Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070122a.jpg" width="353">
For the first month since August, the National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago turned modestly positive in December. The reading of 0.04 was the first in positive territory since a similar reading in August.
The three-month moving average of the CFNAI, however, remained negative at -0.19 and for the whole year 2006 the index&#39;s level of zero was the lowest in three years.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
Production contributed positively to the December index but the contribution from employment was negative.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_January2007.pdf">here</a>.
Understanding Unemployment from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/Com2006/1015.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">December &#39;05</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.04</td>
<td>-0.30</td>
<td>0.49</td>
<td>0.00</td>
<td>0.21</td>
<td>0.30</td>
</tr>
</tbody>
</table>
Stock Markets and Political Risk 
by <a href="/comment/Curley.html">Louise Curley</a> January 22, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070122b.jpg" width="353">
Stock markets at home and abroad were generally ebullient in the last half of 2006 and most continued to rise so far in 2007.In the United States and the United Kingdom the Dow Jones Average and the FTSE 500 surpassed record prices set back in 2000 as shown in the first chart. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070122c.jpg" width="353"> Stock markets in France and Germany have not surpassed 2000 levels, but they are getting close as shown in the second chart. The stock market in China has also surpassed its 2000 levels and in India where the stock market only began to surge in 2003, it has broken new records in 2007 as can be seem in the third chart. Data in the first three charts are end of the period weekly data.
There were however, two markets--Venezuela and Thailand--that experienced severe shocks as a result of political risks. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070122d.jpg" width="353"> The imposition of capital controls in Thailand and of nationalization in Venezuela sent the stock markets in these countries reeling. The fourth chart shows the daily prices of stocks on the Venezuelan and Thai stock exchanges. The Thailand stock market was buffeted by the military coup of September 19th and more severely by the imposition of capital controls on December 19th.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070122e.jpg" width="353"> The controls were intended to restrain the rise of the baht which had appreciated from the greatly increased capital inflows. At that time the Set Index fell 15% in one day. The Bank of Thailand since rescinded the controls and the market recovered but is still well below levels reached before the controls were imposed. The effect of capital inflows on the exchange rate in those countries whose currencies are allowed to float remains a serious problem for many emerging markets.
It was the prospect of nationalization that hit the Venezuelan stock market. As in the case of Thailand, the market has since recovered, but remains below earlier levels. The re election of Chavez and the election of populist leaders in other Latin American countries have increased the possibility of further political risks.

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<th scope="col" class="firstcol">Stock Price Indexes&nbsp;</th>
<th scope="col">Jan 19 2007</th>
<th scope="col">Dec 29&nbsp; 2006</th>
<th scope="col">Jun 30&nbsp; 2006</th>
<th scope="col">Jan 19/Dec 29 %</th>
<th scope="col">Dec 29/Jun 30 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">US Dow Jones Average&nbsp;</td>
<td>12,565</td>
<td>12,463</td>
<td>11,150</td>
<td>0.82</td>
<td>11.77</td>
</tr>
<tr>
<td class="firstcol">UK FTSE 4/10/62=100</td>
<td>3,229</td>
<td>3,222</td>
<td>2,968</td>
<td>0.21</td>
<td>8.59</td>
</tr>
<tr class="odd">
<td class="firstcol">France CAC 40 12/31/87=100</td>
<td>5,614</td>
<td>5,542</td>
<td>4,966</td>
<td>1.32</td>
<td>11.56</td>
</tr>
<tr>
<td class="firstcol"> Germany Extra Dax 12/30/87=100 </td>
<td>6,747</td>
<td>6,597</td>
<td>5,683</td>
<td>2.28</td>
<td>16.08</td>
</tr>
<tr class="odd">
<td class="firstcol">China 88 12/31/93=100</td>
<td>215</td>
<td>188</td>
<td>122</td>
<td>13.98</td>
<td>54.16</td>
</tr>
<tr>
<td class="firstcol">India Bombay Sensex Index 1979-100</td>
<td>14,183</td>
<td>13,787</td>
<td>10,609</td>
<td>2.87</td>
<td>29.95</td>
</tr>
<tr class="odd">
<td class="firstcol">Thailand SET Index 4/30/75=100</td>
<td>658.17</td>
<td>679.84</td>
<td>678.13</td>
<td>-3.19</td>
<td>0.25</td>
</tr>
<tr>
<td class="firstcol">Venezuela Bursatil Index 12/31/93=100</td>
<td>47,722</td>
<td>52,234</td>
<td>30,747</td>
<td>-8.64</td>
<td>69.88</td>
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</tbody>
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For the first month since August, the National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago turned modestly positive in December. The reading of 0.04 was the first in positive territory since a similar reading in [...]

