Introducing

Robert Brusca

Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media. Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.

Publications by Robert Brusca

Global| Sep 23 2024
Flash Global PMIs Fade Broadly in September
September PMI readings faded across the board. Composite PMI readings fell in each of the seven early reporting entities. In fact, PMIs fell for all composites and services readings generating showed only a single increase for manufacturing in September - that was in France. Among the 21 composite and sector readings in August, 12 had improved, the same as in July. The September result is a watershed change compared to the last two months, where although data still were mixed, they favored improvement.

With the turnabout in September not even included, the sequential readings are souring (the sequential averages are presented only on finalized data). The three-month averages (through August) still only show improvement in six of twenty-one composite and sector readings. That is a sharp shift from the six-month change where the averages improved broadly compared to the 12-month averages, declining in only five composite and headline readings. Over 12 months conditions broadly improved compared to a year ago, with only eight composites and sectors showing a worsening.

The queue percentile rankings are mostly below the 50% mark that reflects the median for the period of ranking back to January 2020. The ranking exceptions are India where the composite and both sectors rank above their respective medians, the United Kingdom, where the composite is above a 50% ranking, and the United States, where the composite and the service sectors have above-median rankings. Still, for the U.S., the U.K. and India, all readings weakened this month. For the U.S., the manufacturing reading is exceptionally weak at an 8.8 percentile standing, tied with Germany for the second lowest standing in the group.

As an indicator of how troubled the global economy has been in this group of advanced countries plus India, of the 21 composite and sector rankings for the group, 12 of them show weaker readings in September than in January 2020. As we noted above, few are above their period median values based on ranking statistics.

For this group of respondents, the average composite ranking is 42.9, the average manufacturing reading is 23.6 and the average service sector reading is 50.6. It is the service sector that has been providing the backbone for sustaining growth while manufacturing has been severely impaired.
by:Robert Brusca
|in:Economy in Brief
France| Sep 20 2024
France INSEE Survey Shows Slightly Weaker Manufacturing While the Service Sector Improves
The industry climate gauge from the INSEE survey reports a standing in its 27th percentile with manufacturing production expectations at the 29th percentile; both are relatively weak readings. The services sector has a weak reading, too, that stands in its 36th percentile. The standing for services is slightly stronger than for manufacturing and production expectations, but both are basically in the lower one-third of the queue of readings for each sector. In September, industry climate has weakened although manufacturing production expectations improved slightly. The service sector index is slightly improved. In recent times, globally manufacturing has been weak, while the services sector has provided the bulk of the growth. According to the INSEE surveys, there was not much strength in either sector as of September.

Manufacturing The production recent trend observation for September did improve compared to August when it moved up to a -6.2 reading from -13 previously. However, orders and demand weakened to -19.5 in September from -15.9 in August; there was a similar deterioration for foreign orders and demand.

Prices show less pressure with the own-sector likely price trend moving lower to +1.2 in September from +2.3 in August. While the manufacturing price level overall trend just slips to 2.0 in September from 5.6 in August. The percentile standings for all of these readings are in or near in the lower third of their respective historic queue of data across the board. The only exception is foreign orders and demand that has a 56.3 percentile standing. That's the only standing above the 50th percentile, which puts the reading above its historic median on data back to 2001.
by:Robert Brusca
|in:Economy in Brief
Europe| Sep 19 2024
European Car Registrations Plummet; Registrations Were Last Lower 25 Months Ago
Car registrations in Europe are plunging and they're plunging pretty much everywhere where the data are being reported. One of the reasons for this is the sudden lack of popularity in electric vehicles, whose purchase demand has declined precipitously.

Country level data show that declines in registrations in August range from a month-to-month decline of 11.8% in Germany, to declines of 2.6% each in France and the United Kingdom. Germany, France, Italy, and Spain show substantial month-to-month declines in August and in July. Only the U.K. is an exception to this two-month losing streak; the U.K. 2.6% decline in registrations in August comes after a 3.9% increase in registrations in July.

Year-over-year total European registrations are down by 20.6%; smoothing this to look at declines over a three-month average reduces the drop to 6.6%; however, whether we look at raw declines or smoothed declines, the declines are generally getting bigger over shorter periods. The smooth declines, for example, moved from a 6.6% decline over 12 months to a 9.9% annualized decline over six months to a 10.9% annual rate of decline over three months. The annualized rate of decline is growing. The raw number for the year-over-year decline is a drop of 20.6% over 12 months, over six months that decline pace accelerates to 28.1% annualized, although there is a slight pullback showing a decline of 24.4% over three months; it's still a greater pace of decline than over 12 months.

