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

Europe| Jul 22 2022
PMIs Weaken Broadly, Batten Down the Hatches
You don't have to put too fine a point on it this month to see the trend. The flash PMI readings show weakening across all the countries and all the categories for which we have flash readings in the table for July. There's growing weakness in the EMU, Germany, France, the United Kingdom, Japan, and the United States. There is growing weakness in manufacturing and services everywhere in July – except for manufacturing in the U.K. No judgement is required here.

In June, the readings were similarly weak but not as unequivocally weak. In June, the U.K. had a stronger services sector and a stronger headline (composite) while Japan also had a stronger services sector and a stronger headline with all other countries and sectors finding weakening month-to-month. May found only one composite index getting stronger that was Japan on the strength of a better services sector while there was also strengthening for manufacturing in Germany that was not enough to support the composite.

We also look at trends with three-, six-, and 12-month averages. These averages in the table are lagged by one month; they're only constructed over final data not over the preliminary or flash data. On this basis, a little bit more strength appears in the numbers and particularly a surprising result over three months compared to the three months that appear individually in the table; but then for the moving averages of three-, six-, and 12-months we are not including the month of July. However, at the far right of the table the change calculations are done on up-to-date data, including the flash readings, and there you see more widespread deterioration particularly over three months.

Even so, it's clear from the sequential averages that there is weakening in progress. And it's clear from the change data on the far right that over three months the weakening is in fact quite broad based and rather severe.

We can also try to get more of a sense of what things are like in absolute terms by looking at the queue standing or ranking data. As of July, only three readings in the table stand above their medians calculated back to January 2018. Those exceptions are the services sector in the U.K., the services sector in Japan, and Japan's composite; the latter barely beats the 50% mark at 50.9%. The United States this month comes in with the weakest data in the table with a composite reading in its lower 5.5 percentile based on a services sector that is in its lower 5.5 percentile as well. The EMU index challenges U.S. weakness with the ranking at its lower 14.5 percentile that comes about not because of extreme weakness in one sector but because of paired weakness in manufacturing and services with standings in roughly the 30th to 23rd percentiles of their respective rankings. This weakness occurs because of the weight of Germany in the EMU. Germany has an overall ranking in the 7.3 percentile, close to the U.S. and gets there the same way the EMU does, with paired weakness in manufacturing and services with rankings in the 20th the 30th percentiles, in rough terms.

The United States, the European Monetary Union, Germany, and France all have composite readings that are below the readings from January 2020 before COVID struck. This is not a good development.
by:Robert Brusca
|in:Economy in Brief
Japan| Jul 21 2022
Japan's Trade Deficit Balloons
Japan's trade trends continue to weaken as its deficit rose again in June and as the trend for the deficit continues to worsen from 12-months to six-months to three-months. Twelve-months ago, the trade position was in surplus. That's now a thing of the past.

The trends clearly showed that imports are stuck at a very high growth level well above that for exports; exports are trendless and fluctuating in much lower range of growth. Imports fluctuate in a higher range of growth and show some signs of accelerating.

Not surprisingly, during this period the yen has been weakening and weakening sharply; the yen is off by 21.7% over 12 months, it's falling at a 38.5% annual rate over six months and at a 62.9% annual rate over three months. A weaker yen makes imports more expensive at home and exports cheaper abroad. More expensive imports should cause consumers to buy fewer of them while cheaper exports should increase Japan's export penetration. On balance, the weaker yen should work to correct Japan's widening trade deficit. That, of course, is in theory.

In practice, the weak yen creates some problems for Japan. One is that the weaker yen makes oil imports even more expensive. In the short run, it's hard for consumers to substitute away from an energy source. To the extent that the weak yen causes the yen price of oil to rise sharply, the Japanese trade balance expressed in yen terms will widen for some time. Eventually consumers may find a way to cope with higher energy prices… to use more insulation, to buy more fuel-efficient cars, and so on. In time there is a price elasticity for energy products and energy consumption can be reduced. In Japan, however, there is a move afoot to recommission shuttered nuclear power plants. In the wake of Japan's nuclear disaster, they were all being decommissioned. But now in the face of global warming and high global energy prices, Japan is extending the commission on some plants that had been scheduled to be closed and making plans to open others. This could help to reduce its energy bill.

