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| Apr 23 2024
PMIs Are Flat or Better in April, But Trend Remains Flat
EMU Shows Some Services Upswing, But still Is Range-bound The PMI data for April from S&P Global shows a mixed performance that tends toward strengthening except for the United States. U.S. data in April show a weaker composite, a weaker manufacturing sector, and a weaker services sector and these three readings were also weaker month-to-month in March in the United States. The other seven countries reporting on the table show stronger data for April and while a bit more mixed strengthening in March as well. On average, the monthly data from February to March to April show the composite readings creeping higher. Manufacturing ratings move higher in March compared to February and then stall in April. For services, there is a steady progression of stronger service sector numbers from February to March to April.

Sequential data are far more equivocal with the average Composite Index at the same level over three months as it is over 12 months. The manufacturing reading is a tick higher at 47.7 over three months compared to 47.6 over 12 months. The services reading is slightly lower on average over three months at 51.3 compared to its 12-month average of 51.5.

The PMI this month highlights conflicting trends with the February-to-March-to-April data showing an upswing while the averages from 12-months to six-months to three-months show flatness to slight weakness. On balance, it's not the improving picture that we'd hope to see at this point.

The queue percentile standings data place the April flash data in a four-year queue of observations and viewed in that way the average for the Composite Index is at 62nd percentile, the average for manufacturing is at the 38th percentile and the average for services is at its 67.6 percentile. The services sector is barely inside of the top third of its 4-year historic range for this. Manufacturing at a 38-percentile standing is a good ten percentage points of percentile standing points below its median.

Of course, they're very different experiences across countries. India has the strongest performance with rankings in the 90th percentile for the composite, manufacturing, and services. Japan has firmed showing strong standings with the composite ranking in its 87.8 percentile and a services sector in its 91.8 percentile. But Japan’s manufacturing is still only in its 51st percentile. Japan and India are the only two countries that have manufacturing percentile standings above their respective medians (above the 50th percentile mark). Manufacturing in the euro area as a whole has a 22.4 percentile standing, Germany has a 16.3 percentile standing, and France has a 16.3 percentile standing. Manufacturing remains a weak sector in the global economy. India is benefiting from some relocation activity from some of the businesses leaving China.

The table also presents data and changes from just before COVID struck using January 2020 as a base. On that comparison, Germany, France, and the U.S. have weaker composite readings than they had four years ago. The European Monetary Union has a higher reading but only by 0.4 points, on its composite diffusion index. India's composite is higher by 6.1 points, Australia is better by 5 points, Japan is better by 2.5 points, and the U.K. is better by 1.7 points. None of these are very remarkable increases over a period of four years, but the statistics for India and Australia are quite respectable.
by:Robert Brusca
|in:Economy in Brief
Netherlands| Apr 22 2024
Dutch Confidence Continues to Climb…Still in a Hole
Dutch consumer confidence improved in April, rising to -21 from -22 in March, continuing its slow but steady climb higher. The willingness to buy index also continues to make a steady climb; it improved to -13 in April from -14 in March and -17 in February.

A strong six-month change: The simple period-to-period changes (not annualized) show that most of the change in the index has come over the last six months. Over the last six months, confidence is up by 17 points compared to being up 16 points over 12 months; a 7-point gain has occurred over the last three months. For the willingness to buy, there’s an increase of 14 points over six months compared to a 17-point gain over 12 months, once again most of the improvement coming over six months. Since then, the improvement is evenly split as the index has improved by 7 points over the last three months.

Climate: The measure of climate from the Netherlands continues to improve; it rose to -34 in April from -35 in March and from a reading of -41 in February. Looking at its sequential changes, the bulk of its improvement has come over six months as well, where there's a 22-point gain which is larger than the gain that it made over 12 months; there's a gain of 14 points; however, the pace of gains obviously has slowed with only five points worth of gains occurring over the last three months.

Still, the message from the Netherlands is that we're seeing improvements and the improvements, while slow, continue to be steadily coming month-by-month. The last six months has been particularly good for the improvement in conditions in the Netherlands.

Belgian compared We can compare the improvements in the Netherlands to Belgium’s consumer confidence index, a country from the same region and a member of the European Monetary Union. Belgian confidence deteriorated over six months, it fell by one point over six months, was unchanged over 12 months, and then showed more weakness recently by falling by 4 points over three months. The readings for the Belgian index show -6 in April, a deterioration from -5 in March with the March reading being unchanged from its value in February. These comparisons show that the Netherlands is having a much better recovery experience in 2024 than is Belgium, an economy that is traditionally linked strongly to the German economy.

