Tom Moeller

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New home sales during February increased to 539,000 from 500,000 in January,
initially reported as 481,000. The latest figure was the highest since February
2008 and surpassed expectations for 470,000 sales in the Action Economics
Forecast Survey. These volume numbers are quoted at seasonally adjusted annual
rates.

Lower prices are attracting buyers. The median price for a new home in
February declined 4.8% to $275,500 from $289,400, revised from $294,300. The
average price of a new home slipped 0.9% to $341,000 (+4.6% y/y) from $344,100,
revised from 348,300.

Sales in the Northeast more than doubled (87.0% y/y) to 43,000 while sales in
the South increased 10.1% (22.0% y/y). Home sales in the Midwest were off 12.9%
(-3.6% y/y) and in the West, sales declined 6.0% (+34.0% y/y).

The inventory of unsold homes declined 1.4% to 210,000 (+12.9% y/y). The
months' sales supply of new homes fell m/m to 4.7 months, the lowest point since
June 2013. The length of time to sell a new home moved slightly higher m/m to 3.5
months, but still was down from 14.0 months at the end of 2009.
The data in this report are available in Haver's USECON database. The
consensus expectation figure from the Action Economics survey is available 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" >U.S. New Home Sales</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total SAAR, 000s</td>
 <td >539</td>
 <td >500</td>
 <td >479</td>
 <td >25.7</td>
 <td >439</td>
 <td >430</td>
 <td >368</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Northeast</td>
 <td >43</td>
 <td >17</td>
 <td >31</td>
 <td >50.0</td>
 <td >27</td>
 <td >31</td>
 <td >29</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Midwest</td>
 <td >54</td>
 <td >62</td>
 <td >51</td>
 <td >-3.6</td>
 <td >58</td>
 <td >61</td>
 <td >47</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; South</td>
 <td >316</td>
 <td >287</td>
 <td >271</td>
 <td >23.8</td>
 <td >245</td>
 <td >233</td>
 <td >195</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; West</td>
 <td >126</td>
 <td >134</td>
 <td >126</td>
 <td >34.0</td>
 <td >109</td>
 <td >106</td>
 <td >97</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Median Price (NSA, $)</td>
 <td >275,500</td>
 <td >289,400</td>
 <td >295,500</td>
 <td >2.6</td>
 <td >283,233</td>
 <td >265,092</td>
 <td >242,108</td>
 </tr>
 </tbody>
 </table>
 
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New home sales during February increased to 539,000 from 500,000 in January, initially reported as 481,000. The latest figure was the highest since February 2008 and surpassed expectations for 470,000 sales in the Action Economics [...]

U.S. New Home Sales Surprisingly Improve As Prices Weaken Further

Robert Brusca

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The euro area economic recovery continues to be led by the services sector recovery. Not only are the PMI diffusion values higher for services than for manufacturing, but the queue standings show that they are relatively much stronger than manufacturing as well. 

The EMU services sector diffusion readings are steadily higher in each of the last three months. This sort of recovery progression, however, is not yet entrenched enough to be reflected in sequential strength for 12-month to six-month to three-month PMI averages. Over those horizons, however, the services readings are stable and lower than what they have become for the last three months as the sector has accelerated.

Germany also shows a strong progression higher in the last three months for its services sector against background of a minor sequential weakening from 12 months to six months to three months. Once again we find that the last three months show the German services sector strong than for its broader averages. France fails to follow this theme because of a drop back in its services sector in March; but its March reading is still better than its January reading and it's better than its three-month and six-month and 12-month averages. Despite some prevarication, France is also showing some tendency to improve.

The manufacturing sector shows a minor improving trend in the EMU in each of the last three months. Germany joins that pattern of improvement. But for the broader EMU horizon manufacturing, out to 12 months, it is still trendless and holding just above the 50 mark for diffusion (which is the neutral reading). France's manufacturing sector has weak readings with manufacturing sequential averages below 50 and with its recent three-month also stuck below 50 and showing no sign of improvement. 

Despite the differences between the EMU as a whole, Germany and France, the theme that is invariant is that the services sector has a higher absolute diffusion value and a higher queue percentile standing than manufacturing. This makes it clear that the services sector is holding these economies up. Despite the impact of austerity in the EMU which has depressed domestic demand and despite the recent stimulus from the dropping euro which should act to create stimulus that will work through trade and the manufacturing sector, it is the services sector that is driving growth in the EMU.

Since the euro exchange rate has fallen and is falling so hard, we should expect to see the manufacturing sector revive. With manufacturing standing on in its 60th historic queue percentile compared to services at their 79th percentile, there is ample room for manufacturing to kick in and send the EMU economy into a stronger growth trajectory. With the ECB engaged in a complimentary program to enhance financial markets performance, the EMU seems to have quite a number of factors pushing it on to stronger growth rates. Our concern is that all this stimulus will prove to be too much for Germany which is reviving quickly and should benefit the most from the lower euro exchange rate. But so far evidence of a German manufacturing revival is scant and the rest of the EMU is still slow in reviving its manufacturing sector. Services continue to carry the EMU ahead and to drive momentum for overall private sector. 


