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

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
Global| Apr 04 2024
Gradual Improving Trends for MFG and Services PMIs; Is the Global Economy Out of the Woods?
The monthly view: The S&P composite PMIs in March show some continuing but slow improvement. The average for the 24 countries listed on the table moves up to 52.4 in March from 52.0 in February and 51.5 in January. The median moves up to 52.7 in March from 51.3 in February and 50.7 in January. Both the mean and the median progressions show ongoing improvement. Statistical agreement is a beautiful thing. The number of jurisdictions showing composite PMI values below 50 numbered 11 in January, fell to 9 in February, and to six in March. Fewer countries listed in this table are showing overall declining economic activity. In addition to that, few are showing a slowing tendency. Month-to-month changes show only 40% were slowing in January, only 32% were slowing in February, and only 44% of the reporters slowed in March compared to February. The monthly changes are constructive but not dramatic.

Sequential profile: The sequential changes look at 12-month, to six-month, to three-month changes; they show that averages have risen from 51.6 for the overall, to 51.3 over six months - slightly weaker- and then advancing to 52.0 over three months. The median over 12 months is 51.7, that slips to 50.7 over six months and recovers to 51.8 over three months, just slightly above the 12-month average. Neither the average nor the median shows a steady progression towards improvement, but both show a slightly better reading over three months than over 12 months although the margins of improvement are small. The number of jurisdictions showing declining activity over 12 months is 8, that moves up to 10 over six months and down to 7 over three months. The number of jurisdictions growing slower was over half for 12-months and six-months; over 12 months at 65% slower, and even higher proportion of 78.3% showed slowing over six months compared to 12 months. Over three months, the proportion slowing pulls back sharply to only 34.8%. We see in these trends both the tendency for the PMI to show fewer declines and for the breadth of weakness to pull back over the past year.

Queue standing- These improvements have had an impact on the queue standings as well. The average queue standing is now at 53.8% with the median at 55.1%. The medians for the composite PMIs are above 50% which means they're above their median values over the last four years. Out of the 24 reporters, only 11 jurisdictions show PMI standings below 50 which means below their median.

The Weakest vs. the Strongest- The weakest standings in the table in March are standings in the 20th -percentile. Qatar, for example, registers a 20.4 percentile standing. Nigeria is at a 24.5 percentile standing. Germany has a 28.6 percentile standing, with France at a 30.6 percentile standing. The European Monetary Union has a 46.9 percentile standing. The United States has a 42.9 percentile standing. These data suggest that the improvement is not being driven by the large-developed economies. The highest percentile standing in the table belongs to India at the 98th percentile. Brazil has an 81.6 percentile standing. UAE reports an 87.8 percentile standing. Singapore has a 75.5 percentile standing and Japan notches a 73.5 percentile standing.
by:Robert Brusca
|in:Economy in Brief
Europe| Apr 03 2024
With the Unemployment Rate at an All-Time EMU Low, the ECB Prepares to Cut Rates As It Continues to Overshoot Its Inflation Target
Just the facts ma’am- Inflation has overshot the European Central Bank's target (of 2%) for 33 months in a row. Now, with the unemployment rate in the Monetary Union at 6.5%, the lowest level it's seen since the Monetary Union was formed, the ECB is preparing to cut rates. REALLY!!

Curiouser and curiouser- I cannot stress enough what a curious situation this is, especially because the ECB, unlike the Federal Reserve, has a mandate that focuses only on inflation and has no reference to growth or to full employment or the unemployment rate.

Alice in blunderland? It's as though central bankers have stepped through the looking glass and found themselves in a world quite different from the one, they used to inhabit. Once, their principal responsibility was price stability. Suddenly, they seem far more infatuated with preserving low rates of unemployment that in the past proved to be (1) elusive, (2) sustainable, and (3) even dangerous, to pursue. “I was so much older then, I’m younger than that now?” (Dylan excerpt)

A new low in unemployment or policy judgement? The unemployment rate in the monetary union has been at 6.5% in 11 of the last 12 months. This is the lowest unemployment rate the monetary union has experienced in its existence. In October 2023, there was a hiccup in which the unemployment rate moved up to 6.6% for one month and then it moved back down to 6.5% - hence 11 out of 12 months at 6.5%- hic!