Chicago Fed Nat'l Activity Index Positive

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070119a.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment this month jumped from December&#39;s 91.7 to 98.0 (Q1 1966 = 100). This contrasted sharply with forecast expectations for only a modest rise to 92.0-92.5.
Both current conditions and expectations contributed to the rise in overall sentiment. Current conditions increased to 112.5 from December&#39;s 108.1 and expectations to 88.7 from 81.2.
Among various sectors in the survey, the most dramatic increase occurred in respondents&#39; assessment of &quot;current business conditions&quot;. This reading rose from 101 in December to 119 this month. The proportion perceiving &quot;better&quot; conditions gained 9 points while those perceiving &quot;worse&quot; conditions fell by a like amount. People generally believe this will continue as the reading on &quot;expected business conditions&quot; rose to 106 from 101.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070119b.jpg" width="353">
Personal financial conditions also look better. &quot;Current personal finances&quot; went up from 119 to 124 as more people feel &quot;better off&quot;. The proportion feeling &quot;worse off&quot; declined a bit. Notably, neither of these changes is due to a corresponding assessment of income. The same number as in December reported higher incomes and the number with falling incomes actually increased by 1 point. Fewer people did report that they are experiencing rising prices, which sounds like a good explanation, except that the expected inflation rate ticked higher. Over the next year, people look for a mean inflation rate of 3.6% versus 3.5% reported last month and a median of 3.0% versus 2.9%. Over the longer five- to 10-year span, people look for 3.5% inflation on average, up from 3.4% in December, with the median pace steady at 3.0%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070119c.jpg" width="353">
Assessment of government policy and performance rose after December&#39;s decline. The opinion of government was 94 against December&#39;s 89. The number of respondents believing government is doing a good job was unchanged at 20, but the number expressing the view of a poor job fell from 31 to 26.
The University of Michigan survey is not seasonally adjusted.This mid-month survey was based on telephone interviews with about 340 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month-end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">January (Prelim.)</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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<td class="firstcol">Consumer Sentiment</td>
<td>98.0</td>
<td>91.7</td>
<td>7.5%</td>
<td>87.3</td>
<td>88.6</td>
<td>95.2</td>
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<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>112.5</td>
<td>108.1</td>
<td>2.0%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>88.7</td>
<td>81.2</td>
<td>12.4%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
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The University of Michigan's preliminary reading of consumer sentiment this month jumped from December's 91.7 to 98.0 (Q1 1966 = 100). This contrasted sharply with forecast expectations for only a modest rise to 92.0-92.5. Both [...]

Michigan Consumer Sentiment Gauge Rebounds Sharply on Optimistic View of Business Conditions & Personal Finances

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118e.jpg" width="353">
December housing starts appeared to gain some forward momentum, with a 4.5% advance. The resulting 1.642M was considerably better than Consensus expectations for renewed decline to 1.563M starts.
For all of 2006 starts of 1.819M was 12.3% below the 2005 total.
However, the December increase was all in multi-family structures. These jumped 42.1% in the month to 412,000, the largest since January. Multi-family building starts have been running just below 350,000 yearly for about the last ten years.
Disappointingly, single-family starts in December turned back down again, losing 4.1% to 1.23M. For the year as a whole, they totaled 1.478M, actually an annual rate not seen since June. This is 14.0% below 2005&#39;s total; as seen in the table below, the month of December was almost 25% below December 2005..<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118f.jpg" width="353">
By region, single-family housing starts in the South lost 5.7% in December (-26.3% y/y); at 642,000, this is 8.6% above October&#39;s low. Single-family starts in the Northeast were off 3.5% (-14.0% y/y). Starts in the Midwest fell 4.7% (-26.4% y/y) and out West, they managed to hold steady at 293,000 for a third consecutive month, down 23.5% December/December.
Building permits gained 5.5% in the month, but here too, the increase was mainly in the volatile multi-family sector. These permits rose 69,000 to 432,000, the best volume since August. Permits to start single-family homes edged up 1.2%, their first increase since January. For the year as a whole, these permits totaled 1.38M, down 18.0% from 2005. Total building permits for the 1.834M, down 15.1% from 2005.
New Federal Reserve Board Governor Frederic Mishkin gave his first speech as a Board Member yesterday in New York. It is titled, appropriately enough, The Role of House Prices in Formulating Monetary Policy and can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2007/20070117/default.htm">here</a>. Chairman Bernanke testified this morning before the Senate Budget Committee; his prepared statement, Long-term fiscal challenges facing the United States, can be found <a href="http://www.federalreserve.gov/boarddocs/testimony/2007/20070118/default.htm">here</a>.

