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

Ireland| Dec 08 2022
Irish Inflation Flattens Out at High Pace
Ireland's inflation rate in November rose by 0.3% after surging by 1.5% in October and gaining 0.3% in September. There are hints here of inflation slowing since we have two moderate months, but there's a substantial increase between the two 0.3% increases in November and September that helps to drive the three-month annual rate up to an annualized 8.4%. That marks an acceleration from 8.3% over six months although it is slightly cooler than the 8.9% annual rate increase over 12 months.

Ireland's domestic inflation metric Ireland's domestic price index shows heated inflation with an 8.9% increase over 12 months, the same as the HICP total, carrying a pace of 8.8% over six months, above the six-month pace for the HICP, and rising to a 9.9% pace over three months that dwarfs the HICP three-month gain. The domestic index also offers up a CPI core measure that is a little bit more optimistic, showing a 5.5% gain over 12 months, rising to a 6.2% annual rate over six months but then falling to a 4.4% annual rate over three months. However, the CPI core is up 0.5% in November, by 0.5% in October and by 0.2% in September. It continues to run hot in recent months at a pace that's something more like a 6% pace, although the three-month pace is knocked down to 4.4% because of a relatively moderate result in September.

How broad is inflation? Ireland also offers some optimism on the front of diffusion. Diffusion measures the breadth of inflation acceleration from period to period. The diffusion values in the table show that diffusion over 12-months is at 75%. That means that over 12 months compared to 12 months ago, inflation is accelerating in 75% of the categories. Over six months, diffusion is down to 25%, telling us that only one quarter of the components of inflation are showing stronger inflation over six months compared to inflation rates over 12 months. Over three months, diffusion is still low, but ticks slightly higher to 33.3% indicating that one-third of the components are showing accelerated inflation over three months compared to six months. Diffusion values less than 50% indicate that inflation is accelerating and fewer than half of the category and that's good news. Diffusion gives us different results than the headline inflation measure because diffusion calculation treats all categories as equal without using any weighting. The headline inflation rate of course attributes weights and economic importance according to the category involved so there can be differences in diffusion and in overall inflation and its performance. But the idea behind diffusion is that if inflation is truly inflation, (a broad phenomenon, rather than driven by a few rogue categories), it should be infecting most of the components. Weighting may put a finer point on the pace of inflation but should not be a critical issue in detecting inflation. The Irish figures are reassuring because they show us that the breadth of inflation has narrowed quite a bit even though on a weighted basis inflation continues to run relatively strongly. The substantially lesser pace of core expansion adds to that sentiment.

Inflation across components When we look at the components in November, we get some sense of what's going on here with rent & utilities up at a very strong pace, rising by 0.7% in November and up by 8.1% month-to-month in October. This is a category with a very heavy weight and a very high inflation rate; it's one of the things that's driving inflation and causing the inflation numbers to be high even when the breadth numbers are not particularly menacing. Rent & utilities, for example, are up at a 46.1% annual rate over three months and rising at a 26.6% annual rate over six months. This is a category that's adding a great deal to inflation and its strong pace has been very stubborn.

On a quarter-to-date basis, inflation is not performing quite as well. These data are for November so we're looking at inflation for two months in the fourth quarter compared to the third quarter base. Viewed in this way, the HICP headline measures is up at a 9.1% annual rate, the domestic inflation rate is up at a 10.6% annual rate, and the domestic CPI core is up at only a 4.7% annual rate. Inflation in the headlines is still carrying a strong pace; the core is showing some significant temperance for inflation pressures in Ireland so far in the fourth quarter. In the fourth quarter, prices for clothing & footwear fall by -1.1%, education costs fall at a jarring -26.4% annual rate, restaurants and hotel prices fall at a -2.5% annual rate. However, rent & utilities are still rising at an enormous 54.4% annual rate in the fourth quarter lighting a fire under inflation, although because the category is rent & utilities it obviously has some energy mixed in with other housing cost measures- not all of it is in the core measure.
by:Robert Brusca
|in:Economy in Brief
Norway| Dec 07 2022
Norwegian IP Trends Show Resiliency
Norwegian industrial production has been weak and struggling since late-2021 as the graphic clearly shows. And despite some ongoing struggles and clear problems in Europe with energy and with security, Norway shows signs of stabilizing its manufacturing sector.

Norway's headline industrial production measure, which excludes construction, is decelerating from 2.8% growth over 12 months to 1.3% over six months to a decline of 2.6% at an annual rate over three months. Utilities output declines at a 10.3% annual rate over 12 months, logs a decline at a 24.2% annual rate over six months, and plunges to a decline at a 41.1% annual rate over three months. But that may be more a function of energy availability than a reference on economic activity. Although mining & quarrying is also weakening, from a 2.1% pace over 12 months to a modest 0.8% annual rate of gain over six months to a 5.4% annual rate of decline over three months.

