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| Jul 03 2024
PMI Composites Worse on Balance in June
In June, the S&P PMI composites improved in 6 of 25 countries and regional jurisdictions reporting in the table. Fifteen improved month-to-month in May and eleven improved month-to-month in April.

Over three months, 14 jurisdictions improved compared to their six-month averages. Over six months, 18 improved compared to their 12-month averages. Over 12 months, 14 improved compared to their average readings of 12-months ago.

The sequential averages show a significant trend toward improvement. However, monthly comparisons are not as upbeat.

In June, there was a relatively sharp increase in the number of jurisdictions with PMI values showing decline (PMI<50) as the raw count increased to 8 out of 25 from four in each of the two preceding months. The period averages have been showing fewer output declines with the number dropping from 9 over 12 months to 6 over six months and to 5 over three months. PMI readings below 50 had been becoming scarcer.

Average and median PMI reading had been improving with higher diffusion reported over six months compared to 12 months and another improvement over three months for the average but a step back for the median. Monthly there is no trend for the change, but the June readings are weaker than the April readings.

Queue percentile standings classify standings against all past readings expressed as a percentile positioning on data back to 2020. The average queue standing is in its 43.7 percentile while the median standing is at its 42.9 percentile. Only India and Egypt have queue percentile standings in their 80th and 90th percentile ranges. Spain manages a reading in its 70th percentile, Brazil comes close at a 69-percentile standing. But only eight of 25 percentile standings are above the 50% mark, which means above their historic median readings.
by:Robert Brusca
|in:Economy in Brief
Europe| Jul 02 2024
EMU Unemployment Holds at Lows
Unemployment in the EMU in May stayed at its cycle (and all-time) low of 6.4%. There is evidence of small backtracking in Germany, but that is modest backtracking. Trend unemployment is still low and broadly low across the EMU.

In May unemployment rates fell relative to April in Finland, Greece, and in the Netherlands- in each case the rate fell by one tenth of one percentage point. Unemployment rates rose month-to-month in Austria, Belgium, France, Luxembourg, and Portugal. The rate also rose in Europe’s non-EMU/EU member U.K., a rise of 0.2 percentage points.

However, across the 12-representative EMU members in the table, the median rank standing of the unemployment rates is in its 19th percentile, the average is in its 26.9 percentile – both rankings confirming low rates of unemployment. The weighted rate for all of the EMU is much lower because the coincidence of having all these rates at relative lows at the same is so unusual. Only Luxembourg has an unemployment rate that is strong, about its historic median (above a ranking of 50%). The lowest rankings are still below their respective 10 percentiles for Ireland, Italy, and France. In addition, the Netherlands, Germany, and Belgium have rankings below their 20th percentiles. While many measures showing industrial data have not done so well compared to their pre-covid levels, for unemployment rates across countries have unemployment rates below their January 2020 levels except for four countries: Austria, Belgium, Germany, and Finland. Luxembourg’s rate is unchanged.
by:Robert Brusca
|in:Economy in Brief
Japan| Jun 28 2024
Japan’s Production Struggles to Make and Keep Gains
In the graph that accompanies this article, I have chosen to plot industrial production as a level instead of as a growth rate- the latter treatment would be more common. The reason for it, as you can see, is that industrial production has been without a positive trend for some time. The prevailing trend over a longer period (back to 2021 or further depending on how you construct a trend) is clearly negative although the short-term trend shows a very clear revival in progress from early this year.

These complications make growth rates less useful to calculate because production has contrary long-term and short-term trends, and its path is peppered with a good deal of volatility which increases the chance that any growth rate you calculate is not very meaningful.

Having said that, I also included table that calculates growth rates! Seeing the chart and plotting industrial production as a level together allows us to understand what's going on with the growth rates a little bit better.

Industrial production declines over 12 months and over six months but then makes a very strong recovery over three months for both total IP and for manufacturing. Total industrial production is rising at a 19.3% compounded annual rate over three months while manufacturing output rises at a 28.5% annual rate over three months. However, both show that output falls by 0.4% over 12 months, and for the year before that both headline industrial production and manufacturing rose on 12-month growth rates of 2.2% and 5.3%, respectively.