We can see the impact of the currency shifts on Japan prices as import prices are up by 46.2% over 12 months, up at a 58.8% pace over six months, and up at a 110.7% annual rate over three months. The weaker yen is pushing import prices up strongly. However, export prices also show substantial life, rising 18.8% over 12 months, at a 28.1% pace over six months and at a 40.1% pace over three months. The weakening yen allows Japanese exporters to raise their yen price and still to cut their export price in foreign currency terms. This is another way that a weakening currency helps to right the trade balance. Exports get a double boost because prices in the export market fall in foreign currency terms and through the effect of price elasticities that should cause the volumes purchased to rise more sharply. At the same time the yen prices are rising and so this can have a very positive effect on export prices and on export values.

Because prices move in advance of volumes, there is something called A ‘J-curve’ that reflects the fact that after a currency falls the trade balance often gets worse before it gets better sketching out a pattern of the letter ‘J’ lying face down. This mostly because of imports have prices rising before consumer react to buy fewer imports so total import value rises after a currency depreciates – note the rapid increase in Japan import values.

So far, the impact on real flows isn't discernible; exports are still weak across all horizons, down by 0.4% over 12 months, down by 3.5% at an annual rate over six months and down at a 2.1% annualized pace over three months. Real imports fall by 2.3% over 12 months, rise at a 5.7% annualized rate over six months but then fall at a 5.4% annual rate over three months. The impact of the currency rate change has yet to set in on trade flows.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Jul 20 2022
Deloitte Surveyed CFOs Batten Down Their Hatches in the U.K.
CFOs in the U.K. responding to the Deloitte survey paint a dour picture of current circumstances and a picture of difficult circumstances for the coming 12 months. Among the ten elements in the current survey, the highest standing goes to the cost of credit being high, followed by a very high ranking for financial and economic uncertainty, a moderately high reading for demand for credit for the next year, and a moderately firm reading on corporate leverage. These responses show us that CFOs are wary about credit costs, needs for credit and about financial uncertainty.

The lowest rating among these current conditions is for the attractiveness of corporate debt. Clearly in this environment with high inflation and rising interest rates, corporate debt isn't attractive. This is the lowest rating in the survey on this timeline for this component. As an overall view, there's also an extremely weak reading for the financial prospects compared to three months ago. That assessment has been lower less than 5% of the time. And in a related low ranking, CFOs rate credit availability as quite poor and equity issuance as unattractive. Bank borrowing is also viewed as unattractive. There is a low, 31 percentile standing, in response to the question it's a good time to take risk. Only one third of the surveyed CFOs think that it's a good time to take risk.

Turning to some of the key metrics for 12 months ahead, the two lowest responses are for operating cash flow and for cash (or equivalent) levels. Operating margins also get very low assessment standing in the lower 5% of their historic queue of values. Dividends and share buybacks show a standing in the lower 10% of their historic queues. CFOs give their expected revenues a lower one-third standing for the next 12 months. Capital expenditures have a lower 25 percentile standing. Ranking very high, of course, are costs: operating costs have a 97.8 percentile standing as do financing costs.

Looking at the survey responses by quarter, much of this weakening has occurred within the last two quarters. Almost any category that you would consider a good response has deteriorated sharply over two quarters; all those considered bad responses have increased sharply. The outlook portion of the survey mostly began to deteriorate sharply as of Q1 2022. Deterioration has continued or worsened into Q2 2022.

Looking at changes since Q4 2019, which takes us back before the COVID virus struck, we see that for the most part bad metrics have gotten worse and good metrics have deteriorated. Despite there have been a significant recovery after COVID struck, the rise in inflation seems to have reintroduced an extremely negative sentiment across CFOs in the United Kingdom. The survey gives us a road map of how CFOs are starting to pull back and batten down the hatches and prepare for bad things to happen as inflation continues to linger high, as the Bank of England gets prepared to raise rates further and as war continues between Ukraine and Russia causing risks of more supply disruption and higher inflation to linger. There's almost nothing in this survey from which to take heart.
by:Robert Brusca
|in:Economy in Brief
Europe| Jul 19 2022
ECB Gets Ready to Meet As Inflation Scorches Europe; The Scorching, Greening, and Dashed Dreaming of Europe
Europe is not just being roasted by global warming, extremely hot temperatures, and raging forest fires, but also by an extremely overheated inflation rate. The targeted HICP inflation rate for June rose by 0.7%, taking the year-over-year rate up to 8.6%. The core rate slowed in June, rising by 0.1%, after a gain of 0.5% in May, but it's up at a 3.7% annual rate year-over-year in June.

