Introducing

Robert Brusca

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

Publications by Robert Brusca

Japan| Apr 08 2022
Japan's Economy Watchers Index Bounces Back
Japan's economy watchers index in March bounced back, rising to 47.8 from 37.7 in February. At that level, the economy watchers index has a 59.8 percentile standing above its historic median that occurs at standings mark of 50%.

The index showed improvement across all its components in the current reading. This marked a reversal month-to-month showing increases in every component compared to February when there were declines in every component except two; in February services and employment had improved.

Among the current components, the highest standing is for employment at an 88.3 percentile standing; that's followed by eating and drinking places that have a 66.9 percentile standing and retailing with a 64-percentile standing. The weakest current standing is for housing at a 38.1 percentile standing followed by the total for corporations at a 39.7 percentile standing.

The economy watchers future index also improved; that index rose to 50.1 in March from 44.4 in February. Its standing is at its 65.7 percentile mark, a moderately firm standing. The future readings all improved in March and this contrasts to February, when 4 component readings were weaker month-to-month while 6 improved by the month.

The future index shows the highest standings for services followed by eating and drinking places followed by the response by households. The weakest reading is for housing followed by manufacturers.

Still, the trends for the economy are not particularly strong. The three-month change still shows a decline in the current index and a net decline for all components. Over six months all the categories plus the headline increase excluding housing - that is weaker. Over 12 months everything in the current index has a weaker change than over the previous 12 months- but three components manage net gains on the comparison.

The future index shows only three components are stronger over three months, but only two components fall by more over three months than they fall over six months - those are housing and manufacturing. Over six months all the components are net lower and falling by more over six months than over 12 months. Over 12 months all components are showing bigger decline or smaller increases than they had over the previous 12 months – five categories manage outright gains but these are smaller than the gains logged 12 months ago-hence weaker momentum.
by:Robert Brusca
|in:Economy in Brief
Germany| Apr 07 2022
German IP Continues Its Recovery Run Ahead of Russian Invasion of Ukraine
German industrial production advanced by 0.2% in February. Its rise followed a 1.4% gain in January and a 0.9% gain in December. Industrial output in Germany is accelerating from a 3% pace over 12 months to a 9.3% annual rate over six months to a 10.7% annual rate over three months. Despite infections with the virus and despite the increasingly dangerous situation in Ukraine during that period, Germany has continued to rebound. As the war in Ukraine started in late-February, the German economy seems to have put itself on firm footing.

German IP is accelerating and looks very solid The output gained in the headline is supported by all the main sectors on trend. In February, two of three sectors made month-to-month gains: consumer goods and intermediate goods saw output rise with capital goods output falling back by 2%. However, from 12-months to six-months to three-months consumer goods output is accelerating from an annual rate of 10.7% to 14.9% to 25.8%. Capital goods output falls over 12 months declining by 2.1%. But then it accelerates to a 9.8% pace over six months but does step back to a growth rate of just 4.2% over three months. Intermediate goods advance at a 1.3% pace over 12 months, accelerate to 5.2% over six months and accelerate further to 9.0% over three months. Two of three industrial sectors support the acceleration in the headline. German acceleration backsliding in capital goods interrupts the trend of sector acceleration in output over three months. And that backsliding is to a growth rate that sill registers 4.2% growth at an annual rate over three months-still quite solid.

German manufacturing gauges mostly show growth Manufacturing output was flat in February after gains of 0.6% in January and 1.6% in December. So, during this monthly period, the growth in manufacturing was slowing; however, more broadly, manufacturing output accelerates from 1.4% over 12 months to a pace of 8.6% over six months to a pace of 9.2% over three months. Similarly, real manufacturing orders in Germany grow by 2.9% over 12 months, accelerate to 4.8% over six months and accelerate further to 10.2% over three months. However, real sector sales are a little more uneven; they're growing on all the horizons, but the 4.3% growth over 12 months is still slightly higher than the 4% growth rate over three months.

German indicators are mixed German industrial indicators show mixed performance during the period. The ZEW index is an exception, logging negative readings in each of the last three months. Despite those negative readings, the ZEW index improved slightly to -8.1 in February from -10.2 in January. The IFO gauge for manufacturing improved in February and the expectations gauge for manufacturing also improved in February although the EU Commission industrial index slipped slightly from 24.2 in January to 23.7 in February. Looking at the averages of 12-months to six-months to three-months, the ZEW average is weaker over three months than it is over 12 months. The IFO manufacturing index is slightly weaker over three months as its average falls to 103 when averaged over three months compared to a 12-month average of 104.2. The IFO manufacturing expectations are also weaker at 101.8 over three months compared to a 12-month average of 103.7. The EU Commission index is slightly stronger at 24.4 average over three months compared to 21.8 over 12 months.

Other Europe is mixed Turning to early-February reports from other European countries, there are five others that are reporting. Norway and France show output declines in February; Ireland, Portugal, and Sweden show increases in February. However, the countries that show increases in February show declines in January and vice versa. So, what we're looking at in Europe is monthly volatility. Looking at annualized growth rates over 12 months, six months and three months, there is not a lot of strength. Portugal, Sweden, and Norway log three-month growth rates that are all negative Norway, in fact, shows negative growth rates over three months, six months and 12 months. In contrast, France shows positive growth rates throughout; it is improving over three months compared to 12 months, rising from 3.4% over 12 months to a 7.3% pace over three months. Ireland shows acceleration, moving from -15.4% over 12 months to -12.1% over six months to log a spectacular annualized gain of 32.9% over three months.

