Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317a.jpg" align="left" border="0" height="265" width="353">
Industrial production fell 0.5% last month after an unrevised
0.1% rise during January. The decline was greater than the 0.1% slip
that was generally expected. The cause of the surprise, however,
primarily was due to a 3.7% drop in utility output, caused by warm
Winter temperatures during February.
Factory output fell 0.3% during February. A reading of no
change in January production was revised down from a 0.1% uptick
reported initially. The m/m decline was the first since October and
three month growth in output fell to -0.7% (AR). Production in the high
tech sector rose 1.1% last month after a 0.3% January increase. Outside
the high tech sector, factory output fell 0.4% during February after
having been unchanged during January. Three month output growth fell to
-1.1% (AR).
Production of computers &amp; electronics again surged
last month by 1.2% and three month growth totaled a strong 12.3%.
<blockquote><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317b.jpg" align="right" border="0" height="265" width="353">

Severe weakness has taken over output elsewhere in the
durable goods area. Output of furniture &amp; appliances fell 3.1%
last month after a 2.5% January decline. Three month output growth here
fell to -25.4% at an annual rate. Output of automotive products dropped
1.2% and on a three month basis fell 6.2%. In the nondurables sector
apparel product output fell 0.4%, the second consecutive decline,
though that followed a strong 2.4% December jump. On a three month
basis output growth was a still firm 3.2%.
</blockquote>