The headline inflation rate shows some cooling in its path as its 8.6% 12-month rate is at a 10.9% annualized rate over six months, then cools to a 6.5% pace over three months. The core rate, however, continues to accelerate from 3.7% over 12 months to 4.2% over six months, to 4.3% over three months.

The ECB at long last is getting ready to raise rates at this week's meeting. There is some speculation that there could even be a 50-basis point rate hike, not just a first-step 25-basis point rate hike. The Bank of Canada just hiked rates by 100bp; last meeting the Fed stepped its pace up to 75bp when 50bp had been expected. The ECB has been struggling with the issue of fragmentation which it's an attempt to deal with the disparate impact of inflation and rising interest rates across various European Monetary Union members. All eyes are going to be on the ECB this Thursday.

Clear, if mixed, inflation trends Inflation trends in the European Monetary Union are clear. Looking at the four largest EMU economies, the 12-month inflation rates range from a high of 10% in Spain to a low of 6.5% in France with Germany logging an 8.3% pace and Italy logging an 8.5% pace. The progression of inflation from 12-months to six-months to three-months over these countries shows mixed trends – but they are the same mixed trends across these four countries. There is acceleration from 12-months to six-months in all cases. Over six months inflation ranges from 11.9% in an annual rate in Italy and Spain to 9.5% annualized in France. However, over three months the inflation rate breaks lower in each of these countries, ranging between 9.7% in Italy to 5.3% in Germany. All these, of course, are clearly excessive rates and excessive compared to the 2% average that the ECB now aims at. Since the ECB is looking at some sort of (unspecified) average, it is likely that the higher 12-month inflation rates are more relevant for policy than the inflation rates calculated over short periods.

Core inflation trends Core inflation tells a slightly different story although it's not necessarily a story that is better; in some ways it is better and in other ways the story is worse. The story of core inflation is being told from lower levels of inflation than what we see in the headline. That much is good news. Over 12 months the inflation rate among the four largest EMU economies for either core or ex-energy inflation (ex-energy in the case of Germany) ranges from 3.5% in France to 5.4% in Spain. Over six months core inflation accelerates the same as with headline inflation. It accelerates in each country with the pace of inflation over six months annualized, ranging from 4.4% in Germany to 7.6% in Spain. But now we get to the part where things get worse rather than better. Over three months inflation accelerates in each of these countries. Inflation in Germany is the lowest at 4.7% while inflation in Italy is at a pace of 8.2%; inflation in France comes in at a 5.8% pace while Spain's rate is at a 7.8% pace.

Compares and contrast
Headline inflation in the EMU runs at 8.6% over 12 months and then decelerates to 6.5% over three months. The core inflation rate runs at 3.7% over 12 months but accelerates to 4.3% over three months. The levels of core inflation are more tolerable than for the headline, but the pattern for the core showing ongoing acceleration is more worrisome. These two measures leave the ECB with nowhere to hide.

A longer view
Also worrisome are the five-year results for inflation. The compounded five-year inflation rate as of June for the headline is 2.8%. Despite some persistent inflation undershooting before inflation jumped up, inflation has now become so strong in the recent months that the compounded inflation rate over five years has moved above a 2% pace. Core inflation, however, still fits inside of the objective of the ECB at a 1.6% pace. Looked at in terms of the four largest EMU members, each of them has a five-year average well above 2%. For Spain, the average is 3%; for Germany it's 2.9%; for France it's 2.5%; and for Italy it's 2.3%. However, the inflation rate for the core is still tame: German inflation excluding energy is up at a compound pace of 2.1% arguably at the borderline of acceptability. Spain logs a 1.7% pace, France logs a 1.6% pace, while Italy's pace for compounded inflation is 1.3%.

Excess inflation
Excess inflation is still largely being driven by energy as well as food components. When we exclude those two things and look at core inflation, it is better behaved; however, it is still over the line. Over these longer five-year periods, core inflation appears more suitable. But for how long with that be the case with inflation still running so hot?

