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| Oct 31 2024
Oil Drives EMU Inflation for the Target as the Core Gets Sticky
Inflation in the European Monetary Union turned flat in September with the headline flat and the core flat month-to-month. Over 12 months, headline inflation is rising at a 1.7% annual rate, the same as over six months; over three months, that pace steps down to 1.6%. Headline inflation is across the board consistent with the European central bank’s target of inflation of around 2%. Core inflation is higher. Over 12 months, the core runs hot at a 2.8% pace, rising over six months at a stronger 3.2% annual rate and then dipping to a 2.3% annual rate over three months. The three-month pace is coming much closer to the ECB's target for inflation.

The four largest economies in the EMU also had inflation fall in September. In Germany, prices dropped by 0.2%, the same as in Spain. Headline prices fell 0.7% in France and just ticked lower by 0.1% in Italy. Price dropping across the board is a special sign; in this case, it signals dropping oil prices.

Sequential inflation rates for headline inflation in large economies also are looking good. Germany and Spain have the highest 12-month inflation rates at 1.7%. France is next at 1.4% and then Italy logs a 0.7% 12-month inflation rate. However, over six months, inflation picks up above target for Italy and Germany to 2.7%; it cruises at a 1.9% annual rate in France and at 1% annual rate in Spain. Over three months, prices are flat in Germany, rising at a 0.2% annual rate in France, rising at a 0.3% annual rate in Spain, and rising at a 2.3% annual rate in Italy. The results we see for headline inflation clearly echoed across the large economies of the European Monetary Union.

However, as having been the case for some time, the sticking point for inflation is the core. This is because Brent oil prices fell by 8.1% in September and fell by 7.6% in August after rising by 0.1% in July. In fact, Brent oil prices are falling to a 47.7% annual rate over three months, falling at a 29.3% annual rate over six months, and falling at a 24% annual rate over 12 months. This helps to explain why headline inflation is doing so well. Core inflation is showing more signs of being stuck at a too-high level.

Core (ex-energy) inflation in the case of Germany is at a 2.6% annual rate over 12 months. Spain’s core pace is at a 2.4% annual rate, Italy logs a 1.9% annual rate, and France checks in at a 1.5% annual rate. For France and Italy, core inflation over 12 months is very much in the fold of the target pace, while in the case of Spain and Germany, the departures aren't so great as they both hover around 2.5% at an annual rate. However over six months, German inflation is still up by 2.4%, the same as in Italy. Spain logs in at a 2.2% annual rate. France stays with the low 1.5% annual rate. Over three months, inflation runs at a 2.8% annual rate for ex-energy in Germany; it's at a 2.4% annual rate for the core in Spain and 2.1% for the core in Italy, compared to an even weaker 0.4% annual rate in France.

Even with core inflation getting stuck in the EMU economy overall at 2.8%, inflation is still not very far from the ECB's goal and is broadly behaving for the large economies. And if economic data are deemed weak enough, inflation doesn't seem to be that far from the ECB's target nor is it misbehaving enough to keep ECB rate cuts off the table.
by:Robert Brusca
|in:Economy in Brief
Europe| Oct 30 2024
EMU GDP Estimate and Early Reporters Show Some Life
GDP growth in the European Monetary Union advanced by 1.5% in the third quarter at an annual rate, an acceleration from the second quarter’s 0.8% rise. It compares to gain of 1.2% at an annual rate in the first quarter. It is also the strongest quarterly rise since an increase of 2.4% at an annual rate in the third quarter of 2022. The year-over-year change is a gain of 0.9%, compared to 0.6% in the second quarter. That is the strongest year-over-year gain since the first quarter of 2023 when GDP rose by 1.4% year-over-year.

There are seven early reporting EMU members. Among these seven, four showed GDP advancing at a stronger pace in Q3 (Q/Q) than in Q2. Weaker growth was registered by Belgium and Italy with Portugal’s growth unchanged quarter-to-quarter.

