Introducing

Robert Brusca

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

Publications by Robert Brusca

Global| Feb 01 2022
Manufacturing PMIs Weaken in January
Manufacturing PMIs have peaked and have been sliding lower for some months. The peaking and slippage are a slightly different horizon for each country, but all of them are now on downslopes.

In January, the deteriorations exceeded the 'better' responses by a factor of 8-to-5. The change from three months vs. six months shows a nearly equal improvement vs. deteriorating trend. The change from 12 months to six months shows deterioration dominating improvements by a factor of more than 2 to one. But over 12 months compared to a year ago, improvement is the order of the day with 11 improvements logged vs. only 2 deteriorations… Longer term, the beat goes on.

Covid rears its ugly head Once again, the Omicron variant seems to be behind the worsening trend in manufacturing as the less virulent but much more transmissible variant has swamped hospitals with infected people despite its lesser virulence. In this case, transmissibility has trumped virulence to create a potent viral attack on the populations globally. While vaccination helps to mitigate the impact of infection, it does not stop it. As a result, Omicron has been very widespread and even quite dangerous. It is a lesson about how one should view danger.

Vaccines to the rescue...oops not... I suppose one thing we should at some point begin to wonder about is the economy's recuperative capacity after a bout with yet another variant of Covid-19. When Covid first struck, draconian measures were taken by health authorities who were more scared than knowledgeable about what to do. Over time the mRNA quasi-vaccines were developed and for a while they became the path to stronger growth. Eventually health officials discovered that the inoculations had a short 'effective life,' and 'vaccine-boosters' were thought to be needed after six or eight months. It is now understood that the inoculation's immune system stimulants begin to drop sharply after just four months. That is probably not a 'New Reality' as much as it is scientists discovering the real reality. Discovery of this reality makes the quasi-vaccines much less of the backbone of a response system and critics of the CDC complaint that the CDC, which tends to lead the Covid fight globally, did not devote enough resources to other potential treatments. If you put all your eggs in the vaccine basket, that basket better carry the day. (This not an opinion-it is a fact. See Scott Gottlieb at the 39-minute mark of Face the Nation 1/16/22 . - here Gottlieb, who is on the Board of Pfizer notes the failure of the vaccines to prevent transmission. He also blames the CDC – a significant statement from a high-profile industry expert and a former FDA Commissioner.)

Damped recovery prospects? In the past after a bout of virus, there were government support programs and some of those are still in circulation in various places. But government assistance and income supports are now much less common. After this round of Covid, manufacturing and services are going to have to rise back based on whatever organic demand has been built up. There is reason to believe that such build-ups in demand occur after a period of disruption. But the snap back may not have the same 'snap' as in previous episodes of infection followed by recovery.

The state of play for manufacturing The queue or rank standings find only China and Brazil below their historic medians, but these two are below by a huge margin with standings below their 5th percentile in each case. The median occurs at a percentile queue standing of 50%. These are readings far from where they belong.

There is more firmness this month than strength. Japan has a 98-percentile queue standing. Russia Vietnam and the EMU have queue standings in their 80th percentile range. But Germany, France and the U.K. -the top-ranking three European economies- have standings in their 70th percentile queue standing. India and Taiwan are in their respective 60th queue percentiles. Turkey and the U.S. tally standings in their 50th percentile decile. Over 50% of the responses are at the 70th percentile standing mark or above. But still 30% are just in the first decile above their median (50

The responses this month show some mixed statistics, but clearly growth remains the operative descriptor. Yes! The growth has been more moderate than strong, and this is due to this survey being conducted in the middle of another Covid episode. Looking at the cumulative gains since January 2020 when covid struck is also illuminating. The EMU area and Germany have gained double-digit diffusion points on that horizon. The next strongest is the U.K. at +7.3 points and Japan at +6.6 points. Then rising by 3 to 4.4 points are France, Russia, the U.S., Taiwan, and Vietnam. Countries with manufacturing readings below their January 2020 levels are Turkey, India, China, and Brazil – sinking like a BRIC?
by:Robert Brusca
|in:Viewpoints
Japan| Jan 31 2022
Consumer Confidence Dips and Lags in Japan
Japan's consumer confidence diffusion index eroded in January, edging down to 36.6 from December's 38.9. The index is net lower over three months and over six months, but it is up by 6.5 diffusion points over its value of 12-months ago.
by:Robert Brusca
|in:Viewpoints
Global| Jan 28 2022
Tight Money Isn't Funny- But Too Much Growth Can Make You Choke
So... there it is, the paradox of the central banker…How much is enough? How much is too much? How much is too little? What happened to Goldilocks?

