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| Nov 09 2022
OECD LEIs Unmatched Assessment of Widespread Weakness and Declines
The OECD leading indicators this month are painting an extremely weak and worrisome picture of the world economy spanning both developed and developing economies. The overall OECD measure declines in October and September. It declines on balance over three months, and it declines on balance over six months. The index does increase by 1.9% over 12 months. In fact, all the major aggregates on the OECD index have that same property that they increase over 12 months and decline on the other horizons. Among developed economies, Japan is the sole exception and Japan shows a flat October and a flat September; its index declines over three months and declines over six months and logs a 1.5% increase over 12 months.

The U.S., the largest of the OECD economies, logs an index decline in October and September; the index declines over three months and over six months although its three-month decline is less than its decline over six months and the U.S. index increases by 1.8% over 12 months. That is still much more weakness than it is mixed.

As a further reference I take these OECD measures and I rank them measures historically for the whole of the OECD, the level standing has been this weak or weaker 7% of the time, the top seven OECD economies have been this weak or weaker about 7% of the time. The euro area has been this weak or weaker 5.5% of the time. Japan has been this weak or weaker 54.5% of the time and is the only country above its historic median on this timeline. The U.S. has been this weak or weaker about 14% of the time.

Looking at changes in the six-month averages which is one of the preferred ways to look at the performance of the OECD data, we find declines in October and September. Over the recent six months the previous six months we find declines. For 12 months ago the six-month decline was showing increases although smaller increases than for most of the other OECD aggregate metrics.

Looking at the OECD amplitude adjusted indicators, we see four months of a steady diet of indicators for the 12 entities the table including developed economies and economic units that include both the OECD, the OECD7, and the European Monetary System all with values below 100 indicating growth is subpar in all these regions and countries. The sole exception to this is Japan. However, when we look at the ratio of the current index compared to six-months ago in Japan produces a ratio below unity which indicates a slowdown in progress along with the other readings in the table.

The queue or ranked standings of these countries and areas are applied to their levels and shows readings below the 50% mark for all countries except for Japan and Germany. France has a reading at its 45.9 percentile but after that there was no reading above its 20th percentile except for China in its 20.2 percentile. The readings are weak; the momentum is weak; weakness simply abounds, and all the OECD area is affected across its most developed economies.
by:Robert Brusca
|in:Economy in Brief
Europe| Nov 08 2022
EMU Retail Sales Make Gains in September
Retail sales in the European Monetary Area rose by 0.4% in September after being flat in August and falling by 0.2% in July. Still, it's only a one-month reprieve and the outlook doesn't necessarily look that bright in the wake of this unexpectedly strong report that substantially rides on the back of a stronger German report. Germany that carries a very high weight in the European Monetary Union had a gain in retail sales on the month of 0.9%.

Sequentially, the growth of retail sales in the euro area falls by 0.3% over 12 months that transitions to a 2.1% decline over six months but then sales log a gain at a 1.1% an annual rate over three months.

Separately, motor vehicle sales rose by 2.1% in September after rising by an outsized, 19.2%, in August. Motor vehicle sales experienced explosive acceleration logging a 10.7% growth rate over 12 months, a 71.8% annual rate gain over six months and a 112.5% annual rate gain over three months. Computer chips are becoming available again and cars are being produced and sold. That's a major factor in boosting motor vehicle sales in the euro area area as well as in the United States and elsewhere.

Q3 sales data are complete This retail sales report marks the completion of retail sales in the third quarter. According to data statistics for this report are therefore completed third quarter statistics on a preliminary basis. Eurozone retail trade falls at a 2.9% annual rate in the third quarter with motor vehicle registrations up at about a 100% annual rate. In the quarter-to-date of the 6 early reporting European monetary union countries (Germany, Italy, Spain, Portugal, the Netherlands, and Belgium), there are quarter-to-date gains in sales for three of them. Italian sales are up at a 4.9% annual rate in the quarter-to-date, in Portugal sales are up at a 1.3% annual rate, and in Belgium they're up at a 0.8% annual rate. These gains contrast to a 4.2% annual rate decline in Germany, a 7.3% annual decline in Spain, and a 6.3% annual rate decline in the Netherlands.

The table also includes quarter-to-date sales for Denmark, an EU member, Sweden, Norway and the United Kingdom. Danish quarter-to-date sales are falling at a 5.3% annual rate, Sweden lags a nearly 17% annual rate fall, in Norway sales fall at a 7.7% annual rate. In the U.K., sales volumes fall at a 7.3% annual rate. Not only does the EMU headline show quarter-to-date decline, but the preponderance of retail sales data across European Monetary Union and non-monetary union members show sales falling in the quarter-to-date.

