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

United Kingdom| Jan 12 2024
U.K. IP Struggles to Log Monthly Gain
U.K. manufacturing output rose by 0.4% in November after falling by 1.3% in October and falling by 0.4% in September. Sequentially, manufacturing output is weakening; it advances by 1.2% year-over-year, the growth rate shrinks to zero over six months and shrinks further to a -5% annual rate over three months.

Trends for output by sector are somewhat complicated with recent months not providing a very clear picture. Among the observations for consumer durables and nondurables output, intermediate goods, and capital goods, only the capital goods industry shows a decline in November. However, manufacturing and all these sectors and subsectors showed declines in October, while in September only consumer durable goods showed an increase along with a minor rise in consumer nondurable goods, intermediate goods show another relatively sharp decline and capital goods were flat.

Sequential growth rates from 12-months to six-months to three-months, as already mentioned, reveal a steady deceleration in the growth rates for manufacturing. But this is not so clearly expressed across the sectors, as consumer durables and nondurables show unclear patterns and only intermediate goods and capital goods output succumb to the pattern of sequential worsening deterioration. Consumer nondurables, in fact, show positive-growth rates on all horizons.

Upon turning to quarter-to-date calculations that compare the annualized growth rates two months into the fourth quarter with the average for the third quarter, we find negative growth in all the components in the table, except under ‘industry-detail’ there, food, beverages & tobacco show a hearty gain.

To get an idea of how tight production might be, I look at current output levels as a percent of their maximum output on data back to 2010. Manufacturing is at 90% of its past peak on this period. Consumer durables is at 94% of its peak, nondurables at nearly 97% of their peak. Not surprisingly, food, beverages & tobacco, which tend to be very trend-dominated, are essentially at their peak reading at a 99.9 percentile standing (stronger only in May 2022). The weakest standing is for mining & quarrying at a 43.7 percentile mark. And surprisingly the utility usage for gas, electricity & water has only 53.6% of its past cycle peak.

The column to the far right looks at the simple percent change in current output compared to levels on January 2020 before the pandemic struck. Output is lower for manufacturing overall by nearly 5% and is higher only for consumer durables (by 1.2%) and consumer nondurables (by 13.9%). For more detailed industries, food, beverages & tobacco are higher by 16.9%, textile & leather output is higher by a very strong 43.6%, motor vehicle & trailer output is higher by 3.2%. Mining & quarrying output is lower by 38.8%. Utility output is lower by 42.2%. This is an astonishingly strong decline as utilities service ongoing activity and growth and except for very small margins is not inventoriable.
by:Robert Brusca
|in:Economy in Brief
Europe| Jan 09 2024
Roller Coaster Unemployment Rate Ride: At an All-time Low in EMU
The unemployment rate in the European Monetary Union in November 2023 is tied for its all-time low, a low reached in June 2023. The percentile standing of the unemployment rate puts it in its 0.3 percentile, lower than any of the EMU countries in the table. Within the Monetary Union, Belgium's unemployment rate stands at its 10.8 percentile, the same as Germany’s. In France the unemployment rate has a 6.4 percentile standing, and the Dutch unemployment rate has a 9.3 percentile standing. The United States where the unemployment rate is within a stone’s throw of a 50-year low is at its 8.4-percentile. Japan, that chronically runs very low unemployment rates, has its rate at its 16.5 percentile.

Historically low rates of unemployment- The only entries in the table with unemployment rate above their historic median are the United Kingdom where the claimant rate is at its 61.6 percentile. The European Monetary Union member country that has an above-median unemployment rate is Luxembourg, a very small country with the concentration of jobs in the services sector and in the financial sector. Its unemployment rate has an 81.7 percentile standing, although it has the sixth lowest reported unemployment rate among the twelve countries in the table. Traditionally, Luxembourg has run a relative low rate of unemployment, that accounts for the relatively high standing of a union-wide moderate unemployment rate.

