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

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
Global| Mar 25 2022
Chika Boom Chika Bust: Money Supplies
Tight money isn't funny – but is it loose or tight? This month we encounter a bit of a dilemma in analyzing money supply growth. In the European Monetary Union (EMU), year-over-year M2 growth is at 6.8%. In the U.S. M2 money growth is at 11%, in the U.K. it's at 6.5%, and in Japan its pace is 3.6%. All of these are relatively robust rates of growth for nominal money supply. Money is plentiful. The question, however, is whether money has been too plentiful.

Inflation classically is described as too much money chasing too few goods. These statistics suggest that there has been plenty of money out there; however, in the wake of the pandemic, certainly in the U.S. where a lot of support monies were given to people who weren't working and weren't creating any output, there has come to be a maintenance of spending because there was a maintenance of income. However, there was a shortfall of supply and so with an abundance of money what we have is situation where there has been too much money chasing too few goods and probably more 'too-few goods' than 'too-much' money.

To a considerable extent, there seems to be a physical goods/services supply problem. The bigger problem seems to be that supply has been impeded and there haven't been enough goods and services around for people to purchase. Certainly, money supply statistics confirm in the sense that the 12-month growth rates are some of the lowest growth rates that we've seen from these countries, comparing the 12-month pace to the two-year average pace or the three-year average. Thus, the increase in money supply isn't particularly new nor is it robust and there is no acceleration.

Real money balances On the other hand, we can look at what's been going on with real monetary balances. This measure involves looking at nominal money supply growth with inflation subtracted from it. When we look at this measure, we find that over three-months and, for the most, part six-months real money balances are shrinking in the European Monetary Area and the U.K. In the U.S., three-month growth is negative but not six-month growth. For Japan, money-growth rates hover around 1% for real balances on this horizon.

Looking at the year-over-year rates, the European Monetary Union's money growth is 0.9%, in the U.S. it's 2.9%, in the U.K. it is 1.1%, and in Japan it is 2.6%. All these growth rates, of course, are substantially below their respective nominal counterparts because they're constructed by taking the nominal growth rate and subtracting inflation, at a time that inflation is accelerating. But what we see is that money supply growth has not been adequate to compensate for inflation and we're seeing that the growth in real monetary balances is barely enough to fuel any kind of decent real growth in many of these countries The U.S. is the marked exception since for the U.S. real balance growth is still at 2.9% over 12 months, which is still relatively robust. However, over shorter periods, real balance growth is impeding economic growth.

Credit in EMU Looking closer at the European Monetary Union, we see the credit to residents in nominal terms is up by just 4.1% over 12 months and by 4.4% for credit to the private sector. Look at these two measures, convert them to real terms, and the results change markedly. Credit to residents is falling 1.7% year-over-year and private credit is falling by 1.4% year-over-year. Clearly there is a pull-back in credit growth that is now becoming a drag on economic activity. While central banks haven't raised interest rates aggressively, they have controlled the growth rate of money supply and with that, the increase in inflation is creating a drag in terms of the provision of real money balances and real credit flows in the economy. That creates some braking effect on its own.

Oil trends The far-right hand column of the table also presents statistics on oil prices and there we see that oil prices are up by 56.1% over 12 months and this is for West Texas Intermediate (WTI) oil prices. Over 12 months, that same statistic, converted to real terms converted using the U.S. CPI, decelerates to a 44.6% gain. However, over three months and six months, the growth in real balances steps up from that 44% pace to growth rates in the 60% range.

There is no doubt in the age of Covid central banks were relatively easy with their money and credit growth, but fiscal policy was highly stimulative as well. Since inflation has picked up and there's concern about it. Central banks have paid a little bit more attention to money growth and some of them have started to raise interest rates and this is having some further impact on slowing the rate of money supply growth.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 24 2022
EMU PMIs Wither in March; Mixed Bag Elsewhere
PMIs in Europe are weakened on balance in March. The Composite Index for the EMU fell in March, driven lower by weaker conditions in manufacturing and in services. Germany had weaker conditions in March driven lower by weaker conditions in manufacturing and in services. France breaks the model of the EMU member with a stronger index overall boosted by strengthened services as the manufacturing was weaker on the month. The U.K. was weaker overall despite having a stronger service sector; its weakness was created by a weaker manufacturing sector. Japan saw strengthening across the board for its composite, manufacturing, and services as did the U.S. The U.K. has the strongest composite standing on the month, but the U.S. has the most uniform strong stands across sectors- the best balance. Japan is the weakest.

