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

United Kingdom| Apr 13 2022
U.K. Inflation Continues Its Spurt
Inflation in the United Kingdom surged, rising by 1.1% in March after gaining 0.6% in both February and January. Inflation, using the HICP measure- which is also the CPI for the U.K. - continues to accelerate from a 7% pace over 12 months to 9.3% over six months to a 9.5% annual rate over three months. Inflation in the U.K., like in the U.S. and like in Germany, is running loose and it's too hot for the central bank’s inflation target of 2%. And in the U.K., that target continues to apply to the CPI (or HICP) although the official inflation rate in the U.K. is the CPIH which also includes an estimate for housing services much like the U.S. CPI. The CPIH rose by 1% in March, accelerating from 0.5% in February and 0.5% in January. It is accelerating and a little bit less sharply from 6.3% over 12 months to 8.3% over six months to an annual rate of 8.7% over three months. The rate of change of the CPIH is a little bit less than for the CPI and its acceleration from 12 months ago is also tamer. But the signals and changes are broadly similar.

There's also available, currently, an ex-food, ex-energy (and ex-alcohol) core measure for the CPIH. That metric is also accelerating, the 0.8% gain in March is up from 0.4% in February and 0.6% in January. The CPIH core accelerates from a 5.2% pace over 12 months to a 6.3% pace over six months to a 7.6% pace over three months. This gauge is running a little bit less hot than the CPI and the CPIH, but its acceleration is nearly the same as for the CPI measure.

Turning to the 10 categories of the CPIH in the table, inflation is accelerating in March in five of them. In both January and February, inflation accelerated month-to-month in five of them as well. In addition, inflation in the various headline series also accelerated month-to-month except for February when the CPIH and core measures did not accelerate - but only the core rate backed down.

The diffusion indicators at the bottom of the table capture the breadth of acceleration; these are calculated using even the headlines in the table to provide a little bit more weight to those categories that deserve more weight. The aggregate diffusion measure shows inflation in January, February, and March that has continued to run with pretty much the same breadth with inflation accelerating at about 60% of the categories with some slight let-up in February when that percentage fell to 46%.

Looking at sequential behavior, inflation from 12-months to six-months to three-months we see that over three months there's acceleration across the 10 categories in half of them. Over six months we see acceleration everywhere with one exception that being communication. And over 12 months we find the same thing with acceleration everywhere except for communication.

At the same time, the diffusion statistics show the breadth of inflation over 12 months has moved up to 92% which is sharply higher than it had been over 12 months for the 12-month period previous to this when inflation was only rising in 23% of the categories and the headline for the CPI was up only 0.7%. Inflation over the last 12 months has accelerated extremely sharply and extremely broadly. Over six months inflation has continued to accelerate, running up to a very high pace and accelerating by more than two-percentage points between 12-months and six-months with the breadth of acceleration in 92% of the categories. Over three months there is some backing off as the headline continues to accelerate slightly to a 9.5% pace from a 9.3% pace. The CPIH shows slightly more acceleration (six- to three-months) and the CPIH core measure shows even more acceleration, but the details of the report show that across all inflation readings inflation only accelerated and about 61% of the categories over three months. That is still broad, well above the neutral reading of 50%, but well back of the 92% marks set over six and 12 months.

Over three months in those categories where inflation has backed off accelerating, the results have not been particularly dramatic. For food & nonalcoholic beverages, the inflation rate nicked lower to 8.1% from 8.2%; for housing and household expenditures the inflation rate annualized over three months stands at 5.1% compared to a 6.2% pace over six months. Health care costs rose by only 1.7% at an annual rate over three months compared to 2.6% over six months. Education costs rose at a 3.3% pace over three months compared to 5.3% over six months. And miscellaneous goods & services prices rose at a 1.5% pace over three months compared to 2.5% over six months. While there are 5 categories where acceleration backed off, half of the detailed categories, over three months the backing off was modest and in the end dominated by acceleration in other categories.
by:Robert Brusca
|in:Viewpoints
Germany| Apr 12 2022
German Inflation Jumps Sharply in March
German inflation surged in March, jumping by 2.1% month-to-month in March alone. In ECB parlance, the HICP target is for a gain of 2% over 12 months, not in one month. The German contribution to EMU-wide inflation is way over the line. German core HICP inflation is more modest in March but still excessive. It is up by 0.5% month-to-month for an annualized rate of 6.1%.

Headline inflation trends Over 12 months, the German HICP is up by 7.6%. Over six months, the annualized pace is 11.4%. Over three months, the pace is up to a whopping 17.6% - I won't try to annualize the month-to-month gain for you, but that is going to be in the stratosphere.

Core inflation trends The core rate is up by 3.7% over 12 months and its annualized pace over six months rises to 4.2%. But over three months, the HICP core pace is back down to 3.7%. That is good news and evidence of inflation resilience in the face of a raging headline. However, the German domestic CPI is not so upbeat as its 3-month core pace accelerates from three-months to six-months to 12-months, with no drop-back.