Back in the early 1980s, monetary experimentation was rampant. I worked at the New York Federal Reserve Bank back in those early days (1977-1983). My look back at the research and experimental looks at money (M1, M1a, M1b, M2 MZM…L, etc.) leaves me with the feeling that while there was a lot of research there was more investigation than there was learning. Subsequently, the Fed left the quantity of money to the wind and focused more on the price of money by targeting interest rates. But that does not mean money does not matter. It just means that money is not targeted. In fact, the Federal Reserve in the U.S. even STOPPED PUBLISHING M2 money supply numbers weekly. Shame!

The Fed in the U.S. further loosened constraints on itself by claiming to target some (unspecified) average rate of inflation and the ECB followed suit, dropping the less-than 2% objective for a 'higher' (also unspecified) 2% 'average.' So now central banks have a known objective for inflation (2%) which they are evaluating by looking at an unknow benchmark - some average of actual inflation. This, of course, leaves markets more mystified than before because we really don't know what the central bank is looking at to make policy. Since inflation has jumped so much, there is an enormous difference in what you see for inflation depending on which average you look at. And central banks think they are doing a 'excellent job' at communication!

Can we be anything but NOT SURPRISED that all this has led to rampant inflation?
by:Robert Brusca
|in:Viewpoints
Global| Jan 24 2022
Flash PMIs...Flash in the Pan?
Markit PMI flash readings from Markit for January 2022 weakened broadly. The clear exception was Germany where the composite, manufacturing and services readings all bucked the trend to make solid to strong month-to-month gains. Maybe there are additives in the gas in the pipeline from Russia? Or simply catch up since Germany's PMI standings are not standouts. The German gains were strong enough for an improvement in the manufacturing reading to post for all of the EMU due to Germany's large weight in that index. However, the EMU composite and services PMIs weakened.

France, the U.K., and the U.S. saw broad declines with each of the Markit indexes falling on the month. Japan witnesses a small gain in manufacturing with a sizeable fall in services and a step back in the composite. The U.S. fared the worst of all with a large setback in services to couple with a significant setback in manufacturing that produced a much weaker composite as well. The U.S. services drop is the third largest in the past four years and is exceeded only by the spectacular drops logged when Covid struck.

The U.S. is not only the weakest on the month; it is also riding three consecutive months of three sector deterioration and is alone among these reports with that distinction (and U.S. manufacturing extends that to weaken month-to-month for six months in a row). France weakened in all sectors for two months running while the U.K., Japan, and the EMU weakened in five of six month-to month-comparisons over the last two months. While Germany made across the board sector gains in January, it weakened across the board in December.

The monthly data, except for Germany, show a weakening as the color-coded back 'stronger' entries give way to the 'weaker' red entries in recent months. The historic averages which are formed excluding January (e.g., the three-month average is December, November, and October) show (1) predominate weakening over three months, (2) mixed conditions over six months, and (3) those contrast with uniform strength and improvement over 12 months (that is 12-months compared to the 12-month average of 12-months ago).

There are clear country differences as well, however. The U.S. is the only entry in the table with three- sectors weakening over three months as well as over six months. However, all the other members, except Japan, show three-month and six-month weakening for manufacturing alone.

The index standings- both the high-low position and the rank or queue standings show less strength than there has been recently as only Japan has ranking for its manufacturing sector in the 90th percentile decile. In the high-low range the EMU, Germany, and France mount 80th percentile decile standings, the U.K. has a low 70s standing, and the U.S. is just below a 70th percentile standing in manufacturing in the high-low column.