Quarter-to-date German IP orders and real sales: In the quarter-to-date, most German IP responses are strong. Germany shows industrial output increasing in a 9.1% pace QTD, led by consumer goods that are rising strongly at a 37.6% annual rate but held back somewhat by capital goods where output is declining at a 5.5% annual rate. Manufacturing output is increasing at a 5.8% annual rate in the quarter-to-date with real manufacturing orders up at a 0.5% pace, but real sector sales are falling at a 0.4% annual rate.

German indicators: German indicators show mixed performance QTD; the ZEW index is down by 6.4 points in the quarter-to-date and the EU Commission index is down by 0.4 points in the quarter-to-date. The two IFO gauges for manufacturing and manufacturing expectations each show a gain of 2.4 points on the quarter.

Other Europe QTD-the good, the bad, and the homely: Turning to other Europe, Ireland shows an outstanding rise of 69.2% in an annual rate followed by France at an 8.4% pace of gain QTD; Norway’s rise is at a 5.8% pace, Portugal shows output receding at a 15.2% annual rate, Sweden shows output declining at a 4% annual rate.

European industrial data are firm ahead of the Ukraine-Russia outbreak These data set us up to assess the pre-Ukraine-Russia war standing of industry in Germany and select countries in Europe. Conditions rate firm-to-strong amid some variability- as always. The March reports will be more telling.
by:Robert Brusca
|in:Economy in Brief
Sweden| Apr 06 2022
Swedish IP Edges Up in February But Is Still Weak
Industrial production rose by 0.2% in February after declining for two months in January and in December 2021. Manufacturing output has declined in only one of the last three months falling by 0.9% in January flanked by minor increases of 0.2% or less in December 2021 and February 2022.

Data for three key industries in Sweden show mixed trends. For food beverages and tobacco, there is a steady deceleration as growth drops from 5.4% over 12 months to a pace of 3.9% annualized over six months to -6.8% over three months. However, for textiles, the pattern is irregular with the declines over three and 12 months versus a solid increase over six months. For motor vehicles, there's a 16.4% decline over 12 months, a 7.2% annual rate of decline over six months followed by a 7.1% decline over three months. That marks a technical acceleration even though all the growth rates are negative.

Sector weakness trends are mostly mixed: intermediate goods show a mixed pattern but with 12-month growth and three-month growth nearly the same at -3% annualized. Investment goods also show a mixed trend but with the 12-month declining pace at -1.8% and the three-month annualized decline at -1.7%. Nondurable consumer goods output shows an ongoing deceleration from a 14.7% annual rate increase over 12 months to a 6% pace over six months to a declining pace at -13.2% over three months. Consumer trends have pulled back steadily and sharply.

Quarter-to-date trends for Sweden show at a -3.9% annual rate of decline; that's for two of three months hard data in the first quarter. Manufacturing output is falling at a 4% pace in the quarter-to-date. By industry, there are declines in the quarter-to-date of 7% for food, beverages & tobacco and of 9.3% for textiles although for motor vehicles there is an increase at 11.6% annual rate. Sectors show declines throughout with intermediate goods falling at a 1.8% annual rate, investment goods at a 4.2% annual rate, and nondurable consumer goods at a 4.5% annual rate.

Comparing output to January 2020, before the virus had struck most places, overall industrial production excluding construction has risen by 2.2% on that timeline; manufacturing is up by 2.8%. On that same timeline, output in all three industries in the table is lower and two of the sectors are lower: intermediate goods and investment goods. The overall result for manufacturing has been pulled up by nondurable consumer goods where output has advanced by 18%.

Inflation data are also contained in this table as a point of reference. Inflation continues to accelerate from 4.4% over 12 months to 5.9% over six months to 6.3% over three months. The core rate also accelerates from 2.8% to 4.2% to 5.4% on the same timeline. Sweden is caught up in the global inflation problem.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 05 2022
Composite and Services PMIs Show Momentum Loss
The total, or composite PMI from Markit in March, generally weakened. In Europe, for the EMU and its largest economies, there was month-to-month weakness across the board. But in the U.S., the Markit composite index moved up to 57.7 from 55.9. For 19 key countries, the composite PMI slowed in 13 of them with four of them posting PMI values below 50, indicating economic contraction. This contrasts to February, when only three slowed, and only three posted PMI values below 50. However, the unweighted average for the group of countries has moved from 52 in January to 54.6 in February back down to 53.6 in March. The median similarly shows a move from 51 in January to 55.3 in February backing off the 54.6 in March.

These unweighted trends show a weakness between March and February but still show March levels of activity above those in January. The slowing is broad but not severe.

Sequential data looking at averages over 12 months six months and three months show the average PMI reading falling from 54.6 over 12 months to 54.0 over six months to 53.4 over three months. For the median, the average for the group falls from 55.1 over 12 months to 53.7 over six months staying at 53.7 over three-months.

