Tom Moeller

<a href="/comment/090320a_big.png" name="modal"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090320a.png" width="353" height="261" align="right"></a>Recession and lower oil prices worked to sharply shrink the U.S. current account deficit last year. In fact, the 2008 deficit of $673.3 billion was the smallest since 2004. That improvement came despite recessions abroad which limited U.S. exports. Indeed, lower oil prices were at work lowering the cost of imports and the 4Q deficit of $132.8 billion was shallower than the Consensus expectation for a reading of $137.5 billion.
As a percentage of GDP, the shrinkage of the U.S. deficit was even more dramatic. The 4.7% figure for all of last year was the smallest since 2002, the Commerce Department indicated Wednesday. This percentage is well reduced from the 6.6% peak reached late in 2005.
Recession in the U.S. worked with the decline in oil prices to drop the 4Q deficit on traded goods to $174.1 billion, its lowest since 2004. Though growth in goods exports was negative 4.2% y/y, imports fell by a greater 9.3%.
Fewer U.S. citizens went abroad this year and more came here. As a result, the balance on services trade narrowed by the end of 2008 as exports fell more then imports. The 4Q surplus of $33.7B. compared to a peak surplus of $36.5B during 2Q. That decline came as exports fell 5.1% against a 5.3% decline in imports. Nevertheless, for the year as a whole the lower dollar helped raise travel exports (foreign citizens spending more in the U.S.) and services exports grew 17.3% y/y while services imports fell 9.0% during 2008.
From the capital account, the deficit on U.S. private direct investment again grew during 4Q as U.S. investment fell but foreign investment rose. For the year as a whole, the deficit of $643B was by far a record as U.S. citizens invested less abroad.
Ties that bind: bilateral trade's role in synchronizing business cycles from the Federal Reserve Bank of Dallas can be found <a target=_new href="http://dallasfed.org/research/eclett/2009/el0901.html">here.</a>
2008 Annual Pacific Basin Conference: Summary from the Federal Reserve Bank of San Francisco is available <a target=_new href="http://www.frbsf.org/publications/economics/letter/2009/el2009-10.pdf">here.</a>.


<table border="0" cellspacing="0" cols="7">
<colgroup>
<col>
<col>
<col>
<col>
<col>
<col>
<col>
</colgroup>

 <thead>
 <tr>
 <th scope="col" class="firstcol">US Balance of Payments SA</th>
 <th scope="col">4Q '08</th>
 <th scope="col">3Q '08</th>
 <th scope="col">Year Ago</th>
 <th scope="col">2008</th>
 <th scope="col">2007</th>
 <th scope="col">2006</th>
 </tr>
 </thead>
 
 <tbody>
 <tr class="odd">
 <td class="firstcol">Current Account Balance ($ Bil.)</td>
 <td>-132.8</td>
 <td>-181.3</td>
 <td>-167.2</td>
 <td>-673.3</td>
 <td>-731.2</td>
 <td>-788.1</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;&nbsp;Deficit % of GDP</td>
 <td>3.7</td>
 <td>5.0</td>
 <td>5.0</td>
 <td>4.7</td>
 <td>5.3</td>
 <td>6.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;Balance on Goods ($ Bil.)</td>
 <td>-174.1</td>
 <td>-216.3</td>
 <td>-208.9</td>
 <td>-820.8</td>
 <td>-819.4</td>
 <td>-838.3</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;&nbsp;Exports </td>
 <td>-16.1%</td>
 <td>2.7%</td>
 <td>-4.2%</td>
 <td>12.4%</td>
 <td>12.3%</td>
 <td>14.4%</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;&nbsp;Imports </td>
 <td>-17.4%</td>
 <td>1.4%</td>
 <td>-9.3%</td>
 <td>7.3%</td>
 <td>5.7%</td>
 <td>10.7%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;Balance on Private Services ($ Bil.)</td>
 <td>33.7</td>
 <td>35.4</td>
 <td>35.1</td>
 <td>139.7</td>
 <td>119.1</td>
 <td>85.0</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;&nbsp;Exports </td>
 <td>-5.1%</td>
 <td>1.0%</td>
 <td>0.2%</td>
 <td>9.5%</td>
 <td>14.6%</td>
 <td>11.5%</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;&nbsp;Imports </td>
 <td>-5.3%</td>
 <td>2.4%</td>
 <td>8.4%</td>
 <td>1.7%</td>
 <td>8.4%</td>
 <td>11.3%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;Balance on Income ($ Bil.)</td>
 <td>36.5</td>
 <td>29.6</td>
 <td>36.2</td>
 <td>127.6</td>
 <td>81.8</td>
 <td>57.2</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;Imports </td>
 <td>-28.9</td>
 <td>-30.0</td>
 <td>-29.8</td>
 <td>-119.7</td>
 <td>-112.7</td>
 <td>-92.0</td>
 </tr>
 </tbody>
</table>

Recession and lower oil prices worked to sharply shrink the U.S. current account deficit last year. In fact, the 2008 deficit of $673.3 billion was the smallest since 2004. That improvement came despite recessions abroad which limited [...]

