Robert Brusca

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The overall EMU PMI rose in December by better than one point to a solid 52.68. Being above 50 in the PMI framework means that output is expanding and with the gain in December it is expanding faster than in November. The queue percentile in the table expresses the current value of the PMI as a percentile standing in its historic queue back to early 2001. The EMU PMI ranks 50th among the last 152 monthly observations, leaving it in the 67th percentile of its historic queue - a top one-third standing. Germany's PMI of 54.3 is a top 69 percentile standing in its queue. The top four EMU nations' manufacturing PMIs have strong standings except for France. France's metric fell sharply this month to 46.98 from 48.38. Its standing is in the lower 22 percentile of its historic queue. 

The French drop is disturbing as France is the second largest EMU nation. But it has been the weakest member among the top four EMU nations (Germany, France, Italy and Spain) over the past year. While France's manufacturing metric fell sharply in December, French auto registrations and sales have been improving. We will want to keep a close eye on January to see if France's December drop is a skid into some real trouble or just a one-month setback.

Apart from France, Greece has the weakest queue standing of the EMU nations in the table. But Greece is showing improvement and is close to ending its multi-year contraction in its manufacturing sector. Despite its weak reading, Greece is a success story.

The UK manufacturing PMI fell back in December, but it is still the strongest raw reading in the table with the highest queue percentile standing as well. The UK manufacturing sector is still quite hot. Other EU members that are not in the common currency area are now lagging behind the EMU standard. Sweden, Hungary and Denmark's manufacturing readings fell sharply in December. Sweden now indicates manufacturing sector contraction while Hungary is showing only the barest of manufacturing gains. Denmark is still showing a manufacturing advance, but its reading is the lowest since April 2013. Sweden's manufacturing sector's queue standing is in the 24th percentile of its historic queue; for Hungary the standing is the 35th percentile; and for Denmark it is the 43rd percentile. Whatever is now going right in EMU it is not expanding its reach beyond the common currency area where conditions are largely deteriorating.

But for EMU the upswing story is largely a good one. Of the eight EMU nations in the table, all but two (France and Austria) made gains in December. Most of these same countries have made manufacturing diffusion reading gains of about 20 points from their respective cycle lows. The exceptions are Greece that is up only about 12 points from its cycle low and France that is up by about the same amount. Among the EMU members in the table, France is also the farthest from its cycle peak in its manufacturing diffusion reading, being still more than 10 points shy of its pre-recession peak mark. 

On balance the EMU region seems to have its manufacturing sector in gear. France is a notable exception to keep an eye on. In separate readings today both France and Spain posted solid gains in auto sales and registrations. Despite France's manufacturing difficulties, it may still have an underlying improving trend. Optimism on Europe is still warranted but so is caution in the case of France.



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The overall EMU PMI rose in December by better than one point to a solid 52.68. Being above 50 in the PMI framework means that output is expanding and with the gain in December it is expanding faster than in November. The queue [...]

EMU PMIs Push Higher Except For France

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

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

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Kathleen Stephansen, CBE

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Mortgage applications dropped 3.8% w/w (+40.9% y/y) in the week of December 12 after a rise of 4.8% w/w (45.4% y/y) in the week of December 5, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house fell 2.8% w/w (+12.3% y/y) in the latest week after declining 2.4% w/w (+17.2% y/y) in the week of December 5. Applications for loan refinancing dropped 3.6% w/w (+86.0% y/y) in the week of December 12, following the 14.3% (87.8% y/y) jump in the week ended December 5.

The effective interest rate on a 30-year fixed-rate loan rose 6bps to 6.56% in the week ending December 12, from 6.50% in the week ending December 5. The rate on 15-year fixed-rate mortgages rose 4bps to 5.91% in the latest week from 5.87% in the December 5 week. The rate on 30-year jumbo edged down 2bps to 6.55% in the December 12 week from 6.57% in the prior week. The rate on a 5-year ARM eased 4bps to 5.76% in the latest week from 5.80% in the December 5 week.

The share of applications for refinancing an existing loan rose to 59.0% of total applications in the December12 week from 58.2% in the week ending December 5. The adjustable-rate mortgage (ARM) share of activity rose to 7.2% in the latest week from 7.0% in the December 5 week.

The average size of a mortgage loan rose 1.5% (6.4% y/y) to $400,000 in the December 12 week, following a decline of 0.7% (+7.1% y/y) to $394,200 in the December 5 week. The average size of a purchase loan edged up 0.6% (-0.3% y/y) to $424,200 in the latest week, after dropping 0.4% (+1.3% y/y) to $421,700 in the December 5 week. The average size of a loan to refinance a mortgage rose 2.4% (19.8% y/y) to $383,300 in the week ending December 12 after rising 0.2% (19.4% y/y) to $374,500 in the December 5 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase applications fell 2.8% w/w; refinancing loan applications fell 3.6% w/w.
- Effective interest rate on 30-year fixed loans rose to 6.56%.
- Average loan size rose moderately.

