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

USA| Mar 18 2022
EMU Trade Swings to Deficit As Imports of Nonmanufactures Grow
After logging a long string of current account surpluses, the countries of the European Monetary Union (EMU) have now posted three deficits in a row for consecutive months. The turnaround is on the back of sharply increased imports which reflect increased imports of nonmanufactured goods. Commodity prices have increased sharply, and this has driven up the deficit for nonmanufacturers across the EMU.

The balance of trade on manufactured goods posted a surplus of €29.1 billion in the 12-month period ended 12-months ago. In the current 12-month period the surplus is €28.3 billion, a slightly smaller amount, but not much changed. Yet, for nonmanufactured goods, the 12-month average for 12 months ago was a deficit of €8.8 billion; that figure has ballooned to €21 billion on average over the last 12 months and has escalated to €30.4 billion in deficit on average over three months and progressed further to a deficit of €33.2 billion in January alone. All those figures are expressed at annual rates.

The point is that manufacturing in Europe seems to have held up well; however, it has not been able to keep pace with the sharp increase in nominal nonmanufacturing goods and a deficit has been created as a result. This is a deficit caused by the increased importation of nonmanufactured goods and substantially a deficit caused by the increase in the prices of nonmanufactured goods.

Looking at percentage changes, manufactured goods imports are up by 26.4% over 12 months but nonmanufactured goods imports are up by 82.6% over 12 months. For exports, manufactured exports are up by 12.8% over 12 months while nonmanufactured exports are up 30.5% over 12 months. Clearly the trade action has been concentrated in around nonmanufactured goods, not in manufactured goods. But manufactured goods have nonetheless held their ground.

Looking at the results for individual countries in Europe, Germany shows consistently faster import growth than export growth over 12 months, over six months and over three months. France shows an uneven picture with exports and imports trading places as far as which flow is expanding more rapidly. Over 12 months French exports grow faster than French imports and that trend holds up over three months as well, although it is reversed in each of the last two months. The U.K. has stronger imports than exports with imports up 23.5% over 12 months and exports up by just 11.4% on that timeline; exports are up at a 6.1% annual rate over three months with imports up at a 28.2% annual rate over three months.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 17 2022
EMU Inflation Trends Stay Hot
Inflation in the European Monetary Union (EMU) rose by 0.7% in February after rising by 1.1% in January. The core measure for inflation (excluding food and energy) in February rose by just 0.1%; that was after rising by 0.7% in January. Sequential growth rates that measure inflation over 12 months, six months and three months show inflation has been building momentum for the headline inflation rate which expanded by 5.8% over 12 months, at a 7.9% annual rate over six months and at an 8.9% annual rate over three months.

The core rate of Inflation breaks this string of acceleration but only technically. The 12-month core gain is at 2.6%; that rises to a 3.9% annual rate over six months and that in turn backs off very slightly to log a technically smaller gain at a pace of 3.8% over three months. Essentially inflation has gone from being excessive over 12 months to being much more excessive over three months and six months according to each of these measures.

The ECB is well away from its target of hitting 2% inflation although as we're going to see in the averages for inflation how much better-behaved much of this inflation phenomenon is when averaged. Inflation has really welled up relatively recently although it's quite excessive and now it still has momentum.

Moreover, inflation is gaining momentum and from different sources. Oil prices are still extremely high in February. But Brent oil prices measured in euros fell 28.2% in February after rising by 14% in January. Oil prices remain high and the impact on inflation is still something to worry about because in global markets oil continues to hover at very high levels. Also, Europe has an economic 'IV' line for energy that is piped in from Russia making it dependent on the very country on which they have slapped aggressive economic sanctions. And to follow that thought… since Russia is walled off from global markets by sanctions, at some point it may find oil revenues as not as valuable as cutting off the oil flow and inflicting economic pain on Europe.

In several ways the war in Ukraine is a factor...

Before the war welled up, there were supply chain problems created by the pandemic (remember the pandemic?) and these supply chain issues were affecting prices globally, creating shortages, creating price pressures, and that now is made worse by having a war in Ukraine and having these countervailing sanctions placed on Russia.

