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| Jun 05 2024
The Rising Tide of Composite PMIs – Is Still Mixed
Composite PMIs are back to showing more places indicating improvement month-to-month. Only 40% of these 25 reporters have PMI values that weakens month-to-month up from 56% weakening in April. But there is an overpowering tilt of reporters showing expansion compared to contraction with only 4 reporters out of 25 showing contraction (Composite PMI<50) in May, the same as in April; March, has 6 reporters below 50.

Over 12 months more show weakening compared to a year ago, as 70% of reporters have PMIs below 50. But over six months that count is reduced to 34.8%, and over three months only 30% show weakening jurisdictions.

Contraction has been slightly more common over three-, six-, and 12-month periods, with 6-showing contraction over three months, 9-showing contraction over six months and 11-showing contraction over 12-months.

The percentile standings that are a completely different animal- they show the ranking of the PMI gauge over the last four years (to May 2020) compared to past performance. The 50% mark in the queue standing reflects the median value for each jurisdiction over the last four years. Ten of 25 jurisdictions are below their median performance in May. There is still a lot of under-performance.

The composite PMIs this month come of the heels of the release of the service sector PMIs that have values above 50 for all reporting participants except Russia. However, not all countries report services and manufacturing separately. Among the ten who report separate service sectors, seven of them showed growth erosion in May compared to April. So monthly PMI improvements are laid at the feet of manufacturing sectors or countries that do provide separate service sector status.

Smaller developing countries are struggling the most. The summary data show slight but steady increase in the average PMI that stands at 52.8 in May – above its three-month average. The median weakens over six months then rebounds above its 12-month average over three months as well as in May. The BRIC-3 (BIC? -excluding Russia) has the highest PMI average in the table at 56.2 in May. The U.S., U.K. and EMU are at 53.3, above the all-average and all-median. So, it’s the smaller economies that bring the averages lower. In May, Zambia, Egypt, and Hong Kong have PMIs below 50. France also has a PMI reading below 50. Apart from these, PMI reading below 52 are found in May for Kenya, Ghana, Sweden, and Russia (Ireland uses the reading from April that is below 52). On the strong side, May readings over 54 are featured in the U.S. (54.5), Spain (56.6), India (60.5), Saudi Arabia (56.4), UAE (55.3), Singapore (54.2), and China (54.1).

In terms of relativity, the queue standings for the BRIC-3 are at 76.5%, the All-average is at 56.7%, the U.S., U.K. and EMU are at 55.8%, and the All-median is at 55.1%. All these groupings show PMI values above their four-year medians. For those countries not included in any of those groups, the average queue standing is 54.4% and the median queue standing for them is 48%, their queue standings average below medians when pooled.
by:Robert Brusca
|in:Economy in Brief
Switzerland| Jun 04 2024
Swiss CPI Remains Tempered
Inflation in Switzerland remains as a global envy. At 1.5% year-on-year and sequentially stable, or still moderating, the Swiss inflation rate continues to perform in its desired range as other advanced money center countries struggle to control their budgets, revive growth, and return to their pre-Covid inflation objectives.

Swiss growth remains moderate. The services sector underpins expansion while manufacturing in Switzerland occurs in the same global environment as for everyone else. That sector shows damped activity with a PMI reading indicating sluggish and contracting activity.

Swiss inflation trends reveal year-over-year inflation rates across CPI categories as higher in only 25% of them. Inflation rates over six months show more pressure with inflation accelerating in 75% of categories, but over three months conditions are stable with inflation acceleration in only 50% of categories balanced with deceleration.

That tempered behavior is not surprising because Swiss domestic ‘core’ inflation is even more tempered than its headline series. Swiss core inflation rises by 1.1% over 12 months and by less than 1% annualized over three months.
by:Robert Brusca
|in:Economy in Brief
Global| Jun 03 2024
S&P Global MFG Shows Slight Upswing- A Move to Neutral
The S&P PMI readings for May 2024 in manufacturing show a tendency for improvement month-to-month. The median PMI value increases to 50.6 from 49.8, While the proportion of reporting units improving moved up to 50% from 33%, leaving that proportion at a dead-neutral level.