Over the last six months, the large EMU economies have been holding back overall growth. The four largest EMU economies saw growth advance by 1.1% at an annual rate in 2024-Q3 compared to 2.5% growth in the rest of the EMU. In the second quarter, growth among the largest four economies also trailed growth in the rest of the monetary union. This is a switch from the usual standard. But year-on-year growth in the smaller economies is also higher in Q3 than in the largest four economies although that is the reverse of the previous three quarters.

Growth in the region has been weak for some time. The ranking of year-over-year growth rates on data back to 1997 shows all early reporting EMU members have rankings of growth in Q3 (year-on-year growth) below their historic medians (below a ranking of 50%) except Portugal and Spain. Portugal and Spain are exceptions with year-on-year growth rates that rank above 50% as well as above the ranking of the United States.

In the third quarter, only Italy has a negative quarter-to-quarter growth rate. Over four-quarters, only Germany and Ireland have negative quarter-to-quarter growth rates. Germany that does not have two quarters of negative (quarterly) growth back-to-back in the last three quarters has five consecutive quarters of negative year-over-year growth! However, the growth decline on this timeline has been modest. For Germany, this has been much more a period of pronounced economic stagnation than of economic decline.

Since 2011, the U.S. has had averages GDP growth about one percentage point (annualized) faster than the EMU. Since 2021, that difference has been the same on year-over-year comparisons, but it has become larger favoring the U.S. on quarterly comparisons. The median growth rate among early EMU reporters ranks at 40.2% while EMU growth ranks lower at 32.6% largely because the slower growing large economies have a greater weight in the EMU GDP construction than in the calculation of the median.
by:Robert Brusca
|in:Economy in Brief
Germany| Oct 29 2024
German Consumer Climate Improves But Is Still Quite Weak
Germany's consumer climate measure for November from GfK rose to -18.3 form -21.0 in October. Despite improvement, the index had been as week as -18.6 as recently as August 2024. The climate gauge, despite improving, has a queue standing among all its historic values that places it in the bottom 12% of all past monthly results. The climate gauge is for November while the component values for the index are for October. The components were mixed with the economic expectations gauge weakening while income expectations improved along with the buying propensity index. The components ranked higher than the GfK index, with economic expectations ranked at their 35th percentile; income expectations are nearly neutral, ranked at their 47.5 percentile and the propensity to buy at its 31.9 percentile. Economic reading for the Germany economy has remained weak; Germany's PMI readings have eroded, but slowly, with manufacturing diffusion weak, logging a value of 40 and services just above its neutral level at 50.6. The consumer climate reading ranks as weak and ranked over the last four-and-one-half years. Germany’s manufacturing sector ranks as lower only 8% of the time while service has been weaker only 40% of the time. The economy clearly has a burden of weakness and is not showing much lift or support for the consumer sector. Meanwhile, the ECB’s rate cut process has stalled or at least slowed.

Consumer readings for Europe from fellow EMU members Italy and France as well as for the United Kingdom show weak results. These readings are up to date on the same timeline as GfK components, as of October. All of them weaken by small amounts month-to-month. However, they rank higher than the GfK German climate index. Italy’s consumer confidence measure has a 77.1 percentile standing on the same timeline as Germany’s GfK. France has a 51.5 percentile standing. The U.K. is below its median for that same period with a standing at its 33.2 percentile, in the lower one-third of its queue of data.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Oct 28 2024
U.K. Distributive Trades Readings Weaken and Outlook Weakens
The distributive trades survey shows weakening in October for the retail sales (Yr Ago) and sales (time of year). Wholesale sales weakened for sales (Yr Ago) and remained at a very weak reading for orders (Yr Ago) as Sales (time of year) got marginally better in the month-to-month reading but remains at a very weak level.

Expectations for November weakened across the board in retailing compared to October. For wholesaling, they were nearly the same, with the expectations with the net negative readings in November for sales (time of year) that improved compared to October, but it still logged a very weak reading. Improvments month-to-month are a technical assessment, not a statement of an ongoing trend.

Retailing’s reported (current) results log net negative readings for nearly all observations except stocks over the last three months. Retail expectations are the same except their lone positive reading is near-term for October.

Wholesaling reported trends are uniformly deteriorating through time. The negative readings become increasingly weak – or become more severely weak and stay there. Expectations for wholesaling do not follow suit. They are more erratic and cannot be categorized as trending. However, what is disturbing about the expectations is that readings have become suddenly weaker over the last month or last two months in the case of sales (time of year).