Queue standings across metrics- We are evaluating these metrics in terms of their queue standings; on data since about 1990, we see that the Belgian data that are improving by less recently have the stronger queue standing over the entire period with a standing in its 54.5 percentile. This compares to a confidence ranking in the Netherlands at its 25.7 percentile, a willingness to buy standing in its 24.7 percentile, and the climate reading in its 30.6 percentile. Belgium has improved to a higher level than the Netherlands, but the Netherlands is currently experiencing a faster pace of improvement from a worse level of confidence than Belgium. These metrics are borne out over a shorter period as well. Since January 2020, the Belgian confidence indicator is up by 20 points while the Dutch confidence index is up by two points, the willingness to buy index is up by four points; Dutch confidence is weaker by three points.
by:Robert Brusca
|in:Economy in Brief
Germany| Apr 19 2024
German PPI Stops Falling and Flatlines – Is That Good Enough?
Global inflation trends have been in concert for major money center countries/areas- excluding Japan, of course. Inflation flared after Covid struck and in the wake of the Russian invasion of Ukraine. It continued to ramp up more than central bankers thought. Interest rates were raised from very low levels- the U.S. led the pack in terms of rate hike speed, getting its key rate up to its prevailing inflation rate in record time after a long period of being asleep at the switch. It said it stood prepared to hold rates ‘higher longer.’ Then the next unexpected thing happened; inflation fell sooner and more sharply than expected and it did this globally, not just in the U.S. However, we are now into phase three of this process: inflation went up more and longer, inflation then fell more and faster and now inflation is off peak but not back were we want it—and it is looking stubborn. This is more or less a global money center country/area description of inflation. Inflation that went through its boom-bust phase, as you clearly see from the sequential growth rates of the German PPI is now up from its lows. The headline price level is falling but losing momentum. The core PPI is only falling in its ‘legacy’ 12-month rate.

German PPI inflation falls by 2.8% over 12 months, falls at a 3.4% annual rate over six months, and falls at a 1.2% rate over three months. Core PPI inflation falls by 0.7% over 12, months then rises at a 0.7% annual rate over six months and three months. The core points the way for trend.

The NSA (not seasonally adjusted) sequential data show acceleration across and three major PPI sectors: consumer goods, investment goods and intermediate goods. Prices only fall over 12 months for intermediate goods. All other sectors trends show increases by period and all show acceleration in progress.

German CPI data show higher inflation over three months than over 12 months for the headline and the core with a dip in between – not a steady state acceleration but a clear hint at where things are headed and with German inflation rates clearly above the EMU-wide 2% mark.
by:Robert Brusca
|in:Economy in Brief
Europe| Apr 18 2024
Vehicle Registrations Losing Momentum in Europe
Registrations for cars in Europe for March fell by 8.8% month-to-month after falling by 1% in February. January, however, had been a strong month for registrations in Europe. The sequential trends are mixed and do not show a clear way forward. The 12-month change in sales/registrations falls 4.7%. Over six months registrations fall harder at an 11.9% annual rate, but then over three months registrations gain at a 7% annual rate. These data are prone to volatility. To adjust for that, I execute the same calculations on three-month average data to smooth out the volatility and let the trend shine through. Unfortunately, this procedure still does not produce a clearer picture of trend.

Chart 1, executed on year-over-year growth rates, shows registrations gradually losing momentum among reporting countries. Sequential growth rates across countries finds Germany and Spain with accelerating sales/registrations. France and Itay with fairly clear trends showing decelerating sales. Meanwhile, the U.K. trend shows confusion with no clear pattern emerging.