Output of business equipment ticked up 0.1% for the second
month and three month growth totaled 4.2%. Output of industrial
equipment less high tech slipped 0.1% with three month growth still
positive at 3.9%.
Output of construction supplies fell 0.7% during February for
the second consecutive month and three month growth remained negative
at -3.7%.
Capacity utilization fell to 80.9%, its lowest level since
late 2005. Utilization in the factory sector slipped to 79.3%, its
lowest also since late 2005. Annual growth in capacity is estimated at
1.7% y/y for 2.1% in the factory sector.
Yesterday the Federal Reserve announced two initiatives to
promote financial market liquidity and orderly market functioning. The
text of the announcement can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080316a.htm">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.5</td>
<td>0.1</td>
<td>1.1</td>
<td>1.9</td>
<td>4.0</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Manufacturing</td>
<td>-0.3</td>
<td>0.0</td>
<td>1.7</td>
<td>1.9</td>
<td>4.7</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Utilities</td>
<td>-3.7</td>
<td>2.2</td>
<td>-5.4</td>
<td>3.1</td>
<td>0.2</td>
<td>2.0</td>
</tr>
</tbody>
</table>
Stock Markets Plunge:
Commodity Prices Soar 
by <a href="/comment/Curley.html">Louise
Curley</a> March 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317d.jpg" align="left" border="0" height="265" width="353">
Stock markets around the world have taken another plunge as a
result of the latest turmoil in the financial markets. Peaks and
troughs in the stock markets have been successively lower ever since
the sub prime crisis erupted last August. The attached chart plots
daily stock price indexes for the United States (the Dow Jones), the
United Kingdom (the Financial Times All Share) and Japan (the Nikkei
225).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317c.jpg" align="right" border="0" height="265" width="353"> As of last Friday, the Dow
Jones was down 15% from its July 19, 2007 peak of 14,000. The Financial
Times All Share was down 17% and the Nikkei 225, 33% from their peaks
of respectively 3,468 and 18,239 on July 13, 2007. Early indicators
suggests further falls today.
While stock markets been falling, commodity prices have been
soaring. In attempts to seek safety, investors have turned to
commodities, gold and oil in particular. The second chart shows the run
ups in the prices of these commodities. Over the same period that the
Dow Jones fell 15%, gold rose 47% and oil 43%.
These daily prices can be found in the Haver Data Base, INTDAILY.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">STOCK
PRICE INDEXES&nbsp;</th>
<th scope="col">Mar 14,08&nbsp;</th>
<th scope="col">Peak, Jul 07</th>
<th scope="col">% Chg&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U. S. Dow Jones</td>
<td>11951.09</td>
<td>14000.41</td>
<td>-14.64</td>
</tr>
<tr class="odd">
<td class="firstcol">U.K. Financial Times
All Shares</td>
<td>2886.17</td>
<td>3467.92</td>
<td>-16.78</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan Nikkei
225&nbsp;Foreign</td>
<td>12240.60</td>
<td>18238.95</td>
<td>-32.88</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;COMMODITY
PRICES</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;Gold
(Engelhard Indus Bullion $ per troy oz.)</td>
<td>997.34</td>
<td>676.26</td>
<td>47.78</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Oil (Brent
Crude $ per bbl.)</td>
<td>110.75</td>
<td>78.33</td>
<td>41.39</td>
</tr>
</tbody>
</table>
U.S. Current Account Deficit
Shrank in 2007 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317f.jpg" align="left" border="0" height="265" width="353">
The US current account deficit fell last quarter to $172.9
billion from $177.4 billion in Q3. The Q4 deficit was shallower than
Consensus expectations for a deficit of $184 billion.
The latest deficit totaled 4.9% of GDP and it peaked as a
percentage of GDP nearly two years ago at 6.8% in Q4 2005.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080317e.jpg" align="right" border="0" height="265" width="353">
That shrinkage occurred even though the deficit on merchandise
trade deepened. Higher oil prices lifted imports and the goods deficit
grew to $208.1B from Q3's revised deficit of $200.5B. It was the
deepest deficit in just over a year. During the last year only,
however, exports grew 14.2% and outpaced import growth of 9.8%.
The effects of the lower U.S. dollar and the strength of
foreign economies versus the U.S. is apparent greatest in the surplus
in services trade which grew to a record surplus of $30.2B from $28.0B
in 3Q. Exports of services during the last year grew 15.2%. Travel
exports grew 21.4% y/y and passenger fares were up 19.2%. Imports grew
a slower 11.5% due to moderate 7.3% growth in travel and 9.3% growth in
passenger fares.
The trade surplus on earned income grew to $33.0B as the
unilateral transfers deficit deepened to 28.1B.
 Friedman and Taylor on Monetary Policy Rules: A
Comparison from the Federal Reserve Bank of St. Louis is
available <a href="http://research.stlouisfed.org/publications/review/08/03/Nelson.pdf">
here</a>. 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US
Balance of Payments</a>,&nbsp;Bil.$, SA</th>
<th scope="col">4Q '07</th>
<th scope="col">Q3 '07</th>
<th scope="col">Year Ago</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account
Balance ($ Bil.)</td>
<td>-172.9</td>
<td>-177.4</td>
<td>-187.9</td>
<td>-738.6</td>
<td>-811.5</td>
<td>-754.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Deficit % of GDP</td>
<td>-4.9</td>
<td>-5.1</td>
<td>-5.6</td>
<td>-5.3</td>
<td>-6.2</td>
<td>-6.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on
Goods ($ Bil.)</td>
<td>-208.1</td>
<td>-200.5</td>
<td>-200.3</td>
<td>-815.4</td>
<td>-838.3</td>
<td>-787.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Exports&nbsp;</td>
<td>2.4%</td>
<td>6.7%</td>
<td>14.2%</td>
<td>12.3%</td>
<td>14.4%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imports&nbsp;</td>
<td>2.9%</td>
<td>2.9%</td>
<td>9.8%</td>
<td>5.5%</td>
<td>10.7%</td>
<td>12.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Balance on
Private Services ($ Bil.)</td>
<td>30.2</td>
<td>28.0</td>
<td>23.4</td>
<td>106.9</td>
<td>79.8</td>
<td>72.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Exports</td>
<td>4.4%</td>
<td>4.9%</td>
<td>15.2%</td>
<td>13.4%</td>
<td>8.8%</td>
<td>11.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imports</td>
<td>3.4%</td>
<td>3.7%</td>
<td>11.5%</td>
<td>8.6%</td>
<td>9.3%</td>
<td>8.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Balance on
Income ($ Bil.)</td>
<td>33.0</td>
<td>21.3</td>
<td>9.7</td>
<td>74.3</td>
<td>36.6</td>
<td>48.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Unilateral
Transfers ($ Bil.)</td>
<td>-28.1</td>
<td>-26.2</td>
<td>-20.7</td>
<td>-104.4</td>
<td>-89.6</td>
<td>-88.5</td>
</tr>
</tbody>
</table>
</body></html>

