Robert Brusca

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The EMU services sector turned weaker in January but stayed above 50 signaling continued, if slower, growth. The EMU-wide service sector reading was last lower in January 2015. Even so, the various averages show that the overall EMU gauge has been steady over all these horizons of three-month, six-month and 12-month at level of 54.0. The slip to 53.6 in January is a relatively sharp pullback but not severe.

Three of four of the largest EMU members showed service sector pullbacks in January. France was the exception with its services sector pulling up out of the contraction zone to edge up over 50, at 50.3. The overall euro area index fell by 0.6 points, the German index fell by one full point, Italy fell by an outsized 1.7 points, and Spain's index fell by 0.5 points.

France had fallen for two months in a row before rising in January. Spain now has fallen for two months running. And the overall EMU gauge is lower for two months running.

The EMU services gauge stands in the 70th percentile of its historic queue, implying that it has been higher 30% of the time. The German index with the highest raw reading among this group of EMU members has a 75th percentile standing. Italy, despite its lower raw score, has been higher less than 7% of the time. Spain stands in its 67th percentile. Except for Italy, this is a collection of very modest standings. The standings are at their medians when they are at their respective 50th percentiles. Standings around the 70th percentile are substantially up from their medians and should be regarded as relatively solid readings. But they are not strong readings either. The Italian case is interesting since it has a 93.8 percentile standing when its raw index is only at a reading of 53.6. Obviously, the message is that the Italian services sector does not post such high scores for services, but its relative performance is still quite good by historic standards.

The U.K., an EU member, is not in the common currency mechanism. Its services sector strengthened to 55.6 in January after falling in December. Its sequential moving averages have been without clear trend. But its three-month average advanced on its six-month average. Still, its January level is below its 12-month average. That is true also for the EMU, France, and Spain. The U.K. services metric stands only in the 52nd percentile of its historic queue of values, just a bit above its historic median. The U.K. services sector is decidedly moderate by comparison with the EMU average and the large four EMU members taken individually.

Today the National Institute of Economic and Social Research (NIESR) released an outlook for the U.K. economy that was largely unchanged with growth outlook for the year ahead held at 2.3%. The institute did push out its projection for a rate hike to the second half of the year.

In some sense, this view is consistent with the Federal Reserve's view in the U.S. which seems to see no financial sector damage from the recent stock market selloff. Today New York Fed President William Dudley suggested that he saw some tightening of credit conditions. For the moment, the Fed has left us unconvinced that its timing for a rate hike has been changed. But in truth, we cannot tell for sure from the Fed's policy statement or from recent comments by Vice Chair Stanley Fischer. The NIESR sees the U.K. rate hike at least being pushed into the future. In that, the view from the Fed and from the U.K.'s NIESR is the same: that the stock market selloff is largely a market event and will not loom large as a policy factor this year.

The day also saw a wealth to economic data and service sector reports released worldwide. These global Markit indicators seem to show relatively stronger services sectors in Europe, Japan, and India whereas they see monthly improvements in only seven of 16 service sector reporters in January. But places like Russia and Brazil have sector readings at or near their lower 10 percentile of their historic standings. China is midrange and India is firm. But the BRICS as a group are more marked by weakness. The U.S. nonmanufacturing ISM index was cut to weakest vale on this timeline (since August 2008) and now has a zero percentile standing, with its index falling by more than two points in one month. Will the Federal Reserve remain equivocal in its assessment of the U.S. economy?

Service sectors have been stable in general and have produced a buffer from what have been weak global manufacturing conditions. But this month's erratic behavior, highlighted by a sharp weakening in the U.S., shows that service sector strength is not impervious to weakness elsewhere. This tug of war remains one of the key questions in evaluating the global economy. The services sector is the jobs producing sector since manufacturing is performed with much more capital and has greater productivity. When manufacturing turns down, the knock-on effect is reduced (compared to services) because it does not hit the job market so hard. But there is a knock-on effect and that does get transmitted to services. At the moment, it is amplified by conditions in the oil market and in other extractive sector industries. These, of course, hit developing economies harder and, arguably, below the belt.

On top of that, fiscal policy globally is mostly handcuffed and monetary policy has been as stimulative as it can be most places. Central banks are all but tapped out. Central banks have tried pulling rabbits out of their hats by engaging in operations known as QE or by pushing interest rates into the negative space. These sorts of actions reek of desperation and create side effects that may actually dominate the primary impact of what the banks hope to achieve.