Manufacturing is a counterpoint to encroaching weakness In contrast to those metrics, manufacturing is up by 1.7% over 12 months, it is falling at a 0.5% annual rate over six months but then is increasing at a 1% annual rate over three months. The three-month rate of change isn't particularly strong; however, it clearly breaks the chain of declining activity and provides a counterpoint to overall production, to utilities trends, and to mining & quarrying trends. The production of food shows uneven trends although within manufacturing the production of textiles does show sequential weakness migrating from a 2.8% growth rate over 12 months to a -5.9% pace over six months and to a -8.9% pace over three months.

Manufacturing sectors are mixed However, looking at the sectors within manufacturing rather than individual industries, we see a lot more ambiguity about trends. The consumer goods sector overall does show weakening with the growth of 4% over 12 months, a modest gain of 0.8% over six months and flat performance over three months. This is clearly decelerating growth. Consumer durables show declines in output on all three horizons, but there is a pickup - less of a decline - over six months followed by a much more severe decline over three months. Durables trends do look troubled. Consumer nondurables, in contrast, show growth on all three horizons, rising at a 5.7% annual rate over 12 months, at a weaker, 1.5% pace over six months then stepping up to a 2.6% pace over three months. Intermediate goods showed declines on all horizons, falling 0.4% over 12 months followed by a 5.6% annual rate drop over six months and a 4.5% annual rate drop over three months. The sequential trends may be muddied but the direction here seems clear. The capital goods sector, in contrast, shows acceleration with a 5.1% rate of growth over both 12 and six months that steps up to a 5.7% pace over three months. Manufacturing is a mixed bag with more weakness than strength on these metrics.

While these trends are mostly permeated by declines and weakness, capital goods is a striking contrast and the fact that industrial production does show clear declining trends. Manufacturing does not show weakness across all the sectors - in fact, it doesn't show decelerating trends overall, only in the overall consumer goods sector which culminates over three months in flat performance, not in decline.

Inflation runs hot...some let up Meanwhile, inflation in Norway continues to run relatively hot. The pace year-over-year is 8.4%; it rises to a 9.7% pace over six months, and then barely cools to a 9.6% pace over three months. The core inflation measure is up at a lesser 6.1% annual rate over 12 months, but that accelerates to 7.5% over six months, then it cools to a 5.5% pace. Still, all these are excessive growth rates for inflation.

Quarter-to-date... Quarter-to-date (QTD) industrial production excluding construction is up a very robust 7.9% annual rate; manufacturing output is up at a 3.3% annual rate; manufacturing consumer goods shows expansion at a 3.3% annual rate; intermediate goods output falls at a 4.3% annual rate. But capital goods output is rising at an 8.3% annual rate. The QTD calculations are nascent calculations for the fourth quarter representing the growth in October over the third quarter average with the growth rate properly compounded over that third quarter base. Over that same third quarter base, inflation is rising at a 10% annual rate QTD with the core up at a 6.6% annual rate.

Since COVID... As a summary statistic, I have taken the ratio of current industrial production to the level of industrial production just before COVID began in January 2020. Overall industrial production is up by 8.7% on that timeline (a bit less than 2% per-year on average), manufacturing production is up by only 0.4% on that timeline, mining & quarrying is up nearly 50% on that period. While utilities output is only up by 2.5%. Looking at manufacturing sectors, consumer durables output as of October is lower than it was in January 2020 and capital goods output is still lower than it was in January 2020. The strongest gains in output among these sectors are for consumer goods at 3.1% and consumer nondurables at 3.1%. Intermediate goods output is up by 2.4%.
by:Robert Brusca
|in:Economy in Brief
Germany| Dec 06 2022
German Orders Rise, But There's Really No Surprise
Real industrial orders in Germany rose 0.8% in October, led by a 2.5% rise in foreign orders. Domestic orders fell by 1.9% in October. While unexpected, this gain in orders can't be considered a surprise. The 0.8% order increase comes after a 2.9% fall in September and a 2% fall in August; the 2.5% gain in foreign orders in October follows a 5.2% drop in September and a 1.7% monthly drop in August. Domestic orders had risen by 0.5% in September but also fell by 2.6% month-to-month in August.

Sequential growth rates out the truth As is usually the case, the sequential growth rates tell a clearer story about what is really going on with the trends in orders. One year ago, the year-over-year change in orders was a gain of 0.4%. This year the 12-month gain from that base is a decline of 3.1%, over six months it's a decline at a 6.5% annual rate, and over three months it's a decline at a 15.7% annual rate. Overall orders are decelerating and decelerating steadily on these time horizons. Foreign orders one year ago fell 0.7% over 12 months; this year the 12-month change in foreign orders is a fall of 0.4%, a fall at a 0.2% annual rate of decline over six months- only slightly smaller – and a drop at a 16.4% annual rate over three months. Clearly, another very weak growth rate profile. Domestic orders a year ago rose 2.1% year-over-year but over 12 months domestic orders are falling by 7.1%; over six months they're falling at a 14.9% annual rate; over three months they're falling at a 14.9% annual rate. Domestic orders clearly are weak and are not reviving as the monthly gain might otherwise suggest.