PMI levels summarized The global medians for individual average readings sequentially over 12 months, six months, and three months show improvements from 49.3 to 49.4 to 50.2. The gains are steady but very moderate improvements in train with all values clustered closely around ‘50’ which is the break-even point between expansion and contraction for these manufacturing PMI indexes. While the average reading over three months is at 50.2 and the average in the current month is at 50.6, these are values that marginally above 50; it's hard to get too excited about the fact that the indexes are up above 50 again, indicating manufacturing expansion. The median is above the level of 50 for the first time in 22 months – a long stretch for manufacturing contraction. But the average reading for this same group has been above 50 for four months running and had been below 50 for 18 months prior to the start of that string.

The breadth of improvement The proportion of reporters improving over three months moved down to 44% after rising sharply to 94% over six months and sitting at 83% over 12 months. These results have flipped from what had been reported previously as year-over-year weakening in the PMI indexes compared to a year ago had been common. But now, there's been enough improvement that we're looking at year-over-year increases as well as net increases over six months. But since there has been improvement from those lows, the proportion of reporters improving over three months has declined to 44%.

Very neutral neutrality is indicated The rank standing for the diffusion readings of these reporters in the table shows nine of the 18 with values below 50% and nine of the 18 with values above 50%. The median value of all these individual percentile queue standings is also at 50%. All of this underscores the sense of neutrality in this report as the queue standings show that values are at their four-year median values and that the median itself sits at 50% and the number of reporters who are improving on the month is also split at 50/50. And the diffusion values themselves are just beginning to rise above a diffusion level of 50 indicating an extended period of (largely modest) contraction may be coming to an end.

China, the United States, and EMU China, the U.S., and the European Monetary Area all show manufacturing PMIs that are in a definable upswing in the chart. For the euro area, the upswing is about a year old; for the U.S. and China, the upswing is a year and a half to two years in progress. The gradients are still relatively shallow but also relatively stable.
by:Robert Brusca
|in:Economy in Brief
Europe| May 31 2024
European Inflation Progress Prevaricates; Has Inflation Reached a ‘Glass’ Floor?
Inflation measured by the European Monetary Union’s HICP rose by 0.1% in May, a seemingly small amount, particularly after increases of 0.2% in March and in April. However, the year-over-year rate at 2.6% is higher than it was in April at 2.4%; the year-over-year inflation rate has actually risen even with that small increase in May! Disinflation progression, however, continues to be in train from 12-months to six-months to three-months, as 12-month inflation rises at a 2.6% annual rate, then barely steps up to 2.7% annualized over six months, before dropping back to 2% over three months. Over three months, the inflation rate is back to the ECB’s target. However, over 12 months, the 2.6% rate continues that string of excessive inflation numbers (now up to 35-months-nearly three continuous years) that the European Central Bank has been over target. With inflation backtracking on the month, this is the highest year-over-year inflation rate since January of this year.

Countries mostly show ongoing progress Results for the large economies in the monetary union continue to show inflation progress for the most part. There's persistent deceleration in France where the 12-month rate at 2.6% falls to 1.5% over three months. In Spain, there's a 3.8% 12-month inflation rate that deflates to 0.7% over three months. In Germany, the 2.8% inflation rate over 12 months moves up to 2.9% over six months and then hovers at 2.8% again over three months. Italy has the lowest year-over-year inflation rate of the bunch, but it shows acceleration with inflation of 0.8% over 12 months rising to a 2.2% annual rate over six months and then stepping up to a 2.3% annual rate over three months.

