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

Netherlands| Oct 10 2022
Dutch IP Steadies Its Pace of Growth
Dutch industrial production fell by 2.7% excluding construction in August. It logged a gain of 0.9% in July and another of 1.7% in June. Utilities output fell by 5.8% in August after falling 4.3% in July and 4% in June - there is a much longer broad string of weakness here related to Europe’s energy problems. The weakness in utilities casts a pall over performance of the rest of the economy as well as prospects for the manufacturing sector and other sectors looking ahead. What can you do without energy? Go Green go…fight green, fight…win green… win? And now the pipeline is kaput, too.

Mining & quarrying activities saw output fall by 5% month-to-month in August after gaining 8.5% in July and falling 6% in June.

Manufacturing output fell by 2.2% in August after gains of 1% in July, and 2.6% in June. The manufacturing PMI changes for the Netherlands have seen declines in August, in July, and in June, in terms of their month-to-month changes- the level readings are still very high with the manufacturing reading still at 65.7 in August even after a series of monthly drops.

Sequential growth rates for output Sequential growth rates for industrial production in the Netherlands show some recent weakness over three months, but there is not a clear pattern of ongoing deceleration. For example, for overall industrial production excluding construction output falls at a 1.2% annual rate over three months but it gains at 6.1% pace at an annual rate over six months and that's an acceleration from a 5% pace over 12 months. Utilities output continues the dismal trend we see in the monthly data with output falling at a 27.1% annual rate over 12 months, at a 36.7% annual rate over six months, and at a 44% annual rate over three months. Mining & quarrying also show a descent into weakness with an 8.4% gain over 12 months giving way to a 6.1% annual rate of decline over six months and an 11.8% rate of decline over three months.

Manufacturing gets back to a more ambivalent trend with output up by 9.2% over 12 months, then accelerates to a 13.1% annual rate over six months, before decelerating to a 5.5% annual rate over three months. The sector ‘food & beverages’ shows declines on all three horizons and clearly demonstrates deceleration. Textiles, on the other hand, show ambivalent trends with acceleration over six months spoiling a deceleration trend. Transportation equipment output shows a clear deceleration with output down 26.7% over 12 months, falling at a 62% annual rate over six months and then falling at a nearly 80% annual rate over three months.

The manufacturing PMI Still, over the sequential period, the manufacturing PMI average for the Netherlands is higher over three months than over six months (barely even comparing averages) and higher over six months than over 12 months and higher over 12 months than it was 12-months ago. The PMI data which address breadth are showing improvement in breadth over these periods even though the strength has encountered a string of monthly weakness.

Growth after Covid Growth in the Netherlands has not been particularly robust in the post COVID era. From January 2020 before the Covid virus hit, the headline series for industrial production is unchanged. Manufacturing, however, is up by 4.2% over that period, a span of a year and one-half. Utilities output falls by 23% compared to that benchmark while mining & quarrying activity falls by 15.7% from that benchmark. Manufacturing output is higher on balance, the food & beverage sector is lower by 7.8%, textile output is lower by 2.6%, and transportation equipment output is lower by 42.8%.

Quarter-to-date growth In the quarter-to-date, the headline series maintain their momentum. Industrial production excluding construction is up at a 4.3% annual rate in the third quarter-to-date. Manufacturing output is up at 10.8% annual rate in the quarter-to-date. Textile output still strong showing a strong gain at a 15.6% annual rate; however, there is a severe negative downdraft in the transportation sector and from utilities.

Ranking Dutch IP growth rates and sector growth Ranking the various industrial production components based on their annual growth rates since 2017 put the overall IP growth rate in the top 10% of all annual growth rates seen on that period at a 90.7 percentile standing. Despite recent setbacks, mining & quarrying is also strong with a 96-percentile standing. Manufacturing has a 90.7-percentile standing. And the growth of output from textiles over the last 12-months has a 72.2-percentile standing, still a firm reading. But for the remaining sectors, there is no halfway about it. Utilities output shows the weakest year-over-year percent change on this entire timeline. The output in the food & beverage industry has been lower only about 7 1/2% of the time. The year-over-year output change for transportation equipment has been weaker only 3.7% of the time. However, as an overall measure of manufacturing, the manufacturing PMI continues to be a very strong signal logging a level at its 90.7 percentile on data back to 2001.
by:Robert Brusca
|in:Economy in Brief
Germany| Oct 07 2022
German IP Turns Lower in August
German industrial production in August fell by 0.8% as consumer goods output increased by 1.8%, capital goods output increased by 1.2%, but intermediate goods output fell by 2.4% month-to-month. In July output had been flat with output declines of 2.2% for consumer goods, 0.1% for capital goods and 0.5% for intermediate goods.

