Tom Moeller

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<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100212a.jpg" style="width: 353px; height: 265px;" align="right">Shoppers
are
returning to stores after restraining spending at yearend. January
retail sales increased 0.5% after a 0.1% decline during December which
was less than reported initially. The latest figure was firmer than
Consensus expectations for a 0.3% rise. Moreover, the rebound had
nothing to do with shopping for a motor vehicle. Retail sales less
autos rose 0.6% after a 0.2% slip in December that was slightly less
than reported last month. As apparent in earlier figures, the trend in
retail spending has improved. On a three-month basis retail sales rose
at a 9.7% annual rate through January versus the 15.8% rate of decline
one year ago. Less autos, spending growth also recovered on a
three-month basis to 10.1% from -17.9% one year ago.&nbsp;</p>
<p>Internet &amp; catalogue sales continued strong. They
posted a 1.6%
rise in January (12.4% y/y) following similarly strong increases during
the prior four months. The three-month rate of gain rose to 28.5% from
-9.7% one year ago.&nbsp;</p>
<p> "Core" discretionary spending also
improved as general merchandise store sales rose 1.5% (3.2% y/y) and
recovered a 1.1% December decline. Sales of electronics &amp;
appliances were strong as well and posted a 1.2% gain but remained down
7.0% from last January. Earlier weakness in clothing &amp;
accessory stores also stabilized and rose 0.3%, however, price
discounting left the y/y gain at just 0.3%. Furniture &amp; home
furnishing store sales have yet to recover much. A 1.4% January decline
(-4.4% y/y) left the three-month annualized growth rate at a negative
1.3%. That was, however, improved from -21.6% at its worst.&nbsp;</p>
<p>Motor
vehicle sales were unchanged last month (5.5% y/y) but that was better
than the 4.2% m/m decline in unit sales. Higher gasoline prices played
a part in the retail sales picture. Gasoline purchases, however, ticked
up just 0.4% (29.0% y/y) even though prices rose 4.0% (50.5% y/y).
Sales of building materials fell 1.2% (-6.3% y/y).</p>
<p>The retail sales
data are available in Haver's <b>USECON</b> database.
&nbsp;</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100212b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100212c.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM" style="color: black;">Total Retail Sales &amp; Food
Services</a> (%)</td>
<td>0.5</td>
<td>-0.1</td>
<td>2.0</td>
<td>4.7</td>
<td>-6.0</td>
<td>-0.8</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol"><b>&nbsp; </b>Excluding
Autos</td>
<td>0.6</td>
<td>-0.2</td>
<td>2.0</td>
<td>4.6</td>
<td>-4.7</td>
<td>2.4</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Non-Auto Less Gasoline</td>
<td>0.6</td>
<td>-0.3</td>
<td>1.1</td>
<td>2.0</td>
<td>-1.9</td>
<td>1.6</td>
<td>3.6</td>
</tr>
</tbody>
</table>
</span>
<span id="articletitle">Every Picture Tells A Story...Or
Do It?</span><br>
<span id="byline">by <a href="/comment/Brusca.html">Robert
Brusca</a> February 12, 2010</span>
<span id="articletext">
<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100212d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left" height="265" width="353"></p>
<p>Don&#8217;t judge a book by its cover- Please pardon the bad grammar
in the title. But I am hopelessly imprinted with Rod Stewart&#8217;s, &#8220;Every
Picture tells, a story, don&#8217;t it?&#8217; In this case&#8230; I wonder: does it or
as SNL&#8217;s Seth Meyers might ask: &#8216;does it, does it really?&#8217; What I mean
is this: does the picture tell THE story? The story in the picture
above is quite clear that GDP in Europe is getting better and at a fast
rate. The DROP in GDP is cut sharply in its Q4 embodiment compared to
its Q3 embodiment for EMU, Germany and for France.<br>
<br>
</p>
<p>Digging deeper -- Yet read ANY market story on these results
for today. The clear theme is one of disappointment. Why are people
disappointed if the Yr-over-Yr drops in GDP are dissipating so fast?
It&#8217;s because a percentage change is a function of TWO things, the
current value and the past value that forms the base for the percentage
change calculation. And the BIG DROP OFF in the pace of GDP&#8217;s decline
Yr/Yr in Europe is more due to a shift in the base than to the result
in the new quarter. In the new quarter GDP rose by only 0.4% at an
annualized rate (that&#8217;s a thin 0.1% Q/Q). So why did the yr/yr pace
improve so much? It&#8217;s because of the shift in the base to Q4 2008 from
Q3 2008. In Q4 2008 EMU GDP fell by 7.4% at an annualized rate. Compare
that to its 2.7% decline in Q3 of 2008. What this means is that we are
comparing growth in Q4 2009 to a much lower base than we did in
2009-Q3, so even a small amount of growth (like 0.1% in the quarter)
makes the Yr/Yr comparison look much better than it did in Q3. It&#8217;s
base-illusion.<br>
<br>
</p>
<p>Euro-sclerosis strikes again - The simple fact is that
Europe&#8217;s recovery is slowing down. The US is speeding up. Europe&#8217;s
vaunted social welfare system may have helped to mitigate the declines
in GDP in the recession but in recovery it is providing no springboard
for growth. Meanwhile, the US recovery is powering ahead. We are set up
for the usual sort of configuration in global growth where the US
economy becomes the engine of growth for the global economy as the US
current account deficit rips a gaping hole in the US balance of
payments and feeds stimulus to the rest of world like a mother
breastfeeding her helpless infant child.<br>
<br>
</p>
<p>You put the load right one me&#8230;One problem with this emerging
scenario is that the US consumer is not is the shape he/she usually is
in a recovery and may not be able to suckle the global economy. While
US retail sales were better than expected in January the result is
still less that robust. It is not clear how much lift the US consumer
will add to the US recovery let alone to the economies of the rest of
the world. The US does import a lot of consumer goods. So a recovering
US consumer will purchase imports. But how many imports can the US
consumer buy if US growth goes flat as the diverted income and blunted
multiplier from surging foreign exports to the US stunt economic growth
back home?<br>
<br>
</p>
<p>The blame game - Get ready for the rest of the world to start
blaming the US for widening deficits even as the US consumer fuels
recovery in Europe and beyond. The simple fact is that China, Japan and
Europe- especially Germany- all want to have export-led growth. They
act as though it&#8217;s a right. If they do who will import? China and Japan
have amassed huge foreign exchange reserves, an act that clearly has
facilitated their currencies, remaining weaker than otherwise, enabling
their strategy of export-led growth while at he same time undermining
US growth and US finanical health..<br>
<br>
</p>
<p>Europe and the 800 pound gorilla - We do not yet have
consumption figures for Europe&#8217;s flash GDP results. Flash-GDP is
usually just a total and may be accompanied by some descriptive
comments but little or no supporting details on GDP. Be sure that this
paltry performance from GDP in Europe is not good news. The hike in
reserve requirements in China has people worried about in growth there
as well. There is a theme of growth pessimism taking hold again
clobbering global stock markets. But China is a taker- an exporter- not
a giver. It does not provide net domestic demand to the world. Its
growth merely absorbs income from elsewhere transforming it into growth
for&#8230;CHINA! In turn that helps to pressure global input prices
(commodity prices). Strong growth in China is usually not beneficial to
the West. People who profess worry over China growth prospects don&#8217;t
get it. It&#8217;s a big and growing ever more complicated world. Be sure to
know the facts. Markets often react to overall themes and only later
