Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070319a.jpg" width="353">
February department store sales in Japan, which are not seasonally adjusted, were 1.15% above those of February 2006, the highest year to year increase since last March. While the year to year increase is reassuring, it does not necessarily tell us much about the course of total consumer spending. Until the late nineties, department store sales were a good indicator of the direction of total consumer spending, as can be seen in the first chart. (We have used the &quot;Final Consumption of Households excluding Imputed Rent&quot; series in the National Account as the measure of total consumer spending.) Since then, however, department store sales have trended downward while total consumer spending has continued to rise.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070319b.jpg" width="353">
In addition to department store sales, Japan publishes information on sales at all retail establishments, at large scale department stores, supermarkets, chain stores and convenience stores.
It is not only department store sales that no longer indicate the trend of total consumer spending, but sales at all retail establishments. The second chart comparing retail sales and total consumer spending shows the same general trends as those of department store sales and total consumer spending. Consumers are spending more on such services, as education, health, transportation, leisure activities that cannot be supplied by retail establishments.
While the wealth of retail sales data that Japan publishes may have little use as a reliable indicator of total consumer spending, the data are useful in tracking consumer buying habits. As noted above, consumers are using department stores less. Consumer purchases at chain stores fell sharply from the late 90&#39;s to 2002, and have been more or less constant since then. Supermarket sales have varied only slightly over the past nine years, as can be seen in the third chart that compares sales at chain stores and supermarkets. The brightest spot in the retail area has been the convenience store. Though still smaller than department store sales, convenience store sales are the only area where significant growth is apparent. The fourth chart compares, convenience store sales with department store sales over the past nine years.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070319c.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070319d.jpg" width="353">

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Consumer Spending in Japan</th>
<th scope="col">Feb 07</th>
<th scope="col">Jan&nbsp; 07</th>
<th scope="col">Dec 06</th>
<th scope="col">2002 Bil Yen</th>
<th scope="col">2006 Bil Yen</th>
<th scope="col">2006 %</th>
<th scope="col">2005 %</th>
<th scope="col">2004 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Private HH Consumption ex rent</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>277,709</td>
<td>235,531</td>
<td>0.40</td>
<td>0.59</td>
<td>0.86</td>
</tr>
<tr>
<td class="firstcol">Retail Sales</td>
<td>n.a.</td>
<td>-0.89</td>
<td>-0.17</td>
<td>131,413</td>
<td>129,785</td>
<td>0.20</td>
<td>1.12</td>
<td>-0.60</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Scale Department Store Sales&nbsp;&nbsp;</td>
<td>n.a.</td>
<td>-0.74</td>
<td>-2.86</td>
<td>9,365</td>
<td>8,644</td>
<td>-1.36</td>
<td>-1.02</td>
<td>-2.78</td>
</tr>
<tr>
<td class="firstcol"> Supermarkets </td>
<td>n.a.</td>
<td>1.37</td>
<td>-0.63</td>
<td>12,653</td>
<td>12,504</td>
<td>-0.49</td>
<td>-1.38</td>
<td>-1.31</td>
</tr>
<tr class="odd">
<td class="firstcol">Department Stores Sales</td>
<td>1.15</td>
<td>-0.39</td>
<td>2.65</td>
<td>8,112</td>
<td>7,770</td>
<td>-0.91</td>
<td>-0.47</td>
<td>-2.87</td>
</tr>
<tr>
<td class="firstcol">Chain Store Sales</td>
<td>n.a.</td>
<td>-0.53</td>
<td>-1.99</td>
<td>14,370</td>
<td>14,022</td>
<td>-1.08</td>
<td>-0.54</td>
<td>-1.20</td>
</tr>
<tr class="odd">
<td class="firstcol">Convenience Store Sales</td>
<td>n.a.</td>
<td>1.68</td>
<td>2.20</td>
<td>6,980</td>
<td>7,399</td>
<td>0.54</td>
<td>0.97</td>
<td>2.72</td>
</tr>
</tbody>
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February department store sales in Japan, which are not seasonally adjusted, were 1.15% above those of February 2006, the highest year to year increase since last March. While the year to year increase is reassuring, it does not [...]

Japanese Department Store Sales And Total Consumer Spending

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070316e.jpg" width="353">
There are 86,400 seconds in a day: 24 hours x 60 minutes x 60 seconds. In February, according to the Oil Market Intelligence publication of industry consulting firm Energy Intelligence, the world consumed 87,069 million barrels of petroleum products, a new monthly record. That amount equals 1,007 barrels every second. Haver carries the daily average demand information in its OMI database, offered in partnership with Energy Intelligence. The idea for this time calculation is not ours, though. It comes from an investment consultant in the field, Peter Tertzakian, author of a book published last year titled, appropriately enough, &quot;A Thousand Barrels a Second&quot;.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070316c.jpg" width="353">
February&#39;s daily oil consumption for the total world was up 3.4 million barrels from January (4.1%), although February demand is frequently high, and this was just 1.5% above February 2006. A notable part of the increase came in the US, where demand was 21.6 million barrels daily, 5.4% more than a year ago. The US experience is clearly a spike and as with other economic data for the month -- jobs in the construction industry and retail sales, for examples -- was likely related to the swing to unusually cold weather, particularly compared with mild February weather last year.
Even with this February rise, the US share of world oil consumption is no higher than it has been running over the last couple of years: just under 25%. These data illustrate well what we&#39;ve heard more casually elsewhere: the significant growth in oil consumption is coming from developing regions of the world. For instance, in China, the last 12 months&#39; average has been 7.1 million barrels daily, 6.2% ahead of the 12 months ended February 2006.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070316f.jpg" width="353">
From the third graph, we can see that the US share of the world total over a longer period, since 2000, has actually declined. In dramatic contrast, the OMI grouping called &quot;developing countries&quot;* has gained share. From 26.4% in 2002, those countries expanded to 28.0% in 2006.
These graphs illustrate some upcoming innovations in Haver&#39;s DLXVG3 software. In the Chinese example, we were able to take a percent change in a moving average, utilizing a new &quot;nested function&quot; capability. In the market share graph, we were able to make two separate calculations involving three different series. Elsewhere this past week in several of Robert Brusca&#39;s articles, you have seen three or even four series on a single graph. These new features will be available to clients soon and we&#39;re very excited about them. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Daily Average Oil Demand: Thousand Barrels</th>
<th scope="col">Feb 2007</th>
<th scope="col">Jan 2007</th>
<th scope="col">Feb 2006</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total World</td>
<td>87,069</td>
<td>83,653</td>
<td>85,796</td>
<td>84,475</td>
<td>83,838</td>
<td>82,287</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.5</td>
<td>0.1</td>
<td>0.3</td>
<td>0.8</td>
<td>1.9</td>
<td>4.3</td>
</tr>
<tr class="odd">
<td class="firstcol">United States</td>
<td>21,632</td>
<td>20,618</td>
<td>20,518</td>
<td>20,768</td>
<td>20,799</td>
<td>20,731</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>7,276</td>
<td>7,222</td>
<td>7,107</td>
<td>7,074</td>
<td>6,675</td>
<td>6,367</td>
</tr>
<tr class="odd">
<td class="firstcol">Developing Countries*</td>
<td>24,135</td>
<td>23,804</td>
<td>23,675</td>
<td>23,760</td>
<td>23,160</td>
<td>22,251</td>
</tr>
</tbody>
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There are 86,400 seconds in a day: 24 hours x 60 minutes x 60 seconds. In February, according to the Oil Market Intelligence publication of industry consulting firm Energy Intelligence, the world consumed 87,069 million barrels of [...]