Looking very broadly, all reporting countries show registrations lower in March everywhere except for France, in 2024 compared to January 2020 before Covid struck. France is the lone exception that shows registrations in March higher by just 2.2% than they were over four years ago. That is not exactly a stunning success.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Apr 17 2024
U.K. Inflation Cools in March but Not by Enough
When the Music Stopped, or at Least the Inflation Progress... U.K. inflation on the HICP measure eased to 0.4% in March from 0.5% in February. The month-to-month CPIH measure also rose by 0.4% from 0.5% in February. The CPIH excluding food, energy, alcohol, and tobacco rose by 0.4%, the same as in February. The Bank of England looks at several inflation gauges; it targets HICP, which rose 3.2% year-over-year in March and slowed slightly from its year-over-year pace of 3.4% a month ago. The HICP steps inflation down to 2.7% over six months but then inflation rises at a 3.9% annual rate over three months, not what the Bank of England was looking or hoping for. The CPIH is 3.7% year-over-year, down to 3.3% at an annual rate over six months and up to an even worse 4.4% over three months. The core CPIH that excludes food, energy, alcohol, and tobacco, pretty much all things necessary or fun in life, rose by 4.7% over 12 months, cooled to 3.7% over six months, but then ticked up to 3.8% at an annual rate over three months.

Inflation makes progress, but not reliably enough The bottom line is that inflation, as represented by either six-month or three-month inflation rates, is generally lower than it was over 12 months ago, indicating ongoing progress on the inflation front. However, the progress isn't as substantial as the Bank of England would like to see; there's some backtracking over three months compared to six months that's not what monetary policy is looking for to gain confidence that inflation will continue to fall toward target.

Diffusion results are mixed Sequential diffusion- Diffusion calculations applied to the categories in the table showed an inflation over 12 months that exhibits diffusion of 23% compared to inflation rates of 12-months ago. The diffusion measure is the percentage of categories where inflation is accelerating period-to-period. Over six months, diffusion falls to 7.7%. HICP inflation on that comparison fell to 2.7% from 3.2%. The diffusion calculation comes from comparing the inflation rate in each category over six months to the same category over 12 months. If the inflation rate is higher over six months than over 12 months, we count it as acceleration. Acceleration was quite rare over six months, occurring only for housing and household expenditures. However, over three months with the HICP rising to 3.9% compared to 2.7% over six months, diffusion jumped from 7.7% to 61.5%. Being above 50% is critical because it means inflation is accelerating in more categories than it is decelerating and that tends to add more authenticity to the acceleration of inflation over three months. It tells us that the acceleration was not just because of a few rogue categories or several large increases in categories that had a high weight, but rather it's something that's broad-based.

Monthly diffusion- Monthly data are more lenient on the diffusion front. In March diffusion is only 38.5% with the month-to-month gain of 0.4%, below a 0.5% rise in February. Inflation is accelerating in March in only 38.5% of the categories. However, in February inflation rose 0.5% compared to 0.1% in January and inflation accelerated in 61.5% of the categories, clearly over half of them. In January with that low inflation print of 0.1%, inflation accelerated in only 30.8% of the categories. Over the last three months, the diffusion data were quite good for two months and moderately bad for one of them. However, when we go back to the table to look at the three-month changes compared to six-month changes, the BOE has that high 61.5% diffusion number staring us in the face.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 16 2024
ZEW Indexes Edge Higher; But What Does It All Mean?
The ZEW survey improved as U.S., German and EMU current conditions and macroeconomic expectations (where surveyed) all increased on a month-to-month basis.

Table 1 summarizes the shift with the TEXT reflecting month-to-month changes. On that basis, there were improvements (increased strength) in 15 of 16 surveyed metrics. However, the text COLOR reflects the relative value of the underlying queue ranking series. Only two queue rankings in the table, the U.S. economic situation and German economic expectations in April are above their respective historic medians on data back to 1992 (and, hence, print black in the table). This means most series are still quite weak and, while improving month-to-month, still emerging from sub-normal conditions.
by:Robert Brusca
|in:Economy in Brief
Europe| Apr 15 2024
A Confusing Picture of EMU Production Trends
The chart shows that European Monetary Union industrial production in manufacturing has been declining across sectors on a year-over-year basis for quite some time. Intermediate goods output declines extended back to April 2022; for consumer goods the declines occurred early in 2023 and have persisted; for capital goods the declines occurred around July 2023 and with one spike reversal the declines have come back vigorously. Capital goods output is currently showing the deepest year-on-year decline in output of any manufacturing sector. The annual trends are clear and quite negative. However, the short-term trends are different, much more optimistic.