The evaluation of the level of activity that corresponds to the average and median shows that these countries are in an average percentile standing of their range between 81% and 83%. The 81% to 83% percentile marks a very high position for the high-low range of outcomes for the various reporting countries. However, the queue standing data produce different, weaker, results. The queue data are obtained by ranking each country's current value among its set of values from January 2018 to date expressing the current standing as a percentile standing. So the queue percentile standings are ordinal standings. Viewed in this way, the average queue standing for the group is at its 58.6 percentile while the median is at its 66.7% percentile. That's a reasonably large gap between the average and the median. But for both, these are considerably weaker readings than the high-low percentile standings. What this suggests is that while most of these countries have a percentile standing that are relatively high in their high-low range, when ranked among all observations, countries are much closer to their average and median values.

Still, the data over three months, six months and 12 months, show that there are only between five and two countries over these periods averaging PMI values below 50 indicating economic contraction. For the bulk of countries, growth remains the rule of order. However, there is a clear tendency toward weakening. The 12-month average shows no country weaker than its previous 12-month average. But the six-month average compared to the 12-month average shows weakening in 13 of 19 reporters and over three months there's a weakening in 16 of 19 reporters. While the statistics show a broad weakening, we can see from the data on averages and medians that the weakness is not really very pronounced; it may be broad and consistent, but it's not pronounced.

Wrap up Among the salient trends for March, we find a sharp weakening in Russia's PMI as it falls to 37.7 from 50.8 in the early wake of sanctions. Only Ghana shows its PMI weakening in each of the last three months. Sweden is the only country where the PMI weakens for just two months in a row (March and February). Over three months only Egypt has three readings each below 50 although Russia and Japan come close on that score. Only Brazil shows steady acceleration, improving averages from 12-months to six-months to three-months. Brazil in the only country showing its highest reading since January 2018 (100% percentile standing).

There are sanctions at work that, eventually, may slow growth globally more broadly than just Russia. If China backs Russia, things could get much dicier, especially if the same sort of sanctions are implemented. There is still the virus, and it has continued to hit China hard, as China continues down the road to zero-Covid. And global supply chain issues are still unsolved while central banks grapple with high inflation and take steps to reign it in. The environment still possesses some significant risks. Meanwhile, PMI levels are only moderately firm on average based on queue standing averages.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 04 2022
Manufacturing PMIs Declining; Asia Weakening
In March, of the 18 manufacturing PMI entries in the table, 12 worsened. Only one-third of the countries improved month-to-month. This is the same split as over three months when 12 also declined compared to six months ago. Asia weakened broadly with Japan and Indonesia as exceptions.

Some PMIs indicate sector contraction Five countries report manufacturing PMI values below 50, indicating that manufacturing is contracting in those places. These entries include Mexico, China, Russia, Malaysia, and Turkey. China is experiencing a wave of Covid reinfections and remain dedicated to its zero-Covid policy.

China and Russia Flares of infection in China led to swift and broad targeted shutdowns that greatly impact the economy there. With the Russia-Ukraine war having started in late-February and economic sanctions imposed on Russia because of its aggression, the Russian manufacturing PMI slipped to 48.6 in February from 51.8 in January. It has in March fallen again to 44.1, indicating sector contraction as sanctions begin to bite- and this is only the beginning of that process.

Malaysia, Turkey, and Mexico Malaysia has experienced a spike in Covid infections in March as they peaked early in the month – part of the reason for its weakness. Turkey saw its PMI weaken on the month and fall to indicate contraction; it is less a case of virus issues as its outbreak peaked in early-February. Inflation in Turkey, however, has surged to over 61%. Mexico is an odd case with its Covid infections peaking early in the year and dropping since. Mexican inflation, however, has been on the rise. Its PMI is below 50 indicates contraction and it ranks below its historic median as well; nonetheless, it stands in the top 20% of its historic range of values. We can conclude that Mexico's weakness may not be as severe as its standing implies because of a very tight distribution of values. With such extraordinary weakness China and Russia have the larges gap between their range and standing positions, but among other entries Mexico and Vietnam are the next largest gaps. The median gap is 13 percentage points; for Mexico, the gap is 34 percentage points.

Over six months, ten of the 18 manufacturing PMI entries show weakening. But over 12 months, only China and Brazil are worse on balance. The average PMI levels for the entire group of emerging economies in the current month, as well as for three-months and for six-months, are all just a few ticks above 50, the dividing line in the PMI lexicon between expansion of the sector and contraction. Manufacturing has been on the razor's edge of expansion for the past year.

Among entries only Canada logs a manufacturing reading at its high on this nearly five-year period. The average reading for all entries is at about the 75% market between its sample period high reading and low reading. The far right-hand column provides queue percentile standings. They show only Canada with a 90-percentile standing or higher. But five countries stand below their historic medians (below a rank standing of 50%) among them Mexico, Vietnam, and Turkey. However, the weakest ranking countries are China and Russia; China's ranking is in its 1.7 percentile and Russia's is in its 3.4 percentile.