Looking at manufacturing sectors for consumer goods, intermediate goods, and investment goods, we have all three sectors showing output advancing in May, falling in April, and advancing in March. The recent months have been volatile. Looking at growth rates over 12 months, six months and three months, all the sectors have slightly different growth characteristics. Consumer goods output declines over 12 months and six months but grows strongly over three months. Intermediate goods output rises over 12 months, falls over six months, and then rises strongly over three months. Investment goods output declines over 12 months, grows at nearly a 4% pace over six months, and then explodes at a nearly 50% annual rate over three months. The output of investment goods is the only sector that shows persistent acceleration.

Moving out of manufacturing to mining and electric utilities & gas, we find that mining shows declines over 12 months and six months, with a nearly 10% annual rate increase logged over three months. Electricity & gas show that persistent acceleration from minus 0.2% growth over 12 months, to nearly identical ‘zero growth rate’ over six months and to a nearly 10% annual rate of growth over three months.

Despite the turbulence and the inconsistency across different timelines and in comparing timelines across different sectors, the one constant here is that over three months Japan's output is doing quite well no matter what sector you look at. Despite that, it's still true that, for the most part, industry shows increases in March, versus declines in April, topped by increases in May. It isn't exactly like Japan is now on this steady recovering platform; it's just that the data line up this way and because of that it doesn't give us any confidence that even with the strong trend over three months that it's going to have staying power.

Still, in the quarter-to-date the annual rate increase of overall industrial production manufacturing and all the sectors is impressively and consistently large.

However, as the chart at the top reminds us Japan has been in a period of relatively difficult growth. If we look at the level of output now calculating the percent change in output from where it was in January 2020, we are looking at a period slightly in excessive of four-years. And yet overall and manufacturing output both are lower, the output of intermediate goods is lower, consumer goods output is flat, and only investment goods output is up by 3.1% over that four-year span. Mining output is down, and the output of electric and gas utilities is lower on balance as well.
by:Robert Brusca
|in:Economy in Brief
Global| Jun 27 2024
Globally Money Growth Recovers, Moderates – Still Weak
Money supply growth is picking up globally except, of course, in Japan. In the European Monetary Area, money supply is up 0.6% over 12 months, it's up at a 2.1% annual rate over six months, and it's rising at a 2.8% annual rate over three months. Credit to residents in the European Monetary Area also is making a recovery, with 12- and six-month growth rates at 0.3% and with the three-month growth rate at an annual rate of 0.8%. Private credit is growing just slightly faster, with the three-month growth rate at 1.2% annualized.

In the United States, M2 money supply growth has accelerated from 0.6% over 12 months to 2.5% pace over six months and to a 4.2% annual rate over three months. Money growth in the United Kingdom, similarly, is accelerating from 0.3% over 12 months to 4.1% annualized over six months to 6.1% annual rate over three months.

Japan is the exception, with growth over 12 months at 1.8%, slowing over six months to a 1.6% annual rate and then slowing further over three months to a 0.5% annual rate.

Adjusted for the effects of inflation, money supply in the monetary union is gradually picking up as it moves from a decline of 1.9% over 12 months to an increase at a positive annual rate of 0.6% over three months. In the U.S., M2 growth is -2.6% in real terms over 12 months but flips the switch to grow at a 1.3% annual rate over three months. In the U.K., money supply M4 falls at a 3.3% annual rate over 12 months but then grows at a 2.5% annual rate over three months. Japan shows real money growth at -1% for 12 months, then at -0.4% over six months and at -3.1% annualized over three months.
by:Robert Brusca
|in:Economy in Brief
Germany| Jun 26 2024
German GfK Climate Takes Modest Step Back After Bounce
German consumer climate as measured by the GfK index in July has taken a step back to -21.8 from a reading of -21 in June. However, the step up in June to -21 from -24 in May remains largely in place. The GfK climate index has been climbing, but it remains in substantially weakened condition with a queue- or count-percentile ranking at 9.8, indicating that it has been weaker than this only about 9.8% of the time.