As a result, it is very hard to evaluate the global economy. But we can come to the simple conclusion that the Federal Reserve's take on policy is wrong. The Fed will not even establish a balance of risk statement for policy. Everyone is watching and waiting instead of doing. Since monetary policy acts with a lag whichever direction it chooses to move next in the wake of this pause, it will be behind the curve. It is not so serious being behind the curve if risks lessen since there is so much space in which central banks can act to hike rates. On the upside, bankers still have the potential for completely controlling events seamlessly. The risk of bad policy decisions still lies on the downside side (regardless of what the Fed may not say) because it is there that the flexibility to act is so limited. That is true in the U.S., the EMU, the U.K., Japan as well as in other places to a lesser extent, if conditions weaken materially (as the services sector may now be doing in the U.S.) not only do central banks and governments have less ammunition to use but they will be applying it late and tardiness is what magnifies the risk. This conclusion comes from a simple statement about how policy should be discharged called the mini-max rule. Policy should act in such a way under this rule so as to minimize the impact of the worst mistake a central bank can make should it make the wrong policy choice. Central banks are not doing this. Instead, they are doing nothing and crossing their fingers. That is not a variable in most macro-models of economic impact.


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The EMU services sector turned weaker in January but stayed above 50 signaling continued, if slower, growth. The EMU-wide service sector reading was last lower in January 2015. Even so, the various averages show that the overall EMU [...]

EMU Services Sector in January Slows; In Other Places, Boy Does It Ever...

Tom Moeller

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The ADP/Moody's National Employment Report indicated that nonfarm
private sector payrolls rose 205,000 during January following a 267,000 December
increase, revised from 257,000. The latest gain was firmer than expectations for
a 190,000 rise in the Action Economics Forecast Survey. Since November, payrolls
have risen at a 2.3% annual rate. During the last ten years, there has been a 97%
correlation between the change in the ADP figure and the change in nonfarm private
sector payrolls as measured by the Bureau of Labor Statistics.

The ADP Research Institute survey is based on ADP's business payroll
transaction system covering 411,000 companies and nearly 24 million employees.
The data are processed by Moody's Analytics Inc., then calibrated and aligned
with the BLS establishment survey data. The ADP data cover private sector
employment, not government.

Medium-sized businesses led last month's job growth with an 82,000 rise
(1.8% y/y), the largest increase in twelve months. Small business hiring
strengthened 79,000 (2.2% y/y) after a 101,000 improvement. Amongst large-sized
employers, payrolls rose 44,000 (2.0% y/y), the weakest gain since October.

Service industry hiring moderated. A 192,000 increase (2.3% y/y) was
the weakest rise in three months. Payrolls in professional &amp; business services
increased a lessened 44,000 (2.4% y/y) while employment in trade, transportation &amp;
utilities industries improved a steady 35,000 (1.7% y/y). The number of financial
activities jobs rose an improved 19,000 (2.0% y/y), the strongest rise since March 2006.

The pace of hiring in the goods-producing sector of the economy slackened to
13,000 (0.5% y/y) following a strong 30,000 rise. Construction sector employment
increased a firm 21,000 (4.0% y/y) while factory sector jobs remained unchanged
(-0.1% y/y) after two months of modest increase.

The ADP National Employment Report data are maintained in Haver's USECON
database; historical figures date back to April 2001 for the total and industry
breakdown and back to January 2005 for the business size breakout. The
expectation figure is available in Haver's AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >ADP/Moody's National
 Employment Report</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Jan Y/Y</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Nonfarm Private Payroll Employment (m/m
 chg, 000s)</td>
 <td >205</td>
 <td >267</td>
 <td >201</td>
 <td >2.0%</td>
 <td >2.3%</td>
 <td >2.3%</td>
 <td >1.9%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Small Payroll (1-49)</td>
 <td >79</td>
 <td >101</td>
 <td >70</td>
 <td >2.2</td>
 <td >2.5</td>
 <td >2.1</td>
 <td >1.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Medium Payroll (50-499)</td>
 <td >82</td>
 <td >77</td>
 <td >58</td>
 <td >1.8</td>
 <td >2.2</td>
 <td >2.8</td>
 <td >2.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Large Payroll (&gt;500)</td>
 <td >44</td>
 <td >88</td>
 <td >74</td>
 <td >2.0</td>
 <td >1.9</td>
 <td >1.8</td>
 <td >1.6</td>
 </tr>
 <tr>
 <td class="firstcol" >Goods-Producing</td>
 <td >13</td>
 <td >30</td>
 <td >-1</td>
 <td >0.5</td>
 <td >1.8</td>
 <td >2.3</td>
 <td >1.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Construction</td>
 <td >21</td>
 <td >31</td>
 <td >6</td>
 <td >4.0</td>
 <td >4.8</td>
 <td >4.6</td>
 <td >3.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Manufacturing</td>
 <td >0</td>
 <td >4</td>
 <td >3</td>
 <td >-0.1</td>
 <td >0.8</td>
 <td >1.2</td>
 <td >0.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Service-Producing</td>
 <td >192</td>
 <td >237</td>
 <td >202</td>
 <td >2.3</td>
 <td >2.4</td>
 <td >2.3</td>
 <td >2.0</td>
 </tr>
 </tbody>
 </table>
 
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The ADP/Moody's National Employment Report indicated that nonfarm private sector payrolls rose 205,000 during January following a 267,000 December increase, revised from 257,000. The latest gain was firmer than expectations for a [...]