Core/ex-energy inflation still largely behaves... Italy's core inflation rate moves down on a consistent basis from 2.2% over 12 months to a 1.9% pace over six months to 1.7% annual rate over three months. In contrast, the German rate excluding energy is 2.7% over 12 months, down to 2.6% over six months and back up to 2.8% over three months, stuck in a very narrow range and still substantially above the target sought by the European Central Bank.
by:Robert Brusca
|in:Economy in Brief
Europe| May 30 2024
EU Indexes Partially Rebound – Stabilize- in May
The EU Commission indexes for May rebounded to 96 from 95.6 in April after standing at 96.3 in March. On a month-to-month basis, there's very little change across the major components of the EU indexes. The industrial index is unchanged at -10, the retailing index is unchanged at -7, the construction index is unchanged at -6, consumer confidence improves to -14.3 from -14.7, and the services index moves up to +7 in May from +6 in April. The gains in those two sector readings are responsible for the gains and the EMU sentiment index on the month. But three of the five component readings are unchanged month-to-month in May.

Across 18-early reporting countries, only four showed a deterioration in readings in May, compared to seven that deteriorated in April, and five that eroded in March. Fewer countries have been posting declines in their country sentiment indexes in recent months.

Rankings, however, continue to reveal a great deal of weakness, as the overall monetary union metric has only a 34.3 percentile standing which puts its rank just above the lowest 1/3 of its historic results. Among the eighteen countries listed in the table, only three have rankings above their historic medians. Those are Lithuania, Cyprus, and Greece, all are relatively small European Monetary Union member countries. Among the four largest countries, German performance ranks in its 24.7 percentile, France has a 41.3 percentile standing, Spain has a 42.8 percentile standing, while Italy has a 48.6 percentile standing. None of that is impressive.

The five components of the European Monetary Union index show above-median standings for retailing and for construction, with the industrial gauge at a 26.4 percentile standing, the consumer confidence at a 27.5 percentile standing, and services at a 40-percentile standing. The European Monetary Union in May has a 34.3 percentile standing.
by:Robert Brusca
|in:Economy in Brief
Global| May 29 2024
EMU and Global Money and Credit Growth Show Some Pick-up
Money growth is accelerating across major monetary center countries with the exception of Japan. Three-month money growth is stronger than six-month money growth across all countries in the table except Japan; three-month money growth also is stronger than 12-month money growth across the table except in Japan.

Looking at money growth rates expressed in real terms, three-month money growth is stronger than 12-month money growth for all countries including Japan. However, that does not mean that money growth is strong; it just means that it's stronger than it was 12-months ago. For example, in the euro area, three-month money growth is still negative, as it is in the United States. However, the United Kingdom and Japan report non-negative values with U.K. money growth in real terms over three months at a 0.7% annual rate while Japanese money growth over three months expressed in real terms is flat. In all comparison, those yield accelerations.

EMU In the European Monetary Union, money growth has been accelerating from 12-months to six-months to three-months steadily. Credit to residents also has been expanding on that timeline as has private credit. Credit growth expressed in real terms also shows progressively improving growth rates from 2-years to 12-months to six-months to three-months. However, those increments are still small and on all those timelines credit growth is still contracting. It's just contracting progressively at a weaker pace.

The chart at the top shows how nominal growth rates of money supply had turned negative and have since been trending more toward zero with the exception of Japan where the money growth rate never really contracted but it edged down and since has stabilized.

Although inflation progress has slowed broadly, there has been little backtracking on the progress that inflation has made since coming down from its peak in these various countries. However, inflation is still above-target in these inflation-targeting countries and that remains a problem especially with the rate of change and inflation having slowed to a crawl. As of March of last year, inflation across these four countries on average still was accelerating. Deceleration began in April 2023. Prices fell the most sharply on average in October and November of last year when the average year-on-year drop for the 12-month inflation rate compared to one year-earlier was -4.4%. That average drop has pulled back to -2.9% April 2024. While that May still seemed large, let’s look more closely. In January, February and March, the average inflation rate that these four countries reported in each of these months was 3.1% and by April that had dropped to only 2.9%. For some countries, shorter trend inflation rates are showing a rising trend. The most recent trend gets more complicated, but all of these countries reached a recent low three-month inflation rate in January-2024 or November-23 or December-23. Compared to their respective lows, current (April 3-month) inflation shows an acceleration averaging 2.1% from those lows. This is not an argument intended to support the notion that inflation is accelerating, just to point out that deceleration has really run into a snag and the future is, therefore, less clear than it seemed at the end of 2023.

