Louise Curley

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 German manufacturing is beginning to feel the effects of the slowdown in
 the rest of the Euro Area. Data released today and shown in Haver's
 GERMANY database show that employment in the manufacturing industry
 dropped in October to 5,254 thousand from 5,261 in September, the
 first drop this year. The October decline in employment was,
 however, partly offset by an increase in hours worked. Hours
 worked increased to 706 million in October from 656 million in
 September. The main cause of the decline in employment has
 been the slowdown in the year to year increases in sales, as can be seen
 in the first chart.
 

 Data on German wages and salaries for all industry were also released
 today and are shown in the second chart compared with the comparable data
 for manufacturing. Because of the importance of manufacturing in the
 German economy, the series for the total industry is not too different
 from that of manufacturing alone. Although both series show a small increase in October, they remain well
 below the peak reached in May of this year.
 

 
 
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th scope="col" colspan="11" >Germany Manufacturing </th>
 </tr>
 </thead>

 
 <td >2012</td>
 <td >Oct</td>
 <td >Sep</td>
 Aug
 <td >Jul</td>
 <td >Jun</td>
 <td >May</td>
 <td >Apr</td>
 <td >Mar</td>
 <td >Feb</td>
 
 
 
 
 
 <tr class="odd">
 <td class="firstcol" >Employees&nbsp; (Thous)</td>
 <td >5254</td>
 <td >5261</td>
 <td >5257</td>
 <td >5228</td>
 <td >5201</td>
 <td >5192</td>
 <td >5188</td>
 <td >5185</td>
 <td >5173</td>

 </tr>
 <tr>
 <td class="firstcol" >Hours Worked&nbsp; (Mil)</td>
 <td > 706</td>
 <td >657</td>
 <td >655</td>
 <td >680</td>
 <td >664</td>
 <td >666</td>
 <td >643</td>
 <td >645</td>
 <td >694</td>

 </tr>
 <tr class="odd" >
 <td class="firstcol" >Sales&nbsp; (Bil EUR)</td>
 <td >142785</td>
 <td >138824</td>
 <td >132008</td>
 <td >139699</td>
 <td >141424</td>
 <td >138153</td>
 <td>130784</td>
 <td >150885</td>
 <td >133875</td>

 </tr>
 <tr>
 <td class="firstcol" >Sales (Y/Y%)</td>
 <td >5.76</td>
 <td >-6.95</td>
 <td >0.41</td>
 <td >3.91</td>
 <td >5.52</td>
 <td >-4.02</td>
 <td>1.32</td>
 <td >1.07</td>
 <td >5.53</td>

 </tr>
 <tr class="odd">
 <td class="firstcol" >Wages &amp; Salaries (Mil EUR)</td>
 <td >19018</td>
 <td >18480</td>
 <td >18675</td>
 <td >19235</td>
 <td >21070</td>
 <td >21350</td>
 <td>20151</td>
 <td >18864</td>
 <td >17874</td>
 
 </tr>
 <tr>
 <td class="firstcol" >Wages &amp; Salaries (Y/Y%)</td>
 <td >5.40</td>
 <td >4.30</td>
 <td >5.19</td>
 <td >5.13</td>
 <td >6.00</td>
 <td >7.29</td>
 <td >5.15</td>
 <td >4.75</td>
 <td >5.23</td>
 
 </tr>
 

 



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German manufacturing is beginning to feel the effects of the slowdown in the rest of the Euro Area. Data released today and shown in Haver's GERMANY database show that employment in the manufacturing industry dropped in October to [...]

German Manufacturing Employment Declines

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Tom Moeller

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The Producer Price Index for final demand increased 0.4% (3.0% y/y) during November after rising 0.3% in October, revised from 0.2%, and 0.2% in September, according to the Bureau of Labor Statistics (BLS). It was the largest increase since June. The reading compared to a 0.3% rise expected in the Action Economics Forecast Survey. Producer prices excluding food, energy & trade services edged 0.1% higher (3.5% y/y) following an unrevised 0.3% October rise and 0.1% September uptick. The PPI excluding food & energy rose 0.2% (3.4% y/y) after increasing an unrevised 0.3% in October.