U.S. 2008 Current Account Deficit Shrinks To Smallest Since 2004

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320h.jpg" align="left" border="0" height="265" width="353">German ex-energy MFG prices are showing pressure with
three-month inflation surging and pushing up the pace across the major
tenor comparisons. Headline MFG price inflation is in the 5% to 6%
range over three and six months. It is still at 3.7% year/year much
more than its year/year pace of 2.9% one year ago. Inflation&#8217;s
acceleration is deeply rooted for the MFG headline rate.Ex-energy prices have less of a
structural problem and more of a rising cyclical issue. Year/year
ex-energy inflation is at 2.6%. A year ago ex-energy inflation was
stronger at 3%; ex-energy inflation decelerated further to 2.3% over
six months. But the recent three-month pace at 3.6% is a decided
acceleration. As you can see on the chart this is a reversal of a
decelerating trend that had been in place. January and February
ex-energy price have brought more pressure. This is going to be
disconcerting to the ECB that is worried about second round effects on
inflation.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> Germany PPI</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">%m/m</td>
<td colspan="4">%-SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-moY-Ago</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.6%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>5.0%</td>
<td>6.0%</td>
<td>3.7%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.1%</td>
<td>3.6%</td>
<td>2.3%</td>
<td>2.6%</td>
<td>3.0%</td>
</tr>
</tbody>
</table>
</body></html>

German ex-energy MFG prices are showing pressure with three-month inflation surging and pushing up the pace across the major tenor comparisons. Headline MFG price inflation is in the 5% to 6% range over three and six months. It is [...]

German Ex-Energy PPI Shows Disconcerting Pressure!

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320g.jpg" align="left" border="0" height="265" width="353">UK retail sales surged in February quite unexpectedly. Sales
popped by 1.2% in nominal terms and by 0.9% inflation adjusted ex-autos
Real sales ex autos are now up a strong 5.1% from one-year ago while
nominal sales overall are up 4.7%.

In the quarter to date Real Retail Sales ex Autos are rising
at a 9.8% annual rate. Nominal overall retails ales are up at am 11.4%
pace. Sales are off to a terrific start in Q1.

January and February sales are not quite strong a sharp
turnaround from the drop in Sales in December. Whereas once the UK
economy seemed to be floundering, now strength has emerged in several
areas, most recently in retailing. At the same time, the inflation
readings have become more nettlesome. All bets are off as far as what
the BOE does next and when.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> UK Real and Nominal Retail Sales</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Nominal</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAGo</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Total</td>
<td>1.2%</td>
<td>1.2%</td>
<td>-0.7%</td>
<td>7.3%</td>
<td>5.5%</td>
<td>5.0%</td>
<td>4.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food Beverage &amp; Tobacco</td>
<td>1.2%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>10.7%</td>
<td>8.2%</td>
<td>6.4%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing footwear</td>
<td>2.6%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>13.9%</td>
<td>5.0%</td>
<td>3.6%</td>
<td>6.9%</td>
</tr>
<tr class="even">
<td class="firstcol">Real</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Ex Auto</td>
<td>0.9%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>7.1%</td>
<td>5.3%</td>
<td>5.5%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>
</body></html>

UK retail sales surged in February quite unexpectedly. Sales popped by 1.2% in nominal terms and by 0.9% inflation adjusted ex-autos Real sales ex autos are now up a strong 5.1% from one-year ago while nominal sales overall are up [...]

UK Retail Sales Show Unexpected Zest

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320e.jpg" width="353">
The Conference Board reported that the composite index of leading economic indicators fell 0.3% last month and matched Consensus expectations. A January decline of 0.1% reported initially was revised to show a larger 0.4% drop. It was the fifth consecutive monthly decline.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators index and the lagged change in real GDP.
The breadth of one month increase amongst the 10 components of the leading index remained at the January level of 45%. Over a six month period, the breadth of gain amongst the leaders components remained at 20%, the lowest level since 2002.
Last month higher claims for jobless insurance, lower building permits, faster vendor performance and lower stock prices made the largest negative contributions to the overall leading index.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320f.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators were unchanged for the third consecutive month. Over the last ten years there has been an 86% correlation between the y/y change in the coincident indicators and real GDP growth. Half of the coincident series components fell.
The lagging index rose slightly as the average duration of unemployment rose and C&amp;I loans increased. The ratio of coincident to lagging indicators (a measure of economic excess) fell yet again and was at its lowest since 1982. 
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
On the Needed Quantity of Government Debt from the Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/research/QR/QR3111.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.3%</td>
<td>-0.4%</td>
<td>-1.5%</td>
<td>-0.4%</td>
<td>1.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.0%</td>
<td>0.0%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.3%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>3.5%</td>
</tr>
</tbody>
</table>


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The Conference Board reported that the composite index of leading economic indicators fell 0.3% last month and matched Consensus expectations. A January decline of 0.1% reported initially was revised to show a larger 0.4% drop. It was [...]