In the United States, there has been some backtracking of inflation, and although a few months ago the Fed seemed on a fast track to three rate reductions this year, the Fed has been backtracking furiously with a number of Federal Reserve officials scaling back their expectations for Fed policy this year and a number of private institutions no longer looking for Fed cuts at all from the U.S. in 2024.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| May 28 2024
Sharp Quarterly Rebound in U.K. Industrial Survey
The U.K. industrial survey shows business optimism in the second quarter moving to a level of +9 from -2 in the first quarter of 2024; that's up even more sharply from a Q4 value of -15. The survey shows a sharp improvement in business optimism for the quarterly industrial survey.

U.K. export optimism improved even more sharply in the second quarter to a value of +7 from -20 in the first quarter. It had a reading of -15 in the fourth quarter of 2023. U.K. economy is logging sharply improved numbers in the second quarter.

Dividing the quarterly responses into those that are topical or that show changes compared to the last three months, the average reading in 2024-Q2 rises to +5 from -2 in the first quarter and zero in 2023-Q4. The forward-looking survey elements for expectations or 3-month ahead conditions log an average reading of 12, up sharply from an average of +1 in 2024-Q1 and from zero in 2023-Q4.

The table presents diffusion data in the form of ‘up-minus-down’ responses. In the second quarter, there are only 6 net lower responses after logging 13 in Q1 and eleven in 2023-Q4. Five of the six net negative responses in Q2 are in the category for topical data or for three-month changes experienced while only one is for the expectations or 3-month ahead categories. ‘Net foreign orders 3-months ahead’ is the only forward-looking category that is still negative in 2024-Q2.

The quarterly data show a total of six net negative readings in Q2, 13-net negative diffusion readings in Q1, 11-net negative readings in 2023-Q4 and 6-net negative readings in 2023-Q3; compared to these quarterly metrics, the annual average shows 11-net negative readings based on average diffusion responses. Percentile standing data calculated from net diffusion readings back to 1980 show a headline standing in the 78th percentile in Q2; that is up strongly from the first quarter standing that is only at its 57.5 percentile. There are sharp ongoing improvements.

The expectations readings for the Cap-Ex surveys show a jump to the 90.4 percentile in Q2 from the 17.8 percentile in Q1 for buildings, and to the 63.7 percentile in Q2 from the 28.8 percentile for equipment spending expectations. In Q2 there are only four entries with percentile standings below 50% (below their respective median on data back to 1980); only one of those is for forward-looking data and once again it is for the outlook for foreign orders. In contrast, there are eleven entries below their 50th percentile standing based on the Q1 data illustrating the substantial improvement that has been made in one quarter The standings for new order and domestic orders are sharply higher in Q2 (but still below median). While foreign orders ahead also improve their standing in Q2, the margin of improvement is small.
by:Robert Brusca
|in:Economy in Brief
Japan| May 24 2024
Japan’s Inflation Momentum Wanes, Putting BOJ in a Tough Spot
Inflation in Japan rose by 0.2% in April after 0.3% in March. The CPI excluding fresh food was flat after rising 0.1% in March. The core of the CPI calculated excluding energy and fresh food was flat in April. Calculating the core excluding all food and energy leads to rise of 0.2% in April.

Inflation, broadly expressed, in April, is weak and weakening although it's not fully reflected in the sequential rates of inflation. The headline CPI rises 2.5% over 12 months, gains at a 1.1% annual rate over six months, then elevates at a 1.9% pace over three months. However, for the whole CPI excluding fresh food, there's a 2.1% gain over 12 months, a 1.1% annual rate gain over six months, and a lower 0.4% gain over three months. For all items excluding food and energy, the 12-month inflation rate is 2%, decelerating to 1.2% over six months and holding at that same pace over three months. But the core reimagined with fresh food eliminated along with energy rises by 2.4% over 12 months, at a 1.3% annual rate over six months, and eases further to a 0.8% annual rate over three months.

