Tom Moeller

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The U.S. trade deficit in goods and services lessened to
$49.31 during November from $55.70 billion in October, revised from $55.49
billion. A deficit of $54.0 billion had been expected by the Action Economics
Forecast Survey. Exports declined 0.6% (+3.7% y/y) after an unrevised 0.1%
easing in October, while imports fell 2.9% (+3.2% y/y) after a 0.4% gain in
October, revised from 0.2%.

The real (inflation-adjusted) goods trade balance narrowed to
$80.8 billion in November from a record $88.3 billion in October.

The deficit in goods trade declined to $70.5 billion in
November from a record $77.1 billion in October. Exports of goods declined 0.9%
(+4.6% y/y), but rose slightly in real terms. Foods, feeds and beverage exports
rebounded 0.6% (-2.2% y/y) following four months of sharp decline. Auto exports
fell 3.0% (-8.8% y/y) after a 1.9% drop, while non-auto capital goods exports weakened
5.0% (+1.4% y/y). Industrial supplies exports fell 2.9% (+11.4% y/y). Exports
of petroleum declined 3.8% (+31.7% y/y) as prices fell. Constant dollar
petroleum exports increased 6.4% m/m and by nearly one-quarter y/y.

Imports of goods decreased 3.6% (+3.4% y/y) in November after
rising for six straight months. In constant dollars, imports fell 3.0% (+1.9%
y/y) after little change in October. Nonauto consumer goods imports declined
7.5% (+2.2% y/y). Foods, feeds and beverages imports fell 1.2% (+3.8% y/y) while
imports of capital goods improved 0.6% (1.8% y/y). Imports of automobiles gained
0.8% (6.4% y/y) and have risen steadily since May. Industrial supplies imports
declined 6.9% (+2.4% y/y) but fell 5.2% in real terms (-4.1% y/y).

Petroleum imports declined 14.6% (-1.8% y/y) and by 10.7% in
real terms (-14.1% y/y). Nonpetroleum imports were off 2.5% (+3.8% y/y) and 2.2%
in real terms (+3.5% y/y). The price per barrel of crude oil declined to $57.54
from $61.23. It was down from an average $101.02 in 2012.

The surplus on services trade declined to $22.3 billion in
November, the smallest surplus in nine months. Services exports eased 0.2% m/m (+2.2%
y/y) as travel exports fell 0.2% (+0.7% y/y) and charges for the use of
intellectual property eased 0.1% (+0.9% y/y). Imports of services rose 0.3% (1.9%
y/y) as travel imports increased 2.3% (9.1% y/y). Imports of charges for the use
of intellectual property rose 0.3% (-4.6% y/y).

The trade deficit with China declined to $37.9 billion (NSA)
in November. Exports to China fell 5.1% (-32.1% y/y), the
fourth sharp decline in five months. Imports declined 10.9% (-3.3% y/y) after a
4.4% rise. The trade deficit with Japan narrowed to $5.8 billion. Exports rose
18.5% y/y and imports gained 9.9% y/y. The trade deficit with the European Union
narrowed to $15.1 billion. Exports increased 14.3% y/y and imports rose 9.9% y/y.

The international trade data as well as oil prices can be
found in Haver's USECON database. Detailed figures on international trade
are available in the USINT database. The expectations figures are from
the Action Economics Forecast Survey, which is carried in AS1REPNA.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Foreign Trade in Goods &amp;
 Services (Current $)</th>
 <th>Nov</th>
 <th>Oct</th>
 <th>Sep</th>
 <th>Y/Y</th>
 <th>2017</th>
 <th>2016</th>
 <th>2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" scope="col" >U.S. Trade Deficit ($ bil.)</td>
 <td >49.31</td>
 <td >55.70</td>
 <td >54.56</td>
 <td >48.95 
 (11/17)</td>
 <td >552.28</td>
 <td >502.00</td>
 <td >498.53</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Exports of Goods &amp; Services (% Chg)</td>
 <td >-0.6</td>
 <td >-0.1</td>
 <td >1.5</td>
 <td >3.7</td>
 <td >6.1</td>
 <td >-2.2</td>
 <td >-4.6</td>
 </tr>
 <tr>
 <td class="firstcol" >Imports of Goods &amp; Services (% Chg)</td>
 <td >-2.9</td>
 <td >0.4</td>
 <td >1.5</td>
 <td >3.2</td>
 <td >6.8</td>
 <td >-1.7</td>
 <td >-3.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Petroleum (% Chg)</td>
 <td >-14.6</td>
 <td >-2.7</td>
 <td >-1.6</td>
 <td >-1.8</td>
 <td >27.2</td>
 <td >-19.5</td>
 <td >-45.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Nonpetroleum Goods (% Chg)</td>
 <td >-2.5</td>
 <td >0.5</td>
 <td >2.1</td>
 <td >3.8</td>
 <td >5.6</td>
 <td >-1.2</td>
 <td >2.2</td>
 </tr>
 </tbody>
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The U.S. trade deficit in goods and services lessened to $49.31 during November from $55.70 billion in October, revised from $55.49 billion. A deficit of $54.0 billion had been expected by the Action Economics Forecast Survey. Exports [...]

U.S. Trade Deficit Narrows As Oil Prices Fall

Robert Brusca

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	 Service Sector PMIs Lose Momentum
 
 
 
 

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The beat goes on…only it is much fainter than it has been, sort of like Sonny without Cher. Growth does remain in gear, but it is some of the weakest we have seen in the last four years and that is what the rank/queue standings in the table tell us. Zero for the EMU composite, 2% for the German composite, and zero for Italy's composite. With a ranking in its 34.7 percentile, the U.S. composite has the strongest reading in the table. And for these metrics, the median level occurs at a ranking of 50%.

There is some contraction 
Actually, a number of the PMI gauges are not even endorsing the notion of continued growth. Two service sectors, one in France and one in Italy, point to contraction. In both cases, the service sectors dominate to make the overall PMI into a contracting signal as well. Separately, China, Italy and Germany show contracting signals from their respective manufacturing sectors.

Don't forget weakness, lost momentum too 
The EMU tells us that it has the weakest composite index in four years and the weakest manufacturing sector and that its service sector reading is tied for the weakest in four years, tied with the reading from last month. These are weak absolute readings and they depict very poor momentum as well.