The EMU rate falls on balance over 12-months- The unemployment rate for the European Monetary Union in November has fallen over 12 months by 0.3 percentage points while looking at the member countries on the table only five of twelve countries in the table have seen their own unemployment rates fall over 12 months. This EMU-wide rate falls because countries with falling unemployment rates generally had relatively sizable drops over 12 months while the large countries reporting in the table such as Germany and France and moderately sized Portugal, each had an unemployment rate increase of just 0.1 percentage point over 12 months.

Still, rate declines appear to less common- However, looking at monthly patterns, we see four countries with unemployment rates declining in November, only three with the unemployment rates declining in October, and only one with employment rate declining in September. Unemployment rates were unchanged in November in four countries, in October six countries had unemployment rates unchanged from their level in September, and in September six countries had unemployment rate levels unchanged from their level in August. The declines in the unemployment rate are becoming rarer in the monetary union and that's not surprising when looking at the historic rankings and the current low levels of unemployment rates.

Paradox of the lower EMU standing than for any member country- The unemployment rate and the monetary union has a much lower ranking than for individual member countries because it's the coincidence of having low rates and all the countries. That synchronization is responsible for making the EMU overall unemployment rate rank so low. Having only the smallest country listed in the table with an unemployment rate above its median clearly underscores how widespread low unemployment has become across the monetary union.
by:Robert Brusca
|in:Economy in Brief
Europe| Jan 08 2024
EU Commission Indexes Bounce to End 2023
The EU Commission indexes for the European Monetary Union's (EMU) performance in December show an overall index improving to 96.4 from 94 in November. This continues a string of improvements that has been underway. The improvements run across most sectors although there's more flattening than improving going on – still, that's good news. Compared to September, for example, the overall index is stronger by nearly three points, the industrial index is unchanged, consumer confidence is better by nearly three points, the retail sector is unchanged, and construction is improved by two points, and the services sector is better by three points. These are small changes over a period of three months; still, they represent stability or improvement across the board.

The country level data have been improving as well. In December, only five of the seventeen early reporting countries show deceleration month-to-month. This is the same number as deteriorated for this group in November. However, in October eleven of these seventeen countries showed deterioration.

The rank standings for the industries are dominated by weakness in the industrial sector and consumer confidence. The industrial sector has a 31.2 percentile standing, consumer confidence has a 21.9 percentile standing and these have strong weights to cause the overall index for the EMU to have only a 34.8 percentile standing. This is despite retailing having a 59.4 percentile standing, construction a 74.3 percentile standing, and the services sector at a 55.2 percentile standing. Three of the EMU sector indexes have standings above their medians (rankings above 50%) while two have standings that are weaker than their medians.

Looking at the same statistics for countries, there are only four country standings above their 50th percentiles. All of those are small countries: Greece has a 61.2 percentile standing, Cyprus has a 62.7 percentile standing, Malta has a 60.1 percentile outstanding, and Lithuania has a 56.6 percentile standing. Germany, the largest economy in the monetary union, ranks 14th among the seventeen early-reporting countries, France ranks seventh, Italy 6th, and Spain 5th. Germany and France tend to be two of the strongest economies in the monetary union; however, among the four largest countries they have the weakest percentile standings, with Germany logging a percentile standing at 21% and France at about 35%.
by:Robert Brusca
|in:Economy in Brief
USA| Jan 05 2024
EMU Inflation Rate Continues Low- But Is the Pace of Decline Deescalating?
Inflation in the European Monetary Union rose 0.6% in December (as implied by the flash rate) after falling 0.2% in November. Still, the sequential inflation rates show deceleration in progress with the 3-month pace at 0.3%, the 6-month pace at 2.5%, and the 12-month pace at 2.9%. The annual rate of expansion for inflation is clearly in a deescalating mode as 2023 ends. Hooray!

However, will the end of 2023 also be end of that good news?

Sequential inflation rates for Germany, France, Italy, and Spain show decelerations from 12 months compared to 12 months ago and for 3 months compared to 6 months ago, but the middle picture of inflation over 6 months compared to 12 months ago is mixed, with Germany and France showing inflation continuing to decelerate marking a full trend deceleration for the year, while Italy and Spain saw some inflation pick up between 12 months and 6 months. In the case of Italy, it was a minor uptick where the year-over-year inflation rate was 0.5% and the 6-month pace moved up to 0.7%. That can almost be written off as rounding error especially since the next sequential 3-month inflation rate subsequently collapsed falling at a 3.5% annual rate. In Spain, the backtrack is a little bit more substantial as the 12-month inflation rate at 3.3% moved up to a 4.5% annual rate pace over 6 months, more than a percentage point of acceleration, but then fell sharply and declined at a 1% annual rate over 3 months.