Sequential growth rates in IP From 12-months to six-months to three-months, EMU output excluding construction shows a turnaround in progress. Output falls 7.1% over 12 months, falls at a 2.8% annual rate over six months, and falls at just a 2.4% annual rate over three months as trends make steady improvement. Sequentially from 12-month industrial production is showing signs of diminished declines. This trend holds for manufacturing as well where output declines at 7.5% over 12 months, while over three months and six months the pace of decline is reduced to under 1%. We see improvement in two of three sectors as well. Consumer goods output echoes this improvement with year-over-year decline in output at 6.3%, a six-month decline at a 4.2% annual rate, and a three-month decline at a 2.3% annual rate. Intermediate goods show output is gaining momentum culminating in an output increase over three months. Twelve-month intermediate goods output falls by 2.9%, then rises at a 0.4% pace over six months, and then increases at an annual rate of 6.3% over three months. The fly in the ointment for short-term trends in manufacturing is capital goods. Capital goods output declines at a 9.7% annual rate over 12 months; over six months it continues to decline at a rapid pace although slightly diminished, falling at a 9.1% annual decline rate, and then over three months, the rate of decline accelerates sharply to -17%. These trends create a confusing picture for output where there continues to be long-term weakness punctuated by short-term improvement in consumer and intermediate goods but held back by ongoing and severe weakness in capital goods output.

On a quarter-to-date basis (QTD), weakness dominates the overall statistics with a 6.8% annual rate decline in eurozone output excluding construction. Manufacturing is even more severely crimped with a decline at an 11.5% annual rate. The manufacturing result is driven by a 34.7% annual rate decline in the output of capital goods even though intermediate goods output increases at a 7.3% annual rate and consumer goods output falls at only a 0.5% annual rate. In the quarter-to-date, manufacturing trends are weak but also are represented by considerable variety.

Country patterns in manufacturing Across 13 of the earliest members of the European Monetary Union in February, we see manufacturing declines in only three: Belgium, Spain, and Greece. In January, eight countries show declines in output. In December, only four showed declines; those included Germany, Finland, Spain, and Portugal. Quarterly trends across countries show some signs of progress. Ten countries showed declines in industrial production over 12 months; that count was reduced to nine countries over six months and reduced further to five countries over three months. The median result across these countries is for a decline in output of 2.4% over 12 months, a decline of 2% output at an annual rate over six months and an increase in output at a 1.6% annual rate over three months. The country level data support a more optimistic reading of trends. Even so, the quarter-to-date comparisons eight of these thirteen countries with output declining in the first quarter.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 12 2024
Japan's IP Weakens Further
Japanese economic data have been soft. However, industrial production has been weaker than many of the other reports, and weaker than the softness indicated by the manufacturing PMI. This month the preliminary report on Japanese industrial production has been revised to show even more weakness. Japan's industrial sector shows an extremely weak progression looking at its pattern of growth over 12 months to six-months to three-months. The downturn in manufacturing is intensifying.

The weakness in manufacturing is generally weaker than what we see in other reports as well. While there's been softness in surveys like the economy watchers report, and in Japanese retail sales, the industrial sector is showing sharply weaker conditions, and this is occurring even at a time when the yen exchange rate is weakening and improving Japan's competitiveness.

The weakness in industrial production does track the weakness in Japan’s core orders that have been showing contraction for all of 2023 and into 2024. Japan’s production was down by 1.6% over the previous 12 months; now it is falling by 6.7% over the most recent 12 months. Sequential growth rates tell us that the drop in production is accelerating across major manufacturing categories. This weakness is not an isolated result.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 11 2024
Global Money Supply Trends Edge Slowly Back Toward Flat Growth Except for Japan
The European Central Bank met today and held its policies steady. Markets are looking ahead to the June meeting where they expect there will be a rate reduction. If you read the statements from the ECB, you may have had a strange sense of Deja vu because you're getting basically the same communication out of the ECB that we've seen from the U.S. Federal Reserve. The ECB continues to say that it has interest rates in a high enough position to deal with their current inflation risks and this is the exact same approach that's been taken by the Federal Reserve – even as inflation has been rising. In the Federal Reserve minutes released yesterday, in fact, the Fed went on to say how its policy is well positioned to deal with any risks in the economy. It points out that it's prepared to leave interest rates in this restrictive area for longer or it's prepared to cut rates if that's what it takes. However, the Fed stops there; it makes no direct mention that it's also prepared to raise rates if that's what's required.