U.S. Leading Economic Indicators Fell For Fifth Month

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320c.jpg" width="353">
The Philadelphia Federal Reserve Bank reported that for March, it&#39;s Index of General Business Conditions in the manufacturing sector improved slightly to -17.4, about as expected, from -24.0 in February. The latest level was still near the lowest since the recession year 2001.
The Philadelphia Fed constructs a diffusion index for total business activity and each of the sub indexes. The business conditions index reflects a separate survey question, not the sub indexes listed below.
During the last ten years there has been a 59% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 42% correlation with q/q growth in real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320d.jpg" width="353">
The modest rise in the overall index reflected slight improvement in the new orders and in the shipments sub indexes. Unfilled orders, delivery times and inventories continued to fall, as did the employment index which fell to its lowest since 2003. During the last ten years there has been a 75% correlation between the employment index and the three-month growth in factory payrolls.
The prices paid index rose sharply to its highest level since January 2005. During the last ten years there has been a 76% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months rose and recovered most of a sharp February decline, but the index still remained negative. Expectations for new orders, shipments and for the number of employees each recovered some of the sharp February declines.
The latest Business Outlook Survey from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/bos/bos0308.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-17.4</td>
<td>-24.0</td>
<td>0.2</td>
<td>5.1</td>
<td>8.1</td>
<td>11.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>54.4</td>
<td>&nbsp;46.6</td>
<td>&nbsp;27.6</td>
<td>26.4</td>
<td>36.6</td>
<td>40.1</td>
</tr>
</tbody>
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The Philadelphia Federal Reserve Bank reported that for March, it's Index of General Business Conditions in the manufacturing sector improved slightly to -17.4, about as expected, from -24.0 in February. The latest level was still [...]

Philadelphia Fed Index Improved Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320a.jpg" width="353">
Initial claims for unemployment insurance last week surged 22,000 to 378,000. The latest was the highest level since September 2005 and claims during the prior week were revised up slightly. Consensus expectations had been for initial claims last week to rise just slightly to 359,000. So far in March claims have averaged 367,000, up 2.2% from the February average.
The latest weekly claims figure will be used by the Labor Department to survey March nonfarm payrolls. Claims rose 24,000 (6.8%) from the February survey period. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320b.jpg" width="353">
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four week moving average of initial claims rose to 365,250 (12.7% y/y), also the highest since 2005.
Continuing claims for unemployment insurance rose a strong 32,000 (1.1%) during the latest week. That followed a 4,000 rise, which was revised down just slightly, during the prior period. Insured unemployment stood at its highest level since August 2004. The figure provides some indication of workers&#39; ability to find employment.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment rose to 2.2%, its highest level since October 2005.
No Volatility, No Forecasting Power for the Term Spread from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20080401/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">03/15/08</th>
<th scope="col">03/08/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;378</td>
<td>356</td>
<td>18.9%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,835</td>
<td>9.8%</td>
<td>2,551</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for unemployment insurance last week surged 22,000 to 378,000. The latest was the highest level since September 2005 and claims during the prior week were revised up slightly. Consensus expectations had been for initial [...]

U.S. Weekly Initial Jobless Insurance Claims Highest Since 2005

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320e.jpg" align="left" border="0" height="265" width="353">
The Conference Board reported that the composite index of
leading economic indicators fell 0.3% last month and matched Consensus
expectations. A January decline of 0.1% reported initially was revised
to show a larger 0.4% drop. It was the fifth consecutive monthly
decline.
During the last ten years there has been a 59% correlation
between the y/y change in the leading indicators index and the lagged
change in real GDP.
The breadth of one month increase amongst the 10 components of
the leading index remained at the January level of 45%. Over a six
month period, the breadth of gain amongst the leaders components
remained at 20%, the lowest level since 2002.
Last month higher claims for jobless insurance, lower building
permits, faster vendor performance and lower stock prices made the
largest negative contributions to the overall leading index.
The method of calculating the contribution to the leading
index from the spread between 10 year Treasury securities and the Fed
funds rate has been revised. A negative contribution will now occur
only when the spread inverts rather than when declining as in the past.
More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320f.jpg" align="right" border="0" height="265" width="353">
The leading index is based on eight previously reported
economic data series. Two series, orders for consumer goods and orders
for capital goods, are estimated.
The coincident indicators were unchanged for the third
consecutive month. Over the last ten years there has been an 86%
correlation between the y/y change in the coincident indicators and
real GDP growth. Half of the coincident series components fell.
The lagging index rose slightly as the average duration of
unemployment rose and C&amp;I loans increased. The ratio of
coincident to lagging indicators (a measure of economic excess) fell
yet again and was at its lowest since 1982. 
Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world.