get more sophisticated by sorting out winners and losers. Right now
there is an emerging theme of weakness. Europe is faltering China may
slow. There are still lingering concerns about the status of growth in
the US&#8230;Weakness abroad will have repercussions for the US, but the US
recovery is still on track. So don&#8217;t throw out the baby with bath water
in your haste to dump dropping stocks. Markets will eventually &#8216;get it
right&#8217; and face a truer version of reality. China may be an 800 pound
gorilla but if he is sick and starts eating fewer bananas, there are
more for you.<br>
</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"><b>European
Growth for Selected Flash GDP Results</b> </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Q/Q Saar</td>
<td colspan="3">Yr/Yr </td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q4-09</td>
<td>Q3-09</td>
<td>Q2-09</td>
<td>Q4-09</td>
<td>Q3-09</td>
<td>Q2-09</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>3.8%</td>
<td>9.9%</td>
<td>-3.1%</td>
<td>-1.4%</td>
<td>-3.1%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>2.4%</td>
<td>0.7%</td>
<td>1.4%</td>
<td>-0.3%</td>
<td>-2.3%</td>
<td>-2.7%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.0%</td>
<td>2.9%</td>
<td>1.8%</td>
<td>-2.4%</td>
<td>-4.8%</td>
<td>-5.8%</td>
</tr>
<tr>
<td class="firstcol">Greece</td>
<td>-3.1%</td>
<td>-1.9%</td>
<td>-1.2%</td>
<td>-2.6%</td>
<td>-2.5%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-0.9%</td>
<td>2.6%</td>
<td>-1.9%</td>
<td>-2.8%</td>
<td>-4.6%</td>
<td>-5.9%</td>
</tr>
<tr>
<td class="firstcol">Netherlands</td>
<td>1.0%</td>
<td>2.1%</td>
<td>-4.2%</td>
<td>-2.6%</td>
<td>-4.0%</td>
<td>-5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU</td>
<td>0.4%</td>
<td>1.7%</td>
<td>-0.5%</td>
<td>-2.1%</td>
<td>-4.0%</td>
<td>-4.8%</td>
</tr>
<tr>
<td class="firstcol">Memo:US</td>
<td>5.7%</td>
<td>2.2%</td>
<td>-0.7%</td>
<td>0.1%</td>
<td>-2.6%</td>
<td>-3.8%</td>
</tr>
<tr>
<td class="firstcol">Memo:UK</td>
<td>0.4%</td>
<td>1.7%</td>
<td>-0.5%</td>
<td>-2.1%</td>
<td>-4.0%</td>
<td>-4.8%</td>
</tr>
</tbody>
</table>
<span id="articletitle">U.S. Business Inventories Slip
After Two-Month Increase</span><br>
<span id="byline">by <a href="/comment/Moeller.html">Tom
Moeller</a> February 12, 2010</span>
<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100212h.jpg" style="width: 353px; height: 265px;" align="right">A
developing
trend towards accumulation of business inventories was cut short in
December. The 0.2% yearend decline partially reversed gains during the
prior two months which were the first in over a year. For the year
business inventories fell a record 9.7% as prices and volumes declined.
Perhaps the earlier accumulation resulted from slower sales growth.
Business sales in December were below the pace during three of the
prior four months. As a result, the inventory/sales ratio fell back to
the cycle low of 1.26 from a January '09 high of 1.46.</p>
<p>Lower
manufacturing and wholesale inventories led the December decline after
earlier gains which, in the case of wholesalers, was led by higher
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100212i.jpg" style="width: 353px; height: 265px;" align="right">petroleum
prices.&nbsp;Total retail inventories were unchanged
after steady declines since August 2008. Cuts last month were led by
food &amp; beverage stores with a 1.5% (-0.6% y/y) decline.
Elsewhere, inventory cutting slowed from earlier strong declines.
Furniture inventories even have risen during three of the last four
months while clothing and general merchandise inventories are falling
at slower rates. Auto dealer inventories slipped m/m and are down by
one-quarter y/y.</p>
<p>Retailers' inventory/sales ratio fell to a new cycle
low with sales gains and little inventory growth. The I/S ratio for
department stores led the decline with little increase elsewhere.
Wholesalers' ratio also fell to a near-record low while the I/S ratio
in the factory sector fell to the lowest level since July
2008.&nbsp;</p>
<p> The
business sales and inventory data are available in Haver's <b>USECON</b>
database.</p>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b>Business
Inventories (%)</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>October</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.2</td>
<td>0.5</td>
<td>0.3</td>
<td>-9.7</td>
<td>-9.7</td>
<td>0.4</td>
<td>4.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.0</td>
<td>-0.2</td>
<td>-0.0</td>
<td>-10.6</td>
<td>-10.6</td>
<td>-3.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>0.2</td>
<td>-0.3</td>
<td>-0.2</td>
<td>-5.1</td>
<td>-5.1</td>
<td>-1.9</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-0.8</td>
<td>1.6</td>
<td>0.6</td>
<td>-10.2</td>
<td>-10.2</td>
<td>2.5</td>
<td>6.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.1</td>
<td>0.2</td>
<td>0.4</td>
<td>-8.6</td>
<td>-8.6</td>
<td>2.2</td>
<td>3.7</td>
</tr>
</tbody>
</table>
</span>
<span id="articletitle">Michigan Consumer Sentiment Dips
From Recent High</span><br>
<span id="byline">by <a href="/comment/Moeller.html">Tom
Moeller</a> February 12, 2010</span>
<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100212e.jpg" style="width: 353px; height: 265px;" align="right">The
Reuters/University of Michigan Index of Consumer Sentiment for
mid-February fell modestly to 73.7 from is two-year high of to 74.4
reached last month. The latest figure fell short of Consensus
expectations for a higher reading of 75.0; however, it compares
favorably to the low of 55.3 in November 2008. During the last ten
years there has been a two-thirds correlation between the level of
sentiment and the three-month change real consumer spending.&nbsp;</p>
<p>Expected economic conditions accounted for the decline with a
4.6% m/m
drop to the lowest level since November. Expectations for business
conditions during the next year and during the next five years fell
moderately but expectations for personal finances fell to the lowest
level in twelve months.</p>
<p> Sentiment about current economic conditions
increased by another 3.7% to its highest level since March 2008.
Assessments of current financial conditions were unchanged m/m at their
highest since September of 2008. Buying conditions for large household
goods, including furniture, refrigerators, stoves &amp;
televisions, also moved up another 5.3% to the highest level since
January 2008.&nbsp;&nbsp;</p>
<p> Expected price inflation during the
next year slipped m/m to 3.3% but it was up from the December 2008
reading of 1.7%.&nbsp;Respondents' view of government policy, which
may eventually influence economic expectations, slipped. Just sixteen
percent of respondents thought that a good job was being done by
government versus 40% who thought a poor job was being done, a
twelve-month high.&nbsp;&nbsp;</p>
<p>The Reuters/University of
Michigan survey data are not seasonally adjusted. The reading is based
on telephone interviews with about 500 households at month-end. These
results are based on about 320 interviews. The summary indexes are in
Haver's <b>USECON </b>database with details in the
proprietary <b>UMSCA </b>database.&nbsp;</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100212f.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100212g.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM"><b>University
of Michigan</b></a></th>
<th scope="col"><b>Mid-February</b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>Feb. y/y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>73.7</td>
<td>74.4</td>
<td>72.5</td>
<td><span>30.9%</span></td>
<td>66.3</td>
<td>63.8</td>
<td>85.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>84.1</td>
<td>81.1</td>
<td>78.0</td>
<td>28.4</td>
<td>69.6</td>
<td>73.7</td>
<td>101.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>66.9</td>
<td>70.1</td>
<td>68.9</td>
<td>32.5</td>
<td>64.1</td>
<td>57.3</td>
<td>75.6</td>
</tr>
</tbody>
</table>
</span>
</body></html>