Quarter-to-date (QTD) The quarter-to-date calculations show trends with total orders falling at a 10.9% annual rate, one-month into the fourth quarter with foreign orders falling at a 9.4% annual rate and domestic orders falling at a 13.6% annual rate. These are sharp declines for annualized growth rates adjusted for inflation. Orders have not been strong in Germany for a while. Calculating growth in orders form just before COVID started, in January 2020, total orders are now 2.1% lower from that mark while foreign orders are 2.2% lower and domestic orders are 2.1% lower. These metrics reveal similar weakness across domestic and foreign entities.

Real sales by sector Real sales by sector show better life than orders, but orders are the leading series and sales are the trailing series…. As an overview, total real sector sales are rising at a 2.2% annual rate in the quarter-to-date with manufacturing sales rising at a 2.8% annual rate. Sales are being held back mostly by an 18.1% annual rate decline in consumer durables that has total consumer sales down by 1% at an annual rate in the quarter-to-date. In addition, intermediate goods sales are falling at a 10.8% annual rate QTD. Rising in the quarter-to-date are capital goods sales, up at a 15.3% annual rate and consumer nondurable goods sales rising by 3.1% at an annual rate.

Growth profiles for real sector sales are erratic weakening However, the details on real sector sales show widespread declines over the last two months; sales in six of the seven categories fall month-to-month in October and sales fall in five of seven categories in September. Sequentially real sales data grow by 5.5% over 12 months, accelerate to a 10.7% pace over six months, then decelerate back to a 5.3% annual rate over three months. That is fairly encouraging and stable. Consumer goods sales fall 0.6% year-over-year and fall at a 6.3% annual rate over six months, but then recovered to gain at a 7.1% annual rate over three months, complicating the picture. Still, this is against the weight of consumer durable goods where's sales rise by 1.6% over 12 months, fall at a 7.7% annual rate over six months, and then fall at a faster 8.3% annual rate over three months. Intermediate goods also show sequential deterioration and deceleration with a 1.4% decline over 12 months, a 3.1% decline over six months, and a 6.1% decline over three months. Capital goods show a great deal more strength, up by 15.1% over 12 months and up at a 33.4% annual rate over six months but then cool back to a still very strong 15.9% annual rate over three months. Consumer nondurable goods sales fall by 1% over 12 months and fall at a faster 6% annual rate over six months but then recover at a 10.3% annual rate over three months. The capital goods sector is the only exception and the only source of real strength in sales.

The trends in real sales by sector are a lot more confusing than orders. The quarter-to-date data suggests that the consumer sector and intermediate goods sector are still dragging things down while consumer nondurable goods by themselves are showing moderate growth against capital goods that are growing strongly – for however long that can last in the face of weakness elsewhere.

EMU's 'Big Four' Economies In the bottom panel of the table, the EU industrial confidence measures are presented for Germany, France, Italy, and Spain to compare German trends to the next three largest economies in the European Monetary Union. Germany has a positive reading of plus three in October compared to France at -6.7, Italy at -4.1, and Spain at -4.0. However, looking at the sequential averages of these EU diffusion readings, we see that each of these four countries shows its six-month gauge weakens compared to the 12-month gauge and the three-month gauge weakens compared to the six-month gauge. There is clear weakening going on across the European Monetary Union's largest economies. However, the queue standings that evaluate the levels of the October readings compared to recent history (in this case taken back to 1990) shows more strength than you might expect. The German reading has a 78-percentile standing which is quite firm. Spain has a reading at its 54.5 percentile which is above its historic median. France, at its 48.9 percentile standing, is only slightly below its historic median. Italy at 42.4 percentile standing is below its historic median and weak but far from collapsing.

Growth since COVID after the bust/boom cycle has been weak Evaluated from their level in January 2020 before COVID struck, the German industrial confidence measure is the relative strongest in this group, having risen 13.6 points from that mark; Spain has risen by 5.4 points, Italy has risen by 0.9 points, France has a net lower reading, falling by 3.8 points from its level on January 2020.
by:Robert Brusca
|in:Economy in Brief
Global| Dec 05 2022
S&P Composite PMIs Continue to Erode
S&P composite PMIs for November worsened generally across the reporting global community. Among the 23 reporters in the table, we see in November 15 of them have PMI gauges below 50 indicating a contraction in the overall economy (since these are composite indexes) while 12 of 23 indicate that there is a slowdown in progress. Ten of the 15 PMIs below 50 are also slowing.