On the Needed Quantity of Government Debt
from the Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/research/QR/QR3111.pdf">
here</a>.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business
Cycle Indicators</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.3%</td>
<td>-0.4%</td>
<td>-1.5%</td>
<td>-0.4%</td>
<td>1.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.0%</td>
<td>0.0%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.3%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>3.5%</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Improved
Slightly 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 20, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320c.jpg" align="left" border="0" height="265" width="353">
The Philadelphia Federal Reserve Bank reported that for March,
it's Index of General Business Conditions in the manufacturing sector
improved slightly to -17.4, about as expected, from -24.0 in February.
The latest level was still near the lowest since the recession year
2001.
The Philadelphia Fed constructs a diffusion index for total
business activity and each of the sub indexes. The business conditions
index reflects a separate survey question, not the sub indexes listed
below.
During the last ten years there has been a 59% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 42% correlation with q/q growth in real GDP.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320d.jpg" align="right" border="0" height="265" width="353">
The modest rise in the overall index reflected slight
improvement in the new orders and in the shipments sub indexes.
Unfilled orders, delivery times and inventories continued to fall, as
did the employment index which fell to its lowest since 2003. During
the last ten years there has been a 75% correlation between the
employment index and the three-month growth in factory payrolls.
The prices paid index rose sharply to its highest level since
January 2005. During the last ten years there has been a 76%
correlation between the prices paid index and the three-month growth in
the intermediate goods PPI. There has been an 85% correlation with the
change in core intermediate goods prices.
The separate index of expected business conditions in six
months rose and recovered most of a sharp February decline, but the
index still remained negative. Expectations for new orders, shipments
and for the number of employees each recovered some of the sharp
February declines.
The latest Business Outlook Survey from
the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/bos/bos0308.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March '07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-17.4</td>
<td>-24.0</td>
<td>0.2</td>
<td>5.1</td>
<td>8.1</td>
<td>11.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>54.4</td>
<td>&nbsp;46.6</td>
<td>&nbsp;27.6</td>
<td>26.4</td>
<td>36.6</td>
<td>40.1</td>
</tr>
</tbody>
</table>
U.S. Weekly Initial Jobless
Insurance Claims Highest Since 2005 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 20, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320a.jpg" align="left" border="0" height="265" width="353">
Initial claims for unemployment insurance last week surged
22,000 to 378,000. The latest was the highest level since September
2005 and claims during the prior week were revised up slightly.
Consensus expectations had been for initial claims last week to rise
just slightly to 359,000. So far in March claims have averaged 367,000,
up 2.2% from the February average.
The latest weekly claims figure will be used by the Labor
Department to survey March nonfarm payrolls. Claims rose 24,000 (6.8%)
from the February survey period. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320b.jpg" align="right" border="0" height="265" width="353">
A claims level below 400,000 typically has been associated
with growth in nonfarm payrolls. During the last ten years there has
been a (negative) 76% correlation between the level of initial claims
and the m/m change in nonfarm payroll employment.
The four week moving average of initial claims rose to 365,250
(12.7% y/y), also the highest since 2005.
Continuing claims for unemployment insurance rose a strong
32,000 (1.1%) during the latest week. That followed a 4,000 rise, which
was revised down just slightly, during the prior period. Insured
unemployment stood at its highest level since August 2004. The figure
provides some indication of workers' ability to find employment.
The continuing claims numbers lag the initial claims figures
by one week.
The insured rate of unemployment rose to 2.2%, its highest
level since October 2005.
No Volatility, No Forecasting Power for the Term
Spread from the Federal Reserve Bank of St. Louis can be
found <a href="http://research.stlouisfed.org/publications/mt/20080401/cover.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">03/15/08</th>
<th scope="col">03/08/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;378</td>
<td>356</td>
<td>18.9%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,835</td>
<td>9.8%</td>
<td>2,551</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
UK Retail Sales Show UnexpectedZest 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 20, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320g.jpg" align="left" border="0" height="265" width="353">UK retail sales surged in
February quite unexpectedly. Sales
popped by 1.2% in nominal terms and by 0.9% inflation adjusted ex-autos
Real sales ex autos are now up a strong 5.1% from one-year ago while
nominal sales overall are up 4.7%.

In the quarter to date Real Retail Sales ex Autos are rising
at a 9.8% annual rate. Nominal overall retails ales are up at am 11.4%
pace. Sales are off to a terrific start in Q1.