The average gain in PMI levels for January 2020- since Covid struck is a gain of 2.7 points, a meagre rise for period of over two years. However, China, Russia, India, and Turkey are net lower in that timeline. Germany has the largest gain posting rise of 11.5 points, followed by Canada at 8.3 points, the U.S. at 7 points, Japan at 5.3 points, and the U.K. at 5.2 points.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 01 2022
Japan's Tankan Report Shows Weakening in Q1
Japan's Tankan report slipped in the first quarter of 2022 as the bellwether manufacturing rating fell to 14.0 from 17.0 in the fourth quarter of 2021. Nonmanufacturing slipped to 9.0 from 10.0. On the same timeframe, the total industry reading fell to 11 in Q1 2022 from 14 in Q4 2021.

Weak levels for the Tankan The absolute level of the readings for Q1 2022 are not particularly solid. For manufacturing, the percentile queue standing is at 66.7% that leaves it at the border of the top third of its queue of values- that's a reasonably firm, but not very impressive standing. For nonmanufacturing, things are much worse. The nonmanufacturing percentile standing is at its 39.4 percentile, leaving it substantially below its median. The median occurs at a ranking of 50%. Together these two measures leave the total industry percentile standing at the 43.9 percentile, also significantly below its historic median.

Lost momentum, turned negative, too The Japanese economy has slipped. The levels of the Tankan are not impressive and perhaps even somewhat disturbing to the policy officials there. A look at the sequential pattern in the table shows that there has been weakening; there's a weakening from Q3 to Q4 from Q4 2021 to Q1 2022, although the first quarter readings for 2022 stands above or at the same level as they did in Q2 2021.

An uneven set of readings and their impact On balance, the Tankan gives us a view of the Japanese economy that shows it slipping. It has already reached levels that are not very strong by the standards of the Tankan survey. At the same time, the Bank of Japan is struggling to keep control of interest rates and the yen has backtracked significantly on foreign exchange markets. The drop in the yen is a mixed blessing as a weaker yen makes Japanese goods cheaper overseas and that provides export stimulus for the economy. However, Japan has shuttered its nuclear reactors now and is importing a great deal of oil; oil is priced in dollar terms. Any weakness in the yen is going to make Japan's energy imports even more expensive at a time that energy is already very expensive. In addition to that, anything that Japan imports from the dollar sector is now going to be more expensive.

The final column in the Tankan table shows changes in the indexes from Q1 2020. Manufacturing is up by 22 points on this timeline but nonmanufacturing is up by only one point. Total industry is up by 11 points on this timeframe benchmarked to just before the start of Covid globally.

Services industries Turning to the details in this report, looking across various service sector industries, only wholesaling has increased its assessment quarter-to-quarter moving to a value of 20 in Q1 2022 from 17.0 in Q4 2021. The transportation rating at -2 is equal to its reading in Q4 2021. Comparing the levels of the readings to their values in Q1 2021, we see that most of the industry responses are higher: construction and real estate are exceptions. If we look at the queue percentile standings, in Q1 2022, we get a glimpse of the kinds of businesses that have been hurt the most in the post COVID period. Restaurants & hotels and personal services scrape the bottom of the barrel with lower 10 percentile or weaker standings. Also extremely weak is transportation at a 31.8 percentile standing and retailing at a 36.4 percentile standing, along with real estate at its 37.9 percentile standing. Construction is only slightly better off at a 47 percentile standing, but it is still below its historic median. Showing some strength are services for businesses at an 87.9 percentile standing; wholesaling registers an 81.8 percentile standing. These are relatively strong readings indicating some degree of health in those sectors.

The far-right hand column shows the changes in these sectors since Q1 2020; there is an outsized increase in wholesaling of 27 points, retailing improved by 9 points, transportation improved by 5 points, and services for businesses improved by 3 points along with restaurants & hotels. However, personal services, real estate, and construction are all lower on that timeline comparison with their assessments of two years ago.

Outlook darkens The outlook portion of the survey weakened sharply quarter-to-quarter. The manufacturing outlook slipped to 9 in Q2 2022 from 13 in Q1 2022; the nonmanufacturing outlook slipped to 7 from a reading of 9; and for overall industry, the outlook stands at a value of 8 compared to 10. The queue percentile standing for these readings put the manufacturing outlook at its 56.1 percentile standing, slightly above its historic median. For nonmanufacturing, the 37.9 percentile standing leaves it well below its historic median; the all-industry standing is at its 42.4%, also below its historic median. If we compare the manufacturing outlook for Q2 2022 to the outlook for Q3 2021, it's lower significantly and the outlook for all industry is unchanged with the nonmanufacturing outlook being the only one that has improved on that timeline.

In summary, there's a lot of weakness in the Tankan report. There's a loss of momentum, there's weakness across the board, there's a loss of momentum across the board, and there's a reduced outlook for the period ahead. Japan's policymakers are looking at the potential for a fiscal stimulus package which makes a lot of sense given this weak report. Japan's economy continues to struggle.
by:Robert Brusca
|in:Economy in Brief
Japan| Mar 31 2022
Japan's Industrial Production Advances
In February total industrial production in Japan rose by 0.4%, reversing several months of declines. In January industrial production fell by 0.7%; in December it fell by 0.8%. That contrasts to the month previous to that as output had been up very strongly in November.