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The euro area economic recovery continues to be led by the services sector recovery. Not only are the PMI diffusion values higher for services than for manufacturing, but the queue standings show that they are relatively much stronger [...]

EMU Services Hold on to Strong Recovery

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The consumer price index gained 0.2% (0.0% y/y), the first increase in
four months. While the rise matched expectations in the Action Economics
Forecast Survey, a 0.2% increase in the core price index surpassed the average
forecast for a 0.1% rise.

A 1.0% increase in energy prices (-18.9% y/y) reflected a 2.4% rebound in
gasoline prices (-32.8% y/y). Fuel oil prices gained 1.9% (-31.2% y/y) and electricity
costs rose 0.3% (2.5% y/y). Natural gas prices declined 2.0% (-6.5% y/y).

Prices for goods excluding food &amp; energy also
showed improvement with a 0.2% gain (-0.5% y/y). The rise followed three
consecutive months of decline and spread broadly amongst categories. Apparel
prices increased a firm 0.3% (-0.8% y/y) led by a record 3.2% surge (0.1% y/y)
in men's clothing prices. This was countered, however, by a 0.7% decline (-3.2%
y/y) in women's apparel prices. Used vehicle prices jumped 1.0% (-2.9% y/y) and
new vehicle prices gained 0.2% (0.6% y/y), the first rise in four months.
Medical care goods prices improved 0.7% (3.9% y/y) after a 0.3% fall and
education &amp; communications goods prices slipped a lessened 0.1% (-4.0% y/y).
Tobacco &amp; smoking products prices rose 0.5% (2.6% y/y) following a 0.2%
decline. Remaining weak were household appliance prices which fell 0.3% (-4.9%
y/y) following a 0.1% uptick. Furniture &amp; bedding costs were off 0.4% (-1.5%
y/y) and recreation goods prices declined 0.2% (-3.0% y/y).

Showing less strength in pricing power were core services prices which posted
a 0.1% uptick (2.5% y/y), the weakest gain in six months. Medical care services
prices declined 0.2% (+1.8% y/y), the only material decline since 1975. Shelter
prices rose 0.2% (3.0% y/y). Owners' equivalent rents of primary residence costs
increased 0.2% (2.7% y/y) but rents of primary residences increased 0.3%. The
3.5% y/y rise here was improved from 0.2% growth in 2010. Tuition costs rose an
easier 0.2% (3.3% y/y), recreation services prices ticked 0.1% higher (1.6% y/y)
but public transportation prices remained unchanged (-1.9% y/y).

Food prices improved 0.2% (3.0% y/y). Egg prices rebounded 2.1% (8.5% y/y)
and nonalcoholic beverage prices increased 0.6% (1.8% y/y). Meat prices ticked
up 0.1% (10.6% y/y) but dairy prices declined 1.0% (+2.1% y/y). Fruit &amp;
vegetable costs inched 0.3% lower (+1.1% y/y). Cereal &amp; bakery product
prices fell 0.2% (+0.9% y/y).

The consumer price data is available in Haver's USECON database while
detailed figures can be found in CPIDATA. The expectations figure is from
Action Economics and is found 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" >Consumer Price Index (%)</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Feb Y/Y</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >0.2</td>
 <td >-0.7</td>
 <td >-0.3</td>
 <td >0.0</td>
 <td >1.6</td>
 <td >1.5</td>
 <td >2.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Total less Food &amp; Energy</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >0.1</td>
 <td >1.7</td>
 <td >1.7</td>
 <td >1.8</td>
 <td >2.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Goods less Food &amp; Energy</td>
 <td >0.2</td>
 <td >-0.1</td>
 <td >-0.2</td>
 <td >-0.5</td>
 <td >-0.3</td>
 <td >-0.0</td>
 <td >1.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Services less Energy</td>
 <td >0.1</td>
 <td >0.3</td>
 <td >0.2</td>
 <td >2.5</td>
 <td >2.5</td>
 <td >2.4</td>
 <td >2.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Food</td>
 <td >0.2</td>
 <td >-0.0</td>
 <td >0.2</td>
 <td >3.0</td>
 <td >2.4</td>
 <td >1.4</td>
 <td >2.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Energy</td>
 <td >1.0</td>
 <td >-9.7</td>
 <td >-4.7</td>
 <td >-18.9</td>
 <td >-0.3</td>
 <td >-0.7</td>
 <td >0.9</td>
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The consumer price index gained 0.2% (0.0% y/y), the first increase in four months. While the rise matched expectations in the Action Economics Forecast Survey, a 0.2% increase in the core price index surpassed the average forecast [...]

U.S. Consumer Prices Increase With Energy Price Turnaround; Core Prices Firm

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Sales of existing homes improved 1.2% during February to 4.880 million (AR,
4.7% y/y), following an unrevised 4.9% January decline. Home sales remained down
5.4% from October and slightly missed consensus expectations for 4.92 million in
the Action Economics Forecast Survey. Single-family home sales gained 1.4% last
month (5.9% y/y) to 4.340 million after a 4.9% shortfall. Condo and co-op sales
remained unchanged (-3.6% y/y) at 0.540 million, the lowest level since July
2012.