Sequential growth rates for German output do not reveal a clear sequential trend, but the path clearly is weak. Over 12 months output is up by 2.5%; over six months it's falling at a 5.7% annual rate. However, over three months output is rising but only at a 0.4% annual rate – rise that breaks the declining trend but still a weak rise.

Sector trends sequentially Sequentially consumer goods output falls by 0.1% over 12 months, falls at a 7.7% annual rate over six months then gains at a 0.4% annual rate over three months. Capital goods output fares much better with a 10.4% gain over 12 months, a 2.4% annual rate increase over six months and with a strong acceleration of 14.1% annualized over three months. Intermediate goods output shows clear weakness. It is declining by 2.2% over 12 months, which deteriorates to a decline at an annual rate of 9.8% over six months and that decline barely improves to an 8.8% annualized decline over three months. Intermediate goods output clearly is holding back output trends while capital goods is a sector trying to push things into the growth column.

Construction trends in Germany show deterioration with the decline of 2.4% for output in August, a decline of 0.9% in July and flat performance in June. Construction sequential growth rates show clear deterioration with growth of only 1.1% over 12 months, declining at an 11.7% annual rate over six months then declining faster at a 12.5% annual rate over three months.

Manufacturing output, demand, and orders Output in manufacturing shows the same mixed trend as the headline but with a little bit more lift over three months; the growth rate of 3% compares to a growth rate of 3.6% over 12 months. However, real manufacturing orders that fell in August by 2.4% continue to show slippage with a decline of 4% over 12 months, a decline of 14.1% at an annual rate over six months and a decline that is trimmed to a 3.4% annual rate over three months. Real sales in manufacturing are a relative bright spot increasing in August by 1% and increasing in two of the last three months, generally. Sequentially, real manufacturing sales are up by 7.6% over 12 months, up by 0.4% at an annual rate over six months but then accelerate to a 9.7% growth rate over three months. Demand is holding up better than output and much better than orders – at least for now.

German industrial indicators are weak German industrial indicators show weakening trends. The ZEW current index registers a - 47.6 net diffusion reading in August compared to a -45.8 reading in July. The IFO manufacturing reading ticks higher in August to 90.4 from an index reading of 90.3 in July although both of those are below the 93.6 reading in June. Expectations for manufacturing from the IFO show a slight uptick in August compared to July with a reading of 83.5 but that's still significantly weaker than the 87.3 reading for June. The EU Commission industry net diffusion index for Germany falls to 7.5 in August from 10.9 in July and 14.9 in June. Looking at the sequential averages of 12 months to six-months to three-months, each one of these measures weakens over that profile. In addition, each one of these measures weakens on a quarter-to-date basis; as of August, that's with two months into the current quarter completed. The ZEW index shows a decline of 11 points in its net index readings QTD. IFO manufacturing shows a decline of 2.6 points; IFO manufacturing expectations are down by 2.9 points. The EU Commission industrial index is down by 6 points. All of these are on a quarter-to-date basis.

Other Europe trends- EMU members For in Europe, we have industrial output readings in manufacturing for EMU members France, Spain, Ireland, and Portugal and for European countries Sweden and Norway. The EMU members show increases in August for all four of them but that follows declines in July for all four of them. Over three months, among the EMU member countries, only Spain shows an output decline and a fairly hefty one at a 12.8% annual rate. However, sequential growth rates for industrial production from 12-months to six-months to three-months show a clear acceleration process for France. That is opposed by a clear deceleration process in Spain with mixed conditions displayed for Ireland and Portugal; both of which show output increase from 12-months to six-months and then slowing from six-months to three-months. Quarter-to-date, however, three of the four European Monetary Union members show declining industrial production. France shows the lone increase at a 3.6% annual rate, while Spain shows a decline at a 24.7% annual rate, Ireland shows a decline at a 16.3% annual rate, and Portugal shows that a small decline at a 0.5% annual rate.

Non-EMU Europe For the other European countries in the table, Sweden and Norway both showed declines in output in August but those follow increases in both June and July. Sweden shows a tendency for output to decline logging 2.1% annual growth rate over 12- and six-months compared to a larger 5% decline when annualized over three months. Norway shows acceleration as output declines by 0.9% over 12-months, increases at a 0.9% pace over six months then accelerates to a 2.4% annual rate over three months. On a quarter-to-date basis, output in Sweden, however, is stronger than in Norway despite the trends. Swedish output is rising at a 12.3% annual rate QTD, while Norwegian output is rising at just a 1.4% annual rate.
by:Robert Brusca
|in:Economy in Brief
Europe| Oct 06 2022
EMU Retail Sales Continue to Slide
Trends for the volume of retail sales in the European Monetary Area continue to slip. Sales have fallen month-to-month for three months running and in four of the last five months. However, the amount of the decline has been decelerating with June sales falling 1%, July sales falling 0.4%, and sales in August falling by 0.3%.