Total industrial production has an uneven trend with a tilt toward the deceleration. At a 0.7% growth rate over 12 months that elevates to 1.7% over six months but then turns lower over three months as total industrial production declines at a 4.5% annual rate.

Similarly, for manufacturing output, an increase posts in February with declines in January and December. Over three months there's a decline at a 6% annual rate that follows an increase at a 3% annual rate over six months and compared to a gain of only 0.3% over 12 months. Manufacturing shows a tendency to decline. The sharp negative growth rate over three months gives the series its demeanor but trend is not monotonic and therefore not clearly determined.

Select industries The two industries in the table, textiles and transportation, show uneven and inconsistent monthly patterns as well as divergent sequential patterns. Textiles do show a progression toward acceleration while transportation shows an inclination toward weakness mostly based on the steep minus 20% annual rate decline over three months.

Sector trends By product group or sector, the trends once again are uneven: consumer goods and intermediate goods follow the trend of overall industry showing declines in December and January and a slight rebound in February. Investment goods show a decline in December, an increase in January and a small decline in February; these results translate, once again, into mostly uneven sequential trends. For consumer goods, there's a 1.8% rate decline over 12 months, a sharp 10% rebound over six months, then a 6.5% annual rate decline over three months. For intermediate goods, there's a 1.0% increase over 12 months, another 1.0% increase at an annual rate over six months and then a 4% annual rate decline over three months. Investment goods show a clear trend that is weakening as growth is at 1.2% over 12 months, declining to a -2.3% pace over six months then eroding further to a -4.9% rate over three months.

Mining shows sequential growth rates that are clearly deteriorating and logs a -9.6% annual rate decline over three months. Electric & gas utilities show the opposite trend, with a 16.3% surge in output over three months.

Quarter-to-date The quarter-to-date trends show for overall industrial production a rise at a 4.6% annual rate and in manufacturing a rise at a 4.2% annual rate. By sector, consumer goods are up at a 4.6% annual rate, intermediate goods at a 4.4% annual rate and investment goods by 3.0% at an annual rate. Mining, however, shows declines in double digits at a -12.7% pace. Electric & gas utilities show an increase at a 22.7% annual rate.

Since Covid... The changes since January 2020, a reference point over two years ago, underline how weak conditions in industry have been in the intervening period. Total industry output is down 2% on balance over that timeline. Manufacturing output is down by 3.1%. Consumer goods output is down by 7%, intermediate goods output is down by 1.3% and investment goods output is down by 0.6%. Since January 2020, mining output is down by 7.5%; however, electric & gas utilities have output up by 7.8%.
by:Robert Brusca
|in:Economy in Brief
Italy| Mar 30 2022
Italian IP Continues to Settle Lower
Italian industrial production in manufacturing fell by 3.4% in January following a 1.1% decline in December and a 1.5% gain in November. This series for manufacturing industrial production declines at 11.6% annual rate over three months, at an 8.3% annual rate over six months, and at a 2.4% annual rate over 12 months. Italian industrial production is sequentially decelerating: the more recent, shorter-period growth rates are weaker than the longer growth rates indicating progressive deterioration in Italy's manufacturing sector momentum. The current observation is for January 2022; with one month into the new quarter, industrial production is falling at a 20% annual rate early in 2022 Q1.

Sector trends Declines in January permeate the index; there's a 3.6% decline in consumer goods output, a 1.6% decline in capital goods output, and a 3.4% decline in the output of intermediate goods. In December, the weakness is widespread again this time with consumer goods output flat and with a 2.2% decline in capital goods and a 0.6% decline in intermediate goods. In November, conditions are slightly more mixed, but more upbeat, with consumer goods output down by just 0.2%, capital goods output up by 2%, and intermediate goods output up by 0.7%.

However, looking at the table, there are still sequentially deteriorating rates of growth for consumer goods and for intermediate goods in which the shorter, newer growth rates continue to show weaker and weaker results. The exception is for capital goods but it's not much of an exception because for capital goods there is a 12-month decline of 2.8%, over six months a decline at a 7.7% annual rate over emerges, and over three months that is only slightly improved to -7.1% - but that's still a severe downturn. It's still a rate of decline that's much greater than the 12-month rate.

Quarter to date Consumer goods are declining at a 20.2% annual rate in the quarter to date. Capital goods output is declining at a 13.5% annual rate in the quarter to date while intermediate goods are declining at 19.7% annual rate. Obviously, the quarter-to-date data show severe and consistent weakness across sectors; there really isn't any exception and there isn't a strong sector.

Transportation There are separate figures for the transportation industry, and there is some strength there. Transportation shows gains month-to-month in January, December and November. Transportation output is accelerating with the -1.3% change over 12 months, a 1% annual rate gain over six months and a huge 26.5% annual rate gain over three months. However, even with this sector embedded in the totals, manufacturing continues to decline into show sequential weakness.