Final demand food prices surged 3.1% (5.1% y/y) and accounted for 80% of the rise in last month’s PPI gain, according to the BLS. Egg prices strengthened 55.6% (80.2% y/y) while vegetable costs rose 33.2% (34.3% y/y). Fruit & melon prices surged 21.8% (11.0% y/y) while beef & veal prices rose 2.8% (6.7% y/y). Dairy product prices fell 1.0% (+5.6% y/y).

Energy prices increased 0.2% in November (-6.2% y/y) after a 0.1% October gain. Gasoline costs rose 0.4% (-9.3% y/y) while home heating oil prices jumped 6.1% (-19.5% y/y). Electric power prices rose 0.5% (0.8% y/y) and natural gas costs gained 0.9% (1.9% y/y). These gains were offset by a 2.1% drop (-20.6% y/y) in diesel fuel prices.    

Final demand goods prices excluding food & energy rose 0.2% in November (2.2% y/y) for the sixth month in the last seven. Core finished consumer goods prices increased 0.3% (2.3% y/y) after rising 0.1%. The increase in core nondurable goods prices picked up to 0.4% last month (2.9% y/y) from 0.1% in October. Durable consumer goods prices improved 0.2% (1.4% y/y) after holding steady. Capital equipment prices rose 0.2% last month (2.7% y/y) following a 0.1% rise. Government-purchased goods prices edged 0.1% higher (2.1% y/y) after holding steady in October.

Final demand services prices rose 0.2% (3.9% y/y) in November, after increasing 0.3% in October. Trade services prices strengthened 0.8% (3.2% y/y) after rising 0.1%. Trade of finished goods prices increased 0.8% (3.0% y/y) after slipping 0.1% in October. Prices for final demand transportation and warehousing services fell 0.5% last month (+0.1% y/y) after a 0.7% gain. Services prices less these costs rose 0.1% in November (4.6% y/y) after rising 0.4% in October.

Construction costs held steady (+1.6% y/y) during November after falling 0.2% in October.

Prices for intermediate demand of processed goods were unchanged (-0.5% y/y) last month after rising 0.6% in October. Processed energy goods prices fell 1.2% following a 1.6% jump, while food prices rose 0.9% after a 0.1% increase.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.


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- Overall index rise driven by food prices.
- Advance in core goods prices is steady.
- Services price increases moderate.


U.S. PPI Strengthens in November; Core Price Gain Eases

Sandy Batten

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Initial claims for unemployment insurance jumped 17,000 to 242,000, seasonally adjusted, in the week ended December 7, the highest weekly reading since the hurricane-augmented 242,000 reading in the week ended October 12. Claims in the previous week were revised up slightly to 225,000 from 224,000. The Action Economic Forecast Survey had expected claims to be 220,000. The 4-week moving average increased to 224,250 from 218,500. Weekly claims figures at this time of year can be distorted by the timing of Thanksgiving and the associated difficulty that presents to seasonally adjusting weekly data.

The total number of unemployment insurance beneficiaries increased to 1.886 million in the week ended November 30, up from an unrevised 1.871 million in the previous week. This total number of beneficiaries is also known as “continuing claims.” The 4-week moving average was 1.888 million in the week ended November 30, up from 1.884 million in the previous week. The insured unemployment rate, that is, the total number of beneficiaries as a percent of covered employment, was unchanged at 1.2% in the week ended November 30.

Unemployment rates vary markedly across states. The Labor Department reports that for the week ended November 23, the insured unemployment rate was highest in New Jersey at 2.21%, followed by 1.98% in Washington and Alaska, 1.84% in California and 1.79% in Rhode Island. The lowest rates were in Florida and South Dakota at 0.31%, followed by Virginia, 0.39%, Alabama, 0.42%, and Kentucky, 0.44%. Unemployment rates in other major states were 1.56% in New York, 1.49% in Pennsylvania, 1.18% in Michigan, 1.00% in Texas, and 0.84% in Ohio. These state rates are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.