Russia is rich in natural resources and with the West putting sanctions on Russia, Russian commodities are going to be unavailable to the world and this is going to be reflected in higher commodity prices. The invasion of Ukraine is taking Ukraine off the map as an international trading partner and that of course is going to hit the food market and wheat market particularly hard as well as the market for selected natural resources. The implication here is that inflation is high, inflation has momentum, and inflation has some new sources that are going to make it worse before things get better.
by:Robert Brusca
|in:Economy in Brief
Italy| Mar 16 2022
Italian Inflation Continues to Head for the Moon
Italy's inflation rate remains high and continues to show acceleration in February. The inflation gauge as measured by the HICP shows Italian prices up 1.3% in February, slightly less than the 1.5% they grew in January, but still a very high increase month-to-month. The HICP core gain was 0.9% in February, up from 0.5% in January. Italy’s domestic inflation measures continue to show heat as well.

Inflation accelerates broadly The sequential inflation rates for Italy show the headline rate going from a 6.1% pace over 12 months to a 9.5% annual rate over six months to a 13.8% annual rate over three months. For the core rate, that progression is 1.8% over 12 months, 4.1% over six months and 6.3% over three months. Both headline and core measures of inflation show acceleration. Prices remain hot monthly across the board. Not only is Italian inflation high and accelerating but the diffusion characteristics of inflation reinforce the notion that inflation is accelerating and broad. The diffusion index for three-month inflation is at 75%, for six-months it's at 75% and for 12 months it's at 58.3%. A diffusion reading at 50% implies that inflation acceleration and deceleration for the period are balanced across various CPI line-items. At 75%, the diffusion index is showing inflation is greatly tilted toward acceleration and we see that condition over three months and six months as well as a sizable tilt toward more inflation acceleration over 12 months.

Monthly trends Looking at monthly data the inflation rate across the various domestic components, we find it increased in all but two of them in February- that's an acceleration in all but two out of 12 components. Similarly, inflation increased month-to-month in January for all components except 2 and the same was true in December. The monthly data reinforce what we see in the sequential data: they show that inflation is accelerating period-to-period whether it's 12-months to six-months to three-months or December to January to February.

Quarter-to-date On a quarter-to-date basis- this is with two months of data in for the first quarter- inflation is rising at a 13.6% annual rate for the headline HICP and at a 5.4% annual rate for the core. The domestic measure shows headline inflation at an 11.5% pace with the core at a 3% pace. The domestic measures are slightly less hot than the HICP measures employed by the ECB.

Despite the high inflation levels in Italy, Italian inflation has generally been tracking below German inflation in recent years. Italy went through a period of austerity and was able to gain control of its inflation rate. But now inflation seems to permeate the economy and Italy has a clear inflation fight on its hands. Increases in global energy costs are going to continue to weigh on Italy, a country that is dependent on imported energy. The ECB will be raising interest rates to try to fight off these inflation effects as the year goes on, but inflation in Italy appears to be high, entrenched, and broad so the economy is going to have a lot of work ahead of it to put this inflation back down inside parameters that are acceptable from an EMU-wide targeting standpoint of around 2%.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 15 2022
ZEW Goes to War: ZEW Current Assessments Drop Sharply in March
The ZEW economic index for Germany fell more sharply in March than it ever had previously in its history. The German macroeconomic expectations index for March logged a -39.3 value after posting 54.3 in February; that change produces a net decline in the index of 93.6 points for the month. The U.S. expectations index also weakened, from 13.1 in February to -26.1 in March, a lesser but serious step-back.

Germany is reeling under the sanctions that it imposed on Russia in combination with the war in Ukraine on its doorstep. These two events have shattered expectations and caused current conditions to weaken sharply. In Germany, the current conditions index which was -8.1 in February has backtracked to -21.4 in March; this compares to a U.S. current conditions index that was 46.2 in February and has backtracked to 31.7 in March. Clearly concerns about the war and conditions in Europe have hit the German economy much harder than the U.S. economy.

At the same time, inflation expectations have moved sharply higher in March. For the euro area, the reading was -35.1 in February, rising to 69.5 in March. The German index in February was at -37.5; that's moved sharply higher to plus 70.2 in March. In the U.S., the index moved from -36.2 in February to plus 50.6 in March. The war came and the sanctions have been imposed and these are turning the entire economic picture inside out and upside down. The ZEW index shows a combination of dramatic and benign changes.

Markets continue to trade- did they simply discount everything? We usually expect markets to be the litmus test of economic events. But strangely the impact on markets according to the ZEW experts has been muted - in the survey at least. Euro area short-term interest rate expectations were at 50.3 for February and they have eroded only slightly to 47.2 in March. For the U.S., short-term rate expectations of 88.7 in February have become 86.7 in March.

The impact on long-term rates sees the German index going from 74.2 in February to 76.5 in March whereas the U.S. index moves from 78.0 in February to 81.5 in March.