Lumping all the sales together, across the ten countries reporting in the table, finds only three show gains over 12 months; those three are EMU members Italy, Spain, and Portugal with Spain logging an increase of only 0.1%. Over six months there are increases in only 3 countries: Italy, Spain, and Belgium – all EMU members. Over three months there are gains in five of the ten reporting countries with one country Germany showing unchanged real sales over three months.

Sales since Covid came to town Looking at the gain in sales in the EMU since January 2020, before the COVID virus struck, sales have risen by 4.2% over that 33-month period. Despite recent strength, motor vehicle sales are still 15.2% lower than they were in January 2020. Sales growth has not been very strong in Europe, rising quickly after the drop-off during the Covid recession, then slowing abruptly.

Sales in Italy are up 6.7% over this period; in Belgium they are up 5.4%; in Norway sales gain 4.4%; in Germany sales rise by 3.5%; in the Netherlands sales are higher by 2.3%. Then Portugal, Denmark and Sweden show gains less than 2% each, while Spain and the U.K. log sales totals lower on balance over that period.

Retailing may be a bright spot this month. But it does not have good momentum or good fundamentals. With the energy picture in Europe so uncertain and with the ECB still fighting a too-high inflation and hiking rates, September could prove to be a Pyrrhic victory for good news on the retail sales front.
by:Robert Brusca
|in:Economy in Brief
Germany| Nov 07 2022
German IP Rises by 0.6% in September; Enjoy It While It Lasts
German industrial output rose by 0.6% in September, led by a 1.4% gain in consumer goods output and a 1.1% rise in capital goods output as intermediate goods output slipped by 0.1% month-to-month. Conditions in manufacturing remain 'in flux.'

The trends for overall German industrial output are mixed with output up at a 2.5% annual rate over 12 months, rising to a 3.1% pace over six months then falling to a decline at a 2.4% annual rate over three months.

Trends for output remain mixed— but there is a lot of weakness mixed in The two sectors, consumer goods and capital goods, do not clarify trends, as consumer goods output rises by 0.5% over 12 months, falls at a 4% pace over six months and rises at a 3.6% rate over three months. Capital goods output rises at 11.8% annual rate over 12 months and at a 21.7% annual rate over six months then slips to grow at a 6.7% pace over three months. But capital goods output is increasing over each of the three horizons.

By comparison, intermediate goods output does show a clear trend and the trend is for deceleration and shrinkage. Intermediate goods output falls by 2.3% over 12 months, falls at a 3.9% annual rate over six months and then falls at 11.7% annual rate over three months.

The output of the construction sector in Germany shows a 0.8% rise in September after two months of drops. The sector shows declines with a -0.7% rate over 12 months, a step back pace of -9.7% over six months and then a less aggressive fall but still a substantial fall at a -7.8% annual rate over three months. Clearly the construction sector isn't doing well although it does not have a clear sequential trend. The absence of sequential deterioration is different from the absence of ongoing. Deterioration — there is ongoing deterioration; it's just not persistently worsening.

Manufacturing showed an increase in output of 0.8% in September after two months of declines. Manufacturing output is up by 4.2% over 12 months; that accelerates to a 6.7% rise over six months then deteriorates to a 1.2% annual rate of decline over three months. The path for manufacturing, like its components, remains unclear.

Real orders are real weak Real manufacturing orders, however, do trace out a clear path and it's not encouraging. Orders fall at a 10.7% annual rate over 12 months, fall at a 12.7% annual rate over six months and then the decline accelerates to 17.6% over three months. Real orders also have contracted for two straight months.

Sales are a mixed bag but more positive Real sales rose by 0.2% in September after rising by 1.2% in August. Still, sales trends remain murky with a 7.4% increase over 12 months, a 12.3% gain over six months and a decline at a -2.3% annual rate over three months.

Indicators are weak... period Other indicators about industrial performance in Germany paint a clear picture of deteriorating trends. All four indicators, the ZEW current reading, the IFO manufacturing index, the IFO manufacturing expectations index, and the EU Commission industrial index show German deterioration on averaged metrics over 12 months to six months to three months. On monthly data, the two IFO measures show a minor increase month-to-month in August compared to July before falling to levels in September even below their, respective, July levels by clear margins.