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- The 242,000 increase was much larger than expectations.
- The outsized increase was likely impacted by late Thanksgiving.
- Still, on the margin, labor-market conditions appear to be cooling a bit.


U.S. Initial Unemployment Claims Jumped in Most Recent Week

Robert Brusca

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Inflation in Sweden rose by 0.6% in November after rising by 0.7% in October and gaining 0.2% in September. HICP inflation is on another strong streak in Sweden. But, year-over-year Swedish inflation is up by only 2%. There is a parallax view of price pressure from the domestic inflation gauge where the monthly gains are only about half the gains of the HICP monthly, and where year-on-year inflation is up by only 1.5%, slips to a 0.4% pace over 6-months then accelerates sharpy to a 3% pace over 3-months – quite different from the HICP pattern and inflation levels.  Both domestic and HICP inflation are well behaved over 12-months and while these readings differ a lot after that (over 3-Mo and 6-Mo) they both show inflation accelerating over 3-months compared to its 12-month pace. In neither case is inflation still falling.

In November inflation accelerated for food and non-alcoholic drinks, for health and medical care, for recreation, and for other goods and services. Inflation accelerated in 55.6% of the categories, the same as in October down slightly from 66.7% of the categories with accelerating inflation in September. 

The readings in the pattern for domestic inflation are clear and muted. But HICP inflation in Sweden may be becoming a problem as it stops falling too soon. It may be becoming a bigger problem as sequential inflation rates for 12-months, six-months, and three-months show a steady increase in inflation although that is not accompanied by a steady rise in diffusion. 

**Diffusion is derived from the domestic index**
Over 12-months inflation is decelerating in all categories compared to 12-months ago. This is the sense of progress that Sweden has made on past high inflation. But over six-months compared to 12-months inflation is accelerating in 55.6% of the categories. That occurs with the overall domestic inflation rate rising by to only 0.4% at an annual rate from its 1.5% pace over 12-months; given the decline in the pace of inflation the increase in diffusion is surprising. Over three months the diffusion rating decelerates logging a reading of 33.3%, down from 55.6% over 6-months. The diffusion calculation compares 3-month inflation to the six-month inflation rate across categories. The headline domestic pace, of course, accelerated to 3.0% over 3-months from 0.4% over 6-months – still, diffusion narrowed. Inflation and diffusion are out of step.

**Two inflation measures, quite different inflation**
What we see here is a substantial difference between the national CPI and inflation as measured according to the HICP. The national CPI shows 12-month inflation at 1.5% dropping down to 0.4% at an annual rate over six months and then re-accelerating the 3% over 3-months, while the HICP shows a steady acceleration in Swedish inflation. The national index shows the step down from 12-months to six-months and then a significant step up over three months, although the step up is to a pace that's only half of the pace that's measured by the HICP. Even so, there is a step up in inflation over 3-months the same as for the HICP. According to the national CPI, there's an increase in prices over 3-months in housing costs to 5.7% from -7.7% and transportation costs that only fall by 2% after falling by 14% over 6-months. But those two readings are enough to accelerate the headline in the national index to 3.0% from 0.4%. 

**Inflation rankings**
The rankings on inflation orders each category on its 12-month price gain historically. This ranking shows the HICP has a 69-percentile rank meaning it has been higher only 31% of the time. On the other hand, the national index has only a 47-percentile rank, which says that it is below the 50% mark, indicating that inflation is below its historic median and that refers to the year-over-year rate of 1.5%. As such, it's below its median and thar is true of all categories of domestic inflation except clothing and footwear, education, healthcare, Recreation, and other goods and services. Costs have become weak by historic standards (below median).