The components of the GfK index lag and are available only through June. However, through June economic and income expectations readings weakened while the propensity to buy took a small step backward moving more deeply into negative territory. Economic expectations fell back to 2.5 in June from 9.8 in May while the income expectations reading fell to 8.2 from 12.5 in May. The propensity to buy retreated to -13 in June from -12.3 in May.

The components show economic expectations rank at their 42.6 percentile, still below their historic median. Income expectations are at a ranking of 43.0, a percentile standing also below its historic median (queue standing medians occur at a ranking of 50). The propensity to buy has the weakest standing among components at its 24.3 percentile.
by:Robert Brusca
|in:Economy in Brief
Japan| Jun 25 2024
Japan’s Core CPI Puts Bank of Japan in a Tough Spot Again
After release of Japan's headline report for the CPI for May, it appeared that the way had been made clear for the Bank of Japan to begin to raise rates and began to move interest rates into more sustainable, neutral, long-term territory. A rate hike could also go some way toward helping to support the yen that has been struggling. Headline inflation in Japan is at 2.9%; while it dipped to a 2.1% pace over six months, it's running at a 3.8% annual rate over three months.

However, new data on the core suggested Japanese inflation is running substantially weaker than headline inflation suggests. The generic all items excluding food and energy metric was flat in May, up by 1.6% over 12 months, up by 1.2% at an annual rate over six months, and up at only a 0.8% annual rate over three months. Core inflation shows that inflation pressures are not broadly shared. The statistic for all items except fresh food and energy rose by 0.1% in May, and has a stronger 2.1% gain over 12 months, quite close to the Bank of Japan target. However, over six months, this core metric is up but only a 1.3% annual rate; over three months, it's up at only a 0.4% annual rate. Neither of the measures of the core inflation rate shows that there's much inflation stirring in the Japanese economy. They are far from giving the BOJ an ‘all clear’ signal for any kind of rate hiking. Their sequential progression to lower inflation rates over the past year underscore ongoing price weakness.

These are data through May so two-thirds of the monthly data are now in hand. Quarter-to-date all item inflation is rising at a 2.9% annual rate; inflation for all items except food and energy is up at just a 0.9% annual rate; and for all items except fresh food and energy, the rate of increase in the quarter-to-date is only 0.5% at an annual rate.

The quarter-to-date data for all items except fresh food and energy comes in very close to the five-year average for that series which showed an average annual increase of 0.6% per year. For all items ex food and energy, the gain of 0.9% in the quarter-to-date is higher than the 0.6% it averaged over five years. However, headline inflation of 2.9% quarter-to-date is up considerably more strongly than the five-year average pace of 1.4%.
by:Robert Brusca
|in:Economy in Brief
Germany| Jun 24 2024
Germany: IFO Confidence Weakens Further on Poor Expectations; Move to Recovery Is Reversed
Germany's IFO survey had been engaged in an ongoing improvement, but this month there's a clear step back from that improving trend. The all-sector climate index from the IFO registers a reading of -15.3 in June, weaker than May’s -11.4 reading. The current conditions reading is a net positive, but it is unchanged month-to-month. However, expectations show an index value of -13.4 in June, below the -10.7 logged in May. That is very disappointing.

Business expectations have been improving since January. This is the first backtracking in that improving stretch. The reading of -13.4 for June brings it back to a level that is stronger than the reading for March but weaker than the reading for April.

Climate The overall climate reading weakened month-to-month. It shows slippage in manufacturing, wholesaling, and retailing. There's an improvement in services to plus 4.2 in June from plus 1.8 in May and there is a more modest improvement in construction to -25 in June from -25.6 in May. However, there is also sharp deterioration from month-to-month, with manufacturing falling to -9.2 in June from -6.5 in May, wholesaling falling to -26.7 in June from -19.8 in May, and retailing falling to -19.5 in June from -13.3 in May. Despite the significant improvement in services, there is deterioration elsewhere that dominates the climate reading this month. The rank standing for overall climate this month stands in its 20th percentile at the cusp of the lower 1/5 of the historic rank of all its observations. The weakest reading is wholesaling with a 12.6 percentile standing. The strongest sector is construction with 37.9 percentile standing. After its rebound this month, services moved up to a 22.6 percentile standing from 19.6% a month ago. Still, all of these are weak readings and not even marginally weak readings- all are well below their historic median that occur at a ranking at the 50th percentile.