U.S. vs. EMU comparison- Inflation in the European Monetary Union appears to be more contained than inflation in the U.S., where it has recently kicked up its heels as EMU inflation has slid lower. In the U.S., core services inflation rises at a 6.8% annual rate over three months and at a pace of over 5% over 12 months. The core services measure in the U.S. is 70% of the core measure so it's hard to ignore. But, so far, Fed communications have managed to do just that. For now, the communications we're getting from the Federal Reserve and from the ECB seem to be highly similar although I question whether the monetary developments and the inflation risks in the two areas are anything like the same.

EMU conditions Nominal money and credit- Over 12 months money supply in the monetary union is falling by 0.7% on the M2 measure. Credit to residents is falling at a 0.1% pace and private credit is unchanged. Comparing the growth metrics for money and credit to their growth rates over two and three years, both money and credit are showing a slowing pace. Flipping the comparison forward to look at the 12-month growth rate against the six-month and three-month growth rates, reveals a slight difference. On this forward-looking path, M2 is starting to accelerate in the monetary union while the credit measures are still flat or weakening.

Real money and credit- If we reassess these measures for inflation, the growth rate of real money in EMU is down 3.2% over the last year, with credit to residents down by 2.6% and private credit down by 2.6%. These are the same or slower rates of reduction that the monetary union reports over two years and three years. Comparing the year-over-year results to the annual rates over six months and three months, we see less real deterioration in terms of money supply, we see, at least over three months, greater deterioration in the use of real credit in terms of either credit to residents or private credit. Real credit use in the EMU is not being stimulated.

Monetary policy ahead: U.S. and U.K.- The U.S. and the U.K. report declines in their respective money supply measures over 12 months. These declines represent increased weakening compared to the path over two and three years. However, flipping the comparison forward in the shorter time horizons, we see the money growth in both the U.S. and the U.K. starting to pick up. The U.K. has positive money growth of 1.4% at an annual rate over three months. The U.S. has positive a growth of 1.8% at an annual rate over three months. Expressed in real terms, the U.S. and the U.K. show less monetary contraction over 12 months than over two years and they show a declining rate of contraction over six months and three months compared to 12-months. On all these measures, we're seeing money supply move to either a less contractive phase or to a more expansive phase in terms of the nominal numbers.

Japan- Of course, the country that's different than all of these is Japan. Japan logs positive growth rates and actually fairly steady growth rates. If we look at annual rates spanning three years to three months, the growth rates on those various horizons vary only from 2.3% to 2.9%. That is quite a bit of monetary growth stability. In Japan, money growth expressed in real terms is down by 0.3% over 12 months which is slightly less contraction than it logged over the last two years; however, over a six-month and three-month horizon, real monetary growth picks up to 0.2% over six months and finally to a 2.4% annual rate over three months.

Global trends After logging a huge boom in money supply growth during the pandemic period, money supply has contracted in money center countries, except for Japan, although all countries have showed some degree of contraction when money growth is measured in real terms. Since then, there has been a turn around with more stimulus creeping into the picture. In the European Monetary Union, the use of credit continues to lag behind the stimulus from money growth and economic growth continues to be weak.
by:Robert Brusca
|in:Economy in Brief
Sweden| Apr 10 2024
Sweden’s IP Falls on the Month and Year to Year
Sweden's industrial production has followed a somewhat chaotic path. Its performance over 12 months is clear: IP production excluding construction declined by 2.5%; manufacturing industrial production is down 2.8% over 12 months. The various categories of motor vehicle production, intermediate goods, and investment goods all show declines year-over-year. The only exception is that consumer nondurables show an increase of 2.6% over the last 12 months. The rebound in consumer nondurables owes to substantial strength logged in December and January; that strength had been preceded by a deep decline in November.

Sequential growth rates for industrial production hint at improvement with a 2.5% drop over 12 months replicated by a 2.5% annual rate drop over six months and then followed by a 2% annual rate increase over three months. Manufacturing follows the same pattern with a 2.8% decline over 12 months, a 2.7% decline over six months and a gain of 0.8% annualized over three months. Motor vehicle production and investment goods output chart more erratic paths and end with double-digit contracting annual growth rates over three months. Intermediate goods also have a bit of a chaotic path with declines over 12 months, a bigger decline over six months and then an increase over three months. Consumer nondurables show increases on all horizons culminating in a 56% annual rate increase over three months - quite stunning.