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I guess the UN does have a sense of humor... 
Just to stir the pot a bit, a UN trade official warned of 'massive' implications for the global economy if the U.S. were to slap elevated tariffs on China. The UN has somewhat hilariously pointed out that Asian nations would suffer the most from a trade war. That is the point! These are mercantilistic countries promoting export-led growth and running persistent current account surpluses, stockpiling official reserves to enable them to weaken their currencies and to continue to keep, extend and promote their trade advantage. This is not free trade! Trump wants this sort of thing to stop. He wants to promote two-way trade - the way it is supposed to be. Many people do not study trade theory, but there are not supposed to be specialty producing countries and specialist consuming countries. That is not how free trade works. Tariffs are not good and I am not pretending that they are. But they are the lever to move China from its immoveable perch as a trade abuser.

That crazy thing called...Brexit 
I am intrigued and puzzled by the ongoing Brexit discussions which seem to be at an impasse, but I read that the insiders do not expect a hard Brexit. To an outsider, it seems that is all that is left. But insiders expect a postponement of the U.K. 'leave' date…but then what? Theresa May has negotiated the best deal she could, given some really poor support at home where vultures circled her waiting for her to fail so they could swoop in and replace her. But there is nothing there worth taking over. The Prime Minister has been backed against the wall of no return. And no one wants that spot. Meanwhile, short of a new referendum and a decision to stay I don't see what 'new deal' is there for the U.K. to cut unless it is going entirely backtrack and capitulate to the sovereignty of the customs union the same union that the people just voted to leave.

In addition to Brexit issues, there are a number of important additional sticking points on the trade front. The U.S. 'NAFTA' replacement deal is not yet approved and the U.S. has ongoing, but under the radar, talks with the EU over trade….tick-tock!

Danger, Danger Will Robinson! Lost and Spaced 
The UN's warning is not incorrect; it's just obvious. Clearly, a 25% tariff would be highly disruptive especially in the era of global supply chains (chain, chain, chain…chain of fools). And that is the point. In fact, these tariff threats are an unthinkable action by just about anyone but Donald Trump. And this is what he was elected to do. He's not a Washington insider and he promised he would make trade fair. Make no mistake about it I do not view this as a warm and cozy plan. He is making an omelet and he is breaking eggs. It is a dangerous plan. But the Chinese are chronic and serial abusers of trade policy who have shown no respect for international law in their trade actions, in their disrespect for corporate trade marks, in their cyber theft, in their brazenly forcing U.S. firms to give up technology as a condition of operating in China and as grabbers of the South China Sea. When someone acts unreasonably, how do you treat them? Unleash the Kraken!!...err Trumpster. Up to this point, the answer has been to let them have their way. Donald Trump was elected on a platform of 'No More' or for our many illegal aliens… 'No Mas.'

If you put 43 economists in a line...that could be a good use for them 
Chicago's Booth school has had a panel of 43 economists (economic experts) evaluate the statement: "Imposing new US tariffs on steel and aluminum will improve Americans' welfare" <a href="http://www.igmchicago.org/surveys/steel-and-aluminum-tariffs">(here)</a>. Of course these are the worst of the Trump tariffs. And few like them. All 43 Booth survey participants disagreed with the statement, however, one and only one, David Autor from MIT, who still disagreed with the statement, offered this, "Simple answer is no! Complex answer is that this could be a strategic gambit in a longer game that deters abuse of free trade agreements." So 42 of 43 of the Booth School's panel of expert economists were not even open to that as a possibility. This, I think, is the real point of the Trump tariffs and economists are clueless to evaluate the approach. Economists are used to looking at comparative static paradigms. Look at a free trade system. Now impose tariffs. Which is better? That answer is clear. But we do not start with a free trade system. We start with a flawed system. Then we do not want to end the evaluation after imposing tariffs. We want to threaten waving the big tariff stick and try to use that to leverage a better deal. This survey is an example why I think that most comments made by economists about Trump and tariffs are completely worthless. In fairness to Booth, it only asked about the steel and aluminum tariffs and that is really not a very interesting forum for discussion. Still, few economists evaluate the policy in the correct paradigm. It is not a stand-alone.

Trade tensions underlay a lot of the economic weakness. But this policy is not simply a tariff gambit. This is an investment in the future of the United States and a pushing of a real 'reset' button. This is an attempt to make China play fair. There is a lot at stake. Global growth will be affected if China does not bend to the rules of fair play. The UN is right to put out a warning, but I do think of it as rather obvious.

May you live in interesting times...Civilization as entropy 
We live in times of great economic and geopolitical upheaval. There is a lot of stress in Latin America, with Venezuela the best example of that, along with the caravans of disillusioned people headed for the U.S. Southern border. The EU and EMU are having difficulties with members like Italy that want more slack and like aspiring former member, the U.K., that was fed up with cloying and spreading centralized EU-control. Russia grabbed the Crimean peninsula and is trying to destabilize Ukraine. The Middle East is one constant in all of this as it remains a mess as the U.S. and EU seek to have very different relationships with Iran. China is trying to spread its influence through its belt and road program that has been substantially unmasked as stealth coercion. More overtly, China grabbed the South China Sea and increased its bellicose tone with Taiwan.

Pressure can turn coal into diamonds (sort of...) 
The U.S. trade pressures fit nicely into this picture and they are part of the forces of good not of evil, at least that's how I see it. The U.S. is hardly out on its own destabilizing world growth as some would have you believe. In fact, if the U.S. is successful, its actions could usher in a long period of expanded freer trade that is better in line with the true principles of free trade with much more balanced growth and greater upside for everyone. Still, it may not turn out that way either. With Donald Trump at the wheel, you can only hope you are driving an all-terrain vehicle because you never know which way he is going to turn or if he will even stay on the road.
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The beat goes on…only it is much fainter than it has been, sort of like Sonny without Cher. Growth does remain in gear, but it is some of the weakest we have seen in the last four years and that is what the rank/queue standings in the [...]

Is the 'New Normal' Simply Substandard? Or Are Trade Wars to Blame?

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The Composite Index of Nonmanufacturing Sector Activity from
the Institute for Supply Management (ISM) fell to 56.7 during January from
December's 58.0, revised from 57.6. The index has been declining since a high of
60.8 in September. Expectations had been for 57.0 in the Action Economics
Forecast Survey. Earlier figures were revised due to new seasonal factors. A
reading above 50 indicates expansion and the figures date back to 1998.

Haver Analytics constructs a Composite Index using the ISM
factory sector series released on Friday and the ISM nonmanufacturing index. The
index fell sharply, also to 56.7, down from a September high of 60.7. During the
last ten years, there has been a 56% correlation between the index level and the
q/q change in real GDP.