Stock market survey shows reduced expectations but not dramatically so. In the euro area the stock market expectation index moves from a survey value of 32.9 in February to 22.1 in March; in Germany it drops from 34.8 in February to 21.4 in March; in the U.S. it barely budges moving from 28.5 in February to 27.3 in March. Of course, the stock market standings all are weak.

Summary Table: Stronger vs. Weaker The summary table show the economic situation weakening in the euro area, Germany, and the U.S. in March. Economic expectations weaken in Germany and the U.S. in March. Inflation expectations rise across the board for the euro area, Germany, and the U.S. Short-term rate expectations are slightly weaker in the euro area and the U.S. while long rate expectations are slightly stronger. For stocks, assessments are slightly weaker but not very dramatically. The survey shows dramatic shifts in economic variables and slight wiggles in market gauges.
by:Robert Brusca
|in:Economy in Brief
France| Mar 14 2022
Bank of France Business Indicator Rebounds in February
The Bank of France business indicator rose to 107.1 in February from 106.6 in January. The index stands above its 12-month average which is at 104.4 and resides above its long-term average since August 1990 by a considerable amount. The indicator has a percentile standing on that timeline at its 82.6 percentile, a relatively strong standing for this indicator. Compared to just before the COVID emergency struck, the survey indicator is up by 10.4 points indicating a reasonably robust rebound during this two-year period.

Survey standings The components of the survey are a somewhat mixed lot. The strongest parts of the survey are for employment, both employment as expected and the employment change versus last month. Both of those line items have standings in their 90th percentile, in fact, in the upper part of their 90th percentile deciles. These are the indicators that are most responsible for giving the headline such strong standing. Apart from that, the order book standing is also relatively firm, at 89.2 percentile with the standing for foreign orders at 69.9% and for the change in total new orders at 72.8%. All of these indicators are somewhere between firm-to-strong. On the weaker side are inventories that have only 59.1% standing; still above their historic median although inventories are the only variable showing a net lower standing currently than they had in February 2020 before the virus struck. Capacity usage is also weak – indicating that a lot of slack remains in the system.

Trouble in paradise? Somewhat troubling is the response ranking for expected production. Expected production has only a 24.8 percentile standing, and it only increased by 5.6 points compared to February 2020. At a 24.8 percentile standing, expected production is well below its historic median indicating some trouble with the outlook on the part of producers. However, that standing flies in the face of such a strong standing for expected employment. So, there are things in this survey that raise eyebrows and may raise some concerns. However, for the moment, the survey doesn't seem to have any consistencies in it that cause us to think that it is seriously deteriorating.

Month-to-month and recent trends Turning to the month-to-month changes, the output change variable fell to 14.1 in February from 24.6 in January and that's also a decline from its December level. Expected production has been struggling ever since COVID struck.

Overall, there are nine components and the headline. Of the nine components, six weakened in February. Six have weakened on balance over three months and five have weakened over six months.

While output change has a solid historic standing, it has in fact struggled showing declines in four of the last six months and a net decline on balance. Expected production has weakened in February and is weaker on balance over three months but is stronger over six months.

Despite weakening in February, order books show declines in only two of six months and mark solid-to-strong increases over both three-months and six-months. Changes in orders are weaker than the volume of orders on the books as both foreign order and total order changes are weaker in three of the last six months and both series are weaker on balance over three months and six months on balance.

The change in finished inventories logs a negative value in February, but it improves from November. The series chronically logs negative values. Its current reading is a touch better than its 12-month average and above its historic median. Capacity use has weakened in four of the last six months and is lower on balance over three months and six months.

Both employment gauges weakened in February from their January level. Both have very strong high 90th percentile standings. The change in employment month-to-month was positive for four months in a row before declining in February. However, expected employment is lower in two of the last three months.