However, the queue percentile standings show less strength indicating that current performance does not stand up well to the standards of the past four years. Manufacturing is an exception with 80th percentile standing in the EMU, Germany, and France with the U.K. in the upper 70th queue percentile range and Japan again in its 90th percentile. The is U.S. alone below its median with a 49-percentile queue standing. The real weakness comes from services where four of the six entries in the table (the EMU, Germany, Japan, and the U.S.) log queue percentile standings for services that are below their respective medians and in most cases below by quite large margin. France and the U.K. are the exceptions here but only with queue rankings in their respective 50th percentile decile range.

This performance is the clear mark of the virus. As manufacturing, for the most part, has held much of its strength and resilience while the rapid spread of Omicron has taken a large bite out of activity in the service sector globally. The U.S. and Japan have been hit exceptionally hard looking at the queue standing assessments.

Services have been hit so hard recently that among the six reporters in this table four of them have service sector readings that stand below their pre-Covid readings of January 2020. The two exceptions have little to brag about since the U.K. is higher than its January 2020 level by only 0.4 points in services, while France is higher by 1.4 points. That's not much gain over a 24-month period.

Average manufacturing standings for this group are at the 79th queue percentile in manufacturing but only at the 36th percentile for services which is the jobs sector. The composite index averages a standing in its 46.6 queue percentile below its median.
by:Robert Brusca
|in:Economy in Brief
France| Jan 20 2022
French INSEE Survey Scores Solid Marks with Mixed Momentum
France's INSEE industry climate reading spurted to 112.4 in January to start the New Year from 109.7 in December despite an assault across Europe by the Omicron virus and some sharp words for the unvaccinated from French President, Emmanuel Macron. The French service sector, however, stepped back to 104.8 in January from 107.4 in December, marking a two-month drop of more than 13 index points, a very sharp pull back. We know that the service sector is more vulnerable to viral outbreaks, so my working hypothesis is that the virus smacked the service sector hard, but the manufacturing sector is signaling that growth is still in the groove. We will, of course, monitor French data closely to see if this is confirmed in forthcoming data releases.
by:Robert Brusca
|in:Viewpoints
Global| Jan 18 2022
ZEW Survey in January Sees Mixed Momentum and Higher Interest Rates
The ZEW experts' macro conditions readings for January show deteriorations for Germany, the EMU, and the United States. The German reading logs in at -10.2 in January while the EMU logs a reading of -6.2. In sharp contrast, the U.S. logs a reading of +41.1 (diffusion readings for individual reporters are not shown here). Germany has a 44.6-percentile queue standing, the U.S. has a 57.4-percentile queue standing and the EMU has a 64.3-percentile queue standing. Among the three assessments, only Germany, with a standing below its 50th percentile, is performing at a pace below its median.

Economic expectation readings are available for Germany and the U.S. Germany has the higher diffusion reading at +51 (not shown) while the U.S. has a +22-diffusion reading. This translates to a 72-percentile queue standing for Germany and a 60.5 percentile queue standing for the U.S. Both are above their respective medians for the period (the median occurs at a ranking of 50). And the diffusion reading for both Germany and the U.S. rose sharply on the month.

The early take on the ZEW outlook is that expectations have held their ground in January even has macro conditions assessments have slipped a bit. This may be an acknowledgement that the virus set back some activity in January but is not expected to continue to have that effect going forward.

Inflation expectations are negative in January and are lower on the month in the EMU, Germany, and the U.S. This is an interesting finding since inflation has been flaring and it is and has been troubling and excessive relative to the ECB target as well as the U.S. inflation target. However, what inflation is and what it is expected to be are different things. Inflation expectations peaked around March 2021 at diffusion values in their 80s for the EMU, Germany, and the U.S. In January these expectations are coalescing around a diffusion value of -40… as actual inflation has flared expectations have pulled back. While central bankers have played dumb about inflation (see no inflation, hear no inflation, speak of no inflation – and expect it to go away on its own), the ZEW experts were right on (prescient) and foresaw this blast in the making. The ECB for now seems unconcerned and is of the belief that no policy change is required, and that inflation will simply deflate. Or maybe even Godot will show? In the U.S., the central bank is making preparations to hike rates by winding down and eliminating asset purchases and signaling that it expects to raise rates multiple times in the year ahead.

