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

Japan| Sep 09 2024
Economy Watchers Index Portrays Less Weakening
The economy watchers index for August stepped up to a reading of 49.0 from 47.5 in July. The reading for the future index moved up to 50.3 in August from 48.3 in July. Diffusion indexes are constructed so that readings above 50 indicate a net expansion while readings below 50 indicating a contraction. The improvement of the current index in August, while a significant step up, still leaves that reading short of the neutral reading of ‘50’ and therefore, despite the improvement in the diffusion reading value, it continues to indicate contraction in August. Formally the diffusion index indicates a lesser pace of contraction in Japan’s economy. However, the future index signals expansion expected for the six months ahead.

The diffusion of diffusion is at the bottom of the table; that measure indicates the breadth of the change in the monthly diffusion values either month-to-month or over some of the broader periods depicted in the right-hand portion of the table. Over the last three months, for example, the headline and its nine components show improvement in 70% to 80% of those readings for current index readings. The future index shows improvement in all categories in August compared to improvement in 70% of them in July and in June.

Looking at the broader periods over 12 months, six months, and three months… both the current and the future indexes are higher across-the-board compared to a year earlier. But over six months, weakness is broadening as the future index is lower across all categories compared to its diffusion readings over 12 months- and the current index is nearly as broadly weak. Over three months there is recovery in train for the current as well as for the future index with the monthly reading higher across 50% to 60% of the categories-comparing three-month to six-month values. That means either small improvement in more than half the categories is in train, or a mixed picture of balanced ups and downs persists.

Apart from assessing monthly patterns and patterns of growth for a year-in, we can assess the level of the diffusion index compared to their historic distributions of results. The queue standing does that. The current reading as a 60.1 percentile standing while the future index has a 64.8 percentile standing. Both are above their respective medians (medians occur at a 50% ranking). Unfortunately, jobs have a below-median ranking in the both the current and the future frameworks. Current employment has a 28.9 percentile standing – quite weak. However, the distribution is packed tight in the present range of values. The current situation’s 49.7 diffusion reading compares to a full period average reading of 50.3 and a higher median of 53.1. The ranking is comparable to median value but clearly the August value is still quite close to its historic mean. The future index diffusion value, despite its 41.1 percentile standing, is above its historic mean but below its historic median of 52.4.

On balance, the employment readings are getting stronger. The current index has been moving up longer that the future index. Both the headlines are moving higher. But there is some way to go to put both the indexes at a solid level compared to where they have stood historically, based on rankings. The 60th percentile range readings are above their respective medians but are not particularly strong reading levels.
by:Robert Brusca
|in:Economy in Brief
Germany| Sep 06 2024
German IP Drops Sharply in July and Broadly
Industrial production in July fell sharply by 2.4% after rising 1.7% in June and falling 3.1% in May. As a result of this production turbulence, Germany continues to experience declining and decelerating output growth. Over 12-months output falls at a -5.3% rate, over six months the pace steps up slightly to a -5.5% annual rate, but over three months industrial production in Germany is falling at a -14% annual rate.

This sequential slippage is mirrored in the declines of consumer goods, capital goods and intermediate goods production where the production of each of these sectors declines over 12 months, six months, and three months. Consumer goods and intermediate goods decline slightly more slowly over six months compared to 12 months, but all the categories show much sharper declines over three months than over 12 months. There's a clear tenancy for German production to show bigger declines over shorter periods and that's a disturbing development. In addition, all the sectors show declines month-to-month in July.

Manufacturing output in total shows a decline of 3.2% in July. As for overall output, manufacturing increased in June and fell sharply in May. Sequentially manufacturing output is persistently decelerating, as its 5.8% 12-month drop becomes an annual rate of decline of 17% over three months.

Hope in New Orders However, real manufacturing orders break this trend and may offer hope for a turnaround as real orders rise by 2.9% in July and by 4.6% in June after a 1.7% drop in May. Sequentially real orders are not just growing but they are accelerating from an increase of 3.8% over 12 months to an annual rate of 25.7% over three months. The path being sketched out by real manufacturing orders is explosively strong while the path being sketched out by actual manufacturing output is impulsively weak. So it looks like the resolution is going to be for manufacturing output to be dragged up from the depths in the coming months by strengthening orders- or at least that's how it appears from these trends. For the time being, sales remain weak, real sales and manufacturing fell in July, June, and May; they are declining at an accelerating pace from 12-months to six-months to three-months. Real sales and manufacturing declined, at a -5.8% rate over 12 months, at a -6.9% annual rate over six months and then at a -12.2% annual rate over three months. For the time being, manufacturing is a hotbed of cross currents.