Current conditions are generally stronger than their 12-month averages for retailing and weaker for wholesaling. But expectations are strikingly weaker in comparison with their 12-month averages for wholesaling while they are mixed on that comparison for retailing.

There is nothing strong in this month’s survey – not even ‘firm.’ Nothing reassuring. These monthly comparisons of stronger and weaker are only to assess where things are trending – very short term. The readings per se are weak - uniformly weak. All readings rank below their respective 50% mark that designates the location of the median. The strongest reading among activity variables, setting aside stocks, is the October standing of reported orders (compared to a year ago) at 42%. The 29% reading for retailing under expectations also for sales (compared to a year ago) is the next strongest reading.

Expectations are weaker in terms of rankings than the current (reported) readings. The difference is much larger for retailing than for wholesaling. But all the rankings are weak. The chart shows that readings are languishing in a morass of weakness after a post-covid rebound. There is not any clear road to better times ahead here.
by:Robert Brusca
|in:Economy in Brief
Denmark| Oct 23 2024
Danish Consumer Confidence Backtracks
Danish confidence sank further in October, falling to -8.9 after registering -6.8 in September. September had been a small improvement from August at -7.4 but now confidence has dipped below its August value. Confidence was last weaker in December of last year.

Inflation concerns are beginning to rise in Denmark as well. Inflation expectations that rose sequentially over the last 12 months are once again rising sequentially as we look ahead to the next 12 months.

Monthly trends The financial situation has eroded steadily over the last 12 months and continues to erode with the October reading, falling to -1 after posting +2.9 in September and +3.2 in August; this is small but steady slippage.

The outlook or assessment for the general economy has slipped over the last three months, but looking ahead at prospects for the general economy there is a small improvement but the last three monthly values are all net negative values and there doesn't seem to be any strength in that assessment. That conclusion is further underscored by unemployment trends that have worsened sharply over the last three months, with an August reading of plus 5 followed by a September reading of 9.5 and an October rating of 10.2; concerns about unemployment have risen.

The assessment of the environment monthly shows little change in the favorability of the time to purchase goods, with consistent negative readings over the last three months; the favorability looking forward to the next three months slips with October falling to -8 after having negative readings in the minus 5 region in both August and September. The general financial situation of households, however, does show some snail’s pace improvement, with the August reading of 24.8 moving up to 26.3 in September and moving up further to 26.9 in October.

Sequential trends Danish confidence is not improved very much sequentially although it's made a very small improvement from a -7.9 12-month average to an average of -7.7 over three months. The present situation improved over the last 12 months, with the last three-month assessment at -6.8 compared to a 12-month average of -9.3; there was still slippage compared to six months ago. The assessment of financial situation looking ahead, while positive, shows a decreasing positive value; a 12-month average is 3.5 with a three-month average slipping to 1.7. The assessment of the general economy sequentially looking backward had slipped over the last 12-to-six-to-three months; looking ahead that slippage continues as the 12-month average of -6.1 moves to -6.9 over six months and the average drops further to -9.0 over three months. As noted above, the outlook for inflation had been worsening and it continues to worsen even more sharply for the 12-months ahead. Unemployment expectations had improved sequentially from 9.3 over 12 months to 7.7 over six months and 8.2 over three months – but the monthly pattern unwinds the sequential trend.

The favorability of the environment to purchase is becoming progressively less negative sequentially. The favorability to purchase envisioned over the next 12 months has continued that progression with very small improvements. The three-month pattern that shows an increase in the general financial situation of households has extended this broader progression from 12-months to six-months to three-months that has generally been improving but has been improving slowly and actually saw a slight setback in the three-month to six-month progression.