U.S. ADP Reports Moderate Increase in Hiring

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Gasoline prices continued to decline last week and reached a nine year low.
The pump price for a gallon of regular gasoline fell to an average $1.82 (-11.9%
y/y), down from $1.86 in the prior week, according to the U.S. Department of
Energy. The price compares to a 2014 high of $3.71 per gallon. Haver Analytics
constructs factors adjusting for the seasonal variation in pump prices, and the
adjusted price fell to $2.07 per gallon. The spot market gasoline price fell to
$1.05 per gallon (-22.5% y/y) as of last week.
WTI crude oil costs rose slightly and averaged $31.80 per barrel last
week (-29.8% y/y). Yesterday's price of $31.62 was down from Friday's high of
$33.62, and remained below the peak of $113.93 in April 2011. Brent crude oil
prices also rose w/w to $33.22 per barrel versus the prior week's low of $29.37.
Yesterday's price of $34.12 was down from Friday's high of $35.83.
Natural gas prices held steady last week at $2.20 per mmbtu (-23.4%
y/y). Prices were $2.18 yesterday.
Gasoline demand declined 2.5% y/y last week and demand for all
petroleum products fell 1.7% y/y. Gasoline inventories improved 4.2% y/y,
while inventories of all petroleum products rose 9.1% y/y. Crude oil production
(input to refineries) increased 3.8% y/y during the last four weeks.
The energy price data are reported by the U.S. Department of Energy. The
petroleum demand and inventory figures are from the Oil &amp; Gas Journal
Weekly. These data can be found in Haver's WEEKLY database. The daily
figures are in DAILY and greater detail on prices, demand and production,
along with regional breakdowns, are in OILWKLY.
<table class="centered" border="0" cellspacing="0" width="1871">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="859">Weekly Energy Prices</th>
 <th scope="col" width="144">02/01/16</th>
 <th scope="col" width="144">01 /25/16</th>
 <th scope="col" width="144">01/18/16</th>
 <th scope="col" width="144">Y/Y%</th>
 <th scope="col" width="144">2015</th>
 <th scope="col" width="144">2014</th>
 <th scope="col" width="144">2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="859">Retail Gasoline ($ per Gallon, Regular)</td>
 <td align="center" width="144">1.82</td>
 <td align="center" width="144">1.86</td>
 <td align="center" width="144">1.91</td>
 <td align="center" width="144">-11.9</td>
 <td align="center" width="144">2.03</td>
 <td align="center" width="144">2.30</td>
 <td align="center" width="144">3.33</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="859">Light Sweet Crude Oil, WTI ($ per bbl.,
 WSJ)</td>
 <td align="center" width="144">31.80</td>
 <td align="center" width="144">29.16</td>
 <td align="center" width="144">30.59</td>
 <td align="center" width="144">-29.8</td>
 <td align="center" width="144">48.90</td>
 <td align="center" width="144">93.64</td>
 <td align="center" width="144">97.96</td>
 </tr>
 <tr>
 <td class="firstcol" width="859">Natural Gas ($/mmbtu, LA, WSJ)</td>
 <td align="center" width="144">2.20</td>
 <td align="center" width="144">2.20</td>
 <td align="center" width="144">2.32</td>
 <td align="center" width="144">-23.4</td>
 <td align="center" width="144">2.62</td>
 <td align="center" width="144">4.37</td>
 <td align="center" width="144">3.73</td>
 </tr>
 </tbody>
</table>
&nbsp;
U.S. Light Vehicle Sales Set New Record in 2015 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;February
2, 2016
Records were meant to be broken, and total sales of light vehicles in
2015 did just that. Rising to 17.42 million units, they just beat the old record
of 17.40 million reached in 2000, as gasoline prices and interest rates fell.
The feat occurred despite a 4.6% m/m decline in December sales to 17.34 million
(SAAR) from 18.19 million during November. It was the lowest level in six
months. Nevertheless, sales rose 2.5% versus December 2014, pulling the
full-year average up 5.4% against 2014. These gains were, however, the smallest
of the economic expansion.
Sales of light trucks set the pace in 2015 with a 12.7% full-year
increase to a record 9.69 million units. Their 55.7% share of total vehicle
purchases also was a new record. The gain was led by a 25.3% surge in imported
light truck sales to 1.37 million units, just off the 2007 record of 1.47
million. Not to be outdone, the 10.8% increase in sales of domestically produced
light trucks pulled them to a record 8.33 million. During December, sales of