**All the German metrics in the table are weaker than their January 2020 levels before Covid struck except for the EU Commission reading - that one is higher. ** Quarter-to-date data: the completed third quarter Quarter-to-date data (which are now for the completed third quarter) show mixed readings with clear consistent reading of weakness from the indicators. Real orders are weaker in the QTD period. Overall output and manufacturing output are stronger along with real sales. For industrial output by sector, there are declines in consumer and intermediate goods offset by a strong increase in capital goods output. There is sharp weakness in construction in the quarter.
by:Robert Brusca
|in:Economy in Brief
Europe| Nov 04 2022
EMU PPI Pressures Intensify Except for Intermediate Goods
The PPI inflation backed off its obvious blow-out gain of 5.1% in August to score an increase of 1.3% in September – still sizeable. The headline PPI (PPI excluding construction) is up by 42% over 12 months, up at a 33% annualized pace over six months and up at pace of 48% annualized over three months. Only Italy, Austria, Luxembourg, and Belgium have a lower year-on-year inflation rate in September than in August.

Goods news... Capital goods and consumer goods prices post strong annualized gains over 12 months, six months, and three months, with both sectors showing a small let up over three months. It's not enough of a step-down to call it a real change in trend. But for intermediate goods the 12-month gain of 19% dwindles to an annual rate of 13% over six months, then plunges to an annual rate gain of 1.1% over three months. That's good news.

Manufacturing goods prices also show a step down from 17% to 10% to -1.4% at annual rates from 12-months to six-months to three-months -more good news there.

Bad news... But core EMU prices (prices excluding tobacco, alcohol, food, and energy) show steady annual rate acceleration from 5.7%, over 12 months to 6.7% over six months, to 7.9% over three months. And that is not good news - in the face of the other trends - it's particularly bad news.

Lower energy prices are no panacea That's a complication. Clearly energy prices have broken lower. Brent oil prices are up by 20% over 12 months but falling at an annual rate of -36% over six months and by -65.5% over three months. This is a major factor behind the de-escalation of intermediate goods inflation, but that has not spread so much to other sectors yet and as of yet, not a factor in the core at all.
by:Robert Brusca
|in:Economy in Brief
China| Nov 03 2022
China PMI Readings Are Mixed in October; The Message Is Not
Both manufacturing and services PMIs trend lower after a hiccup of growth China's manufacturing and services PMIs are split in October. Manufacturing is improving and services eroding. The movements on the month are small. The composite weakens on the month.

The table below shows slightly different trends from manufacturing and services, but both series are flat from 12-months to 6-months to 3-months based on their averages. And the bottom line is that the queue ranking of the two series puts both in their 14th percentile - quite weak overall.

Manufacturing strengthens a little bit over six months before weakening over three months where the index falls below its 12-month average. For services, the 12-month average at 49.1 gives way to a six-month average of 50.7, strengthening over six months, as the manufacturing index did. But then the services index strengthens again to gain over three months with the three-month average ticking up to 50.9 from 50.7, demonstrating sector expansion. The composite index moves up from 48.9 over 12 months to 50.2 over six months then falls back to 49.9 over three months, signaling overall economic contraction.
by:Robert Brusca
|in:Economy in Brief
Denmark| Nov 02 2022
Denmark's manufacturing Is Slowing Despite a Monthly Gain
Denmark's manufacturing purchasing managers index (from the Danish Purchasing and Logistics Forum) has risen to 52.1 in October from 49.6 in September. This ends a three-month streak of the index being below 50 indicating a contraction in the sector. And it's coming off a period of extremely high readings - readings as high as of 70 back in June 2022 and readings of over 60 from March through May before that.

In October, there was an increase in the headline PMI, an increase in new orders, and an increase in production which we tend to view as the most important readings for the index. However, they are not the totality of the index. Weaker on the month was the employment reading, delivery speeds slowed, purchased inventories weakened, purchase prices weakened, the quantity of purchases weakened, and inventories of finished goods also weakened. Out of 8 components only 2 strengthened.

Looking at momentum, the month's increase in October has tended to put a more positive spin on trend. The three-month change in the Danish manufacturing PMI index is positive; in fact, the three-month change is higher for all the components as well, except for the prices of purchased goods. This is less because of the gain in October and more because the three-month comparison is off a base in July that showed exceptional and not-representational weakness. Over six months conditions are slightly more mixed. The headline is still stronger, orders and production are stronger; in fact, most of the components are stronger, except for a weakening of employment and for purchase of inputs and for the prices of purchased inputs. The 12-month change shows lower readings everywhere: the headline is lower, and all the components are lower.