Other industrial measures The manufacturing PMI declined by 5.9% in January; it declined by 1.3% in December but did make a 2.8% increase in November. However, there is sequential deterioration as the manufacturing PMI goes from a gain of 5.7% over 12 months to a declining pace of 6.5% over six months and the declining pace accelerates to 17.1% annualized over three months. The PMI reinforces news from the headline showing weak output and progressively weakening output. The EU Commission statistics on industrial confidence for Italy are contrary to this; they show a 12-month level of confidence at 6, over six months they show average confidence higher at 9.2, and the three-month average is at 9.9. All of these are averages so according to the EU data industrial confidence in Italy has been progressively improving. However, industrial output percentage changes in totals as well as by sector, show the opposite: progressive deterioration. Also, the Italian manufacturing PMI from Markit shows progressive deterioration. The EU confidence measure must be picking up abstract optimism not on-the-ground reality.

And there is inflation... On the same timeline, there's, of course, rampant inflation and it is rising because of supply problems because of high oil prices and for Italy we see a 13% annual rate over 12 months, we see another 13% annual rate over six months and that climbs to a 14.6% annual rate over three months. Italian inflation shows a slight tendency to accelerate; it clearly is stuck at a very high level. In the quarter to date, it's up to a 17.5% annualized pace. Inflation continues to be a problem in the industrial sector for Italy as it is in much of the rest of the world.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 28 2022
German IFO: Man Overboard!
The current IFO gauge in March fell sharply from a value of 15.5 in February to -6.3 in March. The manufacturing sector fell from a reading of 23.1 to -3.3. Construction fell from a reading of 8 to a reading of -12.2. Wholesaling fell from 14.3 to -6 6. Retailing fell from a February mark of -3.4 to -19.0 in March. The service sector reading of 13.6 in February diminished to 0.7 in March. It's the only positive net reading for climate in the IFO in March. As a whole, the business situation in the current environment erodes from 24.8 in February to 21.1 in March while expectations plummet from 6.3 in February to -21.7 in March. These are dramatic declines in the assessment of climate and expectations in the March IFO report.

Rankings We further evaluate the climate assessments by looking at the rankings of these sectors: the all-sector index has a ranking since 1991 in its 35th percentile, meaning it's been weaker only 35% of the time. Manufacturing is in its 27.7 percentile, wholesaling is in its 45th percentile, and retailing is in its 32nd percentile. Services, despite being the only positive net reading, is at the lowest standing of the bunch at a 9.5 percentile reading. Construction, despite its climate reading of -12.2, has a 60.1 percentile standing. That means based on all the construction metrics back to 1991 construction is lower 60% of the time and higher 40% of the time; it is the only sector above its historic median on this timeline.

Ranking of one-month changes The ranking of month-to month changes back to 1996 shows the largest one-month change and decline in manufacturing on record. Construction, wholesaling, and services have weakened by more month-to-month less than 1% of the time on that timeline. Retailing has weakened by more only 1.2% of the time. These are draconian changes month-to-month. It is stunning that markets have not reacted by more than they have with these kinds of erosions in the fundamentals.

Current conditions vs. expectations show stark difference There's a stark difference between the readings for current conditions and expectations this month. It noted above that the all-sector current index fell to 21.1 in March from 24.8 in February, while expectations in March plunged to -21.7 from 6.3. In February current conditions have not been that adversely affected at this point by the war in Ukraine, the sanctions, the recirculating virus, and other generalized economic circumstances in the German economy. However, expectations have been vastly downgraded. We see this by looking at standings of the two metrics: for current conditions, a 36.2% standing prevails which leaves the reading weak, in the lower one-third of its range; however, expectations have a 4.8-percentile standing. The components of expectations are even weaker than the 5% overall expectations standing. Each of the components of expectations in the IFO framework has a rank standing below the 4.8-percentile mark. The weakest being construction at 0.3%, the second weakest is wholesaling, followed by retailing at 2.3%, and then manufacturing at 2.4%. Looking at the individual standings for current conditions, services clearly is driving down the overall rank for the sector. Services has a 22.1 percentile standing. All the other industries: wholesaling, retailing, and manufacturing boast respective standings that are well above their 50th percentile mark (60th, 70th and 80th percentiles, in fact) indicating that they're above their medians for the period (reminder: median occurs at a ranking of 50%). Yet, the sector median stands in the 36th percentile dragged down exclusively by services weakness.

Position since before Covid struck is broadly weaker The far-right column chronicles change in the various line items compared to their levels in January 2020, before the virus struck. All the climate readings show declines compared to that date. Under current conditions, only manufacturing and wholesaling show increases. Among expectations all sectors are weaker and all of them are weaker in double digits.
by:Robert Brusca
|in:Economy in Brief
Global| Mar 25 2022
Chika Boom Chika Bust: Money Supplies
Tight money isn't funny – but is it loose or tight? This month we encounter a bit of a dilemma in analyzing money supply growth. In the European Monetary Union (EMU), year-over-year M2 growth is at 6.8%. In the U.S. M2 money growth is at 11%, in the U.K. it's at 6.5%, and in Japan its pace is 3.6%. All of these are relatively robust rates of growth for nominal money supply. Money is plentiful. The question, however, is whether money has been too plentiful.