Sequential sales show the opposite pattern, with the rate of decline getting progressively larger. Year-on-year volumes fall by 1.8%; that pace steps up to a pace of -3.3% over six months annualized, and again to -6.1% over three months.

Food & beverage sales fall in each of the last three months and the decline gets progressively larger. They also fall sequentially over the three horizons with a tendency for declines to get larger. Sales weaken from their -2% pace over 12 months to an annualized pace of -5.3% over six months and to a pace of -4.4% over three months.

Quarter-to-date (QTD) sales volumes with two of three-month’s data in hand are falling at a 5.2% annualized rate with food & beverage purchases falling at a similar 4.5% annual rate.

The exception to the trend of weakening sales is from vehicle sales where sales rise strongly by 19.2% month-to-month in August and log progressive growth rates that rise 6.4% over 12 months then rocket to a gain of 26.6% annualized over six months and further to 118.4% annualized over three months!

The chart at the top presents the ex-auto sales volume figures and the auto registration figures plotted on a two-scale chart as levels in both cases. Because growth has been so subdued this is an effective way to see sales trends and to compare vehicle sales with other retail volume trends especially given the impact of Covid over this period. Percentage change data would be harder to explain.

The chart shows the clear mutual drop in sales during the Covid period, followed by a rebound that was extended for non-vehicle sales volumes, a rebound that continued to elevate sales to new highs post-Covid. Vehicle registrations, however, never made such a recovery. They failed to reach pre-Covid sales levels and have instead continued to drop, in part, because of supply chain issues as well as demand issues.

The current strong gain in vehicle registrations still leaves them well short of the recovery nonvehicle retail sales have experienced. While total retail sales are up by 2.6% compared to their January 2000 level and food & beverage sales are up by 0.4%, vehicle registrations are still lower on balance by 16.9%. Of course, over this stretch of time, none of these sales figures is very impressive. Europe has continued to limp ahead in the wake of Covid, now threatened with energy supply problems with winter coming, with war on its doorstep and high inflation.

EMU and other country retail trends In the EMU and the rest of Europe, individual countries are experiencing sales declines broadly. All countries in the table show declines over three months. Six of eight countries show declines over six months. Six of eight countries show declines over 12 months; one of the two countries where sales don’t decline logs a change that rounds to zero. Portugal shows sales volumes increase over 12 months and six months with a decline at a 2.2% annual rate over three months. Belgium shows an increase in sales values over six months flanked by a 12-month decline of 2% and a three-month drop at a 1.5% annual rate. These are references to the only sales increases over the 24 sequential calculations (eight countries over three horizons each). Over three months, sales decelerate everywhere except for the Netherlands and in the U.K. Five of eight countries show deceleration over six months compared to 12 months. The exceptions are Denmark, Belgium, and Norway.

Over the quarter-to-date, sales are falling in all countries except Portugal where there is a 3.2% annualized gain. Five of eight countries show sales have increased on balance since January 2020 before Covid struck. The exceptions are Spain, The Netherlands, and the U.K.
by:Robert Brusca
|in:Economy in Brief
Global| Oct 05 2022
Composite PMIs Largely Erode in September
Composite PMIs in September largely eroded. The average PMI reading in September fell to 50.9 from 51.1 in August although the median PMI rose to 50.9 in September from 50.5 in August. In September there are eight jurisdictions with readings lower than 50, indicating an overall contraction in the economy. The September reading is a lower number than the 10 that reported contractions in August. Eleven jurisdictions reported slowing conditions in September, compared to 18 in August. These figures account for month-to-month deterioration and while the number 11 is smaller than the number18, the number 11 follows the number of 18 indicating that that were 18 deteriorating in August and in addition to that there are 11 deteriorations in September. There were also 17 deteriorations back in July. The number of deteriorations may have slowed but the accumulated effect clearly is a worsening.

For the most part, the PMI data haven't showed too much change over the last three months, but there is generally speaking weakness in place. Comparing September to July, the average is weaker, the median is weaker, and we have a long string of jurisdictions below 50 and of entities reporting slowing growth.

Looking at sequential growth rates from 12-months to six-months to three-months, there's also a clear erosion going on in the average and then the median. On this timeline, the jurisdictions below 50 progressed from 4 over 12 months and six months to 7 over three months and the number of jurisdictions showing slowing progressed from 3 over 12 months to 16 over six months and to 17 over three months.