The median sales price of an existing home increased 2.5% (7.5% y/y) to $202,600
from $197,600, revised from $199,600. Prices remained 8.7% lower than the June
peak. The average sales price improved 1.0% (5.0% y/y) to $248,400, down 7.3%
from the June peak. The composite index of home affordability increased 2.3% y/y
to the highest level since May 2013.

Severe winter weather likely reduced sales last month. By region, sales in
the Northeast declined 6.5% (+3.6% y/y) to 580,000, the lowest level in twelve
months. Sales in the Midwest were unchanged (+4.9% y/y) at 1.080 million, down
10.7% from the high six months ago. Sales in the South improved 1.9% (6.0% y/y)
to 2.110 million but remained slightly below their October peak. Sales in the
West gained 5.7% (2.8% y/y) to 111,000, but have moved sideways for six months.

The inventory of unsold homes slipped 0.5% y/y. The months' supply of homes
on the market remained unchanged at 4.6, down from 5.6 months in August and near
the low for the economic expansion.

The data on existing home sales, prices and affordability can be found in
Haver's USECON database. The regional price, affordability and inventory
data are available in the REALTOR database. The expectations figure is
from the Action Economics survey, reported in the AS1REPNA database.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Existing Home Sales (SAAR,
 000s)</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >4,880</td>
 <td >4,820</td>
 <td >5,070</td>
 <td >4.7</td>
 <td >4,920</td>
 <td >5,074</td>
 <td >4,657</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; Northeast</td>
 <td >580</td>
 <td >620</td>
 <td >670</td>
 <td >3.6</td>
 <td >640</td>
 <td >658</td>
 <td >597</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Midwest</td>
 <td >1,080</td>
 <td >1,080</td>
 <td >1,110</td>
 <td >4.9</td>
 <td >1,131</td>
 <td >1,194</td>
 <td >1,063</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; South</td>
 <td >2,110</td>
 <td >2,070</td>
 <td >2,170</td>
 <td >6.0</td>
 <td >2,048</td>
 <td >2,032</td>
 <td >1,834</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; West</td>
 <td >1,110</td>
 <td >1,050</td>
 <td >1,120</td>
 <td >2.8</td>
 <td >1,102</td>
 <td >1,190</td>
 <td >1,163</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >Single-Family Sales</td>
 <td >4,340</td>
 <td >4,280</td>
 <td >4,500</td>
 <td >5.9</td>
 <td >4,334</td>
 <td >4,473</td>
 <td >4,125</td>
 </tr>
 <tr>
 <td class="firstcol" >Median Price Total ($, NSA)</td>
 <td >202,600</td>
 <td >197,600</td>
 <td >208,200</td>
 <td >7.5</td>
 <td >206,708</td>
 <td >195,667</td>
 <td >175,433</td>
 </tr>
 </tbody>
 </table>
 
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Sales of existing homes improved 1.2% during February to 4.880 million (AR, 4.7% y/y), following an unrevised 4.9% January decline. Home sales remained down 5.4% from October and slightly missed consensus expectations for 4.92 million [...]

U.S. Existing Home Sales Remain Under Pressure

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The U.K. economy is showing mixed evidence of a slipping industrial sector as industrial sector overall orders have dropped to a five-month low and to their first neutral reading in that span. Export orders are at their weakest over two years (26 months). With the EMU kick-starting its program of QE and the U.K.'s own program of QE having been staged a long time ago, the pound sterling's period of being undervalued (and stimulative to industry) is coming to an end.

Still, these readings for orders are not as weak as they may seem. The current reading placed in historic context finds a standing at a position that is in the 84th percentile of its data queue, hardly weak! By this relative ranking, overall orders have been stronger only 16% of the time. Export orders, however, are about as weak as they seem. Their -26 net reading has a queue standing in its 39th percentile (weaker only 39% of the time).

The dropping euro exchange rate is playing a role by pushing sterling higher and reducing the U.K.'s competitive advantage for U.K. exporters vs. EMU single-currency members. Sterling on a broad basis is now nearly back to parity after having been undervalued since early-2008.

However, looking ahead the outlook for volume has slipped only to 22 in March from 25 in February. This reading (apart from its February value, of course) is the strongest since September of last year, standing in the 88th percentile of its historic queue of values (stronger only 12% of the time). The outlook for prices has fallen month-to-month to 4 from 8 and that net value stands in the 56th percentile of its historic queue. There is no evidence of inflation being expected. But the output outlook is still quite strong. 

What we have is a U.K. economy where the outlook for output is still relatively strong. Orders on hand, have slipped, but are at about the same relative historic standing as the outlook for volume expansion. The volume outlook and orders readings are compatible in percentile standing terms. But what has slipped month-to-month and is a matter of concern is the reading for export orders; that lower 39th percentile standing should raise flags. U.K. exports are approximately 29% of GDP while imports are 32% of GDP. The U.K. is importantly plugged into the world trading system and any loss in competitiveness will impact the economy significantly.

So far it appears that the U.K. economy is prepared to run at a decently firm pace on home grown fuel (domestic demand and orders). But the slippage in foreign orders has to be a problem from the stand point of a more lasting outlook. The U.K. outlook reading in the CBI survey is only for three months ahead. We know that exchange rate changes take more time than that to filer though the economic system.