Current The current reading is unchanged month-to-month at a positive reading of plus 1.2. It derives its positive reading and strength from the services sector where the current reading moved up to 14.0 in June from 11.8 in May. Manufacturing improved month-to-month, moving to -6.1 from -6.6 in May. The construction sector moved down to -17.1 in June from -16 in May, retailing fell to -7.1 in June from -2.2 in May, while wholesaling fell to -25.2 from -18.2 in May. Current conditions overall are unchanged on two improving sectors and three deteriorating sectors. The current index ranks weaker than the climate index with a 15-percentile standing overall; however, current conditions show two sector readings with percentile rank standings above their 50th percentiles, putting them above their historic medians. Those sectors are construction with a 54.9 percentile standing and retailing with a 59.5 percentile standing. Manufacturing has a 27.6 percentile standing while both wholesaling and services have a 19.1 percentile standing.

Expectations The expectations readings are what sinks the IFO survey this month. The all-sector reading falls to -13.4 in June from -10.7 in May. There are month-to-month improvements in services, but they log -5.2 in June compared to -7.6 in May and in construction that logs a -32.7 reading in June, up from -34.7 in May. However, manufacturing drops sharply to -12.3 in June from -6.4 in May, wholesaling drops significantly to -28.3 in June from -21.5 in May and retailing falls to -31.1 in June from -23.8 in May. Rankings show the all-sector expectations index with a 14.5 percentile standing, construction has only an 8.5 percentile standing, and retailing an 8-percentile standing. These are the two weakest sectors in expectations, and this contrasts sharply to their performance in the current index where they are the two strongest readings and the only ones with readings above their historic medians. On Expectations, wholesaling has a 10.3 percentile standing, manufacturing, an 18-percentile standing, and services, an 18.7 percentile standing.
by:Robert Brusca
|in:Economy in Brief
Global| Jun 21 2024
PMI Services and Manufacturing Backtrack Broadly in June
The flash readings for June in the S&P Global PMI indexes show widespread weakness, but the U.S. dominates whatever month-to-month improvement there is, showing gains in the composite, manufacturing, and services month-to month. Among other June entries in the table, only the U.K. has a month-to-month gain and that's for its manufacturing sector.

This is a clear switch from May when only eight sectors showed weakness out of the 21 sector entries for these seven reporting units each reporting 3 sectors. April also showed strength with only 5 of 21 sectors showing weakness and three of those being in the U.S.

Broader trends Average data, which are calculated only on the hard data which means they're updated through May, show the three-month averages weaker than the six-month averages. Only three sectors weaken over three months; those are the service sectors for the U.S. and for Japan plus a weaker manufacturing sector in Germany. Over six months compared to 12 months, there are six weaker sectors. All three sectors in Australia are weaker; and in Japan, the composite and the manufacturing sectors are weaker; in the U.S., the services sector is weaker. However, over a year compared to the year previous, there are only 5 sectors that are stronger. The chart at the top gives you a sense of the roller coaster ride that the PMIs have been through for services and manufacturing in the European Monetary Area.

Trend shift? The manufacturing data in the chart has been on a plateau for about 5 months while the services sector in the monetary union has only just begun to turn lower in the past two months. The question is whether there is some sort of new trend in place and whether the upswing is over. It's too soon to know this, but it's not too soon to wonder about it.
by:Robert Brusca
|in:Economy in Brief
Germany| Jun 20 2024
Inflation’s Downturn in Germany Slows or Stops- Are We ‘There’ Yet?
What Are Central Bankers Thinking about Inflation?

The focus on inflation and its implication for central bank policy has become a very widespread sport, especially now that inflation rates have declined substantially from their peak and have come much closer to central banks targets (2% all around). Lower inflation rates have taken some of the ‘air out of the inflation ball’ and the call-to-arms to maintain high rates. But that ball is still in-play and inflation is still excessive in most places, Germany, the EMU, the United States, the United Kingdom…just to name a few.