A decline in the new orders index to 57.7, its lowest level
since August 2017, led the overall nonmanufacturing index lower. The business
activity reading also fell sharply to 59.7, the lowest level in six months, down
from a November high of 64.3. The supplier deliveries index held steady m/m at
a sharply reduced 51.5, the lowest level since August of 2017.

The employment component moved up slightly m/m to 57.8, but
remained well below the September high of 60.4. Twenty-two percent of
respondents reported a rise in payrolls, down from 26% in December. A slightly
lessened 13% reported a decline.

The prices paid index rose slightly to 59.4 but was below the
November high of 64.3. An increased 25% of respondents reported higher prices
while a steady eight percent reported a decline.

Amongst the other series in the nonmanufacturing survey, the
export order series collapsed to the lowest level in two years. The order
backlog series rose slightly m/m but remained well below the high last May. The
inventory change index also fell sharplys and showed liquidation of inventories
for the first time in twelve months.

The ISM figures are available in Haver's USECON
 database, with additional detail in the SURVEYS database. The
expectations figure from Action Economics is in the AS1REPNA database.

How Much Could Negative Rates Have Helped the Recovery?
from the Federal Reserve Bank of San Francisco is available <a href="https://www.frbsf.org/economic-research/files/el2019-04.pdf">here</a>.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM
 Nonmanufacturing Survey (SA)</a></th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Jan'18</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Composite Diffusion Index</td>
 <td >56.7</td>
 <td >58.0</td>
 <td >60.4</td>
 <td >59.4</td>
 <td >58.9</td>
 <td >57.0</td>
 <td >54.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Business Activity</td>
 <td >59.7</td>
 <td >61.2</td>
 <td >64.3</td>
 <td >60.1</td>
 <td >61.5</td>
 <td >60.2</td>
 <td >58.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; New Orders</td>
 <td >57.7</td>
 <td >62.7</td>
 <td >62.7</td>
 <td >61.5</td>
 <td >61.3</td>
 <td >59.3</td>
 <td >57.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Employment</td>
 <td >57.8</td>
 <td >56.6</td>
 <td >58.0</td>
 <td >60.5</td>
 <td >56.9</td>
 <td >55.1</td>
 <td >52.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Supplier Deliveries (NSA)</td>
 <td >51.5</td>
 <td >51.5</td>
 <td >56.5</td>
 <td >55.5</td>
 <td >55.8</td>
 <td >53.2</td>
 <td >51.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Prices Index</td>
 <td >59.4</td>
 <td >58.0</td>
 <td >64.3</td>
 <td >62.0</td>
 <td >62.1</td>
 <td >57.6</td>
 <td >52.6</td>
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The Composite Index of Nonmanufacturing Sector Activity from the Institute for Supply Management (ISM) fell to 56.7 during January from December's 58.0, revised from 57.6. The index has been declining since a high of 60.8 in [...]

U.S. ISM Nonmanufacturing Index Declines Again

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Retail gasoline prices of $2.25 per gallon last week
(-14.5% y/y) were little changed from their end-of-year level. Haver Analytics constructs factors adjusting
for the seasonal variation in gasoline pump prices. The seasonally-adjusted
price was $2.45 per gallon, up slightly from the 14-month low of $2.39 in early January.

West Texas Intermediate crude oil prices rose to an
average of $53.63 (-17.8% y/y) per barrel last week from $52.74 during the prior
week. Prices have steadily increased from the 18-month low of $44.55 reached at
the end of last year. Yesterday, prices improved to $54.56 per barrel. Brent
crude oil prices were fairly steady at an average of $61.32 per barrel last week and were
$62.58 yesterday.

Natural gas prices declined to $2.90/mmbtu last week
(-12.1% y/y) after easing to $3.19/mmbtu during the prior week. Prices declined to
$2.57 yesterday with warmer temperatures.

In the four-weeks ending January 25, gasoline demand
rose 1.4% y/y, while total petroleum product demand eased 0.2% y/y. Gasoline
inventories rose 6.3% y/y, while inventories of all petroleum products rose
2.2% y/y. Crude oil input to refineries has increased 2.4% y/y in the last four weeks.

These data are reported by the U.S. Department of Energy. The
price data can be found in Haver's WEEKLY and DAILY databases.
Greater detail on prices, as well as the demand, production and inventory data,
along with regional breakdowns, are in OILWKLY.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col">Weekly Energy Prices</th>
 <th scope="col">02/04/19</th>
 <th scope="col">01/28/19</th>
 <th scope="col">01/21/19</th>
 <th scope="col">Y/Y %</th>
 <th scope="col">2018</th>
 <th scope="col">2017</th>
 <th scope="col">2016</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol">Retail Gasoline ($ per Gallon Regular, Monday Price,
 End of Period)</td>
 <td>2.25</td>
 <td>2.26</td>
 <td>2.25</td>
 <td>-14.5</td>
 <td>2.27</td>
 <td>2.47</td>
 <td>2.31</td>
 </tr>
 <tr>
 <td class="firstcol">Light Sweet Crude Oil, WTI ($ per bbl, Previous
 Week's Average)</td>
 <td>53.63</td>
 <td>52.74</td>
 <td>52.02</td>
 <td>-17.8</td>
 <td>64.95</td>
 <td>50.87</td>
 <td>43.22</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Natural Gas ($/mmbtu, LA, Previous Week's Average)</td>
 <td>2.90</td>
 <td>3.19</td>
 <td>3.50</td>
 <td>-12.1</td>
 <td>3.18</td>
 <td>2.99</td>
 <td>2.51</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Retail gasoline prices of $2.25 per gallon last week (-14.5% y/y) were little changed from their end-of-year level. Haver Analytics constructs factors adjusting for the seasonal variation in gasoline pump prices. The seasonally- [...]

U.S. Gasoline Prices Hold Steady

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The Sentix economic expectations continue to languish. The index is hovering in its lowest levels since 2012 as the ECB begins to remove its 'special sauce.' Europe has been showing much weaker signals on economic activity recently. And at the same time, inflation is falling. It may be a 'coincidence' since oil prices have fallen off and they too are highly correlated with inflation. In the EMU, Brent crude oil prices have a 0.86 correlation with manufacturing PPI prices. Brent has a 0.665 correlation with the EMU HICP and a 0.31 correlation with the HICP core excluding tobacco and alcohol.

But inflation also tends to be pro-cyclical rising in expansions and snuffed out or brought to lower rates of expansion by recessions. So when inflation and growth both turn lower together, it is a good idea to be on your guard which is different from jumping to conclusions. But better to jump to a conclusion than off a bridge.