U.S. Mortgage Applications Retreated in the Week of December 12

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U.K. inflation has moderated in November, posting a 0.1% drop on the HICP, a 0.1% gain in the CPI-H headline measure as well as a 0.1% gain in the CPI-H core (excluding energy, food, alcohol, and tobacco). The sequential trend in core inflation points lower and is eroding but continues to run over the 2% mark set as a target by the Bank of England for overall inflation (over 12 months). The headline is excessive as well but also eroding.

Sequentially the CPI-H gains 3.5% over 12 months, slows to a 2.8% annual rate over six months and then dips to 1.4% annual rate over three months. The CPI-H core rises by 3.6% over 12 months, ticks down to a 3.0% pace over six months, and then runs at a 2.4% annualized pace over three months.

The trend for the CPI core, and for the headline, both are quite good and would be completely consistent with the Bank of England cutting rates, a move that is widely expected – although the 12-month pace for each is excessive.

Not only is inflation showing signs of falling into the Bank of England's target zone, but the economy has been weak although the unemployment rate currently is only hovering around the 4% mark. Still, recent economic data have been weak, and the recent monthly GDP report posted a negative reading, further unsettling the outlook. The October monthly GDP change was estimated at -0.1% while the year-over-year increase in GDP in October produced a gain of just 1.1%. These metrics have put the U.K. economy on recession watch at a time when there has been a sharp revision in the budget process that will be much more constrictive. A sharp pullback in the manufacturing of motor vehicles is blamed for the sudden weakness in GDP in October. The three-month drop in GDP is the first such drop since December 2023.

Meanwhile, the headline and the core inflation statistics are progressing. The table calculates breadth statistics on how widespread inflation acceleration has been and we see that it has not been prevalent (over 50%) in September or November, although breadth did touch the 58% mark in October. Sequentially, inflation acceleration has been tamed: over 12 months (when it is neutral), six months, and three months. Over 12 months, inflation accelerated in only 50% of the categories. And inflation according to the CPI headline and in the core over six months continues to show deceleration to accompany narrowing breadth - only 8.3%. That reading indicates that there was more inflation deceleration than acceleration by a wide margin over six months. At 50%, inflation acceleration and deceleration forces are balanced. Readings below 50% indicate relatively more deceleration, and that is now the more common condition. Inflation acceleration is extremely rare across categories over six months and three months.

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On balance, inflation by the headline and by the core measures is well disciplined and falling into line although still excessive over 12 months. The breadth statistics reinforce the view that inflation is broadly coming to heel at the same time the real economy data are showing a cooling in the economy- and perhaps an excessive slowing at that. The new budget should put the economy under additional downward pressure, further restraining inflation and causing growth to moderate. In this situation, a rate cut from the Bank of England is the odds-on bet. Perhaps the only question now is how large a cut? How much will the Bank think that circumstance have changed and that key trends have been altered in a significant way? Will policy react mostly to lower trend tempered by an excessive 12-month pace, or will it be willing to look farther forward and weight heavily the deteriorating economic trend as well?

United Kingdom

U.K. Inflation Moderates Open Door for BOE Rate Cut

Sandy Batten

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The Bureau of Labor Statistics released establishment survey data for both October and November today. With the government shutdown during the month of October, there was no household survey for that month. Today’s release contained only November data for households. Nonfarm payrolls (from the establishment survey) increased 64,000 in November but fell 105,000 in October. The 119,000 increase previously reported for September was revised down to a 108,000 rise. The Action Economics Forecast Survey had expected an 80,000 decrease in October and a 35,000 increase in November. The three-month average change in payrolls rebounded to 22,000 in November from -8,000 in October. However, this figure has trended down since early this year, pointing to a modest softening of labor-market conditions. 

This softening was reinforced by a 0.2%-point jump in the unemployment rate, measured in the household survey, to 4.6% in November from 4.4% in September. (As already noted, there was no household survey in October.) The unemployment rate, including employees working part-time for economic reasons plus all marginally attached workers, surged to 8.7% in November from 8.0% in September. For both series, these were the highest readings since September 2021.