All these trends appear to be quite solid and headed on the deceleration path. If we look at the bottom of the table, there I memorialize Italian core inflation and German inflation excluding energy. There, once again, we see for Germany the ex-energy inflation rate, as we move the calculation to shorter horizons, goes from 3.6% to 2.5% to 2.1% - a clear decelerating path. Italy does exactly the same thing in a lower register with inflation at 3.2% over 12 months, decelerating to 1.2% over 6 months, and then going dead flat over 3 months. When energy prices are removed, the inflation picture remains quite good and that's significant because during this period oil prices have been falling. Brent prices fell 2.9% in October, 9.2% in November, and 6.3% in December. Over the last three months, Brent prices expressed in euros have been falling at a 53% annual rate. Clearly, the ECB’s inflation fight has a tailwind.
by:Robert Brusca
|in:Economy in Brief
USA| Jan 04 2024
Composite PMIs Show Very Minor Improvement in December
The composite global PMIs over a group of twenty-five countries and regions in December shows some very slight improvement. The average unweighted composite PMI overall moves up to 51.0 from 50.5 in November and from 50.2 in October. The median PMI in December moves to 50.4, up from 50.1 in November and 50.0 in October. These shifts are clear, if also exceedingly microscopic, improvements in the monthly PMIs. • Among these twenty-five jurisdictions, eight of them worsened in December compared to November; November had seen twelve worsen month-to-month, and October saw sixteen worsen compared to September. • We can also account for values above and below 50 since 50 is the separating line between a PMI indication of expansion vs. contraction. In December, eleven composite PMIs were below 50, the same as November, while thirteen were below 50 in October. • On balance, the average and the median PMIs show some improvement in December as well as the tendencies to slow and the tendency to contract. However, the change in these tendencies month-to-month is small.

We can engage these same metrics looking at 3-month, 6-month and 12-month averages of the underlying data. Looked at this way: • The average PMI weakens over 3 months compared to 6 months and weakens over 6 months compared to 12 months as well as over 12 months compared to 12 months ago. • The median is unchanged in three months compared to six months; over six months it's weaker than it was over 12 months. • Slowing propensities show no clear pattern as twelve jurisdictions slow over 12 months, which steps up to eighteen over 6 months but then drops back to thirteen over 3 months. There is no clear pattern there. • As for jurisdictions below 50, there's a slight tendency to worsen but no clear sense of direction as eight jurisdictions are below 50 over 12 months, that steps up to eleven below 50 over 6 months, and that drops back to ten being below 50 over 3 months.

The queue (or rank) standings The queue percentile standings have been becoming slightly more equivocal than they were. Eleven of the queue standings that assess growth from the period dating back to January 2019, a 60-month observation period, have values above 50, indicating that the metrics in December 2023 are above their medians for this period. The other fourteen have values that are below 50 indicating sub-par performance. The average queue percentile standing is at 45.9, an average that's below the median of 50. The median of the queue standings in December is at 35, significantly lower and indicating more chronic weakness than the average metric. Out of the twenty-five observations, five are in the lower quartile of their historic queue of data and five are in the upper quartile of their historic queue of data, relative balance.

The readings on balance are weak and the tendencies for weakness, contraction, below median performance, and slowing are still substantial even though they may not all be dominating the other trends. For example, in December, having eleven out of twenty-five of these observations showing contraction is a bad result, but that’s less than half of them. Having eight of twenty-five slowing certainly indicates that less than half of them are slowing; however, eight out of twenty-five is still a large proportion that is weakening. And this occurs with the average and median PMI values in December just barely above 50: the average at 51 the median at 50.4. Moreover, weakness is more concentrated among the larger most developed economies magnifying that weakness.
by:Robert Brusca
|in:Economy in Brief
Germany| Jan 03 2024
German Registered Unemployment Rises in December
The registered unemployment rate in Germany in December ticked up to 5.9% after logging 5.8% in October and in November. The registered rate has been moving up slowly throughout the year. The number of people unemployed increased 0.2% in December, a slowdown from the 0.8% rise in November and the 1.1% increase logged in October. Over 12 months, to six months, to 3 months, the annualized increase in unemployment is rising at a faster rate, as it has increased by 7.4% over 12 months, at a slower 7% pace over six months, then reaccelerated to an 8.6% annual rate over three months.

