Economy in Brief

A cacophony of trends and readings for Japan Japan's surveys for January show broad weakening despite an improvement in the METI service sector reading that rose for the second month in a row. Readings are varied, but they oscillate in a range of moderation to weakness. There is scant evidence of any strength across sectors in these various surveys using different methods of assessment and over various sectors or industries.

The Teikoku construction index improved month-to-month in January. The economy watchers index showed an improvement in employment and in its future index. For the economy watchers survey, those are three improvements in a row for employment and for the futures index. However, there's more weakening going on in January than there is strengthening.

The METI sector indexes showed industry weakening to a 97.6 reading in January from 105.5 in December. The Teikoku indexes show weakening month-to-month in services, wholesaling, retailing, and manufacturing, while in December, retailing, wholesaling, and services had improved monthly. In the economy watchers index, there was weakness in the headline and the retail sector; eating & drinking establishments and services sector readings also eased in January but all four of those surveys came after improvements in December- the economy watchers index itself had increased in each of the two previous months.

The emerging picture for Japan, therefore, is one with mixed performance across the surveys. We can also evaluate these statistics by looking at the growth rankings; for example, the year-over-year ranking of growth rates for indexes or for diffusion levels. The economy watcher diffusion indexes’ growth rates are above historic medians, except for the retail sector, which has a 44-percentile ranking. However, the rankings are not very robust with the highest being the future index with the 65-percentile ranking. The economy watchers index itself has only a 51.7 percentile growth ranking. The ranking on the levels of economy watchers diffusion indexes are higher in the 70th to 80th percentile range except for employment, whose diffusion level standing is below its historic median at its 48.3 percentile.

The Teikoku indexes also are diffusion indexes. We evaluate them on their year-over-year growth first; manufacturing and wholesaling both have growth rankings below their historic medians. The other components have rankings in their mid to low 60th percentiles. If we rank these diffusion indexes on their levels, the manufacturing index has only a 39.5 percentile standing; the rest of the sectors have standings that are in their 60th percentile decile-the exception is construction which is at its 55.8 percentile.

Spanish headline inflation has clearly hit a sticky spot and stopped its tendency to fall. Inflation peaked in 2022. Headline inflation is now clearly up from its low point of early-2023 and moving sideways at a higher level above the 2 1/2 percent growth rate.

The Spanish HICP rate for February backed off from its January spike, growing by 0.4% in February, but that was after a 0.9% increase in January. As a result of that clustering of strong price gains, inflation is spurting. Spain’s inflation on the HICP shows 3% over 12 months, a gain over six months at a 4% pace, and a gain over three months at a 5.8% pace. That's a clear pattern of acceleration and of course a level of inflation on all horizons that's higher than the benchmark 2% pace that the ECB sets for the community as a whole.

Spain’s domestic CPI shows a similar pattern with the CPI up by 0.3% in February after a 0.8% gain in January. CPI inflation is up 2.8% over 12 months; that gain rises to a 3.4% pace over six months and a 4.8% pace over three months. Spain’s inflation rate is clearly climbing whether we look at the HICP measure or the domestic CPI measure.

Core inflation is usually better behaved because it omits the volatile inflation elements of the headline gauges. Spain's core is up by 0.4% in February after rising by 0.5% in January. The 12-month core inflation rate is at 2.5%; that pace decelerates to 1.7% over six months but then it rises, gaining to 4.8% at an annual rate over three months.

Spain's inflation rate over three months whether measured by the HICP or CPI headlines, or the core is clearly excessive. Over six months inflation is excessive on both headline measures, but the core comes in at only 1.7%. Over 12 months Spain's inflation is between the lower 2.5% core increase and the higher 3% increase on the HICP.