Industrial production fell 0.5% last month after an unrevised 0.1% rise during January. The decline was greater than the 0.1% slip that was generally expected. The cause of the surprise, however, primarily was due to a 3.7% drop in [...]

U.S. Industrial Output Down

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314h.jpg" align="left" border="0" height="265" width="353">
The upward-revised headline EMU inflation rate leaves the ECB
even more perturbed over events. While a tenth of a percentage point
upward revision is no big deal, it makes the highest inflation on
record since the Euro Area was formed even higher. Some members have
said that the revision is a further risk to second round effects. To
the extent that the public sees it and makes that their wage target
based on that higher rate, it is so.
The chart on the lest shows the &#8216;core&#8217; inflation rate, without
food and energy and &#8216;sin&#8217; (alcohol and tobacco).
The core rate is in better shape and it shows a muted
pass-through of inflation. At 2.4% year/year it is about what US core
inflation is (2.3% for ex food and energy inflation). The ECB is making
a big deal of inflation over its ceiling of 2% while the Fed
&#8216;references&#8217; the core PCE which is lower than the Core CPI. The Core
CPI is now below its Core-PCE-equivalent &#8216;reference ceiling&#8217; of 2.4%.
But since the ECB thinks in terms of headline inflation only, its
shortfall is not 2.4% (core) Vs 2% but 3.3% Vs 2% and that is a much
bigger distance. For the record US headline inflation is even higher.
Who is doing this the right way?
Central banks are what they make themselves into and what
their mandate demands. The US has seen enough weakness to react to the
economy and financial strife by cutting rates. And that works for a
central bank with a dual growth and inflation mandate. The ECB has no
such mandate. It is strictly to fight inflation and so it is doing
that, for better or worse. Meanwhile,
however, the euro continues to climb and that has its own deflationary
consequences for the Euro Area. It seems everyone in the Euro Area is
worried about it. Perhaps that is the way out for the ECB to see what
the strong euro is doing to help fight inflation as well as undermine
growth. Holding policy steady until inflation breaks noticeably could
be a problem since commodity prices are high enough that even with euro
strength they are and will be an inflation contributor for a while
longer. Central banks have entered the very foggy &#8216;judgment zone.&#8217;
One thing we can conclude is that with the weaker economy in
the US and the brunt of the financial problems there, it is a good
thing that the Fed is the central bank with the dual mandate and not
vice versa. In the meantime look for central banks to muddle though
under their own existing rules. Inflation may be near peaking since
it&#8217;s hard to imagine another move up in commodity prices to any
significant degree from these levels.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Trends in HICP </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.8%</td>
<td>4.5%</td>
<td>3.3%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>2.4%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>0.1%</td>
<td>-0.8%</td>
<td>5.3%</td>
<td>3.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>0.9%</td>
<td>4.9%</td>
<td>1.1%</td>
<td>2.5%</td>
<td>2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">HICP</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>1.1%</td>
<td>3.9%</td>
<td>2.9%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.0%</td>
<td>4.1%</td>
<td>3.2%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.6%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>4.2%</td>
<td>4.7%</td>
<td>3.1%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>4.6%</td>
<td>6.1%</td>
<td>4.4%</td>
<td>2.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">Core:xFE&amp;A</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>1.5%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>3.3%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
</body></html>

The upward-revised headline EMU inflation rate leaves the ECB even more perturbed over events. While a tenth of a percentage point upward revision is no big deal, it makes the highest inflation on record since the Euro Area was formed [...]