However, with elections on the boil in the U.K. and on the horizon in the U.S., decisions to change interest rates begin to leave the economic spectrum and enter the twilight-zone of the political world, one of very different dimensions. Or maybe we’ve reached the outer-limits…hard to tell.

The Bank of England met today and did not change rates with a 7-2 vote. But we are told three members were ‘on the fence.’ Had they shifted to a rate cut mode the vote to approve a cut would have gone 5-4 in favor. We are now told if things go as planned, an August cut is possible (likely, according to some). Many headlines about the BOE decision today note that the BOE did not cut rates even though inflation has been falling. Well, the data show roughly 2.9% headline inflation in the U.K.; core measures coalesce around 4.4% to 3.9%. These all are above target, but the financial press is not mindful of that. This is the sort of reporting that we have become used to in the U.S. as well.

Is all policy now derivative...or based on derivatives? Apparently, we have crossed some barrier and no longer live in a world where inflation levels or actual price levels matter! But changes matter. We live in derivative land! Biden supporters tout the drop of the inflation rate as do BOE-bashers. They neglect to mention that the level of inflation is still over target, and the rate of decline in inflation’s pace has slowed… or worse. No one is interested in targets anymore. In the U.S., where inflation has made prices high, people say yes, prices are high, but inflation is much lower- as though I can buy goods for the inflation rate instead of at the price level. Sheese…

What I see in progress in the U.S., the U.K., and the EMU is that policy decisions are longing to be made and looking for the right argument to justify them. This is not what should happen-this is backwards. Economics first, policy result, second. But economics has been captured by politics and the emerging view that no one ever need suffer if policy is just fine tuned correctly, as that great economist Steven Tyler wrote…’Dream on.’

Germany’s PPI dilemma So, the German case here with the PPI looks at an indicator but not the one with most skin in the game (the CPI/HICP). This is the PPI, a more volatile less comprehensive index. But we include in the table German CPI trends (CPI and CPI ex-energy) and see that inflation is above 2% and stuck sequentially. In any event, the ECB makes monetary policy for the Monetary Union and Germany is only a portion of that. But as the Union’s largest economy, what happens in Germany matters. And since Germany is not Las Vegas, what happens in Germany does not necessarily stay in Germany. The CPI is ‘stuck,’ and the PPI is accelerating.

German PPI inflation is transiting (overall and ex-energy) to higher inflation rates from 12-months to 6-months to 3-months. Will that sequence spread?
by:Robert Brusca
|in:Economy in Brief
Global| Jun 18 2024
Zew Current Situation Remains Dour
The German research house Zew has updated its monthly poll of members which shows little change in current conditions, some small improvement in still very-weak expectations, perceptions that inflation is still well corralled, and the view that lower rates in the US are more likely, while less likely in the Euro-Area (but still very likely everywhere!).

Macro conditions and expectations Zew experts see no change in the current situation in the Euro-Area in June, a small step back for Germany and a step back in the US. Still, US conditions have a queue standing of 54.5%, above their historic median while the Euro-Area’s weaker standing is at its 41.2 percentile, Germany is still viewed as much weaker with a 15.9 percentile standing in its current conditions metric. Expectations reverse those queue standings as Europe improves expectations slightly in the month to a 69.3 percentile standing, well above its historic median. The US marks a 4.5-point improvement month-to-month but still logs a net negative assessment and sports a below-median queue standing in its 37.8 percentile.

Inflation and interest rates Inflation expectations remain deeply negative as inflation is broadly and intensely viewed as not a problem. The queue standings for the inflation readings range from a 7.4 percentile standing low in the US to a ‘high’ standing at 15.9% in Germany- the EMU reading is below the German reading. Not surprisingly, interest rate expectations are broadly negative across short- and long-term rates. Expectations for lower US short term rates rose this month while for EMU expectations were reduced. Still, we are splitting hairs here with 5-percentile and 6-percentile standings for each of them- both extremely low. Long-term rate expectations follow the same pattern, with lower US rates expected- not so for EMU. Both queue standings are exceptionally low at a three-percentile standing for EMU and at a 0.8 percentile standing for the US. We simply have rarely seen expectations so weak for long-term yield reduction in either the US or EMU.