Percentile standing depicts how weak these numbers really are when placed in an historic context. We tend to look at PMI data by evaluating readings relative to the 50 mark, since 50 represents the dividing line between an economy that's expanding or contracting. When we do that, we distance ourselves from what the normal readings are for these PMI values and turn the PMI into a binary signal. The percentile standings take a different approach. They position each one of these readings for September in a queue of data over the last 4 ½ years. On that basis, the average PMI reading has a the 37th percentile standing in its range and the median reading is in the 31st percentile of its range. The median reading for each country will occur at a value of 50%. So, when we find that the average reading for these countries is at the 37th percentile and the median of these pooled readings is at the 31st percentile, we are seeing readings that are in the lower one-third of their range of values indicating some extreme weakness. There may still be expansion taking place, but it is weak expansion. In fact, there are only 6-jurisdictions with percentile standings at or above their 50th percentile in the table. The strongest of these is Singapore at its 94th percentile. That's followed by the UAE at its 85th percentile. That's followed by Zambia at its 82nd percentile. Japan is at its 66th percentile, followed by Saudi Arabia at its 64th percentile. Brazil sits on the cusp at its 50th percentile, right at its median value for this period.

And some of the larger economies have extremely low standings. For example, the United States has a lower 10% standing, the EMU has a lower 12% standing, Germany has a lower 7% standing, the U.K. has a lower 10% standing.

There's a great deal of weakness indicated by the composite PMIs and these are the results of the manufacturing and services PMIs for each country. These composites are very broad gauges of economic activity. The average rating over 12 months is a diffusion reading of 53.5 that has slipped the 51.2 over three months and to 50.9 in the current month. The median reading has slipped from 53.5 over 12 months to 50.5 over three months and stands at 50.9 as of September. These measures have aggregate activity showing barely any growth at all. So, it’s growth; but it is not normal.
by:Robert Brusca
|in:Economy in Brief
Europe| Oct 04 2022
EMU PPI Still Runs Hot...But
The euro area total PPI rose by 5.1% in August after rising 3.6% in July. Sequential growth rates continue to run very hot: the three-month growth rate at 49.7% annualized, the six-month growth at 45.3% annualized and the year-over-year growth rate at 43.4% annualized. All are very hot. They compare to a year ago, when the year-over-year growth rate was 13.6%, which is much lower but still considerably higher than what would be construed as consistent with price stability.

Monthly results Components show capital goods prices rose by 0.5% in August, slower than the 0.7% rise in July. Consumer goods prices rose by 0.9% in August, lower than the 1.2% increase in July. Intermediate goods prices were flat for the second month in a row. Manufactured goods prices altogether fell by 0.3% in August and by 0.5% in July.

Sequential trends Sequential prices show capital goods inflation decelerating slightly from 7.8% pace year-over-year to a 6.5% pace over three months although there was an intervening acceleration over six months. Consumer goods prices also show some slight deceleration falling to a 12.5% annual rate over three months after a 14% year-over-year rise, although there too, there's an acceleration to nearly 19% over six months. Intermediate goods prices clearly slow down: the year-over-year increase is 19.9%, over six month the increase is 19.3%, the three-month increase is small at 2.2%, a clear deceleration for intermediate goods inflation. Manufacturing prices also slowed down overall from a 17.4% pace over 12 months to an 18.4% pace over six months to a 3.1% annualized pace over three months. What we see is some evidence of sticky inflation especially for consumer goods but deceleration is concentrated in the intermediate goods area.

That's not surprising because of energy prices weakening. Brent oil prices have fallen, they are falling over three months at a 42% annual rate, this compares to a 7% annual rate increase over six months and the 38% increase over 12 months. However, Brent had been going up previously and one year ago Brent was up by 56% over 12 months. The impact of Brent prices on the PPI lags and that means there should be more inflation good news ahead.

Sequential statistics on inflation acceleration reveal that only 15% of countries show acceleration over three months. 46% show increases over six months while all countries show an increase over 12 months. While the weighted individual component data don't show the decelerations as clearly, the diffusion treatment does appear to be a countrywide phenomenon. And for the time being, it's concentrated in intermediate goods, not as prevalent for capital goods or consumer goods.
by:Robert Brusca
|in:Economy in Brief
Japan| Oct 03 2022
Japan's Tankan Slips and the Outlook Weakens
Japan’s Tankan in the third quarter slipped to +8 from a reading of +9 in the second quarter. The headline most closely followed by Japanese investors and economists is the reading for large manufacturing firms. That index had previously slipped from 14 in the first quarter of 2022 to +9 in the second quarter; the third quarter extends this trend slippage that dates to peak readings of +18 in the third and fourth quarters of 2021. On data back to 2004, the manufacturing reading for the third quarter has a 48.5-percentile standing, putting it just below its median on that timeline.

By comparison, the nonmanufacturing reading rose to 14 in the third quarter from 13 in the second quarter; it had been as low as +9 in the first quarter of 2022, the same level as in the fourth quarter of 2021. The nonmanufacturing trend has been on an improving run while manufacturing has been under deteriorating run in Japan. The nonmanufacturing sector has a 51.5 percentile standing on data back to 2004, slightly above its historic median.

