Robert Brusca

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The main take away from the Zew report in December
The main take away from the Zew report in December is that globally conditions are in flux. Brexit is an issue, Zew experts see Italy deteriorating. The US is expected to perform better- like him or not Trump is being credited for higher growth expectations. Inflation looks to be climbing higher everywhere except where its need most: in Japan. Growth in Europe is still moderate and expectations there are below par.


The current economic situation 
The Zew economic situation for the Euro-Area and five select countries shows near median conditions in the U.K. and in France. Japan trails with a 41 percentile standing. Japan and the whole of the Euro-Area log near 68th percentile standings. But the US and Germany have standings in their respective 80th percentiles. Conditions in Germany and in the US are relatively strong, stronger than this less than 20% of the time.

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Growth expectations 
Expectations for the six countries are another matter. They are uniformly lower than readings for the current economic situation across the board. All except the US have expectations below their historic median (median occurs at a percentile of 50). Like other measures concerning the US, expectations jumped in the wake of the presidential elections. The US expectations index jumps from 17.7 in November to 45.6 in December and to a standing of 78.8% nearly the same as for economic conditions. Europe apparently buys into the notion that Trump will ignite growth. Most other countries show some improvement in expectations for November to December albeit small improvements. The exception is Germany where expectations are unchanged and Italy where expectations have plummeted from a -4 reading in October to a -15.2 reading in December. Still expectations for the U.K. are lower in their raw diffusion level as well as their percentile standing than for Italy. 
 On balance the US is on the move. Germany is solid with middling to soft expectations. The U.K. and Italy have troubled outlooks. The outlook for France and Japan more or less are the same as for Germany. This is the Zew, German financial expert, view of the world. 

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Inflation expectations 
Table 2 chronicles inflation expectations. For December expectations are in the top one percentile for the Euro-Area, for Germany for the U.K. and for the US. They are in the top 5% or better for Italy and France and are only at a more moderate 78.8 percentile for Japan, where the central bank would almost kill to get inflation higher. However, these ranking are not new. Despite much more optimism on US growth, the US inflation expectation reading actually backed off a tad in December. Inflation expectations are little changed between November and December. November took a sizeable step up for all regions/countries. There was a gain in the basic indices month to month of about 20 points in November compared to October with the exception of the U.K whose monthly gain was about 15 points and Japan where its monthly gain was a meager 2 1/2 points. Still the percentile standings on inflation are much higher than they have been in some time. This explains why Jens Weidmann has been making strong statements about how the ECB needs to look only at inflation to make policy. 

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Interest rate expectations 
Table 3 looks at short and long term interest rate expectations. In both cases the rate expectations were changed substantially in November as they moved up to higher levels. For short rates the main exception was Japan where a small step up occurred. In December expectations for short rates have not changed by much except for the UK. For long term rates there was a more considerable shift up in November, followed by small upward movements in December (except in the US where long term expectations are unchanged). For the US rate expectations are in the top 1% of their queue of values since early 1999. The UK and Germany have expectations standing their respective 70th percentile. Japan's long term rate expectations have a 36 percentile standing, well below their median. 

<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/161213_d.png" width="520" height="260">


Stock markets 
Stock market expectations have generally stepped up country by country and month by month except for Italy which has backtracked in December. For the UK.., France and Italy expectations are generally subpar, below their historic medians. Japan has a prototypical median report with a 50.5 percentile standing. The Euro-Area as a whole is a bit better with a queue standing in its 63rd percentile; Germany's is better still in its 75th percentile. The US has a stock expectation standing that is better historically only about 13% of the time. 
 

Exchange rates 
As to Zew expert expectations for the euro, they look for the dollar to get stronger as the dollar expectation has 92.9 percentile standing and is quite strong. No surprise with the Fed alone braced to hike rates. The Swiss franc has an 80th percentile standing, also relatively strong. The yen has a near median standing at its 54th percentile but the pound sterling is expected to continue to be weak as it has a standing that has been weaker less than 25 percent of the time. 


Oil 
The Zew experts also weigh in on oil prices. Despite the recent OPEC announcement the Zew assessment for oil prices actually fell in December relative to November. Either forecast submissions to Zew from the experts were made ahead of the recent Saudi announcements or the Zew experts are Saudi skeptics. Still, at their December level, Zew expectations are higher less than 15% of the time. So that even though the Zew experts' outlook for oil price did not change much in the current month the Zew survey is looking for oil prices to rise and that expectation is relatively strongly held. 


Summing up 
There are for various reasons big changes in the recent months in both conditions and expectations. We see in the Zew survey the impact of Brexit on the UK market, on inflation, on interest rates, and on the exchange rate. For Italy we see downgraded expectations in the wake of its failed referendum and the resignation of its Prime Minister. In the US we see a huge upward revision in growth expectations coinciding with the election of Donald Trump. In the last two months inflation expectations are up relatively sharply and broadly as well. Zew experts are relatively upbeat on the US and seem to see slow progress in Japan. Clearly they are more concerned about the EMU inflation situation than they have been in the recent past. Meanwhile in Europe growth is only moderate and expectations remain sub-par. 


 
 

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The main take away from the Zew report in December The main take away from the Zew report in December is that globally conditions are in flux. Brexit is an issue, Zew experts see Italy deteriorating. The US is expected to perform [...]

Zew Expectations for Germany Are Unchanged as the U.S. Is Off to the Races

Tom Moeller

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WTI crude oil prices jumped to $50.96 per barrel
(38.0% y/y) last week, the highest level since July of last year. Yesterday,
prices strengthened further to $52.83 per barrel. Brent crude oil prices
increased to $53.92 per barrel last week, then rose to $55.35 per barrel
yesterday.
Natural gas prices increased to $3.70/mmbtu last
week, and have nearly doubled y/y. It was the highest level since November 2014.
Prices eased to $3.57 yesterday.
Regular gasoline prices increased to $2.24 per gallon (9.8% y/y) last
week, the highest level since late October. Prices remained down versus a 2014
high of $3.71 per gallon. Haver Analytics constructs factors adjusting for the
seasonal variation in these pump prices. The adjusted price rose last week to
$2.46 per gallon, and prices have firmed substantially since mid-year.
Last week, gasoline demand declined 1.2% y/y, while
demand for all petroleum products fell 1.0% y/y. Gasoline inventories 
rose 5.5% y/y, and inventories of all petroleum products increased 3.5% y/y.
Crude oil input to refineries eased 1.0% y/y in the last four weeks.
The energy price data are reported by the U.S. Department of
Energy. The petroleum demand and inventory figures are from the Oil &amp; Gas
Journal Weekly. These data can be found in Haver's WEEKLY database. The
daily figures are in DAILY and greater detail on prices, demand and
production, along with regional breakdowns, are in OILWKLY.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy Prices</th>
 <th scope="col" >12/12/16</th>
 <th scope="col" >12/05/16</th>
 <th scope="col" >11/28/16</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Retail Gasoline ($ per Gallon, Regular)</td>
 <td >2.24</td>
 <td >2.21</td>
 <td >2.15</td>
 <td >9.8</td>
 <td >2.03</td>
 <td >2.30</td>
 <td >3.33</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl.,
 WSJ)</td>
 <td >50.96</td>
 <td >48.63</td>
 <td >47.56</td>
 <td >38.0</td>
 <td >48.90</td>
 <td >93.64</td>
 <td >97.96</td>
 </tr>
 <tr>
 <td class="firstcol" >Natural Gas ($/mmbtu, LA, WSJ)</td>
 <td >3.70</td>
 <td >3.21</td>
 <td >2.76</td>
 <td >90.7</td>
 <td >2.62</td>
 <td >4.37</td>
 <td >3.73</td>
 </tr>
 </tbody>
</table>