imported light trucks fell 3.2% to 1.59 million. Nevertheless, they were 45.9%
higher than December 2014. Sales of domestically produced light trucks fell 4.4%
last month to 8.34 million (+8.1% y/y).
Passenger car sales during all of 2015 declined 2.5% to 7.72 million
units, leaving them well below the 1990 high of 9.30 million. Sales of U.S. made
cars eased 0.8% to 5.63 million while sales of imports fell 6.7% to 2.09
million. For December, passenger car sales declined 5.2% from November to 7.40
million (-8.7% y/y). Sales of domestically made cars fell 3.4% to 5.51 million
(-5.5% y/y) while sales of imported cars were off 10.1% to 1.89 million (-17.0%
y/y).
Imports share of the light vehicle market eased slightly y/y to 19.8%
last year. That was, however, well below the 27.6% peak reached in 2009. During
December, their share was 20.1%. Imports share of the car market came to 27.1%
last year and 25.5% in December. Imports share of the light truck market totaled
14.1% in 2005 and 16.0% during December.
U.S. vehicle sales figures are published by Autodata and can be found in
Haver's USECON database.
<table class="centered" border="0" cellspacing="0" width="1871">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="875">Light Vehicle Sales (SAAR, Mil. Units)</th>
 <th scope="col" width="141">Jan</th>
 <th scope="col" width="141">Dec</th>
 <th scope="col" width="142">Nov</th>
 <th scope="col" width="142">Jan Y/Y %</th>
 <th scope="col" width="142">2015</th>
 <th scope="col" width="142">2014</th>
 <th scope="col" width="142">2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="875">Total</td>
 <td align="center" width="141"></td>
 <td align="center" width="141">17.34</td>
 <td align="center" width="142">18.19</td>
 <td align="center" width="142">2.5</td>
 <td align="center" width="142">17.42</td>
 <td align="center" width="142">16.52</td>
 <td align="center" width="142">15.59</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="875">&nbsp;Autos</td>
 <td align="center" width="141"></td>
 <td align="center" width="141">7.40</td>
 <td align="center" width="142">7.81</td>
 <td align="center" width="142">-8.7</td>
 <td align="center" width="142">7.72</td>
 <td align="center" width="142">7.92</td>
 <td align="center" width="142">7.77</td>
 </tr>
 <tr>
 <td class="firstcol" width="875">&nbsp;&nbsp;Domestic</td>
 <td align="center" width="141"></td>
 <td align="center" width="141">5.51</td>
 <td align="center" width="142">5.71</td>
 <td align="center" width="142">-5.5</td>
 <td align="center" width="142">5.63</td>
 <td align="center" width="142">5.68</td>
 <td align="center" width="142">5.48</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="875">&nbsp;&nbsp;Imported</td>
 <td align="center" width="141"></td>
 <td align="center" width="141">1.89</td>
 <td align="center" width="142">2.10</td>
 <td align="center" width="142">-17.0</td>
 <td align="center" width="142">2.09</td>
 <td align="center" width="142">2.24</td>
 <td align="center" width="142">2.30</td>
 </tr>
 <tr>
 <td class="firstcol" width="875">&nbsp;Light Trucks</td>
 <td align="center" width="141"></td>
 <td align="center" width="141">9.94</td>
 <td align="center" width="142">10.38</td>
 <td align="center" width="142">12.8</td>
 <td align="center" width="142">9.69</td>
 <td align="center" width="142">8.60</td>
 <td align="center" width="142">7.82</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="875">&nbsp;&nbsp;Domestic</td>
 <td align="center" width="141"></td>
 <td align="center" width="141">8.34</td>
 <td align="center" width="142">8.73</td>
 <td align="center" width="142">8.1</td>
 <td align="center" width="142">8.33</td>
 <td align="center" width="142">7.51</td>
 <td align="center" width="142">6.74</td>
 </tr>
 <tr>
 <td class="firstcol" width="875">&nbsp;&nbsp;Imported</td>
 <td align="center" width="141"></td>
 <td align="center" width="141">1.59</td>
 <td align="center" width="142">1.65</td>
 <td align="center" width="142">45.9</td>
 <td align="center" width="142">1.37</td>
 <td align="center" width="142">1.09</td>
 <td align="center" width="142">1.08</td>
 </tr>
 </tbody>
</table>





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Gasoline prices continued to decline last week and reached a nine year low. The pump price for a gallon of regular gasoline fell to an average $1.82 (-11.9% y/y), down from $1.86 in the prior week, according to the U.S. Department of [...]