Of the 15 EU/EMU countries in the table, all but Ireland have their PPI falling in December. Eight also show prices decelerating in November when Brent prices also fell. Over three months, prices are falling in ten of 15 countries. Over six months, they are falling in only four of 15 countries. But PPI inflation is decelerating over three months compared to its six-month annual pace in 14 countries and PPI inflation is decelerating in 12 countries over six months compared to their 12-month pace. That's a lot of price weakness. Still, it is short term weakness since 12-month inflation is still up compared to what it was 12-months before that in all but four countries. The PPI rate is at 3% year-over-year, decelerating to 2.4% over six months and to a -2.4% pace over three months.

The bottom line for PPI inflation is that prices either are falling or the inflation rate is declining across the board for all 15 of these countries with Ireland as the most frequent exception and in some cases the only exception.

Of course, PPI inflation is more readily and powerfully affected by oil prices than the HICP prices that EMU targets, but there are influences on both measures. And this price weakness comes accompanied by not just by current weakness but by forecast downgrades from the IMF.

It is surprising how quickly the global economy has transitioned from having central banks bristling to end special stimulus programs to having a global economy with weakness encroaching in some form nearly everywhere…nearly everywhere. I did warn on this.


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Missing the signs from Economics 101 
One reality that no central banker has wanted to bear in mind is that growth has been less than stellar even when aided by special stimulus. This is true in the U.S., Europe, and Japan. It was more than a little 'heroic' for central bankers to assume that this extra bit of support could be pulled out and replaced with a move toward restrictiveness (in the case of the U.S., in any event) without consequence. Also someone might have taken a hint about growth vulnerability from the fact that inflation globally just has not been able to get to and stay at 2%. Wasn't that a clue about weakness? Or what about the Fed (and others) being totally dismissive of the flat and flattening U.S. treasure yield curve? Ignoring that was like ignoring a person standing on the corner screaming for help! The yield curve may be the best economic indicator of all time in terms of the simple veracity of its signal.

Central bankers have been on a mission to get things back to normal as if taking the patient out of intensive care early and sending him back to work would make him heal. Central bankers have been too worried about their own reputations and looking for excuses to hike rates, lest inflation overtake them and cause them to bear the shame of being too loose for too long. Yet, the reality of this situation is that inflation is not to be found and it is overtaking no one. Central bankers have been focused on getting rates and polices in general back to 'normal.' They labored under the misguided decision that they had waited long enough for normalcy to be restored.

What central bankers have missed is that the financial crisis was a financial crisis alright. There was a recession that accompanied it too. But the financial crisis was also a watershed of sorts an admission that the economy is now under different influences and central bankers never bought into that. The private sector adopted the term 'new normal.' Then everyone forgot about it. Guess what? It's back! We just have to figure out what it is and central bankers need to realize that it is different from the old normal – perhaps very different. And that may be a hard lesson for them to learn. If it is, it will be a hard lesson learned for which the rest of us will pay the consequences.
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The Sentix economic expectations continue to languish. The index is hovering in its lowest levels since 2012 as the ECB begins to remove its 'special sauce.' Europe has been showing much weaker signals on economic activity recently. [...]

EMU Sentix Index Dives As Inflation Implodes

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Manufacturers' orders declined 0.6% (+4.1% y/y) during
November following an unrevised 2.1% October fall. The Action Economics Forecast
survey looked for a 0.4% rise.

Durable goods orders rebounded 0.7% m/m (5.3% y/y) after a
2.1% decline. Orders for defense and civilian aircraft recovered following sharp
October declines. Excluding transportation altogether, new orders for durable
goods fell 0.4% (+4.8% y/y). Strength in orders for metals was offset by a
decline in machinery.

Orders for nondurable goods (which equal shipments) fell 1.9%
(+2.9% y/y) after a 0.1% uptick. A 9.3% decline in shipments from petroleum
refineries led the decline (+5.2% y/y). Basic chemical shipments rose 0.9% (3.9%
y/y) and food product shipments gained 0.2% (0.3% y/y). Apparel shipments fell
1.2% (+6.9% y/y). Shipments of durable goods improved 0.7% (6.2% y/y). Computer
&amp; electronic product shipments rose 1.0% (5.6% y/y) but machinery shipments
slipped 0.4% (+2.7% y/y).

Unfilled orders from the factory sector eased 0.1% (+4.6%
y/y) after a 0.2% decline. Durable goods unfilled orders eased 0.1% (+4.6% y/y).
Transportation sector order backlogs declined 0.3% (+4.4% y/y) but total
unfilled orders less transportation rose 0.2% (4.9% y/y). Unfilled orders of
machinery were little changed (3.0% y/y) while computer &amp; electronic order
backlogs rose 0.5% (3.7% y/y).

Inventories in the manufacturing sector slipped 0.1% (+4.2%
y/y). Durable goods inventories rose 0.4% (4.9% y/y). Machinery inventories
gained 0.4% (5.3% y/y) while inventories of computers &amp; electronic products
rose 0.3% (1.1% y/y). Electrical equipment &amp; appliance inventories rose 0.9%
(8.7% y/y) while transportation sector inventories gained 0.2% (3.4% y/y).
Nondurable goods inventories declined 1.0% (+3.0% y/y) as petroleum refinery
inventories fell 8.4% (+1.5% y/y). Basic chemical inventories rose 0.6% (5.0%
y/y) and paper product inventories improved 0.1% (1.8% y/y).

The factory sector figures are available in Haver's USECON
database. The Action Economics Forecasts survey is in AS1REPNA.

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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" >Factory Sector (% chg) -
 NAICS Classification</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >New Orders</td>
 <td >-0.6</td>
 <td >-2.1</td>
 <td >0.2</td>
 <td >4.1</td>
 <td >5.7</td>
 <td >-2.9</td>
 <td >-8.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Shipments</td>
 <td >-0.6</td>
 <td >-0.1</td>
 <td >0.7</td>
 <td >4.5</td>
 <td >5.0</td>
 <td >-3.2</td>
 <td >-6.2</td>
 </tr>
 <tr>
 <td class="firstcol" >Unfilled Orders</td>
 <td >-0.1</td>
 <td >-0.2</td>
 <td >0.7</td>
 <td >4.6</td>
 <td >2.0</td>
 <td >-1.2</td>
 <td >-2.7</td>
 </tr>
 <tr>
 <td class="firstcol" >Inventories</td>
 <td >-0.1</td>
 <td >0.2</td>
 <td >0.6</td>
 <td >4.2</td>
 <td >4.5</td>
 <td >-0.7</td>
 <td >-0.8</td>
 </tr>
 </tbody>
 </table>
 
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Manufacturers' orders declined 0.6% (+4.1% y/y) during November following an unrevised 2.1% October fall. The Action Economics Forecast survey looked for a 0.4% rise. Durable goods orders rebounded 0.7% m/m (5.3% y/y) after a 2.1% [...]