Rankings for readings The rankings of these assessments are predominantly weak with the consumer confidence indicator weaker only 10.6% of the time. The financial situation over the last and the next 12 months both have rankings below their 10th percentiles. The general economy looking ahead has a ranking in its 15.5 percentile. The outlook for inflation over the last 12 months was high at its 89th percentile; over the next 12-months its standing is lower but is still high at a 79th percentile. The unemployment trends over the next 12 months have a 73.3 percentile standing, relatively high and well above the median which occurs at a ranking of 50 percent. The environment shows the favorability of the time to purchase is weak with a 15.2 percentile standing. Looking ahead, that improves but only slightly to a 20.6 percentile standing. The favorability of the time to save both currently and looking ahead has a 53-percentile standing, moderate, and slightly above average. Meanwhile, the general financial situation of households comes in above its median with a 60.3 percentile standing and logs the brightest reading in the table – although a 60-percentile standing is not particularly strong.
by:Robert Brusca
|in:Economy in Brief
Europe| Oct 22 2024
European Car Registrations Rise on Month, Fall Year-on-Year
European vehicle registrations fell by 6% in September, partly unwinding a drop of 9.7% logged in August. Registrations continued to be in a weak patch, falling at a 27% annual rate over three months and acceleration from a 2.9% rate of decline over six months. Over 12 months sales are lower, falling at a 7.7% annual rate. The problem is not just weakness in the month because the data on the three-month moving average show a decline and have fallen for several months in a row; based on three-month moving averages, the three-month 6-month and 12-month moving averages show declines at double-digit rates. Registrations are weak in Europe.

By country, registrations rose in the five countries that report sales: Germany, France, Italy, Spain, and the United Kingdom. Gain to the sharpest in Spain at 14.5% gains were weakest in the U.K. at 3%. Except for the U.K., all these reporting countries showed declines in registrations for two months in a row; the U.K. posted an increase in registrations in July.

Germany shows the weakest progression for registrations among the individual countries although on a year-over-year basis the weakest sales are in France where they fall 12.3%, in Italy where they fall 11%, compared to Germany where registrations year-over-year fall by only 6.7%. The U.K. has registrations up by 0.5% over 12 months while Spain has registrations up by 6.2%.

The progression of sales from 12-months to six-months to three-months shows growth rates in Germany escalating negatively from -6.7% over 12 months to a -20.2% pace over six months to a -56.9% annual rate over three months. This extreme weakness is challenged to some extent by Italy where there's an 11% drop over 12 months, a 3.5% drop, at an annual rate, over six months, and a three-month drop of 38.8% annualized. France shows consistent negative numbers across these horizons, falling by 12.3% over 12 months, a 19.1% annual rate drop over six months and a 14.2% annual rate drop over three months. Spain’s 6.2% year-over-year gain becomes a 17.6% annual rate drop over six months but then recovers to a 17.3% annual rate increase over three months. Spain's data are more volatile than they are weak. The U.K. is the only country to show increases on all horizons; it's showing accelerating increases with a gain of 0.5% over 12 months, progressing to a 2.6% annual rate rise over six months and elevating to an 18.5% annual rate over three months.

The United Kingdom is the only country that has a true positive story to tell. Spain has a story of some volatility with an increase over three months. The other countries have these isolated gains in September that are part of negative progressions. In Europe, conditions are weak; the auto sales data tell us they continue to be weak and there's no evidence that broadly tells us that things are getting better. In fact, the overview seems to be that conditions continue to be quite weak and might be getting worse. European car registration data today are not reassuring.
by:Robert Brusca
|in:Economy in Brief
Germany| Oct 21 2024
Germany’s PPI Runs Slow
The German PPI in September fell by 0.5% as the ex-energy PII fell by 0.1%.

Year-on-year Germany’s PPI fell by 1.4% but the ex-energy PPI rose by 1.3% providing ‘some breathing space’ on the inflation front. The PPI, of course, is not targeted by the ECB nor are any national pricing results. However, Germany is the largest economy in the EMU and its results matter. What we see in the PPI is evidence of better price discipline overall- but overstated in the PPI headline.

Sequentially the German headline PPI gains 0.6% at an annual rate over six months and is flat over three months- compared to its 12-mont drop of 1.4%. The ex-energy PPI rises at a 1.9% annual rate over six months and runs at a 0.7% annual rate over three months. PPI prices are more closely linked to the manufacturing sector when global economic conditions have remained weak.