**Inflation is no longer falling**
Whether we use the domestic gauge or the HICP gauge Sweden's inflation is becoming more of a problem based on momentum. The monthly diffusion numbers have been above 50, indicating there is more acceleration than deceleration for the last three months. However, the national CPI numbers have been persistently below and approximately half the gain being registered by the HICP. The HICP is the kind of index that is used across Europe and by the European Central Bank to assess inflation in the European Monetary Union. All this leaves us with a bit more of a complicated view of inflation in Sweden but at the very least the bottom line is that inflation is no longer falling and that's a trend that's been noted across many countries. Even countries like Sweden that have made tremendous progress over where inflation was a year a year and a half ago have seen progress stall. All of a sudden inflation has become stuck and generally stuck at a level that's higher than where the target is. Sweden has its year-over-year numbers in place, but its shorter tenor numbers are showing more pressure, making the outlook more uncertain. But because of the current pace of inflation being stuck here, it is not so uncomfortable as it is being stuck at current inflation rates elsewhere in the world.


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Sweden

Swedish Inflation Is Stubborn…and no longer falling 

Andrew Cates

Tian Yong Woon

**A Soft-Landing Consensus**
Surveys of economic forecasters presently suggest that the world economy will enjoy a soft landing in 2025. GDP growth is forecast to slow in the US and China to respective rates of 2.1% and 4.3%, after 2.7% and 4.8% in 2024. GDP growth in the euro area, in contrast, is expected to quicken to 1.0% next year, albeit from a weak base of just 0.8% this year. As for CPI inflation, headline rates are expected to decline to average rates of respectively 2.4% and 1.9% in 2025 in the US and the euro area. China’s inflation rate is expected to climb but from a lower starting point and toward an arguably still uncomfortable rate of 1.1% in 2025. 

121224 Consensus.jpg

**Supply side challenges and uncertainty**
The risks to that consensus outlook stem from a number of factors, including the potential shift toward more protectionist US trade policy together with other more familiar forces that threaten to destabilise economic activity. The latter include climate change, the energy transition, and geopolitical instability together with high levels of debt. These factors are, in combination, conspiring to generate a very high level of uncertainty about the economic and policy outlook. As chart 2 below suggests, a gauge of policy uncertainty in Europe has lately jumped to a level that’s close to a multi-decade high. US policy uncertainty has bolted sharply higher in recent weeks as well. 

121224 Uncertainty.jpg

**Potential US policy conflict**
While trade policy shifts threaten global economic stability, other focal points of policy under a new US administration also potentially invite conflict. As chart 3 below suggests, US financial imbalances – a persistent current account deficit, matched by a high fiscal deficit and a high private sector savings surplus – have been hallmarks of the US economic scene for many years. On the external front they reflect structural forces such as excess savings in other major economies that have been readily absorbed by deep, flexible and liquid US financial markets. On the private sector side, they also reflect an ageing population, a higher proclivity of households and companies to save, as well as a structural pivot toward a services-led economy. And on the fiscal side, they reflect heavy government spending on areas such as healthcare. Against this backdrop, President-elect Trump’s purported desire for a US trade surplus, for lower corporate taxation, for some de-regulation of the financial sector, as well as for a weaker US dollar and lower interest rates will – in combination with one another – may be hard, if not impossible, to achieve.

121224 US fin balances.jpg

**The energy trilemma**
At a broader global level, the energy transition – the shift from fossil fuels to renewables – is also arguably likely to generate more scrutiny in the year ahead. While a necessity for delivering on climate change objectives, it is equally proving to be a big source of macroeconomic and political disruption, particularly in Europe, as we discuss further below. The so-called energy trilemma—balancing energy security, affordability, and sustainability—has now become a central axis for understanding the global economy’s current supply-side vulnerabilities. The trilemma underscores that achieving one objective often compromises another. Transitioning to renewable energy too quickly, while enhancing sustainability, may nevertheless undermine affordability and, in the short term, energy security, if fossil fuel dependencies are unwound too quickly. 

121224 Energy.jpg

**Europe’s lack of energy**
The political instability that has engulfed several European economics in recent weeks, and Germany in particular, can arguably be traced in part to this energy trilemma. Chart 5 below suggests that while Germany, France, Italy and the UK, have achieved significant shares of low-carbon electricity generation, they also experience relatively high electricity prices and relative low rates of per capita electricity generation. Germany's reliance on renewable energy subsidies and grid costs contribute to these elevated prices. This, in turn, has been a key source of economic instability in these economies and amplified political instability as well. 