U.S. Factory Orders and Shipments Fall

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Sales of light vehicles fell 4.8% (-2.8% y/y) during January
to 16.70 million units (SAAR), the lowest level since August 2017.
A 7.9% decline (-1.9% y/y) in light truck sales to 11.24
million units led the decline after a 0.7% gain in the prior month. Sales of domestically-produced light trucks
fell 8.2% (-3.4% y/y) to 8.96 million units following a 0.5% rise in December. Sales of imported light trucks
declined 6.6% (+4.7% y/y) to 2.28 million units after a 1.2% rise.

Trucks’ share of the U.S. vehicle market declined to 67.3%,
the lowest level since February of last year.

Passenger car sales improved 2.1% (-4.8% y/y) last month to
5.46 million units following declines during the prior two months. Sales of domestically-made cars
improved 0.5% (-2.6% y/y) to 4.01 million units. Meanwhile, sales of imported passenger cars jumped
6.6% (-10.4% y/y) to 1.45 million units after three months of sharp decline.

Imports’ share of the U.S. vehicle market rose last month
to 22.3%, the highest level in four months. Imports share of the passenger car
market increased to 26.6%, but remained below the 28.6% high last April. Imports
share of the light truck market improved to 20.3%.

U.S. vehicle sales figures can be found in Haver's USECON
database. Additional detail by manufacturer is in the INDUSTRY 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. Light Weight Vehicle Sales (SAAR, Million Units)
 </th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Jan Y/Y %</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >16.70</td>
 <td >17.55</td>
 <td >17.49</td>
 <td >-2.8</td>
 <td >17.21</td>
 <td >17.23</td>
 <td >17.55</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Autos</td>
 <td >5.46</td>
 <td >5.35</td>
 <td >5.37</td>
 <td >-4.8</td>
 <td >5.48</td>
 <td >6.33</td>
 <td >7.10</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
 <td >4.01</td>
 <td >3.99</td>
 <td >3.95</td>
 <td >-2.6</td>
 <td >3.99</td>
 <td >4.58</td>
 <td >5.20</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Imported</td>
 <td >1.45</td>
 <td >1.36</td>
 <td >1.43</td>
 <td >-10.4</td>
 <td >1.49</td>
 <td >1.75</td>
 <td >1.90</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Light Trucks</td>
 <td >11.24</td>
 <td >12.21</td>
 <td >12.12</td>
 <td >-1.9</td>
 <td >11.74</td>
 <td >10.90</td>
 <td >10.44</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
 <td >8.96</td>
 <td >9.76</td>
 <td >9.71</td>
 <td >-3.4</td>
 <td >9.42</td>
 <td >9.00</td>
 <td >8.75</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Imported</td>
 <td >2.28</td>
 <td >2.44</td>
 <td >2.41</td>
 <td >4.7</td>
 <td >2.32</td>
 <td >1.90</td>
 <td >1.69</td>
 </tr>
 </tbody>
 </table>
 
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Sales of light vehicles fell 4.8% (-2.8% y/y) during January to 16.70 million units (SAAR), the lowest level since August 2017. A 7.9% decline (-1.9% y/y) in light truck sales to 11.24 million units led the decline after a 0.7% gain [...]

U.S. Light Vehicle Sales Decline

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Only six of the 17 manufacturing PMI readings in the table did not weaken in January, reflecting a broad tendency of manufacturing conditions to ease in the month. In January, five countries saw improvement and one was unchanged. There were also only five countries improving month-to-month in December compared to eight in November. EMU, Germany and Taiwan all showed weakening in each of the three recent months. No country improved in each of the last three months, but the U.S., Mexico, Brazil, India and Turkey improved in two of these three months. Still, 11 of 17 countries weakened in each the last two months. Six of 17 countries logged manufacturing PMI values below 50 in January, pointing to contracting conditions in manufacturing – that’s 35% in contraction mode.

Weakness is persisting on a broader timeline as well. Only five entries in the table show improvements in their PMI three-month average compared to its six-month average. Only four show improvements in their six-month averages compared to their 12-month averages. And only six show improvements in their 12-month averages compared to their 12-month averages of 12-months ago. The broad deterioration in the comparison of average values underscore that this is a real, broad, deterioration that is continuing to spread its misery.

This point is further underscored by looking at the rank (or queue) standings of the current PMI values compared to each country’s collection of observations since January 2015. Compared to where these indexes have been over the past four years, India and Brazil have the current highest relative standings with queue rankings in their respective 91.8 percentiles. These rankings attend to PMI values of 53.9 for India and 52.7 for Brazil. In each case, they are the fourth highest reading for these two countries in the past four years (49-months). And that too is telling because those are not especially high diffusion readings; they are just high relative to each nation’s past performance. The U.S. and Russia are the only other countries with queue standings above the 50% mark, which means that only four countries have readings above their medians calculated over the past 49 months. Canada, France and Indonesia come somewhat close. But in the EMU, the EMU reading itself is at its 49-month low as is Germany. Turkey and Taiwan have readings in the lowest 10th percentile of their queues of data. Japan’s reading stands in its 20th percentile; China stands in its 12th percentile. China has been a big drag on global growth as it is under trade sanctions from the U.S. and it is engaged in trade talks with a March deadline for action and a threat of more sanctions if talks fail.

On that score, the good news from China is that talks on trade a going well. And China has offered a big step-up in purchases of agricultural goods from the U.S. This is an easy offer since the U.S. is a massive food producer, and China needs to import food stuffs and feeds. But the real important talks are going to be over manufacturing and technology and forced technology transfer as well as piracy cyber theft, the treatment of state owned enterprises (SOEs) and how U.S. firms operating in China will be treated by localities that frequently press them for technology transfer. The Trump Administration also wants real deficit reduction progress; it is not looking for a nice-sounding but empty proclamation. The negotiators have made it clear that they are looking for real accountable and enforceable objectives which is also to say measurable elements of progress on these various fronts. We have all heard and watched the Brexit negotiations. We know that public pronouncements of progress and success can be vastly oversold to the press and the public. Negotiators may feel that it is better to spread feel-good news than feel-bad news even if it is not wholly true. We will not know about the veracity of China’s claim or Mr. Trump’s boasts either until the last minute when a trade deal either will be struck or not.