Outlook and risks On balance, the French survey looks sturdy enough. As often is the case with these surveys, the jobs components stay the strongest the longest. But there is some encroaching weakness for output and more outright weakness for expected production. There is still some lingering risk of an unknown dimension for COVID to return. Related to that, there are global supply chain problems. But the new risk is the War in Ukraine. Inflation is high and stubborn in Europe and higher and more stubborn in the U.S. The war is feeding inflation by pumping up oil and commodity prices. Central banks have work to do and yet the solidity of the economy is not assured and central banks for the most part have not even ‘begun to fight.’ What will happen when they do?
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 11 2022
German Inflation Stops Accelerating
German inflation rose by 0.4% in February after rising by 1.5% in January. The core rate fell by 0.3% in February after rising by 0.6% in January. Sequential growth rates show that the HICP measure of inflation for Germany rose at a 5.5% annual rate over 12 months, accelerated to a 7.8% rate over six months but cooled its pace to 7.4% over three months. Similarly, core inflation rose by 3.1% over 12 months, at a 4.1% annual rate over six months, then fell back to a 1.8% pace over three months. The bad news, of course, is that inflation in Germany remains exceptionally high; 5.5% is an extremely high headline inflation rate. The core pace of 3.1% is well above the 2% goal for inflation for the entire of the EMU area set by the European Central Bank. However, inflation in Germany is decelerating! It decelerated from six-months to three-months for the headline; for the core the deceleration is substantial and significant.

...and the details are devilishly good In addition to deceleration in the HICP, diffusion calculations show that the increases for inflation by category are actually not prevalent. However, over 12 months inflation is high, virulent, and broad-based. The 12-month inflation rate, which is at a 5.5% pace for the HICP headline, is 5.2% for the German domestic CPI. It registers a 72.7% diffusion reading. That's an extremely high reading, but that's for the year-over-year pace compared to the pace of one-year ago.

If we look at a six-month horizon, inflation rate accelerates to 7.8% from 5.5% in the HICP while the domestic gauge accelerates to 6.7% from 5.2% inflation. But over six months diffusion drops to 36.4%. This is significant. Below 50% diffusion is telling us that inflation is not very widespread. In fact, it's telling us that falling inflation is a more common characteristic than rising inflation. At 36.4%, diffusion for German inflation has already cooled broadly compared to 12-months despite the increase in the headline rate. Of course, what that means is that inflation is being carried ahead by just a few categories pushing the headline up aggressively even though that kind of inflation experience does not line up across most categories.

The three-month HICP headline shows deceleration to a 7.4% pace from 7.8%. For the German domestic inflation rate, however, there is an acceleration to a 7.4% pace from a 6.7% pace. The domestic CPI excluding energy accelerates to 3.7% from 3.5%. The domestic ex-energy acceleration is a small one, but it's different from the HICP core which showed a significant decline to a pace of 1.8%. However, when we look at the details of diffusion, we find once again that the diffusion for inflation over three months compared to six months there's only a 36.4% diffusion marker. Inflation does not accelerate broadly over three months compared to six months either.

The behavior of inflation overall depends in some sense which of these gauges you want to look at. Over three months, it's decelerating for headline inflation and accelerating for the domestic measurement; it's decelerating for core HICP or it's accelerating for the CPI excluding energy. So, what you see for German inflation depends a lot on the actual metric you want to use to measure it. However, if you look down the line at various components of the CPI report, you find that inflation is not accelerating very many places. And in most places, there is a decelerating pace over three months and over six months. That is an important consistency.

Oil It's also interesting that this is happening in Germany as Brent oil prices continue to push higher. In February Brent was 9.6% higher than in January; January was 14% higher than in December; the December Brent price did back off by 6.3%. If we look at the sequential growth rates, over 12 months Brent is up at a 61% annual rate, over six months it's up at a 91.5% annual rate, and over three months it's up at an 88.1% annual rate. Yet, the inflation metrics do not show that inflation is permeating the German economy.
by:Robert Brusca
|in:Economy in Brief
Ireland| Mar 10 2022
Irish Inflation... Pauses or Peaks?
Irish inflation gained 0.3% on its HICP measure in February; that's down from 0.4% in January and level with December’s 0.4% gain. Year-over-year Irish inflation is running 5.7% and increases to a 6.7% annual rate over six months but falls back to a 4.2% annual rate over three months. Ireland's domestic CPI measure tracks the results for the HICP monthly; the sequential trend is also very similar to what the HICP posts over 12 months, six months and three months. On balance, Irish inflation appears to have stopped accelerating, but it isn't clear whether this is a pause or whether there's more to come.

The domestic CPI measure has a core rate available. The core rate for Ireland shows a 3.7% gain over 12 months, a 3.3% annualized gain over six months, and that pace ticks up to 3.5% over three months. For Ireland, the core inflation performance is relatively flat and there is a hint that inflation may be stable in the neighborhood of 3.5% (still well above the ECB’s 2% objective for inflation in the EMU area). However, it's still hard to tell and certainly hard to tell with so much pressure still present in the headline and with global oil prices and commodity prices showing so much pressure and volatility themselves. On a quarter-to-date basis, the HICP for Ireland is up at a 4.8% annual rate (that's two months into the quarter). The domestic CPI measure is up at a 4.7% annual rate QTD, nearly the same as for the HICP. However, the core CPI is up at only a 1.7% annual rate in the unfolding quarter which is not only mild but it's within the overall target band sought by the European Central Bank. Can things really be that good this soon?