U.S. Gasoline Prices Weaken To 2009 Low

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Total sales of light vehicles during January improved 1.4% m/m to
17.58 million units (SAAR) from 17.34 million in December. The 5.2% y/y increase
was prompted by the decline in gasoline prices, strong consumer confidence and
low unemployment. Nevertheless, sales remained below the cycle peak of 18.24
million reached in October.

Sales of light trucks continued to pace the market with a 2.1% advance
(12.2% y/y) to 10.15 million units. Domestic light truck sales improved 3.2%
(7.8% y/y) to 8.62 million. Sales of imported light trucks declined 3.7% (+45.3%
y/y) to 1.54 million. The gain lifted trucks sales to a record 57.7% of the
light vehicle market, up from 54.1% in January 2015.

Auto purchases edged 0.4% higher to 7.43 million, but were down 3.1%
y/y. Domestic auto sales gained 0.5% (-0.0% y/y) to 5.54 million. Sales of
imported autos improved a similarly lackluster 0.4% (-11.1% y/y) to 1.89 million.

Imports share of the light vehicle market declined to 19.5% from 20.4%
in Q4'15, and from 19.8% during all of last year. Imports share of the passenger
car market of 25.5% compared to 26.3% last quarter, and 27.1% during all of last
year. Imports share of the light truck market declined to 15.1% from 15.9% in
Q4, but that was up from 14.1% during all of last year.

U.S. vehicle sales figures are published by Autodata and can be found in
Haver's USECON database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Light Vehicle Sales (SAAR, Mil. Units)</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Jan Y/Y %</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >17.58</td>
 <td >17.34</td>
 <td >18.19</td>
 <td >5.2</td>
 <td >17.42</td>
 <td >16.52</td>
 <td >15.59</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Autos</td>
 <td >7.43</td>
 <td >7.40</td>
 <td >7.81</td>
 <td >-3.1</td>
 <td >7.72</td>
 <td >7.92</td>
 <td >7.77</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
 <td >5.54</td>
 <td >5.51</td>
 <td >5.71</td>
 <td >-0.0</td>
 <td >5.63</td>
 <td >5.68</td>
 <td >5.48</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Imported</td>
 <td >1.89</td>
 <td >1.89</td>
 <td >2.10</td>
 <td >-11.1</td>
 <td >2.09</td>
 <td >2.24</td>
 <td >2.30</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Light Trucks</td>
 <td >10.15</td>
 <td >9.94</td>
 <td >10.38</td>
 <td >12.2</td>
 <td >9.69</td>
 <td >8.60</td>
 <td >7.82</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
 <td >8.62</td>
 <td >8.34</td>
 <td >8.73</td>
 <td >7.8</td>
 <td >8.33</td>
 <td >7.51</td>
 <td >6.74</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Imported</td>
 <td >1.54</td>
 <td >1.59</td>
 <td >1.65</td>
 <td >45.3</td>
 <td >1.37</td>
 <td >1.09</td>
 <td >1.08</td>
 </tr>
 </tbody>
 </table>
 
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Total sales of light vehicles during January improved 1.4% m/m to 17.58 million units (SAAR) from 17.34 million in December. The 5.2% y/y increase was prompted by the decline in gasoline prices, strong consumer confidence and low [...]

U.S. Light Vehicle Sales Edge Higher

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It is a global paradox of sorts that unemployment rates are behaving relatively well even as economies do not. Part of it is the global slump in manufacturing which is a productivity-centric sector rather than a jobs-centric center. So if manufacturing is weak, economic signals can be muted, but it may not cost a lot in terms of unemployment. It will cost growth and it will lower productivity gains, however.

In the United States, the ISM manufacturing index is lower for several months running and industrial production is declining while unemployment is so low that the Federal Reserve has started to hike interest rates despite an absence of any actual inflation pressure. In Europe, the European Central Bank is still pedal to the metal as unemployment has continued to fall, and has fallen slowly while marking historically uncomfortably high levels for most EMU members. As always Germany's performance is leaps and bounds out ahead of most EMU members and of the EMU as a whole.

Japan just tilted policy to embrace negative interest rates. Japan's unemployment rate is 3.3%. Money can't leave China fast enough, giving it a real policy conundrum.