The country level data show us that year-over-year declines range from exceptionally weak numbers like -27.6% in Germany and -21.1% in France, to more modest declines like -2.1% in the U.K. and -5.9% in Spain. However, all five reporting countries show year-over-year declines and of course the aggregate numbers presented are dismal.

If we compare what's going on with registrations now to the level of registrations before COVID struck, we're looking at double-digit declines. Raw net decline calculations round to double-digit declines for all five countries. The biggest shortfall from January 2020 levels is the U.K. that is 25.5% lower; however, Germany is also 23% lower, Italian registrations are about 21% lower, registration in France are 14% lower, while in Spain registrations are 9.5% lower.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Sep 18 2024
U.K. Inflation Flares: Accelerates- Headline, Core; Stick a Fork in the BOE the Rate Cuts Are Done
Inflation in the United Kingdom, as measured by the CPIH, rose by 0.4% in August as well as for the measure excluding energy, food, alcohol, and tobacco that rose by 0.5%. The recent sequence of monthly inflation rates is not hospitable or kind to the notion of the Bank of England doing any further rate cuts anytime soon.

Sequential inflation readings show the headline CPI measure up 3.1% over 12 months and at a 2.9% annual rate over six months. It further accelerates to a 4% pace over three months. The expanded core excluding energy, food, alcohol, and tobacco is up by 4.4% over 12 months, up at a 5.1% annual rate over six months and continues to rise at a 5% annual rate over three months. Both series are at some point about a tick or so short of being persistently accelerating measures. However, putting technicalities aside, inflation clearly is accelerating in the U.K. and both measures embrace generally accelerating trends. The year-over-year headline pace of 3.1% is too fast; the core rate of 4.4% is way too fast. The three-month growth rates that have the headline at 4% and the expanded core 5% are far too fast.

Applying the diffusion concept to 12-month inflation compared to a year ago, inflation does decelerate on that time horizon with a diffusion value only at 18%. Diffusion above 50% means inflation is accelerating in more places than it is decelerating. Below 50% diffusion flags inflation that is more broadly decelerating. The 12-month reading flags a sharp broad slowing for inflation. Of course, the 12-month headline inflation rate is 3.1% and a year ago it was running at twice that pace of 6.3% so finding general broad deceleration is not too surprising. The next step is a comparison of six-month inflation to 12-month inflation. Here we see diffusion up to 63.6%. So, inflation is accelerating in more categories than it's decelerating over six months compared to 12 months, not a good development. Over three months, however, headline inflation accelerates to 4% while the core is more or less unchanged at around the 5% mark, but diffusion falls back to 36.4% indicating that inflation is only accelerating at about one-third of the categories over three months. So that's a better development.

On a month-to-month basis, diffusions in August and July are both above 50%; but diffusion in June fell a little short of that with a diffusion gauge at 45.5%. Recent months seem to show some inflation pressures on balance.
by:Robert Brusca
|in:Economy in Brief
Germany| Sep 17 2024
Germany’s ZEW Survey Sours
Germany’s ZEW survey has deteriorated sharply in September. The current index has fallen to -84.5 in September from -77.3 in August. The expectations index fell back to 3.6 from 19.2 in August. It had been as high as 41.8 as recently as July 2024. Conditions and expectations for Germany have taken a sharp turn for the worse over the last few months. The chart shows that expectations are much better than their depths of 2022. Their evolution from there has been erratic, but there has been a clear and strong rebound in expectations from those lows of 2022. However, there's also been significant vacillation and we're currently in a period in which the downdraft in expectations is relatively severe. Current conditions are amid quite different circumstance; they had some rebound from their 2022 lows which were still slightly higher than the 2020 lows that occurred during COVID. However, that rebound was not long lasting; in 2023 the current index had sunk substantially and although there was some minor rebound, we are now seeing current conditions making new lows and some of the lowest readings that we've seen since the brief COVID-caused recession.

The current index has been stronger than its current value 94% of the time, underscoring how extremely weak the current observation is. Expectations have been stronger about two-thirds of the time, a significant metric, but not as draconian as the reading for current conditions. However, in July expectations were strong enough that they had been weaker only about one quarter of the time. Both expectations and current conditions have taken a severe turn for the worse.
by:Robert Brusca
|in:Economy in Brief
Europe| Sep 16 2024
EMU Trade Surplus Erodes
The European Monetary Union trade surplus moved lower in July. At €15.46 billion, it is down from €17.02 billion in June. The erosion was due to a larger deficit on nonmanufacturing trade as the manufacturing balance actually improved to €39.1 billion from €37.9 billion. However, on nonmanufacturing trade, the deficit swung to -€23.7 billion from -€20.9 billion.