World Oil Consumption Reaches Record 87 Million Barrels/Day; Developing Country Share Expands

Robert Brusca

U.S. Industrial Production Increased 1.0 percent in February

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070315c.jpg" width="353">
Consumer prices in the Eurozone rose 1.8% in February from a year ago, the same as in January and 0.1% below December. In February 2006, the year-on-year change was 2.3%, boosted by strong energy gains.
In the most recent months, energy prices have slowed, as is well known. But a version of a &quot;core&quot; HICP has picked up. A year ago, when energy was running rampant, the index less energy and food/alcohol/tobacco was very slow at 1.2% year-on-year. Now, this core rate has picked up to 1.7% in January and 1.9% in February. Several sectors are participating: clothing prices in particular have stopped falling. While rising only about 1%, they have turned around from earlier outright declines. Household maintenance and repairs have gained, as well as home furnishings and housekeeping products. Health care costs are rising this year. There have been modest accelerations of education costs, hotels and restaurants and &quot;other&quot;. Communications prices are still falling, but much less than they had been.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070315d.jpg" width="353">
So while both the total HICP and this core measure are hovering below the ECB&#39;s comfort rate of 2%, the breadth of the price increases is opening up concern over inflation. Over the last 15 months, the ECB has raised its target rate seven times, most recently on March 8 to 3.75%. [This is the minimum bid rate for conducting refinancing operations at the Bank.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070315e.jpg" width="353">
Note that these price data cover series denoted in Haver&#39;s databases as &quot;EA11/12/13&quot;. This grouping includes the new members of the Monetary Union only as they join, not earlier. Prior to 2001, there were 11 members; Greece was added then and finally Slovenia just this year. The data are not &quot;break adjusted&quot;, as is an alternative series, which we call EA13 and which includes Greece and Slovenia since the beginning of these data in 1996. As seen in the accompanying graph, there is hardly any visible difference in the groupings. But there are small differences in individual periods: for instance, the &quot;headline rate&quot; for EA11/12/13 this month is 1.8%, but the comparable EA 13 figure is 1.9%. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">EA11/12/13 Yr/Yr % Changes</th>
<th scope="col">Feb 2007</th>
<th scope="col">Jan 2007</th>
<th scope="col">Dec 2006</th>
<th scope="col">Year Ago</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">HICP [MUICP]</td>
<td>1.8</td>
<td>1.8</td>
<td>1.9</td>
<td>2.3</td>
<td>1.9</td>
<td>2.2</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>0.8</td>
<td>0.9</td>
<td>2.9</td>
<td>12.6</td>
<td>2.9</td>
<td>11.3</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">Ex Energy,&nbsp; Food/- Alcohol/Tobacco</td>
<td>1.9</td>
<td>1.7</td>
<td>1.5</td>
<td>1.2</td>
<td>1.5</td>
<td>1.4</td>
<td>1.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: EA 13</td>
<td>1.9</td>
<td>1.8</td>
<td>1.9</td>
<td>2.4</td>
<td>1.9</td>
<td>2.2</td>
<td>2.4</td>
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Consumer prices in the Eurozone rose 1.8% in February from a year ago, the same as in January and 0.1% below December. In February 2006, the year-on-year change was 2.3%, boosted by strong energy gains. In the most recent months, [...]

February Eurozone HICP Holds at 1.8% Yr/Yr; Core Picks Up to 1.9% with Widespread Gains