Inflation Flares Further in the Euro Area

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314g.jpg" align="left" border="0" height="265" width="353">
The Bank of France has put the logical spin on its survey as
showing that growth continues.
After a marked slowdown in French GDP growth in 4Q, the new
BoF survey shows that activity has picked up somewhat, although the
Industry sentiment index is still below its 12-month average.On the basis of its February business
survey, the central bank actually has revised down its projection for
Q1 GDP growth to 0.4% from the 0.5% it initially forecast. This is just
below the December forecast of the national statistics institute Insee
and just above the 0.3% gain in 4Q.
Industry output continued to expand in February but less
strongly than in January, to say the least. The February reading for
production is 4.55 compared to 19.17 for January and a 12-month average
of +7. Weaker gains were
reported in most sectors. Autos posted an outright decline in February
after a spike in January and a decline in the auto output in December.
Manufacturing capacity utilization slipped to 83.4% after a rebound in
January to 83.5%, remaining above the long-term average of 83 since
1987 but below the average of 84 for the last 12 months.
Executives said new domestic orders slowed in February and
overall order books were somewhat lighter, in fact at 8.76 they are
below the 12-month average for orders and below the long-term average
of 9. 
Growth also slowed in most segments of the services sector in
February.
Activity is expected to continue to expand in most branches
but at a more moderate pace. Foreign orders gains were much weaker in
February, as the euro climbed. Importantly, service providers indicated
that price hikes would be slightly less rapid in the months ahead. Cleary the BoF has put some positive
spin on the report in which growth is indicated but momentum seems to
be fading.
Going back to 1987 the semi-finished goods sector is in dire
straits with the lowest production outlook and lowest new orders it has
ever seen. Production in this sector is in the bottom 16 percent of the
range for orders in the past 30 years. Auto sector production is in the
bottom third of its range as is the agriculture and food sector;
consumer goods production is in the bottom 42 percent of its range. The production outlook for capital
goods and consumer goods is the lower 36th
percentile and lower 15th percentile of their
respective ranges. This report is really very weak.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> Bank of France Monthly INDUSTRY Survey: SUMMARY</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>12 MO</td>
<td>Since Jan-87</td>
<td>2Yr Percentile</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>AVERAGE</td>
<td>Average</td>
<td>rank/range</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Production-latest mo</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>5.44</td>
<td>19.17</td>
<td>-4.13</td>
<td>7</td>
<td>7</td>
<td>32.5%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Production Outlook</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>12.91</td>
<td>15.86</td>
<td>22.21</td>
<td>16</td>
<td>15</td>
<td>29.4%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Demand</td>
</tr>
<tr>
<td class="firstcol">Overall order books</td>
<td>22.81</td>
<td>24.85</td>
<td>25.33</td>
<td>27</td>
<td>4</td>
<td>39.7%</td>
</tr>
<tr class="even">
<td class="firstcol">Foreign Orders</td>
<td>10.24</td>
<td>10.87</td>
<td>8.89</td>
<td>11</td>
<td>9</td>
<td>27.0%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">New Orders</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>8.76</td>
<td>12.28</td>
<td>9.3</td>
<td>10</td>
<td>9</td>
<td>18.9%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol">Stocks: Finished Gds</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>-3.76</td>
<td>-1.88</td>
<td>-4.76</td>
<td>-3</td>
<td>-2</td>
<td>22.1%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>83.35</td>
<td>83.48</td>
<td>80.86</td>
<td>84</td>
<td>83</td>
<td>57.2%</td>
</tr>
<tr class="odd">
<td colspan="7" class="firstcol"> Hiring</td>
</tr>
<tr>
<td class="firstcol">Latest Mo</td>
<td>0.41</td>
<td>2.74</td>
<td>-1.43</td>
<td>0</td>
<td>-1</td>
<td>74.8%</td>
</tr>
<tr class="even">
<td class="firstcol">Outlook</td>
<td>-0.44</td>
<td>-1.48</td>
<td>-0.67</td>
<td>-2</td>
<td>-4</td>
<td>88.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Industry Sentiment
Index</td>
<td>106.8</td>
<td>106.47</td>
<td>105.68</td>
<td>107</td>
<td>107</td>
<td>48.3%</td>
</tr>
</tbody>
</table>
</body></html>

The Bank of France has put the logical spin on its survey as showing that growth continues. After a marked slowdown in French GDP growth in 4Q, the new BoF survey shows that activity has picked up somewhat, although the Industry [...]