Looking across sectors in the report the nonmanufacturing area shows some significant industry improvements. Within nonmanufacturing, in construction and real estate there are monthly improvements. Improvement in wholesaling is modest on the month. There is substantial improvement in transportation, a slight improvement in services for businesses and a slight improvement in restaurants & hotels that still have a net negative reading but showed less of a negative reading in the third quarter. Deteriorating sharply quarter-to-quarter were personal services that fell from a +18 in Q2 to a +2 reading in Q3; however, that had been a negative reading in the previous two quarters (Q4 2021 and Q1 2022). Also weakening in the quarter is retailing; that industry fell to a reading of +3 in Q3 from +7 in Q2: it had only been at +2 in the first quarter and was at +3 in Q4 2021, so this is a return to retailing roots around the turn of the year.

On the positive side, construction and real estate both have 51.5 percentile standings over this period. Transportation has a 60.6 percentile standing; services for businesses have a 78.8 percentile standing, with wholesaling at an 87.9 percentile standing. Below median readings exist in retailing, restaurants & hotels, and personal services.

Medium-sized enterprises The Tankan also extends to smaller companies although these readings are not considered to be critical as bellwethers in this survey. However, for medium-sized manufacturing firms the Tankan in the third quarter was zero, the same as in the second quarter, down from stronger first quarter and fourth quarter readings. At the zero-percentile mark, the medium firm manufacturing standing is at the 33.8 percentile mark. Nonmanufacturing, however, has been improving for medium sized companies, moving up to a +7 reading in the third quarter from +6 in the second quarter and zero in the first quarter of 2022. Nonmanufacturing has a 60.8 percentile standing. The outlook for manufacturing for medium-sized companies slipped to -4 in Q4 2022 from -3 in Q3; that compares to a +1 reading in Q2. The standing for this reading is in its 33rd percentile- a weak reading in historic context. Nonmanufacturing showed an improvement in the outlook to +2 in Q4 from +1 in Q3 compared to -3 in Q2; it has an above median, 53.3 percentile standing.

Small enterprises Small enterprises also are surveyed. Small manufacturing firms registered another -4 net Tankan reading in Q3 2022, for the third quarter in a row. Their standing is in their 46.7 percentile of their historic queue of data. Nonmanufacturing for small enterprises improved to +2 in Q3 from -1 in Q2 and -6 in Q1. Nonmanufacturing has a queue standing that is firm at the 73.3 percentile mark. The outlook for manufacturing stayed at -5 for small manufacturing enterprises in Q4 2022, the same as in Q3 and Q2. This reading, however, has a 52-percentile standing; it is still above its median. Nonmanufacturing saw an improvement in the outlook to -3 in Q4 2022 from -5 in Q3; it previously was -10 in Q2, and the Q3 reading has a 69.3-percentile standing in its historic queue of data.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 30 2022
EMU HICP Tops 10% Over 12-months
Inflation in the Euro Zone continues to move ahead fast enough to churn up a cloud of dust. In September, the flash HICP for the monetary union rose by 1.1% taking the 12-month increase up to a 10% pace underlining the problems of inflation that lingers in the European Monetary Area. The September figure was an escalation from 0.6% increase in August in a 0.7% increase in July. However, all those numbers are excessive compared to the inflation target of around 2% at the ECB runs.

Sequentially inflation's trend is still somewhat ambivalent at a 9.7% annual rate over 3-months, up from an 8.3% annual rate over 6-months but that's down from the 10% annual rate over 12-months. The trend for inflation is not cemented, however, these three growth rates for prices are all exceptionally high and the 3-month inflation rate does exceed the 6-month inflation rate leaving little for optimism as far as the inflation trend is concerned.

In Germany, the inflation rate rose by 2.4% in September from a 0.8% increase in August and after a 0.6% increase in July. The sequential growth rates for Germany show a 16.2% annual rate over the recent 3-months up from a 10.6% pace over 6-months and that compares to an 11% annual rate over 12-months. Inflation in Germany has really heated up and stayed hot.

Some deceleration outside Germany For France, inflation was flat in September; it rose by 0.1% in August, and by 0.5% in July. The sequential growth rates have disinflation in play with prices rising at a 6.2% pace over 12-months, falling off to a rise at a 5.3% pace over 6-months and down to a pace of 2.5% over 3-months. France shows clear deceleration in the pace of headline inflation.

Prices in Italy rose by 0.6% in September, the HICP index gained 1.2% in August and 0.2% the month before that, in July. Italian sequential inflation also is deflating as annual rates of increase progress from a 9.6% pace over 12-months to a 9% pace over 6-months to an 8.4% annual rate over 3-months.

Spanish prices backtracked with the HICP price index falling by 0.5% in September after rising 0.3% the month before and 0.9% the month before that in July. Sequentially, Spanish inflation is also decelerating; it cooks at a 9.3% annual rate over 12-months but then slides to 4.3% pace over 6-months and runs at a 3.2% annual rate over the most recent 3-month period.