Indicators are mixed Other indicators from ZEW, from IFO and from the EU Commission are mixed. These are from surveys that often are a little bit more sensitive and up-to-date readings than data on actually booked orders or on actually executed output or experienced sales. However, there is no hint of the kind of strength that we see in orders in these indicators. The ZEW current index shows negative readings sequentially from 12-months to six-months to three-months, but it does improve sequentially in modest steps. The IFO index for manufacturing does show some step up from 12-months to six-months to three-months. IFO manufacturing expectations also step up from 12-months to six-months to three-months but even this is somewhat moderate from 87.8 as an index reading over 12-months to 90.9 over six months to 92.2 over three months; it's a progression of advance but a minor league advance. Meanwhile, the EU Commission indexes show weakening from a -16.5 in their net diffusion reading over 12 months, to -17.7 over six months, to -17.8 over three months.

Other Europe Three European countries are early manufacturing reporters: Portugal, France, and Norway. Among these three countries, two of them have output declines in July. Norway is the exception with a solid 2% increase month-to-month in July, an increase of 2% in June and at 1.7% in May; it is showing accelerating growth from 12-months to six-months to three-months. Norway is a real success story. However, both Portugal and France show industrial production decelerating steadily from 12-months to six-months to three-months; in both cases, the three-month decline culminates in a negative growth rate in double-digits.

Quarter-to-date trends The quarter-to-date statistics show declines across all German manufacturing categories apart from real manufacturing orders. Of course, that shows a sizeable gain of nearly 38% at an annual rate in the quarter. It stands alone in that regard. The other indicators from ZEW to the IFO to the EU Commission also decline in the quarter-to-date except for the current ZEW index which improves by 6.2 points in July compared to the previous quarter’s average level. Manufacturing output for the three European countries shows sizable declines in the quarter-to-date for Portugal and France with Norway showing an annual rate increase at a stupendously strong 26.3% annual rate.

On balance, manufacturing in Germany is weak and it's weak across all categories. The ray of hope comes from real manufacturing orders that are surging as strongly as current output is declining. Sales in manufacturing are also weak. The IFO indicators for Germany are showing some progression towards better circumstances as is the index from ZEW. The EU Commission is eroding slightly sequentially as well as in recent months. There is hope but it runs against the grain of trend.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Sep 05 2024
July Retail Sales Tick Higher in EMU: Trends Are Weak
Retail sales in the European Monetary Union (EMU) in July rose by 0.1% after falling 0.4% in June and rising 0.1% in May. The 0.1% uptick in retail sales volumes is, of course, quite marginal and it comes amid a cluster of other weak readings. The 12-month growth rate of sales volumes is zero. The annualized growth rate of volumes over six months is 0.6%; the annualized change in volumes over three months is -0.8%. EMU retail sales obviously are weak and have been weak for some time - the volume statistics are quite disappointing.

QTD sales volumes fall In the quarter-to-date, euro area retail sales volumes are falling at a 0.8% annual rate. Of course, it's early in the quarter as it's only July, but that figure represents the July growth rate over the Q2 centered average level of retail sales in the second quarter period - it's a poor start to the third quarter.

Food for thought; some for growth Food and beverage sales indicate slightly better results with still erratic sales over the last three months, but food and beverage volume sales from 12-months to six-months to three-months are transitioning into growth and even into acceleration. And the quarter-to-date food and beverage volume statistics are rising by 1.3% at an annual rate.

Motor vehicle registrations have run out of gas Motor vehicle registrations fell by 3.6% in July after rising by a robust 7.1% in June which followed a 10.8% plunge in May. These statistics have been quite choppy and once again are not reassuring. The sequential growth rates reveal motor vehicle sales to be even worse as they are decelerating and imploding. Motor vehicle registrations over 12 months are falling at a 0.3% annual rate, but over six months they're falling at a 13.8% annual rate and over three months they're falling at a 28.2% annual rate; these are far from reassuring trends. In the quarter-to-date, motor vehicle registrations are falling at a 16.7% annual rate.

European country-level sales look better Turning to retail sales volumes across the monetary union and other European countries, we find a proliferation of month-to-month sales increases in July. Eight countries are listed in the table, only one of them, Portugal, shows a volume decline in July while Denmark has unchanged results, and the rest show gains. However, these numbers are coming from June in which five of these countries showed declines month-to-month, while in May only one country showed a month-to-month decline, which was Spain.