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<colgroup><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,642</td>
<td>1,572</td>
<td>1,478</td>
<td>-18.0%</td>
<td>1,819</td>
<td>2,073</td>
<td>1,950</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,230</td>
<td>1,282</td>
<td>1,187</td>
<td>-24.7%</td>
<td>1,478</td>
<td>1,719</td>
<td>1,604</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>412</td>
<td>290</td>
<td>291</td>
<td>11.7%</td>
<td>341</td>
<td>354</td>
<td>345</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,596</td>
<td>1,513</td>
<td>1,553</td>
<td>-24.3%</td>
<td>1,834</td>
<td>2,159</td>
<td>2,058</td>
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</tbody>
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December housing starts appeared to gain some forward momentum, with a 4.5% advance. The resulting 1.642M was considerably better than Consensus expectations for renewed decline to 1.563M starts. For all of 2006 starts of 1.819M was [...]

Total Housing Starts Rise, But Single-Family Units Fall Anew

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118c.jpg" width="353">
The December consumer price index (CPI-U) rose 0.5% after November&#39;s flat reading. In fact, this was the first increase since August. The monthly change was in line with consensus expectations at a 0.5% rise. The 12-month inflation was 2.6%, less than 3.4% in 2005.
Prices less food &amp; energy were up 0.2%; they had been unchanged in November. This too matched consensus expectations, at a 0.2% increase. The December-on-December rate was 2.6%, the same as the total.
Core goods prices were unchanged in December, following three consecutive declines; the year-on-year pace was +0.2%. The December mix included gains in apparel (0.6%), tobacco (1.5%) and personal care products (1.9%). Declines included new &amp; used motor vehicles (-0.3%), medical care commodities (0.2%) and audio/video equipment (0.7%). Computer prices were unchanged. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118d.jpg" width="353">
Core services prices repeated their November 0.2% increase. In fact, carried to a second decimal place, December, at 0.20%, had the smallest increase since last January, 0.17%. Shelter slowed back to a 0.3% rise from 0.4% in November; public transportation continued to fall, but just 0.2% in December after 1.9% in November. Information technology and services were down 1.8%, but this was the smallest decline in recent months, following, for instance, 4.2% in November. Medical services were up just 0.2% and education increased 0.5%. Despite the huge rise in personal care products, personal care services inched up only 0.1%.
Energy prices rebounded sharply, up 4.6% on the month. This put them up 3.1% from December 2005. Gasoline prices surged 8.0% in December, heating oil rose 3.2% and piped gas and electricity were up 1.2%.
Food &amp; beverage prices were unchanged in December. Fruits and vegetables prices dropped 1.5%, their second consecutive sizable decline. Cold weather in the South this month, though, may make such declines short-lived. Nonalcoholic beverages, alcoholic beverages and cooking fats and oils also declined. Dairy product prices steadied with a 0.1% rise after their November fall of 0.6%, and prices for meats, poultry, fish &amp; eggs also rose 0.1%, a bit slower than November&#39;s 0.2%. Cereals were up 0.4%, the same as in November.
The chained CPI, which adjusts for shifts in the mix of consumer purchases, was up just 0.1% in December and the chained &quot;core&quot; fell 0.2%.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.5%</td>
<td>0.0%</td>
<td>2.6%</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.6%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.7%</td>
<td>3.4%</td>
<td>2.8%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>4.6%</td>
<td>-0.2%</td>
<td>3.1%</td>
<td>11.1%</td>
<td>16.9%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.1%</td>
<td>-0.2%</td>
<td>2.4%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>2.3%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
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The December consumer price index (CPI-U) rose 0.5% after November's flat reading. In fact, this was the first increase since August. The monthly change was in line with consensus expectations at a 0.5% rise. The 12-month inflation [...]

CPI Rises 0.5% with Pick-Up in Energy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118a.jpg" width="353">
Initial unemployment insurance claims continued to fall last week, decreasing 8,000 to 290,000, now the lowest level since last February. Consensus expectations had been for 310,000, which would have meant some reversal of the previous week&#39;s decline.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims also fell, reaching to 308,000 (+3.7% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118b.jpg" width="353">
In contrast, continuing claims for unemployment insurance rebounded in the January 6 week, with a rise of 120,000 to 2,530,000, almost exactly reversing the prior two weeks&#39; combined 112,000 drop.
The insured rate of unemployment returned to 1.9% after a dip to a downward revised 1.8% in the December 30 week. At the very beginning of 2006, the rate was 2.0%, but since February it has hovered at 1.9%, with the occasional 1.8%.