Shoppers are returning to stores after restraining spending at yearend. January retail sales increased 0.5% after a 0.1% decline during December which was less than reported initially. The latest figure was firmer than Consensus [...]

U.S. Retail Sales Recover FromYearend Blues

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<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211e.jpg" style="width: 353px; height: 265px;" align="right">Injection of
liquidity by the Federal Reserve into the banking system typically
raises inflationary concerns in the credit markets. And this time is no
different. Long-term interest rates have remained fairly stable as the
Fed funds rate has lingered near zero for over one year. The steepened
yield curve thus suggests a future inflationary problem.</p><p>Not only has
the Fed held interest rates low, it's provided liquidity to the banks,
particularly through its Term Auction Facility (TAF). Through last year
this provision fell as banks re-liquefied. But so far, it has not
stimulated bank lending and money supply growth has decelerated
sharply. Instead, the liquidity has been used to shore up balance
sheets.</p><p> Indeed, money supply growth (M2) has decelerated as demand
deposit balances have been flat since the middle of last year.
Precaution remains the operative word for banks as they lend and also
for individuals who remain cautious about job prospects.</p><p>The data
referenced above can be found in Haver's <b>WEEKLY</b>
database.</p><p> <b>Interest on Required Balances and Excess Balances </b>from
the Federal Reserve Board is available&nbsp; <a href="http://www.federalreserve.gov/monetarypolicy/reqresbalances.htm">here</a>.&nbsp;
Earlier this week, Chairman Bernanke indicated in Congressional
testimony that the interest rate shown here would become a key tool in
the Fed's liquidity management going forward.&nbsp; These data are
also in Haver's <b>WEEKLY</b> database.</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211f.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211g.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" style="color: black;">Liquidity Measures</a></b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Reserve Bank Assets - Term
Auction Facility</td>
<td>$3,8531M</td>
<td>$7,518</td>
<td>$450,319</td>
</tr>
<tr>
<td class="firstcol">Yield Curve (10 Yr. Treas. less
Fed Funds)</td>
<td>3.62%</td>
<td>3.10%</td>
<td>1.74%</td>
</tr>
<tr class="odd">
<td class="firstcol">Money Supply - Demand Deposits</td>
<td>-0.5% y/y</td>
<td>24.4 % y/y</td>
<td>11.3</td>
</tr>
</tbody>
</table>
</span></body></html>

Injection of liquidity by the Federal Reserve into the banking system typically raises inflationary concerns in the credit markets. And this time is no different. Long-term interest rates have remained fairly stable as the Fed funds [...]

Federal Reserve Injects Liquidity Into Banks

Robert Brusca

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211d.jpg" style="width: 353px; height: 265px;" align="right">Seven
quarters in a row and still no hint of growth in Spain&#8217;s GDP. The
quarter to quarter drops are diminishing and the year-over-year drop is
lessening but the dropping continues.</p>
<p>On a day that Greece is getting
assistance because its own people won&#8217;t pay taxes to service the
payments on debt for their own bills, it must be a bitter day for
Spain. Spain&#8217;s construction sector blew up in the financial crisis and
has taken the economy down along with it. Spain accounts for the bulk
of European unemployment. Because its problem is real estate it will
not be fixed soon. Its real estate woes cannot be exported. Spain has a
long hard road ahead.</p><p>
&nbsp;But economists like to look at growth rates and
the growth rates in the chart are turning higher. Yes, they are still
negative but they are headed higher. Spain has been making progress but
not enough to translate into positive growth. </p>
<p>Household consumption
has been faltering (we do not have the Q4 reading on this yet). Much of
turn has been at the hand of government spending- that&#8217;s spending when
other sectors won&#8217;t. Both exports and imports are rebounding- exports a
bit faster. </p><p>
At this point Spain is still trying just to hold it
together. It will still take sometime to know what its recovery is made
of. It has yet to cross into that space. Spain remains a euro-laggard.
</p>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="3" scope="col"><b>Spain's
FLASH GDP</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td style="font-weight: bold;">Q/Q</td>
<td style="font-weight: bold;">Yr/Yr</td>
</tr>
<tr>
<td class="firstcol">Q4-2009</td>
<td>-0.4</td>
<td>-3.1</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-2009</td>
<td>-1.2</td>
<td>-4.0</td>
</tr>
<tr>
<td class="firstcol">Q2-2009</td>
<td>-4.4</td>
<td>-4.2</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-2009</td>
<td>-6.4</td>
<td>-3.2</td>
</tr>
<tr>
<td class="firstcol">Q4-2008</td>
<td>-4.4</td>
<td>-1.2</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-2008</td>
<td>-2.4</td>
<td>0.5</td>
</tr>
<tr>
<td class="firstcol">Q2-2008</td>
<td>0.0</td>
<td>1.7</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-2008</td>
<td>1.6</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Q4-2007</td>
<td>2.4</td>
<td>3.1</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-2007</td>
<td>2.8</td>
<td>3.5</td>
</tr>
</tbody>
</table>
</span>
</body></html>

Seven quarters in a row and still no hint of growth in Spain’s GDP. The quarter to quarter drops are diminishing and the year-over-year drop is lessening but the dropping continues. On a day that Greece is getting assistance because [...]

Seven Strikes And You’re Out?

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<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th scope="col" class="firstcol"> Today's scheduled reports on retail sales and business inventories will be released tomorrow.</th></tr></thead></table>
<br>

<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211a.jpg" style="width: 353px; height: 265px;" align="right"> Earlier
suggestions of labor market deterioration were reversed by today's
Labor Department report that initial claims. Jobless insurance fell
43,000 to the lowest level since early-January. Last week's decline to
440,000 followed an upwardly revised increase to 483,000 during the
prior week and claims remained near the lowest level since late-August,
2008. Initial claims were down from the recession peak of 674,000 hit
last March. Consensus expectations had been for a lesser decline to
465,000 claims. The four-week moving average of initial claims fell
slightly to 468,500 and remained near the cycle low.&nbsp;</p><p> Continuing
claims for unemployment insurance during the latest week also declined
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211b.jpg" style="width: 353px; height: 265px;" align="right">
to a new cycle low and left claims down by one-third since late-June.
Continuing claims are at the lowest level since early-January of last
year. The overall decline is a function of the improved job market but
also reflects the exhaustion of 26 weeks of unemployment benefits.
Continuing claims provide an indication of workers' ability to find
employment. The four-week average of continuing claims fell to a cycle
low of 4,603,500. This series dates back to
1966.&nbsp;</p><p>&nbsp;Extended benefits for unemployment insurance
rose moderately to 236,041 from its cycle low during the fourth week of
January and were down by two-thirds from a peak of 597,688 reached in
November.&nbsp;</p><p>The insured rate of unemployment remained stable
at a low of 3.5%. The rate reached a high of 5.2% during late-June.
During the last ten years, there has been a 93% correlation between the
level of the insured unemployment rate and the overall rate of
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211c.jpg" style="width: 353px; height: 265px;" align="right">
unemployment published by the Bureau of Labor
Statistics.&nbsp;</p><p> The highest insured
unemployment rates in the week ending January 15 were in Alaska (7.5%),
Wisconsin (6.4), Pennsylvania (6.2), Montana (6.2), Michigan (5.8),
North Carolina (5.4), Washington (5.3) and Connecticut (5.3). The
lowest insured unemployment rates were in Virginia (2.3), Texas (2.5),
Florida (3.4), Maryland (3.6), Wyoming (3.7), Mississippi (3.8), Ohio
(3.9), Indiana (4.0), New York (4.1) and Maine (4.4). These data are
not seasonally adjusted but the overall insured unemployment rate is.</p><p>The unemployment insurance claims data is available in Haver's <b>WEEKLY</b>
database and the state data is in the <b>REGIONW</b>
database.<span style="font-weight: bold;"></span></p><p><span style="font-weight: bold;"></span><b>Productivity, Welfare, and Reallocation:</b>
<b>Theory and Firm&#8208;Level Evidence</b> from the Federal
Reserve Bank of New England can be found <a href="http://www.bos.frb.org/economic/wp/wp2009/wp0919.pdf">here</a>.</p>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" style="color: black;">Unemployment Insurance (000s)</a></b></th>
<th scope="col"><b>2/5/10</b></th>
<th scope="col"><b>1/30/10</b></th>
<th scope="col"><b>1/23/10</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>440</td>
<td>483</td>
<td>472</td>
<td>-28.7%</td>
<td>573</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,538</td>
<td>4,617</td>
<td>-4.6%</td>
<td>5,835</td>
<td>3,345</td>
<td>2,552</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.5</td>
<td>3.5</td>
<td>3.8 (2/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</span></body></html>

Earlier suggestions of labor market deterioration were reversed by today's Labor Department report that initial claims. Jobless insurance fell 43,000 to the lowest level since early-January. Last week's decline to 440,000 followed an [...]