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WTI crude oil prices jumped to $50.96 per barrel (38.0% y/y) last week, the highest level since July of last year. Yesterday, prices strengthened further to $52.83 per barrel. Brent crude oil prices increased to $53.92 per barrel last [...]

U.S. Crude Oil & Natural Gas Prices Surge

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Import prices slipped 0.3% during November (-0.1% y/y)
following a 0.4% October increase, revised from 0.5%. A 0.4% decline had been
expected in the Action Economics Forecast Survey. These figures are not
seasonally adjusted.
A 4.7% decline (+2.4% y/y) in petroleum import prices led the
fall in the overall import price index, as it followed a 7.3% jump. Nonpetroleum
import prices were unchanged (-0.2% y/y), and have been for four months. Prices
for non-oil industrial supplies &amp; materials increased 0.3% (0.7% y/y) after
a 0.4% decline. Foods, feeds &amp; beverage costs jumped 1.5% (5.6% y/y) after a
0.7% decline. Motor vehicle &amp; parts prices eased 0.1% (0.0% y/y) after a
0.3% rise. Nonauto consumer goods prices slipped 0.1% (-0.6% y/y), and reversed
the prior month's increase. Capital goods prices declined 0.2% (-1.6% y/y), down
3.9% over the last three years. Capital goods prices excluding computers,
peripherals &amp; semiconductors eased 0.1% (-1.1% y/y) for a second month.
Export prices eased 0.1% (-0.3% y/y) following an unrevised
0.2% gain. A 0.2% decline had been expected.
Agricultural commodity prices increased 0.6% (-1.2% y/y)
following as 0.5% gain. Nonagricultural goods costs eased 0.1% (-0.3% y/y) after
a 0.2% increase. Foods, feeds &amp; beverage prices jumped 0.7% (-1.3% y/y)
following declines in three of the prior four months. Industrial supplies &amp;
materials slipped 0.3% (+0.8% y/y) following two months of strong increase.
Motor vehicle &amp; parts&nbsp; prices remained unchanged (-0.6% y/y) while
nonauto consumer goods prices fell 0.7% (-1.9% y/y), down for the third month in
four. Capital goods prices remained steady for the third straight month (-0.3%
y/y).
The import and export price series can be found in Haver's USECON
database. Detailed figures are available in the USINT database. The
expectations figure from the Action Economics Forecast Survey is in the AS1REPNA
database.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>


 <thead>
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export
 Prices (NSA, %)</a></th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov Y/Y</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Imports - All Commodities</td>
 <td >-0.3</td>
 <td >0.4</td>
 <td >0.1</td>
 <td >-0.1</td>
 <td >-10.2</td>
 <td >-1.1</td>
 <td >-1.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Petroleum</td>
 <td >-4.7</td>
 <td >7.3</td>
 <td >0.6</td>
 <td >2.4</td>
 <td >-46.0</td>
 <td >-5.6</td>
 <td >-2.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Nonpetroleum</td>
 <td >0.0</td>
 <td >-0.1</td>
 <td >0.0</td>
 <td >-0.2</td>
 <td >-2.8</td>
 <td >0.1</td>
 <td >-0.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Exports - All Commodities</td>
 <td >-0.1</td>
 <td >0.2</td>
 <td >0.3</td>
 <td >-0.3</td>
 <td >-6.3</td>
 <td >-0.5</td>
 <td >-0.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Agricultural</td>
 <td >0.6</td>
 <td >0.5</td>
 <td >-1.1</td>
 <td >-1.2</td>
 <td >-13.3</td>
 <td >-2.7</td>
 <td >1.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Nonagricultural</td>
 <td >-0.1</td>
 <td >0.2</td>
 <td >0.5</td>
 <td >-0.3</td>
 <td >-5.5</td>
 <td >-0.3</td>
 <td >-0.7</td>
 </tr>
 </tbody>
 </table>
 
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Import prices slipped 0.3% during November (-0.1% y/y) following a 0.4% October increase, revised from 0.5%. A 0.4% decline had been expected in the Action Economics Forecast Survey. These figures are not seasonally adjusted. A 4.7% [...]

U.S. Import Prices Ease as Oil Prices Decline

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The National Federation of Independent Business reported that
its Small Business Optimism Index jumped 3.7% during November (4.1% y/y) to
98.4. It was the strongest level of optimism since December 2014.

A strengthened 12% of firms reported they were expecting the economy to
improve, also the most since December 2014. Another area of strength was that 11
percent expected higher real sales in six months, up from one percent in
October. Fifteen percent of firms expected to increase employment, the most
since December of this year.

Also on the labor front, a sharply increased 52% of firms
indicated they had few or no qualified candidates to fill job openings. That was
the most since October 1999. Thirty one of firms indicated they had positions
they were unable to fill right now, up from 9% during all of 2009. Despite
hiring difficulty, a lessened 21% percent of firms were raising worker
compensation. That's down from 25% in October, and below January's 27% high. A
lessened 15% were planning to raise worker compensation, below December's 21% high.

An the price inflation front, an increased 5% of firms were
raising average selling prices, the most since January of last year.
Expectations for pricing also remained strong as 19% planned to raise prices, the
most since December.

A sharply lower nineteen percent of firms indicated that taxes were the
single most important problem, and a lower 18% reported that government
requirements were the largest single problem. A slightly increased 16% felt challenged by
the quality of labor, while just 12% of firms indicated that poor sales were the
largest single problem. Ten percent of firms reported insurance cost &amp;
availability as the largest hurdle, up sharply from a 7% September low. Just 6% reported the cost of labor was
the biggest problem, and a lessened 7 percent reported competition from large
businesses as the largest problem. Inflation as the largest problem was
indicated by a higher 3% percent of respondents, the most in 6 months.