Inflation diffusion – a hopeful sign? Inflation diffusion, the breadth of inflation acceleration across the main CPI categories, is at 81.8% for year-over-year inflation-that metric compares the 12 month-rise in price changes across categories to their respective 12-month increases of 12-months ago. Over six months diffusion drops to 54.5%, a comparison of inflation acceleration over six-months relative to 12 months. That acceleration is modest despite the actual very strong gain of inflation over six months. Over three months as well the diffusion reading is 54.5%; that metric compares inflation acceleration over three months compared to over six months. Diffusion at 100% indicates inflation accelerating in all categories; diffusion at zero percent indicates inflation accelerating in no categories. 50 percent is the 'point of neutrality' where inflation acceleration and deceleration are balanced. At 54.5% diffusion three- and six-month inflation acceleration this month is showing some net increased inflation pressure, but not much. Certainly, diffusion suggests that the breadth of inflation is not as intractable as inflation strength suggests. Whether this is good news or evidence that inflation must spread further before it can settle down, only time will tell.

Where inflation is most intense Over three months inflation accelerates in six categories: a 46.8% annual rate in transportation, a 26.8% annualized gain for rent & utilities, a 9.7% pace for food, a 8.8% for restaurants & hotels, a 6.6% pace for alcohol, and a -1.3% pace for communications (since over six months prices in that category had fallen even faster, the 1.3% drop is technically a period-to-period acceleration). Over six months the same categories accelerated except that communication drops out replaced by recreation & culture. Over 12 months acceleration is broad based; it accelerates everywhere except for two categories: education and 'other.'

Brent oil prices During this sequence of dates, Brent oil prices measured in euros have accelerated from a rising pace of 85.3% over 12 months to 156.8% over six months to 461.1% over three months. A great deal of the inflation acceleration impulse is coming from oil and commodities and through food. Transportation and 'rent & utilities' are the leading two inflation categories in each time segment with food in the third position each time. Still, food and energy are important and just because inflation is intense there does not mean it will stay there and not migrate to other categories. When food and energy cause cost pressures, that often generates broader price pressures as well. So, while the breadth of inflation in Germany is restrained since so much of the inflation has been recent, it is not yet clear how much of it has yet to be transmitted into final product prices before prices can stabilize and inflation can settle down.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 11 2022
LEIs Sour: Growth Rules Prospects Drool...
The OECD leading economic indicator for the entire OECD region fell by 0.1% in March, matching its 0.1% decline in February. Over three months the index is falling at a 0.7% annual rate, the same pace as its decline over six months. Over 12 months it's rising by 2.7%. The standing of the index level is at the queue percentile standing at the 50% mark putting at exactly at its median - a neutral standing overall for growth prospects.

The index for the OECD-7 was flat in March after being flat in February. The index shows two declines, one over three months and another over six months with a 3% increase over 12 months. The index level standing is slightly better than for the whole of the OECD region at its 52.7 percentile.

The euro area shows a -0.1% reading for March, the same as February. Hit declines at a 1.4% annual rate over three months compared to minus 1.2% over six months and the 2.9% gain over 12 months, the index is at a 57.2 percentile standing for the euro area, a more moderate position.

For Japan, the OECD index is flat in both March and in February. It's flat over three months; it declines at a 0.1% pace over six months and is up by just 1.5% pace over 12 months. Its index logs a 65.8 percentile standing, marking it as stronger than the other OCED standing in the table. Japan's economy has been and remains sluggish.

The U.S. metric shows no change in March and no change in February with a 0.1% rise over three months. It logs a -0.2% change over six months and over 12 months at a 2.9% increase. The U.S. LEI has a 51-percentile standing based on its index level, leaving its leading economic index just slightly above its historic median and pointing to a 'normal' outlook for growth.

Evaluating six-month growth rates in the LEI Taking a second look at these LEIs looking at them in terms of their six-month growth rates, which is the way the OECD likes to look at the indicators for their leading index properties, we find that in March all of these countries and these groupings show declines; when we add China to the mix it also shows a decline. In February, there is weakness across the board apart from Japan that's flat and the euro area that logs in at a 0.1% increase. Looking at the growth rates over six months for six-months ago, we see negative values for the U.S. and for China with small to modest positive percent changes for Japan, the euro area, and the OECD group as a whole as well as for the OECD-7. Looking at the assessments for 12-month growth that existed one-year ago, we see positive values across the board for all the countries and all the groupings including China.

However, we can also rank these growth rates. And ranking the growth rates on their recent six-month growth leaves every single one of them below their historic median that means a ranking below 50%. The strongest rankings from March are from Japan and the U.S. with each of them sporting a 44.2 percentile standing. The weakness ranking comes from the euro area at a 21.2 percentile standing, followed by a 27.4 percentile standing for the OECD area as a whole and a 29.8% standing for China alone.