Over the last 12 months the headline has an average rating of 57.7 which is stronger than the October reading of 52.1. Most of the components have readings above 50 for their 12-month averages indicating expansion. The exceptions are inventories of purchased inputs and the inventories of finished goods. Both of those inventory figures are below a diffusion value of 50 indicating that on balanced there has been ongoing contraction for inventories. Both inventory measures are decreasing, firms are holding smaller volumes of finished goods and as a result they're also holding smaller volumes of purchased inputs. However, the quantity of purchases has been holding up with the 12-month reading average of 58.7 although that metric takes a beating this month as it falls to 26.2.

While the manufacturing sector shows that there has been expansion and expansion in most of the categories over 12 months on average, in October we see some significant weakening compared to the average. The quantity of purchases, in fact, has the weakest reading with the diffusion value of 26.2 in October; the next weakest reading is delivery speeds indicating that firms can fill orders extremely quickly, hinting at some spare capacity. Inputs of inventory are at 49.9 in October, stronger than the inventories of finished goods which are at a reading of 41.5. While we found that there were increases across most components on the month, a closer look at this finds the new orders reading only at 51.0, barely showing expansion after weak readings showed contraction in the earlier three months.

The Danish data are confusing since we see some important topical weakness in October and yet we see broad improvements over the last three months. The reasons it's broad improvements over the last three months is that four months ago in June there was an extremely strong diffusion reading for the headline at 70 and corresponding strong readings up and down the line for the components. Still, the base for the three-month comparison is distorted sapping these gains of their meaning

Moreover, when we look at the current readings compared to values of 12 months ago, we find declines up and down the line with the exceptions ironically only for the two inventory measures. Over 12 months the manufacturing PMI itself is lower by some 19 diffusion points, new orders are lower by some 25 diffusion points, delivery speeds are lower by 50 diffusion points, and the quantity of inputs purchased is lower by nearly 48 diffusion points.

Ranking the Danish PMIs in October The ranking of the October data on values back to the year 2000, a better than 20-year frame of comparison, gives us a headline PMI with a 28.8 percentile standing which places that well below its historic median. The median for the ranking statistics always occurs at a ranking of 50. Values above 50 are above their median and values below 50 are below their median. For Danish manufacturing, our values are below their median except for inventories of inputs which have a 73-percentile standing. After that, the next strongest reading is for the prices of purchases, which have a 43.4 percentile standing still, below their median. The weakest reading in October over this 20 plus year period is for the quantity of purchases with a 1.1 percentile standing. These data clearly began to look like Danish manufacturers are starting to batten down the hatches and prepare for demand slowdown. The quantity of purchases is extremely weak, and their delivery speeds are extremely fast with a 5.8% standing; low readings on delivery speeds mean that delivery speeds are fast- slow readings and delivery speeds indicate more heated economic activity. In this case, no lags have crept into the process. New orders have only a 21.2 percentile standing, and employment has only a 25.5 percentile standing.
by:Robert Brusca
|in:Economy in Brief
Global| Nov 01 2022
Manufacturing PMIs for October Worsen As Central Bankers Face a Dilemma
In October, the manufacturing readings worsen in 16 of the 18 reporting countries/regions. However, of 18 countries and regions reporting in the table, only eight show manufacturing PMI values above 50 indicating that their respective manufacturing sectors are still expanding.

The countries that show manufacturing expanding in October according to the S&P manufacturing PMIs are India, the United States, Brazil, Indonesia, Vietnam, Japan, Russia, and Mexico. Taiwan has the weakest manufacturing reading in the table in October at 41.5, Germany’s reading is 45.7, Turkey registers 46.4, and the European Monetary Union comes in at 46.6. Those best-worst comparisons show the economic performances mixed between the largest and the smallest economies as of October; however, nothing is particularly strong. The strongest reading in the table is India at 55.3 and after that Indonesia at 51.8. These are not impressive numbers.

The sequential comparisons show that over three months there are only three countries that are improved over three months compared to their six-month averages; over six months there are only four countries that are improved compared to their 12-month averages; over 12 months there are seven countries that are improved compared to their 12-month averages from 12-months ago. The breadth of improvement is on the decline from 12 months to six-months to three-months that's clear. Over three months the countries that report improvement are Russia, India, and Indonesia. Over six months the countries that report improvement are Mexico, Russia, India, and Brazil. Over 12 months the countries that register improvement are Japan, China, Russia, India, Indonesia, Malaysia, and Vietnam. Given the sanctions imposed on Russia, and other anecdotal evidence, the Russian PMI reports for manufacturing are suspect….