Is the Irish CPI smiling? The domestic Irish CPI shows 11 major components for inflation; these show the annual inflation rate is up with a breadth of 66.7%. That kind of diffusion (approximately acceleration in two-thirds of the CPI categories) is quite high and disturbing. Over six months, the diffusion ranking falls back to 58.3%, still showing acceleration with uncomfortable breadth. However, over three months, the diffusion measures steps back to 41.7% to accompany its milder pace. That's below the 50% mark and 50% is the dividing line between inflation accelerating or decelerating. Over three months, inflation is decelerating in more categories than it's accelerating and for Ireland this is a potentially significant result and potentially a signal that inflation it's not pausing before accelerating but is pausing because it's not going to be accelerating.

Extreme price moves over three months Still, there's still plenty of inflation in Ireland and a lot of categories that are quite troublesome. For example, prices for alcohol are increasing at a 27.8% pace over three months. Rent and utilities as an aggregate category shows inflation up at a 9.9% annual rate over three months. The recreation and culture category shows inflation at a 5.6% annual rate over three months; food prices are up at a 6.8% annual rate over three months. Balancing those clear excessive gains are communication where prices are declining at a 3.9% annual rate, education where prices are falling at a 3.7% annual rate, and the catch-all ‘other’ category where prices are declining at a 4% annual rate.
by:Robert Brusca
|in:Economy in Brief
Italy| Mar 09 2022
Italian IP Sinks in January
Italian industrial production for manufacturing (IP) fell by 3.4% in January. This is the second decline in a row for manufacturing industrial production. In December, IP had fallen by 1.1%. All major sectors’ industrial output fell in January. Consumer goods output fell by 3.6% month-to-month, capital goods output fell by 1.6%, and intermediate goods output fell by 3.4%. None of these sectors showed increases in December either. However, in December, consumer goods output was flat while capital goods output fell by 2.2% and intermediate goods output fell by 0.6%.

With this sort of weakness over the last two months, it's not surprising that over three months industrial output is declining in double digits. In fact, looking back over the last 12 months, six months and three months, manufacturing industrial production in Italy falls on all those horizons and its decline gets increasingly large over shorter periods. Over 12 months Italian manufacturing industrial production falls by 2.4%, over six months it falls at an 8.3% annual rate, and over three months it falls at an 11.6% annual rate. Italy’s industrial sector is struggling.

Sectors and sequential weakness Looking at Italian output by sector, consumer goods, capital goods and intermediate goods, there is decelerating output in just about all three sectors. All three sectors showed declines in output over three months, six months and 12 months. The declines are at progressively greater rates of shrinkage in all cases with the exception of capital goods. That exception is only a technical exception as the pace of output decline registers a -7.7% pace over six months; that improves to -7.1% over three months, a small ‘technical’ improvement but still a very large negative rate of decline. Capital goods really aren't an exception to the rule of deceleration and growing weakness across all the sectors when you really look at it broadly.

Quarter -to-date weakness In the quarter-to-date, manufacturing output is declining at a 20% annual rate. For consumer goods, the decline is at a 20.2% annual rate. For capital goods, the decline is at a 13.5% annual rate and for intermediate goods, it's at a 19.7% annual rate. There are double-digit rates of declines overall and for all sectors. That indicates considerable outright weakness on the part of the Italian manufacturing sector. It's no wonder Italy is fighting to try to maintain energy imports during this time that many countries are pushing for an embargo on energy from Russia. The Italian economy relies on Russian energy, and given the state it's in, it's hard to imagine what sort of shape it would be in if Italy’s energy shipments were suddenly cut off.

Italian manufacturing since COVID struck Looking at Italian industrial production and its recovery since COVID struck, all sectors show a lower level of activity than they had in January 2020. Overall manufacturing is 4.2 percentage points lower, the output of consumer goods is 6.6 percentage points lower, the output of capital goods is 3.9 percentage point lower, and the output of intermediate goods is 1.1 percentage points lower.