For now the CBI survey can be called mixed. But with the slippage in export orders there is reason to doubt the overall competitive state of British industry and to raise a question mark about performance in the future. For now the domestic economy has enough strength to keep forward-looking metrics in line, but there should be some skepticism about performance farther down the line.


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The U.K. economy is showing mixed evidence of a slipping industrial sector as industrial sector overall orders have dropped to a five-month low and to their first neutral reading in that span. Export orders are at their weakest over [...]

U.K. CBI Index Shows Mixed Trends

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The Chicago Federal Reserve reported that its National Activity Index (CFNAI)
for February declined to -0.11 from -0.10 in January, revised from +0.13. The
three-month moving average also turned negative. The reading of -0.08 was the
first below zero in twelve months. During the last ten years, there has been a
76% correlation between the Chicago Fed Index and the q/q change in real GDP.

Two of the four component series were negative last month, the same as during
the prior two months. The Personal Consumption &amp; Housing series was negative
0.17, its weakest reading since January of last year. The Production &amp;
Income figure of -0.07 was the fourth number below zero in the last five months.
At 0.02, the Sales, Orders and Inventories series remained weak. The Employment,
Unemployment and Hours reading declined to 0.11, its lowest level in six months.
The three-month moving average of the total deteriorated to -0.08, the first negative
reading in a year. The Fed reported that 48 of the 85 component series made
positive contributions to the total while 37 made negative contributions. This
breadth of increase was the same as during January.

The CFNAI is a weighted average of 85 indicators of national economic
activity. It is constructed to have an average value of zero and a standard
deviation of one. Since economic activity tends toward trend growth rate over
time, a positive index reading corresponds to growth above trend and a negative
index reading corresponds to growth below trend.

The Chicago Federal Reserve figures are available in Haver's SURVEYS
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" >Chicago Federal Reserve Bank</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Feb '14</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >CFNAI</td>
 <td >-0.11</td>
 <td >-0.10</td>
 <td >-0.02</td>
 <td >0.59</td>
 <td >0.21</td>
 <td >0.01</td>
 <td >-0.05</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;3-Month Moving Average</td>
 <td >-0.08</td>
 <td >0.26</td>
 <td >0.35</td>
 <td >-0.12</td>
 <td >--</td>
 <td >--</td>
 <td >--</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Personal Consumption &amp;
 Housing</td>
 <td >-0.17</td>
 <td >-0.07</td>
 <td >-0.13</td>
 <td >-0.12</td>
 <td >-0.11</td>
 <td >-0.14</td>
 <td >-0.20</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Employment, Unemployment
 &amp; Hours</td>
 <td >0.11</td>
 <td >0.16</td>
 <td >0.23</td>
 <td >0.08</td>
 <td >0.18</td>
 <td >0.10</td>
 <td >0.09</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Production &amp; Income</td>
 <td >-0.07</td>
 <td >-0.20</td>
 <td >-0.22</td>
 <td >0.52</td>
 <td >0.10</td>
 <td >0.03</td>
 <td >0.06</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Sales, Orders &amp;
 Inventories</td>
 <td >0.02</td>
 <td >0.01</td>
 <td >0.10</td>
 <td >0.11</td>
 <td >0.04</td>
 <td >0.03</td>
 <td >-0.00</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The Chicago Federal Reserve reported that its National Activity Index (CFNAI) for February declined to -0.11 from -0.10 in January, revised from +0.13. The three-month moving average also turned negative. The reading of -0.08 was the [...]