Not only were ZEW expectations on inflation elevated earlier, but ZEW respondents now see central banks as closer to acting to contain it (I guess that would be despite some official pronouncements to the contrary). We can compare responses to the levels of those same responses of last year when ZEW inflation expectations were elevated. At that time, short-term interest rate expectations hovered near 10 for the U.S and the EMU. The expectations for the EMU are up to a diffusion value of 25 while the U.S. is up to 81. A net rise of over 70 points for the U.S. and a net rise of about 13 points for the EMU. So it appears that the ECB's declaration on rates is holding back ZEW expectations. Still, the ranking for rate hike expectations in the U.S. and in the EMU are high at the 74% mark in the EMU and the 84-percentile level in the U.S.

Turning to longer term rates, there are extremely high percentile standings for long-term rate expectations in both the U.S. and Germany. However, the average shift in expectations is smaller for long-term rates (+10) than for short-term rates (+20). This suggests – and the above responses are consistent with this - that ZEW experts expect rates hiked at the short end to be more powerful than the rate rises in the long end or at least to be sufficient to stop inflation. And this is reflected in the way inflation expectations have been pulled back as we saw. The monthly change in long rate expectations was higher in the U.S. this month than it was for Germany.

But in this environment the stock market is no longer as favored. Stock market percentile standings are all below 50 indicating a worse than median expectations and the month-to-month decline is an average drop for the U.S., German, and EMU markets of 17 points.
by:Robert Brusca
|in:Viewpoints
United Kingdom| Jan 14 2022
U.K. IP Continues to Make Headway
U.K. industrial output rose by 1% in November after gaining 0.2% in October, marking the first back-to-back monthly gains since February and April.

Output seems to be on some sort of an upswing as three-month growth is at an annual pace of 2.9% compared to nearly identical growth rates of 0.2% and 0.3% over six months and 12 months, respectively. In the quarter-to-date (QTD), output is rising at a 1.8% annual rate. And output still has not recovered to its pre-covid level as it is 1.8% below its level of January 2020.

Sector stories Three of four sectors made gains in November with consumer nondurables as the exception. For these four sectors over the last three months, there are 12 month-to-month changes in output, and among those twelve, five of them showed month-to-month declines. The other seven showed increases. That comparison points out that while output is rising more than falling, the industrial sector is still quite mixed. The longer trends from 12-months to six-months to three-months show no clear trends The overall mostly accelerating pattern actually does not get support from individual sectors, but three of four sectors do have a three-month growth rate above their respective 12-month growth, a sort of 'poor-mans' indication of acceleration. But only two of four sectors show positive advances in the QTD growth: consumer nondurables and intermediate goods. Output is contracting so far in Q4 for consumer durable goods and for capital goods. Sectors also are mixed on the view of recovery from Covid. Consumer nondurables and intermediate goods show output at a higher level in November than in January 2020. But consumer durables goods and capital goods show output lagging their January 2020 performance by 5.4% and 11.4%, respectively. Those are relatively large shortfalls.

The table highlights five industries as well. Among their most recent three-months (where there are 15 month-to-month changes), nine of them show drops in output against only six showing advances. Only one sector shows a clear three-month trend; that is textile and leather goods where growth in output is decelerating. Only one of five industries shows three-month growth faster than 12-month growth- and that is motor vehicles & trailers where the three-month negative growth rate is smaller than the 12-month negative growth rate. Only two of these five industries show output stronger in November than in January 2020: (1) food, beverages & tobacco and (2) textiles & leather.
by:Robert Brusca
|in:Economy in Brief
Japan| Jan 11 2022
Japan’s LEI Marks Second Monthly Rise in a Row
Japan’s LEI rose in November to 103 from 101.5. This is the second increase in a row. As the table shows the LEI took a one-point tumble from 101.2 in August, to 100.2 in September then it rose to 101.5 in October and now to 103.0. This is a nice string of increases. But the steady gains still leave the LEI index below its level of July 2021 when it stood at 103.8. In August of 2021, the index fell sharply. But it has recovered steadily since then.