Stock market expectations show below-median values for all three areas: EMU, Germany, and the US. The US queue standing evaluation is the highest at a still below-median 40-percentile standing while Germany and the Euro-Area had standings in their ‘teens.’

The current situation in EMU and Germany has remained depressed since Ukraine invasion. Europe and Germany came out of Covid with the same initial vigor as the US, but then both suffered relapses as the Russian war on Ukraine emerged. The US regather momentum to work higher from mid-2022 while Germany and EMU have been unable to mount a sustainable reaction. Inflation expectations have gradually ‘risen’ from deeply negative values and remain still very weak at large negative values. There have been no significant changes to interest rates or inflation expectations, just very slow-moving changes.

With central banks moving rates slowly no one seems to be expecting anything to change abruptly anytime soon. Perhaps if there is a sharp change in the works it will come from some unexpected geopolitical event, but even the shock attack on Israel by Hamas and the Israeli response have had minor impact on markets and on economic expectations...so far.
by:Robert Brusca
|in:Economy in Brief
Japan| Jun 17 2024
Japan’s Orders Mostly Pull Back in April
The new data today from Japan are for orders and these are presented at the bottom of this table. Total orders fell by 3.6% in April with core orders (those being the series excludes large projects such as ships and electric power plants) falling by 2.9% month-to-month. Foreign demand was the only category that rose on the month, it was up by 21.6% but that's following the only decline from March when foreign orders fell by 9.4%. Domestic demand fell by 15.1% in April.

The ranking of the levels of the indices for orders are relatively high with core orders being the weakest at 85.8 percentile standing the rest having standings above the 90th percentile. However, over time and with inflation orders should grow so it might be more meaningful to look at the growth rank and on that basis core orders have a 44.8 percentile standing the growth rate rank, below its median - the median for ranking statistics occurs at the 50th percentile. However, in terms of growth rankings total orders, foreign demand, and domestic demand, all have standings from the mid-70th to low-80th percentiles which are quite solid metrics.

Beyond Orders Other metrics in the table also assess the performance of Japan's economy in various ways. The first block in the table considers the economy watchers’ index. These diffusion indices are largely below scores of 50, indicating contraction for these survey items. In terms of rankings, the growth ranking for the economy watcher components are all quite weak - all below their 28th percentile in terms of levels- and these are more meaningful since these are diffusion indices. Eating and drinking and service sector indices have standings above their 50th percentile, but the rest are below the 50th percentile indicating performance for these sectors below their respective historic medians.

The Teikoku surveys also employ diffusion indices. They are slightly weaker in their diffusion values than the economy watchers’ numbers. The rankings of the Teikoku diffusion indices in terms of index levels are all over the map, with manufacturing extremely weak, at a 35-percentile standing, and services at the other extreme, strong with an 80.7 percentile standing. In terms of the growth rankings all of them are weak with construction as high as a 38-percentile standing but after that nothing as high as a 32nd percentile standing.

The METI tertiary index moved up in April to 101.9 from 100 in March. It has an index standing at its 85th percentile and growth standing at its 66th percentile, both above their medians. For industry we use the industrial production index which dips in April compared to March. It has an index rank that's low at 6.8% and a growth rank that's only at 12.8%. The weakness in industrial production reinforces the weak reading we see on manufacturing in the Teikoku survey.

Japan's leading economic index in April ticks down slightly to 111.6 from a 111.7; that index has a ranking on its level at its 59th percentile and a growth ranking at its 74th percentile both mildly firm entries.

Against the background of the surveys in the table, the orders responses in April show standing growth rates and order index levels that seem relatively stronger than some of the responses from the surveys in the table above. However, there's little indication according to any metric in the table there's much strength in Japan's economy, in the manufacturing sector, or across the service sector entries. The far-right hand column simply looks at changes in the various indices from January of 2020 when COVID struck. Recognizing that these are changes over a four-year period, they indicate a good deal of weakness across the Japanese economy. Against that background the orders data have better responses than the surveys.