Sequential changes in lagged averages Looking at the sequential changes over 12 months over six months and over three months (calculated on one-month lagged averages that ignore preliminary data), those averages show that over 12 months all the indicators are stronger than they were twelve months ago. This applies to the composite, the indexes for manufacturing and services in each of the survey respondents. Over six months compared to 12 months, conditions are somewhat uneven. Japan shows strength across the board: for manufacturing, services and the composite. However, the U.K., Germany and the EMU show weaker conditions across the board. France shows mixed performance over six months as does the U.S. Over three months compared to six months, weakness prevails. However, manufacturing is stronger compared to six months in Japan, the U.K., France, and Germany. But manufacturing still weakens over three months compared to six months for the European Monetary Union as a whole- all EMU PMIs weaker over three months. The U.S. also shows a weaker composite and weaker components over three months on average data.

Queue standings compared The queue standings show the positioning of the composite indexes on data back to 2018. Readings are mostly upper mid-stream. There's a 72.5 percentile standing in the EMU, for Germany it's a 66.7 percentile standing, France is a bit stronger at the 78.4 percentile mark, the U.K. at 88.2 percentile. Japan, however, is weak with a 41.2 percentile composite. The U.S. composite stands at 82.4%. Manufacturing sector standings are all in the 60th to low 70th percentile except Japan at 82.4% and the U.S. at 80.4%. Services sector standings are firm-to-strong with the EMU clocking 72.5%, Germany at 68.6%, France has a stronger 84.3%, the U.K. has an even stronger 94.1%. Japan’s service sector is below its median at a 41.2 percentile. The U.S. logs an 86.3 percentile standing.

A narrow range houses most estimates Despite considerable country differences, the average composite reading for EMU members and Japan is 69.4%, the average manufacturing rating is 70.6%, and the average services reading is 72.2%. These standings are all clustered in the upper midrange (low 70th percentile for the most part) indicating overall firm conditions. However, as the table shows there are some clear differences among members. And in comparison, all the U.S. ranks are in their 80th percentile.

Month-to-month and three-month patterns for unaveraged PMI diffusion indexes The month-to-month changes are concentrated with declines in Europe, and some rebound in the U.S. and Japan. Still, Japan tends to lag the PMI levels achieved in Europe (except for manufacturing). Over three months, composite conditions improve everywhere except Japan. All show a weaker manufacturing sector except France that is unchanged and the U.S. that shows an increase. The service sector advances everywhere over three months except in Japan.

Japan is the weakest On theses timelines, only Japan post PMI readings below 50. Its composite PMI for March is 49.3, and its service sector PMI is 48.7. Japan’s composite and service sector PMIs are below 50 in March, February and January, showing outright declines in activity for these sectors in each month. In addition, Japan’s composite PMI averages a below 50 PMI reading over three months and 12 months while services show and average reading below 50 on all horizons, three-months, six-months, and 12-months. Still, Japan’s manufacturing sector registers steady expansion. Japan is suffering from the ills in China, its largest trading partner, where growth has slowed and where a zero-Covid policy continues to impede economic activity. The virus has also been an ongoing issue in Japan that has impacted services.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Mar 23 2022
U.K. CPIH Flares...But Slows
Inflation in the U.K. continues to run hot in February. The headline gauge CPIH rose 0.5% in February, the same as in January and in December. Sequential inflation rates for the U.K. show a 5.5% annual rate over 12 months, a 6.5% annual rate over six months, and a 6.2% annual rate over three months. Inflation shows signs of having peaked. These are early signs, preliminary, tentative signs, not irreversible, but encouraging.

Core Inflation- a more complicated pattern The core measure, which is the CPIH excluding energy, food, alcohol beverages & tobacco, decelerated in February rising by 0.4% after gaining 0.6% in January and 0.3% in December. This core measure is up at a 4.5% pace over 12 months; it accelerates to 5.2% over six months; it edges higher to a 5.4% pace over three months. However, a plot of the three-month inflation rates for the core shows that inflation ticked off its highest pace of this cycle slowing in February compared to January (5.8% in January). However, that's only a one-month to deceleration, certainly not definitive.