Wages in Germany lag behind the unemployment statistics and are up-to-date through October. On that cut-off date, the 3-month change in wages shows a drop at a 4.4% annual rate although wages are still up by 4.6% over 12 months. Real wages are up by 0.9% over 12 months but down at a 7.3% annual rate over the last three months. With the unemployment rate rising, there is less support for the labor market and wages are showing that weakness.
by:Robert Brusca
|in:Economy in Brief
Global| Jan 02 2024
S&P Global Manufacturing PMIs Ease Globally in December
The manufacturing global PMIs from Standard & Poor’s show deterioration in December compared to November as 2023 draws to a close. The median reading among countries in the table is 47.9, a level below 50 indicating contraction in the manufacturing sector as represented by the median standing. The median in December also declined from its value in November, which was 48.3. In November, previously, the median PMI had declined from its 48.7 reading in October. Slow but steady erosion is still in train over these two months.

Looking at data more broadly over 12 month, six month and three month periods, there's very little change in the median. The median for the 12-month average is at 48.7; that increases to 48.8 over six months but then falls back to 48.4 over three months. The median over these periods has actually been trapped at a low reading below the 50% mark, indicating moderate contraction. There's been a persisting situation over the last year that shows slight erosion and it has not changed very much as the year has progressed.

In addition to the median, we can look at breadth; breadth tells us the proportion of readings with improving or deteriorating trends over some set period. Over 12 months compared to a year ago, the diffusion statistic is 61.1. Since it's over 50, it indicates that more than half of reporting countries were showing improvement on that timeline. Over six months compared to 12 months, diffusion falls to 55.6. That depicts reduced breadth, but it still shows that over half of the reporting countries were improving over six months compared to 12 months. Over three months, the breadth figure falls to 44.4%; this figure is below 50% and indicates that relatively more reporters are showing weakening readings over three months compared to six months.

Ranking data provide more perspective on what these readings mean. Breadth data summarize trends across all reporters. Ranking data evaluate each reporting unit agist its own recent timeline. The ranking data place the current month’s estimate in a queue of data from January 2019. This is a five-year period. Over this span, only five of the eighteen countries (or areas) from the table have standings above their 50th percentile, which means only five of them have standings above their historic medians. The highest queue standing is reported by Russia at the 98.3 percentile mark which is also its the strongest reading over this period. And because it's involved in war, this is probably not a truthful figure on Russia's part. Mexico has a 90-percentile standing. India has a 70-percentile standing; that's based on its November value. South Korea has a 58-percentile standing. However, the median for the group of 18 countries stands only at its 20.8 percentile, right at the lower fifth of its queue of reported data, obviously a very weak reading overall.

Vetting data from just before Covid struck from January 2020 to date, there are only four countries that report improvements in their manufacturing PMIs over this period. Russia, of course, reports the greatest increase at 6.7 points, Mexico shows a 3-point gain, Indonesia reports a 2.9-point gain, and South Korea shows a small 0.2-point gain. The median for the group is a decline of 1.8 points over this period.
by:Robert Brusca
|in:Economy in Brief
Japan| Dec 28 2023
Japan’s Production Contracts in November after a Strong October
Industrial production in Japan fell by 1.3% in November after rising by 2.2% in October. Japan's production profile, however, shows an acceleration is in progress. Over 12 months production falls by 1.2%, over 6 months output is rising at a 3.7% annual rate, and over 3 months it's rising at an even stronger, at a 4.3% annual rate.