Orders reflect a bit of optimism with total orders falling 2.2% over 12 months, declining at a 3.8% annual rate over six months but then rising by 1.2% over three months. Domestic orders turn to a path of improvement with the 12-month decline of 8.3% in orders, a 0.8% annual rate increase over six months and a much stronger 7% annual rate rise over three months. That part of this report is encouraging. However, foreign orders are still transitioning. Over 12 months foreign orders rise by 1.9%, but then over six months they fall at a 6.6% annual rate and over three months they fall at a 1.6% annual rate.

In the quarter-to-date, overall IP is rising at a 2.4% annual rate. Manufacturing production is rising at a 5% annual rate. Motor vehicle production and intermediate goods production are both falling at a growth rate of 7% to 8% annualized. Investment goods output increases at a 2.3% annual rate and consumer nondurables output logs a nearly 20% annual rate rise to round out the production data. Orders are considerably more tempered with total orders declining in double digits, domestic orders declining, and foreign orders declining - both of them- at double digit rates, as well. Foreign orders are falling much faster than domestic orders and that's not surprising because growth throughout Europe has been challenged.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 09 2024
Fed Economy Watchers Index Eases
Japan's Economy Watchers index eased in March, falling to 49.8 from 51.3 in February. The index indicates the slightest contraction underway in March, as well as a step down from its February reading. The future index also edged lower in March, but it continues to point to expansion (or expected future improvement) with a 51.2 diffusion reading. This is weaker than the 53.0 reading in February, but it’s above 50, indicating expansion. The assessment of current employment situation in March strengthened slightly to 52.5 from 52.2 in February. Both employment readings show modest net advances for employment since the diffusion readings are above 50.

Current index- The current index shows a slew of declines over three months, six months, and 12 months. Housing is an exception over all horizons while employment is an exception over six months. Still, diffusion values are above 50 in 5 of 9 current components, but diffusion is below 50 for the headline. That means most components are showing expansion; the headline is just a few ticks below signaling static growth conditions. At the far right, the column ‘queue standing’ is presented. These metrics are different; they rank the diffusion data over all diffusion values back to March 2002. On the queue standing data, any value above 50% is above its median on that timeline. Note that all current readings are above their respective medians except employment (40.7%).

Future index- The future reading shows a decline in diffusion month-to-month in March, but across components there is more weakening compared to February values (8 of 9). In January, all components improved as well as the headline, except for services. Over three months and six months, three components weakened month-to-month (eating and drinking places, services, and employment). In addition, over 3-month manufacturing weakened. All components and the headline weakened over 12 months. The diffusion values in March find the future components largely over 50 (6) compared to a few (3) below 50. Most industries see future improvement; the exceptions are for housing, manufacturing, and for employment (diffusion below 50 in March). The queue standings for the future index show housing and employment below the median value of ‘50%.’ Employment is below a queue ranking of 50% in the current reading as well as in the future reading, not a good development. At least the current employment diffusion reading is still above 50% (52.5).

In Japan’s Tankan report manufacturing is the bellwether. For the Economy Watchers, it may be ominous that manufacturing has a current diffusion value at 47.8, and a queue standing only at its 54th percentile. The future index for manufacturing is also below 50 (49.4) but with a firmer-looking queue standing in its 62nd percentile. In contrast, nonmanufacturing readings are above 50 with 70th to 80th percentile standings. But these are not Japan’s bellwethers in the Tankan. The Tankan also focuses on the performance of large firms, a division we do not see here.

The chart shows current future and current employment readings coalescing around a diffusion value of 50 (unchanged output or employment). ‘Unchanged’ has a relatively high queue standing back to 2003 judging from the standing of the current headline. It is hard to get a clear reading on momentum from the chart. For now, Japan’s growth and outlook are adequate and expanding. Conditions are largely better than they have been. But when the headline reading of diffusion at 49.8 has a queue standing in its 68th percentile, you know the comparison is with a weak history. The same is true for the future readings. The Economy Watchers index may be adequate, but it is not impressive in March.
by:Robert Brusca
|in:Economy in Brief
Germany| Apr 08 2024
German IP Shows Some Push
German industrial production had revived in the last two months, rising by 2.1% month-to-month in February after rising by 1.3% in January. December production had fallen by 2% month-to-month. The upshot is that the 12-month growth rate for production is still showing a decline of 4.8%; over six months, the change in production shows a gain of 0.4% at an annual rate, while over three months, it moves up to 5.6% at an annual rate - quite a strong pace. Overall production in the quarter-to-date is rising at a 5% annual rate. Taking a much more distant benchmark, we compare the level of output today to what it was in January 2020 before COVID struck and find it's still lower by 8%. This is very definitely a short-term revival as the longer-term trends are still weak. The chart explores the year-over-year growth rates by sector for German output.