Sequential growth across countries Over three months most of the countries in this table show sales increases; there's one exception over three months, Norway, with sales volumes declining 1.7% at an annual rate. Over six months all countries show increases except the Netherlands and Belgium. Over 12 months increases are posted in five of these reporting countries with three of them showing declines. The declines are logged by Belgium, which has a 4.6% decline over 12 months, by Sweden, which has a 0.8% decline over 12 months, and by Norway, which has a 0.5% decline over 12 months. Among the countries in the table, only Sweden’s sales volumes accelerate and there the acceleration is not very impressive, from -0.8% over 12 months to a growth rate of 0.2% over six months, to a pace of 0.9% at an annual rate over three months. While some European countries are showing more solid and consistent growth rates in retail sales such as Spain, Portugal, Denmark, and the United Kingdom - all of which show sales increases over each of the horizons - in general, sales growth has not been impressive. The year-over-year growth rates are strongest for Denmark at 3.9%, the Netherlands at 3.4%, followed by Portugal at 2%. These are all volume growth figures and so they are relatively impressive in their own right, but for the most part, acceleration in sales volumes is not underway.

Quarter-to-date trends In the quarter-to-date, only two of these countries showed declines in progress and that's Portugal the 0.9% annual rate decline in the quarter-to-date and Norway with a 7.1% annual rate decline in the quarter-to-date. The strongest growth percolating in the quarter-to-date is the Netherlands at 5.4%, Belgium at 4.6%, the U.K. at 4.2%, and Spain at 4.2%. So, there is some life in some of these reporting countries in retail sales, but the trick will be to see if these trends are able to hold up and extend themselves.

Very weak since COVID struck Putting these sales trends in a broader perspective, we look at their percentage changes since just prior to COVID's arrival. Calculating growth back from January 2020, we're looking at a period of about 4 1/2 years. Over that span, Belgian sales are still lower by 8.8%, Sweden’s sales are lower by 2%, in the U.K. sales are lower by 1.9%, in Norway they are lower by 2%. Sales are higher by 3.1% in the Netherlands, and by 3% in Spain; they're higher by 1.3% in Denmark. The data for Portugal don't extend back that far. However, these are poor results. For the euro area, sales volumes are up by 1.9% over this span - less than one-half of one-percentage point per year on average. Food and beverage volume sales are lower by 1.5%. In addition, auto registrations over this period for the EU-15 countries show a decline of 15.9%. The consumer has been a weak force for growth during this period. And it's not surprising since COVID struck, then there was the outbreak of war as Russia rolled into Ukraine.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 04 2024
S&P Composite PMIs Improve on Better Service Sectors
Standard and Poor’s composite PMI readings for August improved globally in 19 of 25 reporting countries. This widespread improvement showed far better improvement in breadth than what has been registered by manufacturing sectors among countries that report those data.

The August result was far better than July when only 10 of 25 reporting countries improved month-to-month. Similarly, June was a weak month with only seven composite PMIs improving month-to-month.

Despite the strong improvement in August, the three-month average finds improvement compared to six-months ago in only 7 reporting units. However, the sequential averages also have a stronger history as the six-month average shows that only 6 reporting units were weaker compared to 12-month averages. The three-month comparison is to a six-month period that saw broad gains. Even so, the 12-month comparison to 12-months ago shows improvement in only 12 of the reporting units, approximately half of them.

Over 12 months, most large/developed economies performed worse including the United States, the European Monetary Union, specifically, Germany, France, Italy, and Spain, as well as Japan. China worsened as well. The United Kingdom was an exception, improving over 12 months compared to 12-months ago.

The unweighted average PMI readings for a group, consisting of the U.S., the U.K., and the European Monetary Union, shows steady improvement from June, to July, to August. Despite uneven sequential results the unweighted average PMIs also have improved from their 12-month averages to their six-month average, to their three-month average.

The BRIC countries excluding Russia (BIC) show steady monthly improvements and show consistent, strong readings above or just below the 55 mark for over three months, six months, and 12 months.

The overall averages of the PMI readings show a tendency to increase but not a clear sequential move in that direction. The overall median readings show the same general reading and trend.

On a composite PMI basis, the number of areas with readings below 50, indicating overall economic contraction, have been reduced to four in August. They total 4 over three months and six months compared to 6 over 12 months. Few economies are showing overall contraction on this measure. While there were as many as eight contracting in July and in June, generally over three and six months the number showing contraction has been small.

The far-right hand column gives the queue percentile standings which place the August readings in an ordered queue of standings in the last 4 ½ years of data. These readings show 12 reporters with current standings below the 50% mark. A reading below 50 would put them below their median over this span. The average reading for the entire group is for a queue standing at 51.8% while the median is at 51.0%. Over this period the 12 readings that are below 50% are simply below their respective medians reading; they do not indicate contraction because these are rankings based on queue standings rather than diffusion data as in the first six columns of data in the table.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 03 2024
Most MFG PMIs Back Off in August
Only four of these 18 manufacturing PMIs improved in August: the United Kingdom, South Korea, Japan, and Turkey. August compares to July when only two reporters improved with two others unchanged. June was the opposite case in which fifteen improved month-to-month. So, in the past two months manufacturing conditions have unwound globally, with few exceptions.