Inflation fighting complications from the virus ...again The Bank of England has begun to move to fight inflation. Like other central banks, it's concerned that inflation is high and has spread. However, the U.K., like much of Europe right now, is undergoing a resurgence of the virus. This new variant is very highly transmissible; it strikes Europe when countries in Europe are taking off their restraints. WHO claims that the constraints are being taken off too rapidly; it even uses the word ‘brutally’ to describe the policy of relaxation. Still, it's hard to tell why the spread has picked up. Restrictions were lifted and the new variant is much more transmissible-so what is responsible? A number of European countries, especially Germany, right now are undergoing sharp increases in their infection rates. This may be something that monetary policy is going to have to take account of even in the face of other challenges.

Breadth of inflation and its rise monthly Among the 10 U.K. CPI categories in February, half of them show acceleration in inflation month-to-month compared to January. In January, five categories out of ten also had showed month-to-month acceleration. The proportion of acceleration in January and February was lower than in December when seven categories showed acceleration month-to-month. However, with five categories accelerating out of 10 monthly, the breadth of inflation is meeting some resistance to spreading.

Sequential trends Turning to sequential growth rates, over three months only five categories show acceleration compared to six over six months. Over 12 months nine categories accelerated compared to 12-months ago. Over six months the breadth is still substantial with only a few categories resisting acceleration. It is not surprisingly that the 12-month inflation rate is substantially and widely higher across all commodity categories compared to 12-months ago. But over three months the mix of accelerating and decelerating is at the point of neutrality: five accelerate and five decelerate.

The outlook The challenge for the future is going to involve dealing with this inflation spike, with higher global commodity prices, with rising oil prices, with the distortions caused by the war in Ukraine, with various sanctions NATO members and others have adopted, with ongoing problems from the virus, and with supply chain issues. The challenges really are many. For the time being, there is some good news with the three-month inflation rate edging down to 6.2% and the three-month core inflation rate off peak at 5.4% and with it barely having accelerated from six-months ago. But very clearly, inflation still is entrenched. The monthly increase at 0.5% for the headline and 0.4% for the core is too high. The risks for inflation are still substantial and monetary policy has a lot of different situations to juggle in order to solve the inflation riddle and to keep growth on track.
by:Robert Brusca
|in:Economy in Brief
United Kingdom| Mar 22 2022
U.K. CBI Orders Edge Higher as PMI Flattens Out
The U.K. CBI survey for March 2020 shows orders moving up to a net diffusion reading (up minus down) of 26 from 20 in February. That compares to a net of 24 in January. The January reading is above the three-month, six-month, and 12-month averages. It's a strong reading for orders and it shows that manufacturing in the U.K. is still carrying forward momentum. Export orders swung sharply higher in March moving to +7 from -7 in February. All the averages for prior periods, for three-months, six-months, and 12-months are negative values making the +7 reading for orders in March an extremely strong reading by recent standards. Stocks of finished goods improved to -8 in March from -14 in February; they too are stronger in March than they are over three-month, six-month and 12-month averages. Negative readings on stocks are quite common. Despite the pick-up in March, the index is still at a very weak level. For total orders, the queue standing is in the 99.7% (its highest reading on this timeline since 1991). Orders have never been higher than they are in March. Export orders have a 92.3 percentile standing, also very strong. For inventories of finished goods, however, despite their improvement, there is a 2.5 percentage point standing. That means the reading for stocks has been weaker only about 2.5% of the time, marking March as an extremely low reading, despite its recent strength. In the U.K., firms continue to have a hard time building inventory. While the outlook for orders and export orders is solid and strong, firms are having a difficult time getting ahead of demand because of supply constraints and other problems.

Other industrial measures While the industrial production measure lags and it's only up to date through January, industrial production has been generally accelerating. It’s up at 3.7% over 12 months, it's up at a 2.3% pace over six months, and then it accelerates, rising at a 7.2% pace over the last three months. Industrial production in manufacturing continues to show some solid strength. Also, the PMI measure from Markit for the U.K. continues to float at a high level between 55 and 60. Its standing for February is at its 84th percentile; that's a relatively strong reading for U.K. manufacturing.