U.S. PPI Surprise

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314d.jpg" width="353">
A notable catalyst for yesterday&#39;s stock market sell-off was the quarterly mortgage delinquency report from the Mortgage Bankers&#39; Association (MBA). It showed that 4.95% (seasonally adjusted) of all loans surveyed by MBA were past due on December 31, an increase from 4.67% in September and the highest since September 2002. The foreclosure process was started on 0.54% of all loans, 0.08% more than during the previous quarter and a record high rate for a single quarter; at the end of December, 1.19% of loans were in foreclosure, up from 1.05% at end-September and 0.99% at the end of 2005. These rates are calculated on a total base of more than 42 million mortgage loans.
The MBA gives data on several types of mortgages: conventional prime, conventional subprime, FHA and VA. Each of these is further broken down by fixed and adjustable rate. Haver maintains these series in its specialized database MBAMTG and individual series are available on HaverSelect. The database includes seasonally adjusted data for the country as a whole and the four Census regions as well as not seasonally adjusted data for those areas plus the nine Census divisions, the 50 States, District of Columbia and Puerto Rico.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314e.jpg" width="353">
Delinquencies worsened for all major loan types. Conventional prime loans, which constitute 76.6% of the total market, had loan payments over due 30 days or more increase from 2.52% to 2.79% of the loans in that segment. Conventional subprime delinquencies rose from 12.95% to 14.27%. &quot;Conventional&quot; loans are those not insured by the federal government, such as FHA or VA. Conventional loans may be insured by private mortgage insurance or not insured at all. &quot;Subprime&quot; loans are those granted to borrowers with risky credit ratings or with excessively generous lending terms, such as loan-to-value ratios (&quot;LTV&quot;) near 100%, whereas &quot;prime&quot; mortgages typically see LTVs below 80% and average or higher credit quality in the borrower.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314f.jpg" width="353">
Delinquencies on FHA-backed loans affected 14.43% of those loans and foreclosures were initiated on 0.96%. VA-insured loans had a delinquency rate of 7.43% and a foreclosure rate of 0.36%.
There are very large differences in delinquency experiences among the regions of the country. The Northeast had 4.58% of its loans past due in December, near the national average. But the Midwest and the South were both at about 5.7% and the West at 3.18%. So credit quality varies considerably around the nation. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mortgage Delinquencies (SA, %)</th>
<th scope="col">Q4 2006</th>
<th scope="col">Q3 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Loans Past Due</td>
<td>4.95</td>
<td>4.67</td>
<td>4.70</td>
<td>4.61</td>
<td>4.45</td>
<td>4.48</td>
<td>5.11</td>
</tr>
<tr>
<td class="firstcol">Foreclosures Started</td>
<td>0.54</td>
<td>0.46</td>
<td>0.42</td>
<td>1.86</td>
<td>1.63</td>
<td>1.73</td>
<td>1.80</td>
</tr>
<tr class="odd">
<td class="firstcol">Conventional Prime Loan Delinquencies</td>
<td>2.57</td>
<td>2.44</td>
<td>2.47</td>
<td>2.39</td>
<td>2.29</td>
<td>2.30</td>
<td>2.67</td>
</tr>
<tr>
<td class="firstcol">Conventional Subprime Loan Delinquencies</td>
<td>13.33</td>
<td>12.56</td>
<td>11.63</td>
<td>12.27</td>
<td>10.84</td>
<td>10.80</td>
<td>14.04</td>
</tr>
</tbody>
</table>
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A notable catalyst for yesterday's stock market sell-off was the quarterly mortgage delinquency report from the Mortgage Bankers' Association (MBA). It showed that 4.95% (seasonally adjusted) of all loans surveyed by MBA were past due [...]

Major Increase in Mortgage Delinquencies in Q4; Rate of Foreclosures Started Hits a Quarterly Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314c.jpg" width="353">
Ex-petroleum import prices fell by 0.1% in February. Good news for core inflation trends. The 1Yr, 6-Mo, 3-mo progression of annualized inflation pressures also show that there is no pressure building. Yr/Yr non-petroleum import prices are up by 2.1%; looking over 3-mos annualized the gain is just 1.1%. Tame. Nonagricultural export prices show a bit more lift than that, partly aided by pressure from industrial supplies and materials, an export category that does contain some oil. 
Looking more directly at prices that feed into consumer prices (look at the import figures), we see a bit of lift for consumer prices excluding vehicles and for foods and beverages. Vehicle import prices are under wraps. For the most part it does not look like there is an inflation impulse leaking in for the international sector. 
The chart on the left shows some key consumer goods price relationships. We plot import prices for vehicles and for consumer goods excluding vehicles Vs the CPI core for goods and the PPI consumer goods core. The PPI tends to show the highest gains; this index measures price for core consumer goods produced in the US. The Core CPI for goods consists of these products taken to the next level of distribution, adding consumer goods imports. That results in a core goods CPI index that has showed lower inflation than most other indexes since about August 2002. Nonvehicle consumer prices were, at one time, the slowest inflators on the block, but that changed in August of 2002. While the two international indexes do not show much in the way of inflation it is also true that vehicle imports and nonvehicle consumer goods imports sport higher inflation rates that the core CPI by itself and have been so for about one year . And the consumer core of the PPI is &#145;ramping up&#146; albeit none of these yr/yr gains exceeds even 2% y/y yet. If it&#146;s inflation in the making, it is still quite mild. The trends maybe less than reassuring but the degree of inflation that is in train remains quite MILD.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Export and Import Price Trends
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td colspan="3"> Imports</td>
<td></td>
<td colspan="3"> Exports</td>
</tr>
<tr class="odd">
<td class="firstcol"> SAAR</td>
<td> All</td>
<td> Petrol</td>
<td> Excl Petrol</td>
<td> SAAR</td>
<td> All</td>
<td> Agric</td>
<td> NonAgric</td>
</tr>
<tr>
<td class="firstcol"> 3-MO</td>
<td>1.8%</td>
<td>-11.2%</td>
<td>1.1%</td>
<td> 3-MO</td>
<td>7.0%</td>
<td>22.9%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"> 6-MO</td>
<td>-7.4%</td>
<td>-38.8%</td>
<td>1.5%</td>
<td> 6-MO</td>
<td>2.9%</td>
<td>22.3%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol"> Yr/Yr</td>
<td>1.3%</td>
<td>-5.5%</td>
<td>2.1%</td>
<td> Yr/Yr</td>
<td>4.7%</td>
<td>16.9%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"> 2-Yrs</td>
<td>4.1%</td>
<td>18.0%</td>
<td>1.9%</td>
<td> 2-Yrs</td>
<td>3.7%</td>
<td>10.6%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol"> MO/MO</td>
<td>0.2%</td>
<td>2.0%</td>
<td>-0.1%</td>
<td> MO/MO</td>
<td>0.7%</td>
<td>2.3%</td>
<td>0.6%</td>
</tr>
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<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
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Ex-petroleum import prices fell by 0.1% in February. Good news for core inflation trends. The 1Yr, 6-Mo, 3-mo progression of annualized inflation pressures also show that there is no pressure building. Yr/Yr non-petroleum import [...]