The table shows the LEI in several different guises and settings along with other economic metrics on Japan’s economy all on the same timelines.

Looking at the increases in these metrics from January of 2020 shows the LEI is up by 14.1%. The METI industry index is lower by 1.4% on this same timeline. The Teikoku indices are uneven with three sectors still below their January 2020 levels (retail, services, and construction) but with wholesaling and manufacturing higher on balance. The Teikoku metrics are quite different from the economy-watcher metrics that show solid and strong gains on this same timeline for all its sectors- each showing a double-digit gain since January of 2020. The Teikoku readings lag the LEI and the Economy-watcher readings.

The LEI has an index level in November with an 88.8 percentile standing. This contrasts to its 76.9 percentile standing when ranked and evaluated on its 12-month growth on the same period. Those differences in rankings are not huge but for an index like the LEI that is based on underlying economic variables that grow over time, the growth metric is more important and more telling than the index level standing. The more meaningful LEI ranking is the lower growth rate ranking.

Compare the LEI ranking to the rankings of the Teikoku and economy-watcher indices. The index level ranking shows economy-watcher indices across the board are high and strong with rankings in their respective 90th percentiles. However, the level ranking for the Teikoku sectors are in the 36 percentile to 65th percentile range, a much lower habitat.

The growth rate rankings over the last 12-months show somewhat more similar rankings. The economy-watcher indices are in a range from the 83rd percentile to the 96th percentile. The Teikoku rankings on growth rates span a ranking of the 49.7th percentile to the 83rd percentile for services and an 81st percentile for manufacturing.

I contrast to these comparisons the METI industrial index has a 20th percentile index level standing and a 76.9 percentile growth ranking. The METI index level reading is weaker than anything else but in growth terms it is on board with the other surveys

There is no truly best index. The economy watcher indices are evaluations of economic onlookers in various sectors. Teikoku is more of a traditional survey as is the METI index. However, all surveys show ongoing improvement over the last three months and show a falloff in August from July as we saw in the LEI. We seem to be getting the same signals from all the surveys on the economy; there is just not one uniform way to map them into a single current standing. Every picture tells a story; every angle tells a different story.

The indices are clear about a few things. Japan’s economy is progressing. On its rate of progress there is some disagreement, but it is progressing. Current evaluations from the LEI, Teikoku, METI, and economy-watchers indices show an ongoing economic improvement and a solid-to-strong standing for the economy itself. At this point it is hard to put a finer point on it than that.
by:Robert Brusca
|in:Economy in Brief
Europe| Jan 07 2022
EMU Confidence Backtracks in December
The EMU economic sentiment index fell to 115.3 in December from 117.6 in November. EMU-wide consumer confidence back-tracked, retailing backtracked and services backtracked. Rising month-to-month was the industrial sector index and construction. The sectors stepping back in December are those sectors that are relatively more impacted by interpersonal transaction activity an important point with the virus spreading in Europe.

Among the 18 early-reporting EMU members in the table, 14 reported declines and only four showed index improvement in December (all small economics: Cyprus, Slovenia, Latvia, and Lithuania). That compares to seven countries reporting declines in November and eight reporting declines in October.

The headline is the weakest since May of last year. March 2021 was the month in which the EMU sentiment index made its jump to the 100 mark, and it improved to 110 by the next month. So, the comparison to the May 2021 level is to an intermediate step up as the economy in Europe dug out from the severe covid weakness. From May 2021 onward, the index improved; October 2021 was the high reading at 118.6. During this phase, improvements were incremental. The headline EMU index has now declined from this post-covid peak for two-months running.
by:Robert Brusca
|in:Economy in Brief
Italy| Jan 05 2022
Inflation Continues to Flare in Italy
There is nothing in the headline or core evolution of Italy's inflation numbers this month that provokes any respite or reason to think that the worst from inflation is over. And on world markets, oil prices are moving higher giving no reason to look there for good news.

As the chart shows, both the Italian CPI and the HICP measures are flaring sharply. The HICP slowed to gain just 0.4% in December after rising 0.8% month-to-month for two months in a row. The core HICP gained 0.5% in December, accelerating from a 0.3% November rise and equaling a 0.5% October gain.