Average hourly earnings (AHE), a key variable for the Federal Reserve, showed a further slowing in wage growth. AHE edged up 0.1% m/m in November after a 0.4% monthly jump in October. Importantly, the y/y rate slowed to 3.5%, the slowest since May 2021, from 3.7% in both September and October. The annual pace of the rise in service-producing wages slowed to 3.4% in November from 3.7% in both September and October while the annual growth of goods-producing wages was unchanged at 4.0%. Depending on your estimate of productivity growth, the current pace of total AHE growth is likely still a little too fast to be consistent with the Fed’s 2% inflation target. But clearly, it is moving in the desired direction.

In the **establishment survey**, much of the recent softening reflects declines in federal government employment. Federal government employment fell again in November (-6,000). This follows a sharp decline of 162,000 in October, as some federal employees who accepted a deferred resignation offer came off federal payrolls. Federal government employment is down by 271,000 since reaching a peak in January. (Note however that federal employees on furlough during the government shutdown were counted as employed in the establishment survey because they received pay, even if later than usual, for the pay period that included the 12th of the month. Employees on paid leave or receiving ongoing severance pay are counted as employed in the establishment survey.)

Private-sector employment rose 69,000 in November and 52,000 in October following an upwardly revised 104,000 increase in September (previously 97,000). Goods sector employment rebounded in November, rising 19,000 after a 9,000 fall in October. Construction jobs increased 28,000 in November, their largest monthly gain in more than a year, but slipped 1,000 in October. Manufacturing jobs continued to decline, falling 5,000 in November and 9,000 in October. They have now declined for seven consecutive months, not the result that the Trump Administration new tariff policy had intended.

Private-sector service-producing jobs gained 50,000 in November on top of a 61,000 increase in October and an 87,000 rise in September. A 46,000 increase in healthcare jobs on top of a 44,000 increase in October and an 18,000 gain in social assistance jobs in November after a 21,000 increase in October led the overall increases in the past two months. Other major sectors mostly experienced either job declines or minimal gains in October and November.

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The length of the workweek increased to 34.3 hours in November from 34.2 hours in August, September and October. The goods-producing workweek edged up to 39.8 hours in November from 39.6 hours in October while the private service-producing workweek was unchanged at 33.2 hours in November.

In the **household survey**, the unemployment rate jumped to 4.6% in November, the highest since September 2021 and up from a recent low of 3.4% in April 2023, from 4.4% in September (again, no data for October). The labor force increased 323,000 in November from September after a 470,000 monthly gain in September. The gain in employment slowed in November with the number of employed rising only 96,000 from September following a 251,000 monthly increase in September. The number of unemployed increased 228,000 in November from September following a 219,000 monthly increase in September. The labor force participation rate rose to 62.5% in November, its highest since April, from 62.4% in September. On a slightly brighter note, the average duration of unemployment slipped to 23.0 weeks in November from 24.1 weeks in September while the median duration of unemployment fell to 9.5 weeks, the lowest since May, from 10.0 weeks in September.

The employment/population ratio for all workers slipped to 59.6% in November from 59.7% in September. It remained below the recent peak reading of 61.1% in February 2020 just prior to the pandemic. For men, the rate slipped to 64.6% in November from 64.8% in September and 65.0% in August, and for women, the rate was unchanged at 54.8% in November.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Total payrolls rose 64k in November but fell 105k in October
- The October decline was more than accounted for by a 157k decline in government employment
- The unemployment rate jumped to 4.6% in November from 4.4% in September.
- There were no household survey data collected for October.

U.S. Employment and the Unemployment Rate Rose in November

Winnie Tapasanun

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Total retail sales were virtually unchanged m/m in October after downwardly revised increases of 0.1% in September (+0.2% initially) and 0.5% in August (+0.6% previously), data from the U.S. Census Bureau showed. The October flat reading followed four consecutive m/m rises and declines in May and April. A 0.1% m/m October increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate decelerated to 3.5% in October, the lowest since May, from 4.2% in September; this compared with 3.2% in October 2024 and remained far below a high of 17.1% in February 2022 and a peak of 51.8% in April 2021.

Excluding motor vehicles & parts, retail sales rose 0.4% (4.0% y/y) in October, the fifth straight m/m rise, after a 0.1% uptick in September (+0.3% initially). A 0.2% m/m October increase had been expected. Sales of motor vehicles & parts fell 1.6% (+1.2% y/y) following a 0.1% September downtick and three successive m/m increases; this compared to a 6.9% drop (-4.6% y/y) in unit light vehicle sales following no change in September.

Sales in the retail control group, which excludes autos, building materials, gasoline stations, and food services, rose 0.8% (5.1% y/y) in October, the fifth m/m rise in six months, following a 0.1% dip in September. These sales are used in the construction of personal consumption expenditures in NIPA accounts. Nonauto sales excluding gasoline & building materials advanced 0.6% (4.9% y/y), also up for the fifth time in six months, following a flat September reading.