Roughly 24 million small businesses exist in the U.S. and
they create 80% of all new jobs. The typical NFIB member employs 10 people and
reports gross sales of about $500,000 a year. The NFIB figures can be found in
Haver's SURVEYS database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >National Federation of
 Independent Business (SA, Net %)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov'15</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Small Business Optimism Index (1986=100)</td>
 <td >98.4</td>
 <td >94.9</td>
 <td >94.1</td>
 <td >94.5</td>
 <td >96.1</td>
 <td >95.6</td>
 <td >92.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Reporting Now is a Good Time To
 Expand the Business</td>
 <td >11</td>
 <td >9</td>
 <td >7</td>
 <td >12</td>
 <td >11</td>
 <td >10</td>
 <td >7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Expecting Higher Real Sales In Six
 Months</td>
 <td >11</td>
 <td >1</td>
 <td >4</td>
 <td >-1</td>
 <td >8</td>
 <td >11</td>
 <td >4</td>
 </tr>
 <tr>
 <td class="firstcol" >Firms Expecting Economy To Improve</td>
 <td >12</td>
 <td >-7</td>
 <td >0</td>
 <td >-10</td>
 <td >-5</td>
 <td >-5</td>
 <td >-15</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Planning to Increase Employment</td>
 <td >15</td>
 <td >10</td>
 <td >10</td>
 <td >11</td>
 <td >12</td>
 <td >10</td>
 <td >6</td>
 </tr>
 <tr>
 <td class="firstcol" >Firms With Few or No Qualified
 Applicants For Job Openings</td>
 <td >52</td>
 <td >48</td>
 <td >48</td>
 <td >47</td>
 <td >46</td>
 <td >43</td>
 <td >39</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Reporting That Credit Was Harder
 To Get</td>
 <td >4</td>
 <td >4</td>
 <td >5</td>
 <td >4</td>
 <td >4</td>
 <td >6</td>
 <td >6</td>
 </tr>
 <tr>
 <td class="firstcol" >Firms Raising Average Selling Prices</td>
 <td >5</td>
 <td >2</td>
 <td >-1</td>
 <td >4</td>
 <td >2</td>
 <td >8</td>
 <td >2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Firms Raising Worker Compensation</td>
 <td >21</td>
 <td >25</td>
 <td >22</td>
 <td >24</td>
 <td >23</td>
 <td >21</td>
 <td >15</td>
 </tr>
 </tbody>
 </table>
 
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The National Federation of Independent Business reported that its Small Business Optimism Index jumped 3.7% during November (4.1% y/y) to 98.4. It was the strongest level of optimism since December 2014. A strengthened 12% of firms [...]

U.S. Small Business Optimism Nears Two-Year High

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Japanese trends remain listless whatever their angle 
New readings today for Japanese orders and core orders as well as for its tertiary index (services) leave key trends in the doldrums. All of the surveys have different ways of assessing the sectors. That makes them hard to compare. Teikoku and economy watchers indices are diffusion measures. The sector indices for industry and services are volume indices on levels of activity. Orders are nominal yen amounts express in yen terms. However, we achieve some degree of 'commonality' by taking each at its own method and presenting in the far right hand column where each topical reading ranks in its historic profile of data. On that method none of the measure is strong and the Teikoku (diffusion) indices have the relative strongest readings but all of those reside below their respective 70th percentiles... more ominously, all of the Teikoku readings are below the 50 mark. Regardless of their "standings", all the Teikoku readings refer to some degree of reduction in economic activity.

Still somewhat different assessments by different methods 
The economy watchers diffusion indices which focus on the services sector show rank standings ranging from the 49th to 64th percentiles all very middle-of-the-pack readings. By comparison the Teikoku service sector reading is stronger; the economy watchers "strongest" index standing is for its outlook or future index. That reading is more comparable to Teikoku as it also has an upper 60th percentile reading. The topical economy watcher's current activity index shows contraction with a level of reading below 50. In terms of growth rates the sector indices show services (tertiary) at a low 32 percentile standing, quite weak although the industry ranking at its 62nd percentile is much closer to the Teikoku manufacturing 69th percentile standing. The Teikoku index assesses manufacturing as declining while the sector index actually has some slight growth year-on-year.

Orders are uniformly weak and dismal 
The orders series is simply unique although it pertains to industry and manufacturing. It shows total orders at an 8.7% standing it terms of the ranking of its year-on-year growth rate (lower historically less than 9% of the time...); the less volatile core orders series elevates to a 29th percentile standing, still quite weak. Japan shows a weaker standing for foreign orders than for domestic orders. That is the impact of its relatively tight ties to China where economic conditions have slowed markedly. 

Little optimism for Japan 
This set of Japanese indicators does not show much that is upbeat either in terms of the levels of the readings or their respective momentum. Despite aggressive stimulus by the BoJ there is little to show for it at all in terms of activity, momentum or the inflation that the BoJ seeks to ignite. The Teikoku and economy watchers diffusion indices have too many of their readings that are below 50 (signaling contraction) to be taken as truly neutral news, although the ranking standings assign a more 'normal' standing to them. This is simply the result of Japan have been so weak for so long. Mild contraction has become normal in this nation where population is contracting. 


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Japanese trends remain listless whatever their angle New readings today for Japanese orders and core orders as well as for its tertiary index (services) leave key trends in the doldrums. All of the surveys have different ways of [...]

Japan Continues to Struggle

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The U.S. Treasury Department reported that during November,
the federal government ran a budget deficit of $136.7 billion. A $125.0 billion
deficit had expected in the Action Economics Forecast Survey. So far in FY'17,
the federal government ran a $180.8 billion budget deficit compared to $201.1
billion in the first two months of FY'16. 
Overall revenues increased 1.3% so far in FY'17 versus FY'16.
Individual income taxes rose 5.2% y/y following a 0.3% rise in all of FY'16.
Social insurance contributions increased 1.6% y/y, down from the FY'16 4.7%
gain, while excise taxes fell 1.6% y/y, less than last year's 3.3% fall.
Corporate income taxes declined by nearly two-thirds y/y following a 12.9% drop.
Government spending declined 2.4% y/y so far in FY'17
compared to 4.5% growth during all of last year. Medicare outlays declined 17.8%
y/y after 8.8% growth in FY'16, and Income Security Program payments fell 11.2%
y/y after a 1.0% rise. National Defense spending also was down by 3.7% y/y,
continuing the weakness of the last several years. To the upside was spending on
Health programs which grew by 5.2% y/y after 6.0% growth in FY'16. Social
Security outlays also rose by 3.3% so far in FY'17, about the same as in FY'16.
Spending on Education, Training, Employment &amp; Social Services declined 18.6%
y/y, while spending on Veterans Benefits &amp; Services fell 21.9% y/y. Interest
payments increased 17.5% in so far in FY'17 following 7.8% growth last year.
Haver's data on Federal Government outlays and receipts are
contained in USECON. Considerable detail is given in the separate GOVFIN
database. The Action Economics Forecast Survey numbers are in the AS1REPNA
database.