Manufacturing: The manufacturing sector echoes the results in the trends of the headline. Manufacturing IP is close to showing acceleration in progress but for a technical shortfall. Manufacturing output falls by 1.3% over 12 months, then it accelerates at a strong 5.6% annual rate, although there's a slight set-back to trend as the 3-month growth rate recedes to 5.2%; the 3-month and 6-month growth rates are nearly identical and much stronger than the year-over-year growth rate. Technically I can't say that this is ongoing acceleration, but it's certainly a strong picture for manufacturing output.

Product Group Performance: Product group results in Japan in November show widespread declines with a decline of 2.2% in consumer goods output, a decline of 0.1% in intermediate goods output, and a decline of 2.2% in investment goods output. All of these are changes, and are, for the most part, reversals, from the output that the sectors reported in October as consumer goods output expanded by over 5%, intermediate goods output expanded by 1.4%, and investment goods output was flat.

Sequential Growth trends by Sector: Checking the sector results for sequential trends and acceleration, we find: • Acceleration in intermediate goods where output falls by 0.9% over 12 months, rises 5% at an annual rate over 6 months, and accelerates to a 5.6% annual rate over 3 months. • Consumer goods show a tendency toward acceleration but do not show a clear unwavering acceleration path. Consumer goods output is up by 1.8% over 12 months; it then recedes, falling at a 4.7% annual rate over 6 months, but it follows that with a surge, growing at a 15.7% annual rate over 3 months. Consumer goods output has a hiccup in between its 12-month and 3-month rates of growth- with that decline over 6 months. • Paradoxically, investment goods are closer to showing ongoing deceleration. Output falls by 5.3% over 12 months, and then falls at a 15.7% annual rate over 6 months. Investment goods trim their loss over 3 months to an 11.4% annual rate of decline, but that's still a decline in double digits. Having double digit declines over 3 months and 6 months definitely is a buzzkill in terms of evaluating trends for Japanese industrial output.

Other Industry: Looking separately at other components of overall industrial production in November, there are increases in mining and in electric and gas utilities output on the order of growth rates of 2 to 2 1/2 percent. In each case, there are reversals of declines in output posted in October. Sequentially, mining output is recovering strongly with output falling 1% over 12 months, rising at a 2.2% annual rate over 6 months, then exploding for a 27.4% annual rate gain over 3 months. Utilities output is more questionable, falling by 0.2% over 12 months, rising over 6 months at only a 0.2% pace, and then falling at a substantial 16.8% annual rate over 3 months. It's hard to understand why electric and gas output falls so strongly over 3 months when other categories of output are all rising solidly or strongly over 3 months; industry clearly needs utilities output to advance. It's very possible that there's some sort of weather effect operating that has retarded the usage of utilities over the last 3 months. It's hard to take utilities out of the context of the report and treat it as something that is authentically weak or worrisome.

Quarter-to-date: In the quarter-to-date, overall output is expanding at a 7.5% annual rate with manufacturing up at 8.2% annual rate. These are data with two-months’ worth of observations in place calculating the two-month average gain over the third quarter base. Sector results for quarter-to-date data show strong gains in consumer goods, as well as intermediate goods and in mining. But there's a significantly strong decline in output in investment goods and an extreme decline in utilities output in the quarter-to-date.
by:Robert Brusca
|in:Economy in Brief
Finland| Dec 27 2023
Finland’s Confidence Continues Its Sinking Cycle
Consumer confidence in Finland fell to -13.3 in December from -12.4 in November. The confidence metric stands in the 2.9 percentile of its historic queue of values. It also stands at its 12-month low, its lowest mark of the year. One year ago, the consumer confidence measure stood at its lowest point on data back to January 2001. While the overall ranking for consumer confidence is improved in 2023 compared to a year-ago, the reading is still low, and momentum is poor.

The assessment of Finland's ‘economy now’ improved slightly to -41.4 in December from -42.5 in November. That's above its 12-month low of -50.3. The progression of averages from 12-month to 6-month to 3-month, doesn't show much ongoing improvement in this metric.

Expectations for Finland's economy in 12 months also improved in December to -16.8 from -19.1 in November. However, the progression of averages from 12-month to 6-month to 3-month does not show improvement in train; it shows deterioration.