Environmental factors Apart from the headline and, apart from Germany, there are clear signs of inflation decelerating in the European Monetary Union. And that's probably because growth is slowing down and because there are concerns about energy availability as well as uncertainty over the ongoing war in Ukraine. There are lots of things to worry about to undermine confidence. Consumer confidence has weakened sharply in countries that have released early consumer confidence figures. Most importantly, commodity price pressures are easing. The situation in Europe is difficult and we also see it in the currency market where the dollar has been rising strongly against the European currency, the euro, as well as against the British pound-that has its own special problems.
by:Robert Brusca
|in:Economy in Brief
Europe| Sep 29 2022
EU Indices Continue to Fall Sharply
The EU Commission index for EMU in September fell to 93.7 from 97.3 in August. This is another sharp monthly drop as the index has fallen to its 26.7 percentile. That means the index has been weaker than this only about 26% of the time.

All the sector assessments in the month have weakened. The industrial reading fell to zero from +1, consumer confidence fell to -28.8 from -25, the retailing reading fell to -8 from -7, construction fell to + 2 from +3, and the services reading fell to + 5 from +8.

The percentile standings for the sectors are low as well; the industrial sector reading is firm with a 70th percentile ranking. The one strong reading on the table is for the small construction sector which has an 87.4 percentile ranking. Retailing comes in with a ranking above its median at 53.0. However, the consumer confidence ranking shows that that index is at the weakest level that it has seen on this time horizon. And the all-important services sector that is the major job creator has the 37.8% standing, well below its median. Rankings below their 50% mark are below the medians for each of these rank metrics.

An assessment of changes across all EU members shows that declines in the last three months have been extremely broad-based with a month-to-month increase being the exception rather than the rule. Only three countries showed month to month increases for their overall indices in September, in August only two showed increases and in July only three showed increases -this among a total monthly count of 18 changes The country rank standing is extremely weak as well. Only Greece and Cyprus have country level indices with standings above their historic medians (above 50%). All the other countries in the table show EU index readings that stand below their historic medians. This is widespread weakness. Nine countries have ranking below their 20th percentile. Another seven are below their 40th percentile (and above their 20th percentile).

In addition, all countries show changes in their EU indices that reveal weakness compared to their January 2020 levels before the COVID virus struck. All the sector metrics how below their January 2020 levels except for the industrial sector that is higher by 5 points. The overall EMU metric is lower on balance by 11 points.

Pooling all these signals together, what we see is an area in which the index standings are weak. They are weak across the board for nearly all countries. Readings are weak or moderate in most sectors. The readings are extremely weak in the job creating sector. And there has been substantial weakening in recent months.
by:Robert Brusca
|in:Economy in Brief
Germany| Sep 28 2022
GfK German Confidence to a New Low; European Confidence Broadly Lower
Consumer climate on the GfK measure for Germany, a forward-looking estimate for confidence in October, shows a drop to -42.5, a new low in the series that dates to early-2002. GfK confidence has been dropping sharply and consistently from -27.7 in July to -30.9 in August to -36.8 in September and finally to -42.5 in October. This deterioration is coming in the face of ECB rate hikes, stubborn high inflation, threatened energy supplies, and the ongoing war between Russia and Ukraine. The recent drop reflects a more complete reaction to the shutting of the energy flow through the Russian Nord Stream pipeline. However, there may be even worse pipeline news ahead. A day ago, an undersea rupture in the pipeline that is being called an act of sabotage or terrorism, has created an undersea leak that may more thoroughly cripple the pipeline and nullify its capabilities for some time to come.

The components of the GfK index are released with a lag of one month. GfK reports values for September as the most up-to-date readings for components. Economic confidence fell in September to -21.9 from -17.6 in August. It was a strong as -11.7 in June.

Income expectations weakened even more sharply, falling to -67.7 in September from -45.3 in August. This reading had been as strong as -33.5 in June.

The consumer's propensity to buy reading also fell in September to -19.5 from -15.7 in August. Its June value was -13.7. The slippage on the buying gauge has been much more measured than for other GfK components.

Standings among components The economic gauge stands in its 6.4 percentile. Income expectations are at their all-time low on data back to January 2002. The propensity to buy reading is down to its 17.7 percentile standing, the highest standing of the lot, but still an exceptionally low reading that has been lower historically less than one-fifth of the time.

Successive new lows for GfK The last six monthly headline GfK values have set successive new lows in for that index. Clearly, this is a period of severe confidence weakness on data back to 2002 – a period that contains the Great Recession as well as the brief but sharp negative impact from Covid.