U.S. Initial Jobless Insurance Claims Reverse Three-Week Increase

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<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup><thead><tr>
<th scope="col" class="firstcol"> Today's
scheduled reports on retail sales and business inventories will be
released tomorrow.</th>
</tr>
</thead>
</table>
<br>

<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211a.jpg" style="width: 353px; height: 265px;" align="right">Earlier
suggestions of labor market deterioration were reversed by today's
Labor Department report that initial claims. Jobless insurance fell
43,000 to the lowest level since early-January. Last week's decline to
440,000 followed an upwardly revised increase to 483,000 during the
prior week and claims remained near the lowest level since late-August,
2008. Initial claims were down from the recession peak of 674,000 hit
last March. Consensus expectations had been for a lesser decline to
465,000 claims. The four-week moving average of initial claims fell
slightly to 468,500 and remained near the cycle low.&nbsp;</p>
<p> Continuing
claims for unemployment insurance during the latest week also declined
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211b.jpg" style="width: 353px; height: 265px;" align="right">to
a new cycle low and left claims down by one-third since late-June.
Continuing claims are at the lowest level since early-January of last
year. The overall decline is a function of the improved job market but
also reflects the exhaustion of 26 weeks of unemployment benefits.
Continuing claims provide an indication of workers' ability to find
employment. The four-week average of continuing claims fell to a cycle
low of 4,603,500. This series dates back to
1966.&nbsp;</p>
<p>&nbsp;Extended benefits for unemployment insurance
rose moderately to 236,041 from its cycle low during the fourth week of
January and were down by two-thirds from a peak of 597,688 reached in
November.&nbsp;</p>
<p>The insured rate of unemployment remained stable
at a low of 3.5%. The rate reached a high of 5.2% during late-June.
During the last ten years, there has been a 93% correlation between the
level of the insured unemployment rate and the overall rate of
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211c.jpg" style="width: 353px; height: 265px;" align="right">unemployment
published by the Bureau of Labor
Statistics.&nbsp;</p>
<p> The highest insured
unemployment rates in the week ending January 15 were in Alaska (7.5%),
Wisconsin (6.4), Pennsylvania (6.2), Montana (6.2), Michigan (5.8),
North Carolina (5.4), Washington (5.3) and Connecticut (5.3). The
lowest insured unemployment rates were in Virginia (2.3), Texas (2.5),
Florida (3.4), Maryland (3.6), Wyoming (3.7), Mississippi (3.8), Ohio
(3.9), Indiana (4.0), New York (4.1) and Maine (4.4). These data are
not seasonally adjusted but the overall insured unemployment rate is.</p>
<p>The unemployment insurance claims data is available in Haver's
<b>WEEKLY</b>
database and the state data is in the <b>REGIONW</b>
database.<span style="font-weight: bold;"></span></p>
<p><span style="font-weight: bold;"></span><b>Productivity,
Welfare, and Reallocation:</b>
<b>Theory and Firm&#8208;Level Evidence</b> from the Federal
Reserve Bank of New England can be found <a href="http://www.bos.frb.org/economic/wp/wp2009/wp0919.pdf">here</a>.</p>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" style="color: black;">Unemployment Insurance (000s)</a></b></th>
<th scope="col"><b>2/5/10</b></th>
<th scope="col"><b>1/30/10</b></th>
<th scope="col"><b>1/23/10</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>440</td>
<td>483</td>
<td>472</td>
<td>-28.7%</td>
<td>573</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,538</td>
<td>4,617</td>
<td>-4.6%</td>
<td>5,835</td>
<td>3,345</td>
<td>2,552</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.5</td>
<td>3.5</td>
<td>3.8 (2/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</span>
<span id="articletitle">Seven Strikes And You&#8217;re Out?</span><br>
<span id="byline">by <a href="/comment/Brusca.html">Robert
Brusca</a> February 11, 2010</span>
<span id="articletext">
<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211d.jpg" style="width: 353px; height: 265px;" align="right">Seven
quarters in a row and still no hint of growth in Spain&#8217;s GDP. The
quarter to quarter drops are diminishing and the year-over-year drop is
lessening but the dropping continues.</p>
<p>On a day that Greece is getting
assistance because its own people won&#8217;t pay taxes to service the
payments on debt for their own bills, it must be a bitter day for
Spain. Spain&#8217;s construction sector blew up in the financial crisis and
has taken the economy down along with it. Spain accounts for the bulk
of European unemployment. Because its problem is real estate it will
not be fixed soon. Its real estate woes cannot be exported. Spain has a
long hard road ahead.</p>
<p>&nbsp;But economists like to look at growth rates and
the growth rates in the chart are turning higher. Yes, they are still
negative but they are headed higher. Spain has been making progress but
not enough to translate into positive growth. </p>
<p>Household consumption
has been faltering (we do not have the Q4 reading on this yet). Much of
turn has been at the hand of government spending- that&#8217;s spending when
other sectors won&#8217;t. Both exports and imports are rebounding- exports a
bit faster. </p>
<p>At this point Spain is still trying just to hold it
together. It will still take sometime to know what its recovery is made
of. It has yet to cross into that space. Spain remains a euro-laggard.
</p>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="3" scope="col"><b>Spain's
FLASH GDP</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td style="font-weight: bold;">Q/Q</td>
<td style="font-weight: bold;">Yr/Yr</td>
</tr>
<tr>
<td class="firstcol">Q4-2009</td>
<td>-0.4</td>
<td>-3.1</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-2009</td>
<td>-1.2</td>
<td>-4.0</td>
</tr>
<tr>
<td class="firstcol">Q2-2009</td>
<td>-4.4</td>
<td>-4.2</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-2009</td>
<td>-6.4</td>
<td>-3.2</td>
</tr>
<tr>
<td class="firstcol">Q4-2008</td>
<td>-4.4</td>
<td>-1.2</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-2008</td>
<td>-2.4</td>
<td>0.5</td>
</tr>
<tr>
<td class="firstcol">Q2-2008</td>
<td>0.0</td>
<td>1.7</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-2008</td>
<td>1.6</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Q4-2007</td>
<td>2.4</td>
<td>3.1</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-2007</td>
<td>2.8</td>
<td>3.5</td>
</tr>
</tbody>
</table>
</span>
<span id="articletitle">Federal Reserve Injects Liquidity
Into Banks</span><br>
<span id="byline">by <a href="/comment/Moeller.html">Tom
Moeller</a> February 11, 2010</span>
<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211e.jpg" style="width: 353px; height: 265px;" align="right">Injection
of
liquidity by the Federal Reserve into the banking system typically
raises inflationary concerns in the credit markets. And this time is no
different. Long-term interest rates have remained fairly stable as the
Fed funds rate has lingered near zero for over one year. The steepened
yield curve thus suggests a future inflationary problem.</p>
<p>Not only has
the Fed held interest rates low, it's provided liquidity to the banks,
particularly through its Term Auction Facility (TAF). Through last year
this provision fell as banks re-liquefied. But so far, it has not
stimulated bank lending and money supply growth has decelerated
sharply. Instead, the liquidity has been used to shore up balance
sheets.</p>
<p> Indeed, money supply growth (M2) has decelerated as demand
deposit balances have been flat since the middle of last year.
Precaution remains the operative word for banks as they lend and also
for individuals who remain cautious about job prospects.</p>
<p>The data
referenced above can be found in Haver's <b>WEEKLY</b>
database.</p>
<p> <b>Interest on Required Balances and Excess Balances </b>from
the Federal Reserve Board is available&nbsp; <a href="http://www.federalreserve.gov/monetarypolicy/reqresbalances.htm">here</a>.&nbsp;
Earlier this week, Chairman Bernanke indicated in Congressional
testimony that the interest rate shown here would become a key tool in
the Fed's liquidity management going forward.&nbsp; These data are
also in Haver's <b>WEEKLY</b> database.</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211f.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100211g.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" style="color: black;">Liquidity Measures</a></b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Reserve Bank Assets - Term
Auction Facility</td>
<td>$3,8531M</td>
<td>$7,518</td>
<td>$450,319</td>
</tr>
<tr>
<td class="firstcol">Yield Curve (10 Yr. Treas. less
Fed Funds)</td>
<td>3.62%</td>
<td>3.10%</td>
<td>1.74%</td>
</tr>
<tr class="odd">
<td class="firstcol">Money Supply - Demand Deposits</td>
<td>-0.5% y/y</td>
<td>24.4 % y/y</td>
<td>11.3</td>
</tr>
</tbody>
</table>
</span>
</body></html>