The November metrics are generally slightly worse than those from October and September indicating that there is some ongoing slippage occurring. In addition, if we look at the averages from 3-, 6-, and 12-months, we see the number of jurisdictions with readings below 50 swells in number from 4 to 7 to 13 while the number that are showing slowing activity rises from 3 to 16 to 18. There clearly is a broadening of the weakening and that is worrisome.

We also see a great deal of weakness among the largest market economies at the top of the table over the last three months. Looking at the United States, the European Monetary Union, Germany, France, Italy, and Spain as separate entities, these are six observations over three months giving us 18 observations and yet among those 18 only 6 of the observations showed month-to-month improvements. Looking at the same group of countries over three months, six months and 12 months, all of them are worsening on all of those horizons.

Looking a little bit more deeply at the queue standings that rank each one of these observations and their recent approximately 4 1/2 years of queue of data, we find that for the U.S., for the European Monetary Union, Germany, France, Italy, and Spain all of them have queue standings below the 25th percentile, most of them below their 20th percentile. These are all extremely weak readings.

The extent and degree of weakness The queue versus percentile standings generally shows very different results. The percentile standings position each observation in its high-low range as a percentile position for the period while the queue metric positions each observation relative to all the observations. When you look at the queue standing, you see where this observation stands in percentile terms versus all the observations that have been registered during the last 4 1/2 years. The queue gauge only gives us the relative position proportionally versus all the other observations. The percentile gauge, in contrast, uses only three observations. The difference is that the percentile numbers show us that there is very little abject weakness in the November readings. Placing each November observation between its respective highs and their lows leaves most of them above their 50th percentile that is above their mid-range observation. Only Qatar at a 39.5 percentile standing, Sweden with a 44.1 percentile spending and the U.S. with a 46.4 percentile standing are below their respective historic medians. The weak queue standings tell us that the preponderance of readings over this period have been stronger, but the relatively firm percentile standings tell us that current levels of the variables do not threaten the sort of lows we see during periods of extreme weakness such as during Covid since those readings fall in this period comparison and mark out of the lows.

Current standings: As an example, the average unweighted U.S., U.K., European Monetary Union, Japan composite PMI is at 47.8 in November; that's down from 48.8 in October and from 49.4 in September. This is clearly slipping weakness, and these are observations below 50 indicating contraction, at least in the lexicon of the PMI data; however, these are not exceptionally weak readings. The median for the entire sample of countries is at 48.9 in November, down from 49.4 in October and from 50.9 in September. There is sliding weakness considering the entire sample. And as we saw, the number of jurisdictions below 50 has been expanding and the numbers slowing have been relatively steady and in double digits. A good deal of weakness is pervasive but so far it is weakness of a more moderate variety with the overall average and median percentile standings around their 70% mark.
by:Robert Brusca
|in:Economy in Brief
Canada| Dec 02 2022
Canada Shows Mixed But Still Strong Job Gains
The unemployment rate for Canada in November fell to 5.1% in November from 5.2% in October. Canada, like the United States, has inflation problems whose profile looks quite similar to the U.S. inflation statistics. The two countries seem to be in the grip of the same cycle, which is usually the case. For now their domestic statistics are looking remarkably similar. What that means is that Canada's drop in the unemployment rate is unexpected and not what policy has been looking for. Canada's inflation rate for its core is over 5% and the headline CPI is much higher than that at nearly 7%.

Canadian job growth rose by 10,100 in November, sharply weaker than the 108,300 gain in October and weaker than the 21,100 in September. The three-month average gain of 46,500 is far ahead of the 4,300 average over six months and better than the 30,700 average over 12 months. In percentage terms, total employment rose by 1.9% over 12 months

Goods sector employment shed 9,400 jobs in November after gaining 45,100 in October and losing 24,800 in September. The sector has been erratic in current months. However, good sector job gains have been slowing steadily from an average of 11,300 over 12 months to an average of 8,700 over six months, to 3,600 over three months. The sector has gained 3.5% over 12 months

Within the goods sector, manufacturing jobs rose by 18,500 in November, rose by 23,800 in October and fell by 27,500 in September. Manufacturing sector jobs are marginally lower over 12 months. Gains average a monthly rise of 6,900 over six months and 4,900 over three months. Over 12 months manufacturing jobs are lower by 0.1%.

Service sector jobs gain 19,600 over November, slower than the 63,200 for October and the 45,900 in September. Service sector job gains average 19,500 over 12 months. The average decline is 4,300 over six months but now has averaged gains of 42,900 over three months. Sector gains in services have also been relatively volatile; the sector has gained by 1.5% year over year.