Consumer price inflation over the past year improved slightly in December to 4.1 from 4.2 and there has been steady improvement on the inflation front as the year has gone by.

Unemployment in Finland has been steady over the last three months although it deteriorated slightly in December at -31.7 compared to -31.3 in November. The moving averages also show that there has been a gradual deterioration from 12-month to 6-month to 3-month. The personal threat of unemployment ‘now’ shows a sharply weaker number at -14.2 in December compared to -11.5 in November, and the threat of personal employment has been declining as well from 12-month to 6-month to 3-month.

The economic environment shows the favorability of the time to purchase durables deteriorated slightly in December at -25.7 compared to -23.7 in November. The 12-month, to 6-month, to 3-month progression of averages shows a slight ongoing improvement on this metric.

The favorability of time for saving worsened slightly at -13.6 in December compared to -13.4 in November. There has been little movement in this metric, but it has gradually worsened.

The favorability of time for raising a loan balance deteriorated slightly month-to-month and the 12-month, to 6-month, to 3-month sequence shows slight change in this measure.

The household financial situation deteriorated in December, falling to a 16.4 rating from 21.9 in November. The 12-month, to 6-month, to 3-month averages of this metric have been worsening.

Household possibilities to save over the next 12 months were worse in December compared to November. This metric has been sliding from 12-month, to 6-month, to 3-month.

Ranking perspectives The queue percentile rankings show consumer confidence overall at a 2.9 percentile standing, which is quite weak although a slight improvement from what it was a year ago. The economy ‘now’ and the economy in 12 months, both have standings in their 15th to 20th percentiles, up from what they were a year ago, but still clearly quite weak. The assessment of consumer prices shows an improvement in inflation that is down to its 87.7 percentile from its 97.7 percentile one year ago. Unemployment in Finland shows a standing at its 17.8 percentile while the personal threat of unemployment is at its 14.3 percentile; both are sharply lower than what they were a year ago when the standings were in their 40th percentiles, respectively.

The environmental standings showed the favorability of a time to purchase durables has only a 4.7 percentile standing although that's better than it was a year ago. The favorability of time for saving has a 2.2 percentile standing, above what it was a year ago when it was on its all-time low on data back to 2001.

The favorability of the time for raising a loan balance fell to an all-time low in December 2023. Households rate the possibility to save over the next 12 months at a 0.7 percentile standing, extremely weak, and far below what it was one year ago.
by:Robert Brusca
|in:Economy in Brief
Spain| Dec 26 2023
Spain’s PPI Drop Is Damped
Spain’s headline industrial PPI price index for all industries fell by 1.1% in November after falling by 0.8% in October. The PPI is showing ongoing deceleration similar to the performance of the PPIs from most developed economies.

Spain's headline PPI falls by 7.3% year-over-year, rises at a 1.2% annual rate over six months, and then falls at a 3.7% pace over three months. Consumer goods prices rise by 7.3% over 12 months, slow to a 6.1% pace over six months, and then accelerate gaining at a 14.6%, annual rate over three months. Intermediate goods prices fall by 5.4% year-over-year, fall at a 1.3% annual rate over six months, and then rise at a 2.1% annual rate over three months. Investment goods prices rise by 2.5% over 12 months, rise at a 1.4% annual rate over six months, and then accelerate to a 3.1% annual rate over three months. All the annualized three-month changes are stronger than their counterpart 12-month changes.

The headline change for total industry in Spain shows more weakness than in the components for manufacturing categories alone in the table detail. Consumer goods prices in the manufacturing sector are up strongly over three months compared to both their six-month and year-over-year gains. Intermediate goods demonstrate steady acceleration as their tendency to fall over 12 months and six months gives way to a rise over three months. Investment goods prices show steady expansion but no acceleration although the 3-month gain is the strongest gain over the usual sequence comparing 12-months, to 6-months, to 3-months.

On balance, Spain is experiencing sequential price pressures despite posting two months of declines and the headline industrial price index. The manufacturing sector seems to have more pressure than the more comprehensive industrial sector experiences.