BoF Indicator Continues to be Weak

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314d.jpg" width="353">
The University of Michigan&#39;s consumer sentiment index, in the preliminary reading for March, fell another 0.4% m/m to 70.5 after the 9.7% plunge during February. Consensus expectations had been for a somewhat sharper decline to a reading of 70.1 for early this month.
A lower index of expected business conditions during the next year accounted for all of the decline in overall March sentiment. The 1.6% decline followed an 8.4% February drop and left the index at its lowest since early 1992. Expectations for business conditions during the next year fell 6.0% (-49.5% y/y) but expectations for conditions over the next five years rose, making up virtually all of a February decline. They remained down 7.4% y/y. Expectations for personal finances also improved and made up a February drop but still were down 7.4% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314d.jpg" width="353">
Opinions about government policy were stable m/m (-22.5% y/y) following the sharp 11.5% shortfall during February. The percentage of those surveyed who indicated that they thought government was doing a good job made up the February decline. They rose to 13% but an increased 44% had a poor opinion.
Expectations for inflation during the next twelve months surged to 4.6%, the highest level in nearly two years though inflation expectations during the next five to ten years fell slightly to 3.3%.
The current conditions index rose a slight 1.0% m/m after the 11.2% February slide. The view of current conditions for buying large household goods ticked up 1.6% after falling 15.8% m/m in February and the view of current personal finances was unchanged after a 4.1% (-15.3% y/y) February drop.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.
Assessing Employment Growth in 2007 from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-09.pdf"> here</a>.

<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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">March (Prelim)</th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">March y/y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>70.5</td>
<td>70.8</td>
<td>78.4</td>
<td>-20.2% </td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>84.6</td>
<td>83.8</td>
<td>94.4</td>
<td>-18.3%</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>61.4</td>
<td>62.4</td>
<td>68.1</td>
<td>-22.0%</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The University of Michigan's consumer sentiment index, in the preliminary reading for March, fell another 0.4% m/m to 70.5 after the 9.7% plunge during February. Consensus expectations had been for a somewhat sharper decline to a [...]

Michigan Consumer Sentiment Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314a.jpg" width="353">
The consumer price index (CPI-U) was unchanged in February following two consecutive months of 0.4% increase. It compared to expectations for a 0.3% rise and was the weakest since prices were unchanged last August. A slight dip in the y/y rate of increase to 4.0% left it still at the second strongest growth rate since 2005.
Less food &amp; energy, consumer prices also were unchanged m/m after January&#39;s elevated 0.3% increase. That also fell short of expectations for a 0.2% increase and it was the weakest reading since November 2006. The lack of an increase brought the y/y gain down to 2.3%, its lowest since last October. A Comparison of Measures of Core Inflation from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/07v13n3/0712rich.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314b.jpg" width="353">
Inflation of food &amp; beverage prices took a breather last month and dipped to 0.4% after a 0.7% January increase. It nevertheless left the y/y gain elevated at 4.6%, up from a 4.0% rate of increase last year. Prices for meats poultry &amp; fish actually fell 0.1% m/m (4.7% y/y) after a 0.8% January pop and prices for fruits &amp; vegetables also fell by 1.3% (+1.4% y/y) after the 2.2% rise during January. Cereal &amp; bakery product prices, however, surged 1.8%. The y/y increase here of 6.6% was the strongest since 1990.
Energy prices prices also were tame last month and posted a 0.5% decline. The drop owed to a 2.0% m/m decline in gasoline prices but that still left them up 32.7% from twelve months earlier. Moreover, the weekly data for this month already indicate that the respite from price strength has ended. A 5.5% m/m rise in average gasoline prices so far in March to $3.23 per gallon would be the strongest since November. Also, it will add by itself 0.3% to the March CPI increase. Prices for fuel oil &amp; other fuels in February backed off 1.3% (+33.0% y/y) after a strong 3.7% January surge. Natural gas &amp; electricity prices, however, worked the other way and rose 1.7% (3.5% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080314c.jpg" width="353">
Core goods prices in February dipped 0.1%, the first m/m decline since last June. It reflected a 0.3% decline (-1.0% y/y) in apparel prices and no change (-0.6% y/y) in household furnishings &amp; operations (-0.6% y/y). Prices for new &amp; used motor vehicles also fell by 0.2% (0.0% y/y) during February.
Core services price inflation also took a breather in February and eased to 0.1%. Shelter prices, which constitute 33% of the total CPI, were unchanged (2.9% y/y). Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, ticked up 0.1% (2.6% y/y). Medical care services prices also rose just 0.1% after a 0.6% January surge. Prices were up a strong 5.0% y/y after last year&#39;s 5.3% increase. Tuition costs rose 0.3% (5.5% y/y), about equal to the strong 5.6% gain during all of last year. Public transportation prices dipped 0.1% (+5.2% y/y).
Stable Prices, Stable Economy: Keeping Inflation in Check Must be No. 1 Goal of Monetary Policymakers from the Federal Reserve bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2008/a/pdf/inflation.pdf"> here</a>.A Falling Dollar Raises Inflation in the Gulf also from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/iet/20080201/cover.pdf"> here</a>.