Chicago Fed National Activity Index Deteriorates

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<title>Empire State Factory Sector Index Slips</title>
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Recent strength in the U.S. factory sector has done little
for industrial commodity prices as growth abroad struggles. The
industrial commodity price index from the Foundation for International Business
and Economic Research (FIBER) declined this week to the lowest level since
December 2009. Overall, prices have fallen 14.3% y/y and 15.2% since
late-August.
The crude oil &amp; benzene grouping led the decline with a more than
one-third drop in prices since early last year. The price for a barrel of WTI
crude oil plunged to $43.79 yesterday (-56.2% y/y), down 59.0% from its $106.69
high in June of last year. Prices for the petro-chemical benzene have followed
the way down. Prices rallied a bit last week, but they remained 55.7% lower than
where they were in January of last year. Metals prices also have improved
of late, but they are 21.7% lower since August (-14.9% y/y). Steel scrap prices
led the way lower with a 37.5% y/y decline and they are down by nearly one-half
from the 2011 high. Copper scrap prices have been similarly weak, posting a 41.9%
decline from the 2011 high (-11.7% y/y). Aluminum prices have weakened 14.8%
since the late-November high but they remain up 6.0% y/y. In the miscellaneous
materials grouping, prices recently rallied but have trended 23.1% lower since
August 2013 (-8.6% y/y). Natural rubber prices improved with a 16.4% rise (-20.7%
y/y) since the December low. Prices for framing lumber, however, remain weak.
They're down 18.1% since early September (-13.4% y/y), reaching the lowest level
since 2013. Structural panel prices have been relatively firm, off 9.7% since
early November (+2.2% y/y). Prices remain roughly one-quarter from the April
2013 high.Textile prices have shown relative strength with
movement roughly sideways. Cotton prices have been flat since November (-30.8%
y/y) but burlap prices have risen 11.1% since October (+6.2% y/y). 
Future support for commodity prices may be on the way. The current industrial
output projection from the National Association for Business Economics calls for
3.5% growth in industrial production in 2015. During the last ten years, there
has been a 52% correlation between the three-month change in prices and the
change in industrial output.
Commodity price data can be found in Haver's DAILY, WEEKLY, USECON and
CMDTY databases.
<table class="centered" border="0" cellspacing="0" width="1871">
 <colgroup>
 <col>
 <col>
 <col>
 <col>
 <col>
 <col>
 <col>
 <col>
 </colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="1078">FIBER Industrial Materials
 Price Index (1990=100)</th>
 <th scope="col" width="157">3/19/15</th>
 <th scope="col" width="158">Y/Y %</th>
 <th scope="col" width="158">2014</th>
 <th scope="col" width="158">2013</th>
 <th scope="col" width="158">2012</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="1078">All Items</td>
 <td align="center" width="157">141.68</td>
 <td align="center" width="158">-14.3</td>
 <td align="center" width="158">163.3</td>
 <td align="center" width="158">169.0</td>
 <td align="center" width="158">166.3</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" width="1078">&nbsp;Textiles</td>
 <td align="center" width="157">74.96</td>
 <td align="center" width="158">-5.1</td>
 <td align="center" width="158">76.4</td>
 <td align="center" width="158">78.2</td>
 <td align="center" width="158">77.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1078">&nbsp;&nbsp;Cotton (cents per pound)</td>
 <td align="center" width="157">60.66</td>
 <td align="center" width="158">-30.8</td>
 <td align="center" width="158">73.4</td>
 <td align="center" width="158">79.6</td>
 <td align="center" width="158">74.4</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" width="1078">&nbsp;Metals</td>
 <td align="center" width="157">195.04</td>
 <td align="center" width="158">-14.9</td>
 <td align="center" width="158">237.5</td>
 <td align="center" width="158">236.3</td>
 <td align="center" width="158">242.7</td>
 </tr>
 <tr>
 <td class="firstcol" width="1078">&nbsp;&nbsp;Aluminum ($ per metric ton)</td>
 <td align="center" width="157">1,771.00</td>
 <td align="center" width="158">6.0</td>
 <td align="center" width="158">1,864.6</td>
 <td align="center" width="158">1,846.2</td>
 <td align="center" width="158">2,016.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1078">&nbsp;&nbsp;Copper Scrap (cents per
 pound)</td>
 <td align="center" width="157">258.14</td>
 <td align="center" width="158">-11.7</td>
 <td align="center" width="158">311.2</td>
 <td align="center" width="158">332.4</td>
 <td align="center" width="158">360.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="1078">&nbsp;&nbsp;Steel Scrap ($ per ton)</td>
 <td align="center" width="157">226.67</td>
 <td align="center" width="158">-37.5</td>
 <td align="center" width="158">357.9</td>
 <td align="center" width="158">346.0</td>
 <td align="center" width="158">366.5</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" width="1078">&nbsp;Crude Oil &amp; Benzene</td>
 <td align="center" width="157">136.80</td>
 <td align="center" width="158">-36.2</td>
 <td align="center" width="158">204.7</td>
 <td align="center" width="158">207.7</td>
 <td align="center" width="158">204.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1078">&nbsp;&nbsp;Crude Oil (WTI, $ per
 Barrel)</td>
 <td align="center" width="157">43.79</td>
 <td align="center" width="158">-56.2</td>
 <td align="center" width="158">93.2</td>
 <td align="center" width="158">97.9</td>
 <td align="center" width="158">94.2</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" width="1078">&nbsp;Miscellaneous</td>
 <td align="center" width="157">186.31</td>
 <td align="center" width="158">-8.6</td>
 <td align="center" width="158">199.4</td>
 <td align="center" width="158">218.3</td>
 <td align="center" width="158">205.2</td>
 </tr>
 <tr>
 <td class="firstcol" width="1078">&nbsp;&nbsp;Framing Lumber ($ per 1000
 board ft.)</td>
 <td align="center" width="157">335</td>
 <td align="center" width="158">-13.4</td>
 <td align="center" width="158">383</td>
 <td align="center" width="158">383</td>
 <td align="center" width="158">321</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1078">&nbsp;&nbsp;Natural Rubber (cents per
 pound)</td>
 <td align="center" width="157">130.07</td>
 <td align="center" width="158">-20.7</td>
 <td align="center" width="158">139.7</td>
 <td align="center" width="158">190.0</td>
 <td align="center" width="158">211.8</td>
 </tr>
 </tbody>
</table>





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The industrial commodity price index from the Foundation for International Business and Economic Research (FIBER) declined this week to the lowest level since December 2009. Overall, prices have fallen 14.3% y/y and 15.2% since late-August.

FIBER: Industrial Commodity Prices Post Broad-Based Declines

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Inflation in Canada continues weak, crawling along the bottom of the range established by the Bank of Canada. The central bank has a desired inflation in a range of 1% to 3% but also expects that inflation will drop below 1% for much of the year. Falling energy prices are the same old story here and in the short run there's nothing to do but wait it out.