Outlook for volume and prices The outlook for volume of output over the next three months ticked slightly lower in March, turning in a reading of 30 from February’s 31. However, the reading of 30 is still affirmed as a strong reading; it's above the three-month average of 28 and the six-month average of 29 and just below the 12-month average of 31. The percentile standing of this reading of 30 has a 95.1 queue percentile standing. Even though the March reading is only at this 12-month average, it's at what is historically a very strong reading for expected output. Average prices have moved up strongly in March to a reading of 80 from 77 in February and 66 in January. Here are the averages are quite telling: the 12-month average for prices three months ahead has a net rating of 54, that steps up to 69 over six months and steps up again to 74 over three months. Expectations for inflation continue to leapfrog. The March percentile standing for prices at 80 is in the 99.7 percentile mark. This is the highest reading for expected prices since at least 1991.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 21 2022
German PPI Continues to Make Strong Gains in February
German inflation rose sharply in February, gaining 1.4% after rising 1.9% in January and 5.1% in December. These are increases month-to-month for the German ‘headline PPI,' the PPI excluding construction; they are exceptionally large month-to-month gains. The German PPI excluding energy rose by 1% in February following a 2.2% gain in January and a 0.6% gain in December. The heat is on…

Sequential prices growth Over three months the headline PPI series is up at a 38.8% annual rate; over six months it's up at a 35.8% annual rate; over 12 months it rises at a 25.9% annual rate. These statistics show a slight acceleration for inflation with inflation running at an extremely rapid pace. Inflation data continue to be quite unsettling. For the PPI excluding energy, inflation is up at a 16.5% annual rate over three months; that's an acceleration from 12.5% over six months and a nearly identical 12.4% rise over 12 months. The inflation measure excluding energy is also extremely high and indicates that inflation is entrenched quite beyond the impact of energy on headline inflation.

Quarter-to-date PPI In the quarter-to-date, the PPI headlines series is running at a 34.3% annual rate of increase at this point; that reflects the January plus February PPI indexes divided by the fourth quarter index average annualized. Calculated the same way, the German PPI excluding energy is up to 17.3% annual rate. Both are quite strong gains and certainly out of the tolerance range for the central bank. They contribute to the view that inflation not only remains problematic but that the problem is worsening.

Compared to the CPI However, the European Central Bank looks at consumer price inflation, particularly at its HICP measure. In Table Germany's PPI, we have chronicled the behavior of the German domestic CPI as a point of reference. The CPI shows much smaller increases than the PPI but still strong increases and a demonstration of acceleration. The headline CPI is up at a 7.4% annual rate over three months; that accelerates from 6.7% over six months and that's up from 5.2% over 12 months. The German CPI excluding energy is up to a 3.7% annual rate over three months, compared to 3.5% over six months and a 3.2% pace over 12 months. Again, these are excessive rates of inflation compared to a target of 2% by the ECB for overall EMU inflation.

Quarter-to-date CPI The CPI gains are not as outlandishly strong as the PPI inflation figures show. But in the quarter-to-date, inflation is unfolding rapidly; the CPI is up at 8.5% annual rate and the CPI ex-energy is up at a 4.3% annual rate. Inflation continues to accelerate and to be stubborn at extremely high rates of inflation.
by:Robert Brusca
|in:Economy in Brief
USA| Mar 18 2022
EMU Trade Swings to Deficit As Imports of Nonmanufactures Grow
After logging a long string of current account surpluses, the countries of the European Monetary Union (EMU) have now posted three deficits in a row for consecutive months. The turnaround is on the back of sharply increased imports which reflect increased imports of nonmanufactured goods. Commodity prices have increased sharply, and this has driven up the deficit for nonmanufacturers across the EMU.

The balance of trade on manufactured goods posted a surplus of €29.1 billion in the 12-month period ended 12-months ago. In the current 12-month period the surplus is €28.3 billion, a slightly smaller amount, but not much changed. Yet, for nonmanufactured goods, the 12-month average for 12 months ago was a deficit of €8.8 billion; that figure has ballooned to €21 billion on average over the last 12 months and has escalated to €30.4 billion in deficit on average over three months and progressed further to a deficit of €33.2 billion in January alone. All those figures are expressed at annual rates.