The chart provides the hint that the move back to surplus may have passed its peak as there is a string of surpluses having swept up to higher levels and now engaged in the process of headed for lower levels.

The trend for exports shows overall exports slowing then declining steadily from a growth rate of 2.5% over 12 months to 0.6% over six months to -8.1% over three months. This transition is driven by the growth rates of manufacturing as well as nonmanufacturing exports; both of which transition from positive growth rates over 12 months to negative growth rates over three months.

On the import side, the patterns are inconsistent although they culminate in weakness over three months. Total imports fall 2.5% year-over-year, advance at an 11.4% annual rate over six months, and then decline at a 3.2% annual rate over three months. Manufacturing imports follow this same progression; however, for nonmanufacturers, growth is at 3.2% over 12 months, that expands to a 15% annual rate over six months, and then collapses to -3.4% over three months. Import trends are chaotic.

Turning to three European countries two of them the largest countries in the European Monetary Union, we find Germany has exports declining progressively and imports doing the same. Both German export and import flows are slowing consistently and declining with imports falling faster than exports. For France, exports are accelerating from 4.3% over 12 months to 5.3% at an annual rate over six months to nearly 12% at an annual rate over three months. French imports, in contrast, don't have a clear trend but they are declining on each of those horizons. The U.K. shows declines in exports and imports year-over-year that are relatively balanced and again declines over six months that are relatively balanced for the two flows. But over three months, U.K. exports advance at an 11.3% annual rate while imports are basically unchanged at a 0.1% annual rate.

Export trends for Finland, Portugal, and Belgium find cross trends, with Finland showing a decline in exports of 17.3% at an annual rate over three months. But Portugal shows exports accelerating from 12-months, to six-months, to three-months, culminating in a 45.9% annual rate pace over three months. Belgium shows an export decline over 12 months that gives way to increases over three months and six months but again without a clear trend.

The trends for the three-month growth rates are positive for the EMU aggregates and for the exports of Finland, Portugal, and Belgium. But trends are negative for exports as well as imports for Germany France and the U.K. Over 12 months, most of the calculations show declines in trade flows, underpinning again the notion that manufacturing has been weak in Europe. That weakness lends itself to weakness in both the exports and imports; European weakness in manufacturing naturally leads to knock-on weakness in trade. That is not surprising. It has been the strength in the services sector that has tended to keep growth alive, especially in Europe.
by:Robert Brusca
|in:Economy in Brief
Europe| Sep 13 2024
EMU IP Takes a Small Step Backward
In the wake of European Central Bank rate cuts, the European Monetary Union reports a 0.3% reduction in industrial production in July. Industrial production in the euro area shows a decline of 2.2% in output over 12 months; the rate of decline improves slightly to -1.6% when annualized over six months but then has a severe setback over three months as it falls at a 4.8% annual rate. You simply cannot put positive spin on this month’s report or on the trend. The best we can is that year-on-year trends are not worsening; several are potentially encouraging if they persevere.

The patterns in manufacturing are the same but manufacturing output declines at an 8.2% annual rate over three months, a much larger decline than for output overall. Sectors show some upbeat trends for consumer goods, as output is up by 1.6% over 12 months and then continues to advance at a 4.3% annual rate over six months and over 12 months. The increase in overall consumer goods output is underpinned by a steady acceleration in nondurable goods output and held back by declines in durable goods output over 12 months, six months and three months. Intermediate goods output faces a decelerating profile, with output falling 3% over 12 months, falling at a 3.7% annual rate over six months, and falling at a 6% annual rate over three months. The capital goods progression is not as steadily deteriorating, but it's a chilling development since output falls by 5.1% over 12 months, then that decline is trimmed to -2.9% at an annual rate over 6six months, but it comes back to show a 12.6% decline at an annual rate over three months. That's not a clean steady deterioration but the 12.6% pace of decline over three months is certainly chilling.

In the quarter-to-date, which is at this point a nascent calculation, one-month into the new quarter. Overall output falls at a 3.9% annual rate, manufacturing output falls at a 5.3% annual rate, consumer goods output is rising strongly pushed ahead by nondurable goods output. But apart from that, there are ongoing sharp declines in consumer durables output, the output of intermediate goods, and then the output of capital goods.