These progressions show the headline inflation rate roughly holds to Japan’s target of about 2% inflation. Over 12 months, the inflation rate is still too high at 2.5%; however, progressively, inflation is coming down as over three months; it holds close to the 2% target running at 1.9%. However, for the other metrics excluding food or fresh food or both fresh food as well as energy, we find inflation is decelerating more rapidly. At 12 months, all the other measures are copacetic. All the 12-month inflation rates are at or above the Bank of Japan's 2% target, but moving inside that time frame to six-months, the inflation rates are under 1 ½% and moving down to the 3-month span inflation rates are still below 1 ½% and several of the key rates are even below 1%.

These trends would seem to make it more difficult for the Bank of Japan to exercise the rate hikes that it would like to exercise to normalized monetary policy as it has been intending to do. Also, the weak yen does not yet appear to have stoked domestic inflation and the Bank of Japan has been using intervention to try to keep the yen from weakening but a more fundamental prop for the yen would be for it to raise interest rates - although the inflation statistics don't seem to allow much of that. Still, there may be a question of whether the week yen still is going to feed through into domestic inflation and provide the Bank of Japan more support for further rate hikes… so far, the data do not contain that element.

The quarter-to-date inflation data continue to show these same issues with inflation. The all-item inflation rate is at 2.3% while the inflation rates for the other metrics are below 1 ½% annualized. The quarter-to-date inflation rates are nascent calculations since April is the first month of the second quarter; starting the quarter out with such weak inflation especially with the other-than-headline measures ending the first quarter on a weak note, imparts weak momentum to inflation.
by:Robert Brusca
|in:Economy in Brief
Global| May 23 2024
S&P PMIs for EMU in Gradual Upswing -Abating This Month
The S&P flash PMIs for the composite manufacturing and services gauges for seven early-reporter units (6 countries) including the European Monetary Union show more weakening conditions than strengthening conditions in May. Looked at by reporting unit, manufacturing has improved in every single reporting unit on a month-to-month basis; however, in six of the seven units, the services sector was weaker and since the services sector is having a bigger impact on the composite for these six reporters, the composite, and the services index both weakened. The U.S. is the exceptional reporter that had a strengthening in all three gauges: the composite, manufacturing, and services.

Part of this reflects a reversal from April when fourteen of these gauges improved and seven deteriorated (three gauges per reporting unit across seven reporting units). And in May there were only 5 gauges that were weaker compared to 16 that were stronger. The monthly data had been showing more improvements until May.

Quarterly data repeat this process with five of these gauges weaker over three months compared to 16 stronger. This is a reversal of the six-month pattern in which 16 gauges were weaker and only five were stronger- and that's the same condition that prevails over 12 months. So, we find ourselves in a transitional 3-month period where things are getting stronger; however, in May at the end of this string, we find a reversion to previous conditions of having more weakness than strength. This simply means that we must keep a close eye on these events to see if we're seeing a slowdown in the recovery process or a termination of the recovery process and a reversion to weakness.

The percentile standings tell us where the current indexes stand relative to their position over the last 4 1/2 years. On this basis, the percentile standings executed on the queue standing basis show 10 of the 21 gauges have standings below the 50% mark which puts them below their historic median for the last 4 1/2 years. However, weakness is concentrated in France and the United Kingdom, two countries that have all sectors below the 50-percentile mark. Japan is the only exception to have all gauges above the 50-percentile mark. The most general observation is that the composite index and the service sector index have percentile standings in their 60th percentiles, with manufacturing at some standing level below its 50th percentile usually around its 40th percentile or lower. The unweighted average standing for the group has the composite with the 59-percentile standing, the average with the 38.6 percentile standing, and services at a 61.4 percentile standing. Excluding the U.S. from this unweighted average, we find little changed with the average at 59.1% for the composite, at 38.7% for manufacturing and at 61.3% for services. The U.S. has standing statistics that are just about at the average for this group.