The OECD leading indicators show great deal of sluggishness globally. The economies for the most part rank somewhere in the range of sluggish, weak, or declining. That is in terms of their outlook. We continue to see actual economic growth positive across the OECD area and even in China where the zero COVID policies have held back growth by quite a lot. However, the leading indicators warn about the future and these indications come amid a period where inflation has been flaring and with central banks beginning to become more restrictive. It continues to be an uneven patch for the global economy.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 08 2022
Japan's Economy Watchers Index Bounces Back
Japan's economy watchers index in March bounced back, rising to 47.8 from 37.7 in February. At that level, the economy watchers index has a 59.8 percentile standing above its historic median that occurs at standings mark of 50%.

The index showed improvement across all its components in the current reading. This marked a reversal month-to-month showing increases in every component compared to February when there were declines in every component except two; in February services and employment had improved.

Among the current components, the highest standing is for employment at an 88.3 percentile standing; that's followed by eating and drinking places that have a 66.9 percentile standing and retailing with a 64-percentile standing. The weakest current standing is for housing at a 38.1 percentile standing followed by the total for corporations at a 39.7 percentile standing.

The economy watchers future index also improved; that index rose to 50.1 in March from 44.4 in February. Its standing is at its 65.7 percentile mark, a moderately firm standing. The future readings all improved in March and this contrasts to February, when 4 component readings were weaker month-to-month while 6 improved by the month.

The future index shows the highest standings for services followed by eating and drinking places followed by the response by households. The weakest reading is for housing followed by manufacturers.

Still, the trends for the economy are not particularly strong. The three-month change still shows a decline in the current index and a net decline for all components. Over six months all the categories plus the headline increase excluding housing - that is weaker. Over 12 months everything in the current index has a weaker change than over the previous 12 months- but three components manage net gains on the comparison.

The future index shows only three components are stronger over three months, but only two components fall by more over three months than they fall over six months - those are housing and manufacturing. Over six months all the components are net lower and falling by more over six months than over 12 months. Over 12 months all components are showing bigger decline or smaller increases than they had over the previous 12 months – five categories manage outright gains but these are smaller than the gains logged 12 months ago-hence weaker momentum.
by:Robert Brusca
|in:Economy in Brief
Germany| Apr 07 2022
German IP Continues Its Recovery Run Ahead of Russian Invasion of Ukraine
German industrial production advanced by 0.2% in February. Its rise followed a 1.4% gain in January and a 0.9% gain in December. Industrial output in Germany is accelerating from a 3% pace over 12 months to a 9.3% annual rate over six months to a 10.7% annual rate over three months. Despite infections with the virus and despite the increasingly dangerous situation in Ukraine during that period, Germany has continued to rebound. As the war in Ukraine started in late-February, the German economy seems to have put itself on firm footing.

German IP is accelerating and looks very solid The output gained in the headline is supported by all the main sectors on trend. In February, two of three sectors made month-to-month gains: consumer goods and intermediate goods saw output rise with capital goods output falling back by 2%. However, from 12-months to six-months to three-months consumer goods output is accelerating from an annual rate of 10.7% to 14.9% to 25.8%. Capital goods output falls over 12 months declining by 2.1%. But then it accelerates to a 9.8% pace over six months but does step back to a growth rate of just 4.2% over three months. Intermediate goods advance at a 1.3% pace over 12 months, accelerate to 5.2% over six months and accelerate further to 9.0% over three months. Two of three industrial sectors support the acceleration in the headline. German acceleration backsliding in capital goods interrupts the trend of sector acceleration in output over three months. And that backsliding is to a growth rate that sill registers 4.2% growth at an annual rate over three months-still quite solid.

German manufacturing gauges mostly show growth Manufacturing output was flat in February after gains of 0.6% in January and 1.6% in December. So, during this monthly period, the growth in manufacturing was slowing; however, more broadly, manufacturing output accelerates from 1.4% over 12 months to a pace of 8.6% over six months to a pace of 9.2% over three months. Similarly, real manufacturing orders in Germany grow by 2.9% over 12 months, accelerate to 4.8% over six months and accelerate further to 10.2% over three months. However, real sector sales are a little more uneven; they're growing on all the horizons, but the 4.3% growth over 12 months is still slightly higher than the 4% growth rate over three months.

German indicators are mixed German industrial indicators show mixed performance during the period. The ZEW index is an exception, logging negative readings in each of the last three months. Despite those negative readings, the ZEW index improved slightly to -8.1 in February from -10.2 in January. The IFO gauge for manufacturing improved in February and the expectations gauge for manufacturing also improved in February although the EU Commission industrial index slipped slightly from 24.2 in January to 23.7 in February. Looking at the averages of 12-months to six-months to three-months, the ZEW average is weaker over three months than it is over 12 months. The IFO manufacturing index is slightly weaker over three months as its average falls to 103 when averaged over three months compared to a 12-month average of 104.2. The IFO manufacturing expectations are also weaker at 101.8 over three months compared to a 12-month average of 103.7. The EU Commission index is slightly stronger at 24.4 average over three months compared to 21.8 over 12 months.