Within the service sector, accommodation and food supply workers have seen the fastest growth at 6.7% over 12 months. Professional and technical jobs have been the next strongest, rising 5.6% over 12 months. Jobs in information and culture have grown at a 4.5% pace. At the other end of the spectrum, the services sector jobs in transportation have declined by 3.8% over 12 months; jobs in trade have declined by 2.7% over 12 months while gains in healthcare and service professionals have increased by only 0.6%. There have also been very small gains in management. The number of managers employed has grown by only 0.2%.

The labor force participation rate in Canada has moved slightly lower. Its 12-month average is 65.1%. Its three-month and six-month averages both are 64.8%, which is the same as its value in November. The participation rate has been relatively stable; however, it tends to the weak side. Over 12 months the unemployment rate has fallen by 1%; its 12-month average is 5.4% that fell to 5.1% over six months and averages 5.2% over three months although in November the unemployment rate is back down to 5.1%.
by:Robert Brusca
|in:Economy in Brief
Europe| Dec 01 2022
EMU: The Policy Path Becomes More Treacherous
The European Monetary Union approaches reduction in its unemployment rate in October to 6.5% from 6.6% in September, continuing the long crawl lower back toward its previous trend decline that had been in place before COVID struck and interrupted that improving progression.

The numbers of unemployed have declined in each of the last two months, a decline in numbers of 1.3% in October and 0.3% in September. Since the unemployment rate is a ratio calculation that involves both the number of people unemployed as well as some estimate of people in the workforce, it's encouraging to see that when we look at the numbers unemployed that this part of the unemployment rate calculation continues to move lower on its own - it's an incredibly good signal.

However, when we back off to look at employment trends, we begin to see that the width of the yellow brick road appears to be narrowing. The table includes 12 of the longest-standing members of the European Monetary Union over 12 months. Eleven of these 12 countries have seen their unemployment rates drop. The exception is the Netherlands where the unemployment rate is higher by 1% over 12 months. Over six months the unemployment rate is higher and five of these twelve countries an unchanged and one other (Germany). The countries with higher unemployment rates over six months are the Netherlands, Luxembourg, Portugal, Finland, and Austria- a somewhat eclectic mix of countries. Over three months unemployment increases in four countries and is unchanged in two others. The unemployment rate is unchanged in Austria and in Germany. The unemployment rate is higher in Luxembourg, Ireland, Portugal, and the Netherlands.

Monthly data for the European Monetary Union also shows a somewhat uneven hodgepodge of changes in unemployment, but most countries are showing declines. Some show increases and the number of them show unchanged unemployment rates from period to period.

For the record, on the same timelines the United States has an unemployment rate that's higher by two-tenths of a percentage point; the U.S. rate is lower by nearly a percentage point over 12 months. U.S. unemployment ticks slightly higher over six months and three months. Japan has an unemployment rate that's lower over 12 months by 0.2 percentage points. Japan's unemployment rate is unchanged over three months and six months.
by:Robert Brusca
|in:Economy in Brief
China| Nov 30 2022
China's Sector PMIs Both Weaken in November
China is under enormous strain as there are grassroots demonstrations and pushbacks to its zero COVID policy. Protests have spread and risen in intensity over the policy and its recent setbacks. Still, this is China, and protesting can be dangerous to your health. It is still not clear if this is mostly a young people's protest or if it's something that is broader. However, it's occurring only slightly after Prime Minister Xi has entrenched his power and put all his allies into key policy positions. There is widespread discontent - particularly over people who are under lockdown and because there was a fire and people died in the fire when response was poor. It's not clear that this protest will have legs or will reach the critical mass of something broader.

However, protesting, like lockdowns, interrupts economic activity, too. And we see in November more economic backtracking in both the manufacturing and the nonmanufacturing PMIs for China.

The manufacturing survey shows the headline PMI reading for manufacturing lower on the month at a standing in the lower 3 percentile of all data since 2005. Orders also weakened in the month and show a 4.2 percentile standing. Output weakened to 47.8 in November from 49.6 in October and has a 3.7 percentile standing. The standings of the manufacturing components are all in fact quite weak; the one exception as is often the case when conditions are deteriorating is for stocks. This is often because when an economy slows down and demand slows down, stocks begin to pile up. Rising stocks are an indication that production is no longer behind servicing demand, but in a slowdown or recession that is because demand has imploded. In China, demand is weak and disrupted by its zero COVID policy.

As in November, all the components in the survey have weakened month-to-month except for stocks of finished goods. And all of them except for input prices have diffusion values below 50 indicating that that components are contracting. All components except input prices show contraction for two months running. Most components show contractions for three-months running with the exception being the headline manufacturing PMI gauge, output, input prices, and purchases of inputs. The weakness as you can see is quite broad based and persistent.