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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">01/13/07</th>
<th scope="col">01/06/07</th>
<th scope="col">12/30/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>290</td>
<td>298</td>
<td>325</td>
<td>3.2%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,530</td>
<td>2,410</td>
<td>-0.8%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial unemployment insurance claims continued to fall last week, decreasing 8,000 to 290,000, now the lowest level since last February. Consensus expectations had been for 310,000, which would have meant some reversal of the [...]

Initial Unemployment Insurance Claims Fall Again; Low Since Feb 2006

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118e.jpg" width="353">
December housing starts appeared to gain some forward momentum, with a 4.5% advance. The resulting 1.642M was considerably better than Consensus expectations for renewed decline to 1.563M starts.
For all of 2006 starts of 1.819M was 12.3% below the 2005 total.
However, the December increase was all in multi-family structures. These jumped 42.1% in the month to 412,000, the largest since January. Multi-family building starts have been running just below 350,000 yearly for about the last ten years.
Disappointingly, single-family starts in December turned back down again, losing 4.1% to 1.23M. For the year as a whole, they totaled 1.478M, actually an annual rate not seen since June. This is 14.0% below 2005&#39;s total; as seen in the table below, the month of December was almost 25% below December 2005..<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118f.jpg" width="353">
By region, single-family housing starts in the South lost 5.7% in December (-26.3% y/y); at 642,000, this is 8.6% above October&#39;s low. Single-family starts in the Northeast were off 3.5% (-14.0% y/y). Starts in the Midwest fell 4.7% (-26.4% y/y) and out West, they managed to hold steady at 293,000 for a third consecutive month, down 23.5% December/December.
Building permits gained 5.5% in the month, but here too, the increase was mainly in the volatile multi-family sector. These permits rose 69,000 to 432,000, the best volume since August. Permits to start single-family homes edged up 1.2%, their first increase since January. For the year as a whole, these permits totaled 1.38M, down 18.0% from 2005. Total building permits for the 1.834M, down 15.1% from 2005.
New Federal Reserve Board Governor Frederic Mishkin gave his first speech as a Board Member yesterday in New York. It is titled, appropriately enough, The Role of House Prices in Formulating Monetary Policy and can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2007/20070117/default.htm">here</a>. Chairman Bernanke testified this morning before the Senate Budget Committee; his prepared statement, Long-term fiscal challenges facing the United States, can be found <a href="http://www.federalreserve.gov/boarddocs/testimony/2007/20070118/default.htm">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,642</td>
<td>1,572</td>
<td>1,478</td>
<td>-18.0%</td>
<td>1,819</td>
<td>2,073</td>
<td>1,950</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,230</td>
<td>1,282</td>
<td>1,187</td>
<td>-24.7%</td>
<td>1,478</td>
<td>1,719</td>
<td>1,604</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>412</td>
<td>290</td>
<td>291</td>
<td>11.7%</td>
<td>341</td>
<td>354</td>
<td>345</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,596</td>
<td>1,513</td>
<td>1,553</td>
<td>-24.3%</td>
<td>1,834</td>
<td>2,159</td>
<td>2,058</td>
</tr>
</tbody>
</table>
CPI Rises 0.5% with Pick-Up in Energy 
by <a href="/comment/Stone.html">Carol Stone</a> January 18, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118c.jpg" width="353">
The December consumer price index (CPI-U) rose 0.5% after November&#39;s flat reading. In fact, this was the first increase since August. The monthly change was in line with consensus expectations at a 0.5% rise. The 12-month inflation was 2.6%, less than 3.4% in 2005.
Prices less food &amp; energy were up 0.2%; they had been unchanged in November. This too matched consensus expectations, at a 0.2% increase. The December-on-December rate was 2.6%, the same as the total.
Core goods prices were unchanged in December, following three consecutive declines; the year-on-year pace was +0.2%. The December mix included gains in apparel (0.6%), tobacco (1.5%) and personal care products (1.9%). Declines included new &amp; used motor vehicles (-0.3%), medical care commodities (0.2%) and audio/video equipment (0.7%). Computer prices were unchanged. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070118d.jpg" width="353">
Core services prices repeated their November 0.2% increase. In fact, carried to a second decimal place, December, at 0.20%, had the smallest increase since last January, 0.17%. Shelter slowed back to a 0.3% rise from 0.4% in November; public transportation continued to fall, but just 0.2% in December after 1.9% in November. Information technology and services were down 1.8%, but this was the smallest decline in recent months, following, for instance, 4.2% in November. Medical services were up just 0.2% and education increased 0.5%. Despite the huge rise in personal care products, personal care services inched up only 0.1%.
Energy prices rebounded sharply, up 4.6% on the month. This put them up 3.1% from December 2005. Gasoline prices surged 8.0% in December, heating oil rose 3.2% and piped gas and electricity were up 1.2%.
Food &amp; beverage prices were unchanged in December. Fruits and vegetables prices dropped 1.5%, their second consecutive sizable decline. Cold weather in the South this month, though, may make such declines short-lived. Nonalcoholic beverages, alcoholic beverages and cooking fats and oils also declined. Dairy product prices steadied with a 0.1% rise after their November fall of 0.6%, and prices for meats, poultry, fish &amp; eggs also rose 0.1%, a bit slower than November&#39;s 0.2%. Cereals were up 0.4%, the same as in November.
The chained CPI, which adjusts for shifts in the mix of consumer purchases, was up just 0.1% in December and the chained &quot;core&quot; fell 0.2%.