The percentile standing data on the far right of the table show that there are only three countries that have readings this month that are above their historic medians calculated over the last 4 ½ years; those three countries are Mexico, Russia, and Indonesia. Taiwan is showing the weakest reading of this period. France’s reading is a bottom 6% and it is joined by Canada, the U.K., the U.S., and the euro area as countries or economic units that have standings in the lower 10 percentile of their historic ranges. The median standing for the full queue rankings in October is a 20.8 percentile standing, an extremely weak figure for the median.
by:Robert Brusca
|in:Economy in Brief
Global| Oct 31 2022
Europe Slows As Inflation Cooks Hotter Than Ever
Growth in the European Monetary Union in the third quarter gained 0.7% at an annual rate quarter-to-quarter. This is a sharp deceleration from the 3.3% annualized growth rate in the second quarter as well as from the 2.4% annualized growth rate in the first quarter. Growth year-over-year has now decelerated to 2.1% in the third quarter compared to a 4.3% growth rate in the second quarter.

Inflation rises Not only is growth slowing but the inflation rate has risen. Inflation in October has risen to a 10.7% annual rate, its highest increase year-over-year in this cycle. Despite the slowing in GDP, there is no break on the inflation side. Over six months inflation escalates further to an 11.1% annual rate and over three months inflation cooks at a 13% annualized rate. The inflation situation remains intense while growth is slowing.

Among members growth mostly decelerates in the quarter Only a handful of countries' specific GDP numbers are available for the third quarter. In France, GDP is up at a 0.6% annual rate, slowing from a 2% pace in the second quarter. Germany's growth accelerated to 1.1% quarter-over-quarter pace, compared to 0.4% in the second quarter. Italian growth slows to 2% annual rate in the third quarter from 4.4% in the second quarter. Growth in Portugal is up to 1.6% annual rate compared to 0.4% in the second quarter, and finally Spain grows at a 1% annual rate in the second quarter, a sharp shift from the 6% annual rate in the second quarter.

Large EMU economies do better The four largest economies in the European Monetary Union have growth at 1.1% in the third quarter compared to 2.4% in the second quarter. For the rest of the euro area, growth in Q3 declines by 0.3% at an annual rate in Q3 compared to gaining 5.9% at an annual rate in the second quarter.

Large vs. Small EMU economies Year-over-year growth rates are slower across the European Monetary Union; for the four largest economies the growth rate averages 1.7% in the third quarter compared to 3.7% in the second quarter. For the rest of the EMU, a third quarter rate of 3.2% year-over-year compares to 5.8% in the second quarter. Both the largest and the smallest economies show a downshifting and growth of two percentage points or more based on the year-over-year growth rates. Year-on-year growth rates favor the smaller economics that are nonetheless weaker in the current quarter.

Growth slows broadly across countries Growth slows in the third quarter for each of the five economies that separately report data as well as for the European Monetary Union measure based on 19 countries. However, each country has its own tendency to grow; the table evaluates the growth rate for each of these units compared to its historic tendency. The European Monetary Union's growth ranking for the year-over-year rate for the third quarter is in its 64th percentile. For the four largest economies, the growth rate is in the 60th percentile. Portugal's growth has a 93.5% standing while Italy's growth has an 85.9 percentile standing. Growth in Spain has a 75-percentile standing. However, Germany has only a 40.2 percentile standing, and France has only a 29.3 percentile standing.

U.S. trends are different During the same time, U.S. growth has a 35.2 percentile standing on a year-over-year growth rate of 1.8% that is essentially unchanged from its second quarter pace and for a third quarter growth rate of 2.6% that accelerates from a -0.6% rate in the second quarter. Comparing the U.S. to Europe, it's clear that there are very different things going on in Europe compared to the U.S. although both economic units are showing elevated and difficult inflation outcomes.
by:Robert Brusca
|in:Economy in Brief
Europe| Oct 28 2022
EMU PPI 3-Month Back Off Still Large 12-Month Gains
Among the 11 early reporters of the PPI (or in the case of Austria, the wholesale price index), the median increase in September was a rise of 0.2%. This is a downshift from the 3.6% increase in August but an improvement from the 0.2% decline in July. Europe is clearly in a period where prices are somewhat volatile in the wake of some energy price and commodity price instability.

However, the overall median for 12-months, 6-month, and 3-month price changes for the PPI excluding construction among EMU members shows a deceleration in the pace from 35.6% over 12 months to 25.6% over six months to 20.8% over three months. This is some significant deceleration; however, the pace of inflation is still tremendously high.