 <a href="/comment/161212c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/161212c.png"></a>
 <a href="/comment/161212d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/161212d.png"></a>
 
 
<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
	
 <thead>
 <tr>
 <th class="firstcol" scope="col">United States Government
 Finance</th>
 <th scope="col"></th>
 <th scope="col">November</th>
 <th scope="col">FY'16</th>
 <th scope="col">FY'15</th>
 <th scope="col" >FY'14</th>
 <th scope="col" >FY'13</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol">Budget Balance</td>
 <td>--</td>
 <td>$-136.7 bil.</td>
 <td>$-587.4 bil.</td>
 <td>$-438.9 bil.</td>
 <td >$-483.4 bil.</td>
 <td >$-680.2 bil.</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;As a percent of GDP</td>
 <td>--</td>
 <td></td>
 <td>3.2%</td>
 <td>2.5%</td>
 <td >2.8%</td>
 <td >4.1%</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol"></td>
 <td>% of Total</td>
 <td></td>
 <td></td>
 <td></td>
 <td ></td>
 <td ></td>
 </tr>
 <tr>
 <td class="firstcol">Net Revenues (Fiscal Year 2017, Y/Y %
 Change)</td>
 <td>100</td>
 <td>1.3%</td>
 <td>0.6%</td>
 <td>7.6%</td>
 <td >8.9%</td>
 <td >13.3%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Individual Income Taxes</td>
 <td>47</td>
 <td>5.2</td>
 <td>0.3</td>
 <td>10.5</td>
 <td >5.9</td>
 <td >16.3</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;Corporate Income Taxes</td>
 <td>9</td>
 <td>-63.2</td>
 <td>-12.9</td>
 <td>7.2</td>
 <td >17.3</td>
 <td >12.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Social Insurance Taxes</td>
 <td>34</td>
 <td>1.6</td>
 <td>4.7</td>
 <td>4.1</td>
 <td >8.0</td>
 <td >12.1</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp; Excise Taxes</td>
 <td>3</td>
 <td>-1.6</td>
 <td>-3.3</td>
 <td>5.3</td>
 <td >11.1</td>
 <td >6.3</td>
 </tr>
 <tr>
 <td class="firstcol"></td>
 <td></td>
 <td></td>
 <td></td>
 <td></td>
 <td ></td>
 <td ></td>
 </tr>
 <tr>
 <td class="firstcol">Net Outlays&nbsp; (Fiscal year 2017, Y/Y
 % Change)</td>
 <td>100</td>
 <td>-2.4</td>
 <td>4.5</td>
 <td>5.3</td>
 <td >1.4</td>
 <td >-2.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;National Defense</td>
 <td>15</td>
 <td>-3.7</td>
 <td>0.7</td>
 <td>-2.3</td>
 <td >-4.7</td>
 <td >-6.3</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;Health</td>
 <td>13</td>
 <td>5.2</td>
 <td>6.0</td>
 <td>17.8</td>
 <td >14.3</td>
 <td >3.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Medicare</td>
 <td>15</td>
 <td>-17.8</td>
 <td>8.8</td>
 <td>6.7</td>
 <td >2.8</td>
 <td >5.5</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;Income Security</td>
 <td>13</td>
 <td>-11.2</td>
 <td>1.0</td>
 <td>-0.9</td>
 <td >-4.3</td>
 <td >-1.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Social Security</td>
 <td>24</td>
 <td>3.3</td>
 <td>3.2</td>
 <td>4.4</td>
 <td >4.5</td>
 <td >5.2</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp; Veterans Benefits &amp; Services</td>
 <td>4</td>
 <td>-21.9</td>
 <td>9.3</td>
 <td>6.8</td>
 <td >7.7</td>
 <td >11.5</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp; Education, Training, Employment
 &amp; Social Services</td>
 <td>3</td>
 <td>-18.6</td>
 <td>-10.2</td>
 <td>34.7</td>
 <td >25.9</td>
 <td >-21.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;&nbsp;Interest</td>
 <td>6</td>
 <td>17.5</td>
 <td>7.8</td>
 <td>-1.8</td>
 <td >2.8</td>
 <td >0.4</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The U.S. Treasury Department reported that during November, the federal government ran a budget deficit of $136.7 billion. A $125.0 billion deficit had expected in the Action Economics Forecast Survey. So far in FY'17, the federal [...]