121224 Renewables.jpg

**Trade, tariffs and Asia**
We turn next to Asia, which is expected to experience some significant challenges with US President-elect Trump set to take office in January. A key focus is China, as Trump has threatened to revoke its Most Favoured Nation (MFN) status. Doing so would allow the US to impose targeted tariffs on China without being obligated to provide the preferential trade terms that come with MFN status. While this could hurt China’s export-driven growth by reducing demand due to higher tariffs, it could also negatively impact the US, as much of its inputs are still sourced from China. More broadly, such a move could disrupt global supply chains and prompt a rerouting of trade flows to circumvent potential US tariffs on China. Currently, nearly all of the US’s trading partners benefit from MFN status, and as of 2023, the US's MFN trade-weighted average duty stood at a low 2.2%, similar to Japan’s, but lower than developing Asian economies like China and India (see chart below).

121224 Asia MFN average tariff.jpg

**China’s debt challenges**
Another potential source of instability concerns China’s debt challenges. The country’s effort to shift away from debt-fuelled growth remains difficult, especially in the current challenging economic environment. China finds itself between a rock and a hard place: on the one hand, large-scale stimulus—seen by many as a quick fix for near-term growth—would invite criticism for its continuing reliance on debt. On the other hand, China’s relatively restrained approach to fiscal stimulus has disappointed markets, as evidenced by recent equity market sell-offs. Ultimately, China must find alternative ways to stimulate economic recovery, a daunting task, while also addressing the broader issue of ballooning local government debt and off-balance sheet liabilities. Despite these challenges, it may be a case of “better late than never,” as continuing to allow local governments to freely accumulate debt could soon lead to a situation where more revenue is spent on interest payments and less on other critical areas (see chart 7 below). Additionally, any trade actions by the US could further dampen China’s already fragile growth prospects.

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**Japan’s monetary policy normalisation**
Japan will also be closely watched next year for how its monetary policy normalization unfolds. This year marked a historic shift, with the Bank of Japan (BoJ) having delivered its first interest rate hike in 17 years. However, the BoJ’s path to full normalization is expected by many to remain gradual, with only a few additional rate hikes anticipated next year. That said, expectations can change quickly and dramatically, with much depending on Japan’s economic performance in 2025. One key area of focus will be Japan’s Spring wage negotiations ("Shunto") in Q1, as the fiscal year-end for many Japanese corporations draws to a close. As in previous years, wage growth will be a critical factor influencing the BoJ’s monetary policy decisions. While nominal wage growth remains strong, real wage growth continues to be restrained by inflation. A longer-term concern for the BoJ is its massive balance sheet, predominantly consisting of government securities (see chart below), which remains significantly higher than a decade ago. In this context, observers will be interested in whether the BoJ considers further reductions in its bond purchases to accelerate balance sheet normalization. Such a move could limit the Japanese government’s ability to sell bonds to its largest buyer: the BoJ.

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**Demographics, healthcare, and fiscal policy**
Turning to long-term issues, we next address global demographic challenges and their implications for healthcare and fiscal policy. As shown in the chart below, high-income economies around the world have experienced a significant rise in their dependency ratios over the past decade, largely due to the rapid ageing of populations in several of these economies. This trend is particularly pronounced in developed Asian countries, such as South Korea, where the fertility rate has fallen below 1. This trend extends to other developed economies, though not always to the same extent, as seen in the US and the UK, which are also experiencing ageing populations. However, unlike South Korea, the US and the UK benefit from mitigating factors, such as strong immigration rates, which help supplement the workforce. In contrast, countries without such offsets will face a shrinking labour force, struggling to support a growing elderly population, leading to higher healthcare and social benefit costs, and increasing pressure on government budgets. This increased fiscal pressure could either erode fiscal surpluses or widen fiscal deficits, worsening overall debt levels. In contrast, economies with stable or improving fertility rates are less likely to face these demographic challenges.