The point is that manufacturing in Europe seems to have held up well; however, it has not been able to keep pace with the sharp increase in nominal nonmanufacturing goods and a deficit has been created as a result. This is a deficit caused by the increased importation of nonmanufactured goods and substantially a deficit caused by the increase in the prices of nonmanufactured goods.

Looking at percentage changes, manufactured goods imports are up by 26.4% over 12 months but nonmanufactured goods imports are up by 82.6% over 12 months. For exports, manufactured exports are up by 12.8% over 12 months while nonmanufactured exports are up 30.5% over 12 months. Clearly the trade action has been concentrated in around nonmanufactured goods, not in manufactured goods. But manufactured goods have nonetheless held their ground.

Looking at the results for individual countries in Europe, Germany shows consistently faster import growth than export growth over 12 months, over six months and over three months. France shows an uneven picture with exports and imports trading places as far as which flow is expanding more rapidly. Over 12 months French exports grow faster than French imports and that trend holds up over three months as well, although it is reversed in each of the last two months. The U.K. has stronger imports than exports with imports up 23.5% over 12 months and exports up by just 11.4% on that timeline; exports are up at a 6.1% annual rate over three months with imports up at a 28.2% annual rate over three months.
by:Robert Brusca
|in:Economy in Brief
Europe| Mar 17 2022
EMU Inflation Trends Stay Hot
Inflation in the European Monetary Union (EMU) rose by 0.7% in February after rising by 1.1% in January. The core measure for inflation (excluding food and energy) in February rose by just 0.1%; that was after rising by 0.7% in January. Sequential growth rates that measure inflation over 12 months, six months and three months show inflation has been building momentum for the headline inflation rate which expanded by 5.8% over 12 months, at a 7.9% annual rate over six months and at an 8.9% annual rate over three months.

The core rate of Inflation breaks this string of acceleration but only technically. The 12-month core gain is at 2.6%; that rises to a 3.9% annual rate over six months and that in turn backs off very slightly to log a technically smaller gain at a pace of 3.8% over three months. Essentially inflation has gone from being excessive over 12 months to being much more excessive over three months and six months according to each of these measures.

The ECB is well away from its target of hitting 2% inflation although as we're going to see in the averages for inflation how much better-behaved much of this inflation phenomenon is when averaged. Inflation has really welled up relatively recently although it's quite excessive and now it still has momentum.

Moreover, inflation is gaining momentum and from different sources. Oil prices are still extremely high in February. But Brent oil prices measured in euros fell 28.2% in February after rising by 14% in January. Oil prices remain high and the impact on inflation is still something to worry about because in global markets oil continues to hover at very high levels. Also, Europe has an economic 'IV' line for energy that is piped in from Russia making it dependent on the very country on which they have slapped aggressive economic sanctions. And to follow that thought… since Russia is walled off from global markets by sanctions, at some point it may find oil revenues as not as valuable as cutting off the oil flow and inflicting economic pain on Europe.

In several ways the war in Ukraine is a factor...

Before the war welled up, there were supply chain problems created by the pandemic (remember the pandemic?) and these supply chain issues were affecting prices globally, creating shortages, creating price pressures, and that now is made worse by having a war in Ukraine and having these countervailing sanctions placed on Russia.

Russia is rich in natural resources and with the West putting sanctions on Russia, Russian commodities are going to be unavailable to the world and this is going to be reflected in higher commodity prices. The invasion of Ukraine is taking Ukraine off the map as an international trading partner and that of course is going to hit the food market and wheat market particularly hard as well as the market for selected natural resources. The implication here is that inflation is high, inflation has momentum, and inflation has some new sources that are going to make it worse before things get better.
by:Robert Brusca
|in:Economy in Brief
Italy| Mar 16 2022
Italian Inflation Continues to Head for the Moon
Italy's inflation rate remains high and continues to show acceleration in February. The inflation gauge as measured by the HICP shows Italian prices up 1.3% in February, slightly less than the 1.5% they grew in January, but still a very high increase month-to-month. The HICP core gain was 0.9% in February, up from 0.5% in January. Italy’s domestic inflation measures continue to show heat as well.