Inflation classically is described as too much money chasing too few goods. These statistics suggest that there has been plenty of money out there; however, in the wake of the pandemic, certainly in the U.S. where a lot of support monies were given to people who weren't working and weren't creating any output, there has come to be a maintenance of spending because there was a maintenance of income. However, there was a shortfall of supply and so with an abundance of money what we have is situation where there has been too much money chasing too few goods and probably more 'too-few goods' than 'too-much' money.

To a considerable extent, there seems to be a physical goods/services supply problem. The bigger problem seems to be that supply has been impeded and there haven't been enough goods and services around for people to purchase. Certainly, money supply statistics confirm in the sense that the 12-month growth rates are some of the lowest growth rates that we've seen from these countries, comparing the 12-month pace to the two-year average pace or the three-year average. Thus, the increase in money supply isn't particularly new nor is it robust and there is no acceleration.

Real money balances On the other hand, we can look at what's been going on with real monetary balances. This measure involves looking at nominal money supply growth with inflation subtracted from it. When we look at this measure, we find that over three-months and, for the most, part six-months real money balances are shrinking in the European Monetary Area and the U.K. In the U.S., three-month growth is negative but not six-month growth. For Japan, money-growth rates hover around 1% for real balances on this horizon.

Looking at the year-over-year rates, the European Monetary Union's money growth is 0.9%, in the U.S. it's 2.9%, in the U.K. it is 1.1%, and in Japan it is 2.6%. All these growth rates, of course, are substantially below their respective nominal counterparts because they're constructed by taking the nominal growth rate and subtracting inflation, at a time that inflation is accelerating. But what we see is that money supply growth has not been adequate to compensate for inflation and we're seeing that the growth in real monetary balances is barely enough to fuel any kind of decent real growth in many of these countries The U.S. is the marked exception since for the U.S. real balance growth is still at 2.9% over 12 months, which is still relatively robust. However, over shorter periods, real balance growth is impeding economic growth.

Credit in EMU Looking closer at the European Monetary Union, we see the credit to residents in nominal terms is up by just 4.1% over 12 months and by 4.4% for credit to the private sector. Look at these two measures, convert them to real terms, and the results change markedly. Credit to residents is falling 1.7% year-over-year and private credit is falling by 1.4% year-over-year. Clearly there is a pull-back in credit growth that is now becoming a drag on economic activity. While central banks haven't raised interest rates aggressively, they have controlled the growth rate of money supply and with that, the increase in inflation is creating a drag in terms of the provision of real money balances and real credit flows in the economy. That creates some braking effect on its own.

Oil trends The far-right hand column of the table also presents statistics on oil prices and there we see that oil prices are up by 56.1% over 12 months and this is for West Texas Intermediate (WTI) oil prices. Over 12 months, that same statistic, converted to real terms converted using the U.S. CPI, decelerates to a 44.6% gain. However, over three months and six months, the growth in real balances steps up from that 44% pace to growth rates in the 60% range.

There is no doubt in the age of Covid central banks were relatively easy with their money and credit growth, but fiscal policy was highly stimulative as well. Since inflation has picked up and there's concern about it. Central banks have paid a little bit more attention to money growth and some of them have started to raise interest rates and this is having some further impact on slowing the rate of money supply growth.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 24 2022
EMU PMIs Wither in March; Mixed Bag Elsewhere
PMIs in Europe are weakened on balance in March. The Composite Index for the EMU fell in March, driven lower by weaker conditions in manufacturing and in services. Germany had weaker conditions in March driven lower by weaker conditions in manufacturing and in services. France breaks the model of the EMU member with a stronger index overall boosted by strengthened services as the manufacturing was weaker on the month. The U.K. was weaker overall despite having a stronger service sector; its weakness was created by a weaker manufacturing sector. Japan saw strengthening across the board for its composite, manufacturing, and services as did the U.S. The U.K. has the strongest composite standing on the month, but the U.S. has the most uniform strong stands across sectors- the best balance. Japan is the weakest.

Sequential changes in lagged averages Looking at the sequential changes over 12 months over six months and over three months (calculated on one-month lagged averages that ignore preliminary data), those averages show that over 12 months all the indicators are stronger than they were twelve months ago. This applies to the composite, the indexes for manufacturing and services in each of the survey respondents. Over six months compared to 12 months, conditions are somewhat uneven. Japan shows strength across the board: for manufacturing, services and the composite. However, the U.K., Germany and the EMU show weaker conditions across the board. France shows mixed performance over six months as does the U.S. Over three months compared to six months, weakness prevails. However, manufacturing is stronger compared to six months in Japan, the U.K., France, and Germany. But manufacturing still weakens over three months compared to six months for the European Monetary Union as a whole- all EMU PMIs weaker over three months. The U.S. also shows a weaker composite and weaker components over three months on average data.