The results in the table are for September 2022. They show an increase of 35.6%. One year ago, the year-on-year increase was 17.4%. The year before that, the 12-month period ended September 2020 had the year-over-year PPI median fall by 3.2 percentage points.

The PPI is most volatile of the 'major' inflation statistics because it's weighted toward commodities and oil, goods that have been bearing the brunt of the inflation process recently. In the table, Ireland shows some of the most outrageous increases for the PPI over three months, six months, and 12 months. Setting its wild numbers aside, Germany has the highest percent gain over three months at 84.6%. Over six months, again, Germany posts the largest gain at 53.5%. But over 12 months the largest annual gain is from Italy at 53.2%, followed by Belgium at 49.5%, and then Germany at 46.9%. On the same profile, the weakest increase over three months is from Austria at -8.9%; over six months there's a decline of 6.1% in Greece; over 12 months there's much more clustering but the weakest gain is from Austria at 20.6% followed by Portugal at 21.6% and Finland at 24.6%.

The PPI for 12-months ago - its 12-month increase for the period ended in September 2021 - shows a median gain of 17.4%. However, clustered around that median gain, the lowest increase in the table is France at 11.9%, stepping up to Germany at 13.4% and Portugal at 15.5%. At the top end, the biggest gainers are Ireland's 82%, a 25.6% increase in Belgium and a 23.9% increase in Spain.

Inflation shows some significant variability but clearly the pace has been high and one of the key reasons has been oil prices.

We have two early observations on a PPI excluding energy; one comes from Germany and the other is the number from the U.K. (which is no longer an EU member). The U.K. number is a core number excluding food, tobacco, beverages, and petrol. Both the German and the U.K. figures increase by 0.5% in September and by 0.4% in August. They diverge in July with a 0.4% increase in Germany and a 1.3% increase in the U.K. Sequential data show a tendency for the ex-energy or core inflation rates to abate but the progression is not absolute. In Germany and the ex-energy pace for inflation goes from 13.8% over 12 months up to a pace of 15% over six months then down sharply with a 3.8% pace over three months. In the U.K., the core rate goes from a 16.4% increase over 12 months up to 18.9% pace over six months and then down to a pace of 12.2% over three months. In both cases, the three-month pace is sharply lower than either the six-month or the 12-month pace.

The ex-energy or core inflation reported by Germany and the U.K. show an annual rate pace that hovers around the 15% area more or less and that is considerably better than the median, 35.6% annual rate, for all the countries in September.
by:Robert Brusca
|in:Economy in Brief
Italy| Oct 27 2022
Italian Confidence Levels Continue to Sink
Italian consumer confidence sank in October to 90.1 from 94.8 in September. The index has been engaged in a sinking trend since it peaked early in the recovery from the COVID crisis. The peak for the index was experienced in October 2021, the first month of data where observations became available for this survey after COVID struck and resulted in a one-month suspension of the survey in September 2021.

Consumer confidence is lowered by 8.3% over three months and by 23.9% over 12 months. The mean for confidence is at level 102 whereas the October value at 90.1 is substantially below this marker. The distribution of observations for confidence is such that the 90.1 level for the October index is at its 5.9 percentile ranking, which means confidence has been weaker than this less than 6% of the time on data back to 1997.

The evaluation of the overall situation (over the last 12 months) deteriorated sharply in October, falling to -138 from a -122 value in September. There's a sharp deterioration from August. The overall situation has fallen by 15 points over three months and 94 points over 12 months. The standing for the overall situation, a reading that applies to the last 12 months, is also in its lower 6 percentile.

The situation expected over the next 12 months improved in October. It rises to a reading of -13 from -19 in September and compares to a much weaker -22 level in July. The index is 44 points lower than it was 12-months ago but nine points higher than it was three months ago. The reading sits in the 29th percentile of its historic queue of data, telling us that it's been weaker less than 30% since May 1997.

Looking ahead to unemployment over the next 12 months, there's a slight deterioration to a reading of 20 and by that, I mean that the expectation for unemployment has risen; it's risen to +20 in October from +19 in September; it was at a level of 10 in July. Unemployment expectations are up by 10 points over three months and up by 26 points over 12 months. Unemployment expectations have been higher than this only 13% of the time since 1997. Concerns over unemployment clearly have risen and are now a palpable for the Italian worker.

The household budget for 12-months ahead show deterioration to +11 in October from +14 in September and it stands lower than it's been over the last four months; the budget assessment is down by 5 points over three months and down by 15 points over 12 months. Its standing is at its 52.5 percentile, which leaves it slightly above its historic median (it is also above its mean). This is one of the few readings the table that is not extreme.