A festive labor market for all…almost all The table produces statistics for 12 of the oldest EMU members. It shows unemployment rate data ranked from 1994 to date. The unemployment rates for these twelve members are below their medians for every single member except for tiny Luxembourg whose unemployment rate stands at its 78.8 percentile and has been higher only about 21% of the time. By contrast, the monetary union has never seen an unemployment rate lower than this. Belgium has seen an unemployment rate lower than its current 5.5% only 7.6% of the time. Ireland has seen its unemployment rate lower than its 4.2% only 5.5% of the time. France has seen its unemployment rate lower than its 7.4% only 8.1% of the time… and so on. Unemployment rates across the monetary union, where they are not low in absolute values, they are low relative to each country's historic experience. For example, Greece has an 11% unemployment rate; it has been lower than that only 28.5% of the time. Spain's unemployment rate at 11.5% has been lower than that only about 24.4% of the time.
by:Robert Brusca
|in:Economy in Brief
Europe| Apr 02 2024
Germany Paves the Way…for Bad Monetary Policy?
Headline inflation is showing signs of behaving in the European Monetary Union (EMU). In March, German inflation saw the monthly change in headline HICP fall by 0.3%, in France it fell by 0.4%, in Spain it fell by 0.4%, while in Italy it rose by 0.1%. The year-over-year increases in the HICP headline inflation rate show a 3% increase in Spain, a 2.4% increase in France, a 2.1% increase in Germany, and a 1.3% increase in Italy. Italy wins the kewpie-doll for attaining its 2% goal first! The target for inflation in the EMU is at 2%; it’s for the whole union. The large economies in the EMU are only starting to bring their respective year-over-year inflation headlines in line with the ECB target. However, the year-over-year inflation rate in the monetary union has been excessive for the last 29-months. That's a lot of overshooting.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 01 2024
Japan’s Tankan-Solid to Strong Even If Not As Strong As Expected
Japan's Tankan report for the first quarter registered strong readings across the board. The manufacturing assessment for large companies backed off to a +11 in the first quarter of 2024 compared to +13 in the fourth quarter of 2023. Large manufacturers log one of the weaker readings in the report with a queue percentile standing in its 53rd percentile compared to a slew of 90th percentile standings across assorted services sectors. The nonmanufacturing index rose to 34 in Q1 2024 from 32 in Q4 2023 for large companies and it has a 98.7 percentile standing – quite strong. The total industry index was unchanged at 22 in Q1 2024; it has a strong 92-percentile standing. So, what’s the issue?

The reading for large companies, particularly large manufacturing companies, tends to be the bellwether for this report. Despite widespread strength in the nonmanufacturing readings, the step back in the Q1 manufacturing assessment is a disappointment for the bellwether reading. The current assessment of Q1 at +11 came in one point above expectations while the assessment for the outlook came in one point below what had been expected- hardly earthshaking.

However, the outlook for manufacturing for the second quarter also showed improvement, moving up to a +10 reading in Q2 2024 from +8 in Q1 2024. For nonmanufacturing, the outlook held at +27 in Q2, the same as in Q1. These two sector readings combined for an all-industry outlook of +19 in Q2 compared to +17 in Q1. Viewed as percentile standings, the manufacturing outlook has a 64-percentile standing which is above its median but not strong. The nonmanufacturing outlook has a 98.7 percentile standing, quite strong and in line with the strong readings produced in the current quarter as well. The all-industry outlook has a standing in its 85th percentile, stronger only about 15% of the time.

There have been expectations for slightly strong readings from large manufacturers and so for some this is some more disappointing report than simply looking at the numbers. However, the numbers on their face are firm-to-strong and the rankings of the reported figures for the first quarter and for the outlook are solid and for the services sector they're extremely strong. The drop off for the current quarter assessment for large enterprises to +11 from +13 breaks a string of three straight improvements- still the ranking of the reading is above its median. Best of all, expectations are still improving compared to what they were a quarter ago.