Over three months, the average increased relative to the six-month average in only six-reporters. But over six months, conditions improve broadly compared to their 12-month average with only three deteriorating. Over 12 months compared to the average of 12-months ago, eight reporters are worsening against 10 improving.

Manufacturing has been giving back the gains it was making earlier in year. However, the results are still subtle with the median reading over three months at 49.7, compared to 50.5 over six months and to 49.6 over 12 months. There is little change here.

The country standings for the monthly diffusion values are still tilted to the weak side. The median percentile standing across members is a low 34.8 percentile. Ten members have readings below their 50th percentile. Only three reporters have percentile standings in August above their 70th percentile standing.

Diffusion data show that over 12 months compared to 12 months ago, conditions improved in 55.6% of reporters. Over six months compared to 12 months, conditions improved in only 38.9% of reporters compared to a year ago. Over three months, only 22.2% of reports improved compared to six months. Diffusion underscores the slippage that has been in progress for manufacturing.

Large, developed economies, as represented by the U.S., U.K., EMU, Canada, and Japan, have PMI readings at an average below 50.0 on all horizons and have an overall queue standing at their 31.8 percentile. BRIC countries have a queue standing at their 47.1 percentile. Asian countries have a queue standing above the 50% mark, at their 53.4 percentile. The most highly developed countries are the laggards.
by:Robert Brusca
|in:Economy in Brief
Global| Aug 30 2024
Unemployment Rates Still Falling in EMU
Unemployment fell in the EMU in July to 6.4% from 6.5% in June. The EMU rate has fallen over three months, over six months, and over 12 months.

Rate trends run mixed Among the 12 long-standing EMU members in the table, unemployment rates fell in four of them in July and rose in three. Over three months, 6 of 12 unemployment rates fell (with two unchanged). Over six months, five of 12 fell (with three-unchanged). Over 12 months, four of 12 fell with two unchanged. The Monetary Union is experiencing what is probably the late stages of unemployment rates settling lower as other members see unemployment rates beginning to rise. In Germany, the unemployment rate has been rising by four-tenth of a percentage point over 12 months, the same as Ireland; there is a six-tenth rise in Luxembourg, and a one-percentage point gain in the Netherlands and in Finland.

On the other side of the coin, unemployment rates over 12 months fell by 1.3 percentage points in Italy, by 1.2 percentage points in Greece, and by 0.5 percentage points in Austria and in Spain.

There has been a focus on how weak conditions remain in Europe, especially because Germany and its industrial gauges have been so persistently weak, but the unemployment trends tell a different story of mixed trends- with a number of still very economic-friendly trends in play.

Unemployment rate levels in EMU are low Moreover, the level of unemployment rates in the EMU is low. Only Luxembourg and Finland have unemployment rates above their respective medians on data back to 1995. Six reporters in the table have unemployment rates that rank in the bottom 20th percentile of their historic results since 1995. Three others congregate near the border of their lower 25th percentile boundary. Unemployment rates in the EMU are undeniable low with few exceptions.

Even so rates are clearly rising for some countries, most notably, Europe’s largest economy, Germany.

In many comparisons of data with January 2020 conditions today do not compare favorably to what they were before Covid struck but for unemployment rate comparisons, we find seven of these reporting EMU members have unemployment rates lower than they were before Covid struck. While many industrial comparisons and confidence comparisons show that current conditions are worse, on this comparison, unemployment rate comparisons are considerably more upbeat. Luxembourg is minor exception with its rate one-tenth of a percentage point higher, Belgium and Germany are two more exceptions with their respective rates higher by just two-tenth of a percentage point. Austria’s unemployment rate is higher by 0.5 percentage points and Finland’s rate is higher by a sizeable 1.7 percentage points.

Unemployment elsewhere... For comparison, I include unemployment rates for the U.S., the U.K., and Japan. The U.K. claimant rate is much higher with an 82.3 percentile ranking. All three of these countries have unemployment rates higher in July 2024 than in January 2020.
by:Robert Brusca
|in:Economy in Brief
Europe| Aug 29 2024
EU Indexes Show Steady Ordered Performance with Some Improvement
It still seems unusual to look at a plot of the EU Commission indexes for Italy, France, Germany, and the European Monetary Union to see Italy consistently showing the best top-line reading and Germany consistently showing the worst bottom-line reading. If you want to make it more confusing, we could put Spain on the chart and Spain would emerge as even stronger than Italy. Clearly the post COVID and post Russian-Ukraine war environment has turned what used to be the global economic order on its head.

If we evaluate the big four Monetary Union economies by their queue standings on data back to 1990m Spain has the strongest standing and is healthy country with the standing above its median on the period with the 64.9 percentile standing. France is next at a 48.6 percentile standing, followed by Italy at 41.7% and Germany at a very weak 18.8%. The Monetary Union has a 36.8 percentile standing. Among the 18 early reporting countries, only 5 have percentile standings above the 50% mark which puts them above their historic medians for this timeline.