We are in a period of controlled inflation. For the United States, Canada and EMU inflation rates for core and headline inflation measures are below 2% over the last five years and 10 years on a cumulative basis as well as more recently. The central bank of Canada has an inflation range making its 1% core performance more in line with the inflation facts of late. The ECB targets only headline inflation so its -0.3% pace constitutes a big miss from its target of 2%. Moreover, the ECB has been missing persistently with year-over-year headline inflation below 2% for 25 months in a row. That's two years of missing with the degree of the miss increasing. In the U.S., the Fed offers forecasts of the PCE and of the core PCE. Its guidance is in terms of the headline inflation rate, but the Fed, somewhat confusingly, will make references to both measures. But with the Fed focused on a rate of 2% and the PCE headline rising by only 0.2%, the Fed has a major shortfall to deal with. Even the core PCE is up by only 1.1% year-over-year.

While we can debate the merits of differing inflation targeting programs, in this instance the Bank of Canada seems a lot more relaxed and in step with its goals. Having a range for inflation gives it flexibility and it can decide to react to inflation inside the zone or not as well as how to deal with out-of-the-range variations. I know some will see adopting a range for inflation as `soft', but in reality it all depends on how the central bank enforces the program. 

For now the Bank of Canada is in its sweet spot but only at the edge of it. Since the energy price drop is seen as a special or temporary phenomenon, it can be given some slack. 

However, in Europe the inflation shortfall is more severe for political reasons. This is a target short fall in currency union where some members are shocked and hurt by such low inflation (think Mediterranean members) while others (think Germans) are quite willing to just let it play out. Of course, the German economy is a low inflation economy geared to perform in this climate. Greece, Spain, Portugal, Italy and the like are not so constructed. Because of the growth-inflation linkage, these members want inflation boosted and want stimulus policies adopted to help hit the price target. In the EMU, this is very much a political question with various members having differing positions and with the adoption and enforcement of austerity rules acting as another important motivating factor for some members to expect the central bank to at least hit its target instead of adding monetary squeezing to fiscal squeezing.

For the U.S., it is much less clear how all this is playing out. The U.S. central bank unlike Europe's does not have only an inflation objective. While the Fed does make guesses at growth rates for GDP, it does not target GDP but it does make forecasts for the unemployment rate that come into play a bit more in the policy discussion. On this score, the U.S. unemployment rate has dropped very sharply, and while U.S. growth is better than growth in Europe, it is still not satisfactory. Indeed, U.S. job growth has picked up much more than GDP growth and this disconnect is now part of the policy discussion. The Fed is confronted with an unemployment rate that is looking low -almost too low- by historic standards and according to what had been recent policy judgements. Yet inflation both core and headline continue to fall. The only way to describe Fed policy is to admit that it has been `moving the goal posts.' Or, if you like this analogy better, it is like the famous Three-Stooges skit where they keep drawing a line in the sand and challenging the bully to cross it. Each time he does cross it, so they draw another until they finally run away. Well, the Fed is not yet running away. But it has drawn and erased lines below which it did not think the unemployment rate would fall. The Fed is really at odds in trying to understand economic performance. One of its policy metrics is telling it to slow down on the easing and to tap the brake, while the other is telling it to go full speed ahead. 

We cannot be surprised that a central bank with two bosses winds up with contradictory orders. However, in the case of the Fed, the contradiction has been there for some time and yet the Fed has not resolved how to deal with it. For the moment, the Fed rhetoric is about how it won't tighten until it is sure inflation is on a 2% path. But inflation is still falling and the economy continues to tighten up. Still, there are NO SIGNS of economic overheating. Recent economic data have begun to back track, yet Fed rhetoric is all about how it is going to tighten. There is no mistaking what the Fed wants to do or which of its signals has become its master. Yet the other is still a constraint. There is no clear reason for the Fed to hike rates other than its growing impatience. The Fed is in fact talking about one policy objective (inflation) while reacting to a totally different policy fear. I find this schizophrenic behavior.

For now, despite what are highly similar inflation results, we are seeing very different monetary policies being implemented and considered in the near future in the U.S., Canada and the EMU. This may give us a chance eventually to decide which of these approaches works best.


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Inflation in Canada continues weak, crawling along the bottom of the range established by the Bank of Canada. The central bank has a desired inflation in a range of 1% to 3% but also expects that inflation will drop below 1% for much [...]

Canadian Inflation; A Study in Contrast

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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Sandy Batten

251219j5.jpg

Existing home sales rose 0.5% m/m (-1.0% y/y) in November to 4.13 million homes (SAAR) following a 1.5% monthly gain in October and a 1.3% monthly rise in September, according to the National Association of Realtors (NAR). It was the highest level of sales since February and matched expectations in the Action Economics Forecast Survey. The average effective 30-year mortgage interest rate was unchanged at 6.54% last month, but this is down markedly from 7.10% in May and accounts for some of the revival in home sales over the past several months. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales rose 0.8% m/m (-0.8% y/y) in November to 3.75 million units after a 1.1% m/m rise in October and a 1.4% monthly gain in September. Sales of condos and co-ops slumped 2.6% m/m (-2.6% y/y) to 380,000 in November following a 5.4% monthly jump in October.