Percentile rankings of Italian growth rates Evaluating the 12-month growth rates for all sectors, we find the overall standing for Italy is in its 27th percentile. This means that the growth rate has been weaker only about 27% of the time since 2000. The consumer goods sector has a 49.6-percentile standing; that's very close to its median and is the best showing of any of the sectors. The capital goods sector has a 30.7-percentile standing and intermediate goods have a 21.6-percentile standing.

Industrial indicators for Italy are much more upbeat Going beyond the industrial production data, we can look at various indicators for the Italian industrial sector. The EU industrial indicator for Italy, in fact, has a 94.3% outstanding based upon the level of its index value. The statistical agency Istat sees current orders for Italian economy at a 98.9-percentile standing indicating a very high level of orders. The Istat outlook for production is at a 77.6-percentile standing. These surveys of Italian activity are really quite different from what we see when we look at actual industrial production and look at the increases that Italian factories are experiencing on the ground. Clearly, people answering the surveys are somewhat more optimistic when they look at and evaluate the state of conditions or when they form their expectations for the future. It's also true when we look at these indicators that all of the indicator evaluations are made based on levels of the indicators not on their growth rates. But if we were to evaluate the indicators based on year-over-year changes, they would be quite strong as well.

Since COVID struck Compared to their levels in January 2020 since the COVID, all of the indicators have improved. However, if we look at the indicators in the current quarter-to-date, all of them are showing weakness. The EU industrial confidence indicator is down by nearly one point, the Istat current orders index is down by about 3/4 of a point, while the Istat outlook index for production is down by 1.7 points.

Summing up Survey data are much more upbeat in the assessment of the Italian economy when compared to the industrial output. Output shows that, in real time, on-the-ground conditions are poor and they've been bad for quite some time. There's a deceleration in progress and it is deceleration of some significant magnitude. The chart that compares Italian PMI index for manufacturing to industrial production index shows that once again the PMI index for manufacturing is much stronger than the output index and is still above the level of 50 pointing to manufacturing expansion. But in the survey, we see that the PMI is in a declining trend.
by:Robert Brusca
|in:Economy in Brief
Japan| Mar 08 2022
Japan's Economy Watchers Readings Cycle Lower
Japan's economy watchers index in February tipped slightly lower to 37.7 from January's 37.9; this small backtracking compares to a reading of 57.5 in December. Clearly the economy watchers index in the year 2022 has the economy on much weaker footing than it had been at the end of 2021.

The facts: Over the last three months the economy watchers index is down by 19.1 points; over six months it's up by 2.8 points; over 12 months it's down by four points.

Over the past year the economy watchers index has barely changed and has not been very volatile. It is slightly stronger over six months; it's slightly weaker over 12 months. The queue standing of the index in February is at its 13.4 percentile, a level that marks it as being weaker since 2002 only about 13% of the time. The economy watchers index tells us that Japan's economy continues to struggle as of February.

Current component trends These general points about the economy watchers index permeate the various components which show, for the most part, (1) small changes from January to February and (2) significantly weaker levels in January compared to December plus (3) declines by all components over three months coupled with (4) very small changes over six months, and for the most part, (5) most small declines over 12 months. These generalities are the ‘rule' up and down the line of this survey. The main exception to these rules is that over 12 months there's a more significant weakening for eating & drinking places and that industry depends upon improved conditions on the virus front in order it to be back on its feet.

Current component levels All the queue standing components of the current index are below the 50-percentile level. That's significant because the 50th percentile on the queue standing represents the location of the median for each series. So that each series is performing at a below median level of performance. The best performing of these components on a relative basis is the employment reading which is at its 45.6 percentile standing: the next best after that it's for manufacturing establishments at the 31st percentile standing. The worst performing component, eating & drinking places, had its 4.2% standing followed by services overall at a 9.6% standing. Pretty clearly Japan's economy's struggle is broad-based. Fortunately, employment is the least affected among the components surveyed in the table. The employment reading is below its median, but not by much and its relative strength (compared to other readings) provides stability for the economy because employment supports wages and income creation and thereby spending.

The future index The economy watches future index moved up slightly to 44.4 in February from 42.5 in January; these two readings are somewhat below their December level of 50.3. The future index improved slightly month-to-month and January while the January-February pair are weaker than December by 6-8 points. That is significant, but it is much less that the 20-point drop off for the current index. The future index also shows three month declines across all its components as did they current index. Over six months the future index is mixed but little changed. The future index, like the current index, is moderately lower over 12 months. The percentile standing of the future index is at the 28th percentile overall; across components it ranges from a low of the 20th percentile for nonmanufacturing firms to a high of 34.7 percentile for employment assessments. Like the current index, the relatively strongest reading is for employment in the future index. However, the percentile standing is lower in the future index.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 07 2022
German Orders Rise But Slow
German new factory orders rose 1.8% in January after rising by 3% in December and by 3.6% in November. Orders are up at a 39.2% annual rate over three months; that's a sharp acceleration from the minus 9.2% rate of change over six months and a solid acceleration from the 7.4% annual rate over 12 months.