U.S. Runs a $136.7 billion Budget Deficit in November

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The U.S. Treasury Department reported that during November,
the federal government ran a budget deficit of $136.7 billion. A $125.0 billion
deficit had expected in the Action Economics Forecast Survey. So far in FY'17,
the federal government ran a $180.8 billion budget deficit compared to $201.1
billion in the first two months of FY'16. 
Overall revenues increased 1.3% so far in FY'17 versus FY'16.
Individual income taxes rose 5.2% y/y following a 0.3% rise in all of FY'16.
Social insurance contributions increased 1.6% y/y, down from the FY'16 4.7%
gain, while excise taxes fell 1.6% y/y, less than last year's 3.3% fall.
Corporate income taxes declined by nearly two-thirds y/y following a 12.9% drop.
Government spending declined 2.4% y/y so far in FY'17
compared to 4.5% growth during all of last year. Medicare outlays declined 17.8%
y/y after 8.8% growth in FY'16, and Income Security Program payments fell 11.2%
y/y after a 1.0% rise. National Defense spending also was down by 3.7% y/y,
continuing the weakness of the last several years. To the upside was spending on
Health programs which grew by 5.2% y/y after 6.0% growth in FY'16. Social
Security outlays also rose by 3.3% so far in FY'17, about the same as in FY'16.
Spending on Education, Training, Employment &amp; Social Services declined 18.6%
y/y, while spending on Veterans Benefits &amp; Services fell 21.9% y/y. Interest
payments increased 17.5% in so far in FY'17 following 7.8% growth last year.
Haver's data on Federal Government outlays and receipts are
contained in USECON. Considerable detail is given in the separate GOVFIN
database. The Action Economics Forecast Survey numbers are in the AS1REPNA
database.
<table width="1775" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="736">United States Government
 Finance</th>
 <th scope="col" width="172"></th>
 <th scope="col" width="172">November</th>
 <th scope="col" width="172">FY'16</th>
 <th scope="col" width="172">FY'15</th>
 <th scope="col" width="173">FY'14</th>
 <th scope="col" width="173">FY'13</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="736">Budget Balance</td>
 <td align="center" width="172">--</td>
 <td align="center" width="172">$-136.7 bil.</td>
 <td align="center" width="172">$-587.4 bil.</td>
 <td align="center" width="172">$-438.9 bil.</td>
 <td align="center" width="173">$-483.4 bil.</td>
 <td align="center" width="173">$-680.2 bil.</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="736">&nbsp;&nbsp;As a percent of GDP</td>
 <td align="center" width="172">--</td>
 <td align="center" width="172"></td>
 <td align="center" width="172">3.2%</td>
 <td align="center" width="172">2.5%</td>
 <td align="center" width="173">2.8%</td>
 <td align="center" width="173">4.1%</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" width="736"></td>
 <td align="center" width="172">% of Total</td>
 <td align="center" width="172"></td>
 <td align="center" width="172"></td>
 <td align="center" width="172"></td>
 <td align="center" width="173"></td>
 <td align="center" width="173"></td>
 </tr>
 <tr>
 <td class="firstcol" width="736">Net Revenues (Fiscal Year 2017, Y/Y %
 Change)</td>
 <td align="center" width="172">100</td>
 <td align="center" width="172">1.3%</td>
 <td align="center" width="172">0.6%</td>
 <td align="center" width="172">7.6%</td>
 <td align="center" width="173">8.9%</td>
 <td align="center" width="173">13.3%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="736">&nbsp;&nbsp;Individual Income Taxes</td>
 <td align="center" width="172">47</td>
 <td align="center" width="172">5.2</td>
 <td align="center" width="172">0.3</td>
 <td align="center" width="172">10.5</td>
 <td align="center" width="173">5.9</td>
 <td align="center" width="173">16.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="736">&nbsp;&nbsp;Corporate Income Taxes</td>
 <td align="center" width="172">9</td>
 <td align="center" width="172">-63.2</td>
 <td align="center" width="172">-12.9</td>
 <td align="center" width="172">7.2</td>
 <td align="center" width="173">17.3</td>
 <td align="center" width="173">12.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="736">&nbsp;&nbsp;Social Insurance Taxes</td>
 <td align="center" width="172">34</td>
 <td align="center" width="172">1.6</td>
 <td align="center" width="172">4.7</td>
 <td align="center" width="172">4.1</td>
 <td align="center" width="173">8.0</td>
 <td align="center" width="173">12.1</td>
 </tr>
 <tr>
 <td class="firstcol" width="736">&nbsp; Excise Taxes</td>
 <td align="center" width="172">3</td>
 <td align="center" width="172">-1.6</td>
 <td align="center" width="172">-3.3</td>
 <td align="center" width="172">5.3</td>
 <td align="center" width="173">11.1</td>
 <td align="center" width="173">6.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="736"></td>
 <td align="center" width="172"></td>
 <td align="center" width="172"></td>
 <td align="center" width="172"></td>
 <td align="center" width="172"></td>
 <td align="center" width="173"></td>
 <td align="center" width="173"></td>
 </tr>
 <tr>
 <td class="firstcol" width="736">Net Outlays&nbsp; (Fiscal year 2017, Y/Y
 % Change)</td>
 <td align="center" width="172">100</td>
 <td align="center" width="172">-2.4</td>
 <td align="center" width="172">4.5</td>
 <td align="center" width="172">5.3</td>
 <td align="center" width="173">1.4</td>
 <td align="center" width="173">-2.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="736">&nbsp;&nbsp;National Defense</td>
 <td align="center" width="172">15</td>
 <td align="center" width="172">-3.7</td>
 <td align="center" width="172">0.7</td>
 <td align="center" width="172">-2.3</td>
 <td align="center" width="173">-4.7</td>
 <td align="center" width="173">-6.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="736">&nbsp;&nbsp;Health</td>
 <td align="center" width="172">13</td>
 <td align="center" width="172">5.2</td>
 <td align="center" width="172">6.0</td>
 <td align="center" width="172">17.8</td>
 <td align="center" width="173">14.3</td>
 <td align="center" width="173">3.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="736">&nbsp;&nbsp;Medicare</td>
 <td align="center" width="172">15</td>
 <td align="center" width="172">-17.8</td>
 <td align="center" width="172">8.8</td>
 <td align="center" width="172">6.7</td>
 <td align="center" width="173">2.8</td>
 <td align="center" width="173">5.5</td>
 </tr>
 <tr>
 <td class="firstcol" width="736">&nbsp;&nbsp;Income Security</td>
 <td align="center" width="172">13</td>
 <td align="center" width="172">-11.2</td>
 <td align="center" width="172">1.0</td>
 <td align="center" width="172">-0.9</td>
 <td align="center" width="173">-4.3</td>
 <td align="center" width="173">-1.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="736">&nbsp;&nbsp;Social Security</td>
 <td align="center" width="172">24</td>
 <td align="center" width="172">3.3</td>
 <td align="center" width="172">3.2</td>
 <td align="center" width="172">4.4</td>
 <td align="center" width="173">4.5</td>
 <td align="center" width="173">5.2</td>
 </tr>
 <tr>
 <td class="firstcol" width="736">&nbsp; Veterans Benefits &amp; Services</td>
 <td align="center" width="172">4</td>
 <td align="center" width="172">-21.9</td>
 <td align="center" width="172">9.3</td>
 <td align="center" width="172">6.8</td>
 <td align="center" width="173">7.7</td>
 <td align="center" width="173">11.5</td>
 </tr>
 <tr>
 <td class="firstcol" width="736">&nbsp; Education, Training, Employment
 &amp; Social Services</td>
 <td align="center" width="172">3</td>
 <td align="center" width="172">-18.6</td>
 <td align="center" width="172">-10.2</td>
 <td align="center" width="172">34.7</td>
 <td align="center" width="173">25.9</td>
 <td align="center" width="173">-21.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="736">&nbsp;&nbsp;Interest</td>
 <td align="center" width="172">6</td>
 <td align="center" width="172">17.5</td>
 <td align="center" width="172">7.8</td>
 <td align="center" width="172">-1.8</td>
 <td align="center" width="173">2.8</td>
 <td align="center" width="173">0.4</td>
 </tr>
 </tbody>
</table>


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 <a href="/comment/161209f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/161209f.png"></a>
 <a href="/comment/161209g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/161209g.png"></a>

Inventories at the wholesale level fell 0.4% (-0.4% y/y)
during October following an unrevised 0.1% September rise. The advance report
had indicated a 0.6% October decline. Inventories of durable goods declined 0.3%
(-2.2% y/y) after a 0.3% fall. Motor vehicle inventories improved 0.3% (- 1.8%
y/y), while furniture inventories rose 1.6% (3.0% y/y). Computer equipment
stockpiles declined 0.3% (-0.6% y/y) and machinery inventories were off 1.0% (-1.4%
y/y). Inventories of nondurable products fell 0.4% (+2.5% y/y) after a 1.1% jump.
Petroleum inventories strengthened 1.9% (12.2% y/y) with higher prices, but
chemical stockpiles fell 1.1% (-2.0% y/y). Apparel inventories rose 0.3% (-4.4% y/y).