Still, the bottom line for Japan is that the economy is struggling, and the Bank of Japan is still trying to feel its way with policy being somewhat hesitant to raise rates too much despite excess of inflation because it's unsure whether the inflation is going to stay; the BOJ is still being very mindful of the long period of deflation it hopes it has put behind it. The sharp weakness in the yen that has developed this year is simply another policy challenge for the Bank of Japan and so far, this yen weakness has not particularly ignited either domestic growth or domestic inflation. But it has contributed to the increase in the price of energy and that has created some consumer distress.
by:Robert Brusca
|in:Economy in Brief
Japan| Jun 14 2024
Japan’s IP Backs Down after March Surge
Industrial output in Japan foundered drooping by 1.2% in April, with manufacturing output declining by 0.9% on declines spanning consumer goods, intermediate goods, and investment goods. Mining and electric and gas output fell in the month as well. Declines spread across all of manufacturing and all the major industrial production sectors. The textile industry managed a month-to-month rise.

In recent months manufacturing output and overall industrial output have both been up and down by month. Sequentially, output may have broken out from a weak trend. Over 12 months output fell by 4%, over 6-months it fell at a 7.3% annual rate, but over 3-months overall output is up and 11.5% annual rate, a strong showing. Manufacturing output fell by 4.3% over 12-months, it fell at the 6.8% annual rate over 6-months and then surged at an 11.9% annual rate over 3-months. And while these patterns are encouraging, the impact on year-over-year growth has only been to stabilize output at around the -4% mark of contraction.

By sector, consumer goods output continues to be weak but has trend with some of its weakness back. Consumer goods output falls by 4% / 12 months falls at a stepped-up pace of 8.3% at an annual rate over six months but then reduces its decline to less than 1% than an annual rate over three months. Intermediate goods output falls 4.8% / 12 months and follows at a 10.2% annual rate over six months but then manages to log an increase at a 0.4% annual rate over three months - that marks more of a reversal of trend than it does signal much of A gain. Investment could output falls by 3.9% / 12 months improve slightly by falling at only a 2.4% annual rate over six months and then jumped to a 24.2% annual rate gain over three months, that's a clear sequence of improvement but with most of the improvement coming over three months.

Outside of manufacturing, mining output showed a similar pattern. Mining output fell by 4.4% over 12-months, fell by 6.8% at an annual rate over 6-months, and then logged a 9.1% rate increase over 3-months.

Electric and gas output logs increased over all horizons and showed steady improvement over the sequential periods, rising by 0.8% over 12-months, rising at a 1% annual rate over 6-months, and then at a much-stronger 8.6% annual rate over 3-months.

There's significant agreement across the manufacturing categories and other industrial categories that show that over 3-months something positive is stirring in Japan's economy; but, as yet it's not enough to dominate the existing declining 12-month trend.

In the quarter industrial output is increasing at a9.9% at an annual rate, manufacturing output increases an 11.2% annual rate. However, the manufacturing result is driven by investment goods that are rising at a 30% annual rate in the quarter while consumer goods output falls by 3.6% at an annual rate and intermediate goods output falls at a 0.8% annual rate.

Mining and electric and gas output both fall in the quarter to date, as well. But now the quarter is in a nascent phase with only one month of data in. Results for the quarter can still change quite markedly as there are still two-months-worth of data plus the potential for revision to reveal themselves. The quarter to date growth calculation involves taking the current month and calculating its trajectory over the first quarter average by compounding it; that tends to exaggerate its impact so early in the quarter. That will change significantly when the next several months of data are added in to complete the quarter.

Output overall as well as manufacturing and all its sectors show output levels are still below what they were in January of 2020 when COVID first struck the world economy. The short-falls are significant, indicating that after four years Japan's economy still has not recovered from that body blow. The only industry that has improved relative to January 2020 is electric and gas and that's only because there's always a steady need for the output from utilities. This report highlights the potential for recovery in Japan's economy. Most of the gain stems from a revival in March, April's contribution is that it wasn't weak enough to wipe out the March gain. Still, the year-over-year change in output remains negative. Quarter to date output is stepping into positive territory but on the on the strength of one sector. Japan's economy still has a long way to go to put itself back on two feet.
by:Robert Brusca
|in:Economy in Brief