Foreign orders rose by 9.4% in January after falling 2.4% in December and rising 6.5% in November. Foreign orders are rising at a very strong 67% annualized rate over three months after falling at a 3.2% annual rate over six months and rising by 9.4% over 12 months. Domestic orders fell by 8.3% in January, blunting the increase in overall order gains. Domestic orders rose by 11.4% in December and fell by 0.7% in November. Over three months domestic orders are rising at a 6.1% annual rate, up from a minus 17.5% rate over six months compared to their 4.6% increase over 12 months. Domestic orders have been more volatile and weaker than foreign orders.

Clearly German orders are being driven by their foreign component. This is not surprising since foreign orders have increasingly more important than domestic orders going back to at least 1990. Germany is highly trade-dependent, and its manufacturing sector continues to show that. Germany is highly exposed to international events although a lot of German trade occurs within Europe and within the EMU single currency area without clear foreign exchange consequences.

Overall orders: Quarter-to-date and Covid-to-date In the quarter-to-date, total orders are rising at a 34% annual rate boosted by a 75.7% annual rate increase in foreign orders; domestic orders are falling at a 10.2% annual rate early in Q1 2022. Looking at orders back to January 2020 when COVID first struck, total orders are up by 8.8% on that timeline, foreign orders are up by 11% and domestic orders are up by 5.5%. These are reasonably firm results for real orders over a two-year period.

Real sales trends Real sales in Germany show more of a mixed trend across its component sectors. For manufacturing monthly sales are up by 1.8% in January; that accelerates from 0.7% in December and compares to a 4.3% rise in November. However, consumer goods, consumer durable goods and consumer nondurable goods sales all decelerate month-to-month. Intermediate goods sales decelerate month-to-month as well. But those trends are dominated by capital goods that accelerate and grow 3.9% month-to-month in January, after being flat in December and surging by 8.3% in November alone.

For the moment, capital goods are extremely strong and making up for some lost time. Manufacturing sales are also accelerating; they are accelerating to a 30.4% annual rate over three months from 8.3% over six months and 3% over 12 months. The manufacturing sector is gaining momentum.

By sector, consumer goods output is less linear with a 3.2% gain over 12 months turning to a decline of 0.8% at an annual rate over six months but then climbing back in the plus column with a 5.3% annual rate gain over three months. Intermediate goods accelerate steadily, rising from a 0.3% gain over 12 months, to a 1.2% pace over six months and to a pace of 8.1% over three months. Capital goods show the strongest acceleration of all; real capital goods sales are up by 3.1% over 12 months rising to a 14.8% pace of expansion over six months. That increases to 60.2% at an annual rate over three months. Clearly capital goods are driving force in the German economy right now.

Quarter-to-date and Covid-to-date Quarter-to-date real sales show strength for manufacturing where sales are up at a 24.1% pace; consumer goods are up at 3% pace; intermediate goods are up to 2.2% pace; capital goods sales are rising in the quarter-to-date at a massive 46.8% annual rate. Some of this clearly is ‘catch-up’ as sales have been weak since COVID struck. Looking at the change in sales since January 2020, total manufacturing sales are still somewhat weaker being 0.2%, below their January 2020 mark. Consumer goods real sales are 2.4% lower; intermediate goods sales are higher by 0.9% but sales of capital goods are lower by 0.7%. So, the manufacturing sector is just now beginning to gather momentum and post some pace.

Caveat outlook This, of course, is time for us again to deal with suspicions about the future. After having to make caveats over the last two years about COVID and its effect on manufacturing in the economy, on orders and on trade, there is now a war going on in Ukraine. There are huge potential consequences for Germany and for Europe because of the dependence of this area on oil from Russia. There is an ongoing dialogue about whether Russian oil will be embargoed or not. This raises a huge question mark about Germany and its potential for growth looking ahead.