While the survey results for establishment of other sizes are not considered to be a bellwether in this report, for medium-sized firms the manufacturing assessment was unchanged at a +6 in Q1 2024, producing a 70-percentile standing; the manufacturing outlook for Q2 2024 for medium-sized firms held at a +5 which produced a 74.7 percentile standing. For smaller firms, the manufacturing situation was weaker. Small enterprises reported a -1 reading for manufacturing in Q1 2024 after logging a +2 reading in Q4 2023. However, this still has a 60th percentile standing for them, above their historic median. The outlook for manufacturing small firms held at zero in Q2 2024, the same as the first quarter; that reading has a 76-percentile standing. Again, that's well above its median reading (which occurs at a ranking of 50%), and while the standing is solid, it is well short of being construed as strong.
by:Robert Brusca
|in:Economy in Brief
Global| Mar 28 2024
U.K. GDP Said to Confirm Recession Signal
The U.K. GDP revision is said to confirm the signal of recession for the economy. I know that markets love to look at the 2 consecutive quarters of negative GDP as a rule that will define the onset of recession. However, I still prefer to view this as only ‘a rule of thumb’ and as an indicative signal not a definitive one. I have included the monthly GDP estimates for the U.K. as the accompanying chart for this discussion. What's clear from that presentation is that GDP growth has been asymptotically approaching zero; even broader charts of quarterly GDP growth show pretty much the same thing with GDP growth sliding down from strong post-COVID recovery growth rates to current growth rates that are closing in on zero. There is no doubt that the U.K. economy is in a period of weakness and under performance. And it may, in fact, be in recession or headed for one; however, at this point if it's a recession that's cropping up, it looks like a rather mild one. The two quarterly growth rates involved for Q3 and Q4 are -0.5% and -1.2% and these are at compounded annual rates. The year-over-year rate for the fourth quarter swing is from +0.2% in Q3 to -0.2% in Q4. That's not really a stark difference.

U.K. GDP revisions of quarterly rates of growth The GDP revision took Q4 GDP from a decline of 1.4% to a lesser decline of 1.2% in Q4. Private consumption switched from a decline of 0.6% to a decline of 0.2%. Public consumption rose from -1.2% to +0.3%. And there is a welter of other revelations that had impact as well, but one of the more interesting ones is that domestic demand when revised switched from +1.2% to -0.6% (Q/Q annual rate). That's when the shift begins to look a little bit more like a weaker economy of serious dimension. When domestic demand looking at annualized quarterly growth rates falls by 0.6% in Q4 after falling by 2.7% at an annual rate in Q3, that pair of negative growth rates is slightly more damaging than the pair we see for GDP.

Large trade growth rate revisions Among two of the larger quarterly revisions, exports shifted from a decline of 11% at an annual rate to a decline of 3.1% at an annual rate. Imports were shifted from a decline of 3.2% at an annual rate to a decline of 1.2% at an annual rate. Those are both relatively substantial changes in growth rates. By no stretch of the imagination is the U.K. doing well.

Some of the best news on the horizon is that the inflation picture has been getting better; it hasn't gotten better fast enough to get the Bank of England to start cutting rates yet.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 27 2024
EU Indexes: Germany Lags/Italy Leads
In March, the overall EU Commission index of activity in the EMU rose to 96.3 from 95.5 in February, posting its strongest value since December. March saw gains (or no change) in all five major indexes, a change from February when three of the five sector indexes fell. Also in February, 11 member countries showed declines in sentiment month-to-month compared to only 5 member countries showing declines in their March indexes. The breadth of month-to-month performance improvement in March is more impressive than where the gains have taken the various country or sector indexes compared to historic values.

Around mid-2020, Italy emerged as having the strongest reading among the four largest economies in the monetary union. Conversely, Germany, beginning around mid-2023, began to lag and has consistently been the weakest economy among the major 4 since that time.
by:Robert Brusca
|in:Economy in Brief