The Italian domestic index (as opposed to the EMU's HICP index) rose by only 0.2% in December, slowing from 0.9% in November and 0.7% in October. The core domestic measure rose by 0.4% in December, accelerating from 0.3% gains in each of the previous two months.

Headline inflation leads Core inflation is running below the pace of headline inflation as oil and energy prices lead the way higher for inflation. But the two headline measures are up over three months in the range of 7% to 7.8% while the core measures are up in the range of 3.9% to 5.1%. All these rates of change are excessive with respect to the overarching 2% target on average now aimed at by ECB policy. And until recently, Italy has been one of the low inflation countries in the EMU.

Diffusion narrows...but Digging deeper into the numbers, we can unearth some good news but I'm still not sure how deep it goes. For example, over three months, Italy's inflation diffusion is only 50% (that means inflation is rising in as many categories as it is falling); this is down sharply from a diffusion reading of 75% over six months and from 58.3% over 12 months. Of course, saying that inflation is neither accelerating nor decelerating when its three-month pace is in the 7% to 8% range is not such a great accomplishment.

However, if we look at the median inflation gain for the 12 CPI components in the table, the annualized median for three-months is 1.5%, for six-months it is 1.2%, and for 12-months it is 0.7%. So, there is some acceleration in that pattern, but since these already are annualized rates the medians show inflation coming in under the radar. But these medians were selected on annualized gains and without regard to the size of the category so the pace for headline inflation is much stronger and has accelerated even more; the same is true for core inflation. Those facts push these metrics to a back-row seat. They still get their say, but not a very loud voice.

Monthly trends Monthly inflation in December, November and October had a median value of 0.1% across the 12-categories (not annualized). The headline flared sharply while the core continued to cruise at a too-fast speed. In December, only transportations showed a month-to-month price decline, but education, health care and clothing & footwear prices showed flat results on the month. In November, two categories showed declines: 1) housing & furniture and 2) communication. Also, recreation & culture prices were flat. Education & communication prices fell in October with the catch-all ‘other' category flat in October. These results show that inflation is not exploding everywhere and finds some hope that when the primary stimulus for inflation lessens inflation elsewhere might dip. However, what we cannot know from these data is the extent to which people/workers feel they have lost ground in their compensation and will seek to address that in coming months possibly putting a wage-price spiral into effect and sustaining the inflation pulse.

Sequential trends Over three months, inflation decelerated in six categories and prices fell in two categories. Over six months, inflation slowed in three categories and prices fell in two categories. Over 12 months, inflation slowed in five categories compared to 12-months ago and prices were lower year-on-year in two categories.

Inflation in Q4 However, in the just completed quarter (see QTD column), headline inflation runs at a 6.2% to 6.5% pace with the core at 3.1% to 3.3%. The median annualized rate of change in the quarter is 1.7%. Communications and education prices are lower on balance in the quarter. Rent & utilities prices and transportation prices are both up at double-digit pace of 14% or more (annualized).
by:Robert Brusca
|in:Economy in Brief
Japan| Dec 28 2021
Japan's IP Jumps in November
Both headline and manufacturing IP trends show steady growth acceleration from 12-months to six-months to three-months. One year ago, both overall IP and manufacturing IP were imploding, falling at a rate of 3.5% to 4% over the previous 12-months.

Two months into the third quarter (quarter-to-date; QTD) trends for IP are mixed. Manufacturing IP is advancing in the QTD at a 1.7% annualized rate. However, overall IP is falling at a 1.4% annualized rate. There is still a good deal of slack in the system as overall and manufacturing IP are still some eight percentage points below their respective past cycle peaks.

Despite the strength in the sequential growth rates taking growth back farther to just before Covid struck the global economy, overall Japanese IP is lower by 0.8% than it was in January 2020. Manufacturing output is lower by 1.4%.

Product group trends Consumer goods, investment goods, and intermediate goods output all increased in November. Consumer and intermediate goods output both rise strongly for two months running. Output in each of the three sectors fell in September with consumer goods and intermediate goods output both down sharply in September.