<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/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.5%</td>
<td>0.0%</td>
<td>2.6%</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.6%</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.7%</td>
<td>3.4%</td>
<td>2.8%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>4.6%</td>
<td>-0.2%</td>
<td>3.1%</td>
<td>11.1%</td>
<td>16.9%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>2.2%</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.1%</td>
<td>-0.2%</td>
<td>2.4%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>2.3%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Fall Again; Low Since Feb 2006 
by <a href="/comment/Stone.html">Carol Stone</a> January 18, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111a.jpg" width="353">
Initial unemployment insurance claims continued to fall last week, decreasing 8,000 to 290,000, now the lowest level since last February. Consensus expectations had been for 310,000, which would have meant some reversal of the previous week&#39;s decline.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims also fell, reaching to 308,000 (+3.7% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070111b.jpg" width="353">
In contrast, continuing claims for unemployment insurance rebounded in the January 6 week, with a rise of 120,000 to 2,530,000, almost exactly reversing the prior two weeks&#39; combined 112,000 drop.
The insured rate of unemployment returned to 1.9% after a dip to a downward revised 1.8% in the December 30 week. At the very beginning of 2006, the rate was 2.0%, but since February it has hovered at 1.9%, with the occasional 1.8%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><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></th>
<th scope="col">01/13/07</th>
<th scope="col">01/06/07</th>
<th scope="col">12/30/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>290</td>
<td>298</td>
<td>325</td>
<td>3.2%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,530</td>
<td>2,410</td>
<td>-0.8%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117f.jpg" width="353">
The US Treasury&#39;s monthly compilation of capital flows shows sizable foreign investment in US securities in November, amounting to $107.4 billion, purchases net of sales. This is modestly more than October&#39;s $104.2 billion and $107.0 billion in November 2005.
Press reports highlight another net figure, foreign investment in US securities less US residents&#39; purchases of foreign securities. These were $39.1 billion in November, putting &quot;net long term securities transactions&quot; at $68.4 billion, down noticeably from October&#39;s $85.3 billion. Since, as we see, foreign purchases were nearly the same, the big difference in the month was the sharp increase in US investor purchases of foreign instruments, which had been $18.9 billion in October, less than half of the November amount. Even more interesting, the major part of that increase came in equities. US investors bought a significant $21.2 billion, $3.8 billion more than last November, which was the previous record amount. Net purchases of foreign bonds were $17.8 billion, which, while less than the equity purchases, was still the third largest month for that market segment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117g.jpg" width="353">
The foreign investments themselves took new paths. Usually months when Treasury refunding operations occur, as in November, contain outsized amounts of foreign purchases of that debt. This was moderately large, at $27 billion, but well down from the year-ago $51.8 billion.
The big difference this month was in corporate bonds. Foreign investors accumulated $63.9 billion in November. The previous record was $58.7 billion in September. The only other month above $50 billion is June 2005, at $50.5 billion. Investors in the UK seem to be the biggest net buyers, although the &quot;clearinghouse&quot; nature of the London markets means that the ultimate purchasers could be anywhere, not just in Britain.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070117e.jpg" width="353">
Speaking of countries, the ones show the biggest numbers this month are not who you think. While China has made sizable purchases all year long, they added only $3.1 billion in November, the smallest amount in 19 months. Japan has also not made outsized purchases lately, and some oil exporters [not much data on this sector is available] have actually been net sellers. The biggest gains recently have come from France and offshore Caribbean centers. UK investors have bought considerable volumes this year, but their purchases of US securities were much larger a year ago.
These variations and where they come from are another cautionary signal to us not to put much store in the notion that capital flows only serve to cover the trade deficit. If that were the case, the investments would match the trade partners and they would not likely be in equities or long-term bonds, but in trade financing vehicles, like loans. Global investors look for rate of return opportunities and those may be related to trade flows positively, negatively or not consistently at all. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases from US Residents, Bil $</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Nov 2005</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Last 12 Months</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">1. Domestic Securities</td>
<td>107.4</td>
<td>104.2</td>
<td>107.0</td>
<td>92.4</td>
<td>84.3</td>
<td>76.4</td>
<td>60.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>27.1</td>
<td>26.3</td>
<td>51.8</td>
<td>15.5</td>
<td>28.2</td>
<td>29.3</td>
<td>22.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Agencies</td>
<td>14.7</td>
<td>15.2</td>
<td>11.1</td>
<td>22.2</td>
<td>18.3</td>
<td>18.9</td>
<td>13.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>63.9</td>
<td>39.5</td>
<td>38.3</td>
<td>40.8</td>
<td>31.0</td>
<td>25.8</td>
<td>22.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>1.8</td>
<td>23.2</td>
<td>5.7</td>
<td>12.3</td>
<td>6.8</td>
<td>2.4</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">2. Foreign Securities&nbsp;</td>
<td>-39.1</td>
<td>-18.9</td>
<td>-17.7</td>
<td>-19.3</td>
<td>-14.4</td>
<td>-12.7</td>
<td>-4.7</td>
</tr>
<tr>
<td class="firstcol">3. &quot;Other Acquisition&quot;*</td>
<td>-10.4</td>
<td>-10.4</td>
<td>-11.1</td>
<td>-11.8</td>
<td>-11.7</td>
<td>-3.2</td>
<td>-11.6</td>
</tr>
<tr class="odd">
<td class="firstcol">4. Net Foreign Acquisition (1+2+3)</td>
<td>58.0</td>
<td>74.9</td>
<td>78.1</td>
<td>59.7</td>
<td>58.3</td>
<td>60.4</td>
<td>43.7</td>
</tr>
<tr>
<td class="firstcol">5. Short-Term Liabilities</td>
<td>15.6</td>
<td>0.5</td>
<td>2.5</td>
<td>9.4</td>
<td>-4.0</td>
<td>15.8</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">6. Total TIC Flows**&nbsp; </td>
<td>74.9</td>
<td>60.4</td>
<td>88.5</td>
<td>70.3</td>
<td>55.7</td>
<td>81.6</td>
<td>59.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The US Treasury's monthly compilation of capital flows shows sizable foreign investment in US securities in November, amounting to $107.4 billion, purchases net of sales. This is modestly more than October's $104.2 billion and $107.0 [...]