ECB policy challenges
The ECB continues to have problems and questions with the outlook for energy in July still in flux. Brent energy prices measured in euros fell by 3.8% in June after rising 23% in May and 9.6% in April. Brent measured the same way rose at a 184% annual rate over the last three months. And there are ongoing concerns about what will happen with energy prices. U.S. President Joe Biden just got back from a trip to Saudi Arabia where he tried to convince the Saudis to pump more oil to help alleviate the stress on world markets. In the immediate aftermath of this trip, it doesn't sound like he was very successful, but time will tell what OPEC-plus will do.
by:Robert Brusca
|in:Economy in Brief
Japan| Jul 15 2022
Japan's Surveys Show Mixed Conditions
Japan's surveys - for those available through June- show mixed and inconsistent readings. This suggests that the economy is going through some turmoil since indicators for the same economic concept are sometimes giving very different readings.

We saw that already with release of the industrial production report that showed abject weakness in contradiction to the S&P Global manufacturing PMI readings that are showing continued expansion in the sector.

Japan's economy watchers indexes are quite high-valued with standings in the 90th queue percentile except for the retail sector. However, even for the economy watchers framework, the future index is substantially weaker with only a 39th percentile standing.

All Teikoku indexes are below the 50th percentile which puts them below their median readings. However, most of them have readings that are in the 35th percentile to 40th percentile range with wholesaling being an exception and closer to its median value of 50%. The main readings from the METI indexes show the reading for industry has a 3.5 percentile rank standing which makes its signal much more like what we see from industrial production. The reading for services has a 47.9 percentile standing which agrees with the Teikoku framework and it's much weaker than the economy watchers indexes.

However, in the table we also evaluate these same indexes by looking at their ranking in terms of growth year-on-year. In terms of growth the economy watchers indexes are generally weaker but are still quite firm with the overall economy watchers index at a 75-percentile standing instead of the 90% standing it has on its level. The future index evaluated in terms of yearly changes falls from a 39-percentile standing to a 26-percentile standing – it becomes even weaker. The Teikoku indexes looked at it in terms of their changes have growth rates that are generally higher than their level standings; manufacturing for example has a 44-percentile standing (42% on levels), retailing has a 58-percentile standing (39% on levels), services have a 78-percentile standing (40.6% on levels) and so on.

The growth ranking from the METI indexes gives stronger readings than the level indexes with the industry ranking rising to 15th percentile from the 3.5 percentile, a stronger reading but still a very weak reading – and not much change in economic terms. However, for the tertiary (or services) sector the 48-percentile standing for the index level moves up to a 96-percentile ranking in terms of growth.

There also are readings for the leading economic index. The LEI when evaluated as an index level has a 78-percentile standing; however, evaluating the growth of the LEI index finds that standing falls to the 42nd percentile below its historic median.

The rankings of these metrics on growth or levels shows idiosyncratic differences. The economy watchers complex gets a little weaker, Teikoku get stronger, the METI readings are mixed, the LEI is weaker when evaluated on growth. There is little generalization here.
by:Robert Brusca
|in:Economy in Brief
Japan| Jul 14 2022
Japan's IP caves in May
In May, the finalized industrial production figures for Japan show that IP has fallen by 7%; the decline in manufacturing is 7.5% month-to-month. Yes, these are month-to-month percent changes; they show declines that are extremely severe. Not only that, but Japan has total industrial production falling for three months in a row. Manufacturing industrial production is falling for two of the last three months.

Over three months industrial production in Japan is declining at a 30.4% annual rate. In manufacturing it's declining at a 30.3% annual rate. Over six months the two series decline at about a 16% annual rate and over 12 months the two series decline by 4% or more. These are severe conditions and very discouraging trends.

Japan's economy is in a very difficult situation right now, experiencing declines in output and a yen that continues to get weaker.

Japan's household spending has been weak, having slipped by 0.5% in May on a year-over-year basis. Rising prices are putting Japanese consumers under pressure and making them cautious.

Japan also continues to suffer the repercussions from the ongoing China COVID-19 curbs. Japan's largest trading partners are China and after that the United States.

The chart at the top (Japan's IP Sequential Growth Rates) is the usual sort of growth rate chart for industrial production. It looks at sequential annualized growth over three months, six months and 12 months in an attempt to identify changing trends. It shows flatness and some weakness from mid-2020 onward (after the big drop in output) amid some rebounding as well as output has been volatile.