For now concerns are about trade and actual economic slowing that is in train. While the U.S. economy is going better than Europe and most others, its manufacturing PMI still has only a 63rd percentile standing although its 56.6 level towers over everyone else. German in May of last year was the last country in this table to top the U.S. current 56.6 reading. If we rank the table members according to which have had the highest highs in the last 29 months, Germany ranks number one with the U.S. at number two and the EMU area as number 3. France checks in at number 4. It is a clearly a western weighted result. At the bottom on this ranking (the areas with the lowest peak values in the last 49 months), we find South Korea at the bottom, followed by Indonesia, China and Brazil.

However, we can also turn this result on its head by asking where has the manufacturing PMI index fallen the most over 12 months? That turns up this list (1) Turkey, (2) Germany, (3) Taiwan, and (4) the euro area. The four least-affected over the last 12 months are (1) India, (2) Brazil, (3) Indonesia, and (4) Russia. Note the prominence of the BRIC countries on the latter list.

Asia has been weak for a long time. I sometimes point out that in some circumstances weakness can be an advantage because generally you hurt yourself more falling from a fifth story window than from a basement window. So while Asia has been hurt by trade and the slowdown, there has been more of a negative jolt to the former highly flying countries in the West, especially in Europe. The trade spat with the U.S. has worsened things for China and the U.S. still has other trade disputes, notably one with the EU that is currently out of the lime light and being handed behind the scenes.

People make several points about trade and the goods sector that I think we need to understand more clearly. One is that the goods sector is not the largest sector in any economy; services are. The second point is that the services sector employs so many more people than does manufacturing or construction. But the goods sector is the heart of technology progress. And in the case of China, its goal is to dominate tech by 2025 – that is a goods sector goal. China also has a ‘Belt and Road’ program that is a goods sector program about export promotion. China’s view of dominating the future is very much about the goods sector. Manufacturing is an important strike stone for the economy. It can be the hottest spark for growth and burn brightest. It is at the center of innovation. So don’t turn your back on ‘goods’ because ‘services’ are bigger. Services sectors usually are large and they employ more people by far largely because of their poor productivity. But the goods sector is the catalyst for growth. Currently, it is in a down cycle and trade is a big part of the reason for that.


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Only six of the 17 manufacturing PMI readings in the table did not weaken in January, reflecting a broad tendency of manufacturing conditions to ease in the month. In January, five countries saw improvement and one was unchanged. [...]

The Global Manufacturing Slowdown Remains in Force

Resilient US economy pushing up Blue Chip 2026 outlook

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

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Andrew Cates

**The Blue Chip Growth Consensus**
The first chart this week highlights a striking feature of recent forecast revisions: the outperformance of Asia, and Taiwan in particular. Over the past six months, Blue Chip panelists have upgraded their 2026 GDP growth forecasts most aggressively for Taiwan, far outpacing revisions elsewhere. This reflects the central role Taiwan plays in the global AI supply chain, especially in advanced semiconductors, where demand linked to data centres, AI accelerators and high-performance computing continues to strengthen. More broadly, positive revisions across parts of Asia suggest that the current AI-driven investment cycle is not just a US story, but one that is increasingly feeding through global tech supply chains, boosting exports, industrial production and capital spending across the region. In contrast, forecast changes elsewhere remain far more muted, underscoring how tightly the near-term growth impulse from AI is concentrated in economies most directly exposed to the semiconductor and hardware build-out.

260212Z1.jpg

**The Blue Chip Inflation Consensus**
The second chart highlights a growing theme of cross-country divergence, this time through the lens of inflation and monetary policy. Recent changes to Blue Chip CPI forecasts for 2026 show upward revisions in economies such as Japan, Australia and Canada, where inflation pressures are proving more persistent and policy tightening is either already under way or increasingly expected. In contrast, inflation forecasts in the US have been revised lower, consistent with softer recent data and reinforcing expectations of further monetary easing. The result is an increasingly asymmetric global policy backdrop: some central banks are still leaning against residual inflation risks, while others are preparing to shift toward rate cuts. This divergence, moreover, could matter more for global capital flows, exchange rates and financial conditions in the period ahead.

260212Z2.jpg

**South Korea’s Semiconductor Trade**
The third chart provides a concrete, high-frequency illustration of the forces underpinning the forecast upgrades seen earlier for Asia. South Korea’s semiconductor exports have surged sharply on a year-on-year basis, marking one of the strongest upswings of the past decade and underscoring the revival of the global tech cycle. This acceleration is closely linked to AI-related demand, particularly for advanced memory chips used in data centres and high-performance computing. Alongside Taiwan, South Korea sits at the core of the AI hardware supply chain, and the strength of semiconductor exports helps explain why growth expectations in parts of Asia have been revised higher so decisively. In this sense, the chart offers a real-economy counterpart to the consensus forecast revisions: the AI boom is not just a financial or expectations story, but one that is already showing up clearly in trade and industrial data across the region.

260212Z3.jpg

**Global Supply Chain Pressures**
The fourth chart places recent inflation dynamics in a broader supply-chain context and offers little evidence that current US tariff policies are materially exacerbating global bottlenecks. The Global Supply Chain Pressure Index has remained close to historical norms in recent months, a sharp contrast with the extreme dislocations seen during the pandemic period. Consistent with this, producer price inflation across advanced economies has remained muted, reinforcing the tight relationship between supply-chain stress and upstream price pressures. While tariffs may still influence relative prices at the margin and contribute to sector-specific adjustments, the data do not point to a broad-based resurgence in supply-chain pressures of the kind that would generate renewed, systemic inflationary pressure.

260212Z4.jpg

**Uncertainty in the US versus Europe** 
The fifth chart highlights a striking shift in the global policy uncertainty landscape. The US news-based economic policy uncertainty index has risen sharply and is now approaching levels more typically associated with Europe — a vivid contrast with the post-GFC and post-pandemic period, when US policy uncertainty was consistently well below European norms. This convergence likely reflects a combination of factors: renewed uncertainty around US trade policy and tariffs, questions over fiscal sustainability and debt dynamics, and growing debate around institutional independence, including the role of the Federal Reserve. At the same time, political polarisation and an increasingly unpredictable policy environment have become more prominent features of the US backdrop. The implications are potentially important for markets. A sustained rise in policy uncertainty would argue for a higher risk premium on US assets, particularly if it begins to influence corporate investment decisions, capital flows or the perceived safe-haven status of US markets.