The chart shows that recent momentum has been improving at least in the European Monetary Area. However, the current month shows a set-back and the most recent three months show improvement after six-month and 12-month averages that were considerably weaker. The question on the table is whether this improvement is continuing or whether it's slowing down or running out of gas. Central banks had been raising rates during this period, and - more recently- have stopped. And they have not for the most part shifted to a policy of easing although several of them seemed to be poised to take that next step. The next step the central banks take is going to depend a lot upon how inflation performs and inflation performance, which had been positive and constructive during most of this period, has since slowed, or begun to make some small reversals. That leaves a question mark about what central bank policy will be and that in turn leaves a question mark about how growth will unfold.
by:Robert Brusca
|in:Economy in Brief
Europe| May 22 2024
Car registrations in Europe Rebound Smartly in April
European car registrations in April rose 11.8% after falling by 8.8% in March. Looking at smoothed data with percent changes calculated from three-month moving averages, the April gain was 0.3% after a March gain of 0.5%. This simply means that in smooth terms gains in auto sales/registrations continue and haven't changed speeds by very much.

Accounting by country, it was a strong monthly gain in April in Germany with car registrations up to 8.4%; Italian registrations were up by 3.3% in April. Registrations fell by an outsized 8.8% in the United Kingdom; they fell by 1.8% in France, and by 0.5% in Spain. The country level data represent reversals month-to-month for all countries except the U.K. In other words, countries with sales gains in April had declines in March and countries with declines in April had increases in March. The exception is the U.K. that had substantial declines in both March and in April; however, the U.K. is also coming off of a huge gain in February that by itself is nearly as big as the two months consolidated drops in April and March; the U.K. February gain is by far a much larger than the increase in registrations seen in any other European country in the table in that month. The month-to-month declines for sales for two months running in the U.K. is not surprising; the U.K. economy has been struggling. However, when we see that those two months’ drops compared to such a strong gain in February the overall signal is muddied and muted.

Sequential annualized sales for all of Europe show 12-month gains at 13.9%, compared to a 4.2% annual rate gain over six months, and a 3.6% annual rate gain over three months. There's a sharp slowdown from the 12-month pace compared to three and six months. Surprisingly, there's more variability in the smooth data that show European registrations up 6.1% based on three-month averages over 12 months but a growth rate of -6.9% over 6 months based on smoothed data, and a growth rate of 6.1% over 3 months based on smoothed data.

Country level sequential data only show relative clarity for Italy and the United Kingdom. U.K. 12-month growth rate is 1.8% while the three-month and six-month growth rates are on the order of -20% annualized. Germany and Spain both show increases on all horizons. For Germany, the year over year growth rate is 12.9%, pretty similar to the three-month growth rate; however, there's a jump in the growth rate that doubles over six months and then settles back down. For Spain, the 12-month growth rate is 22.5%; it edges down slightly to 18.2% at an annual rate over six months and then jumps sharply to a 47.1% annual rate over three months. Germany and Spain clearly have the strongest registration profile. The U.K. clearly has the weakest while France and Italy are in between case; both France and Italy show gains over 12 months and declines in registrations over six months, but over three-months France shows an increase in registrations at a 19% annual rate while Italy shows a decline at a -14% pace. Italy shows a decelerating pace of registrations from 8.2% over 12 months to -13.2% over 6 months, the decline gains pace to -14.2% over 3 months.
by:Robert Brusca
|in:Economy in Brief
Canada| May 21 2024
Canada’s Inflation Progress Continues…Maybe
Canada’s year-on-year inflation rates broke lower in April with a strong decline in Canada’s CPIx that excludes eight volatile components from the CPI. The CPIx has lower volatility than the CPI headline (1.7%) but its volatility is higher than the core (1.4% vs. 1.1%).