The table also shows growth rates over these various periods for industrial sectors as well as the quarter-to-date growth rates by sector. The QTD growth rates are nearly all showing declines in progress – mining is the only exception. I have also included the net growth in industrial production and in various sectors since COVID struck, providing a comparison with levels prevailing in January 2020. And that shows declines everywhere except for utilities.
by:Robert Brusca
|in:Economy in Brief
Europe| Jul 13 2022
Euro Area IP Advances Again
Output in the euro area rose by 0.8% in May after rising 0.5% in April. The manufacturing sector logged a gain of 1.4% in May after rising 0.1% in April. However, for both metrics, output is now declining on balance over three months. Overall industrial production is declining at a 1.9% annual rate over three months while manufacturing IP is falling at a 1.1% rate over three months. Both measures show net declines in the current quarter-to-date that has two out of three months' worth of data in hand.

The manufacturing sector in the EMU shows increases in two of three sectors in May with intermediate goods output being flat, consumer goods output up by 1.6%, and capital goods output up by 2.5%. Consumer goods output rose for two months in a row and in two of the last three months. Capital goods output rose in May after declining in both March and April. Intermediate goods output rose in April but declined in March.

Over three months, consumer goods output is rising at a 6.1% annual rate, intermediate goods output is falling at a 4.8% annual rate, and capital goods output is falling at a 6.4% annual rate. Intermediate goods output shows ongoing decay: there is a 0.2% decline over 12 months, a flat performance over six months and then a 4.8% decline over three months. Capital goods output shows declines over all three periods: a 1.4% decline over 12 months, a 0.8% decline over six months, and a 6.4% decline over three months. Consumer goods alone show increases over all horizons, rising by 6.5% over 12 months, at a 10% pace over six months and at a 6.1% pace over three months.

In the quarter-to-date, consumer goods output is rising at the double-digit pace of 12.1% annualized, intermediate goods output is falling at a 1.7% annualized rate, and capital goods output is falling at an 8.8% annual rate. The strength in output clearly is concentrated in the consumer sector.

Output by nation
Of the 13 EMU countries listed in the table for May, five show output declining with the rest showing output gains on the month. Six countries show declines in output in April and five show declines in March. Output continues to increase in more countries than it decreases and that has been persistent. Still over the last three months, there is a substantial core of countries that are showing output declines marking the industrial sector as somewhat uneven.

However, taking the whole three-month period, there are output declines in only four of the 13 EMU members. Looking at output over six months, there are only three countries that have output declining on that horizon; those are Germany, Malta, and Portugal. Over 12 months, four countries show output declines. In the quarter-to-date, there are output declines in five of the 13 reporting EMU members.

Looking at the recovery in output compared to its pre-COVID level in January 2020, output has increased on balance in 9 of 13 countries; the exceptions are Germany, France, Malta, and Portugal. There are double-digit output increases as well: Ireland, the Netherlands and Belgium log double-digit gains since January 2020 and Austria and Greece log strong increases in output greater than 9%. Manufacturing in the euro area has progressed with firm output trends since COVID struck although the overall gain in the EMU-area manufacturing output on that period is only 1.1%.

Results for three European countries that are non-EU members, the U.K., Sweden, and Norway, demonstrate somewhat mixed results. Norway shows output declines over 12 months, six months, and three months, but the pace of decline is gradually dissipating over those horizons. Both the U.K. and Sweden show output increasing over all three horizons and accelerating increases.
by:Robert Brusca
|in:Economy in Brief
Global| Jul 12 2022
ZEW Experts Increase Their Negativism in July
If you were to accentuate the positive and eliminate the negative this month, there would be almost nothing left of the ZEW survey. In July, the ZEW assessments have generally weakened across the board except, of course, their perceptions of inflation which are stronger. A look at the chart at the top shows how much since COVID has struck the fortunes of the euro area have aligned with the assessments for Germany. Since COVID struck, the tracking of the two conditions indexes is extremely close, much closer than in the pre-COVID period.