US Export and Import Prices Show Their Soft Side

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<td><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314b.jpg" width="353">The US current account deficit is one of the most intriguing phenomena about the US economy. To understand the account is both very simple and extremely complicated. It is therefore easy to think you know nothing about it or everything at the same time! &nbsp; The 2006Q4 current account deficit shrank sharply to $195.8bln from $229.4bln in Q3. It also shrank compared to its $223.1bln level in 2005-Q4. And a shrinkage in the deficit over four quarters ago is unusual. (see chart on the left).&nbsp; Such improvement generally was induced by recession (1990, 2001, 1981,198) but also can be occasioned by significant slowdowns (1995) and the sharp dollar depreciation from its pre-Plaza Accord peak was behind the persisting improvement in the late 1980s ahead of the onset of recession. The current account is simple to understand because it is the just the difference between the value of the goods services we sell Vs the ones we buy plus a few transfer items. The US has a small positive and essentially stable balance on its services account. The trade account is the problem. Its deficit is large and persistently growing larger (see chart below on the right).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314a.jpg" width="353"> That&#146;s the part of the current account that is easy. Now comes the hard part&#133;understanding WHY&#133;The &#145;why&#146; it is difficult because some of the concepts are esoteric and also because there are different identities that describe the deficit circumstance and they have seemingly different root causes.&nbsp; Let me explain.One identity is that (at least conceptually) the world current account deficits across countries must balance. So if the US has a deficit at least one other country has a surplus. And, conceptually, in a world of no lags and the same accounting principles the US deficit would be the same size as the surplus for the rest of the world in total. Another is that the US current account surplus must be funded by net capital inflows of the same magnitude &#150; this is the double entry accounting that accompanies the US balance of payments. &nbsp;The current account plus the capital flows that fund it are what the term &#145;balance of payments&#146; refers to. The US has a current account deficit and an equal and opposite capital account surplus.&nbsp; &nbsp;That&#146;s a bit more complicated framework, but still not impossible. Here is where the immovable object meets the unstoppable force:&nbsp; Economists argue about where the forces come from that drive the deficit. We ask, do the forces stem mostly from the current account itself or from the capital account? Does one push the other into deficit or the other push the one into surplus?&nbsp; Is it the current account the active mover, as profligate US consumers are overspending, or is it that miserly foreign consumer/savers under-spend and over save?&nbsp; Or do the main forces work though the capital account because the US is too dependent on foreign capital or is it the opposite, that foreign investors are too addicted to US investments?&nbsp;Here are the questions.(1) Is it US credit demand that is so huge that is draws in international capital keeping the dollar strong, hurting US competitiveness and ballooning the current account deficit as a result?(2) Is it US demand for goods that is so strong we simply consume too much and live beyond our means leading to a huge current account deficit?(3) Is it that foreign economies consume too little and do not buy enough in general and from the US in particular helping to balloon the US deficit? The flip side of low consumption is the high savings rate. Do foreigners simply save too much (Bernanke&#146;s saving glut argument)?(4) Is the demand by foreigners for US investments so high that they push capital into the US and keep the dollar from falling so that US competitiveness is undermined and the current account deficit balloons?That&#146;s quite a list.&nbsp; AND you may notice that the various arguments draw the dollar in as well.We will not solve these issues today. In any event we know that the deficit is a combination of the above points. We also know that not having a mechanism to create currency adjustment, as there was under Bretton Woods, means that deficits may not be self correcting in any timely way. Notice that despite the US deficit contraction in Q4 2006 compared to Q4 2005 the average for the year is still worsening; that is the deficit for all of 2006 was for a quarterly average of $214.2bln compared to $197.9bln in 2005. This is a full year deficit of $856.8bln for 2006 &#150; over three quarters of a trillion dollars IN ONE YEAR in case you are counting.And if 2007 worsens as much as 2006 did our deficit will top $1trln per year in 2007. How much is one trillion? Well suppose you were to try to &#145;sing the deficit down to zero&#146; and did so singing the tune &#145;100 bottles of beer on the wall&#146;, using the lyric &#145;1trln dollars of deficit today,1trln dollars today, take one down what have you got? 999,999,999,999 dollars of deficit today&#146;. Now assume you can sing that in 10 seconds &#150;each verse. That&#146;s 10 trillion seconds of singing. It would take you more than 300 years to get the current account into balance. If George Washington had started singing that song, and were he blessed with extraordinary long life, he would still being singing today...and going strong with his work still cut out for him. .&nbsp;Slower US growth especially on the back of reduced inventory demand helped to contain imports in 2006; that was aided by lower oil prices as well by year end. Stronger foreign growth played a role as US exports expanded briskly at a 14.5% pace against the weak nominal import gain of 4.5%. Looking ahead to 2007 the fate of the dollar is still a matter of speculation. US growth should pick up from its weak Q4 pace. Inventories should rebuild, thereby boosting imports. Overseas growth is expected to be &#145;about the same to a bit stronger&#146;. The real question is whether US exports can keep up the good work in 2007, or was 2006 some flash in the pan of good news? Imports will rise faster in 2007 than in 2006. That could make it impossible to make trade deficit reduction a reality in 2007 either.</td>
</tr>
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<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
 US Current Account
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> Balances:</td>
<td> Q4-06</td>
<td> Q3-06</td>
<td> Q2-06</td>
<td> 4Qtr-Avg</td>
<td> Prev4Qtr</td>
</tr>
<tr class="odd">
<td class="firstcol"> Current Account</td>
<td>-195.8</td>
<td>-229.4</td>
<td>-217.7</td>
<td>-214.2</td>
<td>-197.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade</td>
<td>-197.9</td>
<td>-218.9</td>
<td>-210.9</td>
<td>-209.0</td>
<td>-195.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>22.4</td>
<td>12.0</td>
<td>15.0</td>
<td>15.9</td>
<td>19.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Transfers</td>
<td>-20.2</td>
<td>-22.5</td>
<td>-21.9</td>
<td>-21.0</td>
<td>-21.5</td>
</tr>
<tr>
<td class="firstcol"> Growth Rates</td>
<td colspan="3"> Quarterly SAAR</td>
<td colspan="2">4-Qtr % for Yr Ended:</td>
</tr>
<tr>
<td class="firstcol">Merchandise</td>
<td> Q4-06</td>
<td> Q3-06</td>
<td> Q2-06</td>
<td> Q4-06</td>
<td> Q4-06</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>8.4%</td>
<td>15.5%</td>
<td>14.4%</td>
<td>14.5%</td>
<td>11.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>-12.4%</td>
<td>15.7%</td>
<td>10.1%</td>
<td>4.3%</td>
<td>13.9%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td> Q4-06</td>
<td> Q3-06</td>
<td> Q2-06</td>
<td> Q4-06</td>
<td> Q4-06</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>12.9%</td>
<td>3.0%</td>
<td>13.4%</td>
<td>8.7%</td>
<td>8.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>6.3%</td>
<td>2.5%</td>
<td>12.7%</td>
<td>8.6%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"> memo: ($-Blns)</td>
<td> Q4-06</td>
<td> Q3-06</td>
<td> Q2-06</td>
<td> 4Qtr-Avg</td>
<td> Prev4Qtr</td>
</tr>
<tr class="odd">
<td class="firstcol">Offical Gov&#39;t Securities Purchased</td>
<td>78.0</td>
<td>78.0</td>
<td>21.6</td>
<td>60.9</td>
<td>39.1</td>
</tr>
</tbody>
</table>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314c.jpg" width="353">
Ex-petroleum import prices fell by 0.1% in February. Good news for core inflation trends. The 1Yr, 6-Mo, 3-mo progression of annualized inflation pressures also show that there is no pressure building. Yr/Yr non-petroleum import prices are up by 2.1%; looking over 3-mos annualized the gain is just 1.1%. Tame. Nonagricultural export prices show a bit more lift than that, partly aided by pressure from industrial supplies and materials, an export category that does contain some oil. 
Looking more directly at prices that feed into consumer prices (look at the import figures), we see a bit of lift for consumer prices excluding vehicles and for foods and beverages. Vehicle import prices are under wraps. For the most part it does not look like there is an inflation impulse leaking in for the international sector. 
The chart on the left shows some key consumer goods price relationships. We plot import prices for vehicles and for consumer goods excluding vehicles Vs the CPI core for goods and the PPI consumer goods core. The PPI tends to show the highest gains; this index measures price for core consumer goods produced in the US. The Core CPI for goods consists of these products taken to the next level of distribution, adding consumer goods imports. That results in a core goods CPI index that has showed lower inflation than most other indexes since about August 2002. Nonvehicle consumer prices were, at one time, the slowest inflators on the block, but that changed in August of 2002. While the two international indexes do not show much in the way of inflation it is also true that vehicle imports and nonvehicle consumer goods imports sport higher inflation rates that the core CPI by itself and have been so for about one year . And the consumer core of the PPI is &#145;ramping up&#146; albeit none of these yr/yr gains exceeds even 2% y/y yet. If it&#146;s inflation in the making, it is still quite mild. The trends maybe less than reassuring but the degree of inflation that is in train remains quite MILD.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Export and Import Price Trends
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td colspan="3"> Imports</td>
<td></td>
<td colspan="3"> Exports</td>
</tr>
<tr class="odd">
<td class="firstcol"> SAAR</td>
<td> All</td>
<td> Petrol</td>
<td> Excl Petrol</td>
<td> SAAR</td>
<td> All</td>
<td> Agric</td>
<td> NonAgric</td>
</tr>
<tr>
<td class="firstcol"> 3-MO</td>
<td>1.8%</td>
<td>-11.2%</td>
<td>1.1%</td>
<td> 3-MO</td>
<td>7.0%</td>
<td>22.9%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"> 6-MO</td>
<td>-7.4%</td>
<td>-38.8%</td>
<td>1.5%</td>
<td> 6-MO</td>
<td>2.9%</td>
<td>22.3%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol"> Yr/Yr</td>
<td>1.3%</td>
<td>-5.5%</td>
<td>2.1%</td>
<td> Yr/Yr</td>
<td>4.7%</td>
<td>16.9%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"> 2-Yrs</td>
<td>4.1%</td>
<td>18.0%</td>
<td>1.9%</td>
<td> 2-Yrs</td>
<td>3.7%</td>
<td>10.6%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol"> MO/MO</td>
<td>0.2%</td>
<td>2.0%</td>
<td>-0.1%</td>
<td> MO/MO</td>
<td>0.7%</td>
<td>2.3%</td>
<td>0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">