Treasury TIC Data Show Sizable Foreign Investment in November, but Also Record US Investment Abroad

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Tian Yong Woon

In our Letter this week, we explore Asia in two parts. The first reviews key developments from the past week, focusing on snap election outcomes in Japan (chart 1) and Thailand (chart 2), both of which delivered victories for incumbent parties and helped reduce near-term political uncertainty.

The second, and larger, section builds on last week’s discussion of Asia and AI, shifting the focus to AI’s potential impact on the region from an end-user perspective. On the upside, Asia stands to benefit meaningfully from the eventual large-scale adoption of AI-powered robotics, reflecting the region’s relatively high share of manufacturing value added (chart 3). That said, important considerations remain, including the cost viability of transitioning towards humanoid robotics given the sizeable upfront capital expenditure involved. Beyond manufacturing, AI adoption could also deliver gains in healthcare, particularly as many Asian economies grapple with ageing populations—implying a growing care burden alongside a shrinking domestic caregiver base (chart 4). However, regulatory, ethical, and implementation challenges persist. 

At the same time, the AI transition will likely displace certain jobs, making this a race not only of adoption but of adaptability, where education—while an imperfect proxy—offers some insight into which economies may be better positioned to adjust (chart 5). Finally, bureaucratic frictions also matter (chart 6), although even traditionally more bureaucratic economies have begun introducing fast-track frameworks to avoid falling behind in what could prove to be a pivotal transition reshaping the regional, and potentially global, economic landscape.