Other Europe is mixed Turning to early-February reports from other European countries, there are five others that are reporting. Norway and France show output declines in February; Ireland, Portugal, and Sweden show increases in February. However, the countries that show increases in February show declines in January and vice versa. So, what we're looking at in Europe is monthly volatility. Looking at annualized growth rates over 12 months, six months and three months, there is not a lot of strength. Portugal, Sweden, and Norway log three-month growth rates that are all negative Norway, in fact, shows negative growth rates over three months, six months and 12 months. In contrast, France shows positive growth rates throughout; it is improving over three months compared to 12 months, rising from 3.4% over 12 months to a 7.3% pace over three months. Ireland shows acceleration, moving from -15.4% over 12 months to -12.1% over six months to log a spectacular annualized gain of 32.9% over three months.

Quarter-to-date German IP orders and real sales: In the quarter-to-date, most German IP responses are strong. Germany shows industrial output increasing in a 9.1% pace QTD, led by consumer goods that are rising strongly at a 37.6% annual rate but held back somewhat by capital goods where output is declining at a 5.5% annual rate. Manufacturing output is increasing at a 5.8% annual rate in the quarter-to-date with real manufacturing orders up at a 0.5% pace, but real sector sales are falling at a 0.4% annual rate.

German indicators: German indicators show mixed performance QTD; the ZEW index is down by 6.4 points in the quarter-to-date and the EU Commission index is down by 0.4 points in the quarter-to-date. The two IFO gauges for manufacturing and manufacturing expectations each show a gain of 2.4 points on the quarter.

Other Europe QTD-the good, the bad, and the homely: Turning to other Europe, Ireland shows an outstanding rise of 69.2% in an annual rate followed by France at an 8.4% pace of gain QTD; Norway’s rise is at a 5.8% pace, Portugal shows output receding at a 15.2% annual rate, Sweden shows output declining at a 4% annual rate.

European industrial data are firm ahead of the Ukraine-Russia outbreak These data set us up to assess the pre-Ukraine-Russia war standing of industry in Germany and select countries in Europe. Conditions rate firm-to-strong amid some variability- as always. The March reports will be more telling.
by:Robert Brusca
|in:Economy in Brief
Sweden| Apr 06 2022
Swedish IP Edges Up in February But Is Still Weak
Industrial production rose by 0.2% in February after declining for two months in January and in December 2021. Manufacturing output has declined in only one of the last three months falling by 0.9% in January flanked by minor increases of 0.2% or less in December 2021 and February 2022.

Data for three key industries in Sweden show mixed trends. For food beverages and tobacco, there is a steady deceleration as growth drops from 5.4% over 12 months to a pace of 3.9% annualized over six months to -6.8% over three months. However, for textiles, the pattern is irregular with the declines over three and 12 months versus a solid increase over six months. For motor vehicles, there's a 16.4% decline over 12 months, a 7.2% annual rate of decline over six months followed by a 7.1% decline over three months. That marks a technical acceleration even though all the growth rates are negative.

Sector weakness trends are mostly mixed: intermediate goods show a mixed pattern but with 12-month growth and three-month growth nearly the same at -3% annualized. Investment goods also show a mixed trend but with the 12-month declining pace at -1.8% and the three-month annualized decline at -1.7%. Nondurable consumer goods output shows an ongoing deceleration from a 14.7% annual rate increase over 12 months to a 6% pace over six months to a declining pace at -13.2% over three months. Consumer trends have pulled back steadily and sharply.

Quarter-to-date trends for Sweden show at a -3.9% annual rate of decline; that's for two of three months hard data in the first quarter. Manufacturing output is falling at a 4% pace in the quarter-to-date. By industry, there are declines in the quarter-to-date of 7% for food, beverages & tobacco and of 9.3% for textiles although for motor vehicles there is an increase at 11.6% annual rate. Sectors show declines throughout with intermediate goods falling at a 1.8% annual rate, investment goods at a 4.2% annual rate, and nondurable consumer goods at a 4.5% annual rate.

Comparing output to January 2020, before the virus had struck most places, overall industrial production excluding construction has risen by 2.2% on that timeline; manufacturing is up by 2.8%. On that same timeline, output in all three industries in the table is lower and two of the sectors are lower: intermediate goods and investment goods. The overall result for manufacturing has been pulled up by nondurable consumer goods where output has advanced by 18%.

Inflation data are also contained in this table as a point of reference. Inflation continues to accelerate from 4.4% over 12 months to 5.9% over six months to 6.3% over three months. The core rate also accelerates from 2.8% to 4.2% to 5.4% on the same timeline. Sweden is caught up in the global inflation problem.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 05 2022
Composite and Services PMIs Show Momentum Loss
The total, or composite PMI from Markit in March, generally weakened. In Europe, for the EMU and its largest economies, there was month-to-month weakness across the board. But in the U.S., the Markit composite index moved up to 57.7 from 55.9. For 19 key countries, the composite PMI slowed in 13 of them with four of them posting PMI values below 50, indicating economic contraction. This contrasts to February, when only three slowed, and only three posted PMI values below 50. However, the unweighted average for the group of countries has moved from 52 in January to 54.6 in February back down to 53.6 in March. The median similarly shows a move from 51 in January to 55.3 in February backing off the 54.6 in March.

These unweighted trends show a weakness between March and February but still show March levels of activity above those in January. The slowing is broad but not severe.