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<br>

<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210e.jpg" style="width: 353px; height: 265px;" align="right">
The Mortgage
Bankers Association reported that mortgage applications slipped 1.2%
last week after a 21.0% jump at the end of January. As a result,
applications began February up sharply from last month.&nbsp;
&nbsp;</p><p>Applications to <i>refinance</i> mortgages
increased 1.4% last week and were double the June low due to rate
declines. Applications to <i>purchase</i> a home have not
shared that degree of strength. They fell 7.0% last week after
declining in January from December. The volatility in the numbers
likely reflects the expiration of an up-to $8,000 Federal tax credit
for first-time homebuyers which was extended to April. During the last
ten years there has been a 51% correlation between the y/y change in
purchase applications and the change in new plus existing single family
home sales. The correlation has lessened recently.</p><p>The effective fixed
interest rate on conventional 15-year mortgages slipped last week to
4.57%. That equaled the November low and was down from the June average
of 5.21%. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210f.jpg" style="width: 353px; height: 265px;" align="right">
For 30-year mortgages the rate ticked up last week to 5.16%
from a November average of 5.06%. Rates reached a high of 5.79% in
early-June. Interest rates on fixed 15-year and 30-year mortgages are
closely correlated (near-90%) with the rate on 10-year Treasury
securities. Rates on adjustable one-year mortgages fell to 6.64% last
week from a November average of 6.81%.&nbsp;</p><p>Since a December low,
the number of fixed-rate mortgages has risen by one third and roughly
equaled the rise in adjustable-rate mortgage
applications.&nbsp;</p><p>The Mortgage Bankers Association
surveys between 20 to 35 of the top lenders in the U.S. housing
industry to derive its refinance, purchase and market indexes. The
weekly survey covers roughly 50% of all U.S. residential mortgage
applications processed each week by mortgage banks, commercial banks
and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.<span class="title">&nbsp;</span>The figures for weekly
mortgage applications are available in Haver's <b>SURVEYW</b>
database.</p><p><b>Federal Reserve's exit strategy</b>
is this morning's House testimony by Fed Chairman Ben S. Bernanke and
it can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20100210a.htm">here</a>.</p>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM%22" style="color: black;"><b>MBA Mortgage Applications
(SA, 3/16/90=100)</b></a></th>
<th scope="col"><b>02/05/10</b></th>
<th scope="col"><b>01/29/10</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>613.1</td>
<td>620.7</td>
<td>2.1%</td>
<td>736.4</td>
<td>642.9</td>
<td>652.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>221.2</td>
<td>237.8</td>
<td>-6.2</td>
<td>263.5</td>
<td>345.4</td>
<td>424.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,893.9</td>
<td>2,854.8</td>
<td>6.3</td>
<td>3,509.2</td>
<td>2,394.1</td>
<td>1,997.9</td>
</tr>
<tr>
<td class="firstcol">15-Year Mortgage Effective
Interest Rate (%)</td>
<td>4.57</td>
<td>4.62</td>
<td>5.07 (02/09)</td>
<td>4.85</td>
<td>5.9</td>
<td>6.2</td>
</tr>
</tbody>
</table>
</span></body></html>

The Mortgage Bankers Association reported that mortgage applications slipped 1.2% last week after a 21.0% jump at the end of January. As a result, applications began February up sharply from last month. Applications to refinance [...]

U.S. Weekly Mortgage Applications Slip

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>The drop &#8211;a sharp drop- in German IP has been echoed
throughout the e-zone&#8217;s largest economies. In December IP has also
fallen in France, in Italy and in Spain. The UK, an EU member country,
reports that its IP rose by a strong 0.9% in December.</p>
<p>Over three-months all the large EMU members are showing
moderating growth rates but only Germany and Spain have posted actual
IP drops. Germany&#8217;s -14% rate of decline is huge. Spain&#8217;s three-month
drop is just at a -4.7% annual rate- but is still substantial. Italy&#8217;s
5.9% gain over three months is the sharpest 3-mo gain among the lot of
large e-Zone members. Outside the Zone, the UK&#8217;s 4.6% rise in output
rivals Italy&#8217;s three-month gain. Better still, for the UK the
acceleration in output is still in place.</p>
<p>For the fourth quarter, Germany continues to show that output
expanded compared to Q3 even with the December weakness. France&#8217;s
output also posted a rise in the quarter. Both Italy and Spain suffered
setbacks in the quarter; Spain&#8217;s 6.2% annual rate of decline is
especially deep. The UK&#8217;s IP registers a rise at a pace of 3.2% in the
quarter.</p>
<p>The chart at the top of this report plots Yr/Yr rates of
growth and on that basis the recovery in output still seems to be fully
in train. But the widespread drop off in output in December must be
taken as bad news. But how bad? The UK is not in EMU but it is still in
the same region and trades with most of the same partners as Europe yet
its IP managed a rather large boost in December. Perhaps the UK results
give us some reassurance that output in the Zone is not on the brink of
collapsing. It&#8217;s too soon to tell what December means for the trend but
the drop off is not the sort of signal of weakness or even of slowing
growth that we want to see at this time. The recovery&#8217;s fragility
underlines Mervyn King&#8217;s statement that it is too soon to put a
definitive end the BOE&#8217;s securities purchase program.</p>
<p>Meanwhile those looking for more guidance on policy will have
to wait another day. US central bank head Ben Bernanke has his
testimony put off for a day due to a Washington DC snow storm. We will
not get the usual information from questioning of the Chairman until he
testifies on Thursday. But the Fed Chairman&#8217;s speech is being released
on time today so his general thoughts will available as previously
scheduled.</p>
</span>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> <b>Main Euro-Area Countries and UK IP in MFG</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td style="font-weight: bold;" colspan="3">Mo/Mo</td>
<td style="font-weight: bold;">3-Mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
<td style="font-weight: bold;">Dec-09</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">MFG Only</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Nov-09</td>
<td style="font-weight: bold;">Oct-09</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Q:4-Date</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Germany:</td>
<td>-2.8%</td>
<td>0.9%</td>
<td>-1.8%</td>
<td>-14.0%</td>
<td>1.9%</td>
<td>-7.2%</td>
<td>3.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;France:IPxConstruct'n</td>
<td>-0.1%</td>
<td>0.6%</td>
<td>-0.1%</td>
<td>1.4%</td>
<td>4.6%</td>
<td>-2.3%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>1.2%</td>
<td>5.9%</td>
<td>6.7%</td>
<td>-6.3%</td>
<td>-1.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Spain</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-4.7%</td>
<td>1.2%</td>
<td>-2.4%</td>
<td>-6.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;UK</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>4.6%</td>
<td>2.3%</td>
<td>-1.9%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Mo/Mo are simple
percent changes others are at saars</td>
</tr>
</tbody>
</table>
</body></html>

The drop –a sharp drop- in German IP has been echoed throughout the e-zone’s largest economies. In December IP has also fallen in France, in Italy and in Spain. The UK, an EU member country, reports that its IP rose by a strong 0.9% [...]