German sector results show mixed gains/losses from July to September monthly. Sector results taken sequentially show German consumer goods prices (at the PPI level) up by 1.5% over 12 months, gaining at a 1.8% pace over six months and rising at a 0.6% pace over three months. That’s a relatively subdued profile. Investment goods prices rise by 2% over 12 months, rise at a 1.2% annual rate over six months, and tick higher over three months at a 0.3% annual rate. Intermediate goods prices are up by only 0.5% over 12 months, rise at a 1.0% annual rate over six months, and fall at a 1.0% annual rate over three months.

The table shows German CPI prices for comparison. They are closer to the HICP that the ECB targets EMU-wide than the PPI. The profile of headline CPI prices in Germany runs under the EMU 2% target on all three sequential periods. But the CPI excluding energy is hot, running at a pace North of 2% over 12 months, 6 months and 3 months at an annual rate and showing its hottest pace over 3 months.
by:Robert Brusca
|in:Economy in Brief
Japan| Oct 18 2024
Does Japan’s CPI Pave the Way for Opportunistic Normalization?
Japan’s core CPI – the CPI excluding fresh food and energy- rose by 0.2% in September as the headline rate fell by 0.4% - both month-to-month. The measure of all items excluding food and energy rose by 0.1%; prices excluding only fresh food fell by 0.3%.

Year-on-year inflation trends Year-on-year inflation was excessive for the headline at 2.4%, but that was a down-draft from a year-on-year pace of 3.1% from a month-ago. Core inflation settled to target on a 12-month basis as the pace dropped to 2.0% from 2.1% a month ago. Prices less fresh food fell to a 2.4% pace over 12 months from a 2.8% pace a month ago. Prices excluding all food and energy logged a 12-month gain of 1.7%, the same as a month ago. Not surprisingly, different measures show different trends. The headline is a bit hot but the preferred core measure, excluding only fresh food and energy, shows inflation dead-on target. Still, that is not the end of the story.

Inflation risk rises in the core The X-fresh food and energy core (xFFE) is spot-on over 12 months, but that may be a passing fancy. Sequential growth rates for this measure show the xFFE core running at a 2.3% clip over six months and by 3.0% at an annual rate over three months. Inflation may only be transitorily at its 2% target as it builds a head of steam for stronger expansion that, if sustained, would push the core beyond 2%.
by:Robert Brusca
|in:Economy in Brief
Europe| Oct 11 2024
World Money Growth Is Back on Track...Is Inflation Too?
Money growth has turned positive and the main money center areas show net money growth. Money growth is at 1.9% year-over-year in the European Monetary Union, up by 2% in the U.S., up by 1.8% in the U.K., and by 1.3% in Japan. Comparing the 12-month growth rate to the three- and six-month growth rates in all these countries, we see a progression with money growth becoming stronger. The exception to this observation is Japan, where the M2 plus CDs measure grows 1.3% over 12 months and then reduces its pace over three and six months to 0.3% and 0.4% annualized.

In the European Monetary Union, credit growth is consistently positive and accelerating.

The monetary financial side of the ledger is starting to look very positive from the standpoint of creating growth, however, to the extent that it does that it is also being much less of a factor in terms of restraining inflation.

Real money balances Real money balances over 12 months are still declining in the EMU, in the U.S., in the U.K., and in Japan. However, the situation is in flux; over three months, real money balances are growing in the monetary union- and growing fairly strongly in the U.S.; it is advancing in the U.K. Over three months only Japan shows declines in real money balances.

EMU credit growth The European Monetary Union shows real credit growth contracting over 12 months but at growth rates of 1% or less. These negative growth rates are diminishing over three months. Credit to residents and private credit growth are declining at growth rates less than one-half of 1% as real credit in the monetary union begins to head for inflation-adjusted positive growth.