Sequential data looking at averages over 12 months six months and three months show the average PMI reading falling from 54.6 over 12 months to 54.0 over six months to 53.4 over three months. For the median, the average for the group falls from 55.1 over 12 months to 53.7 over six months staying at 53.7 over three-months.

The evaluation of the level of activity that corresponds to the average and median shows that these countries are in an average percentile standing of their range between 81% and 83%. The 81% to 83% percentile marks a very high position for the high-low range of outcomes for the various reporting countries. However, the queue standing data produce different, weaker, results. The queue data are obtained by ranking each country's current value among its set of values from January 2018 to date expressing the current standing as a percentile standing. So the queue percentile standings are ordinal standings. Viewed in this way, the average queue standing for the group is at its 58.6 percentile while the median is at its 66.7% percentile. That's a reasonably large gap between the average and the median. But for both, these are considerably weaker readings than the high-low percentile standings. What this suggests is that while most of these countries have a percentile standing that are relatively high in their high-low range, when ranked among all observations, countries are much closer to their average and median values.

Still, the data over three months, six months and 12 months, show that there are only between five and two countries over these periods averaging PMI values below 50 indicating economic contraction. For the bulk of countries, growth remains the rule of order. However, there is a clear tendency toward weakening. The 12-month average shows no country weaker than its previous 12-month average. But the six-month average compared to the 12-month average shows weakening in 13 of 19 reporters and over three months there's a weakening in 16 of 19 reporters. While the statistics show a broad weakening, we can see from the data on averages and medians that the weakness is not really very pronounced; it may be broad and consistent, but it's not pronounced.

Wrap up Among the salient trends for March, we find a sharp weakening in Russia's PMI as it falls to 37.7 from 50.8 in the early wake of sanctions. Only Ghana shows its PMI weakening in each of the last three months. Sweden is the only country where the PMI weakens for just two months in a row (March and February). Over three months only Egypt has three readings each below 50 although Russia and Japan come close on that score. Only Brazil shows steady acceleration, improving averages from 12-months to six-months to three-months. Brazil in the only country showing its highest reading since January 2018 (100% percentile standing).

There are sanctions at work that, eventually, may slow growth globally more broadly than just Russia. If China backs Russia, things could get much dicier, especially if the same sort of sanctions are implemented. There is still the virus, and it has continued to hit China hard, as China continues down the road to zero-Covid. And global supply chain issues are still unsolved while central banks grapple with high inflation and take steps to reign it in. The environment still possesses some significant risks. Meanwhile, PMI levels are only moderately firm on average based on queue standing averages.
by:Robert Brusca
|in:Economy in Brief
Global| Apr 04 2022
Manufacturing PMIs Declining; Asia Weakening
In March, of the 18 manufacturing PMI entries in the table, 12 worsened. Only one-third of the countries improved month-to-month. This is the same split as over three months when 12 also declined compared to six months ago. Asia weakened broadly with Japan and Indonesia as exceptions.

Some PMIs indicate sector contraction Five countries report manufacturing PMI values below 50, indicating that manufacturing is contracting in those places. These entries include Mexico, China, Russia, Malaysia, and Turkey. China is experiencing a wave of Covid reinfections and remain dedicated to its zero-Covid policy.

China and Russia Flares of infection in China led to swift and broad targeted shutdowns that greatly impact the economy there. With the Russia-Ukraine war having started in late-February and economic sanctions imposed on Russia because of its aggression, the Russian manufacturing PMI slipped to 48.6 in February from 51.8 in January. It has in March fallen again to 44.1, indicating sector contraction as sanctions begin to bite- and this is only the beginning of that process.

Malaysia, Turkey, and Mexico Malaysia has experienced a spike in Covid infections in March as they peaked early in the month – part of the reason for its weakness. Turkey saw its PMI weaken on the month and fall to indicate contraction; it is less a case of virus issues as its outbreak peaked in early-February. Inflation in Turkey, however, has surged to over 61%. Mexico is an odd case with its Covid infections peaking early in the year and dropping since. Mexican inflation, however, has been on the rise. Its PMI is below 50 indicates contraction and it ranks below its historic median as well; nonetheless, it stands in the top 20% of its historic range of values. We can conclude that Mexico's weakness may not be as severe as its standing implies because of a very tight distribution of values. With such extraordinary weakness China and Russia have the larges gap between their range and standing positions, but among other entries Mexico and Vietnam are the next largest gaps. The median gap is 13 percentage points; for Mexico, the gap is 34 percentage points.

Over six months, ten of the 18 manufacturing PMI entries show weakening. But over 12 months, only China and Brazil are worse on balance. The average PMI levels for the entire group of emerging economies in the current month, as well as for three-months and for six-months, are all just a few ticks above 50, the dividing line in the PMI lexicon between expansion of the sector and contraction. Manufacturing has been on the razor's edge of expansion for the past year.