260212Z5.jpg

**The Global Business Cycle** 
The final chart brings the story together by highlighting a further strengthening in global economic sentiment in February. The Sentix global expectations index moved higher alongside a renewed run of positive economic surprises across a number of major economies, as captured by the Citi Global Economic Surprise Index. This combination points to an environment in which incoming data have consistently exceeded expectations, helping to reinforce investor confidence and support risk appetite. Taken together, the improvement in sentiment and the upside surprise in activity data underscore the constructive macroeconomic backdrop that markets have been responding to in recent months — one characterised by resilient growth, easing inflation pressures and still-supportive financial conditions, even as policy paths and regional dynamics continue to diverge.

260212Z6.jpg

While markets have been unsettled at times by shifting policy expectations, geopolitical noise and questions around valuation, underlying global macroeconomic signals remain broadly supportive. Upgrades to Blue Chip consensus growth forecasts for parts of Asia — led by Taiwan — point to the tangible impact of the AI-driven tech cycle, a theme reinforced by the sharp rebound in semiconductor exports from South Korea (charts 1 and 3). At the same time, revisions to inflation forecasts underline a growing divergence in monetary policy paths, with easing still expected in the US and UK, while tighter stances persist elsewhere (chart 2). Importantly, there is little evidence so far that global supply-chain pressures are re-emerging in a way that would reignite inflation, notwithstanding lingering trade policy tensions (chart 4). Against this backdrop, rising policy uncertainty — particularly in the US — stands out as a potential source of risk, with implications for asset pricing and risk premia (chart 5). Yet the improvement in global sentiment surveys and a continued run of positive economic surprises suggest that markets are responding not just to policy noise, but to a genuinely resilient and improving macroeconomic environment (chart 6).

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Charts of the Week: AI-Led Growth Meets Monetary Divergence

Winnie Tapasanun

260212F17.jpg

260212G17.jpg

Existing home sales fell 8.4% m/m (-4.4% y/y) to a lower-than-expected 3.91 million units (SAAR) in January following a downwardly revised 4.4% gain to 4.27 million in December (previously +5.1%; 4.35 mil.), according to the National Association of Realtors (NAR). January sales registered the lowest level since September 2024 and the deepest m/m drop since February 2022, well below the Action Economics Forecast Survey expectation of 4.20 million. Sales were 39.2% below a high of 6.43 million in January 2022 and 40.8% below a peak of 6.60 million in January 2021. The sales fall accompanied a drop in the average 30-year fixed mortgage rate to 6.11% in January, the lowest since September 2022, after declining to 6.20% in December, according to Freddie Mac. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales slid 9.0% (-4.3% y/y) to 3.53 million units in January, the lowest level since September 2024, after a 4.3% gain to 3.88 million in December. Sales of condos and co-ops fell 2.6% (-5.0% y/y) to 380,000 following a 5.4% December rebound to 390,000.

By region, January existing home sales decreased m/m across all major regions. Sales in the West slumped 10.3% (-7.9% y/y) to 700,000 in January after a 4.0% increase in December, marking the third m/m decline in four months and the lowest level since December 2023. Sales in the South dropped 9.0% (-1.6% y/y) to 1.81 million, the lowest reading since October 2024, reversing a 6.4% December gain. Sales in the Midwest fell 7.1% (-7.1% y/y) to 920,000, the lowest level since September 2024, after a 2.1% December increase. Sales in the Northeast declined 5.9% (-4.0% y/y) to 480,000, the lowest level since June 2025, after rising 2.0% in December and November. The South remained the dominant region, accounting for 46.3% of total U.S. existing home sales.

The median price of all existing homes (NSA) fell 2.0% (+0.9% y/y) to $396,800 in January after a 1.2% decline to $405,100 in December ($405,400 initially), representing the sixth m/m fall in seven months and the lowest level since February 2025. Prices were 8.3% below a high of $432,700 in June 2025. The median price of an existing single-family home, also down for the sixth time in seven months, slid 2.2% (+0.6% y/y) to a one-year-low $400,300 in January after a 1.3% decline to $409,500 in December. The median price of condos and co-ops, up for the third time in four months, rose 0.9% (3.8% y/y) to $364,600, the highest level since August, after a 0.4% December increase to $361,200. Regionally, overall prices fell m/m in the Midwest (-3.6%; +2.3% y/y) and South (-2.3%; +0.1% y/y) in January, but increased m/m in the Northeast (+1.1%; +5.8% y/y) and West (+0.4%; -1.4% y/y).

Inventories of homes for sale weakened further in January. The number of existing homes for sale (NSA) fell 0.8% (+3.4% y/y) to 1.22 million units on top of a 14.6% December plunge to 1.23 million, posting the fourth consecutive m/m fall and the lowest level since January 2025. The supply of homes on the market at the current selling rate (NSA) rose to 3.7 months in January after falling to 3.5 months in December (the lowest since January 2025). The most recent high of 4.6 months was in August 2025, while a record low in supply of 1.6 months was in January 2022.

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.

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- January sales -8.4% (-4.4% y/y) to 3.91 mil., below expectations; steepest m/m fall since Feb. ’22.
- Widespread regional m/m declines: West (-10.3%), South (-9.0%), Midwest (-7.1%), Northeast (-5.9%); all regions down y/y.
- Median sales price -2.0% (+0.9% y/y) to $396,800, lowest since Feb. ’25.
- Unsold inventory -0.8% (+3.4% y/y) to 1.22 mil. units, a one-year low; 3.7 months' supply.

U.S. Existing Home Sales Drop in January; Lowest Level Since Sept. ’24

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped 5,000 to 227,000 in the week of February 7, from 232,000, revised from 231,000, in the week ended January 31. The four-week average rose 7,000 to 219,500 from 212,500. The Action Economics Forecast Survey looked for 225,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 21,000 to 1.862 million in the week ending January 31, from 1.841 million, revised from 1.844 million, in the week ending January 24. The four-week moving average stood at 1.847 million in the January 31 week, the lowest level for this average since October 5, 2024, when it was 1.846 million. The prior week was 1.850 million. The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous nine weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 24, the highest unemployment rates were in Rhode Island (2.95%), New Jersey (2.78%), Massachusetts (2.68%), Minnesota and Washington (both 2.58%), California (2.30%), and Montana (2.21%). The lowest rates were in Florida (0.31%), Arkansas (0.39%), North Carolina (0.43%), Louisiana (0.41%), and Alabama (0.45%). Rates in other notable states include Illinois (2.23%), New York (2.11%), Pennsylvania (1.91%), and Texas (1.16%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims dropped 5,000 to 227,000.
- Continuing claims rose to 1.862 million.
- The insured unemployment rate remained at 1.2% for the tenth consecutive week.