A tailwind for growth—at last? With these changes in the provision of liquidity and the impact on credit growth, nominal and real GDP growth are going to find more of a tailwind… and so will inflation…
by:Robert Brusca
|in:Economy in Brief
Europe| Oct 10 2024
IP Struggles in EMU
Manufacturing output in the European Monetary Union (EMU) continues to show countries struggling to make sustained gains. In the table, EMU members are early reporters of IP data. Manufacturing statistics in August show five of those thirteen countries have declining output. In July, six of them showed declines; in June, five showed declines. Slightly more than half of the reporters do show increases on a month-to-month basis. But the margin between the number with output increasing and decreasing is not impressive. The median increase among these members in August shows IP up by 0.2%, in July the median increase was 0.4%, the same as in June. Despite the mixed nature of these statistics, the median on balance shows consistent monthly increases in output in June, July, and August. However, over these same months, the proportion of reporters showing output accelerating is generally disappointing. In June about 54% of the reporters show output accelerating, in July that fell back to 38.5%, in August that proportion improved only slightly to 41.7%. In each of the last two months, fewer than half of the reporters were showing an acceleration in output.

Sequential data details Sequential data that look at these same countries’ annualized output growth over 12 months, six months and three months show more seriously mixed and weak economic conditions. Over three months, seven of the thirteen reporters show declines in output. Over six months, eight reporters show a decline in output, and over 12 months, seven of the reporters show a decline in output. Once again, the split between the number of countries reporting output increases and decreases is only a narrow margin, but on these horizons, there are slightly more countries reporting declines than increases.

Sequential trends Not surprisingly, the sequential data show median output changes with declines. Over 12 months, the median decline rate is -0.7%, over six months it's almost the same, at -0.6%, but over three months the output decline worsens to -4.1%. These are all based on data surveyed at an annual rate. If we look at the underlying trend for output over 12 months, 75% of the reporters show output accelerating, but over six months only 33.3% show output accelerating, and over three months only 45.5% show output accelerating.

The bottom line for manufacturing output in the EMU is that monthly conditions are mixed, and the broader sequential data are showing more weakness and more of a tendency to weakness.

Quarter-to-date The quarter-to-date shows seven monetary union economies with output declining; this is two-months into the third quarter. There is some strength, but the strongest reporter is Ireland where output data are notoriously volatile; still in the quarter-to-date, Irish output is up at a 50% annual rate; output in Finland shows a 14% annual rate increase; Belgium shows about a 13% annual rate increase. Those are encouraging numbers; however, on the negative side, there are double-digit growth rates posted by Luxembourg, Malta, Greece, and Portugal. For the most part, these are small or middle-sized European economies, but Europe's largest economy, Germany also shows a quarter-to-date decline in output at a 7% annual rate, with Italy, the 3rd largest economy, showing a 6.7% decline in output at an annual rate. Spain in the EMU’s 4th largest economy; it shows output declining at a 7.5% annual rate. Among the big four European economies, only France with output up at a 1.6% annual rate has an increase in the quarter-to-date.

IP growth is undernourished Growth rates for industrial production are generally below par with the average growth rate; on data back to 2006 at the average percentile rank standing for output growth across these countries is 39.5%. That compares to a median ranking at a 42-percentile standing. Both these calculations show that the average or median growth rate for these 13 countries is weak. The representative growth rate for this group is below the countries’ respective medians for the period. In August, only Belgium, Malta, Ireland, and Greece have percentile standings for their growth rates year-over-year that are in excess of the ranking of 50% putting them above their historic medians. By comparison, the BIG-4 economies in the monetary union show growth rates that rank much weaker in their historic profiles. Listed by the relative size of their economies, Germany has a growth rate with a 20.5 percentile standing, France has a growth rate with a 43.3 percentile standing, Italy has a growth rate with a 15.6 percentile standing and Spain has a growth rate with a 25.4 percentile standing. The BIG-4 economies are relatively much weaker than the rest of the monetary union.

Momentum In terms of momentum, the large economies are split with Germany showing an acceleration in output culminating in a growth rate of 7.9% at an annual rate over three months. France shows the same tendency with weak growth rates over six months and 12 months progressing to a 10.4% annual rate of growth over three months. Italy, however, shows slippage with growth rates that are negative on all horizons and with the largest negative growth rate at -7.7% over three months. Spain also shows a progression towards weakness. Spain's progression is severe with output falling 3.7% over 12 months, falling at a 19.4% annual rate over six months and plunging at a 27.1% annual rate over three months.