<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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> (%)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Feb. Y/Y&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.0</td>
<td>0.4</td>
<td>0.4</td>
<td>4.0&nbsp;</td>
<td>2.9</td>
<td>3.2</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>0.3</td>
<td>0.2</td>
<td>2.3&nbsp;</td>
<td>2.3</td>
<td>2.5</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.1</td>
<td>0.2</td>
<td>0.0</td>
<td>0.0&nbsp;</td>
<td>-0.4</td>
<td>0.2</td>
<td>0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Services less Energy</td>
<td>0.1</td>
<td>0.4</td>
<td>0.3</td>
<td>3.2</td>
<td>3.4</td>
<td>3.4</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>-0.5</td>
<td>0.7</td>
<td>1.7</td>
<td>18.9</td>
<td>5.6</td>
<td>11.0</td>
<td>17.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.4</td>
<td>0.7</td>
<td>0.1</td>
<td>4.6&nbsp;</td>
<td>4.0</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;&nbsp;</td>
<td></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>&nbsp;</td>
<td>0.3</td>
<td>0.5</td>
<td>-0.1</td>
<td>3.7 </td>
<td>2.5</td>
<td>2.9 </td>
<td>2.9 </td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>0.3</td>
<td>0.3</td>
<td>-0.1</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
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The consumer price index (CPI-U) was unchanged in February following two consecutive months of 0.4% increase. It compared to expectations for a 0.3% rise and was the weakest since prices were unchanged last August. A slight dip in the [...]

U.S. CPI Total & Core Unchanged

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080313i.jpg" align="left" border="0" height="265" width="353">Japan&#8217;s index of industrial
output was revised lower. But the
general growth trend remains in force. Year/year output trends are
fairly stable at a moderate 2% or so rate of growth. Over six months,
trends point lower; over 3 months trends point sharply lower.

All major industrial and product growth sectors show weakness
in the recent one-month and three-month periods. Textiles, investment
goods and mining show the more persisting decelerating trends.

However, different leading indicators tell different stories
about Japan&#8217;s economy and where it is going. The OECD sees an upturn in
progress in six months, as its CLI has turned higher. Japan&#8217;s own
leading index is still locked in a downtrend going back to 2006.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080313j.jpg" align="right" border="0" height="265" width="353">
The recent surge in the yen comes against this mixed
background. In the past the yen has not been able to rise strongly
unless the domestic economy was doing well. But in this case the yen&#8217;s
rise is the counter part of the dollar&#8217;s ubiquitous fall. The yen may
be driven more by the US and by yen funding unwinds than by Japan&#8217;s own
fundamentals. The BOJ is not talking of intervention, indeed, the
Keidanren, the influential Japan employers union, said it would not ask
for intervention unless the dollar got much stronger.