Inflation accelerates broadly The sequential inflation rates for Italy show the headline rate going from a 6.1% pace over 12 months to a 9.5% annual rate over six months to a 13.8% annual rate over three months. For the core rate, that progression is 1.8% over 12 months, 4.1% over six months and 6.3% over three months. Both headline and core measures of inflation show acceleration. Prices remain hot monthly across the board. Not only is Italian inflation high and accelerating but the diffusion characteristics of inflation reinforce the notion that inflation is accelerating and broad. The diffusion index for three-month inflation is at 75%, for six-months it's at 75% and for 12 months it's at 58.3%. A diffusion reading at 50% implies that inflation acceleration and deceleration for the period are balanced across various CPI line-items. At 75%, the diffusion index is showing inflation is greatly tilted toward acceleration and we see that condition over three months and six months as well as a sizable tilt toward more inflation acceleration over 12 months.

Monthly trends Looking at monthly data the inflation rate across the various domestic components, we find it increased in all but two of them in February- that's an acceleration in all but two out of 12 components. Similarly, inflation increased month-to-month in January for all components except 2 and the same was true in December. The monthly data reinforce what we see in the sequential data: they show that inflation is accelerating period-to-period whether it's 12-months to six-months to three-months or December to January to February.

Quarter-to-date On a quarter-to-date basis- this is with two months of data in for the first quarter- inflation is rising at a 13.6% annual rate for the headline HICP and at a 5.4% annual rate for the core. The domestic measure shows headline inflation at an 11.5% pace with the core at a 3% pace. The domestic measures are slightly less hot than the HICP measures employed by the ECB.

Despite the high inflation levels in Italy, Italian inflation has generally been tracking below German inflation in recent years. Italy went through a period of austerity and was able to gain control of its inflation rate. But now inflation seems to permeate the economy and Italy has a clear inflation fight on its hands. Increases in global energy costs are going to continue to weigh on Italy, a country that is dependent on imported energy. The ECB will be raising interest rates to try to fight off these inflation effects as the year goes on, but inflation in Italy appears to be high, entrenched, and broad so the economy is going to have a lot of work ahead of it to put this inflation back down inside parameters that are acceptable from an EMU-wide targeting standpoint of around 2%.
by:Robert Brusca
|in:Economy in Brief
Germany| Mar 15 2022
ZEW Goes to War: ZEW Current Assessments Drop Sharply in March
The ZEW economic index for Germany fell more sharply in March than it ever had previously in its history. The German macroeconomic expectations index for March logged a -39.3 value after posting 54.3 in February; that change produces a net decline in the index of 93.6 points for the month. The U.S. expectations index also weakened, from 13.1 in February to -26.1 in March, a lesser but serious step-back.

Germany is reeling under the sanctions that it imposed on Russia in combination with the war in Ukraine on its doorstep. These two events have shattered expectations and caused current conditions to weaken sharply. In Germany, the current conditions index which was -8.1 in February has backtracked to -21.4 in March; this compares to a U.S. current conditions index that was 46.2 in February and has backtracked to 31.7 in March. Clearly concerns about the war and conditions in Europe have hit the German economy much harder than the U.S. economy.

At the same time, inflation expectations have moved sharply higher in March. For the euro area, the reading was -35.1 in February, rising to 69.5 in March. The German index in February was at -37.5; that's moved sharply higher to plus 70.2 in March. In the U.S., the index moved from -36.2 in February to plus 50.6 in March. The war came and the sanctions have been imposed and these are turning the entire economic picture inside out and upside down. The ZEW index shows a combination of dramatic and benign changes.

Markets continue to trade- did they simply discount everything? We usually expect markets to be the litmus test of economic events. But strangely the impact on markets according to the ZEW experts has been muted - in the survey at least. Euro area short-term interest rate expectations were at 50.3 for February and they have eroded only slightly to 47.2 in March. For the U.S., short-term rate expectations of 88.7 in February have become 86.7 in March.

The impact on long-term rates sees the German index going from 74.2 in February to 76.5 in March whereas the U.S. index moves from 78.0 in February to 81.5 in March.

Stock market survey shows reduced expectations but not dramatically so. In the euro area the stock market expectation index moves from a survey value of 32.9 in February to 22.1 in March; in Germany it drops from 34.8 in February to 21.4 in March; in the U.S. it barely budges moving from 28.5 in February to 27.3 in March. Of course, the stock market standings all are weak.