Much Of EMU’s IP Stumbles In December...How Worried Should We Be?

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<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210a.jpg" style="width: 353px; height: 265px;" align="right">Higher
oil prices and economic recovery were December's double-punch to the
U.S. trade accounts. Together, they raised imports and increased the
international trade deficit to $40.2B which was the highest level in
twelve months. The rise was from November's unrevised deficit of
$36.4B. The latest figure was quite a bit higher than Consensus
expectations for a deficit of $35.5B.</p><p> Imports rose 4.8% in part due to
a rise in crude oil prices to $73.20 per barrel which was the highest
price since October of 2008. In addition the quantity of crude oil
imports jumped 14.3% (-17.5% y/y) to the highest level since March.
U.S. economic recovery also was evident in a 3.3% increase (3.0% y/y)
in real nonoil imports which was the fifth increase in six months. Real
non-auto capital goods imports jumped 4.6% (2.5% y/y) after a 3.9%
November increase. Real automotive vehicles &amp; parts imports
also were strong with a 9.6% increase (18.9% y/y) and have nearly
doubled since May. Real nonauto consumer goods imports were unchanged
(3.4% y/y) following earlier strength since June. Finally, services
imports jumped 1.1% (-1.5% y/y) and have risen a firm 6.5% since March.
U.S. travels abroad rose 1.8% (-5.4% y/y recouping the&nbsp;
November decline while passenger fares jumped 2.9% (-20.5% y/y).</p><p>Again
reflecting the competitive value of the dollar, nominal exports jumped
3.3% m/m and by 17.3% from the April low. More impressive was the 4.4%
monthly increase in real merchandise exports which are up 18.7% from
their low. Real capital goods exports jumped 5.2% in December (0.6%
y/y) and have risen 14.9% from their low. Real exports of non-auto
consumer goods also posted a firm 2.1% gain and have risen 16.2% from
the January low. Real automotive exports surged 10.2% in December and
by 17.4% during the last twelve months. Exports of services slipped
0.1% (-0.3% y/y).&nbsp;</p><p> By country, the trade deficit with
mainland China lessened to $18.1B, its least since April. The deficit
has narrowed from its peak of $27.9B in October of 2008. Exports to
China rose nearly two-thirds y/y while imports rose just 5.7%. With
Japan, the trade deficit improved modestly to $4.6B from $5.3B one year
earlier as exports rose 9.7% and imports fell 2.7%. With the European
Union, the trade deficit was stable m/m at&nbsp; $6.4B as exports
declined 3.7% y/y and imports fell 4.5%.&nbsp;&nbsp;</p><p><br>The
international trade data can be found in Haver's <b>USECON </b>database.
Detailed figures are available in the <b>USINT</b>
database.</p><p><b>Is the International Role of the Dollar Changing? </b>from
the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci16-1.pdf">here</a>.</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100210c.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign
Trade&nbsp;</a></b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>October</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U.S. Trade Deficit</td>
<td>$40.2B</td>
<td>$36.4B</td>
<td>$33.2B</td>
<td>$41.9B (12/08)</td>
<td>$380.7B</td>
<td>$695.9B</td>
<td>$701.4B</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Exports - Goods
&amp; Services</td>
<td>3.3%</td>
<td>0.9%</td>
<td>2.7%</td>
<td>7.4%</td>
<td>-15.0%</td>
<td>11.2%</td>
<td>13.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Imports - Goods
&amp; Services</td>
<td>4.8</td>
<td>2.6</td>
<td>0.7</td>
<td>4.6</td>
<td>-23.3</td>
<td>7.6</td>
<td>6.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>14.8</td>
<td>0.3</td>
<td>-10.6</td>
<td>24.5</td>
<td>-44.1</td>
<td>37.0</td>
<td>9.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>3.8</td>
<td>2.3</td>
<td>3.2</td>
<td>2.6</td>
<td>-21.0</td>
<td>1.5</td>
<td>4.8</td>
</tr>
</tbody>
</table>
<p></p>
</span>
</body></html>

Higher oil prices and economic recovery were December's double-punch to the U.S. trade accounts. Together, they raised imports and increased the international trade deficit to $40.2B which was the highest level in twelve months. The [...]

U.S. Trade Deficit Hits 12-Month High

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

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Michael J. Moran

260428N.jpg

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The Conference Board’s index of Consumer Confidence inched higher in April from an upwardly revised reading in March. The combined changes left the measure 1.1% higher than the preliminary tally in March. Despite the improvement, the index remained in the low end of the range for the current expansion. The index in April totaled 92.8, down from an average of 96.1 in 2025 and an annual cyclical high of 105.4 in 2023.

The Improvement in April reflected a pickup in the expectations component, which rose 1.7%. The current conditions component inched 0.2% lower. Overall views on current conditions slipped despite more favorable assessments of the labor market. The so-called measure of the jobs gap (share of respondents indicating that jobs are plentiful less the share saying that jobs are hard to get) rose 1.4 percentage points higher to 7.5%. The pickup reflected a drop in the share indicating that jobs are hard to get (down 1.5 percentage points to 19.8%). The share indicating that jobs are plentiful eased 0.1 percentage point to 27.3%.

Although expectations improved in April, from a long-term perspective they could be viewed as the more important factor restraining the headline measure of confidence. As shown in the left chart below, the expectations component of confidence shows considerably less volatility than the current conditions component does. The contrasting patterns suggest that individuals realize that the economy will undergo possibly sharp cyclical swings, but they expect conditions at some point to return to an underlying norm.

The current conditions index in the current cycle has indeed dropped noticeably, but it is still above the long run average (123.8 in April versus the average of approximately 108 from 1990 to 2025). The expectations component, as usual, has eased less than the current conditions component, but its shift has pushed the measure to the low end of its long-run range (72.2 in April versus an average of approximately 88).

Interestingly, concern about the labor market seems to be a factor affecting expectations. While current views on the labor market are favorable (plentiful less hard to get jobs gap of 7.5%), Individual are concerned about the future. The survey asks respondents if they expect more jobs or fewer jobs six months hence. The share indicating fewer jobs has moved well into the upper end of the historical range. Such observations in the past were typically seen only during recession (chart, below right). An unfavorable view on interest rates also seems to be playing a role in depressing the expectations component. More than 60% of respondents to the current survey expect higher interest rates 12 months from now.

The results from the Conference Board survey of consumers differ markedly from those of the University of Michigan Survey Research Center. The Michigan results show consumer sentiment at a record low, while the Conference Board index is only slightly below its long-run average. The difference most likely reflects the nature of the questions in the surveys. The Conference Board focuses on business and employment conditions, while Michigan emphasizes personal finances. The focus on finances, along with questions on inflation, probably picks up concerns about affordability.

The Consumer Confidence data are available in Haver’s **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

260428P.jpg

260428Q.jpg

- Expectations improved slightly in April, but are still subdued relative to norms.
- Moderately favorable view of current conditions.