**Japan’s snap election**
Following a snap election held on Sunday, Japanese Prime Minister Takaichi’s Liberal Democratic Party (LDP) secured a historic landslide victory, winning a more than two-thirds majority in Japan’s 456-seat Lower House. The LDP’s coalition partner, the Japan Innovation Party, also expanded its presence to 36 seats. The outcome suggests that Takaichi’s political gamble to capitalise on strong opinion polling has paid off. While the election result has removed a key source of near-term political uncertainty for Japan, attention now turns to the policy agenda enabled by the government’s newly strengthened mandate. Among the first expected moves, Takaichi appears set to proceed with a temporary food tax pause, reducing the 8% consumption tax on food to 0% for two years. This proposal reinforces the perception that her policy stance is fiscally accommodative, even as critics raise concerns around fiscal discipline and long-term sustainability. As for the market reaction, Japanese equities rallied on stimulus expectations, bond yields rose on prospects of increased issuance to fund higher spending, while the yen recorded only muted net moves (chart 1)—prompting some speculation that some intervention may have taken place.

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**Thailand’s snap election**
Thailand also held snap elections last Sunday, which saw the incumbent deliver a strong showing at the polls. Unlike Japan’s election outcome, however, the scale of the increase in the incumbent Bhumjaithai (BJT) Party’s parliamentary footprint came as a surprise to many observers. That said, despite these sizable gains, the BJT Party fell short of an outright majority, securing 193 of the 500 seats in parliament, implying that a coalition government will likely still be required to pass legislation smoothly. Thai equities and the baht nevertheless rallied on the election results (chart 2). Attention now turns to whether—and how—Prime Minister Anutin will follow through on key campaign promises, including the revival of a popular shopping subsidy programme. While such measures would provide a near-term boost to consumption, they would also raise concerns around fiscal sustainability. Beyond the parliamentary vote, Thai voters also approved a proposal to replace the constitution. If pursued, this could pave the way for deeper structural reforms to Thailand’s economy.

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**AI’s (potential) impact on Asia**
We now turn to the longer, second part of this week’s letter, where we examine AI’s potential impact on Asia. In contrast to last week’s discussion, the focus here is on Asia’s role as an end-user of AI, rather than its position within the global AI supply chain. While AI broadly promises substantial productivity gains if deeply embedded across economies, one sector where Asia may benefit disproportionately is manufacturing. This reflects the relatively high share of manufacturing value added in GDP across many Asian economies compared with the global average (chart 3). In particular, Asia stands to reap significant productivity gains through the widespread adoption of AI-powered robotics. Cost, however, remains a key consideration: relative to the overall cost of human labour, AI-enabled robots have yet to become unequivocally competitive once high upfront capital outlays are taken into account. That said, recent advances in humanoid, AI-enabled robots have demonstrated increasingly broad and sophisticated capabilities in replicating human tasks, including delicate and precision operations. Over time, this could meaningfully alleviate a persistent structural challenge facing many advanced Asian economies—ageing populations and the associated labour constraints.

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Digging deeper into the ageing population challenge faced by many Asian economies, another area where AI and robotics could play a meaningful role is healthcare. Ageing societies face a twin burden: a rising number of elderly individuals requiring care alongside a shrinking pool of working-age caregivers, absent offsetting labour inflows. One proxy for this imbalance is the old-age dependency, which, as shown in chart 4, is already relatively high in several Asian economies, including China, Japan, and South Korea. That said, adoption remains at a very early stage. Significant barriers to widespread deployment persist, including regulatory and ethical considerations, high implementation costs, and questions around the consistency, reliability, and safety of AI-enabled systems in delivering healthcare-related tasks.

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**Asia’s challenges in AI adoption**
That said, the outlook is not entirely positive for Asia in the context of widespread AI adoption. As with previous waves of transformative technology, AI will inevitably render some jobs—at least in their current form—obsolete, even as it creates new roles and reshapes others. This implies that many Asian economies will need to navigate a significant structural adjustment in their labour markets, as certain types of work are displaced while demand for new skill sets emerges. How effectively Asia manages this transition will be critical in determining whether its economies move ahead of—or fall behind—the global shift towards AI. At present, and using education quality as a rough proxy, some Asian economies appear better positioned to manage this adjustment than others. As illustrated in chart 5, economies such as China, Singapore, Japan, and South Korea seem relatively well placed to absorb and adapt to the coming changes. That said, education quality is only an imperfect indicator. Other factors will also matter, including the capacity to rapidly retool and reskill the workforce, as well as the inclusiveness of the transition. Ensuring that lower-skilled and more vulnerable segments of society are not left behind will be an important determinant of the long-term economic and social outcomes of AI adoption across the region.