Economists -including some central banker economists among them- have expended some effort in looking at inflation measures that exclude certain things beyond the traditional core omissions (food, energy…and, maybe, tobacco). The Dallas Fed in the U.S. has offered a trimmed mean; the Cleveland Fed has a damped measure as well. There are other efforts in the U.S. to exclude certain components such as housing costs linked to high mortgage rates (one of the items jettisoned by Canada’s CPIx as well); during COVID, there was the removal of surging truck prices in the U.S. gauge.

My view of these efforts is that I have a lot more respect for Canada putting out a price index that eliminates volatile items at all times, offering a structural parallax view of inflation, compared to the U.S. approach of eliminating items that are pushing up the rate of inflation the most. The traditional approach is to look at core inflation instead of headline inflation from time-to-time when commodity prices flare (food or energy particularly). This has been done to take the focus away from the part of the inflation process that is most volatile. However, when inflation is really rising, these components likely will be the most volatile part of the index. By definition, the most volatile components will surge the most when inflation rises. So, if inflation - when it gets going - always is stimulated through the same components, downplaying the structurally volatile items will lead to a misappraisal of inflation and of how it may be gathering momentum.

Canada’s indexes show that CPIx inflation is the lowest now (year-over-year), but it was traditional inflation (CPI) that rose the most. The question is whether CPIx will continue to lead the way lower.
by:Robert Brusca
|in:Economy in Brief
Japan| May 20 2024
Japan Service Sector Backs Down After Spike Higher
The METI tertiary (Service index) for March fell back to 100.2 from 102.7 in February when it spiked from 100.5 in January. The spike high of February is now back below its January level. At the bottom of the table the IP index for industry (excluding construction) is presented side-by-side with the METI tertiary index (for Services).

The rank of year-on-year growth in the IP index and the rank for the tertiary sector growth both are low, in the 20th percentile of all growth rates since mid-2009. The level of the IP index has been weaker on that timeline only 10.3% of the time. The METI services index has been lower only 44% of the time. These rankings mark both the industrial and services sectors as weak- both are stronger more frequently than they are weaker.

Interestingly, the leading economic index for Japan has a level standing on the same timeline at its 53rd percentile, above its historic median (median resides at 50) and a year-on-year growth ranking in its 72nd percentile – quite a solid percentile standing.

The Teikoku indices are diffusion metrics. They cover five sectors of which only services have a diffusion value above 50, indicating expansion. And the services index value is at 51.0, not exactly decisively endorsing the trend for expansion. The Teikoku index shows below-50 values for a long string of values across sectors with only services above 50 consistently- but only for the last 13-months. The levels of the values for Teikoku are above their ranking of 50 on levels across sectors except for manufacturing. This, of course, tells us with such weak current diffusion levels, readings have been persistently weaker and contracting- since current index standings are above their historic medians broadly and yet current diffusion values also are broadly below 50! Growth rankings of current indices are all below their historic medians indicating that there is no revival in progress.

The economy watchers survey also employs diffusion indices across sectors and for employment as well as with a future index. In diffusion terms the selected indices show below-50 readings for retailing and for the current economy-watchers headline. Employment, the future index, and services, as well as eating and drinking place, show above-50 readings on diffusion. But the rankings on the year-on-year growth for these metrics in uniformly below 50 – revealing below-normal growth (below median, formally) for these indices. The index level rankings show all readings above their historic medians except for employment.

On balance Japan’s data show a great deal of substandard performance and a prolonged period of substandard results. None of this- however memorialized by statistics is surprising to any Japan economy watchers. Japan is dealing with a long-term population decline that policy has not yet addressed. It is ending a period of deflation flirtation and a period of extraordinary central bank stimulus to combat that situation. In the wake of Covid and persistent Bank of Japan stimulative policy, Japan has distanced itself from deflation, but policy is still trying to evaluate where the inflation situation stands. The yen is weakening and once again Japan’s policy faces challenges.
by:Robert Brusca
|in:Economy in Brief