Conditions in the monetary union remain mixed with a clear tilt toward weakness and with countries generally showing manufacturing sectors that are producing weaker than average results compared to historic performance.
by:Robert Brusca
|in:Economy in Brief
Japan| Oct 09 2024
Japan’s Economy Watchers Index Takes a Step Back
Japan's economy watchers index took a step back in September after rising in August. The step back takes the September level down to just a few ticks above its value in July. The future index for the economy watchers survey also edged lower, although not as definitively as the current index; it fell to 49.7 in September from 50.3 in August, still above its July value by more than a point. Ranked on data back to 2002, the current economy watchers index has a queue standing in its 53rd percentile, putting it just slightly above its median for that period. The median on ranked data occurs at a ranking of 50%. The future index is slightly stronger with a ranking on the same timeline at about its 59th percentile.

Performance overview Both the current and the future indexes show widespread declines in diffusion values in September compared to August. In the current index, only the rating for eating and drinking establishments shows improvement in September; for the future index there are increases in the services index and in the reading for overall employment. Both the current and the future indexes are below the 50 threshold, which on the diffusion index implies a decline in activity. Looking at components, the current index has only one value - that for eating and drinking establishments - above 50 and has a reading for nonmanufacturing establishments exactly at 50. For the future index, the services reading has a diffusion value above 50 along with employment index and eating and drinking establishments; the reading for manufacturers is at 50.1, barely above 50.

Changes in index values; momentum Looking at changes in the current and future indexes over three months, six months and 12 months, both surveys show improvements over three months preceded by net declines over six months and over 12 months. The current index shows a continuous decline over three months, six months and 12 months for the retail sector, as well as for services. In contrast, it shows steady improvements over three months, six months and 12 months in manufacturing. The future index does not show any steady stream of sequential deterioration; however, it shows steady improvement with gains on all three horizons for services, for manufacturing firms, and for employment conditions.

Reading level evaluations Current- The queue percentile readings calculated on data back to 2002 show the current index at a standing of 53 percentile, above its historic median; however, there are below median readings in retailing and services and for employment - with employment having a particularly worrisome, weak standing in its 29th percentile. That means that the employment reading has been weaker than this, only about 29% of the time. In terms of strong standings, only eating and drinking establishments have a standing above the 80th percentile with an 87.7 percentile standing.

Future- By comparison, the future index has a stronger headline standing at 58.9 percentile and has two component readings with standings in their 80th percentiles for eating and drinking establishments and for services. The future index has two relatively weak readings that are below their 50th percentile mark; those are for housing and for employment. The housing standing is in its 34th percentile, a relatively weak standing; employment doesn't do much better with a standing at the 43.9 percentile.

A difficult employment scenario Employment scores out as weak in both the current and in the future standings although the future metrics show that employment has been improving over three months, six months and 12 months; in the current survey, employment only improves on balance over three months. Moreover, in the current survey the employment diffusion index falls by nearly a point month-to-month, while in the future survey the employment reading gains by nearly a point.

Summing up The economy watchers index shows a relatively broad weakening for conditions in September. While the economy watcher indexes continue to log levels above their historic medians, both the future and the current standings are showing some degree of decline in activity in September. Manufacturing tends to be a bellwether industry for Japan; it shows consistent improvement over 12 months, six months and three months in the current survey as well as in the future survey And manufacturing has above-median standings in both surveys although the standings are particularly strong; on the future reading has a diffusion value above 50. Because of the declines in September, we have to mark the survey overall as disappointing; however, there are some positive aspects in the report, particularly for the manufacturing sector.
by:Robert Brusca
|in:Economy in Brief
Germany| Oct 08 2024
German Output Pops in August
Industrial output in Germany rose by 2.9% in August compared to July; consumer goods output was flat, capital goods output surged by 6.9%, while the output of intermediate goods ticked up by 0.1%. The gain in output clearly is being carried by capital goods in August reflecting that sector’s turnaround from a sharp drop in July.

Monthly patterns The monthly output figures for July show that German output fell in all major categories a month ago, so the August report is substantially a rebound report. However, in June output was broadly higher as it rose in all categories except for consumer goods output, where it fell by 0.9% on the month.