Consumer goods trends show output in an accelerating mode from 12-months to six-months to three-months. Intermediate goods show strength but stop just short of posting a sequential acceleration. Investment goods trends lag the trends of the other sectors. In the QTD only consumer goods among the manufacturing sectors show an output increase with intermediate goods and investment goods output still slipping in the evolving quarter.

Mining and utilities both show more weakness than the manufacturing sectors. Both mining and utilities show declines in November. Mining declines over 12 months, six months and three months while utilities decline on two of those three horizons. On a QTD basis, however, both mining and utilities are rising in Q4.

The product trends show mostly weakness compared to levels achieved in January 2020. Utilities usage is the exception as it is higher by two percentage points from that mark; investment goods output is another minor exception as output there is higher by one half of one percentage point (over 22-months…) with all other product groups showing net declines on the horizon.

Japan's IP jumped in November, rising strongly for the second month running after logging a steep drop in September.
by:Robert Brusca
|in:Economy in Brief
Canada| Dec 15 2021
Canadian Inflation Breaks Lower Ahead of U.S.
The U.S. CPI outdistances Canada's CPI. And the U.S. CPI core expansion is much faster than the Canadian core. Canada's CPIx has been decelerating in the past few months and runs at a 3.6% annual rate in November.

However, even with favorable comparisons, the Bank of Canada that seeks to keep its inflation in a range of 1% to 3% is experiencing an overshoot. Still, the overshot is much milder than what the U.S. is experiencing – especially with regard to some of the special gauges Canada uses to vet inflation.

Canada looks at a variety of inflation measures to get a sense of what inflation is doing. The CPI Trim has been running just above the 3% band. The CPI median has stayed just within the CPI band while the CPI Common has been below the band's midpoint, below a 2% pace- just moving up to the 2% mark this month.

The Bank of Canada has just announced a new 5-year inflation review. It will keep its approach that will continue to embrace policy of flexibility. The BOC will continue to shoot at a 2% midpoint of a 1-3 percentage point range. The mandate is still price stability, but the BOC will continue to aim at price stability and maximum sustainable employment. So, it is not quite a dual mandate.

About the various price metrics CPI trim filters out extreme measures in the 'tail of the distribution' so that unusual spiking prices or plunging prices do not shed an undue influence on the inflation gauge. A number of these measures are also present for inflation in the U.S. I am not fond of them because there is no guarantee that they filter out pressures equally. If inflation is accelerating, there will be more excessive and high price increases; to remove them is to change reality, not to get a better picture of the economy. Advocates of trimmed inflation measures often refer to distortions caused by natural disasters which are one more like a flare that would emerge then recede. But what if inflation produces a one-month flare followed by another and even more pressure? Should all such pressures be removed, or damped?

The median inflation rate is calculated off weighted data in the CPI. Medians have the advantage of including all data and not being distorted by outliers on either end (either too high or too low. I like median measures better than trimmed measures.

Canada also employs something called the CPI Common which at the moment is giving the most benign inflation results. This is achieved using a statistical process that identifies common price changes across categories.

Canada certainly has the most varied and taxonomic approach to inflation of any G7 central bank. The problem with having in such a stable of inflation measures is that there will be several inconsistent stories told about inflation each month.

The CPIx is an older measure no longer leaned upon by the central bank that excludes eight of the most volatile CPI components. It may not be in the policy focus of the central bank as much, but it is still closely watched.

Other countries have less formal inflation diversity The ECB targets its HICP. The U.S. targets the PCE deflator and leans on the core when energy prices flare. There are fewer ways to be misled with so few gauges and perhaps nothing is lost by having only and indicator or two if they are good ones.

For Canada, we can see a number of possibilities. But it seems unlikely that the central bank in this environment would think inflation really was remaining below target. In fact, two of the oldest gauges, the headline and the core probably provide about as much mix as you need with the headline still flaring under the strain of energy prices and the core having stopped rising and settled back off peak.

Canadian inflation this month is driven by the cost of gasoline which is a common global theme. November is the eighth straight month that inflation has been above the top of the BOC's preferred range.
by:Robert Brusca
|in:Economy in Brief