For all of the EU and EMU, the number unemployed over three months, six months and 12 months is declining. There also are declines in the number unemployed in at least each of the last three months. The signs of progress are clear, but it is also true that the annualized percentage drop for the number unemployed has slowed over three months compared to both six-month and 12-month.

The core of the hard currency EMU members (Austria, Belgium, Germany and Finland) shows no unemployment rate declines over three months, but both Belgium and Germany show declines over six months and 12 months. These countries also have some of the lowest unemployment rates in the EMU.

Unemployment rates are declining over three months, six months and 12 months in France, Italy, Spain, Ireland, the Netherlands and Portugal. Finland and Austria show no unemployment rate decline on any of these horizons and Luxembourg shows a decline over 12 months alone.

The lowest unemployment rates are Germany (4.5%), Austria (5.8%), Luxembourg (6.1%), and the Netherlands (6.6%). The highest rates again for reporters with December rates posted are Spain (20.8%), Portugal (11.8%), Italy (11.4%), and France (10.2%). Of course, less-up-to-date is Greece with an unemployment rate of 24.5% as of October. On the low side, there is EU member the U.K. with an unemployment rate of 5.1% in October.

The gap between the EMU rate and Germany peaked at 6.8 percentage points in 2013 and early 2014; it stands at 5.9% in December 2015. The gap is still large and the German rate is still falling, but the rest of Europe is catching up albeit slowly.

Germany's unemployment rate has been this low or lower only 1% of the time. Compare that to the U.S., which is another unemployment rate success story, with its rate at 5%, a rate that historically has been this low or lower 28.8% of the time. Germany is at an extreme position in terms of the level of its unemployment rate compared to history. Compare it to the EMU average the rate (which includes Germany) and is lower 59.9% of the time. Ireland's rate has been lower 43% of the time. Belgium's rate is lower 44% of the time. After those two countries, the next best is Finland with an unemployment rate that is lower two thirds of the time; higher only one third of the time. The rest of EMU members have rates lower 70% of the time or more; one has rates lower 80% of the time or less; two have rates lower 90% of the time or less. Austria is an exceptional result with an unemployment rate that is the second lowest in the EMU; yet it has been higher less than 1% of the time historically. Finland, France, Italy and Portugal have rates near at or above the 10% mark; Spain's is over 20% and Greece continues with one quarter of its workforce out of a job- one quarter.

Yes, there is progress in Europe. Unemployment rates are coming down as many writers are pointing out. It is a numeric fact, but one of dubious merit. A few countries have made great progress in absolute or relative terms. But the bulk of Europe is represented by countries with unemployment rates that remain high and are stuck high, moving lower in some very frustrating slow-motion technical dance. Four of 11 of the original EMU members in the table show unemployment declines of 1% or more over 12 months. Two more show declines of more than one half of one percentage points over 12-months; that's still only six of 11. Finland and Austria show net higher rates over 12 months; Luxembourg's rate is net lower by 0.2% points; France's rate is lower by 0.3 percentage points. Should we characterize this as good progress? Is it acceptable?

This is why the ECB is contemplating more action. The real question is: why is it contemplating? Why isn't it acting? If it has something it can do, it should be doing it.

Today also the PPI finalized for the EMU; all 10 of the reporting original EMU members through December show PPI declines on all horizons: three-month, six-month and 12-month. The pace of decline is slowing over three months compared to six months for each of those members. But in late December and January, oil has fallen further. Price trends tell us that distress is still being circulated through the pricing mechanism at the PPI level. Some central banks see the commodity price drop and strong dollar as anomalies that will pass. But they are passing slowly and some are getting worse as they `pass.' It's enough to make you wonder if the tactic to wait for the distress to pass makes any sense at all.

Yesterday Fed Vice Chair Stanley Fischer basically championed that view. The Fed can't figure out if the global selloff means anything for policy. That is a curious view. The Fed apparently also has the view that a declining manufacturing sector (in addition) is not an impediment to its view of rising inflation and coming rate hikes. One wonders, what would change the Fed's view? Policy in the U.S. is increasingly being run on the basis of dogma, something that is believed and does not have to be reaffirmed. Incoming data do not deter a dogmatic Fed. Every other central bank seems to have its eyes wide open. At the Fed, they are wide shut.


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It is a global paradox of sorts that unemployment rates are behaving relatively well even as economies do not. Part of it is the global slump in manufacturing which is a productivity-centric sector rather than a jobs-centric center. [...]