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Another potential hurdle relates to bureaucratic costs, which—when elevated—can act as a meaningful source of friction in the adoption of new AI-driven technologies. On this front, some Asian economies stand out for having comparatively low bureaucratic burdens, notably Singapore, Taiwan, and South Korea, while others, such as Vietnam, the Philippines, and China, tend to lag (chart 6). That said, as with many broad-based indicators, this picture masks important nuances. Several of these economies have introduced industry-specific—particularly AI-focused—fast-tracking initiatives aimed at accelerating development within targeted domestic sectors. Even so, in an increasingly competitive and intensifying global race to adopt AI and capture its economic upside, we may see a growing tendency toward an “adopt first, regulate later” approach in the years ahead. This is likely to persist unless and until major incidents or heightened concerns emerge that materially slow the pace of AI adoption.

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Asia

Economic Letter from Asia: Of Ballots and Bots

Robert Brusca

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Japan's economy watchers index has flattened out and backed off slightly for the current and future outlooks depending on the time horizon that you seek. However, what's clear is that the index reached the low point around the middle of last year, has been rebounding and now the rebound has either run out of gas or slowed after the index has rebuilt itself considerably.  

It is certainly too early to get pessimistic on Japan's economy, with Prime Minister Sanae Takaichi having just won a significant - essentially a landslide - snap election that she called after recently having been elected. The LDP would appear to be back in the driver's seat, and she has her sights set on more fiscal stimulus and expanded military spending. She is apparently much more on the same wavelength as Donald Trump in the United States. Mr. Trump was an Abe supporter, and Ms. Takaichi is a disciple of Mr. Abe.

At the moment, Japan would seem to have a groundswell of support behind the government and that government is set to try to rekindle some growth which could potentially put the Bank of Japan in a more decisively defensive track as far as setting rates and potentially raising rates.

**Economy watchers index is trending**
In January, the economy watchers index backed off for the second month in a row. However, it still has a percentile standing in its 51-percentile, slightly above its median standing since early-2005. The headline and all the components have standings above their respective 50th percentiles on this timeline, with the exception of housing, services, and employment; three readings that are extremely important to consumers. Housing has a 26.1 percentile standing, services (the employment sector) have a 45.8 percentile standing, while employment has a 22.9 percentile standing. Despite the otherwise solid and strong set of readings, there are these three significant flies in the ointment. Corporate Japan is doing extremely well with corporations having a 66.8 percentile standing; manufacturers and nonmanufacturers, separately, each come in with readings in their mid-to-upper 60th percentiles.

**The future index**
The future readings from the economy watchers index show continued but slight increases over the last few months. Only two future readings weaken month-to-month: housing and employment—once again two key readings as far as consumers are concerned. However, in terms of current monthly diffusion readings, the assessment of households, retailing, housing, and employment all have current diffusion values below 50, indicating net declines rather than increases. The percentile standing is for the future index are, like those for the current index, generally upbeat - and generally stronger than for the current indexes - with the future headline posting a 66.4 percentile standing in January. However, like the current index, the standing for housing is at its 21.3 percentile and the standing for employment is at its 30th percentile, both well below the neutral level that would place the ranking at the 50th percentile. Corporations show high readings, higher for the future indexes than for the current index standings. There also are high readings and standings for eating and drinking places as well as services. It's good to see services come up with a strong rating since it creates hope for the future for employment because services are the core employment sector. It will be interesting to see how this value changes in the coming months as Takaichi’s new policies are implemented and take hold.

**Summing up**
On balance, the economy watchers index has been firm to strong. There is some slight give-back in the current index in terms of trend. But beyond the index, there's more immediate reason to be more positive because Japan has just executed a very decisive and pro-growth snap election that is going to put the new Prime Minister Takaichi and strong control of the economy at a time where she seeks to cement economic strength. These elections were just completed over the weekend, and we will see the results reflected in data in the weeks and months to come.

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Japan

Economy Watchers Indexes Show Firmness; Impact of Takaichi Election to Come in Months Ahead

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

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

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

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

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

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

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Andrew Cates

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

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

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

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

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

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

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

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

Winnie Tapasanun

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

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

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

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

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

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

Economy in Brief: 2007

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Chicago Fed Nat'l Activity Index Positive

Michigan Consumer Sentiment Gauge Rebounds Sharply on Optimistic View of Business Conditions & Personal Finances

Michigan Consumer Sentiment Gauge Rebounds Sharply on Optimistic View of Business Conditions & Personal Finances

Total Housing Starts Rise, But Single-Family Units Fall Anew

CPI Rises 0.5% with Pick-Up in Energy

Initial Unemployment Insurance Claims Fall Again; Low Since Feb 2006

Total Housing Starts Rise, But Single-Family Units Fall Anew

Treasury TIC Data Show Sizable Foreign Investment in November, but Also Record US Investment Abroad