Output by sector Output by sector shows gains in each sector in February and gains in two of three sectors in January, the exception being capital goods where a 1.5% gain in February is compared to a 1.5% drop in January. All three sectors, consumer goods, capital goods, and intermediate goods show declines in December. The sequential growth rates that compare the annual rate of growth over 12 months to six months to three months find consumer goods output ramping up at an extremely strong pace from -1.8% over 12 months to a 21% annual rate over three months. Capital goods output shows some improvement, but it then runs out of gas; capital goods output is down at a 7.6% annual rate over 12 months; that's reduced to 4.5% annual rate drop over six months but then worsens ever-so-slightly to a 4.9% drop over three months. Intermediate goods get back on-theme with sequential acceleration in output, progressing from a -4.6% growth rate over 12 months, to a +6.5% annual rate over three months.

Orders, sales, PMI Manufacturing output, orders, and real sales showed increases in February, but both sales and orders declined sharply in January, after having increased in December. Manufacturing output is up for two months in a row. Germany's manufacturing PMI rose in January, but it sank back in February. Manufacturing output is accelerating. Real manufacturing orders are also showing a steady progress higher, although all of their growth rates are still negative. Meanwhile, real sales show contractions over three months, six months and 12 months; the three-month and six-month contractions are larger than the 12-month contraction. The bottom line is that manufacturing output falls into line showing sequential gains, but orders show declines amid sequential improvement, and the real sales lag behind those other gauges.

Other surveys of Manufacturing and Industry Other manufacturing surveys tell a mixed tale of the last three months. The ZEW survey shows conditions worsening from December, in January and February. The IFO manufacturing gauge shows slight improvements on that timeline; IFO manufacturing expectations also show a slight step up. However, the EU Commission's industry survey shows a progression of deeper weakness. Viewed sequentially, the ZEW survey shows steady erosion from 12-months to six-months with most of that 12- to 6-month deterioration still in-place over three months. The IFO manufacturing gauge weakens sequentially as does the IFO manufacturing expectations reading. The EU Commission index weakens progressively from 12-months to six-months to three-months.

IP in other Europe Industrial gauges elsewhere in Europe are up to date for Portugal, Spain, France, and Norway. Each of them shows an increase in February compared to January. However, each of those countries also shows a decrease month-to-month in January compared to December. And in December, half of the countries show declines and half of them show increases month-to-month. The experience across Europe obviously has been uneven. Sequential growth rates for industrial production also are uneven. Portugal has an uneven pattern. Spain shows acceleration along with Norway. There is a deteriorating pattern for France. Once again it's a mixed bag of results so we're unable to characterize Europe as doing anything as a whole. European economies still seem to be responding according to their individual circumstances. In the table, of course, Germany, Portugal, Spain, and France are all European Monetary Union members while Norway is not- but even among the monetary union members, we're not seeing the same patterns.

Q-T-D Quarter-to-date (QTD), Germany shows strong results with overall production rising 5% at an annual rate and only capital goods showing a decline on a Q-T-D basis. Portugal shows a Q-T-D gain in output of 7.4% annualized. Spain logs 13.7% with Norway showing a 1.5% gain. France shows a decline in industrial production on Q-T-D basis with a -3% annual rate reported.

The Post-Covid wrap-up Post-COVID has been a difficult time for Germany and for Europe. Industrial production in Germany is lower by 8% compared to January 2020 and all the sectors are lower. Manufacturing output in Germany is lower; real manufacturing orders and real sales are lower as well. The indicators from ZEW, the two from the IFO and the EU Commission survey all are lower compared to the January 2020 values. Industrial production across Europe is weaker compared to January 2020 except for Spain showing industrial production stronger by 2.3%. Norway is weaker by only 0.8%, fairly close to unchanged on that timeline.
by:Robert Brusca
|in:Economy in Brief