</table>
US Export and Import Prices Show Their Soft Side 
by <a href="/comment/Brusca.html">Robert A. Brusca</a> March 14, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314d.jpg" width="353">
A notable catalyst for yesterday&#39;s stock market sell-off was the quarterly mortgage delinquency report from the Mortgage Bankers&#39; Association (MBA). It showed that 4.95% (seasonally adjusted) of all loans surveyed by MBA were past due on December 31, an increase from 4.67% in September and the highest since September 2002. The foreclosure process was started on 0.54% of all loans, 0.08% more than during the previous quarter and a record high rate for a single quarter; at the end of December, 1.19% of loans were in foreclosure, up from 1.05% at end-September and 0.99% at the end of 2005. These rates are calculated on a total base of more than 42 million mortgage loans.
The MBA gives data on several types of mortgages: conventional prime, conventional subprime, FHA and VA. Each of these is further broken down by fixed and adjustable rate. Haver maintains these series in its specialized database MBAMTG and individual series are available on HaverSelect. The database includes seasonally adjusted data for the country as a whole and the four Census regions as well as not seasonally adjusted data for those areas plus the nine Census divisions, the 50 States, District of Columbia and Puerto Rico.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314e.jpg" width="353">
Delinquencies worsened for all major loan types. Conventional prime loans, which constitute 76.6% of the total market, had loan payments over due 30 days or more increase from 2.52% to 2.79% of the loans in that segment. Conventional subprime delinquencies rose from 12.95% to 14.27%. &quot;Conventional&quot; loans are those not insured by the federal government, such as FHA or VA. Conventional loans may be insured by private mortgage insurance or not insured at all. &quot;Subprime&quot; loans are those granted to borrowers with risky credit ratings or with excessively generous lending terms, such as loan-to-value ratios (&quot;LTV&quot;) near 100%, whereas &quot;prime&quot; mortgages typically see LTVs below 80% and average or higher credit quality in the borrower.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070314f.jpg" width="353">
Delinquencies on FHA-backed loans affected 14.43% of those loans and foreclosures were initiated on 0.96%. VA-insured loans had a delinquency rate of 7.43% and a foreclosure rate of 0.36%.
There are very large differences in delinquency experiences among the regions of the country. The Northeast had 4.58% of its loans past due in December, near the national average. But the Midwest and the South were both at about 5.7% and the West at 3.18%. So credit quality varies considerably around the nation. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mortgage Delinquencies (SA, %)</th>
<th scope="col">Q4 2006</th>
<th scope="col">Q3 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Loans Past Due</td>
<td>4.95</td>
<td>4.67</td>
<td>4.70</td>
<td>4.61</td>
<td>4.45</td>
<td>4.48</td>
<td>5.11</td>
</tr>
<tr>
<td class="firstcol">Foreclosures Started</td>
<td>0.54</td>
<td>0.46</td>
<td>0.42</td>
<td>1.86</td>
<td>1.63</td>
<td>1.73</td>
<td>1.80</td>
</tr>
<tr class="odd">
<td class="firstcol">Conventional Prime Loan Delinquencies</td>
<td>2.57</td>
<td>2.44</td>
<td>2.47</td>
<td>2.39</td>
<td>2.29</td>
<td>2.30</td>
<td>2.67</td>
</tr>
<tr>
<td class="firstcol">Conventional Subprime Loan Delinquencies</td>
<td>13.33</td>
<td>12.56</td>
<td>11.63</td>
<td>12.27</td>
<td>10.84</td>
<td>10.80</td>
<td>14.04</td>
</tr>
</tbody>
</table>
</body>
</html>