Compared to a month ago, sales rose 4.1% m/m in the Northeast, increased 1.1% m/m in the South, were unchanged in the West and fell 2.0% m/m in the Midwest. Compared to a year ago, sales were unchanged in both the Northeast and the South, fell 3.0% y/y in the Midwest and declined 1.3% y/y in the West.

The median price of all existing homes (NSA) declined 1.4% m/m (+1.2% y/y) to $409,200 in November. The median price of an existing single-family home fell 1.4% m/m (+1.2% y/y) to $414,300 in November. Prices of single-family homes in the Northeast edged up 0.9% from a year ago. Prices in the Midwest jumped 5.8% y/y; prices in the South rose 1.0% y/y. In contrast, prices in the West declined 0.8% from a year ago.

Inventories of homes for sale continued to weaken in November. The number of existing homes for sale (NSA) slumped 5.9% m/m (+7.5% y/y) to 1.43 million units in November. The supply of homes on the market at the current selling rate (NSA) slid to 4.2 months, its lowest reading since March.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's USECON database. Regional price and affordability data and national inventory data are available in the REALTOR database. Mortgage interest rates can be found in the WEEKLY database. The expectations figure is from the Action Economics Forecast Survey, reported in the AS1REPNA database.


251219k5.jpg

251219l5.jpg

- Existing home sales increased 0.5% m/m in November, the third consecutive monthly gain.
- Month-over-month sales increased in the Northeast and South, were unchanged in the West, and fell in the Midwest.
- Year-over-year sales were unchanged in the Northeast and South and decreased in the Midwest and West.


U.S. Existing Home Sales Edged Up in November

Andrew Cates

**Faster-than-Expected Monetary Easing**
Our first potential upside risk for 2026 is that monetary policy across most major advanced economies is loosened further and by more than markets and forecasters currently anticipate. Monetary policy cycles have a history of being underestimated in both length and magnitude—in large part because of the powerful feedback loops between interest rates, inflation, and economic behaviour. On the way up, higher policy rates feed into mortgage costs, debt-service burdens, rents, and the general cost of doing business, reinforcing wage pressures and inflation persistence. But these same channels work in reverse on the way down. As rates fall, debt servicing eases, housing and rental inflation softens, and cost pressures across the economy unwind more rapidly than expected—allowing inflation to decelerate faster and creating scope for further easing. A risk, therefore, is that if disinflation becomes self-reinforcing, central banks find themselves cutting rates more aggressively than currently priced, not because of economic distress, but because restrictive policy proves increasingly unnecessary.

251218Z1.jpg

**Energy Supply Dynamics Prove More Supportive**
The second chart reinforces the message from the first: easing monetary policy may be accompanied—and amplified—by a more benign energy backdrop. Recent projections from the EIA point to a renewed build-up in OECD crude oil and liquids inventories over the year ahead, a dynamic that has historically been associated with downward pressure on oil prices. If inventories continue to rise as supply growth outpaces demand, spot prices for crude could undershoot current forecasts, keeping energy inflation subdued. That, in turn, would reinforce disinflationary forces already in play—lowering headline CPI, easing cost pressures for firms and households, and giving central banks greater confidence to loosen policy further. In that sense, softer oil prices would not just be a standalone positive shock, but part of a reinforcing feedback loop alongside rate cuts, supporting real incomes, financial conditions, and global growth into 2026.


251218Z2.jpg

**AI-Driven Productivity Gains Materialise More Quickly** 
The third chart shows a clear pickup in US nonfinancial productivity growth, reviving the debate around whether AI-driven efficiency gains may arrive sooner than many forecasters expect. While the longer-term productivity potential of AI remains uncertain and uneven across sectors, there are reasons to think that at least some near-term gains could prove more tangible than currently assumed. Rather than transformative breakthroughs, early benefits are likely to come from incremental improvements—automation of routine processes, better scheduling and logistics, more efficient use of capital and labour, and modest reductions in overhead costs—areas where US firms are already well positioned to implement new technologies quickly. If these gains accumulate and diffuse more broadly, the implications would still be meaningful. Even a modest, sustained uplift in productivity would help contain unit labour costs, support real income growth, and raise the economy’s speed limit without generating renewed inflation pressure. In that scenario, productivity would not need to “revolutionise” the economy to matter: incremental efficiency gains could nonetheless provide a supportive backdrop for growth, earnings, and policy easing into 2026—representing a genuine upside risk to the outlook.


251218Z3.jpg

**The US Economy Proves Resilient Again**
The next chart highlights a further upside risk to the 2026 outlook: the possibility that the US economy once again outperforms its peers. Unlike the typical pre-recession backdrop, there is little evidence of meaningful financial stress in the US private sector. After a prolonged period of balance-sheet repair, private-sector debt ratios have been trending lower in recent years, while the sector as a whole is running a healthy financial surplus. This stands in stark contrast to previous late-cycle episodes, which were characterised by rising leverage, widening deficits, and growing dependence on credit expansion. The absence of private-sector excesses reduces the economy’s vulnerability to higher rates and external shocks, and helps explain why growth has remained more durable than expected. If households and firms continue to prioritise balance-sheet strength rather than forced deleveraging, the usual mechanisms that tip the economy into recession may fail to materialise. In that environment, even modest easing in financial conditions could translate into renewed spending and investment, allowing the US to sustain above-trend growth into 2026—representing another upside risk to the global outlook.