Manufacturing and industry: Sequential growth in output Sequential growth rates show headline output in Germany on the road to repair; while the road may not be long, it still is winding. Industrial output fell by 2.5% over 12 months. That led to a 3.5% annual rate drop over six months as the sector weakened further, but then it jumped to a 6.7% annual rate increase over three months. Over the same sequence of months, the output of consumer goods drops at progressively faster growth rates. On the other hand, capital goods show acceleration and progress on this same timeline; after falling by 1.1% over 12 months, capital goods output rises by 2.4% at an annual rate over six months, and then explodes at a 23.9% annual rate over three months. Intermediate goods output declines over all horizons, dropping by 5.6% over 12 months, dropping even faster at a 7.5% annual rate over six months, then trimming the decline pace to minus 2.8% over three months.

Construction Construction also shows an uneven path with output dropping in August and in July and with sequential growth rates for construction falling over six months and 12 months but then eking out a small gain over three months.

Industrial surveys Industrial surveys for Germany show slowing. These gauges in August compared to July are weaker across the broad. The August values are also weaker than their June values. Sequential averages of these industrial surveys show some creeping improvement in the ZEW survey, little change in the IFO manufacturing survey, some small tendency for improvement in IFO manufacturing expectations, while the EU Commission industrial index for Germany progressively weakens from its averages over 12-months to six-months to three-months.

Other Europe (Four early reporters) Industrial output in four other early reporting European countries shows increases in output for France and Portugal, contrasted to declines for Spain and Norway. None of these countries have two months in a row of output gains or output declines in August or July. June is another month in which output increases in two of them and decreases in two others. The recent monthly readings of output in Europe have been uneven. Sequential calculations for output in these countries shows manufacturing staggering towards better days in France where output posts a 10.4% annual rate increase over three months, following weak and uneven performance over six months and 12 months. Spain shows clear progressive deterioration with output moving from a 3.7% decline over 12 months to a 19.4% annual rate decline over six months to a 27.1% annual rate decline over three months. Portugal follows that progression but with negative growth rates that are about half of the ones posted by Spain. Contrarily, Norway shows progressive acceleration from their 3% growth over 12 months to a 9.1% annual rate increase over six months, and to a 12% annual rate increase over three months.

Quarter-to-date With all the monthly volatility, the quarter-to-date progress is not a given. It turns out to be negative for overall industrial production in Germany as well as for all three major sectors and construction. Real manufacturing orders are increasing in the quarter, despite falling in August; they are rising at an annualized quarterly rate of 16.9%. Real manufacturing sales, however, make a gain in August after declines in June and July but log a 6.6% annual rate decline in the quarter to date. The four industrial surveys for Germany show declines in the quarter-to-date compared to the previous quarter for three of the four metrics. Industrial output in the four other early reporting European countries shows exactly what you would expect: two increases versus 2 declines among the four reporters.

Queue standings over 24 years The queue standings that rank either growth rates or survey levels over the last 24 years shows rankings up and down the line regardless of whether it's a growth rate or a survey value compared to its history with rankings under 50%- with one exception. Industrial production in Norway has the year-over-year growth rate that ranks in the 70th percentile (the top 30% of all its historic growth rates). However, apart from Norway, the strongest rankings in the table are for industrial production in France with a 45.9 percentile standing, and in Portugal with a 43.4 percentile standing. For Germany, the strongest sector growth rate as a standing in the 29th percentile and that's for capital goods output. German real manufacturing orders have a 23.3 percentile standing, real sales in manufacturing have a 17.4 percentile standing, ranked on the level of their surveys in August. The various 4 surveys in the table have rankings that range from a high of 14.2% for the ZEW current index to 4.9% for IFO manufacturing output.

Summing up Despite a nice bump up in output in August, there is little here to bend trends higher or buoy expectations. Output growth and industrial rankings are still weak. European countries are mired in the same weakness as Germany. Conditions remain touch and go in an environment with a deteriorating geopolitical background and lingering inflation that is keeping central bankers wary, and for a time, back on the sidelines on hold despite being in easing cycles.
by:Robert Brusca
|in:Economy in Brief