European Unemployment Rates Continue to Fall and Remain High

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Gasoline prices continued to decline last week and reached a nine year low.
The pump price for a gallon of regular gasoline fell to an average $1.82
(-11.9% y/y), down from $1.86 in the prior week, according to the U.S. Department of
Energy. The price compares to a 2014 high of $3.71 per gallon. Haver Analytics
constructs factors adjusting for the seasonal variation in pump prices, and the
adjusted price fell to $2.07 per gallon. The spot market gasoline price fell to
$1.05 per gallon (-22.5% y/y) as of last week.

WTI crude oil costs rose slightly and averaged $31.80 per barrel last
week (-29.8% y/y). Yesterday's price of $31.62 was down from Friday's high of
$33.62, and remained below the peak of $113.93 in April 2011. Brent crude oil
prices also rose w/w to $33.22 per barrel versus the prior week's low of $29.37.
Yesterday's price of $34.12 was down from Friday's high of $35.83.

Natural gas prices held steady last week at $2.20 per mmbtu (-23.4%
y/y). Prices were $2.18 yesterday.

Gasoline demand declined 2.5% y/y last week and demand for all
petroleum products fell 1.7% y/y. Gasoline inventories improved 4.2% y/y,
while inventories of all petroleum products rose 9.1% y/y. Crude oil production
(input to refineries) increased 3.8% y/y during the last four weeks.

The energy price data are reported by the U.S. Department of Energy. The
petroleum demand and inventory figures are from the Oil &amp; Gas Journal
Weekly. These data can be found in Haver's WEEKLY database. The daily
figures are in DAILY and greater detail on prices, demand and production,
along with regional breakdowns, are in OILWKLY.

<a href="/comment/160202c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/160202c.png"></a>
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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy Prices</th>
 <th scope="col" >02/01/16</th>
 <th scope="col" >01 /25/16</th>
 <th scope="col" >01/18/16</th>
 <th scope="col" >Y/Y%</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Retail Gasoline ($ per Gallon, Regular)</td>
 <td >1.82</td>
 <td >1.86</td>
 <td >1.91</td>
 <td >-11.9</td>
 <td >2.03</td>
 <td >2.30</td>
 <td >3.33</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl.,
 WSJ)</td>
 <td >31.80</td>
 <td >29.16</td>
 <td >30.59</td>
 <td >-29.8</td>
 <td >48.90</td>
 <td >93.64</td>
 <td >97.96</td>
 </tr>
 <tr>
 <td class="firstcol" >Natural Gas ($/mmbtu, LA, WSJ)</td>
 <td >2.20</td>
 <td >2.20</td>
 <td >2.32</td>
 <td >-23.4</td>
 <td >2.62</td>
 <td >4.37</td>
 <td >3.73</td>
 </tr>
 </tbody>
 </table>
 
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U.S. Gasoline Prices Weaken to 2009 Low

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The value of construction put-in-place improved 0.1% (8.0% y/y) during
December following a 0.6% November decline, revised from -0.4%. For all of last
year, construction activity strengthened 10.5% versus a 9.6% gain in 2014. A
0.5% rise for December had been expected in the Action Economics Forecast Survey.

Public sector building rebounded 1.9% (+3.0% y/y) following a deepened 2.4%
November decline. Highway and street construction jumped 9.4% (13.2% y/y) while
commercial construction surged 12.0% (41.4% y/y). Power construction declined
3.9% (-19.8% y/y) and educational building eased 0.5% (+8.2% y/y).

Building activity in the private sector declined 0.6% following no change in
November. During the last three months, activity eased at a 0.1% rate.
Residential building activity improved 0.9% after a 0.3% rise (9.1% y/y). The
increase was led by a strong 1.0% rise in single-family building (9.1% y/y).
Multi-family construction recovered 2.7% (11.9%) after a sharp decline. Spending
on improvements rose 5.8% (7.9% y/y). Nonresidential building fell 2.1% (+10.4%
y/y) as factory sector construction declined 7.3% (+18.1% y/y).

The construction spending figures are in Haver's USECON database and the
expectations figure is contained in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Construction Put in Place
 (SA, %)</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Dec Y/Y</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >0.1</td>
 <td >-0.6</td>
 <td >-0.1</td>
 <td >8.0</td>
 <td >10.5</td>
 <td >9.6</td>
 <td >6.6</td>
 </tr>
 </tbody>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Private</td>
 <td >-0.6</td>
 <td >0.0</td>
 <td >0.5</td>
 <td >9.7</td>
 <td >12.3</td>
 <td >12.9</td>
 <td >11.3</td>
 </tr>
 </tbody>
 <tbody>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Residential</td>
 <td >0.9</td>
 <td >0.3</td>
 <td >-0.2</td>
 <td >9.1</td>
 <td >12.6</td>
 <td >14.4</td>
 <td >19.9</td>
 </tr>
 </tbody>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Nonresidential</td>
 <td >-2.1</td>
 <td >-0.2</td>
 <td >1.3</td>
 <td >10.4</td>
 <td >12.0</td>
 <td >11.3</td>
 <td >3.6</td>
 </tr>
 </tbody>
 <tbody>
 <tr>
 <td class="firstcol" >&nbsp; Public</td>
 <td >1.9</td>
 <td >-2.4</td>
 <td >-1.8</td>
 <td >3.0</td>
 <td >5.6</td>
 <td >1.9</td>
 <td >-3.1</td>
 </tr>
 </tbody>
 </table>
 