251218Z4.jpg

**India’s Growth Engine Accelerates Further** 
Chart 5 points to another potential upside risk for 2026 emanating from India’s economy. After a period of relative pessimism earlier in the year, consensus growth forecasts for 2026 have been revised modestly higher, even as inflation projections have continued to drift lower. This combination—firmer growth expectations alongside easing inflation pressures—creates scope for a more supportive policy backdrop than markets currently assume. With real interest rates no longer rising and financial conditions stabilising, India’s investment cycle, already underpinned by public infrastructure spending and improving corporate balance sheets, could prove more durable than forecast. If these trends persist, India may deliver growth that is both stronger and more internally driven than expected, providing a meaningful demand impulse to the broader global economy. Given India’s increasing weight in global growth, even small upside surprises would have outsized effects on trade, commodity demand, and regional activity—reinforcing the case that the global outlook for 2026 may be skewed to the upside.


251218Z5.jpg

**The Global South Becomes a More Independent Source of Demand** 
The final chart points to a broader upside risk for the global economy in 2026: that economies across the so-called Global South generate more durable momentum than currently assumed. With a few notable exceptions—such as China and Thailand—many emerging economies continue to benefit from stronger growth in their working-age populations and/or faster real GDP per capita growth than their advanced-economy counterparts. These demographic and income dynamics are helping to underpin domestic consumption, support labour-force expansion, and attract capital inflows, as reflected in the pattern of net FDI across countries. In contrast, much of the advanced world faces binding demographic constraints and lower steady-state growth rates, limiting the scope for demand to re-accelerate organically. If growth in the Global South proves more resilient and internally driven—rather than overly dependent on exports to advanced economies—it could provide a more stable and geographically diversified source of global demand. In that scenario, global growth in 2026 would be less reliant on a narrow set of advanced economies, reinforcing the case that risks to the outlook may be skewed to the upside.


251218Z6.jpg

_This marks our final Charts of the Week publication for 2025 The next edition will be released on Thursday 8 January._

Last week’s Charts of the Week focused on the darker tail risks hanging over the 2026 outlook: the possibility of monetary policy mis-calibration, that geopolitics and trade fragmentation further disrupt supply chains, and that elevated debt levels—particularly in the public sector—reassert themselves as a drag on growth. This week’s charts take a deliberately different tack. Taken together, they highlight a set of upside risks that are possibly underappreciated in current forecasts. For example, policy easing across advanced economies may extend further than expected as disinflation feeds on itself (chart 1); oil prices could surprise on the downside as inventories rebuild (chart 2); US productivity may deliver incremental but meaningful gains sooner than assumed (chart 3); the US economy itself could continue to benefit from an absence of private-sector financial stress (chart 4); India’s growth momentum might firm again as inflation pressures recede (chart 5); and, more broadly, parts of the Global South appear increasingly capable of generating their own demand impulse, supported by favourable demographics and income growth (chart 6). None of these forces is guaranteed, and each carries its own caveats—but together they suggest that, having spent much of the past year fixated on downside risks, the risks to global growth in 2026 may be more evenly balanced than is widely assumed.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/6tL5l7g70DuLWxKOokuRit?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: The Upside Risks

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped 13,000 to 224,000 during the week of December 13, from 237,000 during the week of December 6, revised from 236,000. The four-week moving average of initial claims was 217,500, an increase of 500 from the previous week, which was revised to 217,000 from 216,750.

Federal government employees initially filed 1091 (NSA) jobless insurance claims in the week ended December 6, after filing 643 claims in the week ended November 29.

Continuing claims for unemployment insurance rose 67,000 to 1,897,000 in the week ending December 6, following a sharp decline of 107,000 to 1,830,000 in the prior week, revised from 1,838,000. The four-week moving average was 1,902,000 in the week ending December 6, a decrease of 14,000 from 1,916,00 in the week ended November 29, revised from 1,918,000. The insured unemployment rate stood at 1.2% in the week of December 6, unchanged from the prior week.

Federal government employees’ continuing benefits rose to 14,077 (NSA) in the week of November 29 from 12,732 (NSA) in the week ended November 22.

The insured unemployment rate varied greatly across individual states and territories. In the week ending November 29, the highest unemployment rates were in Washington (2.48%), New Jersey (2.42%), California (2.26%), Minnesota (2.16%), and Massachusetts (2.10%). The lowest rates were in Florida (0.34%), South Dakota (0.40%), North Carolina (0.41%), Louisiana (0.44%), Alabama (0.46%), Virginia (0.47%), and Tennessee (0.49%). Rates in other notable states include New York (1.81%), Illinois and Pennsylvania (both 1.67%), and Texas (1.22%). 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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- Initial claims dropped from the prior week.
- Continuing claims rebounded from the prior week sharp decline.
- The insured unemployment rate was unchanged.


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

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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?