The Monetary Union in August saw an improvement in its overall index to 96.6 in August from 96.0 in July; however, this is still a weak, 36.8 percentile standing. In August, there is an improvement in retailing as the index rose to -8 from -9 in July and an improvement in services where the services diffusion reading rose to +6 from +5. However, construction deteriorated to -7 in August from -6 in July and consumer confidence backtracked to -13.5 from -13, while the industrial sector remained at -10.0 for a number of months running. As far as sector rankings are concerned, construction has a 67.4 percentile standing, retailing has a 50.1 percentile standing - barely above its historic median which occurs at a ranking of 50. Services, consumer confidence, and the industrial gauge all have rankings below 50; in fact, all of them except services are below the one-third standing mark and their ordered queue of rankings of data back to 1990. Services aren't far from that, however, with the 36.3 percentile standing.
by:Robert Brusca
|in:Economy in Brief
Global| Aug 28 2024
US, UK, and EMU Money Supplies Perk Up As Japan’s Sags
EMU Nominal money and credit growth have picked up and stabilized in the EMU. Over three months, EMU M2 growth is up to 2.4% over annualized compared to 1.2% over 12 months. Credit growth in the EMU is up to 2.3% annualized over three months compared to 1.1% over 12 months. It may be slow, but it is progress.

Money and credit growth have also improved over the past year in real terms. But both money and credit growth rates remain negative over all horizons in the table going back three years. There is progress, but this is not really normalcy.

The United States and the United Kingdom The U.S. and the U.K. both show accelerating nominal money growth. U.S. money growth is 3.8% over three months compared to 1.3% over 21 months. U.K. money growth is at 2% over three months compared to 0.8% over 12 months; it has also slowed over three months compared to six months.

Both U.S. and U.K. real balance growth rates have emerged to post not only stronger growth rates over three months compared to 12 months but also to post positive rates of growth over both three-month and six-month horizons.

Japan Japan is the ‘odd man out’ in this process as it is in a different portion of its business cycle. Both the EMU and the U.K. have begun easing and the U.S. has just announced that it will be heading down that path. But in Japan, the BOJ has had two rate hikes. Its nominal money growth has turned negative over three months and has decelerated from 12-months to 6-months to 3-months. Real money balances in Japan show deepening weakening and negative growth rates on all horizons in the table. Japan still has a heavy dose of braking in train while the central bank has been trying to unwind its easing posture from the pandemic and from its previously longer fight against deflation. Japan’s money slowdown looks like more substantial braking than what you would judge from overnight interest rate adjustments that the BOJ has made.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Aug 27 2024
U.K. Distributive Trades Flounder But with More Upbeat Expectations
The U.K. distributive trades report offers a bifurcated view of the U.K. distributive trades sector. To generalize, the retailing portion of the report is weak while the wholesaling portion, for the most part, is firm-to-strong. There is quite a contrast to the rank standings of the line items surveyed in retailing compared to wholesaling. The average ranking across the retailing items is at the 23.9 percentile while for the distributive trades the average is the 55.9 percentile. Distributive trades average a reading that is above the respective component medians (above 50%) while for retailing the standing is about half that for the distributive trades. That leaves it well below the components’ medians in retailing averaging a standing near the top of the lower quartile of its queue of data.

Retailing changes and trends Retailing is mixed quarter-to-quarter. Capital spending and the business situation have taken a sizeable step back in retailing. However, import assessments advanced and the selling price advanced, while employment only ticked higher. Expectations for the selling price fell very sharply quarter-to-quarter as expectations for employment ticked higher. Compared to four quarters ago, both the current and expected selling price are exceptionally lower. Imports and capital spending are lower; employment is somewhat weaker as well. There has been a strong pickup over four quarters in expected employment.

Wholesaling changes and trends While wholesaling has much stronger rank standings than retailing in terms of its changes and trends, it also has a good measure of slowing. Selling prices are substantially lower quarter-to-quarter and capital spending has pulled back as well. Employment has become a bit weaker. In contrast, imports are up strongly compared to Q2 and the business situation is unchanged. After weakening sharply quarter-to-quarter, expected selling prices are only slightly weaker. Employment shows a small improvement in expectations compared to one quarter ago. Compared to a quarter ago, the selling price and the expected selling price both are much weaker. Capital spending plans are substantially weaker than they were a year-ago. But the business situation over the next six months has improved smartly and employment conditions compared to a year ago are up strongly with expected employment conditions up even more strongly.