The household financial situation over the last 12 months has a -55 reading in October, down sharply from -41 in September, and clearly the weakest reading in the last four months and below its historic mean which sits at a -36 level. The household financial situation over the previous 12 months has been evaluated as weaker than this only 11% of the time. However, it's the financial situation looking over the next 12 months that is most worrisome. It has fallen to a level of -41 in October compared to -36 in September and has the weakest reading over the last four months; it's fallen by 5 points over three months and fallen by 42 points over 12 months. The October reading now sits at the lowest level that it has experienced since May 1997. Concerns by Italians over their household financial situation have never been more extreme.

The environment for household savings improved for the current period. However, the reading for the future deteriorated. The assessment of the current period is 7 points higher over 12 months while the future expectation is weaker by 5 points over 12 months. The current assessment has a 92.8 percentile standing, which is extremely high, although future assessment has a 66.9 percentile standing, that is a top two-thirds standing which is moderately firm.

The assessment of the time being right to make a major purchase currently fell to -52 in October from -42 on September. This response is 13 points lower over three months and 41 points lower over 12 months. It has a 6.6% standing on data since May 1997. Consumers are obviously concerned about making major purchases and about unemployment, and these are major reasons while consumer confidence overall is so weak.

The business confidence index also deteriorated in October, falling to 100.4 from September’s 101.2. The current reading for October is the lowest over the last four months and it's fallen by 5.3% over three months and by 12.5% over 12 months. The business index has a 32-percentile standing, placing it the lower one-third of its historic queue of values.
by:Robert Brusca
|in:Economy in Brief
France| Oct 26 2022
French Confidence Hovers in Weak Territory
French consumer confidence rebounded in October to 81.9 from a reading of 79.5 in September. The 81.9 level is close to the August level of 82.2 and this reading has been fluctuating in a range of 82 to 79 for the past five months. Today's reading is not a surprise; it's not news; the month-to-month fluctuation is not significant. It's simply an indication that confidence remains in this very low habitat where it's been in the aftermath of the Fed beginning to raise rates aggressively in March and the start of the Russia-Ukraine war in February.

Living standards over the last 12 months in France posted a -79 reading, the same as in September, among the weaker readings over the last five months. The outlook for living standards over the next 12 months has a -64 reading that stacks up as one of the stronger readings over the last five months but not by a lot.

Expected unemployment over the next 12 months has a +23 reading the same as in September. These two numbers are significant steps up from what they had been from June to August. Price developments show prices over the last 12 months with the reading of 61 which is in the middle of where they've been for the last five months. The reading over the next 12 months is flat that leaves it hovering and just slightly weaker territory than it's been for most of the last five months.

The assessment of whether it's a favorable time for savings declined month-to-month to a reading of 26 in October from 31 in September, but these generally reflect stronger readings than for the previous three months. The ability to save over the next 12 months has a -5 reading, the same as in September and these represent deteriorated readings over the last five months.

Responses to the survey question 'is it a favorable time to make a major purchase' log a -37 reading in October which is roughly where it's been over the last five months - not much change.

Households assessed their financial situation over the last 12 months as a -29 reading, a slight improvement from where it had been in the previous four months. The assessment for the next 12 months has a -23 reading which is only slightly improved from its habitat over the last five months.

Where these readings ranking In terms of the rankings for these various responses, the household confidence index has a 3.1 percentile ranking (standing) which is extremely weak although it's only in the same territory that it's been over the last five months or so. This is a lower 3% of habitat reading among all readings since 2001 and that's a period of nearly 22 years. Living standards both past and expected for the next/pervious 12 months also have extremely weak readings in their lower 3 percentile. Unemployment expectations stand higher in their 34th percentile; workers are beginning to get a little concerned over the outlook for unemployment. Price developments show that prices over the past 12 months as well as over the next 12 months have a 95 to 97 percentile standing compared to historic expectations. Inflation has been and is expected to remain high. The favorability of the environment to save is good with an 81.2 percentile standing. However, the ability to save over the next 12 months is more moderate with the roughly 60th percentile standing. The favorability of making a major purchase is a lower three percentile standing in the same weak relative habitat as the household confidence and living standard standings. The financial situation over the last 12 months is assessed at a 21-percentile standing. But looking to the next 12 months conditions are expected to worsen with only a 7-percentile standing. Clearly these are challenging times for French households and are recognized as such.