U.S. Current Account Deficit Shrinks

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

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

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260206E.jpg

With the December report, Germany’s production and some of the early European industrial production data reveal a good deal of chaos in terms of the embedded trends. On the month, German industrial production fell by 1.9%, with consumer goods output up by 0.5%, capital goods output falling by 5.3%, and intermediate goods output falling by 1.2%. Among the early reporters in the monetary union—France, Spain, and Portugal—only Spain showed an increase in manufacturing IP in December; however, Spanish industrial production is notoriously volatile.

**Broader IP trends in Germany and elsewhere in Europe**
As for other early industrial production reporters, both Sweden and Norway showed strong-to-solid gains in December and each of them showed two-months of gains in a row. Beyond that, sequential growth rates from 12-months to six-months to three-months show accelerating growth in German consumer goods output against decelerating growth for intermediate goods. Real manufacturing output and real sales show mixed results- no clear trends; however, real manufacturing orders in Germany are off the map strong. 

**German manufacturing/industrial Surveys**
German industrial surveys from the IFO for manufacturing shows persistent weakening as well as for IFO manufacturing expectations, and in the EU Commission industrial index in the last three months. More broadly, Germany shows some modest but ongoing step up all of these based on average levels from 12-months to six-months to three-months for IFO expectations and the EU Commission industrial readings with mixed results for other survey readings.

**IP trends in Europe**
For the early reporting EMU members France, Spain, and Portugal, who report industrial production trends, each show mixed monthly trends against ongoing decelerations for manufacturing output over the broader sequential periods (12-month, to 6-month, to 3-month). However, for other Europe, Sweden and Norway, manufacturing trends are steadily accelerating on this broader timeline.

**A feeling of ‘Deja- What?’**
These combinations of opposed trends mixed with a lack of trends leave us with this sense of confusion about what's going on in manufacturing. For Germany, the extreme strength in orders is reassuring since orders should be forward-looking rather than backward-looking or even contemporaneous. But orders can also be a fickle series and so we'll have to watch it to see if the trends for German orders hold up.

**Current quarter-What’s been happening now**
In addition, current quarter growth for Germany actually looks quite good with industrial production up 3.7% at an annual rate in the current quarter, led by output increases in manufacturing against a decline in the intermediate goods output. Real orders in the quarter are surging at a 44% growth rate, while real sales in manufacturing only had a 0.1% uptick at an annual rate. The industrial indicators for Germany in the quarter show weakness or flatness with the only exception being IFO manufacturing expectations that advanced by a small amount. The three EMU members who report industrial production data show positive growth in the just-completed quarter except for Portugal where industrial production is falling at a 2.9% rate in the fourth quarter. Sweden and Norway, European countries but not monetary union members, show a strong 22% annual rate gain in Sweden against the 3% annual rate decline in Norway.

260206.jpg

**Rankings**
**How growth rates stack up…**
Moving away from short-term trends, the rankings of growth rates of these various metrics using 12-month growth rates on data back to 2006, show below-median growth rates for German industrial production and all three of its major sectors. All of them have rankings below the 50% mark where the median resides. Germany’s manufacturing output growth rate is below its median as is the growth of real sales; and once again real manufacturing orders break out and show a stunning 90th percentile standing, extremely strong compared to other growth rates on this period.

**Indicator rankings are poor**
However, the survey based industrial indicators for Germany, ranked based on their index levels, are all extremely weak and much weaker than German sector or other German metrics. The strongest indicator reading is the 29th percentile standing for IFO manufacturing expectations while the current ZEW index, IFO manufacturing index, and the EU Commission industrial readings, all reside below their 15th percentile. The survey rankings suggest that industrial sentiment is in much worse shape than activity and growth.

**IP elsewhere in Europe**
However, the growth ranking of manufacturing industrial production for the reporting EMU members and other European members are all quite solid, with percentile standings ranging from the 66th up to the 93rd percentile.

**Summing up**
From these data, Germany emerges as the weak economy compared with historic norms based on industrial production growth and indicator readings. However, there's a glimpse of positivity from the growth of real orders, and at the same time, some concern about ongoing sentiment for manufacturing in Germany as distinct from actual performance.

Germany

German IP Reveals Chaotic Trends

Andrew Cates

**The Global Monetary Policy Consensus**
The latest Blue Chip Financial Forecasts survey points to a notably more balanced global monetary policy outlook over the coming year. In contrast to the pronounced easing bias that dominated much of the past two years, expectations are now more symmetric, with a similar number of central banks projected to raise rates as to ease policy. Japan is seen delivering further tightening, while Canada is expected to initiate an interest rate hike in coming months. In Australia’s case, this tightening guidance was reinforced this week, with the Reserve Bank lifting its policy rate by 25 basis points. Elsewhere, and in contrast, the euro area, UK and US are expected to move in the opposite direction.

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**US manufacturing activity**
The second chart underscores the recent improvement in US economic momentum, highlighted by an unexpected surge in the January ISM manufacturing PMI. After spending much of the past year hovering below the 50 threshold consistent with stagnation, the index jumped sharply back into expansionary territory, signalling a renewed pickup in industrial activity. This rebound has coincided with a broader run of stronger-than-anticipated US economic data, as reflected in the upswing in the Citigroup Economic Surprise Index. Together, these developments point to a US economy that continues to display notable resilience, complicating expectations of monetary easing in the near term.