January and February sales are not quite strong a sharp
turnaround from the drop in Sales in December. Whereas once the UK
economy seemed to be floundering, now strength has emerged in several
areas, most recently in retailing. At the same time, the inflation
readings have become more nettlesome. All bets are off as far as what
the BOE does next and when.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> UK Real
and Nominal Retail Sales</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Nominal</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAGo</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Total</td>
<td>1.2%</td>
<td>1.2%</td>
<td>-0.7%</td>
<td>7.3%</td>
<td>5.5%</td>
<td>5.0%</td>
<td>4.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food Beverage &amp; Tobacco</td>
<td>1.2%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>10.7%</td>
<td>8.2%</td>
<td>6.4%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing footwear</td>
<td>2.6%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>13.9%</td>
<td>5.0%</td>
<td>3.6%</td>
<td>6.9%</td>
</tr>
<tr class="even">
<td class="firstcol">Real</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Ex Auto</td>
<td>0.9%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>7.1%</td>
<td>5.3%</td>
<td>5.5%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>
German Ex-Energy PPI Shows
Disconcerting Pressure! 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 20, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080320h.jpg" align="left" border="0" height="265" width="353">German ex-energy MFG prices
are showing pressure with
three-month inflation surging and pushing up the pace across the major
tenor comparisons. Headline MFG price inflation is in the 5% to 6%
range over three and six months. It is still at 3.7% year/year much
more than its year/year pace of 2.9% one year ago. Inflation&#8217;s
acceleration is deeply rooted for the MFG headline rate.Ex-energy
prices have less of a
structural problem and more of a rising cyclical issue. Year/year
ex-energy inflation is at 2.6%. A year ago ex-energy inflation was
stronger at 3%; ex-energy inflation decelerated further to 2.3% over
six months. But the recent three-month pace at 3.6% is a decided
acceleration. As you can see on the chart this is a reversal of a
decelerating trend that had been in place. January and February
ex-energy price have brought more pressure. This is going to be
disconcerting to the ECB that is worried about second round effects on
inflation.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Germany
PPI</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">%m/m</td>
<td colspan="4">%-SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-moY-Ago</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.6%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>5.0%</td>
<td>6.0%</td>
<td>3.7%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.1%</td>
<td>3.6%</td>
<td>2.3%</td>
<td>2.6%</td>
<td>3.0%</td>
</tr>
</tbody>
</table>
</body></html>

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080319f.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s all-industry index was flat in January. The tertiary
index that it tracks so closely was up to 110.3 from 109.5 in December.
In terms of year-to-year changes the tertiary and all-industries
indices are about the same showing a small bounce in the recent month
but holding in a shallow downtrend overall. Mining and MFG are well off
peak and the sector moved lower in January to 109.5 from 112.0 in
December. This left the year/year change in the index near zero. Over
the past several months Japan&#8217;s sector indices have more or less held
steady in terms of their year/year changes. Even the very weak
construction index that fell again in January is steady to a bit higher
over 12 months.
Amid these signals the Japanese government has downgraded its
assessment of the economy for the second consecutive month in March.The Cabinet Office that issues the
assessment cited stalled corporate capital spending and weak industrial
production. Private
consumption has lagged for time and was also on the laundry list of
reason to downgrade the economy. The
government said in its March report that "the economic recovery appears
to be pausing recently." This pronouncement is a bold contrast to its
overview in the February report that held: "the economy is recovering
at a moderate pace recently." Things change.
This is the &#8216;first second&#8217; for a downgrade: It is the first
time in this cycle that the government has downgraded its overall
assessment of the economy for the second month in a row. Last time it
did such a thing was in November and December 2004.
The first downgrade in this cycle came in February a
period that is not yet covered in the data table below.
In February the government lowered its assessment of the
economy due to slower growth of exports and industrial production in
addition to continuing weakness in private consumption and housing
construction. This month&#8217;s downgrade features some of the same sectors:
capital investment, industrial output and private consumer spending.
Japan once again has issues. With the yen now rising, Japan faces
challenges and still needs a head at its central bank. &#8230;and it&#8217;s not a
good time to be without monetary leadership. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col"> Up to date Japan Industry Surveys</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jan 2008</td>
<td>Dec 2007</td>
<td>Nov 2007</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">All Industry</td>
<td>107.0</td>
<td>107.0</td>
<td>107.4</td>
<td>107.1</td>
<td>107.4</td>
<td>107.3</td>
<td>108.4</td>
<td>93.6</td>
<td>90.5%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>71.5</td>
<td>72.0</td>
<td>72.1</td>
<td>71.9</td>
<td>72.3</td>
<td>76.3</td>
<td>124.6</td>
<td>71.1</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>109.5</td>
<td>112.0</td>
<td>110.4</td>
<td>110.6</td>
<td>111.1</td>
<td>109.4</td>
<td>112.2</td>
<td>87.7</td>
<td>89.0%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>110.3</td>
<td>109.5</td>
<td>110.5</td>
<td>110.1</td>
<td>110.2</td>
<td>110.1</td>
<td>111.2</td>
<td>91.0</td>
<td>95.5%</td>
</tr>
<tr>
<td class="firstcol" colspan="10">Ranges, Max, Min since
1993</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s all-industry index was flat in January. The tertiary index that it tracks so closely was up to 110.3 from 109.5 in December. In terms of year-to-year changes the tertiary and all-industries indices are about the same showing a [...]

Japan Slips and its Assessment is Cut…

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

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

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The NFIB Small Business Optimism Index eased 0.6% (+4.8%) to 98.2 in October after falling 2.0% to a 98.8 in September and rising 0.5% to 100.8 in August, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. Four of the ten index components increased last month while five fell and one was unchanged. The NFIB Small Business Uncertainty Index fell 12.0% (-20.0% y/y) last month to 88 after rising 7.5% in September.