Pre-COVID comparisons are disappointing The transition of these current readings compared to the pre-COVID. Show a great deal of weakness the household confidence index is weaker by 23 points, living standards are weaker by over 40 points, the ability to save is weaker by four points, the spending environment is weaker by 27 points, the financial situation both current and next are between 15 to 20 points weaker. The things that are stronger are not improvements they include is the expectation for unemployment that is 25 points higher and the readings on price developments over the past 12 months that are 95 points higher and for the next 12 months that are 23 points higher. However, the favorability of the environment for saving also shows improvement compared to the pre-COVID; that reading is 20 points higher.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Oct 25 2022
U.K. CBI Orders Erode in October
U.K. survey gives a mixed view of short-term industrial trends The U.K. survey from the Confederation of British Industry (CBI) on industrial data shows total orders at a -4 reading in October compared to a -2 reading in September and -7 in August. Despite this waffling short-term progression, strength in orders has been slipping more broadly with a 12-month average at +14, a six-month average at +7 and a three-month average at -4. The October orders reading itself has a queue standing on data from 2015 at its 41st percentile, below its median (the median resides at a level of 50th percentile). However, on longer-dated data back to 1991, the queue standing for the orders variable is substantially stronger at its 70.6 percentile, well above its median. The U.K. economy has been relatively stronger since 2015 accounting for the lower standing of the October reading over this more recent period. Evaluated over the longer time series of data, the current reading is less troubling and relatively firm compared to the short-dated observations. These differing baselines make it more difficult to evaluate the U.K. readings with confidence.

The U.K. situation However, none of these observations mask the fact that the U.K. economy is weakening and that it faces turmoil in its financial markets, weakness for the pound sterling, and political difficulties, having just placed its third Prime Minister in office this year. Inflation in the U.K. remains high although it shows signs of having peaked and, perhaps, it is ready to move lower. But current inflation in the U.K. is too high and the task ahead for the Bank of England is made more difficult by the fact that the economy has weakened.

The rest of the current survey The CBI survey shows weak export orders at a -14 reading in October from -8 in September and -12 in August. This series has an average of -4 over 12 months as well as over six months that deteriorates to an average of -11 over three months. The order series for exports has a queue standing in its 37th percentile on data back to 2015 but improves to a 55.4 percentile standing on data back to 1991. One reading has a weak standing; the other is moderate

Stocks of finished goods have an October reading a +7 compared to +6 in September and +2 in August. The 12-month average is -7, rising to -1 over 6 months and to +5 over three months. Inventory levels are showing some signs of having been rebuilt. With orders fading, this may not be a desired trend.

The outlook Looking ahead, the U.K. output volume reading for the next three months has improved to +7 in October from -17 in September and -2 in August. However, looking back at the time series, the average over 12 months is 16, the average over six months is +6 and the average over three months is -4. The sequential averages show that there's a deterioration in the outlook for output volume three-months ahead even though the October monthly figure itself shows a strong turnaround from a very weak reading in September. We know enough about the U.K. economy, and its difficulties to be somewhat skeptical about the notion that there has been a sharp turnaround in the output volume outlook.

One of the reasons that the output outlook for the U.K. economy remains difficult and strained is because of inflation. In October the outlook for prices three-months ahead fell to 46 from 59; the August reading had been 57. The 12-month average for the outlook for prices three-months ahead is 64 following a reading of 57 over six months and 54 over three months. There is a monthly progression showing pressure is coming off prices and a sequential average progression that reinforces that trend. That's good news; however, the price level numbers are still extremely strong. The price reading for October- despite its decline- still has an 83.3 percentile standing on data since 2015 and a 96.6 percentile standing on data from 1991. That's the inflation part of the outlook. Output volume over the next three months has only a 33.3 percentile standing compared to data since 2015 and only a 40.8% standing compared to data since 1991. Either way the look-ahead for output volume is below its median despite the fact that that series has improved in October. Inflation improvement is too small to be construed as good news yet.

Industrial output readings lag but tell a clear story At the bottom of the table, we include the summary data for U.K. manufacturing output. The most up-to-date reading for that is in August and it shows a 1.6% drop month-to-month. The three-month change in output shows a 13.2% drop at an annual rate, the six-month change shows an 8.1% drop at an annual rate, the 12-month result shows a 6.7% drop. These progressive growth rates show how industrial output has been declining more rapidly over recent periods. And the ranking of the IP data over either period is unambiguously weak in the lower 2.7% of its queue on either timeline. However, the output data themselves from the industrial production indicator are only up to date through August. The CBI survey is up to date through October. But it is unlikely that those trends have turned around in any significant way because of the clear forces have been battering the economy and because of the impact on financial markets.
by:Robert Brusca
|in:Economy in Brief