Among entries only Canada logs a manufacturing reading at its high on this nearly five-year period. The average reading for all entries is at about the 75% market between its sample period high reading and low reading. The far right-hand column provides queue percentile standings. They show only Canada with a 90-percentile standing or higher. But five countries stand below their historic medians (below a rank standing of 50%) among them Mexico, Vietnam, and Turkey. However, the weakest ranking countries are China and Russia; China's ranking is in its 1.7 percentile and Russia's is in its 3.4 percentile.

The average gain in PMI levels for January 2020- since Covid struck is a gain of 2.7 points, a meagre rise for period of over two years. However, China, Russia, India, and Turkey are net lower in that timeline. Germany has the largest gain posting rise of 11.5 points, followed by Canada at 8.3 points, the U.S. at 7 points, Japan at 5.3 points, and the U.K. at 5.2 points.
by:Robert Brusca
|in:Economy in Brief
Japan| Apr 01 2022
Japan's Tankan Report Shows Weakening in Q1
Japan's Tankan report slipped in the first quarter of 2022 as the bellwether manufacturing rating fell to 14.0 from 17.0 in the fourth quarter of 2021. Nonmanufacturing slipped to 9.0 from 10.0. On the same timeframe, the total industry reading fell to 11 in Q1 2022 from 14 in Q4 2021.

Weak levels for the Tankan The absolute level of the readings for Q1 2022 are not particularly solid. For manufacturing, the percentile queue standing is at 66.7% that leaves it at the border of the top third of its queue of values- that's a reasonably firm, but not very impressive standing. For nonmanufacturing, things are much worse. The nonmanufacturing percentile standing is at its 39.4 percentile, leaving it substantially below its median. The median occurs at a ranking of 50%. Together these two measures leave the total industry percentile standing at the 43.9 percentile, also significantly below its historic median.

Lost momentum, turned negative, too The Japanese economy has slipped. The levels of the Tankan are not impressive and perhaps even somewhat disturbing to the policy officials there. A look at the sequential pattern in the table shows that there has been weakening; there's a weakening from Q3 to Q4 from Q4 2021 to Q1 2022, although the first quarter readings for 2022 stands above or at the same level as they did in Q2 2021.

An uneven set of readings and their impact On balance, the Tankan gives us a view of the Japanese economy that shows it slipping. It has already reached levels that are not very strong by the standards of the Tankan survey. At the same time, the Bank of Japan is struggling to keep control of interest rates and the yen has backtracked significantly on foreign exchange markets. The drop in the yen is a mixed blessing as a weaker yen makes Japanese goods cheaper overseas and that provides export stimulus for the economy. However, Japan has shuttered its nuclear reactors now and is importing a great deal of oil; oil is priced in dollar terms. Any weakness in the yen is going to make Japan's energy imports even more expensive at a time that energy is already very expensive. In addition to that, anything that Japan imports from the dollar sector is now going to be more expensive.

The final column in the Tankan table shows changes in the indexes from Q1 2020. Manufacturing is up by 22 points on this timeline but nonmanufacturing is up by only one point. Total industry is up by 11 points on this timeframe benchmarked to just before the start of Covid globally.

Services industries Turning to the details in this report, looking across various service sector industries, only wholesaling has increased its assessment quarter-to-quarter moving to a value of 20 in Q1 2022 from 17.0 in Q4 2021. The transportation rating at -2 is equal to its reading in Q4 2021. Comparing the levels of the readings to their values in Q1 2021, we see that most of the industry responses are higher: construction and real estate are exceptions. If we look at the queue percentile standings, in Q1 2022, we get a glimpse of the kinds of businesses that have been hurt the most in the post COVID period. Restaurants & hotels and personal services scrape the bottom of the barrel with lower 10 percentile or weaker standings. Also extremely weak is transportation at a 31.8 percentile standing and retailing at a 36.4 percentile standing, along with real estate at its 37.9 percentile standing. Construction is only slightly better off at a 47 percentile standing, but it is still below its historic median. Showing some strength are services for businesses at an 87.9 percentile standing; wholesaling registers an 81.8 percentile standing. These are relatively strong readings indicating some degree of health in those sectors.

The far-right hand column shows the changes in these sectors since Q1 2020; there is an outsized increase in wholesaling of 27 points, retailing improved by 9 points, transportation improved by 5 points, and services for businesses improved by 3 points along with restaurants & hotels. However, personal services, real estate, and construction are all lower on that timeline comparison with their assessments of two years ago.

Outlook darkens The outlook portion of the survey weakened sharply quarter-to-quarter. The manufacturing outlook slipped to 9 in Q2 2022 from 13 in Q1 2022; the nonmanufacturing outlook slipped to 7 from a reading of 9; and for overall industry, the outlook stands at a value of 8 compared to 10. The queue percentile standing for these readings put the manufacturing outlook at its 56.1 percentile standing, slightly above its historic median. For nonmanufacturing, the 37.9 percentile standing leaves it well below its historic median; the all-industry standing is at its 42.4%, also below its historic median. If we compare the manufacturing outlook for Q2 2022 to the outlook for Q3 2021, it's lower significantly and the outlook for all industry is unchanged with the nonmanufacturing outlook being the only one that has improved on that timeline.