Wholesale sales strengthened 1.4% (2.2% y/y) following a 0.4%
increase. A 0.6% rise was expected in the Action Economics Forecast Survey.
Nondurable goods sales improved 1.6% (1.9% y/y) as petroleum sales surged 6.6% (7.5%
y/y) with higher prices. Chemical sales increased 2.4% (4.5% y/y), but apparel
sales eased 0.1% (-2.9% y/y). Sales of durable goods improved 1.1% (2.5% y/y) as
electrical product sales jumped 2.2% (4.3% y/y), and metals sales surged 2.0%
(-0.9% y/y). Motor vehicle sales improved 0.1% (1.3% y/y), but computer
equipment sales fell 2.3% (-5.8% y/y).

The inventory-to-sales ratio eased to 1.30, and remained
lower than January's 1.37 peak. The durable goods ratio declined to 1.63 and was
down y/y from 1.71.The machinery I/S ratio eased y/y to 2.99, while the motor
vehicles ratio eased y/y to 1.75 from 1.80 last year. The computer industry's
I/S ratio increased y/y to 0.85 from 0.81. In the nondurable goods sector, the
I/S ratio of 1.00 was little changed y/y. The chemical sector's ratio of 1.19
was down sharply y/y. In the petroleum area, the I/S ratio of 0.43
compared to 0.32 two years ago.

The wholesale trade figures are available in Haver's USECON
database. The Action Economic Survey results are contained in AS1REPNA.

<a href="/comment/161209h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/161209h.png"></a>
 <a href="/comment/161209i_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/161209i.png"></a>

<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Wholesale Sector - NAICS
 Classification (%)</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Inventories</td>
 <td >-0.4</td>
 <td >0.1</td>
 <td >-0.1</td>
 <td >-0.4</td>
 <td >1.8</td>
 <td >6.4</td>
 <td >3.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Sales</td>
 <td >1.4</td>
 <td >0.4</td>
 <td >0.7</td>
 <td >2.2</td>
 <td >-4.3</td>
 <td >3.6</td>
 <td >3.0</td>
 </tr>
 <tr>
 <td class="firstcol" >I/S Ratio</td>
 <td >1.30</td>
 <td >1.32 </td>
 <td >1.33</td>
 <td >1.33 (Oct. '15)</td>
 <td >1.32</td>
 <td >1.21</td>
 <td >1.18</td>
 </tr>
	 </tbody>
	 </table>
	 
	 </body></html>

Inventories at the wholesale level fell 0.4% (-0.4% y/y) during October following an unrevised 0.1% September rise. The advance report had indicated a 0.6% October decline. Inventories of durable goods declined 0.3% (-2.2% y/y) after [...]

U.S. Wholesale Inventories Decline; Sales Increase

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The consumer price index rose 0.2% in January, slower than the expected increase of 0.3% (and it rounded up to reach the published advance – 0.17% when calculated with more precision; annual rate of 2.04%). The latest monthly increase left the year-over-year at 2.4%, down from a recent high of 3.0% in September and bested by only one other recent reading: 2.3% in April of last year.

A drop of 1.5% in energy prices helped to contain the headline index. The drop was led by sharp retreats in the prices of both fuel oil and gasoline (off 5.7% and 3.2%, respectively). Energy prices have jumped around from month-to-month, but they have stayed within a narrow range in the past two years. Food prices rose 0.2% in January after a surge of 0.7% in the prior month. The food category experienced severe pressure during the inflation burst in 2022 (peak of 11.4%). Pressure settled in 2024, with annual food inflation easing to a low of 2.0% in August of that year. However, prices picked up again in 2025, with the year-over-year increase moving to 3.2% in August and staying close to that pace in subsequent months. The year-over-year increase in January totaled 2.9%.

The core component (ex food and energy) rose 0.3% in January, one of the sharpest advances of the past year or so. However, the increase was not especially troubling, as it was influenced by a jump of 6.5% in airfares, which added nearly a full tenth percentage point to the core component (0.08%). Airfares often move erratically, and the ups and downs in the past few years have left little net change. Discounting, most likely, will unfold in coming months. Even with the jump in airfares, the year-over-year increase in core prices moved to a new low for the current period of deceleration (2.5%). Core inflation appeared to be picking up in the spring and summer of last year (a recent peak of 3.1% in August), but pressure has eased since then.

The source of the waxing and waning in core prices lies primarily in the goods component of the CPI. Goods prices were declining noticeably in the first half of 2024 (deflation!), but, they began to shift direction in the second half of 2024 and moved to price increases in 2025. The upward trend seems to have peaked at 1.5% in September and October, with the year-over-year change easing to 1.1 percent in January. Service prices have been decelerating over the past few years, but the rate of decline began to slow last year, and the latest months have shown no further improvement, stuck at 3.0% in the past three months.

Within the core component, the movement of housing costs is notable. Rental rates rose 0.2% in January, a marked shift from the experience in 2022 and 2023, when increases in excess of 0.6% were common.  This component jumps around from month-to-month, but the downtrend is unmistakable. After peaking at 8.2% in 2022, the latest year-over-increase totaled 3.0% in January.

The cost of electricity is now gathering the attention of the public and politicians because of the pressure being exerted by the infrastructure requirements of artificial-intelligence. Costs were tame in January (down 0.1%), but increases have largely been the norm in the past year or so. The year-over-year increase totaled 6.3% in January, down from 7.0% in November but still a challenge for many households. Many observers are expecting more upward pressure down the road. Some observers perhaps recall (and fear) the experience in 2022, when electricity inflation touched 15.8%.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- The year-over-year change in the headline index moved to the bottom of its recent range.
- The annual change in the core index moved to a new low for the current cycle.

Consumer Price Index: Slow, but Steady, Deceleration

Andrew Cates

**The Blue Chip Growth Consensus**
The first chart this week highlights a striking feature of recent forecast revisions: the outperformance of Asia, and Taiwan in particular. Over the past six months, Blue Chip panelists have upgraded their 2026 GDP growth forecasts most aggressively for Taiwan, far outpacing revisions elsewhere. This reflects the central role Taiwan plays in the global AI supply chain, especially in advanced semiconductors, where demand linked to data centres, AI accelerators and high-performance computing continues to strengthen. More broadly, positive revisions across parts of Asia suggest that the current AI-driven investment cycle is not just a US story, but one that is increasingly feeding through global tech supply chains, boosting exports, industrial production and capital spending across the region. In contrast, forecast changes elsewhere remain far more muted, underscoring how tightly the near-term growth impulse from AI is concentrated in economies most directly exposed to the semiconductor and hardware build-out.