Summary Table: Stronger vs. Weaker The summary table show the economic situation weakening in the euro area, Germany, and the U.S. in March. Economic expectations weaken in Germany and the U.S. in March. Inflation expectations rise across the board for the euro area, Germany, and the U.S. Short-term rate expectations are slightly weaker in the euro area and the U.S. while long rate expectations are slightly stronger. For stocks, assessments are slightly weaker but not very dramatically. The survey shows dramatic shifts in economic variables and slight wiggles in market gauges.
by:Robert Brusca
|in:Economy in Brief
France| Mar 14 2022
Bank of France Business Indicator Rebounds in February
The Bank of France business indicator rose to 107.1 in February from 106.6 in January. The index stands above its 12-month average which is at 104.4 and resides above its long-term average since August 1990 by a considerable amount. The indicator has a percentile standing on that timeline at its 82.6 percentile, a relatively strong standing for this indicator. Compared to just before the COVID emergency struck, the survey indicator is up by 10.4 points indicating a reasonably robust rebound during this two-year period.

Survey standings The components of the survey are a somewhat mixed lot. The strongest parts of the survey are for employment, both employment as expected and the employment change versus last month. Both of those line items have standings in their 90th percentile, in fact, in the upper part of their 90th percentile deciles. These are the indicators that are most responsible for giving the headline such strong standing. Apart from that, the order book standing is also relatively firm, at 89.2 percentile with the standing for foreign orders at 69.9% and for the change in total new orders at 72.8%. All of these indicators are somewhere between firm-to-strong. On the weaker side are inventories that have only 59.1% standing; still above their historic median although inventories are the only variable showing a net lower standing currently than they had in February 2020 before the virus struck. Capacity usage is also weak – indicating that a lot of slack remains in the system.

Trouble in paradise? Somewhat troubling is the response ranking for expected production. Expected production has only a 24.8 percentile standing, and it only increased by 5.6 points compared to February 2020. At a 24.8 percentile standing, expected production is well below its historic median indicating some trouble with the outlook on the part of producers. However, that standing flies in the face of such a strong standing for expected employment. So, there are things in this survey that raise eyebrows and may raise some concerns. However, for the moment, the survey doesn't seem to have any consistencies in it that cause us to think that it is seriously deteriorating.

Month-to-month and recent trends Turning to the month-to-month changes, the output change variable fell to 14.1 in February from 24.6 in January and that's also a decline from its December level. Expected production has been struggling ever since COVID struck.

Overall, there are nine components and the headline. Of the nine components, six weakened in February. Six have weakened on balance over three months and five have weakened over six months.

While output change has a solid historic standing, it has in fact struggled showing declines in four of the last six months and a net decline on balance. Expected production has weakened in February and is weaker on balance over three months but is stronger over six months.

Despite weakening in February, order books show declines in only two of six months and mark solid-to-strong increases over both three-months and six-months. Changes in orders are weaker than the volume of orders on the books as both foreign order and total order changes are weaker in three of the last six months and both series are weaker on balance over three months and six months on balance.

The change in finished inventories logs a negative value in February, but it improves from November. The series chronically logs negative values. Its current reading is a touch better than its 12-month average and above its historic median. Capacity use has weakened in four of the last six months and is lower on balance over three months and six months.

Both employment gauges weakened in February from their January level. Both have very strong high 90th percentile standings. The change in employment month-to-month was positive for four months in a row before declining in February. However, expected employment is lower in two of the last three months.

Outlook and risks On balance, the French survey looks sturdy enough. As often is the case with these surveys, the jobs components stay the strongest the longest. But there is some encroaching weakness for output and more outright weakness for expected production. There is still some lingering risk of an unknown dimension for COVID to return. Related to that, there are global supply chain problems. But the new risk is the War in Ukraine. Inflation is high and stubborn in Europe and higher and more stubborn in the U.S. The war is feeding inflation by pumping up oil and commodity prices. Central banks have work to do and yet the solidity of the economy is not assured and central banks for the most part have not even ‘begun to fight.’ What will happen when they do?
by:Robert Brusca
|in:Economy in Brief