The performance of industrial output in July supports the decision by the ECB to cut rates even though that decision occurs with inflation over the top of its target and still accelerating. However, the factory sector has been weak for quite some time and the services sector has been strong enough to provide overall expansion for the economy. The goods sector is simply the weakest part of the economy and so it's going to seem like it is in support of any policy step taken to offset weakness.

EMU member countries The country level data for 13 of the earliest European Monetary Union members shows output declines in July in six of these reporters. In June, there were output declines in five of them; in May, there were output declines in seven of them.

Sequential calculations show that output has been increasing less broadly from 12-months to 6-months to 3-months. Over 12 months about two-thirds of the reporting countries showed output increases/ Over six months that fell back to 50% of them, whereas over three months only a little better than one-third of the reporting monetary union members are indicating accelerating output. In addition to that, over the last three months eight countries show actual declines in output in progress.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 12 2024
Is Inflation Targeting Failing? ECB Cuts Rates on Growth Fears as Inflation Lingers
These are not your father’s or grandfather’s central banks. Oh, the names are the same (well, except for the ECB which didn’t exist ‘a generation’ ago). The behavior would be unrecognizable to those who knew Fed policy under Paul Volcker/Alan Greenspan or Bundesbank policy under Karl Otto Poehl and his legacy mates.

What has happened? Is it inflation targeting or is it something more?

INFLATION TARGETING IS FAILING...Instead of working as Ben Bernanke said it would, getting markets to see what central banks want and then acting to make that happen reinforcing the target goal, Central banks have instead used targeting as crutch to promise the target and deliver something else. This dissonance will eventually weigh on central bank credibility and undermine the process that Bernanke said would help banks to achieve their target.

ECB HICP inflation is not that far from its target, but momentum is in the wrong direction and inflation has been over target since early 2021 (38 consecutive months). Core inflation in the EMU is far too high (data lag by one month) and core inflation is accelerating- again moving in the wrong direction.

Some weakness, yes, but is it all that serious? The ECB speaks of a concern about weaker growth, but few of the early reporting EMU members display GDP declines in Q2. Among the 14 EMU members, I have data for only Austria, Germany and Ireland log declines in GDP Q/Q as of 2024-Q2. Austria, Finland, and Ireland log declines in GDP on four-quarter changes – that’s a more serious issue. Among the five EMU member countries that report composite PMI data to S&P, only Germany has a diffusion reading below 50 (indicating contraction). The EMU reading is 51.1 and it improved in August. EMU composite data ranked over the last 4 ½ years has a 51-queue percentile standing putting just above its median for the period (median occurs at 50). France, Italy, and Spain all have queue-standings above their respective 50th percentiles. Ireland and Germany are exceptions; Germany’s queue-standing is weak at the 28.6 percentile. The EMU’s largest economy has been weaker in terms of year-on-year growth only about 25% of the time.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Sep 11 2024
U.K. IP Is Still Weak, Now So Is GDP
U.K. industrial production contributed to a negative monthly GDP surprise today as IP and construction were weak in July offset in the GDP framework by services whose growth kept GDP from falling in the month.

U.K. manufacturing IP fell by 1% in July after rising by 1.1% in June and by 0.4% in May. Sequentially this means U.K. IP is accelerating since its year-on-year change is -1.3%, over six months it is fairly, and over three months the annual rate of change is +2%. That’s not exactly rollicking growth, but it does count as accelerating even if IP is falling in July. However, short of some sharp reversal, the current pattern of output does not bode well for the whole of Q3 (see Q3 to Date).

In July, U.K. industrial production fell by 1.6% for consumer durable goods output, fell by 1.8% for capital goods output, and fell by 0.7% for intermediate goods. The output of consumer nondurable goods advanced by 0.3%.

Manufacturing sector sequential growth rates from 12-months to 6-months, to 3-months, show consumer durable goods output is imploding, declining at an accelerating rate over this horizon. Consumer nondurable goods and intermediate goods both are showing acceleration from12-months, to 6-months, to 3-months. Capiral goods are in no-man’s-land. Output is weak, falling in each period, but it is not a drop that steadily accelerates although, annualized, the decline over three months is faster that the annual decline over 12 months.

In contrast, industry details are far from uniform and often extremely different. Textile & leather output, motor vehicle & trailer output, and mining & quarrying all show a strong tendency to decline over most horizons. Food, beverages & tobacco, and utilities are the two sectors that are exceptions to the weakness, and both show persisting increases with the food group demonstrating output acceleration.