U.S. Initial Unemployment Claims Declined in Latest Week

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U.K. GDP slowed to a crawl at the end of the year, with growth at a 0.2% (annualized) rate logged in both the third and fourth quarters as 2025 drew to a close. The year had started with a strong 2.7% growth rate in Q1, which slipped to a 0.8% pace in the second quarter and decelerated to negligible growth at the end of the year.

These quarterly growth rates correspond to higher but obviously declining year over year growth rates. Because the quarterly growth rates diminished as the year progressed, year over year growth to start 2025 was at 1.8%; growth slipped to 1.4% in the second quarter and then to 1.2% in the third quarter. By the end of the year, growth had slipped to 1%.

The quarterly growth rates in the fourth quarter show public spending picked up to a 1.7% annual rate following 1% in the third quarter and erratic behavior in the first two quarters. Capital formation has remained relatively strong but has also oscillated, with first quarter growth at a blowout annual rate of 14.3%, falling to a contraction of 3.1% in Q2, rising back to 4.4% in Q3, and then declining at a 0.5% annual rate in Q4. So the year-over-year growth rates for capital formation during the course of the year only slipped from 4% in the first quarter to 3.6% in the fourth quarter, holding up fairly solidly and indicating strong rates of expansion for capital spending.

Housing, which was firm and strong in Q1 and Q2, slipped to a 0.8% annual rate of growth in the third quarter, and then housing investment fell at a 9.1% annualized rate in the fourth quarter. Year over year trends for housing show mostly low to moderate spending growth for residential investment.

U.K. exports have been floundering quarter-to-quarter, alternating between expanding and contracting; this corresponds to year over year growth rates that steadily diminish. In the first quarter of 2025, exports grew 3.5% year-over-year; that slipped to a 2% growth rate in Q2, then to a 1.5% growth rate in the third quarter. In the fourth quarter, U.K. exports are falling at a 0.5% annual rate of growth.
 
The export pattern contrasts with U.K. imports. They have mostly continued to grow, posting positive growth rates in three of the four quarters, starting the year with 5% quarterly growth and ending the fourth quarter with a 3.3% annual growth rate. Import growth rates have slipped, but not as much as other growth rates in GDP. For example, first quarter import growth was extremely strong at 7.6%; that year over year growth rate slips to 2.1% in Q2, then rises back to 5.3% in Q3, and finishes the year at 2.3%. There is slippage, but still significant growth, and the year began on a really high note.

Domestic demand has been fluctuating. In both quarterly and annual terms, there is unevenness. Quarterly growth rates range from 3.1% at an annual rate in Q1, to a 0.6% and 0.7% annual rate in the middle two quarters of the year; domestic demand ends the fourth quarter with a quarterly growth rate of 2.1% annualized. This causes year-over-year growth to be 2.9% in the first quarter; that falls to 1.2% in the second quarter, rebounds to 2.1% in the third quarter, and ends the year at 1.6% year-over-year.

Domestic demand has consistently been stronger than private consumption and it has been supported by both public consumption and by capital formation. Private consumption in 2025 has been erratic, logging 1.2% quarterly growth, annualized, in the first quarter; growth dropped to 0.2% in Q2, rising back to 1.7% in Q3, and then ending the year at a 0.6% rate of expansion quarter-over-quarter. The year-over-year data showed private consumption slipping but not dramatically, at a pace of 1.1% in the first quarter, up to 1.2% in the second quarter and then logging 0.9% in both the third and fourth quarters of 2025 as domestic demand ended the year stronger.

All of the U.K. growth rates are consistently and substantially below their five year growth rates. The economy continues to have a problem with inflation. Some recent inflation signals, however, suggest that there may be deceleration and progress, but the Bank of England hasn’t been convinced yet, even though Monetary Policy Committee members continue to speak favorably about the prospects for rate reductions ahead. The U.K. also has a corseted fiscal situation as there’s not much flexibility to spend more given its relatively bloated budget. The economy is waffling. The current administration has had its share of political issues, having recently had to eject several members from leadership positions in government. The outlook for growth is still touch and go. The outlook for inflation holds slightly more promise for deescalation. But overall, there is a lot of uncertainty over events and the growth path for the U.K. economy.

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United Kingdom

U.K. Second Half GDP Slows to a Crawl

Michael J. Moran

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Nonfarm payroll employment rose 130,000 in January, notably better than the expected increase of approximately 50,000 and far better than the average monthly gain of 15,000 in 2025. Some observers might not be impressed because the increase was concentrated in the health-care and social-services category (124,000), which is not especially sensitive to the business cycle. In addition, the increase in this category was unusually sharp, suggesting the possibility of random volatility.  The increase was the largest since the summer of 2020, when pandemic-related noise was driving activity.

To be sure, the employment gain outside of health-care and social-services was modest, but the report carried some bright spots nonetheless. The construction sector, which is highly sensitive to business conditions, rose sharply for the second time in the past three months (net gain of 65,000). Similarly, employment in business services, another area sensitive to the business cycle, rose for the third consecutive month, a marked shift from declines in nine of the prior ten months. The manufacturing sector added 5,000 jobs, a moderate change but a welcome break from 13 consecutive declines before January.

Results from the household survey also were favorable, with the unemployment dipping 0.1 percentage point for the second consecutive month. Also, it was a “strong” decline, with the drop reflecting a surge in employment as measured by the household survey (528,000) that exceeded a sharp increase in the size of the labor force (387,000). The broad unemployment rate (the so-calledU-6 measure) showed even sharper improvement (off 0.4 percentage point to 8.0%). Both of the two items added to the headline measure in the broad rate contribute to the decline. The number of individuals working part time for economic reasons fell 8.5% and the number of individuals marginally attached to the labor force fell 4.9%.

An increase of 0.4% in average hourly earnings could be viewed as a bright spot. The monthly change was in the upper end of the range from the past year or two, which left little change in the year-over-year increase (3.7%). The steady advance at a rate in excess of inflation shows that demand for workers has not evaporated.

The length of the average workweek often receives scant attention in reviews of the labor market, but it can be an important variable. Businesses can alter the pace of activity by adjusting hours worked rather than changing payrolls, and thus, shifts in the workweek can signal changes in the tempo of the economy. Fortunately, the workweek has been steady recently, rising 0.1 hour in January and moving to the upper end of the tight range that has been in place for the past year or two. 

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

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- The increase in employment in January was firm, although narrowly based.
- The unemployment rate dipped for the second consecutive month, led by strong employment as measured by the household survey.

Economy in Brief: 2019

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