany, obviously, being the exception. Across all the monthly and sequential periods in the table, there are output declines persistently in two or three of the four largest EMU economies (Germany, France, Italy, and Spain)
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Sep 12 2022
U.K. Trade Deficit Shrinks As Exports Outpace Imports
The goods trade deficit for the United Kingdom struck £19.36 billion from £22.85 billion in July compared to June. The deficit has been steady with an average of £18.5 billion over 12 months, £21.5 billion over six months and £21 billion over three months.

U.K. export growth has been volatile but has been strong. Nominal exports are growing at a 26.6% pace over 12 months, at a 58.1% annual rate over six months, and at a 23.9% annual rate over three months. Nominal imports are up by 29.4% over 12 months, slowed to a 10.7% pace over six months and slowed further to a 1.1% annual rate over three months.

Real flows monthly Real trade flows for the U.K. demonstrate very different patterns from the nominal flows. Real exports still outperform imports in July, growing by 6.8% over June compared to a 3.7% drop in real imports. In June both real exports and real imports fell with real exports falling 9.3% month-to-month and real imports falling 3.2% month-to-month.

Real flows sequentially The sequential trends for real exports and real imports show real exports persistently growing while real imports have turned to a pattern of declines. Real exports are up by 4.3% over 12 months, up at a 26% annual rate over six months and up at a 3.4% annual rate over three months. This compares to real imports that are up by 8.8% over 12 months and are stronger than real exports. But over six months real imports fall at a 13.6% annual rate, and they fall again over three months at a 16.4% annual rate.

Commodity composition of real trade flows Real exports Commodity categories tell a significant story about trends in the U.K. Exports show steady gains in capital goods with the 3.2% gain over 12 months, and an annual rate of growth at 14.5% growth over three months. Road vehicles show a steady to strong acceleration, rising at a 9.9% annual rate over 12 months, gaining at a 40.9% annual rate over six months and accelerating again to a 72.1% annual rate over three months. Basic materials fail to trend consistently but fall by 4.8% over 12 months and are declining at a 44.7% annual rate over three months. Foods, feeds, beverages & tobacco echo the trends for basic materials although they rise by 3.2% over 12 months and then fall at a 16.6% annual pace over three months. Both basic materials and foods, feeds, beverages & tobacco show solid gains over six months, then give those gains up over three months. Those gain keeps those flows from having any kind of a steady trend in play.

Real imports On the import side, capital goods imports grow at a 12.7% pace over 12 months, which increases slightly to 14.2% at an annual rate over six months and then slips to a 6% annual rate decline over three months. Road vehicles show steady deceleration of imports, logging growth of 25% over 12 months, falling to a pace of 11.3% annualized over six months and logging a 39.5% annual rate decline over three months. Basic material imports are also in a fairly steady state of decline. They decline over all horizons, falling and 11.8% annual rate over 12 months, the slowing that drop only very slightly to a 10.5% annual rate of decline over six months and then accelerating sharply to a 61.3% annual rate decline over three months. Food, feeds, beverages & tobacco show declines over two of the three horizons; imports rise by 3.8% over 12 months, then slip at a 6.8% annual rate over six months and then decline at a more moderate 1.5% annual rate over three months.

Trends in perspective What these trends clearly show is extremely weak import growth over three months; all three-month growth rates for the import categories are negative over three months. Overall imports decline over six months too although that decline is not as broad based. Over 12 months imports see a somewhat broader increase in real terms. By comparison, exports grow at a moderate 3.4% pace in real terms over three months with the declines in only two of the categories while over six months the export gain is solid at 26% with increases across all the commodity categories. The 12-month performance of exports is moderate with the growth rate of 4.3% and with a decline in only one of the featured categories.
by:Robert Brusca
|in:Economy in Brief
France| Sep 09 2022
French Manufacturing Falls in July -What's Next Is Unclear
Manufacturing industrial production in France fell by 1.6% in July after advancing 0.9% in June and by 1% in May. Production is up by 0.2% over 12 months; however, it falls at a 3.1% annual rate over six months and then rebounds to rise at a 3.9% annual rate over three months. The French trend for production is not yet clear or established.

Sector performance in French manufacturing also shows mixed trends. Consumer durables output was up by 0.6% in July after falling in June; however, the June decline came after a strong surge in May. Consumer nondurables output fell by 1.5% in July after rising by 1% in June and falling by 0.3% in May. French capital goods output fell by 1.4% in July after rising by 1.2% in June and rising by 1.5% in May. Intermediate goods output fell by 2% in July after rising by 0.8% in June and rising by 1.0% in May.

The sequential trends for sector data also vary widely. Consumer durables output in France is accelerating strongly from a 5.3% annual rate over 12 months to an 8.9% annual rate over six months to a 30.1% annual rate over three months. Consumer nondurables, however, are losing momentum; that sector's output rises by 1.1% over 12 months, but falls at a 3.5% annual rate over six months and continues to fall at a lesser, 3% pace, over three months. Capital goods has output up by 0.5% over 12 months; it declines at a 0.7% annual rate over six months then rebounds to post a strong 4.9% annual rate of growth over three months. Intermediate goods output falls by 1.9% over 12 months and falls more substantially at a 6.8% annual rate over six months. That pace of the decline for intermediate goods output is sharply trimmed to -0.8% over three months but it's still a decline.

On balance, sector trends in manufacturing show great strength in consumer durables, with lingering weakness in consumer nondurables, moderation in capital goods that is topped up by strong three-month performance despite a decline in July. Intermediate goods show a steady diet of declines in output.
by:Robert Brusca
|in:Economy in Brief
Japan| Sep 08 2022
Japan's GDP Is Revised Up from 2.2% Q/Q to 3.5%
Japan's second quarter GDP was revised up to show growth of 3.5% at an annual rate compared to the previous estimate of 2.2% - an upward revision greater than what had been expected. Japan's year-over-year GDP growth in the second quarter is now up to 1.4% from 1% previously. The 1.4% growth rate is the strongest since the second quarter of 2021 when GDP rose at a 7.3% year-on-year rate after declining in the first quarter under the pressure of COVID policies.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

France saw some inflation pressures too. Month-to-month inflation for restaurant & hotel prices rose by 1.8% in July after rising 0.4% in June. Food prices are still strong rising at 1.3% month-to-month after June's 1.3% rise. Food price gains are still in double digits over three months and accelerating. Restaurant & hotel prices are also in double digits over three months and six months, and they also are accelerating. This reflects the return by consumers to the restaurant and hotel sector after COVID had essentially redlined that sector for a prolonged period.
by:Robert Brusca
|in:Economy in Brief