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The value of construction put-in-place improved 0.1% (8.0% y/y) during December following a 0.6% November decline, revised from -0.4%. For all of last year, construction activity strengthened 10.5% versus a 9.6% gain in 2014. A 0.5% [...]

U.S. Construction Activity Remains Fairly Steady In December; 2015 Strengthened

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Activity in the factory sector continued to contract in January for the
fourth consecutive month. The ISM Composite Index of factory sector activity of
48.2 compared to 48.0 in December, revised from 48.2. The reading roughly
equaled expectations for 48.0 in the Action Economics Forecast Survey. The data
from the Institute for Supply Management (ISM) are diffusion indexes where a
reading below 50 indicates decline.

Weakness in last month's composite index centered on another decline in the
employment index. It fell to 45.9, and suggested the third month in the last
four when payrolls fell. During the last ten years, there has been an 88%
correlation between the index and the m/m change in factory sector employment.
The inventory index held at 43.5, which indicated decumulation at nearly the
fastest rate of the economic expansion. Improvement in the other activity
indexes was evident. The new orders series rose to 51.5, suggesting a rise in
orders for the first time in three months. the production also edged higher to a
roughly neutral 50.2, about where it's been for three months. The supplier
delivery index of 50.0 suggested that delivery speeds held roughly steady for
the eighth straight month.

Lessened activity translated into a stable rate of price decline. The prices
paid index of 34.7 was little changed m/m and reflected lower prices for the
eighth straight month. Five percent (NSA) of industries reported higher prices
while 38% reported lower. That figure was improved, however, from the price
deflation realized by 15% of industries as recently as June.

The export order index declined to 47.0, its weakest level in four months.
Orders backlogs suggested decline, as the index did all of last year.

The figures from the Institute for Supply Management can be found in Haver's
USECON database. The expectations number is in Haver's AS1REPNA database.

Recent Monetary Policy is the title of today's speech by Fed Vice
Chairman Stanley Fischer and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/fischer20160201a.htm">here</a>.

<a href="/comment/160201h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/160201h.png"></a>
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 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >ISM Mfg (SA)</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Jan '15</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Composite Index</td>
 <td >48.2</td>
 <td >48.0</td>
 <td >48.4</td>
 <td >53.9</td>
 <td >51.3</td>
 <td >55.6</td>
 <td >53.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;New Orders</td>
 <td >51.5</td>
 <td >48.8</td>
 <td >49.0</td>
 <td >54.1</td>
 <td >52.6</td>
 <td >58.9</td>
 <td >56.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Production</td>
 <td >50.2</td>
 <td >49.9</td>
 <td >49.8</td>
 <td >57.7</td>
 <td >53.5</td>
 <td >59.2</td>
 <td >57.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Employment</td>
 <td >45.9</td>
 <td >48.0</td>
 <td >50.8</td>
 <td >54.1</td>
 <td >51.0</td>
 <td >54.4</td>
 <td >53.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Supplier Deliveries</td>
 <td >50.0</td>
 <td >49.8</td>
 <td >49.6</td>
 <td >53.3</td>
 <td >50.7</td>
 <td >55.0</td>
 <td >51.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Inventories</td>
 <td >43.5</td>
 <td >43.5</td>
 <td >43.0</td>
 <td >51.0</td>
 <td >49.0</td>
 <td >50.8</td>
 <td >49.4</td>
 </tr>
 <tr>
 <td class="firstcol" >Prices Paid Index (NSA)</td>
 <td >33.5</td>
 <td >33.5</td>
 <td >35.5</td>
 <td >35.0</td>
 <td >39.8</td>
 <td >55.6</td>
 <td >53.8</td>
 </tr>
	 </tbody>
	 </table>
	 
	 </body></html>

Activity in the factory sector continued to contract in January for the fourth consecutive month. The ISM Composite Index of factory sector activity of 48.2 compared to 48.0 in December, revised from 48.2. The reading roughly equaled [...]

U.S. ISM Factory Index Contracts Again

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.

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**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.