The sequential readings on period averages show all averages below 50 except for input prices over three months. Over six months only output does not average below 50 instead clocking a reading of 50.2; an extremely slight increase in output is indicated. Over 12 months there are declines in the headline PMI and all the components except for input prices that have a value of 53.6. Even China has some inflation; not as much as in the West but some.
by:Robert Brusca
|in:Economy in Brief
Belgium| Nov 29 2022
Belgium Inflation- Some Grounds for Optimism...More for Caution; One Leg over the 'Wall of Worry?'
The Belgian CPI has strong correlations with both German and EMU-wide inflation measures; the deceleration of headline inflation for the Belgian CPI in November is good news. The year-over-year pace in October had been 12%; in November the year-over-year pace migrates down to 10.6% over 12 months. The CPI core rate also is slightly easier rolling in at a 6.1% annual gain in October and ticking lowered to a 6.0% pace in November. Of course, we're looking at month-to-month comparisons of year-over-year gains and, in the case of the core, looking at a very tiny deceleration. However, markets are grasping at straws for good news and there are at least several hints of good news in this report.

Beyond those headlines, we see that inflation on a year-over-year basis still has diffusion of 100% in November as it did in October. Both months show acceleration in the underlying pace of inflation and all the CPI categories compared to the one-year ago pace. Headline inflation may be accelerating, but disaggregated, across all categories it's showing a diminishing tendency to do that.

Sequential inflation provides the less pleasant message here. The CPI headline at 10.6% over 12 months races at a stronger 11.7% pace over six months and rises to a 13.3% pace over three months. The CPI core provides less clear guidance as it rises at 6% pace over 12 months then at a 6.8% pace over six months and then falls back to a 6% pace over three months leaving us with an unclear message about 'trend.'

Inflation diffusion, which compares the breadth of inflation in each period to the period before, is at 100% over 12 months. Inflation accelerates in all categories over 12 months; that proportion falls to 70% over six months comparing the six-month pace to the 12-month pace. Over three months inflation diffusion falls to a still strong 60%; that compares inflation over three months to six months. Diffusion data show that the breadth of inflation acceleration is narrowing from 12-months to six-months to three-months rather steadily. This is the opposite message from the headline and is a message that may be more consistent with the core pace that doesn't have a clear message on the path of inflation itself.
by:Robert Brusca
|in:Economy in Brief
Germany| Nov 28 2022
German Confidence for December Remains Extremely Weak
GfK provides a lookahead confidence measure for Germany. For December, the confidence measure logs a -40.2 reading; this is a slight improvement from -41.9 in November and -42.8 in October, but it's still considerably weaker than September's -36.8 and August value of -30.9. German confidence clearly has moved to an even lower level over the last three months, and it continues to hover in this lower position.

The components of the climate index lag the headline by one month. They offer data for November: economic expectations improved in November to -17.9 from -22.2. Income expectations improved to -54.3 from -60.5 while the propensity to buy worsened slightly to -18.6 from -17.5.

The count or rank standings for these metrics give us a better idea of where confidence sits in absolute terms. The climate index has been weaker 0.8% of the time (only in the previous two months!). Economic expectations have been lower 11.6% of the time. Income expectations have been lower 0.8% of the time. The propensity to buy has been weaker 17.3% of the time. The propensity to buy metric is significantly less weak than the other components; however, it is still quite dramatically weak because the 17 percentile standing means that it's weaker than this less than one-fifth of the time.

The table also presents percentile standing data on where the components sit in their high-low range. Climate is at its 4.8 percentile mark. In other words, quite apart from how frequently the reading is lower, a separate question regards how low is it compared to its all-time low? Its lowest reading is only 4.8 percentage points below its current reading. The economic index has its all-time low only 14.6% lower than its current reading. Income expectations are only 10.4% lower. The propensity to buy lowest reading is 30.7% lower. Buying conditions are not as dramatically weak.

So not only are the current readings weak and rarely weaker but most of them are quite close to their historic all-time lows, marking this as not just a difficult point but as an extremely distressed situation that has a great deal of absolute weakness.

For comparison, I have the most up-to-date confidence data from Italy, France, and the United Kingdom as well. Those metrics lag by one month and are comparable in timing to the components for the German index as of November. Italian confidence improved sharply to 98.1 in November from 90.1 in October; French confidence improved to 83.4 from 82.1; and the U.K. confidence improved to -44.0 from -47.0.
by:Robert Brusca
|in:Economy in Brief
Europe| Nov 23 2022
Flash PMIs Mixed on the Month
The S&P flash PMIs for November show mixed results for the five early reporting composites that include the European Monetary Union, EMU members Germany and France, the U.K., and the U.S. Three of those five show stronger PMI composites while two show weaker composites. Stronger composites are reported by the European Monetary Union as well as Germany and the U.K. Weaker composites are reported by France and the U.S.