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**The Blue Chip Inflation Consensus**
The second chart highlights a growing theme of cross-country divergence, this time through the lens of inflation and monetary policy. Recent changes to Blue Chip CPI forecasts for 2026 show upward revisions in economies such as Japan, Australia and Canada, where inflation pressures are proving more persistent and policy tightening is either already under way or increasingly expected. In contrast, inflation forecasts in the US have been revised lower, consistent with softer recent data and reinforcing expectations of further monetary easing. The result is an increasingly asymmetric global policy backdrop: some central banks are still leaning against residual inflation risks, while others are preparing to shift toward rate cuts. This divergence, moreover, could matter more for global capital flows, exchange rates and financial conditions in the period ahead.

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**South Korea’s Semiconductor Trade**
The third chart provides a concrete, high-frequency illustration of the forces underpinning the forecast upgrades seen earlier for Asia. South Korea’s semiconductor exports have surged sharply on a year-on-year basis, marking one of the strongest upswings of the past decade and underscoring the revival of the global tech cycle. This acceleration is closely linked to AI-related demand, particularly for advanced memory chips used in data centres and high-performance computing. Alongside Taiwan, South Korea sits at the core of the AI hardware supply chain, and the strength of semiconductor exports helps explain why growth expectations in parts of Asia have been revised higher so decisively. In this sense, the chart offers a real-economy counterpart to the consensus forecast revisions: the AI boom is not just a financial or expectations story, but one that is already showing up clearly in trade and industrial data across the region.

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**Global Supply Chain Pressures**
The fourth chart places recent inflation dynamics in a broader supply-chain context and offers little evidence that current US tariff policies are materially exacerbating global bottlenecks. The Global Supply Chain Pressure Index has remained close to historical norms in recent months, a sharp contrast with the extreme dislocations seen during the pandemic period. Consistent with this, producer price inflation across advanced economies has remained muted, reinforcing the tight relationship between supply-chain stress and upstream price pressures. While tariffs may still influence relative prices at the margin and contribute to sector-specific adjustments, the data do not point to a broad-based resurgence in supply-chain pressures of the kind that would generate renewed, systemic inflationary pressure.

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**Uncertainty in the US versus Europe** 
The fifth chart highlights a striking shift in the global policy uncertainty landscape. The US news-based economic policy uncertainty index has risen sharply and is now approaching levels more typically associated with Europe — a vivid contrast with the post-GFC and post-pandemic period, when US policy uncertainty was consistently well below European norms. This convergence likely reflects a combination of factors: renewed uncertainty around US trade policy and tariffs, questions over fiscal sustainability and debt dynamics, and growing debate around institutional independence, including the role of the Federal Reserve. At the same time, political polarisation and an increasingly unpredictable policy environment have become more prominent features of the US backdrop. The implications are potentially important for markets. A sustained rise in policy uncertainty would argue for a higher risk premium on US assets, particularly if it begins to influence corporate investment decisions, capital flows or the perceived safe-haven status of US markets.

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**The Global Business Cycle** 
The final chart brings the story together by highlighting a further strengthening in global economic sentiment in February. The Sentix global expectations index moved higher alongside a renewed run of positive economic surprises across a number of major economies, as captured by the Citi Global Economic Surprise Index. This combination points to an environment in which incoming data have consistently exceeded expectations, helping to reinforce investor confidence and support risk appetite. Taken together, the improvement in sentiment and the upside surprise in activity data underscore the constructive macroeconomic backdrop that markets have been responding to in recent months — one characterised by resilient growth, easing inflation pressures and still-supportive financial conditions, even as policy paths and regional dynamics continue to diverge.

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While markets have been unsettled at times by shifting policy expectations, geopolitical noise and questions around valuation, underlying global macroeconomic signals remain broadly supportive. Upgrades to Blue Chip consensus growth forecasts for parts of Asia — led by Taiwan — point to the tangible impact of the AI-driven tech cycle, a theme reinforced by the sharp rebound in semiconductor exports from South Korea (charts 1 and 3). At the same time, revisions to inflation forecasts underline a growing divergence in monetary policy paths, with easing still expected in the US and UK, while tighter stances persist elsewhere (chart 2). Importantly, there is little evidence so far that global supply-chain pressures are re-emerging in a way that would reignite inflation, notwithstanding lingering trade policy tensions (chart 4). Against this backdrop, rising policy uncertainty — particularly in the US — stands out as a potential source of risk, with implications for asset pricing and risk premia (chart 5). Yet the improvement in global sentiment surveys and a continued run of positive economic surprises suggest that markets are responding not just to policy noise, but to a genuinely resilient and improving macroeconomic environment (chart 6).

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Charts of the Week: AI-Led Growth Meets Monetary Divergence

Winnie Tapasanun

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Existing home sales fell 8.4% m/m (-4.4% y/y) to a lower-than-expected 3.91 million units (SAAR) in January following a downwardly revised 4.4% gain to 4.27 million in December (previously +5.1%; 4.35 mil.), according to the National Association of Realtors (NAR). January sales registered the lowest level since September 2024 and the deepest m/m drop since February 2022, well below the Action Economics Forecast Survey expectation of 4.20 million. Sales were 39.2% below a high of 6.43 million in January 2022 and 40.8% below a peak of 6.60 million in January 2021. The sales fall accompanied a drop in the average 30-year fixed mortgage rate to 6.11% in January, the lowest since September 2022, after declining to 6.20% in December, according to Freddie Mac. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales slid 9.0% (-4.3% y/y) to 3.53 million units in January, the lowest level since September 2024, after a 4.3% gain to 3.88 million in December. Sales of condos and co-ops fell 2.6% (-5.0% y/y) to 380,000 following a 5.4% December rebound to 390,000.

By region, January existing home sales decreased m/m across all major regions. Sales in the West slumped 10.3% (-7.9% y/y) to 700,000 in January after a 4.0% increase in December, marking the third m/m decline in four months and the lowest level since December 2023. Sales in the South dropped 9.0% (-1.6% y/y) to 1.81 million, the lowest reading since October 2024, reversing a 6.4% December gain. Sales in the Midwest fell 7.1% (-7.1% y/y) to 920,000, the lowest level since September 2024, after a 2.1% December increase. Sales in the Northeast declined 5.9% (-4.0% y/y) to 480,000, the lowest level since June 2025, after rising 2.0% in December and November. The South remained the dominant region, accounting for 46.3% of total U.S. existing home sales.

The median price of all existing homes (NSA) fell 2.0% (+0.9% y/y) to $396,800 in January after a 1.2% decline to $405,100 in December ($405,400 initially), representing the sixth m/m fall in seven months and the lowest level since February 2025. Prices were 8.3% below a high of $432,700 in June 2025. The median price of an existing single-family home, also down for the sixth time in seven months, slid 2.2% (+0.6% y/y) to a one-year-low $400,300 in January after a 1.3% decline to $409,500 in December. The median price of condos and co-ops, up for the third time in four months, rose 0.9% (3.8% y/y) to $364,600, the highest level since August, after a 0.4% December increase to $361,200. Regionally, overall prices fell m/m in the Midwest (-3.6%; +2.3% y/y) and South (-2.3%; +0.1% y/y) in January, but increased m/m in the Northeast (+1.1%; +5.8% y/y) and West (+0.4%; -1.4% y/y).