Retailing standings Imports and capital spending are especially weak with standings below their 10th percentiles. The business situation for the next six months has only a 12.7 percentile standing. Compared to one year ago, the selling price is higher with a 51-percentile standing (above its historic median, by a small amount). But employment compared to a year ago has only a 19.6 percentile standing. Looking ahead for the selling price and employment expectations are not much different in a relative since with nearly the same standing relative to historic data as what is generated by current conditions.

Wholesaling standings For wholesaling imports are strong with a 74.5 percentile standing. Capital spending is much more restrained with a 24.5 percentile standing. The business situation over the next six months has a 67.6 percentile standing- a top one-third response. However, selling prices compared to average gains are more restrained with a 25.5 percentile standing. That is relatively weak while wholesales employment has a 70.6 percentile standing compared to where it was a year ago. Expectations for the selling price in wholesaling are for a much stronger relative performance with a percentile standing at its 47th percentile near its historic media. Expected employment is outright strong with an 81.4 percentile standing.
by:Robert Brusca
|in:Economy in Brief
Germany| Aug 26 2024
German IFO Gauges Take a Further Tumble
Germany’s IFO survey for August saw persistent deterioration in its headline readings as well as most principal components compared to their July values. The all-sector climate reading in August fell to -21.5 from -19.7 in July. Under current conditions the all-sector reading fell from -1.5 in July to -3.0 in August. For expectations, the August value fell to -18.0 from -17.6 in July – a trifecta of deterioration.

Rankings take a spanking In addition to these month-to-month deterioration in the three main readings of the IFO index for climate, current conditions, and expectations, the ranking of each of these - of course – slipped. The rankings remain extremely low. For climate, the all-sector ranking fell to 9.5% from 12.9%. For current conditions, the all-sector ranking fell to 10.6% from 11.9%, a month ago. For expectations, the ranking fell to 13.1% from 24.0%, one month ago.

Sector readings are low and deteriorate Weakness is deep, broad, and pervasive All the major aggregate sector readings for the IFO in August lie below the 15th percentile which makes them all exceptionally weak. The interpretation is that they have all been this weak or weaker less than 15% of the time. Sectors get individual rankings in each of the functional survey areas. With five-sectors in each of the three-categories, there are 15 different rankings in the table apart from the overall rankings for the all-sector aggregates. Across these 15 rankings only one of them, for construction, under the current conditions section, has a standing above its 50th percentile. That reading puts its August value above its median value for the period back to late 1991. All the rest of the sectors are below their respective 50th percentiles (and below their respective medians). The second strongest ranking is a 35-percentile standing, again, for construction, and this time in the climate category. The weakness in Germany is deep, broad, and pervasive.

Sector step-backs In the climate section the average step-back for the monthly (up-minus-down) diffusion readings is a step-back of one point for August compared to July. In August only one of the current readings improved compared to July and that was for retailing where the August reading moved up to -23.1 from -25.4 in July. Under current conditions there's only one reading that improves month-to-month, and again that is retailing that improves to a reading of -15.8 from -16.3 in July. Under expectations, there are two readings that improve month-to-month, the reading for wholesaling in August moves up to -30.8, an improvement from -31.4 in July; the reading for retailing moves up to -30.2 from -34.1. Apart from these readings all sectors deteriorated in August compared to July in all three functional categories. In addition, all the August readings have net negative diffusion values except for the services sector under current conditions where the August reading is at +12.3 which is a decline from +13.4 in July. And, even at that, the services reading has a 16-percentile standing under current conditions.

Graphic weakness... The chart also shows what the deterioration has been like across sectors though time in the IFO survey. The low point in this survey (apart from the recent Covid spike low) for many of the components came in late 2023 early 2024. Since then, there has been a minor rebound in play. However, over the last few months that has been unwinding and there's been another miniature down cycle developing.

The IFO reading and the global eco-picture The state of the world economy remains in flux and, of course, the German economy that is plugged into the international economy and depends greatly on manufacturing and significantly on international trade, continues to be under a great deal of pressure. Central banks around the world have either entered or are preparing to enter the twilight-zone of easing cycles with the exception of the Bank of Japan where inflation had been more consistently low, and where the central bank is now trying to reestablish interest rate normalization; it recently conducted its second-interest rate hike within the last month. The ECB kicked off the easing cycle early but has not followed up with a second reduction in rates. The Bank of England recently executed a more controversial rate reduction that was followed up by comments from their chief economist warning that the next rate cut may not come for some time. Just this past weekend, in Jackson Hole Wyoming, the Federal Reserve had a conference and heard its Chairman, Jay Powell, declare the time had come for the Fed to begin to embark on an easing process and to join the easing moves that have been engaged by in by central banks overseas. However, the timing and magnitude of the Fed’s move remains speculative.