Elsewhere in Europe Germany is not alone in this weakness. Confidence gauges for Italy, France and the U.K. also weaken in the most recent month- that reflects data up to date though September. In Italy, the confidence index fell to 94.8 from 98.3 in August. In France, confidence fell in September to 79.1 from 81.9 in August. The U.K. index fell to -49 in September from -44.0 in August. Evaluated on the same timeline as the German GfK headline back to 2002, the Italian reading stands at its 18.1-percentile, the French reading is at its 0.4-percentile, while the U.K. measure is at a new low on this timeline.
by:Robert Brusca
|in:Economy in Brief
Global| Sep 27 2022
Real and Nominal Global Money Growth Slows Except in EMU Where Nominal Money Growth Remains Strong
Nominal money growth is slowing in global money center areas except for the EMU. U.S. nominal money growth has decelerated to a three-month 0.5% annual rate from 4.1% over one year and 8.8% over two years- a sharp pull back. In the U.K., money growth has decelerated to a three-month pace of 3.6% from 4.7% over 12 months and 5.4% over two years. In Japan, money growth that has been better-controlled; it pitches a 3.9% pace over three months compared to 3.4% over 12 months and 4% over two years- more or less steady growth.

By comparison in the EMU, three-month nominal money growth has accelerated to an 8.7% pace from 6.6% over 12 months and 7.2% over two years. These are clear accelerations to the strongest three-month money growth in this grouping- adding that distinction to the strongest six-month pace and the strongest 12-month pace.

The ECB has been a late comer to the monetary tightening parade. Of course, this is a parade Japan has yet to join – but for good reason, its inflation remains moderate. Europe faces unique and significant challenges to its outlook with the energy pipeline from Russia having been damped and then shut- as Russia complains that economic sanctions prevent the shipment of needed equipment to keep the pipeline running.

Credit in the EMU mirrors money growth rates. Private credit is up by 6.6% over 12 months, up at a 7.0% pace over six months and up at a 7.5% annual rate over three months.

Real flows Real money supply has slowed everywhere although less definitively in Japan. EMU money growth is at a 1.1% pace over two years, it then contracts at a 2.3% pace over 12 months, at a 3.7% pace of contraction over six months. Over three months EMU money growth has ticked up to a 0.2% annual rate. Real private credit growth in the EMU shows a drop at 1.4% pace over two years, a drop at a 2.3% pace over 12 months, a drop at a 2.9% pace over six months, and then a lesser pace of decline of 1.0% over three months.

Inflation and growth trends Real money growth in the U.S., the U.K. and Japan show clear decelerations from two-year to one-year with the U.S. and the U.K. both logging money growth declines over 12 months at -3.8% in the U.S. and -3.9% in the U.K. Over six months, the U.S., the U.K., and Japan all log declines in money growth as well as growth decelerations. Over three months growth rates for real balances decline at a lesser pace than over six months in all three countries, but in the U.S. and the U.K. the three-month pace of decline is still a more substantial decline than the pace over 12 months. In Japan, the three-month growth in money is only 0.7%, but that is the strongest on these horizons since the two-year pace of 2.8%.
by:Robert Brusca
|in:Economy in Brief
Germany| Sep 26 2022
Germany's IFO Survey Continues to Sink
The all-sector IFO climate gauge fell to -20.1 in September from -13.4 and August, a sharp decline that represents erosion in all major categories. The manufacturing sector registered a -14.2 reading on climate in September, down from -6.8 in August; construction is at -21.6, down from -14.8 in August; wholesaling is at -26.4, down from -21.6 in August; retailing is at -39.8, down from -31.9 in August; and services fell into negative territory at -8.9 after logging a +1.4 reading in August. The readings are lower across the board and all the readings show net negative figures in September.

The percentile standings for the climate readings show how weak the rankings are. The all-sector index is at the 5.3 percentile on data back to 2005, manufacturing has a 7.7 percentile ranking, construction is at a 15-percentile ranking and that's the strongest sector overall. Wholesaling has a 4.3-percentile ranking, retailing has a 0.5-percentile ranking and services have a 1.6-percentile ranking. There is extreme cloudiness, thunderstorms in progress, with no silver linings.

There is simply relentless bad news in the German survey. It's been weakening for quite a period of time after peaking in 2018 and falling for Covid then peaking at a lower post-Covid peak in 2021. This month, rather than slowing down its pace of decline or beginning to reach a low point and flattening out, conditions have eroded and continued to deteriorate by a strong amount on the month. While there has been some let up in the relentless commodity price inflation, and oil prices have fallen from their high, Germany is being threatened by the shutting of the pipeline. That could result in severe energy source shortages over the winter. I believe people are starting to factor in a belief in the worst rather than to hope for the best as the war in Ukraine has turned worse for Russia. That worsening is going to put even more pressure on Russian President Vladimir Putin as it increases the probability that he will try to create as much disaster, dislocation, and chaos outside of his borders as he can using economic warfare- and other means.