The outlook for business conditions was mixed in the latest survey. The net balance of respondents planning to add to inventories declined to a six-month low of -2% from +1% in September. The net percent expecting the economy to improve fell to 20% last month after weakening to 23% in September. A lessened 6% expected higher real sales in six months, compared to 8% in September. A lessened 15% of respondents indicated that now was a good time to increase employment compared to 16% in September. Earnings trends deteriorated sharply.

Offsetting these declines, plans to make capital outlays rose to a ten-month high of 23% of firms after steadying at 21%. The index of expected credit conditions jumped to -3% from -7%. It remained up from a low of -11 in November 2023. A modestly increased 13% of respondents felt that now was a good time to expand. Inventories were assessed as being too low by a lessened 4% of respondents after 7% in September.

On the labor front, 49% of businesses reported few or no qualified workers to fill job openings in October, down slightly from 50% in September. That remained up, however, from a low of 43% in August. These readings remained below a high of 56% in August of 2024.

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The net percent raising their average selling prices fell to 21% last month compared to 24% in September. It had grown to 32% in February. The percentage planning to raise prices eased to 30% in October, down from a 32% high in June. Worker compensation deteriorated as a net 26% of respondents lifted compensation during the last three months versus 31% in the last survey. Compensation gains peaked at 50% of firms in January 2022. A steady net 19% of firms are making plans to raise worker compensation in the next three months, below the November 2024 high of 28%.

The quality of labor was reported by 27% of member firms as the single most important issue facing small businesses. That was increased from 18% in September, and the highest in five years. Moving lower, the cost of labor was ranked by 8% of respondents as the largest problem, compared to 11% in September, while financial & interest rates worries dropped to 2%, the lowest in two years. A lessened 12% cited inflation as the most important problem. Other major concerns were taxes (16%) and poor sales (10%). 

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

- Inventory, economy & employment concerns weigh on optimism.
- Percentage of respondents raising prices moves down; price expectations ease.
- Concerns about quality of labor surge but labor cost worries recede.

U.S. NFIB Small Business Optimism Index Slips in October

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Macroeconomic expectations in the ZEW survey backtracked slightly in Germany while improving slightly in the United States in November. The economic situation improved slightly in the euro area and Germany while backtracking in the United States. That's the assessments of the current economic situation and expectations for Germany or the EMU that are moving in different directions in the U.S. and in Germany or in the U.S. vs. the European Monetary Union in November.

Inflation expectations backed off across the board easing slightly in the euro area, Germany, and also in the United States. While that happened, expectations for short-term interest rates became less focused on rate cuts in the euro area and slightly less tilted toward the expectation for rate cuts in the U.S. as well. Long-term rate expectations receded somewhat in both Germany and in the U.S. in November by small amounts. Stock market expectations picked up in the euro area, Germany, and the U.S., and in most cases, somewhat significantly.

**The queue standings**
The queue standings are ranked standings of these various metrics, and they tell a clear story of how the ZEW experts see current conditions and policy tradeoffs. The euro area has an economic situation where the queue standing is at its 51st percentile, slightly above its historic median (on data since the early 1990s). However, Germany and the U.S. have very weak percentile standings with Germany in its 14.5 percentile and the U.S. in its 35th percentile. Macroeconomic expectations, however, find Germany at a solid 63.6 percentile while the U.S. is at a 23.3 percentile. ZEW experts are far more upbeat on prospects for German recovery right now than in the United States – and that seems odd to me with a lot of fiscal stimulus in train in the U.S. and tons of ‘AI’ investment.

Inflation expectations are high in the U.S. at an 85.5 percentile standing, well above the historic median, and clearly showing threatening conditions. This compares to a 30% queue standing for the euro area and Germany.

Short-term rate expectations are significantly below the median for both the euro area and the U.S. with the euro area at a 26.8 percentile and the U.S. at a 9.3 percentile standing. Long-term rate expectations have Germany at a 43-percentile and the U.S. at a more similar 35-percentile. Stock market expectations are fairly similar across the lot with the euro area at a 38-percentile standing, Germany at a 35-percentile standing and the U.S. at a 38-percentile standing.

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**Summing up**
These metrics remind us that ZEW experts see different inflation circumstances in the U.S. compared to Europe as well as very different current economic situations, especially between the U.S. and the euro area and very different macroeconomic expectations between the U.S. and Germany. The U.S. is seen more as a place that's percolating inflation despite the fact that the Federal Reserve continues to say inflation is under control and inflation expectations are well anchored. Apparently, they are not well-anchored among the ZEW financial experts. We might add, nor are they well-anchored among participants in the University of Michigan survey, or for respondents to the NFIB survey that was just released. Maybe it's the Fed that is not very well anchored to reality when it comes to inflation expectations assessments?

ZEW Expectations Weaken Mildly

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Initial claims for unemployment insurance rose 9,379 during the week ended November 1 to 228,899 (3.4% y/y) and mostly reversed the prior week’s 12,643 decline to 219,520. The four-week moving average of initial claims eased to 225,213 from 226,766. The four-week average hit a low of 200,323 in January 2024.