In the European Monetary Union, the strength in the composite occurs because of a stronger manufacturing reading. In Germany, the stronger composite also is the result of a stronger manufacturing reading. In the U.K., the strength is technical since the two components are unchanged on the month- the improvement results from rounding.

France shows a weaker composite reading despite a stronger manufacturing reading because services are weak, and the service sector reading dominates the manufacturing improvement. In the U.S., the composite is weaker on the back of manufacturing and services both weakening month-to-month.

These results follow October where all the sectors were weaker month-to-month except for services in Germany. In September, there was broad weakening: the U.S. was an exception with strengthening on the composite, manufacturing, and services. The U.K. had a stronger manufacturing sector in September. France had a stronger composite and services reading in September, while all the rest of the components and composites were weaker month to month.

The sequential averages are calculated on finalized data so they exclude data from November; they show weaker readings for 3-months compared to 6-months, and weaker readings for 6-months compared to 12-months for all the composites and all their components. Over 12 months, there was a broad weakening as well with only one composite improving, that's for France, while the services sector is improved for the European Monetary Union, France, and the United Kingdom.

Weakness continues... This continues to be a period of substantial weakness even though there's slightly more strength in November than what we've been seeing in recent months and on trend. There's very little significant increase; there are some technical rebounds on the month but nothing that looks truly impressive.

All the queue (or rank) standings for all the composites and for all components have standings well below their 50% mark which marks their historic medians for this period. The strongest reading in the table is the 27.6% standing for manufacturing in Germany, the second strongest is a 20.7 percentile standing for services in France, followed by 19 percentile standings for the European Monetary Union for its manufacturing and services sectors. Except for the German reading, these are all readings in the bottom one-fifth of their historic queues of values over this span, a period that goes back to February 2018.

The rankings by sector are consistently low with manufacturing for this group averaging a 14 percentile standing while services average a 15 percentile standing, and that combination is so weak that the composite averages a weaker 11.7 percentile standing.

The column labeled 'percentile' places this month's observations in a percentage position between its highest and lowest readings; these assessments are consistently higher than the queue standings (and less demanding). They are derived by looking at only three readings: the current reading, the highest reading on the period, and the lowest reading on the period. Of the 15 readings in the table, six of them have percentage standings in their historic ranges of value that are below their mid-range values (below 50%). The U.S. shows readings below their mid-range for the composite and both components. Apart from the U.S., composite readings have a standing the range from the 64.6 percentile in Germany to the 80.7 percentile in France. The manufacturing readings tend to be weakest with three of the four non-U.S. rankings below their historic range mid-points. The service sector rankings again excluding the U.S. are between the 65.9 and 80.4 percentiles among the four reporters in the top of the table.
by:Robert Brusca
|in:Economy in Brief
France| Nov 22 2022
BoF Retail Survey Reveals That Sales Weaken Further
The Bank of France retail survey fell by 3.7% in October showing a significant decline in sales volumes in the month. The decline interrupts a two-month string of sales volumes rising as volumes rose by 0.2% in August and by 2.5% in September.

Across the seven product categories for the month, all of them decline in addition to a decline in all industrial goods sales volume and then overall volume. October was a bad month for French consumers. Food purchases fell by 3.3% in October following declines in three of the four most recent months. Industrial goods sales volumes declined 3.9%, which is only their first to decline in the last three months but the third decline in the last five months.

Among other selected nonfood categories, textile sales volumes fell by 6.1% in October, footwear sales volumes fell by 8.2%, furniture volumes fell by 2.9%, household appliances saw sales volumes fall by 2.5%, electronics volumes fell by 7%, and new auto purchases fell by 9%. The declines across the various categories are relatively large declines for a single month.

According to sequential change calculations, sales volume changes over three months, six months and 12 months show declines in volume for overall sales on all three horizons but not a worsening trend. Total sales volumes fall by 5.4% over 12 months; that worsens to an 8.2% rate of decline over six months, but then the decline slows to a 4.4% decline over three months. Well, that's not a progressive worsening, but a 4.4% decline over three months is certainly not a walk in the park for real sales.

Food purchases are disturbingly weak Sequentially food purchases are weakening and weakening progressively. Food purchases fall by 7.9% over 12 months, decline at an 8.9% annual rate over six months and then fall at a 12.7% annual rate over three months. Such a progression for food, the most obvious consumer staple item, is certainly vexing. Food prices have been among some of the strongest rising and most persistent showing increases globally with the combination of international supply problems, drought, interruptions due to the war in Ukraine, and the lack of availability of fertilizer to help stimulate agricultural production. Food prices have been rising relentlessly globally.