Inventories of homes for sale weakened further in January. The number of existing homes for sale (NSA) fell 0.8% (+3.4% y/y) to 1.22 million units on top of a 14.6% December plunge to 1.23 million, posting the fourth consecutive m/m fall and the lowest level since January 2025. The supply of homes on the market at the current selling rate (NSA) rose to 3.7 months in January after falling to 3.5 months in December (the lowest since January 2025). The most recent high of 4.6 months was in August 2025, while a record low in supply of 1.6 months was in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- January sales -8.4% (-4.4% y/y) to 3.91 mil., below expectations; steepest m/m fall since Feb. ’22.
- Widespread regional m/m declines: West (-10.3%), South (-9.0%), Midwest (-7.1%), Northeast (-5.9%); all regions down y/y.
- Median sales price -2.0% (+0.9% y/y) to $396,800, lowest since Feb. ’25.
- Unsold inventory -0.8% (+3.4% y/y) to 1.22 mil. units, a one-year low; 3.7 months' supply.

U.S. Existing Home Sales Drop in January; Lowest Level Since Sept. ’24

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped 5,000 to 227,000 in the week of February 7, from 232,000, revised from 231,000, in the week ended January 31. The four-week average rose 7,000 to 219,500 from 212,500. The Action Economics Forecast Survey looked for 225,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 21,000 to 1.862 million in the week ending January 31, from 1.841 million, revised from 1.844 million, in the week ending January 24. The four-week moving average stood at 1.847 million in the January 31 week, the lowest level for this average since October 5, 2024, when it was 1.846 million. The prior week was 1.850 million. The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous nine weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 24, the highest unemployment rates were in Rhode Island (2.95%), New Jersey (2.78%), Massachusetts (2.68%), Minnesota and Washington (both 2.58%), California (2.30%), and Montana (2.21%). The lowest rates were in Florida (0.31%), Arkansas (0.39%), North Carolina (0.43%), Louisiana (0.41%), and Alabama (0.45%). Rates in other notable states include Illinois (2.23%), New York (2.11%), Pennsylvania (1.91%), and Texas (1.16%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, 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.

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- New claims dropped 5,000 to 227,000.
- Continuing claims rose to 1.862 million.
- The insured unemployment rate remained at 1.2% for the tenth consecutive week.

U.S. Initial Unemployment Claims Declined in Latest Week

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U.K. GDP slowed to a crawl at the end of the year, with growth at a 0.2% (annualized) rate logged in both the third and fourth quarters as 2025 drew to a close. The year had started with a strong 2.7% growth rate in Q1, which slipped to a 0.8% pace in the second quarter and decelerated to negligible growth at the end of the year.

These quarterly growth rates correspond to higher but obviously declining year over year growth rates. Because the quarterly growth rates diminished as the year progressed, year over year growth to start 2025 was at 1.8%; growth slipped to 1.4% in the second quarter and then to 1.2% in the third quarter. By the end of the year, growth had slipped to 1%.

The quarterly growth rates in the fourth quarter show public spending picked up to a 1.7% annual rate following 1% in the third quarter and erratic behavior in the first two quarters. Capital formation has remained relatively strong but has also oscillated, with first quarter growth at a blowout annual rate of 14.3%, falling to a contraction of 3.1% in Q2, rising back to 4.4% in Q3, and then declining at a 0.5% annual rate in Q4. So the year-over-year growth rates for capital formation during the course of the year only slipped from 4% in the first quarter to 3.6% in the fourth quarter, holding up fairly solidly and indicating strong rates of expansion for capital spending.

Housing, which was firm and strong in Q1 and Q2, slipped to a 0.8% annual rate of growth in the third quarter, and then housing investment fell at a 9.1% annualized rate in the fourth quarter. Year over year trends for housing show mostly low to moderate spending growth for residential investment.

U.K. exports have been floundering quarter-to-quarter, alternating between expanding and contracting; this corresponds to year over year growth rates that steadily diminish. In the first quarter of 2025, exports grew 3.5% year-over-year; that slipped to a 2% growth rate in Q2, then to a 1.5% growth rate in the third quarter. In the fourth quarter, U.K. exports are falling at a 0.5% annual rate of growth.
 
The export pattern contrasts with U.K. imports. They have mostly continued to grow, posting positive growth rates in three of the four quarters, starting the year with 5% quarterly growth and ending the fourth quarter with a 3.3% annual growth rate. Import growth rates have slipped, but not as much as other growth rates in GDP. For example, first quarter import growth was extremely strong at 7.6%; that year over year growth rate slips to 2.1% in Q2, then rises back to 5.3% in Q3, and finishes the year at 2.3%. There is slippage, but still significant growth, and the year began on a really high note.

Domestic demand has been fluctuating. In both quarterly and annual terms, there is unevenness. Quarterly growth rates range from 3.1% at an annual rate in Q1, to a 0.6% and 0.7% annual rate in the middle two quarters of the year; domestic demand ends the fourth quarter with a quarterly growth rate of 2.1% annualized. This causes year-over-year growth to be 2.9% in the first quarter; that falls to 1.2% in the second quarter, rebounds to 2.1% in the third quarter, and ends the year at 1.6% year-over-year.

Domestic demand has consistently been stronger than private consumption and it has been supported by both public consumption and by capital formation. Private consumption in 2025 has been erratic, logging 1.2% quarterly growth, annualized, in the first quarter; growth dropped to 0.2% in Q2, rising back to 1.7% in Q3, and then ending the year at a 0.6% rate of expansion quarter-over-quarter. The year-over-year data showed private consumption slipping but not dramatically, at a pace of 1.1% in the first quarter, up to 1.2% in the second quarter and then logging 0.9% in both the third and fourth quarters of 2025 as domestic demand ended the year stronger.

All of the U.K. growth rates are consistently and substantially below their five year growth rates. The economy continues to have a problem with inflation. Some recent inflation signals, however, suggest that there may be deceleration and progress, but the Bank of England hasn’t been convinced yet, even though Monetary Policy Committee members continue to speak favorably about the prospects for rate reductions ahead. The U.K. also has a corseted fiscal situation as there’s not much flexibility to spend more given its relatively bloated budget. The economy is waffling. The current administration has had its share of political issues, having recently had to eject several members from leadership positions in government. The outlook for growth is still touch and go. The outlook for inflation holds slightly more promise for deescalation. But overall, there is a lot of uncertainty over events and the growth path for the U.K. economy.

Economy in Brief

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