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**US Bank Lending Standards and Financial Stress** 
The next chart turns to US financial conditions, highlighting the latest readings from the Senior Loan Officer Opinion Survey. The net proportion of banks tightening lending standards on corporate loans and mortgages is now more modest by historical standards, and well below the extremes seen during past episodes of financial stress. Some easing in credit headwinds has occurred alongside relatively subdued readings on the OFR Financial Stress Index, which continues to hover below its long-run average. Together, these indicators suggest that the US financial system has continued to avoid the kind of acute stress typically associated with sharp slowdowns in credit availability—helping to underpin the recent resilience in economic activity.

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**Semiconductor Sales**
The fourth chart highlights the renewed surge in global semiconductor sales, with momentum strengthening sharply over recent months across the Americas, China and the broader Asia-Pacific region. After the cyclical downturn in 2022–23, sales have rebounded to fresh highs, reflecting a powerful revival in demand for advanced chips and related technologies. This upswing has taken place amid intense investor preoccupation with artificial intelligence, with expectations that AI adoption will drive a sustained wave of capital spending on data centres, cloud infrastructure and high-performance computing. In contrast, semiconductor sales in Europe remain comparatively subdued, reflecting the region’s smaller footprint in high-end chip manufacturing, weaker industrial demand, and the ongoing impact of slower economic growth. While semiconductors are inherently cyclical, markets have increasingly interpreted the current rebound elsewhere as structural rather than purely cyclical—underpinned by the belief that AI represents a transformative and durable source of demand growth.

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**Large-Scale AI Models**
The next chart illustrates the rapid proliferation of large-scale AI models globally, with newly updated data for 2025 pointing to a further sharp acceleration in development activity. The United States continues to lead by a wide margin, while China has also seen a steep rise in model deployment in recent years, underscoring the intensifying technological competition between the two economies. Growth in the UK and other regions has been more modest by comparison, highlighting the increasingly concentrated nature of AI innovation. Taken together with the surge in semiconductor sales, these trends help explain the market’s strong preoccupation with AI as a potential driver of future productivity and investment cycles—although the geographic concentration of activity also raises questions about the uneven distribution of any resulting economic gains.

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**An AI Bubble?** 
The final chart draws on the latest Blue Chip Financial Forecasts special questions, highlighting market participants’ perceptions of the economic gains likely to be delivered by artificial intelligence. While a sizeable share of respondents still believe that financial markets may be overestimating AI’s potential benefits, an increasing proportion now judge current expectations to be broadly accurate, with only a small minority viewing the gains as underestimated. Notably, this represents a softening in scepticism compared with the survey results from last month, when concerns about excessive market optimism were more pronounced. The shift suggests a growing acceptance that AI-related investment and innovation could translate into meaningful economic impacts—though uncertainty remains high around the scale, timing and distribution of these gains.

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Financial markets have experienced renewed gyrations in recent weeks, as shifting geopolitical risks, questions around Federal Reserve independence, renewed talk of US dollar “debasement,” and ongoing enthusiasm surrounding artificial intelligence have combined to drive volatility across asset classes. These cross-currents have also contributed to a degree of rotation away from high-flying technology stocks, as investors reassess valuations and the timing of anticipated AI-driven gains. Against this backdrop, the charts in this week’s COTW highlight several important themes. Policy rate expectations now appear more balanced globally, marking a clear shift away from the one-sided easing bias of the past two years (chart 1), even as resilient US data—underscored by the unexpected jump in the January ISM index and a run of positive economic surprises—continues to complicate the outlook for monetary easing (chart 2). At the same time, US financial conditions remain relatively benign, with limited evidence of widespread credit stress or aggressive tightening in lending standards (chart 3). Meanwhile, the sharp rebound in semiconductor sales and the accelerating rollout of large-scale AI models underscore why investors remain so focused on the AI narrative, even as Europe lags behind due to weaker industrial momentum and a smaller footprint in advanced chip production (charts 4 and 5). Finally, while some scepticism about AI’s ultimate economic impact persists, the latest survey results suggest a moderation in concerns that markets are materially overestimating its gains (chart 6). Taken together, these developments paint a picture of a US economy that remains more resilient than many had anticipated, set against a financial landscape increasingly shaped by powerful—if sometimes competing—narratives around geopolitics, policy, and technological transformation.

Charts of the Week: Balanced Policy, Resilient Data and AI Narratives

Winnie Tapasanun

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**Total job openings** fell 5.6% m/m (-12.9% y/y) to 6.542 million in December after a downwardly revised 7.0% decline to 6.928 million in November (previously -4.1% m/m; 7.146 million), according to the Job Openings and Labor Turnover Survey. December marked the third consecutive m/m fall and the lowest level since September 2020. The job openings rate declined to 3.9% in December, the lowest since April 2020, from 4.2% in November, remaining below a record-high 7.4% in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings. Significantly, the drop in job openings also lowered the **ratio of job openings to unemployed individuals** to 0.872 in December—the lowest since March 2021—from 0.890 in November, down from 1.085 in December 2024 and a pre-pandemic 1.211 in February 2020. A reading of 0.872 implies there were about 0.87 open jobs per unemployed person—indicating fewer openings than unemployed workers. December was the fifth time in six months that this ratio remained below 1.0.

**Private sector job openings** fell 6.8% (-12.5% y/y) to 5.804 million in December after a 6.6% fall to 6.227 million in November, registering the third successive m/m decline and the lowest level since September 2020. The private sector job openings rate fell to 4.1% in December, the lowest since April 2020, from 4.4% in November. The December m/m decline in private sector openings reflected drops of 27.7% (-36.9% y/y) in financial activities, 20.2% (-25.5% y/y) in professional & business services, 14.4% (-5.1% y/y) in trade, transportation & utilities, and 5.2% (-12.4% y/y) in private educational & health services. To the upside, private sector openings in the following categories rose m/m in December: other services (21.1%; 11.0% y/y), mining & lodging (17.6%; 0.0% y/y), information (13.5%; -4.7% y/y), manufacturing (8.5%; 0.5% y/y), leisure & hospitality (7.5%; -17.2% y/y), and construction (2.8%; 42.4% y/y). Meanwhile, government job openings rose 5.3% (-15.6% y/y) in December, the first m/m rise in three months, after a 10.6% drop in November.