The current conditions index also shows declines month-to-month. All sectors weakened on a month-to-month basis in September based on current condition assessments. However, only retailing has a net negative reading at -14. The all-sector current reading falls to 15.4 in September from 22.3 in August. Manufacturing falls to 12.8 from 18.4. The construction sector weakens to 6.9 from 12.6. Wholesaling weakens to 5.8 from 11.0. Services weakens to 22.7 from 30.9. The rankings by sector show readings that are uniformly in the lower 25th percentile or weaker in their respective historic queues of data. The sole exception is the construction sector that hovers above its median reading at 62.8 percentile.

Expectations readings also fell across the board on the month. The all-sector expectations reading fell to -42.3 in September from -31.3 in August. That reading has a -49.2 all-time low; this month's reading is at -42.3. The all-sector expectation reading has a 0.5 percentile standing; it has been weaker only 0.5% of the time since 2005. In fact, all the components have 0.5 percentile standings except manufacturing that has a 2.9 percentile standing and retailing that is at its historic low point.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Sep 21 2022
U.K. Industrial Orders Rebound But Remain with a Net-Negative Assessment
The Confederation of British Industry (CBI) industrial trends survey for September registers an improvement in total orders. It moved up to a September reading of -2 from -7 in August. The reading had been +8 in July. The three-month average is zero, and that's against a six-month average of +10, and a 12-month average of +16. On that perspective, we can see that the assessment for orders has been deteriorating despite the small improvement month-to-month from August to September.

However, historically, the readings for orders tend to be weak. As a result, the -2 September reading is still strong-to-firm when measured against data from 1991 forward; September has a 75th percentile standing on that timeline. Over this period, orders have been higher than -2 only about one-quarter of the time. Over a more recent timeline, from 2015 forward, the ranking is at its 47th percentile, slightly below its median. The median for ranked data occurs at the 50th percentile. In broad historic context, this is still a relatively firm number; however, when compared to data since 2015, this is only an ordinary reading.

Export orders mimic the headline. They register a -8 in September which is an improvement from -12 in August; but August was unchanged from July. The August reading for export orders is stronger than its -11 three-month average although weaker than its -4 net reading for the six-month average and its -3 value for its 12-month average. The rank standings for export orders also mimics the rank standings for total orders. The ranking from 1991 is at a 70th percentile mark and the standing from 2015 has a slightly stronger but not too different at a 51st percentile mark. Once again, the orders are strong relative to the broader sample and weaker relative to the more recent sample since 2015 and the ranking on that latter period still registers near the neutral 50% reading.

The rating for the stocks of finished goods is stronger in September, up to +6 from +2 in August. This compares to a -7 reading in July and weaker readings over three and six months, but the much weaker 12-month average is at -9. The stocks readings are always hard to evaluate since rising inventories could be a sign of confidence or could be a sign of sales not going very well, leading to unintended inventory accumulation.

Looking ahead, industrial output volume for the next 3 months has a pronounced drop, falling to -17 compared to -2 for August. July had a + 6 reading making the three-month average -4; that compares to a six-month average of +8 and a 12-month average of +18. The outlook has deteriorated quite sharply over this period with September being a watershed, with the bottom falling out of the outlook. In fact, the ranking for the September value for the output outlook is in the bottom 5.8 percentile of its historic queue of data back to 1991. That's an extremely weak reading; over the more up-to-date comparison from 2015, the ranking is still in the bottom 7.7 percentile, not much different. Industry in the U.K. appears to be battening down the hatches and preparing for a storm ahead, a common theme among western European economies.

One reason for this dismal outlook on production may be the outlook for prices. Average prices expected over the next three months stepped up slightly in September to a reading of +59 from +57 in August. Like the data above, these are still net diffusion readings but with much higher values. Those recent readings compare to a reading of +48 in July. Compared to the sequential averages, the September reading is only slightly lower than the +61 reading for the six-month average and the +65 reading for the 12-month average. Given how much inflation has progressed, the outlook for inflation in the U.K. does not appear to have improved very much. There appears to be a lot of inflation pessimism there and that pessimism is also reflected in weak expected output.

The data for industrial production (IP) lag the CBI survey data which are quite up to date since it's only late-September and we have a September estimate in the CBI already. Industrial data on IP are up to date through July and on that basis the monthly July change in industrial production in manufacturing was zero. The change over three months was +0.4% at an annual rate; there's a roughly 2% annual rate decline over six months and a 1.1% rate of increase over 12 months. The performance of manufacturing industrial production during this period has been weak with a tangible decline. The ranking for the overall growth rate for manufacturing industrial production leaves it in its lower 36th percentile over both ranking periods since 1991 and from 2015. That’s a lower one-third reading and the economy is still growing- some fear recession lies ahead.
by:Robert Brusca
|in:Economy in Brief