And while the sequence of gains over 12 months, six months, and three months, seems quite tame for the overall industrial PPI in Spain, if we look at the trends for each of those horizons separately, the conclusion changes. Spain has a flattening trend for its industrial PPI with the declines in prices year-over-year having slowed down, begun to flatten out, and show lesser as well as diminishing declines. Over six months, the percent change profile shows clear acceleration after falling at close to a 20% pace for some periods; the six-month percent change now shows persistent small increases. The three-month percent change in May was falling at a rate in excess of a 20% pace; in recent months, the three-month percent change has been increasing although this month it dipped back into negative territory, showing a net decline over three months. Yet, it had risen over three months over each of the preceding three-month periods ended in August, September and October. The underlying trends for Spain’s producer prices are not as beneficial as the headline may suggest and this observation gives some weight to the notion that the rate of change of producer prices may be slowing or coming to an end.
by:Robert Brusca
|in:Economy in Brief
Japan| Dec 22 2023
Inflation: Japan Joins the Crowd
The CPI in Japan in November fell by 0.1% with the closely watched CPI excluding fresh foods up by 0.1%. The all-item CPI rose by 2.8% year-over-year as the metric excluding fresh food was up by 2.5%. The CPI for all items excluding food and energy rose by 2.8% over 12-months. And that core measure of the CPI shows a steady deceleration in Japan's inflation rate from 2.8%, to 2.2% over 6-months to 2% over 3-months.

That progression, however, does not necessarily end of the debate on Japan's inflation rate. Japan’s concerns on the pace of inflation run deeper than just some three-month inflation progression. Inflation in the services sector in Japan continues to spread, a well-known problem for inflation since goods sector inflation tends to be more responsive in the short run and service sector inflation tends to be stickier. Goods sector inflation also tends to be lower because international competition in the goods market keeps prices in line; whereas services are wholly a domestic sector as there are few items in the services area that are subject to any kind of international competition.

A key issue in Japan has been where inflation would be settling. Before COVID struck Japan had been struggling with a long episode of weak prices and deflation stemming from various shocks and a shrinking, aging, population that fostered declining domestic demand. The Bank of Japan has been one of the few globally important central banks to express concern about its consistent missing of its target before COVID. The Bank of Japan was consistently undershooting its target and it was concerned about what that would do with its credibility. In contrast the Federal Reserve has been over its target for over 2 1/2 years following period of chronically undershooting in a more modest way. The Fed only talks about how it remains committed to its 2% target and never entertains for a minute the notion that its credibility might be undermined by its persistent missing of its target and its slow return to its target range.

After Covid the Bank of Japan wound up facing a different world where its inflation rate eventually rose. However, that didn't convince anybody because, in the US, the Federal Reserve called inflation ‘transitory’ when in fact it turned out to be still accelerating and sticky. The Bank of Japan didn't so much take a position on what inflation would do, as it became skeptical and wanted to watch the development of inflation closely to see what kind of monetary policy would be appropriate based upon how inflation was developing. Its long run of weak prices, concern about deflation, and the modest nature of the inflation it faced, all combined to give the BOJ policy flexibility.

The chart shows that Japan's core inflation rate never rose as much as inflation increased in the United States or in Europe. And while the inflation rate in Europe and in the US has come down, the inflation rate in Japan has only risen more modestly and transitioned into a plateau where inflation has been steady, based on the core rate. In the US, the core rate has slowed its transition to a lower pace while in Europe the core rate continues to drop at a relatively rapid pace.

As a result of these developments Japan finds its core inflation rate more or less in the same situation as other major money center central banks. Japan is no longer the outlier with deflation although the future remains unclear. Current developments in Japan's inflation trends seem to suggest an inflation in Japan is going to be a little bit stickier in the post Covid world than it was in the pre-Covid world. The Bank of Japan, which has had extraordinary policies in place and has engaged in a policy of yield curve control, is anticipating transition back to more normal ways of making monetary policy. The international financial community is focused on when this transition is going to occur. The more normal Japanese growth and inflation begin to look and the less distressed the situation appears, the more likely that the Bank of Japan will make this transition sooner rather than later.