So far, we have good strength in the countries that we summarize in the table: Germany, France, Italy, and Spain. Industrial measures stand in their respective 90th percentile ranking them in a data queue since 1990. Obviously, the future is clouded because of war in the Ukraine and because of European dependence on oil. For now, momentum looks good. Sector performance is solid. There are still ongoing supply-chain problems, but for now, these forces do not seem to be restraining Germany very much. However, the war in Ukraine is a new element that must be put in the uncertainty column looking ahead and it could become a huge fact and will likely restrain growth ahead.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 04 2022
German Trade Surplus Ticks Up on Very Weak Imports
The German trade surplus has generally been withering over the past year or so, but in January it has made a reversal and started to improve slightly. Nominal imports fell by 4.3% in January, dominating the trend for the trade account in the month. Exports also fell by 3.1%, but the bigger drop in imports caused the trade surplus to get larger. January was a race to the bottom and imports won.

Sequential growth rates tell an uneven story with exports growing 7.6% over 12 months. The pace slows to 3.4% over six months, then exports go stagnant with no-gain over three months. That part of the story is clear enough and it's an ongoing export deceleration. But for imports, the growth rates have been stronger and relatively steady at 22.1% over 12 months, at 20.4% over six months, then falling sharply to 12.6% over three months. But paired up against the export growth rates, imports are stronger by a wide margin on each of those horizons. And despite the sharp deceleration in import growth over three months, imports still are quite a bit stronger than exports over three months.

Much of what we see in these trends is related to price developments. We can make a comparison by looking at nominal versus real trade flows. However, to do that we have to look at data that are lagged by a month, since that is the most topical real trade flow data we possess. On that basis, exports appear much firmer, rising at a 12.1% pace over 12 months, at a 12.8% pace over six months, and culminating at a 31.7% pace over three months. Although those are enlivened flows on data updated through December (one-month lag; see shaded cells in the table), compared to imports they're still the weak ones. Imports are up at a 24.8% pace over 12 months, at 25.4% pace over six months and at a 59.1% annual rate pace over three months. Nominal import data continue to dominate export data even when we lag them by a month period and when exports 'wake up.'

We look at the lagged nominal data so we can compare them to the real flow data which are available topically only through December. Real flow data lagged one month show exports are up by 1.1% over 12 months, falling at a 0.7% pace over six months and then rising at a 15.8% pace over three months. Those flows compare to imports where lagged real imports are up by only 0.7% over 12 months and are lagging exports that are up by 1.1% over 12 months. Real imports fall by 1.2% over six months, again putting exports on stronger ground since they fall by only 0.7%. Real exports pickup to grow at a 15.8% rate over three months, but real imports pick up by more and reach a growth rate of 21.3% putting imports back in the lead.

Taking price out of the equation puts exports and imports on a much more even footing for growth. However, prices are in the equation. Rising oil prices and commodity prices have been part of the problem in this cycle and we can see that's one of the main forces that has been dogging the German trade deficit. Its pattern of deterioration reverses this month, not on revived exports but on weaker imports.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 03 2022
EMU PPI Inflation Continues Strong and Accelerates
The PPI gain is strong The PPI in the European monetary area rose by 4.9% month-over-month in January. In December, the PPI rose by 2.7% m/m. The rate of growth for headline producer price inflation in the European monetary union is up at a 42.2% annualized rate over three months; that's an acceleration - but barely an acceleration- from its 40.6% annual rate increase over six months. Year-over-year producer prices are up at a 30.5% annual rate. These rates of growth compare to an inflation rate one year ago for the PPI that was up year-over-year at a 0.2% annual rate. This is a stunning and broad acceleration. Inflation is high… inflation is rising… inflation is accelerating broadly… and central banks, generally, still are waiting to make their first moves to head it off at the pass. That, at least, is true of the ECB and the Federal Reserve.

The PPI gain is broad Statistics and acceleration show that the PPI is accelerating in about 38% of the EMU members (and others in the table) in January compared to December whereas in December it increased in about 50% of them compared to November. Over three months inflation is accelerating in 46.2% of them; over six months it is accelerating at 61.5% of them. Year-over-year it's accelerating in 100% of the currently reporting members and others in the table. One year ago, even though inflation was much lower, it also was broadly accelerating with 78.6% of the reporters in this table showing inflation higher. While inflation continues to increase broadly and accelerate widely, the increase in Brent oil prices carries on, but oil has been steadily decelerating. The push for inflation to show more broadly cannot placed at the feet of rising oil prices. This leads us to see inflation as becoming more deeply embedded in the economy apart from oil.

Table 1
by:Robert Brusca
|in:Economy in Brief