The disease
Table 1 provides verbal descriptions of the month-to-month changes of the various entries. Color coding is used to demonstrate whether the underlying reading is above its median or not. The color 'black' indicates an underlying rank reading (value in Table 2) that is greater than a 50th percentile standing which notes in each case the historic median value. Values in 'red' denote weaker-than-median standings. Bad news, if not weakness is expected everywhere, short-term rate expectations, and a weaker euro-the currency rate (stronger dollar), lower long-term rates, a weaker stock market performance except for stock prices in the U.S., and higher inflation all around (the exception to 'weakness but not to 'bad news'). Only short-term rates, long-term rates in Germany and the dollar (not the euro) have stronger-than-median percentile standings underlying their month-to-month readings.
by:Robert Brusca
|in:Economy in Brief
Global| Jul 11 2022
OECD Slowdown Signal Is Broad; The Covid Cycle: Drop-Rebound-Decay
The main regions of the OECD leading indicators show declines in June. The all-area OECD metric, EMU members of the OECD, and the U.S., show small 0.1% declines with Japan showing a flat reading month-to-month for the second month in a row. Over three months, all regions show declines ranging from 1.6% to 2% except for Japan that logs a 0.3% increase. Over six months, all regions except Japan also showed declines like their three-month declines. Over 12 months, all regions show increases. The leading economic indicators led by the U.S. have a 4.5% gain followed by the top seven OECD countries with a 4% gain. Japan shows the weakest gain at 2.7%. The data show weak economic signals as a recent event. Evaluating the current indexes according to their queue percentile standings, Japan has the highest standing with a 75.7 percentile standing; the other regions, the OECD, the top seven OECD countries, the euro area members of the OECD, and the U.S. have standings in their respective lower 30th percentile of their historic ranges. These rankings are based on the levels of the indexes in June. Current standings are broadly weak.

The second panel of the table shows changes in averages to smooth the process out. These panels give roughly the same signals as in the top panel, showing declines in May and June with the declines over the recent six months and even over six months ago. The six-month change of 12-months ago shows across the board increases.

Looking more closely at regions and individual countries and evaluating them by the level of their indexes in the bottom panel of this first table, we see indexes below 100, indicating below-normal growth for all entries except Japan. This is true for June and for May observations; in April, Germany shows a value that is not below 100. In March, only the OECD, the European Monetary Union, Japan, and Germany show values at or above 100. However, apart from these exceptions, we see evaluations of growth below normal for all these countries and regions. March is right after Russia invaded Ukraine and it is when the Fed's rate hikes began. The change column marked 'now' looks at the ratio of the current observations to six-months ago which is a favorite way to evaluate these leading indicators: on that basis, only Japan is higher in June then it was six-months ago. The far-right hand column evaluates these current indexes historically. On that basis, only Japan and Germany have standings above their 50th percentile; that level marks their historic medians. The weakness indicated by the economic indicators is broad-based and has worsened since March.
by:Robert Brusca
|in:Economy in Brief
Canada| Jul 08 2022
Canada Logs Two Different Job Trends
Job trends in Canada show employment gains picking up steam in the goods sector while they are slowing down in the services sector. However, much of that comes from the changes in the month of June where services jobs fell by 75,700 and goods sector jobs rose by 32,500 after two months of declining.

Service sector jobs declined by 76 thousand in June after logging solid gains in the previous two months. Service sector jobs show gains over three months, six months, and 12 months. Goods sector jobs show a decline over three months with gains over six months and 12 months. This month's drop is only the third service sector job decline in the last 14 months. The goods sector is coming off back-to-back declines that are its first back-to-back declines since mid-2021 when COVID was still a factor and when the sector experienced five monthly declines in a row.

Over 12 months, employment is up by 4.2% led by a 4.4% gain in the services sector with goods sector employment up by 3.7%. Over the broad 12-month period, both sectors are showing solid job growth.

Canada's unemployment rate fell to 4.9% in June from 5.1% in May, despite the decline in employment as there were fewer people seeking employment. The unemployment rate has fallen by 2.7 percentage points over the last 12 months. And over the last 12 months, the labor force participation rate has edged lower by 0.1 percentage points creating a minor tail wind for the unemployment rate to improve.

Job gains have been especially rapid in construction, where jobs are up by 8% over 12 months. Despite some increases in interest rates, construction jobs increased by 23,000 in June after several months of showing job declines.