Federal government employees filed 7,482 initial jobless insurance claims last week after 9,435 in the prior week. These figures are increased from 588 at the end of September.

Continuing claims for unemployment insurance rose to 1.964 million (4.4% y/y) in the week ended October 25 from 1.957 million in the prior week. The four-week moving average rose to 1.949 million from 1.940 million. It was the highest level since the last week of August.

Federal government employees continuing benefits rose to 30,649 in the week ended October 25 from 23,188 in the prior week. These figures are increased from 8,676 at the end of September.

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.

- Increase in initial claims reverses most of earlier decline.
- Continuing claims continue to increase.

U.S. Initial Claims for Unemployment Insurance Rise in Latest Week

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Industrial production for the European Monetary Union (EMU) is not yet available for the union as a whole; however, a number of European countries have reported production, and they give us a good sense of what's happening. In September, among the 13 European countries that reported in the table, all but four of them showed increases in industrial production. Declines were posted in Ireland where production fell by 9.4% in one month, Luxembourg where it fell by 6.1%, Malta where it fell by 1.7%, and in Finland where it fell by 0.4%. In the remaining nine countries, production increased. The median increase for monetary union members in the table was a rise of 0.8% month-to-month. 45.5% of the reporters in the monetary union showed production acceleration.

In August, there were 5 European members with production decreasing. Among European Monetary Union members, the median was a decline of 0.5% with 46.2% of the reporters showing output accelerating on the month. July had been a much worse month with 8 reporting European countries showing declines and with the monetary union median showing a decline of 0.3% and only 38.5% of the reporting EMU members showing output accelerating month-to-month.

There has been gradual moderate improvement in these monthly statistics both in terms of improvement in the median and improvement in the breadth as output has accelerated, with a step back in August.

Looking at the sequential data that compare three-month results to six-month results to 12-month results, we see a median annualized increase of 2.9% for output across monetary union members over three months; that's up from 0.8% over six months and compares to a 2.1% increase for monetary union members over twelve months. The breadth of increase over the period is above 50% on all the horizons and it's fairly steady over three months and six months at about a 54-percentile standing.

September data conclude the results for the third quarter. In this quarter-to-date calculation, 6 of the 13 reporters in the table shows output declining in the third quarter. Monetary Union members generate a median increase of 0.3% in terms of annualized quarter-to-quarter industrial output changes. The pattern and the monthly data seem to be slightly stronger than what we see in the quarter-to-date.

The final column of the table presents the queue standings that calculate the positioning of the year-over-year growth rates across country-reporters among growth rates back to late-2007. Ranked among this cluster of growth rates, only five of the current year-over-year rates stand at levels that are below their median growth rate for the period. Countries with below median growth rates (below a standing of 50%) for industrial production growth are Austria, Germany, Finland, Luxembourg, and Malta. Among these, only one belongs to the four largest economies in the monetary union—Germany, which is also the largest of them. Germany has the standing only its 39th percentile. The unweighted median ranking for the group of monetary union economies is at 57.3%, above the 50% mark and therefore above the historic median.

The industrial production data for the monetary union in September is somewhat encouraging but certainly not crystal clear. There continues to be a lot of weaknesses displayed in the data. While the aggregate ranking is above its historic median, it's not above it by very much and clearly the growth rates are still relatively weak. There still is not a clear trend of acceleration in the group. However, what's lacking in the data is any sign of real deterioration. There clearly is weakness across countries but not a sense of deterioration. The best news in the report may be that there's not any really bad news.

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Europe

Production in a Gradual Recovery in Europe Despite Recent Setbacks

Tian Yong Woon

This week, we review key developments across several Asian economies as the year nears its close. On balance, many of investors’ and policymakers’ worst fears did not materialize. Despite US tariffs, regional exports have shown resilience (chart 1), partly supported by stronger intra-Asia trade, even as exports to the US declined in some cases.

In China, factors including importer front-loading, stronger exports to non-US markets, and government efforts to boost consumption—albeit with potentially one-off effects—have kept the economy on track to meet its 5% growth target this year (chart 2), barring a substantial slowdown in Q4. In Japan, political uncertainty has eased following Prime Minister Takaichi’s rise, though her pro-growth, pro-loose monetary stance has contributed to further yen weakness (chart 3). India, while still likely Asia’s fastest-growing major economy this year, has seen trade setbacks (chart 4) as US–India discussions continue, though recent progress suggests a deal may be near.

However, not all developments in Asia have avoided worst-case outcomes. For example, the Philippines, which has already been hit by a string of storms this year, continues to reel from the effects of Typhoons Fung-wong and Kalmaegi. These storms have highlighted corruption in the Philippines’ flood control systems, rattling investors and pressuring the peso (chart 5), in a manner reminiscent of the rupiah’s decline during Indonesia’s political turmoil earlier this year. In Thailand, political uncertainty continues ahead of general elections eyed at next March, while the expected full return of Chinese tourists has yet to materialize (chart 6).