In summary, there's a lot of weakness in the Tankan report. There's a loss of momentum, there's weakness across the board, there's a loss of momentum across the board, and there's a reduced outlook for the period ahead. Japan's policymakers are looking at the potential for a fiscal stimulus package which makes a lot of sense given this weak report. Japan's economy continues to struggle.
by:Robert Brusca
|in:Economy in Brief
Japan| Mar 31 2022
Japan's Industrial Production Advances
In February total industrial production in Japan rose by 0.4%, reversing several months of declines. In January industrial production fell by 0.7%; in December it fell by 0.8%. That contrasts to the month previous to that as output had been up very strongly in November.

Total industrial production has an uneven trend with a tilt toward the deceleration. At a 0.7% growth rate over 12 months that elevates to 1.7% over six months but then turns lower over three months as total industrial production declines at a 4.5% annual rate.

Similarly, for manufacturing output, an increase posts in February with declines in January and December. Over three months there's a decline at a 6% annual rate that follows an increase at a 3% annual rate over six months and compared to a gain of only 0.3% over 12 months. Manufacturing shows a tendency to decline. The sharp negative growth rate over three months gives the series its demeanor but trend is not monotonic and therefore not clearly determined.

Select industries The two industries in the table, textiles and transportation, show uneven and inconsistent monthly patterns as well as divergent sequential patterns. Textiles do show a progression toward acceleration while transportation shows an inclination toward weakness mostly based on the steep minus 20% annual rate decline over three months.

Sector trends By product group or sector, the trends once again are uneven: consumer goods and intermediate goods follow the trend of overall industry showing declines in December and January and a slight rebound in February. Investment goods show a decline in December, an increase in January and a small decline in February; these results translate, once again, into mostly uneven sequential trends. For consumer goods, there's a 1.8% rate decline over 12 months, a sharp 10% rebound over six months, then a 6.5% annual rate decline over three months. For intermediate goods, there's a 1.0% increase over 12 months, another 1.0% increase at an annual rate over six months and then a 4% annual rate decline over three months. Investment goods show a clear trend that is weakening as growth is at 1.2% over 12 months, declining to a -2.3% pace over six months then eroding further to a -4.9% rate over three months.

Mining shows sequential growth rates that are clearly deteriorating and logs a -9.6% annual rate decline over three months. Electric & gas utilities show the opposite trend, with a 16.3% surge in output over three months.

Quarter-to-date The quarter-to-date trends show for overall industrial production a rise at a 4.6% annual rate and in manufacturing a rise at a 4.2% annual rate. By sector, consumer goods are up at a 4.6% annual rate, intermediate goods at a 4.4% annual rate and investment goods by 3.0% at an annual rate. Mining, however, shows declines in double digits at a -12.7% pace. Electric & gas utilities show an increase at a 22.7% annual rate.

Since Covid... The changes since January 2020, a reference point over two years ago, underline how weak conditions in industry have been in the intervening period. Total industry output is down 2% on balance over that timeline. Manufacturing output is down by 3.1%. Consumer goods output is down by 7%, intermediate goods output is down by 1.3% and investment goods output is down by 0.6%. Since January 2020, mining output is down by 7.5%; however, electric & gas utilities have output up by 7.8%.
by:Robert Brusca
|in:Economy in Brief
Italy| Mar 30 2022
Italian IP Continues to Settle Lower
Italian industrial production in manufacturing fell by 3.4% in January following a 1.1% decline in December and a 1.5% gain in November. This series for manufacturing industrial production declines at 11.6% annual rate over three months, at an 8.3% annual rate over six months, and at a 2.4% annual rate over 12 months. Italian industrial production is sequentially decelerating: the more recent, shorter-period growth rates are weaker than the longer growth rates indicating progressive deterioration in Italy's manufacturing sector momentum. The current observation is for January 2022; with one month into the new quarter, industrial production is falling at a 20% annual rate early in 2022 Q1.

Sector trends Declines in January permeate the index; there's a 3.6% decline in consumer goods output, a 1.6% decline in capital goods output, and a 3.4% decline in the output of intermediate goods. In December, the weakness is widespread again this time with consumer goods output flat and with a 2.2% decline in capital goods and a 0.6% decline in intermediate goods. In November, conditions are slightly more mixed, but more upbeat, with consumer goods output down by just 0.2%, capital goods output up by 2%, and intermediate goods output up by 0.7%.

However, looking at the table, there are still sequentially deteriorating rates of growth for consumer goods and for intermediate goods in which the shorter, newer growth rates continue to show weaker and weaker results. The exception is for capital goods but it's not much of an exception because for capital goods there is a 12-month decline of 2.8%, over six months a decline at a 7.7% annual rate over emerges, and over three months that is only slightly improved to -7.1% - but that's still a severe downturn. It's still a rate of decline that's much greater than the 12-month rate.

Quarter to date Consumer goods are declining at a 20.2% annual rate in the quarter to date. Capital goods output is declining at a 13.5% annual rate in the quarter to date while intermediate goods are declining at 19.7% annual rate. Obviously, the quarter-to-date data show severe and consistent weakness across sectors; there really isn't any exception and there isn't a strong sector.