Queue standings compared The queue standings show the positioning of the composite indexes on data back to 2018. Readings are mostly upper mid-stream. There's a 72.5 percentile standing in the EMU, for Germany it's a 66.7 percentile standing, France is a bit stronger at the 78.4 percentile mark, the U.K. at 88.2 percentile. Japan, however, is weak with a 41.2 percentile composite. The U.S. composite stands at 82.4%. Manufacturing sector standings are all in the 60th to low 70th percentile except Japan at 82.4% and the U.S. at 80.4%. Services sector standings are firm-to-strong with the EMU clocking 72.5%, Germany at 68.6%, France has a stronger 84.3%, the U.K. has an even stronger 94.1%. Japan’s service sector is below its median at a 41.2 percentile. The U.S. logs an 86.3 percentile standing.

A narrow range houses most estimates Despite considerable country differences, the average composite reading for EMU members and Japan is 69.4%, the average manufacturing rating is 70.6%, and the average services reading is 72.2%. These standings are all clustered in the upper midrange (low 70th percentile for the most part) indicating overall firm conditions. However, as the table shows there are some clear differences among members. And in comparison, all the U.S. ranks are in their 80th percentile.

Month-to-month and three-month patterns for unaveraged PMI diffusion indexes The month-to-month changes are concentrated with declines in Europe, and some rebound in the U.S. and Japan. Still, Japan tends to lag the PMI levels achieved in Europe (except for manufacturing). Over three months, composite conditions improve everywhere except Japan. All show a weaker manufacturing sector except France that is unchanged and the U.S. that shows an increase. The service sector advances everywhere over three months except in Japan.

Japan is the weakest On theses timelines, only Japan post PMI readings below 50. Its composite PMI for March is 49.3, and its service sector PMI is 48.7. Japan’s composite and service sector PMIs are below 50 in March, February and January, showing outright declines in activity for these sectors in each month. In addition, Japan’s composite PMI averages a below 50 PMI reading over three months and 12 months while services show and average reading below 50 on all horizons, three-months, six-months, and 12-months. Still, Japan’s manufacturing sector registers steady expansion. Japan is suffering from the ills in China, its largest trading partner, where growth has slowed and where a zero-Covid policy continues to impede economic activity. The virus has also been an ongoing issue in Japan that has impacted services.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Mar 23 2022
U.K. CPIH Flares...But Slows
Inflation in the U.K. continues to run hot in February. The headline gauge CPIH rose 0.5% in February, the same as in January and in December. Sequential inflation rates for the U.K. show a 5.5% annual rate over 12 months, a 6.5% annual rate over six months, and a 6.2% annual rate over three months. Inflation shows signs of having peaked. These are early signs, preliminary, tentative signs, not irreversible, but encouraging.

Core Inflation- a more complicated pattern The core measure, which is the CPIH excluding energy, food, alcohol beverages & tobacco, decelerated in February rising by 0.4% after gaining 0.6% in January and 0.3% in December. This core measure is up at a 4.5% pace over 12 months; it accelerates to 5.2% over six months; it edges higher to a 5.4% pace over three months. However, a plot of the three-month inflation rates for the core shows that inflation ticked off its highest pace of this cycle slowing in February compared to January (5.8% in January). However, that's only a one-month to deceleration, certainly not definitive.

Inflation fighting complications from the virus ...again The Bank of England has begun to move to fight inflation. Like other central banks, it's concerned that inflation is high and has spread. However, the U.K., like much of Europe right now, is undergoing a resurgence of the virus. This new variant is very highly transmissible; it strikes Europe when countries in Europe are taking off their restraints. WHO claims that the constraints are being taken off too rapidly; it even uses the word ‘brutally’ to describe the policy of relaxation. Still, it's hard to tell why the spread has picked up. Restrictions were lifted and the new variant is much more transmissible-so what is responsible? A number of European countries, especially Germany, right now are undergoing sharp increases in their infection rates. This may be something that monetary policy is going to have to take account of even in the face of other challenges.

Breadth of inflation and its rise monthly Among the 10 U.K. CPI categories in February, half of them show acceleration in inflation month-to-month compared to January. In January, five categories out of ten also had showed month-to-month acceleration. The proportion of acceleration in January and February was lower than in December when seven categories showed acceleration month-to-month. However, with five categories accelerating out of 10 monthly, the breadth of inflation is meeting some resistance to spreading.

Sequential trends Turning to sequential growth rates, over three months only five categories show acceleration compared to six over six months. Over 12 months nine categories accelerated compared to 12-months ago. Over six months the breadth is still substantial with only a few categories resisting acceleration. It is not surprisingly that the 12-month inflation rate is substantially and widely higher across all commodity categories compared to 12-months ago. But over three months the mix of accelerating and decelerating is at the point of neutrality: five accelerate and five decelerate.

The outlook The challenge for the future is going to involve dealing with this inflation spike, with higher global commodity prices, with rising oil prices, with the distortions caused by the war in Ukraine, with various sanctions NATO members and others have adopted, with ongoing problems from the virus, and with supply chain issues. The challenges really are many. For the time being, there is some good news with the three-month inflation rate edging down to 6.2% and the three-month core inflation rate off peak at 5.4% and with it barely having accelerated from six-months ago. But very clearly, inflation still is entrenched. The monthly increase at 0.5% for the headline and 0.4% for the core is too high. The risks for inflation are still substantial and monetary policy has a lot of different situations to juggle in order to solve the inflation riddle and to keep growth on track.
by:Robert Brusca
|in:Economy in Brief