**Trade in Asia**
For Asia, the year has ultimately not played out as bleakly as investors once feared, particularly on the trade front. Despite US President Trump’s tariffs and a persistent backdrop of uncertainty, export performance in several Asian economies has proven more resilient than expected. This is most clearly reflected in export growth readings for China and key Southeast Asian economies (chart 1), which have remained firm—and at times exceeded expectations—even as China’s shipments to the US fell sharply. Much of this resilience reflects a redirection of exports toward other markets, often within the region. India, however, has seen more limited gains, with exports in US dollar terms struggling to materially surpass last year’s levels.

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**China**
Among the main investor concerns earlier this year was China, which once again came under close scrutiny as President Trump sought to address issues ranging from the large US–China trade imbalance to intensifying AI competition and perceived overcapacity. Yet China’s growth—particularly on the export front—has proven more resilient than expected, with increased shipments to other markets more than offsetting reduced trade with the US. Earlier front-loading by importers ahead of anticipated tariff hikes also temporarily supported export figures. Domestically, government initiatives to stimulate consumption led to a brief lift in retail spending, though signs suggest these effects may be fading, indicating their largely one-off nature. Even so, China has maintained year-to-date growth above its 5% annual target (chart 2), keeping that goal within reach provided momentum does not weaken significantly in Q4. Meanwhile, the more conciliatory tone in recent US–China discussions, including the halving of US fentanyl-related tariffs, offers a modest further relief. That said, longer-term structural issues still loom, including the difficult shift toward a more consumption-led economy, demographic pressures, and questions around sustained overcapacity in key industries.

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**Japan**
In Japan, the political uncertainty that followed the Liberal Democratic Party’s weak election performances earlier in the year has largely eased with Takaichi’s appointment as the country’s first female Prime Minister. Attention now turns to her supplementary budget—reported to be around $65 billion—which aims to address the rising cost of living while also bolstering defence and diplomatic capabilities. Investors, however, are already contemplating the policy implications. In particular, expectations that Takaichi’s agenda could make it harder for the Bank of Japan to pursue further significant tightening have added renewed pressure on the yen, pushing it to multi-year lows (chart 3). And while a weaker yen could, in theory, support tourism, forthcoming measures to curb overtourism—such as Kyoto’s planned 900% increase in accommodation taxes—may act as offsetting factors.

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**India**
Turning to India, the economy remains on track to be the region’s fastest-growing major economy. Growth forecasts were downgraded earlier in the year by the IMF and Blue Chip survey panellists, but these revisions were later reversed. These early-year downgrades reflected India’s heavy exposure to US trade, a concern that materialized when the US raised its reciprocal tariff rate on India from 25% to 50%. This contrasts with the situation of many other Asian economies, who successfully negotiated lower rates below the “Liberation Day” baseline. Although India managed to expand exports to other trading partners, this gain resulted in only a muted net impact on overall exports and, in turn, GDP growth. That said, US–India discussions have made some progress over the year, particularly on previously contentious issues such as India’s purchases of Russian crude. While these developments bring India closer to a potential trade deal, the benefits are likely to materialize beyond this year, meaning current growth readings still largely reflect the impact of the steep US tariffs in place today.

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**The Philippines**
Moving to the Philippines, the country is grappling with the impact of Typhoon Fung-wong, which struck the northern regions on Sunday, forcing over a million people to evacuate and causing widespread landslides and damaged roads. Fung-wong follows a string of storms this year, including Typhoon Kalmaegi, which also inflicted substantial damage just a few days ago. The disasters have reignited concerns over longstanding corruption in the country’s flood control systems, spooking investors and prompting capital outflows, which have weighed on the Philippine peso (chart 5). The currency’s weakness has been compounded by the central bank’s ongoing easing, which has cut the policy rate from last year’s peak of 6.5% to 4.75%—nearly 200 basis points—and with markets still pricing in further cuts.

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**Thailand**
Lastly, Thailand’s economy continues to struggle to regain the footing it had before the pandemic, weighed down by both domestic and external factors. Politically, the country remains in a transitional phase, with new Prime Minister Anutin under scrutiny to deliver on his pledge to hold general elections soon. Deputy Prime Minister indications suggest March 29, 2026 as a likely date, leaving a period of uncertainty in the meantime, as the durability of policies enacted during this interim phase remains unclear. Externally, tourism—which should have been a key growth driver—has underperformed, as the return of Chinese visitors to pre-pandemic levels did not materialize, partly due to tourism-related scares. In contrast, Vietnam appears to have captured a larger share of Chinese tourists this year (chart 6).

Economy in Brief: 2008

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U.S. 2008 Current Account Deficit Shrinks To Smallest Since 2004

German Ex-Energy PPI Shows Disconcerting Pressure!

UK Retail Sales Show Unexpected Zest

U.S. Leading Economic Indicators Fell For Fifth Month

Philadelphia Fed Index Improved Slightly

U.S. Weekly Initial Jobless Insurance Claims Highest Since 2005

U.S. Leading Economic Indicators Fell For Fifth Month

Japan Slips and its Assessment is Cut…