Industrial goods sales For the category 'all industrial goods' the 12-month decline logged a -3.8% pace, the six-month decline is at a -8.3% annual rate, but over three months there's an increase in the growth of sales of 0.8% annualized. That's not much of an increase, but it does interrupt the string of negative numbers. Looking across the six nonfood categories over three months, there are declines in only two categories: household appliances and new auto sales. Household appliances show declines on all horizons at a pace that is somewhat unsettling although not a clear progressive deterioration. Household appliance sales fall 10% over 12 months and fall at a 7.6% annual rate over six months, but then they return to an even faster decline at 10.5% over months. Auto sales are somewhat more mixed with a 9.2% decline over 12 months, a 5.8% increase over six months and a decline at only a 0.4% annual rate over three months.

Other categories in the nonfood retail area show annual rate increases in sales over three months such as the 10.6% annual rate increase in textile sales, the 9.9% annual increase in electronics, the 1.6% increase in footwear sales, and the 0.8% increase in furniture sales. However, textiles and footwear show declines over six months and over 12 months and declines that are relatively steep. Only furniture sales and electronic sales show any progression that seems to have any life to it.

Sales growth rate rankings are low The ranking of the year-over-year sales figures shows abject weakness across all the categories. A ranking above the 50th percentile represents a growth rate in sales volumes that is more than its median increase. There are no such increases for any category as of October. In fact, the strongest year-over-year increase is from furniture sales with a 31.6 percentile standing, followed by a 21.1 percentile standing for new auto sales, a 20.6 percentile standing for electronics, an 18.7 percentile standing for footwear and an 18.2 percentile standing for textiles. The weakest category is household appliances with only a 6.7 percentile standing for its 12-month growth rate. For all industrial goods, the sales volume standing is in its 16.7 percentile. For food, the percentile standing is the weakest on this ranking. The data in the table are ranked over a period since June 2005. The food ranking therefore is the weakest ranking in year-over-year food volume sales in the last 17 years, an extremely significant development, especially recognizing that over that span there's been population growth.
by:Robert Brusca
|in:Economy in Brief
Germany| Nov 21 2022
German PPI Breaks Sharply Lower
The German PPI broke sharply lower in October with the PPI excluding construction falling by 4.2% month-to-month; it rose 2.4% in September and 7.9% in August. The sequential growth rates for this headline PPI show a 34.5% rise over 12 months, a rise at a 30% annual rate over six months, and a gain at a 25.4% annual rate over three months. The inflation process shows a clear slowdown but still very high rates of change in headline producer prices.

But there is a huge gap between the PPI and the PPI excluding energy. The PPI ex-energy did not move lower this month. It rose by 0.5% in October, the same as in September; in August it rose by 0.4% month-to-month. The German PPI excluding energy is up by 13.4% over 12 months; it's up at a 6.1% annual rate over six months, and that drops off to a 5.4% annual rate over three months. I have plotted the ex-energy PPI in the chart above.

Like the headline PPI, the PPI ex-energy shows a deceleration in progress despite the much lesser role of oil and the exclusion of energy prices from this index. Most interesting is the huge gap between the growth rates of the PPI excluding energy and the headline PPI. The PPI ex-energy rises 13.4% over 12 months while the headline PPI rises by 34.5%. That's close to three times faster. Obviously, energy and commodity prices have a lot to do with what's been going on with inflation.

The October reading marks the first observation in the fourth quarter. Fourth quarter-to-date inflation for the headline is falling by 1.3% at an annual rate, but for the core it's still rising at a 5.5% annual rate, in line with its sequential progression.

Monetary policy and prices Monetary policy of course is made at the European Monetary Union level by the European Central Bank not in Germany by the Bundesbank. However, Germany has a high weight in the monetary union and its price developments are important period; it's instructive to look at the difference between the German CPI and the PPI to see what's going on with different metrics for inflation. Through October the German CPI is rising at a 10.4% rate year-over-year, the same as over six months; the pace rises to a 15.8% annual rate increase over three months. The CPI does not show the same headline drop-off that the PPI does since it accelerates. The PPI gives energy and commodities a much greater weight and the services sector is substantially diminished. The CPI and PPI are quite different.

Likewise, the CPI excluding energy is up by 6.5% over 12 months; that pace accelerates to 7.8% over six months and accelerates further into double digits at an 11.3% annual rate over three months. One month into the fourth quarter, the CPI is rising at a 16.7% annual rate where the core is up and 11.5% annual rate.

Oil and OPEC Underlying these statistics is oil. Brent oil prices are up by 10.8% over 12 months; they fall at a 23.3% annual rate over six months and fall at a 38.3% annual rate over three months. Clearly the weakness in oil prices has been helping the headline prices to behave. However, oil prices fell by 7.2% in August and by a further 7.5% in September but then rose by 3.2% in October. OPEC is trying to put a floor under oil prices and that may make the progressive results for the PPI headline just a little bit less relevant.
by:Robert Brusca
|in:Economy in Brief