121224 High income dependency.jpg

**Geopolitical stress**
Next, we address the ongoing latent risk of further geopolitical flare-ups, which are likely to persist into at least early next year. As we've seen in the past, geopolitical tensions can escalate rapidly, as demonstrated by Russia’s invasion of Ukraine in 2022 and the more recent Israel-Hamas conflict in 2023. As shown in the chart below, surges in global geopolitical risk, as measured by the newspaper-based Geopolitical Risk Index, have typically been driven by events in specific regions. These tensions have largely remained contained within specific parties and have not yet expanded into broader regional conflicts. Nevertheless, such flare-ups will continue to be closely monitored. They have the potential to disrupt global supply chains and affect the supply and prices of commodities produced in or passing through the affected regions. 

121224 Geopolitical risk.jpg

**Artificial Intelligence and productivity**
As 2025 approaches, the question of whether artificial intelligence will finally deliver a long-awaited productivity surge remains another uncertainty. On the one hand, the major economies are buzzing with AI-driven innovations, from generative models reshaping content creation to advanced algorithms optimizing logistics and supply chains. Early adopters boast of efficiency gains and reduced costs, but scaling these benefits across industries is proving uneven. Much like electricity in its infancy, AI's transformative potential may take years to embed itself fully into workflows. For now, the boost to global productivity feels more like a slow burn than an explosive leap, with structural challenges—ranging from workforce reskilling to regulatory hurdles—dampening its immediate impact.

121224 AI.jpg

**Global travel**
Our final destination is the travel sector, which continues to experience varying degrees of post-pandemic recovery across different economies. On the whole, however, it appears that global tourism has finally regained its footing, with the UN forecasting a full recovery in international tourism by the end of the year. Notably, tourism spending is growing faster than arrivals. Looking ahead, tourism performance will likely remain influenced in part by currency fluctuations. For example, Japan's weakened yen this year has spurred increased tourism, as it made the goods and services in the country relatively cheaper for foreign visitors. However, it remains to be seen whether other economies, such as South Korea—where recent political instability has led to a weaker domestic currency—will experience similar boosts to their tourism arrivals. Additionally, vulnerabilities persist. Currency effects are not the only drivers of tourism performance. For instance, energy prices, influenced by geopolitical factors, could discourage global travel if they surge due to tensions in oil-critical regions. Geopolitical events can also affect international travel patterns, steering tourists toward or away from certain destinations.

121224 Global tourism.jpg

In our penultimate Charts of the Week publication for 2024, we turn our attention to the upcoming year and highlight several themes that are poised to mould the economic and financial market landscape. Although a soft-landing consensus for the world economy is presently implicit in most economic forecasts for next year (chart 1) that view is not without challenges. Uncertainty about the economic outlook has bolted sharply higher in recent weeks (chart 2) partly because of the likely major - and potentially disruptive - policy changes from a new US administration (chart 3). Lingering supply-side challenges, such as climate change and the energy transition, are also generating a great deal of economic and political instability at present, most notably in Europe (charts 4 and 5). In the meantime, many Asian economies face additional challenges, including the potential for higher tariffs on trade (chart 6) and lingering debt-related problems in China (chart 7). Generating sufficient domestic growth momentum to mitigate those problems is also proving to be tough for a number of countries, not least in Japan (chart 8). As Japan’s policymakers are all too aware a key reason for weak domestic demand momentum is ageing demographics, a structural problem that will likely remain in vogue in 2025, not least in the realm of healthcare provision and fiscal policy (chart 9). Geopolitical risks will also likely remain elevated even if there is some progress next year in mitigating those risks in Eastern Europe and the Middle East (chart 10). Finally, and ending on a more positive note, there are some offsets to these downside risks, not least via the productivity-enhancing potential of AI technology (chart 11). The rebound that has been unfolding in the travel and tourism sector in recent months is also noteworthy, and a push back against the trend toward a de-globalisation of the world economy in recent years (chart 12). 

German Manufacturing Employment Declines

Summary

Louise Curley

More Economy in Brief

U.S. PPI Strengthens in November; Core Price Gain Eases

U.S. Initial Unemployment Claims Jumped in Most Recent Week

Swedish Inflation Is Stubborn…and no longer falling

Charts of the Week: The Year Ahead