Inflation – as always- holds the key The key point in all of these is that inflation which had accelerated during COVID and in the wake of the Russian invasion of Ukraine, since has slowed. But, in several places, that decline in inflation has either slowed dramatically or inflation appears to have become stuck at a pace above the target that central banks have established for inflation, which for all of them is at 2%. That reality creates a problem in terms of the outlook for markets that had been looking for a program of continued cuts as central banks to followed through on their rate reductions. But central banks have been looking for inflation to continue to fall. Inflation’s stubbornness has brought to a halt to the global cycle of rate cuts. That might be one of the factors explaining why improvements in the German IFO survey are also in the process of backtracking. The outlook is still mixed. Most still see central bankers cutting rates ahead. Yet, most rate cut profiles had been cut back, as inflation reduction stalled. But now expectations for rate cuts may step up again with the new outlook from the Federal Reserve in the US.
by:Robert Brusca
|in:Economy in Brief
Europe| Aug 16 2024
EMU Trade Surplus Expands
The surplus on the international trade account of the European Monetary Union rose to 17.5 billion euros after logging €12.4 billion in May. The July reading keeps the surplus roughly in the range that we've seen this year with the three-month average at €16.1 billion, a six-month average at €18.1 billion and a 12-month average at €14.4 billion. The improvement month-to-month stems from a week May.

Better surplus; worse news All improvements in the trade surplus are generally regarded as good events because they contribute positively to GDP growth; an improved surplus may indicate ongoing competitiveness for the reporting country or unit. But reality is always more complicated than that. Exports in the monetary union fell by .2% in June after falling by 2.8% in May. Imports in the Monetary Union are down by 2.4% in June after falling by 0.4% in May. The European Monetary Union is shrinking itself to a larger surplus and that certainly tempers the good news. The improvement in the surplus is coming about more because of weakness in imports than strength in exports.

Strength through nonmanufacturing? Beyond that, we can also break the balance down into a surplus on the manufacturing trade account versus a deficit on the non-manufacturing account. zin June the manufacturing surplus rose to €39 billion from €38.8 billion in May, a small improvement the manufacturing balance when compared favorably to earlier periods in the year. The balance on non-manufacturing trade came in at a deficit of €21.5 billion compared to €26.3 billion in May. It’s the deficit on non-manufacturing trade that fell and contributed the most to the improvement in the overall trade balance. The non-manufacturing average monthly balance is slightly smaller than it had been earlier in the year.

Weak imports may reflect weak growth Weak imports raised the question of the adequacy of domestic growth and, of course, weakening imports for non-manufacturing products (in the last two months) looks more to the future since these are the raw material for goods and future periods. For these reasons the improvement in the trade surplus in June may not be the good news that it seems to be in its headline.

There's also a good deal of volatility to deal with in these numbers looking at exports manufacturing exports fell by -1.5% in June and by -1.2% in May and they have for the most part negative growth rates over 12-months and 3-months with a small positive growth rate over 6-months. Non-manufacturing shows a sharp increase in exports in June, up 6.4%, but that's in the wake of a 10% month-to-month decline in May. Non-manufacturing exports have been steadily increasing and holding to relatively strong growth parameters rising 11%, over 12-months, at a 4.8% pace over 6-months, and at a 9.2% annual rate over 3-months.

On the import side imports are falling over all horizons by relatively consistent numbers ranging from a -4.8% decline year over year to a -1.6% annual rate decline over 6-months. The recent 3-months produce a decline of 3.6% at an annual rate for total imports. Manufacturing imports into the Monetary Union show negative growth on all horizons and there's no sign of that letting up. For non-manufacturing goods the trends go the other way and there's actually acceleration; non-manufactured imports fall by 1.4% over 12-months, rise at a 4.9% annual rate over 6-months and then rise at an 8.1% annual rate over 3-months. Of course, that pattern squares so much better with the pattern of non-manufactured exports, leading to suspicions this is mostly a price effect and not a volume effect.

Germany and France and beyond Looking at countries in the Monetary Union we highlight Germany and France and find that both in June have declines in exports and in imports with relatively larger declines in June imports. Both are coming off a May where exports and imports increased and where exports were stronger than imports. Sequentially Germany shows negative growth for exports and imports on all horizons with relatively deeper declines in imports. France shows consistently rising exports - even accelerating exports- while imports decline consistently over 12-months, 6-months, and 3-months.

Separately the UK reports declines in exports and imports in both June and May and its progression from 12-months to 6-months to 3-months shows sharp export and import declines over 12-months and over 6-months followed by strong exports over 3-months and essentially flat imports over 3- months.

Elsewhere in the monetary union we look at exports and find unclear trends… Finland, Portugal, and Belgium essentially seem to go their own ways with Belgium showing consistently weak and declining exports. Finland shows a tendency toward weakness interrupted by a strong 40% annual rate rise in exports over the last three months! Portugal also shows steady but slow export growth until the recent three months where there's an increase of 11% at an annual rate.