Consumer Confidence: Modest Change in April

Winnie Tapasanun

260428J35.jpg

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U.S. house prices were essentially unchanged m/m in February after rises of 0.2% in January (+0.1% initially) and 0.3% in December (unrevised), according to the Federal Housing Finance Agency (FHFA) House Price Index. February marked the first flat reading since September following four consecutive m/m increases. The HPI was at 441.43 in February, up 14.8% from its August 2022 low of 384.59. The year-on-year growth rate eased to 1.7% in February—the lowest since March 2012—from 1.8% in January (+4.1% in February 2025), down from a high of 6.9% in February 2024 and well below a peak of 18.5% in February 2022.

By region, February FHFA house prices showed a mixed performance. House prices fell m/m in February (vs. January) in four of the nine census divisions. Declines were led by Mountain (-1.1% vs. +0.4%), followed by Pacific (-0.5% vs. +0.6%), West North Central (-0.4% vs. +0.3%), and Middle Atlantic (-0.1% vs. +0.3%). To the upside, house prices rose m/m in four census divisions in February (vs. January): South Atlantic (+0.6% vs. -0.2%), East South Central (+0.2% vs. +1.2%), New England (+0.2% vs. +0.6%), and West South Central (+0.2% vs. -0.3%). Meanwhile, house prices in East North Central were virtually unchanged m/m for the second successive month in February following seven straight m/m gains.

Year-on-year house prices continued to rise in February in most regions, except Mountain, Pacific, and West South Central. The y/y growth rate accelerated in February (vs. January) in only two of the nine census divisions: East South Central (+4.0% vs. +3.2%) and South Atlantic (+0.9% vs. +0.4%). Meanwhile, house price growth decelerated y/y in February (vs. January) in four regions: New England (+3.1% vs. +3.9%), West North Central (+3.1% vs. +3.6%), East North Central (+3.8% vs. +4.5%), and Middle Atlantic (+4.2% vs. +4.5%). To the downside, Mountain (-0.7% vs. 0.0%), Pacific (-0.4% vs. -0.3%), and West South Central (-0.1% vs. -0.4%) posted y/y declines in February.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

260428L35.jpg

260428M35.jpg

- February FHFA HPI 0.0% m/m; +1.7% y/y, lowest since Mar. ’12.
- House prices down m/m in four of nine census divisions, led by Mountain (-1.1%); up in four, driven by South Atlantic (+0.6%); flat in East North Central.
- House prices up y/y in six of nine regions, led by Middle Atlantic (+4.2%), but down in Mountain (-0.7%), Pacific (-0.4%), and West South Central (-0.1%).

U.S. FHFA House Prices Flat in February After Four Straight M/M Gains

Tian Yong Woon

In this week’s Letter, we cover the latest developments and implications of the Middle East conflict for Asia, while also making space for other important themes, including artificial intelligence (AI). The Middle East conflict remains in a no deal state coming out of the weekend, though some early Monday optimism emerged in Asian markets following Iran’s reported offer to reopen the Strait of Hormuz (chart 1). Nonetheless, as the Strait closure drags on, so too do the fiscal costs of domestic fossil fuel subsidies across Asia, which have been shown to move closely with crude oil prices (chart 2). While such measures offer direct relief by cushioning household energy costs, they remain difficult to sustain over the long haul.

Over the week, we also saw a further fraying in regional monetary policy trends, with the Philippines hiking its policy rate for the first time in about two years amid inflation concerns, while Indonesia stood pat on rates (chart 3). Investor attention is likely to remain fixed on monetary policy this week, with the Bank of Japan due to decide on policy. Expectations for an April hike have faded amid the persistent Middle East conflict, though yen weakness continues to present a source of concern (chart 4). The week also brings China’s latest PMI readings (chart 5), adding to the recent run of hard data accompanying the Q1 GDP release.

Beyond the Middle East conflict, the evolution of AI continues to demand close attention. Before geopolitical tensions took centre stage, AI was the dominant market narrative — and that enthusiasm has hardly faded. If anything, recent developments suggest the story is broadening: use cases are expanding, scalability is improving, and access is widening beyond large corporates to the mass market — increasingly spilling into the realm of physical AI. It may well be this persistent wave of optimism that is helping to underpin equity valuations, even as the geopolitical backdrop darkens (chart 6).

**The Middle East conflict**
About two months in, we remain stuck in the limbo of the US-Iran conflict, which has left the Strait of Hormuz largely closed and much of the world starved of the critical oil flows needed to power the global economy. The back and forth between the US and Iran has persisted in recent weeks, with both sides again failing to reach a peace deal over the weekend, though Monday’s news of Iran offering to reopen the Strait has revived some hope in markets. In truth, commodity and market valuations do not hinge so much on a peace deal itself, but rather on the resumption of oil flows through the Strait, something that could materialise even in the absence of a formal deal, though any agreement that includes and credibly delivers such a reopening would likely be warmly received by markets. Until then, market gyrations are likely to persist, with prices fluctuating in response to each new snippet of news. And until then, the world will continue both to be starved of, while gradually adapting to, the drip feed of oil flows emerging from the Strait.

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**The fiscal costs of the Middle East conflict**
As the Middle East conflict drags on, so too does the strain on fiscal resources across parts of Asia, as the costs of energy-related subsidy programmes continue to mount. While such programmes have an immediate, direct, and tangible impact in shielding households from surging energy costs, they are far from sustainable, particularly if oil prices remain well above targeted levels or stay elevated for an extended period. As chart 2 illustrates, the costs of these explicit subsidy programmes tend to rise closely with crude oil prices, as seen in India and Indonesia. Other measures adopted elsewhere, such as drawing down oil reserves, may be less fiscally costly, but are similarly difficult to sustain indefinitely. In both respects, the clock is ticking, and the world continues to hold its breath as the conflict drags on.

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**The latest central bank responses to the conflict**
Over the past week, Asia saw two central bank decisions. The Philippines’ (BSP) opted to deliver its first rate hike in about two years, while Indonesia’s (BI) chose to stand pat on policy rates and instead committed to stepped up FX intervention (chart 3). This latest round of decisions points to a further fraying of what had been a broad regional monetary policy consensus, namely that central banks would delay additional easing while maintaining a high bar for outright tightening. Domestic considerations, however, remain paramount. In the Philippines’ case, the central bank has moved to rein in inflation, which is already showing notable signs of price pass through stemming from disruptions linked to the Strait of Hormuz. That said, BSP is not the first in the region to buck the reluctance to tighten. Singapore’s central bank had already tightened policy in mid-April, albeit through its own distinct framework, given its use of the exchange rate rather than policy rates as the primary channel for monetary policy.

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**The week ahead**
Looking to the week ahead, a major central bank decision looms in Japan. Market expectations for the Bank of Japan to deliver a rate hike at its April meeting have ebbed amid the persistence of the Middle East conflict, to which Japan remains particularly vulnerable given its reliance on oil imports flowing through the Strait of Hormuz. At the same time, inflation in Japan has yet to become a major concern, with recent readings having picked up but not yet entering troubling territory. One potential source of concern, however, lies with the Japanese yen, which has remained on a weakening trend since early last year (chart 4). That depreciation has been one of the key arguments underpinning calls for further rate hikes.

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The week also brings China’s latest PMIs into focus. March saw a divergence between China’s official PMI readings, which improved, and the unofficial readings from RatingDog, which instead pulled back. Nonetheless, both official and unofficial gauges remained in expansionary territory (chart 5), with investors now watching closely to see whether that resilience can be sustained amid ongoing stresses from the Middle East, or whether offsetting drivers can continue to keep Chinese business sentiment and prospects buoyant.

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**Beyond the strait**
Moving beyond the Middle East conflict, a whole host of developments continue to unfold globally, many of which have in fact helped offset some of the pessimism wrought by the Strait’s chokehold. One such development is artificial intelligence (AI), which had dominated headlines before the outbreak of the conflict and continues to advance at breakneck pace. AI capabilities are still rapidly evolving, while practical applications, such as physical AI embodied in humanoid robots, are beginning to show broader and stronger use cases. Production of such robots is also becoming increasingly scalable and within reach not just for industrial complexes and healthcare, but for the mass market as well. It is perhaps growing optimism around these prospects that has helped keep equity valuations buoyant, even in the face of the festering conflict in the Middle East. Moreover, while concerns over AI-driven job displacement persist, new opportunities are emerging as well, particularly for AI adopters, with a growing share of job postings in Western economies increasingly referencing AI-related skills, as shown in chart 6.