Service sector jobs showed the strongest 12-month growth in information and culture followed by accommodation & food services, public administration, and professional & technical jobs. The category of “other" is the only major jobs category in services that shows job declines over 12 months. In the goods sector, agriculture shows a net decline over 12 months along with forestry and mining.
by:Robert Brusca
|in:Economy in Brief
Germany| Jul 07 2022
German IP Sequentially Weakens
German industrial production rose for the second month in a row in May. The headline for IP increased by 0.2% following an April rise of 1.3%. However, those two increases followed a substantial drop of 4.2% in March. As a result, the three-month annual rate decline in German industrial production is at a -10.3% annualized rate, the decline over six months is at a -1.6% pace and the decline over 12 months is -1.4%. German industrial production is declining; its decline is accelerating despite increases in output over the last two months

Monthly sector patterns
In May, consumer goods output fell by 0.9%, dropping for the third month in a row. Capital goods output rose by 2.2%, rising for the second month in a row, after a 3.7% increase in April. While that two-month string of increases seems impressive, it still does not get industrial production out of the hole since capital goods output in March fell by 7.8%. For intermediate goods, the output trend has been hot and cold: intermediate goods output fell by 0.4% in May, rose by 0.7% in April and fell by 3.3% in March

Sequential trends in IP by sector
Looking at these three industrial production sectors, what we see is clear deceleration. For consumer goods, output rises by 2% over 12 months, eases to a 0.4% rate of increase over six months and then falls at an 8.5% annual rate over three months. Capital goods also show clear sequential deceleration with a 0.2% decline over 12 months, a drop at a 3.5% annual rate over six months that accelerates to a decline at an 8.9% pace over three months. Intermediate goods do not show sequential deceleration per se; however, they do show declines over all three sequential periods. They log a 4.1% decline over 12 months, a smaller decline over six months, then register an 11.4% rate of decline over three months. While the six-month decline is not as severe as the 12-month decline, the weakness steps up over three months. In fact, over three months, intermediate goods output is weaker than any of the other sectors that are showing sequential declines.

Manufacturing output orders and sales
Manufacturing output, taken by itself, shows that output increased by 0.5% in May after a 1.9% rise in April. Those increases compare to a 4.8% drop in March. Manufacturing output in Germany shows sequential deterioration from a -1.3% annual rate over 12 months to a -1.9% pace of decline over six months to a -9.8% annual rate over three months. Real manufacturing orders also show persistent and sequential decelerations with orders falling by 3% over 12 months, following a 5.2% annual rate drop over six months, and then falling at a 21.1% rate over three months. Sector sales in manufacturing adjusted for inflation rise by 1% over 12 months, fall at a 1.2% pace over six months and fall at an accelerated 5.5% decline over three months. Sector sales adjusted for inflation also are showing this persistent deceleration. Reports on German output and on manufacturing are consistently weak and all the sectors and all these metrics show declines in the quarter-to-date as well.

Other German indicators
We can also look at some industrial indicators for Germany: there's the ZEW current index, the IFO manufacturing index, the IFO manufacturing expectations index, and the EU Commission industrial index. Some of these are net diffusion indexes and some of these are just raw indexes so that the raw index level month-by-month isn't necessarily meaningful when compared across indicators. But if we look at the average levels for all these variables and how they change, we see secular deterioration: all four of these industrial gauges (1) the German current situation, (2) the manufacturing situation, (3) manufacturing expectations, and (4) the EU industrial index – all get weaker from 12-months to six-months to three-months.

Indicators quarter-to-date
In the quarter-to-date, the ZEW current index weakens by 4.1 points and EU Commission index weakens by 0.2 points. However, the IFO manufacturing index increases by 0.7 points and the IFO manufacturing expectations reading improves by 1.6 points in the current quarter-to-date.

IP elsewhere in Europe
Other early-reporting European countries, three of them European Monetary Union members, report manufacturing IP for May. None of them show the sequential deterioration that we see in Germany. France shows a 2.2% gain its index over 12 months that accelerates to a 2.9% annualized pace over six months but then collapses to a 0.3% decline over three months Spain shows persistent acceleration. Sweden, an EU member, shows persistent acceleration. Portugal shows a 3.1% gain over 12 months, a decline in output over six months, then a stronger 9.7% annualized gain over three months.