Summing up These trends for the Monetary Union portray inconsistency more than some kind of new trend developing. However, this occurred tendency to witness on the import side with the exception of non-manufactured goods whose trend is a bit of an enigma. Separate trends from both Germany and France show weak imports. Macroeconomic data have generally been moderate to weak in EMU. It's reasonable, after looking at these statistics to begin to question growth even though this is a report that generates a stronger trade surplus that tends to contribute positively to GDP growth! When growth is being boosted in the face of declining exports by even weaker imports, it's not generally a good sign. This is simply one of the automatic stabilizers in the economy that tends to soften the blow on GDP when the economy weakens. It's too soon to tell whether this is going to develop into some broader weakness or not. But Europe has been on a bit of the razor's edge recently and while the ECB did turn the corner and start to raise rates it did that once and there's been a long hold ever since. The outlook remains unclear both for growth and for monetary policy while the geopolitical environment has continued to deteriorate and the war on Europe's doorstep is as contentious as ever. If there is some clear good news for Europe, it's that perhaps the US July employment report appears to have been misstated and the data have that have been released in the wake of that report had been considerably stronger. This gives Europe some hope for sustaining an important source of export demand for their products. However, growth in the US is not certain either and there are question marks raised about its sustainability as the Federal Reserve grapples with the question of whether to cut rates in September or not. For the US, as well as in Europe - and we can include Japan in this as well, all bets on the future are off and data dependency has stepped to the fore.
by:Robert Brusca
|in:Economy in Brief
Japan| Aug 15 2024
Japan's GDP: Weak Q1 Stimulates Solid Q2; But Don’t Be Fooled, GDP Is Not Strong
The chart adequately depicts the economic condition in Japan. Japan’s quarterly GDP jumped to a gain of 3.1% in Q2 2024, but that was from the Q1 decline rate of -2.3%. Together there is marginal growth in the first half of the year.

Japan’s year-on-year growth rate shows the impact of these quarterly gyrations as the 3.1% annualized Q1 gain was not enough to boost year-on-year GDP growth to positive territory. Japan’s GDP continues on a declining year-over-year path.

Growth trends Japan’s quarter GDP series became exceptionally bumpy in and nearly trendless from 2021 on in the wake of the Covid disruption. GDP growth was positive with quarterly growth rates spiking as high as 4% and 5% but after Q1 2003 quarterly growth lost its zest; two of the past five quarterly growth rates have been negative. One has been about one quarter of one percentage point, with two other quarters in the 2.5% to 3% growth range. This pattern has produced a decaying year-on-year GDP growth rate pattern.

Quarterly growth Japan’s second quarter of 2004 produced a sharp reversal of weak private spending that fell 2.2% (annualized) in Q1 then rebounded at a 4% annual rate in Q2. However, there also has been four straight quarters of real private spending declines through Q1 2024. Public spending stepped back to gain just 0.3% annualized in Q2 after growing by 1.1% in Q1.

Spending on capital formation has been erratic. It fell at a 3.5% pace in Q1 then surged back at a 6.9% growth rate in Q2. However, recently in Q1 2023, the quarterly capital spending has been as strong as 9.0%. Still, in three of the last six quarters, there have been declines. Plant and equipment spending has evolved similarly. Housing spending rose at a sharp 6.7% annual rate in Q2 following a 10.1% annual rate drop in Q1 that was part of an ongoing three-quarter decline.

On the trade front, the balance of trade has been through some substantial gyrations, including two surpluses in the last six quarters. Exports rose by a solid 5.9% annualized in Q2 but only after a drop in Q1 at a 17.2% pace. Similarly imports rose at a pace of 7.1% compared to a Q1 drop at a 9.6% annual rate.

Domestic demand rose at a 3.5% annual rate in Q2 snapping a four-quarter declining streak.

Annual trends Year-on-year GDP growth has been fairly steadily slowing and has posted declines in each of the last two quarters. Private spending has been negative for four quarters running, but the weakness was trimmed in Q2. Public consumption rose year-on-year in Q2, and that was the first net gain in six quarters.

Gross fixed capital formation has been slow and slowing. Plant and equipment spending has been erratic around small gains and losses year-on-year. Housing spending has contracted year-on-year for the last three quarters.

The annual GDP net exports result has been a positive balance in four of the last five quarters but in Q2 that four-quarter change has turned negative. Exports have logged low positive growth until this quarter when the year-on-year growth rate posted at -0.2%. Imports have been declining over the previous four quarters but logged growth of 2.5% in Q2 2024 to break that string.

Domestic demand has been shrinking year-on-year for four quarters in a row. The tendency, however, has diminished; it produced a small 0.1% contraction in Q2.
by:Robert Brusca
|in:Economy in Brief