Transportation There are separate figures for the transportation industry, and there is some strength there. Transportation shows gains month-to-month in January, December and November. Transportation output is accelerating with the -1.3% change over 12 months, a 1% annual rate gain over six months and a huge 26.5% annual rate gain over three months. However, even with this sector embedded in the totals, manufacturing continues to decline into show sequential weakness.

Other industrial measures The manufacturing PMI declined by 5.9% in January; it declined by 1.3% in December but did make a 2.8% increase in November. However, there is sequential deterioration as the manufacturing PMI goes from a gain of 5.7% over 12 months to a declining pace of 6.5% over six months and the declining pace accelerates to 17.1% annualized over three months. The PMI reinforces news from the headline showing weak output and progressively weakening output. The EU Commission statistics on industrial confidence for Italy are contrary to this; they show a 12-month level of confidence at 6, over six months they show average confidence higher at 9.2, and the three-month average is at 9.9. All of these are averages so according to the EU data industrial confidence in Italy has been progressively improving. However, industrial output percentage changes in totals as well as by sector, show the opposite: progressive deterioration. Also, the Italian manufacturing PMI from Markit shows progressive deterioration. The EU confidence measure must be picking up abstract optimism not on-the-ground reality.

And there is inflation... On the same timeline, there's, of course, rampant inflation and it is rising because of supply problems because of high oil prices and for Italy we see a 13% annual rate over 12 months, we see another 13% annual rate over six months and that climbs to a 14.6% annual rate over three months. Italian inflation shows a slight tendency to accelerate; it clearly is stuck at a very high level. In the quarter to date, it's up to a 17.5% annualized pace. Inflation continues to be a problem in the industrial sector for Italy as it is in much of the rest of the world.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 28 2022
German IFO: Man Overboard!
The current IFO gauge in March fell sharply from a value of 15.5 in February to -6.3 in March. The manufacturing sector fell from a reading of 23.1 to -3.3. Construction fell from a reading of 8 to a reading of -12.2. Wholesaling fell from 14.3 to -6 6. Retailing fell from a February mark of -3.4 to -19.0 in March. The service sector reading of 13.6 in February diminished to 0.7 in March. It's the only positive net reading for climate in the IFO in March. As a whole, the business situation in the current environment erodes from 24.8 in February to 21.1 in March while expectations plummet from 6.3 in February to -21.7 in March. These are dramatic declines in the assessment of climate and expectations in the March IFO report.

Rankings We further evaluate the climate assessments by looking at the rankings of these sectors: the all-sector index has a ranking since 1991 in its 35th percentile, meaning it's been weaker only 35% of the time. Manufacturing is in its 27.7 percentile, wholesaling is in its 45th percentile, and retailing is in its 32nd percentile. Services, despite being the only positive net reading, is at the lowest standing of the bunch at a 9.5 percentile reading. Construction, despite its climate reading of -12.2, has a 60.1 percentile standing. That means based on all the construction metrics back to 1991 construction is lower 60% of the time and higher 40% of the time; it is the only sector above its historic median on this timeline.

Ranking of one-month changes The ranking of month-to month changes back to 1996 shows the largest one-month change and decline in manufacturing on record. Construction, wholesaling, and services have weakened by more month-to-month less than 1% of the time on that timeline. Retailing has weakened by more only 1.2% of the time. These are draconian changes month-to-month. It is stunning that markets have not reacted by more than they have with these kinds of erosions in the fundamentals.

Current conditions vs. expectations show stark difference There's a stark difference between the readings for current conditions and expectations this month. It noted above that the all-sector current index fell to 21.1 in March from 24.8 in February, while expectations in March plunged to -21.7 from 6.3. In February current conditions have not been that adversely affected at this point by the war in Ukraine, the sanctions, the recirculating virus, and other generalized economic circumstances in the German economy. However, expectations have been vastly downgraded. We see this by looking at standings of the two metrics: for current conditions, a 36.2% standing prevails which leaves the reading weak, in the lower one-third of its range; however, expectations have a 4.8-percentile standing. The components of expectations are even weaker than the 5% overall expectations standing. Each of the components of expectations in the IFO framework has a rank standing below the 4.8-percentile mark. The weakest being construction at 0.3%, the second weakest is wholesaling, followed by retailing at 2.3%, and then manufacturing at 2.4%. Looking at the individual standings for current conditions, services clearly is driving down the overall rank for the sector. Services has a 22.1 percentile standing. All the other industries: wholesaling, retailing, and manufacturing boast respective standings that are well above their 50th percentile mark (60th, 70th and 80th percentiles, in fact) indicating that they're above their medians for the period (reminder: median occurs at a ranking of 50%). Yet, the sector median stands in the 36th percentile dragged down exclusively by services weakness.

Position since before Covid struck is broadly weaker The far-right column chronicles change in the various line items compared to their levels in January 2020, before the virus struck. All the climate readings show declines compared to that date. Under current conditions, only manufacturing and wholesaling show increases. Among expectations all sectors are weaker and all of them are weaker in double digits.
by:Robert Brusca
|in:Economy in Brief