The quarter-to-date calculation (QTD) logs a decline for the headline (MFG output) in July, one month into the new quarter. However, consumer nondurables and materials provide some positive momentum in the unfolding quarter. Industries show increases QTD for the food group and for mining & quarrying, as utilities take a pass on expansion for both July and the QTD as well.

Riding a very weak trend U.K. net output results since COVID struck show manufacturing output net lower – over a period of four and one-half years for all of manufacturing, and all sectors except consumer nondurables. They are up by 13% over this period. That means consumer nondurables have had a steady run, expanding on average by 2.7% year-by-year. Consumer durables output has been flat, intermediate goods output has declined on average a bit faster than nondurables output has expanded. Capital goods output has declined by nearly a half percentage point per year. Overall manufacturing output has been contracting at a pace of nearly 1% per year over the last four- and one-half years.

Meanwhile sector results are widely different. The food group, textiles & leather, and the motor vehicle group have increased output over the period at a double-digit pace ranging from a full period gain of 25% for the textile group to 12.2% for the motor vehicle group. Output in the textile group has averaged over 5% per year, with the motor vehicle group averaging a compounded pace of 2.5%. Meanwhile both the mining group and utilities fell for a net drop of 41%, a compounded drop of over 10% per year.

These are shocking disparities across industries.

The unexpected weakness in early Q3 U.K. GDP could convince the Bank of England that an earlier-than-expected follow-up rate cut is warranted as U.K. inflation is running at 2.2% year-on-year against a core increase at a more stubborn 3.3%. But if the economy is really weakening, looking for more price weakness head would make sense. The next BOE meeting will tell us what the BOE fears most.
by:Robert Brusca
|in:Economy in Brief
Europe| Sep 10 2024
Core Inflation in Key EMU Members: Mostly Above Target and Not Falling
Inflation of the European Monetary Union in August rose by 0.2% compared with 0.3% gain in July and a 0.2% rise in June. The three-month inflation rate at 2.5%, however, is part of a slow progression higher that compares to a 2.2% annual rate over six months and a 2.1% annual rate over 12 months, a moderate but clear accelerating pattern.

Country level trends The four largest countries in the monetary union also are exhibiting patterns that suggest or that outright demonstrate, inflation acceleration at least based on headline measures. Germany is the largest monetary union economy and is a slight exception with a 2.2% inflation rate over three months, down from 2.5% over six months but up from 2.1% over 12 months. France demonstrates inflation rising from 2.2% over 12 months to a pace of 2.4% over six months to a strong 3.6% over three months. In Italy, inflation transitions from a low 1.3% over 12 months to a 3% pace over six months, to another strong pace of 3.7% over three months. Spain is the true exception with inflation well behaved across most of the cohorts at 2.3% over 12 months, an elevated pace but not by much, especially when compared to a 0.7% pace over six months that only ticks up to a 0.8% annual rate over three months.

Monthly results by country The inflation process among these four large countries is still somewhat mercurial as August showed declines in inflation in Germany and Italy on a month-to-month basis while Spain's inflation was flat. On the face of it, this is good news; however, July brought an increase in prices of 0.8% month-to-month in Italy, 0.5% in Germany, 0.4% in France with a moderate 0.2% gain in Spain. So whatever the three-month pace is, it's the product of some fairly erratic monthly numbers and therefore not yet something that we can consider to be very reliable.

Core inflation Core inflation is a different story. Here we get core or at least an ex-energy reading from Germany, Italy, and Spain. The August readings are contained with German ex-energy inflation up by 0.2%, Italian core inflation up by 0.1% and Spain’s core inflation up by 0.3%. These are decelerations from stronger gains in July across the board. And two of these three countries also had larger increases in June than they had in August. Looking at the progression of core inflation for Germany, the 12-month ex-energy rate is 2.5%, the six-month pace is 2.6%, and the three-month pace is 2.4%; all pretty steady stuff. Italy shows core inflation at 2.4% over six months and 12 months that moves up to 3.1% over three months. Spain shows core inflation at 2.7% over 12 months, up to 2.8% over six months and up to 4.3% over three months.

The performance of Brent oil prices explains the headline/core difference as oil prices fell over these progressively longer periods; over shorter periods oil prices have fallen faster tending to push headline inflation down faster over these short horizons contributing to the illusion of inflation deceleration. Even so, deceleration is not a pattern that is detectable in headline inflation for these countries.

The bottoms line here is that core inflation is still stuck and too high and that is too much evidence of inflation accelerating even in the face of easing oil prices for monetary policy to seek further accommodation.
by:Robert Brusca
|in:Economy in Brief
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