Quarter-to-date trends
The German economy, the largest in Europe, is showing some of the weakest and consistently weakest results in May in the quarter-to-date. Other early-reporting European economies show mixed trends. France shows a decline in the quarter-to-date with industrial production falling at a 3% annual rate. However, Spain, Portugal, and Sweden all show increases in industrial production in the quarter-to-date as of May.

IP growth since Covid struck
Germany also shows declines in industrial production for its headline, for manufacturing overall, for construction, and for the three main manufacturing sectors compared to where these indexes stood in January 2020, just before COVID struck. However, among other European reporters, trends are more diverse. Industrial production in France is weaker than it was in January 2020. Portugal is weaker than it was in January 2020 as well. But both Spain and Sweden show industrial production stronger than the indexes were over two years ago.
by:Robert Brusca
|in:Economy in Brief
Europe| Jul 05 2022
Composite PMIs Step Back But Most Still Show Expansion
The S&P global composite PMIs took a turn for the worse in June. Among a sample of 20 countries and regions, only seven improved month-to-month. That means nearly twice as many deteriorated as improved. However, among the twenty, there was only one observation with the diffusion value below 50 indicating that there was actual economic contraction in June - that occurred in Ghana.

Growth rules but slowing encroaches That set of generalizations is true over all the timelines in the table where we look at the most recent three months and we look at a period of three months, one of six months and another of 12- months, in each case, compared to earlier periods to assess the changes and the levels of the various composite PMIs. Looking at these various slices of time, there is no period in which more than three composite PMIs are below 50 at the same time. So, 17 out of 20 of these jurisdictions have diffusion values above 50, demonstrating that growth prevails in every one of these timelines. However, of the six comparisons (three individual months and three periods), there are three comparisons of period changes that show that more than half or half of the jurisdictions are slowing; two other periods show a significant amount of slowing while only one period - that period is the comparison of 12-months to 12-months ago - in which only a few of the jurisdictions are weaker than they were in the previous period.

The clear overview for the composite PMIs is that growth remains the order of the day although there is some significant slowing. There's slowing in 13 of 20 areas in June, 11 slow in May and seven slow in April. The tendency to slowing has been expanding in the last three months. On the other hand, looking at the net changes over three months we find that 9 jurisdictions have slowed, slightly less than half, but over six months 12 have slowed.

The table also gives us averages and medians for the PMI measures in the table over the last three months; the average has fluctuated between 53 and 55 while the median has been between 52.7 and 55.8. For this group of 20 countries, these are moderate or normal composite PMIs. Over three months, six months and 12 months, the averages fluctuate between 53.7 and 54.4 with the median fluctuating between 53.8 and 54.9, looking at the same sort of range.

High-low percentile standings The average percentile standing in June for the various countries is a 79.9 percentile standing while the median is at 81.5. These percentile standings place the current PMI value for each country or region in a percentile positioning in its high-to-low range of values since January 2018. So that on this period we see that when placed within the range of recent values current performance is relatively closer to the top of the range than to the bottom. However, the second ranking statistic, and the one I prefer, is the queue standing.

Queue percentile standings The queue standing places the current observation expressed as a percentile standing among all observations from January 2018 to date – not just positioning it between the highest and lowest. It is an ordinal measure which is what the headline ‘queue’ stands for; it tells you whether the current value is at the head of the queue or at the end of the queue or near the middle. For both the average and the median we see very middle of the road queue percentile standings. The average is at its 50.2 percentile while the median is at its 52.8 percentile. These queue standings (or ranking statistics) position the current crop of PMI readings near the middle of the distribution they had occupied during this period. That assessment abstracts from the particular level reading is this month. It is the ranking that places the current observation as a position and its queue of historic data and focuses our attention on its relative position rather than on the absolute value of diffusion itself. That gives the reading much more context.

When we put these various findings together, what we see is that we have a group of twenty countries whose current performance is what it has been on average since early-2018. We see that recently there has been some tendency for the composite PMIs to register slower growth. And not surprisingly giving these middle sorts of ranking assessments, there are very few members of this group that show contracting growth. In fact, over the various time segments, we look at here there have been very few that have shown contraction. Still, there are seven jurisdictions with queue standings below – and in some cases well below - their respective historic medians. The U.S. and Germany are among countries with PMI queue standings in the lower one-quarter of their queue of observations since January 2018 - that is not reassuring.
by:Robert Brusca
|in:Economy in Brief