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Asia

Economic Letter from Asia: Not Just About the Strait

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**The Distributive Trades Survey**

The U.K. Distributive Trades Survey for April 2026 and the look-ahead expectation readings for May paint an extremely soured outlook for the U.K. economy.

**Retail ranking**: Surveys for retail sales compared to a year ago, orders compared to a year ago, and sales evaluated for the time of year all have rankings near zero, which is the worst result on this timeline. This zero distinction applies to retail sales compared to a year ago. The best ranking is 11.6%; that is for sales evaluated for the time of year. Orders compared to a year ago have a 4.2 percentile standing. The stock-to-sales ratio—which is a completely different concept—shows that the inventory-to-sales ratio has a 29.9 percentile standing.

**Retail diffusion**: The raw April diffusion readings (up minus down diffusion) show that sales compared to a year ago slipped to a reading of -68 in April from -52 in March. Orders fell to -46 in April from -26 in March. Sales evaluated for the time of year fell to -32 April from -23 in March. All three measures weakened, and all three weakened decisively, resulting in extremely weak rankings. All of the rankings are executed on data back to 2002.

**Expectations for retailing**: The expectations readings for May show slippage again across all three metrics: expected sales compared to a year ago, expected orders compared to a year ago, and expected sales for the time of year. Expected sales compared to a year ago fell to -60 in May from -49 in April. Orders compared to a year ago declined to -45 in May from -30 in April, and sales for the time of year slipped to -43 from -19. In May, these readings have rankings in a 0.4 percentile standing for sales compared to a year ago, a 1.8 percentile standing for sales evaluated relative to the time of year, and a 4.6 percentile standing for orders compared to a year ago. These two panels on current and expected retail sales volumes are just simply terrible: weak monthly, weak in ranking terms, and showing slipping momentum.

The distributor trade series also provides data on the wholesale sector. While the wholesale sector is not quite as beat up as the retail sector, it's still extremely weak. There is no cause for any kind of hope that things are getting better based on wholesaling trends.

**Wholesaling**: The wholesale survey for sales compared to a year ago edged lower to -32 in April from -31 in March. Orders compared to a year ago remained at a reading of -41 in April. Sales evaluated for the time of year improved to a reading of -20 in April from -39 in March—a significant step up, but still very weak. The percentile standings for these three categories show sales compared to a year ago at the 8.8 percentile, orders compared to a year ago at the 5.6 percentile, and sales evaluated for the time of year at the 14.8 percentile.

**Wholesale Expectations**: The look-ahead observations, which provide expectations for wholesaling in May, show a similar constellation of readings, with sales compared to a year ago falling to -37 in May from -27 in April and orders compared to a year ago falling to -42 from -38, while sales evaluated for the time of year improved to  16 from  37. That category for wholesale sales improved both in April in real time and in May for expectations; however, it continues to have a very weak percentile standing, at the 17.9 percentile in May, while sales for a year ago have a 6.7 percentile standing and orders for a year ago have a 6.0 percentile standing.

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While some of the global PMI data have improved, these survey data for the U.K. are particularly dour. The war in Ukraine drags on, and there's a new conflict in Iran that has shut the Strait of Hormuz, creating energy problems for much of Europe. More broadly, supply chains have been harmed. In addition, the U.K. is undergoing a bout of political instability, as its Prime Minister is under pressure and a good deal of political uncertainty is being worsened by deteriorating economic performance.

Both the U.K. and the European Monetary Union had been showing some progress on inflation until the Iran war hit. Now, as the oil prices are up so sharply, headline inflation is going to be worse everywhere and there will probably be a bit more attention directed to the core inflation rate. However, the U.K. has had inflation too hot for a while, and it has failed to settle down. At its last meeting, the Bank of England’s Monetary Policy Committee warned that if the war was still ongoing at the next meeting, there would be a risk of a rate hike. So, it would seem that a rate hike is going to be in play unless the economy falls off a cliff first, which, based on the distributive trades data, is also something that could happen. The U.K. economy appears to be on very unsound footing, and what happens next is just about anybody's guess.

United Kingdom

U.K. Retail Sales: Worse Than During Covid

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The onset of the war in Iran appears to have hit the German economy extremely hard as the Ifo survey shows very substantial and broad-based decline across its survey in April. The Ifo survey features readings for five sectors as well as an aggregate reading, and it surveys them for climate, current conditions, and expectations. The decline in the Ifo survey is present for all three concepts and across all five sectors, marking the weakening in April as a highly significant and extremely disturbing development. Only manufacturing in the current conditions survey escapes a month-to-month decline.

**The Ifo sequences**: The **climate** reading fell both overall and across each of the five sectors. **Current conditions** declined for the overall and for four of the five sectors, with manufacturing the sole exception. **Expectations** declined for the overall and for all sectors. Several of the sector declines were for a very substantial magnitude, especially when compared to historic changes in these indexes.

**Monthly changes in readings—severe broad deterioration**
The month-to-month change in the climate reading has weakened more month-to-month 19% of the time. That overall result, however, is boosted by manufacturing where the monthly change has been weaker 35% of the time (on data back to 2011). However, all other sectors have seen climate weaker m/m only 2.3% to 6.3% of the time! The current situation readings weakened, with the headline weakening more m/m 11% of the time. This was boosted by manufacturing, the only sector that improved on the month; its ranking on change was in its 85th percentile—quite good and truly stand-alone good news. The other current changes by sector ranged from construction being weaker 1.7% of the time, to retailing that has been weaker about 30% of the time in terms of m/m changes. Expectation changes were uniformly terrible, with the headline drop weaker only 6.3% of the time and sector change month-to-month weaker between 9% and 1.7% of the time. The monthly weakening was uniform and substantial. I document it with these calculations, but you can also see it on the chart above.

**Climate**: The bottom line is that the all-sector index for climate fell to -20.3 in April from -18 in March, placing it at a 10.5 percentile standing on data since 1993. The sector ranking is the highest for construction with a 42.2 percentile standing and the weakness for services at a 1.1 percentile standing—weaker than the table reading nearly 99% of the time. In terms of percentile standing levels or monthly changes, conditions are closing in on grim.

**Current conditions**: Current conditions saw the all-sector index slip to -5.3 in April from -2.4 in March. The headline ranking stands at a 9.8 percentile mark, making it—like the climate reading—weaker than its current reading only about 10% of the time. The strongest reading under current conditions is for construction which has a 60.6 percentile standing; it is the only ranking in the table above its historic median. Manufacturing, the only sector in the survey that improved month-to-month, has a 22.5 percentile standing, while services record the weakest percentile standing under current conditions, at an 8.4 percentile standing.

**Expectations:** The all-sector index for expectations fell to -25.3 in April from -19.9 in March, placing it at a 6.3 percentile standing. The percentile standings across sectors range from a high of 9.5% for manufacturing to a low of 1.5% for retailing. Up until earlier this year, the Ifo was showing signs of improvement; however, all of that has simply collapsed in the last month. Weakness is across economic concepts and sectors, as documented above. For reference, the table also gives a separate set of rankings on where the various indexes stand since the invasion of Ukraine, since that was another marked event that drove the index, that had been improving after Covid, down to lower levels.  Ranked even on this reduced scale looking at conditions only since the invasion of Ukraine, when conditions have generally been weaker, the current rankings across the Ifo survey remained extremely weak. This is a very disturbing survey for the German economy.

Economy in Brief: 2010

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