Sales by category were mixed in October. To the upside, general merchandise store sales rose 0.5% (2.0% y/y), the fifth consecutive m/m rise, after a 0.1% uptick in September; within this grouping, department store sales surged 4.9% (4.6% y/y)—the third m/m increase in four months and the largest since February 2022—following a 0.3% September decline. Furniture & home furnishing store sales rebounded 2.3% (0.5% y/y), the first m/m gain since July, after a 2.4% September decrease. Sporting goods, hobby, book & music store sales climbed 1.9% (4.6% y/y), up for the third time in four months, reversing a 1.7% September decrease. Nonstore retail sales recovered 1.8% (9.0% y/y), the eighth m/m gain in nine months, after falling 0.4% in September. Miscellaneous store sales rose 1.5% (9.5% y/y) following a 2.2% September increase and two successive m/m decreases. Clothing & accessory store sales grew 0.9% (5.7% y/y), the seventh m/m rise in eight months, reversing a 0.9% September drop. Electronics & appliance store sales increased 0.7% (4.9% y/y) after holding steady in September.

To the downside, building materials & garden equipment store sales slid 0.9% (-4.5% y/y) in October, the third m/m slide in four months, after a 0.1% downtick in September. Gasoline station sales fell 0.8% (+1.9% y/y), the first m/m fall since May, after a 1.9% September advance.

In the nondiscretionary sales categories, health & personal care store sales fell 0.6% (+5.7% y/y) in October, down for the second month in three, following a 1.3% gain in September. Food & beverage store sales, however, rose 0.3% (2.2% y/y), the fourth m/m rise in five months, following a 0.1% September easing.

Consumers appeared to dine out less frequently in October amid still-high inflation (September CPI +0.3% m/m, +3.0% y/y; core CPI +0.2% m/m, +3.0% y/y). Restaurant & drinking place sales fell 0.4% (+4.1% y/y) in October, the first m/m fall since May, following a downwardly revised 0.2% increase in September (+0.7% initially).

Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- October total retail sales +0.03% (+3.5% y/y), w/ mixed results across categories.
- Ex-auto sales +0.4% (+4.0% y/y); auto sales -1.6% (+1.2% y/y).
- Sales rebound m/m in department stores (+4.9%) and furniture stores (+2.3%).
- Sales drop m/m in bldg. materials & garden equipt. stores (-0.9%) and gasoline stations (-0.8%).

U.S. Retail Sales Hold Steady in October Following Four Straight M/M Gains

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The Standard & Poor’s PMI data seem to have taken a fork in the road in December as the previous strong trend toward improving has been reversed in December. Out of 24 sector changes across eight different countries (or economic regions), there are only 6 sectors that show improvement month-to-month in December. This is a sharp contrast to November when 10 sectors showed improvement and to October when 20 of 24 sectors showed improvement. The worm has turned, but is it a lasting turn or not?

The sequential data look at changes in the hard data (that's data through November) over three months, six months, and 12 months. They show a strongly weighted preponderance of sectors that are better, getting stronger, rather than getting weaker. Over three months, 9 of 24 sector readings get weaker compared to six-months. Over six months, every single sector gets stronger compared to 12-months. Over 12 months, 19 sectors get stronger compared to 12-months ago. Monthly data show that this impressive string of improving sectors shows that progress began to slow down in November and kicked into reverse in December.

As of December, the United Kingdom, which is a struggling economy, is the only reporting unit to show a stronger composite, stronger manufacturing, and stronger services. Apart from the U.K.’s strength, there's stronger manufacturing month-to-month reported in France, Japan, and Australia. And that's the end of month-to-month improvements in December. In November, there is a triple improvement in Japan with manufacturing, services, and the composite strengthening month-to-month. There are isolated sector improvements in manufacturing in Australia and in the U.K. There were also improvements for services in India as well as in services and in the composite index for France and in the European monetary union. Still, these are only 10 of 24 sectors in November.

The previous strong trend movement higher has left most of the readings as of December above their medians on data back to January 2021. Among the 24 headline and sector calculations, only six of them show standings below their 50th percentile since January 2021, which puts them below their historic median for that period. The service sector is below the 50% mark in the United Kingdom, Japan, and the United States, while the overall composite is below the 50% mark in the U.S. and in India, with India showing a below median manufacturing rating as well and the U.S. showing below 50% in services. The weaker U.S. data is a new and interesting feature with U.S. job data for November just reported and looking a bit stronger, despite a rise in the unemployment rate. The December S&P survey data, on the other hand, hint that such an improving trend may not last.

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Europe

S&P Flash PMIs Weaken in December

Economy in Brief: January 2014

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EMU PMIs Push Higher Except For France