And that's what it looks like is developing. It's beginning to look like the inflation picture in Japan is transitioning to something that is more normal globally and the Bank of Japan will soon be able to transition to a more normal monetary policy and drop its extraordinary policy of yield curve control. Along with this the BOJ will be able to transition monetary policy to a more normal level of rates and begin to hike rates to that end. To make this decision central banks are always focused on market expectations. And the case of Japan, something called the spring wage round will be key in determining what inflation expectations are like. The Bank of Japan will be able to see what bargaining between labor and management produces in terms of a wage rate. That will help to determine not just what inflation expectations are, but the pressures that will exist on inflation for the period ahead.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Dec 21 2023
UK Distributive Trades: Retail & Wholesale Both Weaken
The Distributive Trades Sector - Distributive trades weakened in the UK in December. The responses are from a survey by the Confederation of British Industry (CBI). It logged a -32 response as an assessment of year-over-year sales in retailing in December, down from -11 in November. For wholesaling, the index for sales compared to a year ago also fell to -24 in December from -11 in November. The guidance or the estimate for sales expected in January compared to a year ago registered -41 for retail and compared to -6 in December. The same outlook for wholesaling registered a - 18 in January compared to -4 in December. Sales as evaluated in December or sales expected in January in both retailing and wholesaling show substantial weakness as well as weakening on a month-to-month basis. The picture is clear: conditions are weak; there are no caveats.

Retailing Currently reported - Looking at retailing beyond sales, orders, compared to a year-ago, register -54 in the survey for December compared to -22 for November. Sales evaluated for the time of year register -25 in December compared to -16 in November. All of these survey signals point to weakness and deepening weakness. The queue ranking of the December observations has sales at a 6.7 percentile standing, orders at a 1.4 percentile standing, and sales, adjusted for the time of year, at a 15.5 percentile standing all are extremely weak standings.

Expectations for January - I've already mentioned expected sales compared to a year ago that are sharply lower in January compared to December. Orders in January compared to a year-ago slipped a -29 reading from -26 in December, a modest weakening. Sales for the time of year weakened much more sharply in January, to - 37 from -15 in December. The rank standing of these three metrics finds sales for a year-ago in January at a 3.2 percentile standing, orders at a 7.4 percentile standing, and sales for the time of year, at a 5.3 percentile standing - all of these quite weak.

Wholesaling Current reported - As noted, wholesale sales year-on-year fell sharply in December. Wholesaling orders compared to a year-ago also fell sharply with -36 reading for December compared to -8 in November. Sales for the time of year slipped to -6 in December from +16 in November. The standings for these three metrics find sales compared to a year ago with a 9.5-percentile standing, orders compared to a year ago at a 4.2-percentile standing, while sales for the time of year at a 22.2-percentile standing.

Expected in January - As noted, wholesale sales year-on-year fell sharply in January compared to December. Orders in January, compared to a year ago, slipped to -24 from -18 in December. Sales for the time of year in January slipped to -12 from +2 in December. Each one of these is weakening month-to-month. The queue rankings for these variables show sales at a 15-percentile standing, orders compared to a year ago at a 14-percentile standing, and sales for the time of year at a 16-percentile standing. Each of these represents a clear weak standing for each respective series.

Summing up The retailing and wholesaling survey data for December and for the expectations in January can all be lumped together as data that are weak. They are data that are weakening as well. The queue percentile standings are very weak for both retailing and for wholesaling and weak for the current results as well as expected results for January.

There are in this report lots of clouds and no silver linings. Distributive trades show weakening in the behavior of the UK consumer as determined by both the retailing and wholesaling merchants contributing to these surveys. Merchants are cutting back their assessment of activity, and their expectations for the period ahead. It may be too soon to say that it is time to batten down the hatches on growth expectations, but the ranking data are extremely weak and there's nothing on the horizon to provide any stimulus to these weakening trends. Inflation is making some progress in being reduced but the Bank of England continues to be vigilant and to be engaged in inflation fighting rather than having turned to the job of growth resuscitation. That has yet to happen in the UK. Current reported weakness is not deep enough to signal recession, but that signal could yet be in the works.
by:Robert Brusca
|in:Economy in Brief