**Total hiring** rebounded 3.4% (-1.5% y/y) to 5.293 million in December, the first m/m increase since September, following a 4.6% decrease to 5.121 million in November. The hiring rate edged up to 3.3% in December from 3.2% in November, though it remained below pre-pandemic levels. **Private sector hiring** rose 3.1% (-0.4% y/y) to 4.978 million in December, the third m/m rise in four months, after a 4.0% decline to 4.826 million in November. The private sector hiring rate rose to 3.7% in December from 3.5% in November, the same as in October and September. The December m/m increase in private sector hiring was led by a 32.1% jump (42.3% y/y) in information, followed by gains of 24.0% (-4.6% y/y) in financial activities, 23.5% (0.0% y/y) in mining & lodging, 6.5% (-4.8% y/y) in private educational & health services, 4.2% (-4.9% y/y) in trade, transportation & utilities, 3.6% (6.1% y/y) in construction, 3.4% (7.9% y/y) in leisure & hospitality, and 1.8% (-4.3% y/y) in manufacturing. To the downside, private sector hiring in professional & business services (-5.2%; +0.5% y/y) and other services (-4.3%; -16.5% y/y) declined m/m in December. Meanwhile, government hiring rebounded 6.4% (-16.3% y/y) in December, the first m/m rise since September, following a 13.5% drop in November.

**Total separations** rose 2.1% (3.3% y/y) to 5.251 million in December after a 1.5% rise to 5.144 million in November, marking the third m/m increase in four months and the highest level since September. The total separations rate edged up to 3.3% after holding at 3.2% in November and October. Private sector separations rose 1.6% (4.2% y/y) to 4.932 million in December, the highest level since June, while government sector separations jumped 10.4% (-9.1% y/y) to 319,000 following two consecutive m/m declines. **Total quits** (voluntary separations initiated by the employee) increased 0.3% (3.5% y/y) to 3.204 million in December, the third m/m rise in four months and the highest level since June, after a 7.4% rebound in November. The quits rate (a measure of workers’ willingness or ability to leave jobs) held at 2.0% in December and November, slightly below 2.3% in February 2020. Private sector quits eased 0.2% (+4.5% y/y) following an 8.4% November rebound. **Layoffs and discharges** (involuntary separations initiated by the employer) increased 3.6% (5.6% y/y) to 1.762 million in December, up for the third time in four months, after an 8.1% drop in November. The layoffs & discharges rate remained at 1.1% in December and November, marginally below 1.3% in February 2020. Private sector layoffs grew 4.3% (7.8% y/y) following a 7.3% November decrease.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

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- Job openings down 5.6% (-12.9% y/y) to 6.542 mil., third straight m/m decline.
- Hiring up 3.4% (-1.5% y/y) to 5.293 mil., first m/m increase since September.
- Separations rise to a three-month high; quits reach a six-month high; layoffs rebound.

U.S. JOLTS: Openings Drop to Lowest Level Since Sept. ’20; Hiring Rebounds in December

Sandy Batten

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Initial claims for unemployment insurance jumped 22,000 to 231,000 in the week ended January 31 following an unrevised 209,000 in the prior week. The four-week average rose to 212,250 from 206,250. The Action Economics Forecast Survey looked for 213,000 claims to have been filed. Winter Storm Fern and the accompanying very cold temperatures could have provided a temporary boost. Historically speaking, claims remain at low levels.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 25,000 to 1.844 million in the week ending January 24, from a downwardly revised 1.819 million in the prior week (previously 1.827 million). The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous eight weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), and Texas (1.09%). 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 jumped 22,000 to 231,000, the highest level since December 6.
- Continuing claims rose to 1.844 million from 1.819 million.

U.S. Initial Unemployment Claims Surged in Latest Week

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German real orders in December adjusted for inflation rose strongly again, gaining 7.8% month-to-month after rising 5.7% month-to-month in November. Foreign orders were up by 5.6% in December compared to 5.2% in November. Domestic orders surged by 10.7% in December after rising 6.4% in November and 10% in October.

**Real sales**
Real sales were mixed in December with overall sales falling 1.4% month-to-month mostly on weakness in capital goods sales.

**Broad categorical acceleration**
Many flows are accelerating this month. Sequential growth rates show acceleration. Total real orders accelerate from a year ago, to the current year, to six-months, and to three-months. Sales growth rates for consumer goods, consumer nondurables, and intermediate goods all show accelerations in gear. The exceptions are foreign orders that are not as strong over six months compared to their 12-month growth. And on the sales side, consumer durables sales and capital goods sales are weak.

**Quarter-to-quarter**
Quarterly annualized growth is complete for Q4 with this report. Foreign orders are the ‘weak flow’ expanding at a 13.6% annual rate – certainly not a weak growth rate. But domestic real orders are up at an astounding 101.9% annual rate. The net impact on the total real orders growth is to lift it to a pace of 44.1%. 

**Order ranking is very strong**
The table provides two rankings: one based on the level of variables and the other based on its year-on-year growth. The rankings this month for real orders overall, foreign, and domestic orders all reside in their top 80th to 90th percentiles- extremely strong based on level or growth. Sales do not follow suit. This gives us some reason to suspect that there is some lumpiness involved in the manufacturing data as distinct from strength. That will be something to watch. Overall mining and manufacturing sales growth is essentially at its historic median at a rank of 49.8. However, capital goods, intermediate goods and manufacturing sales all have rankings at or above their medians - as high as a 61-percentile standing for capital goods.

**Industrial confidence**
Industrial confidence for Germany, France, Italy and Spain (the EU’s big-four economies) show rankings based on these survey levels that are much lower at the 11th percentile for Germany, the 42nd and 36th percentiles, for France and Italy, respectively. Spain scores better with a 61.8 percentile standing on its industrial confidence measure. 

On balance, there is now an accelerating profile that is broad in sales trends and especially strong order trends. Perhaps Europe, under the pressure to stimulate its miliary capabilities, has a core of demand to help drive output ahead more consistently. This is something to watch in the coming months.

Economy in Brief: 2007

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