Japan&#8217;s exports have been holding up and there is some talk of
improved productivity in Japanese companies. But the dollar&#8217;s move up
could put all of this in jeopardy. Year-over-year output trends remain
steady but over shorter horizons we do have something to think about. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Japan
Industrial Production Trends </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">seas adjusted</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Mining &amp; MFG</td>
<td>-2.2%</td>
<td>1.4%</td>
<td>-1.6%</td>
<td>-9.3%</td>
<td>2.6%</td>
<td>2.2%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>-2.6%</td>
<td>1.7%</td>
<td>-1.3%</td>
<td>-8.6%</td>
<td>3.4%</td>
<td>2.3%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-2.2%</td>
<td>1.4%</td>
<td>-1.6%</td>
<td>-9.6%</td>
<td>2.6%</td>
<td>2.1%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Textiles</td>
<td>-3.0%</td>
<td>2.5%</td>
<td>-2.2%</td>
<td>-10.2%</td>
<td>-8.6%</td>
<td>-5.6%</td>
<td>-4.2%</td>
</tr>
<tr>
<td class="firstcol">Transport</td>
<td>-3.2%</td>
<td>2.4%</td>
<td>-2.9%</td>
<td>-14.2%</td>
<td>31.5%</td>
<td>11.6%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Product Group</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-1.7%</td>
<td>2.1%</td>
<td>-2.1%</td>
<td>-6.8%</td>
<td>12.8%</td>
<td>4.0%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-2.8%</td>
<td>1.3%</td>
<td>-1.1%</td>
<td>-10.3%</td>
<td>3.1%</td>
<td>4.0%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">Investment Goods</td>
<td>-0.8%</td>
<td>-0.6%</td>
<td>-1.9%</td>
<td>-12.6%</td>
<td>-8.3%</td>
<td>-3.8%</td>
<td>5.8%</td>
</tr>
<tr>
<td class="firstcol">Mining</td>
<td>-2.9%</td>
<td>1.1%</td>
<td>-5.9%</td>
<td>-27.2%</td>
<td>-15.9%</td>
<td>-5.1%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Electricity &amp; Gas</td>
<td>-1.9%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>1.0%</td>
<td>14.0%</td>
<td>5.3%</td>
<td>-2.8%</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s index of industrial output was revised lower. But the general growth trend remains in force. Year/year output trends are fairly stable at a moderate 2% or so rate of growth. Over six months, trends point lower; over 3 months [...]

Japan's Industrial Sector Slows Down, Does the Economy?

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080313h.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s seasonally adjusted headline sales spurted over six
months then slowed over three months. The three-month slowdown however
is at a slightly slower pace than year-to-year sales. On the
quarter-to-date sales are better than their year/yearr pace and better
than their three-month pace.

For not seasonally adjusted data, Japan&#8217;s January retail sales
also jumped over six months compared to 12 months ago, but over the
recent three months sales were much weaker and generally back to their
year/year pace (a little better). In the current quarter too, Japan
retail sales are advancing at a pace close to the pace they posted over
the past year. These trends apply to most retail sales components.

Motor vehicles are one category that is an exception to some
of these generalities. MV sales did spurt over six months and slowed
from that pace over 3 months but the three-month pace has remained
above the year/year pace and as a result the quarter to date pace is
also elevated. But since MV sales are volatile it is never possible to
know if it is spurting and will have legs or will dissipate or even
reverse. Japan&#8217;s economy has been engaged in a long slowdown. But
recently several of its cyclical measures have shown some upside. Auto
sales may be another one of those new bright signs.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">Japan
Retail Sales Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>Q-to-Date</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>0.6%</td>
<td>-0.8%</td>
<td>0.7%</td>
<td>1.8%</td>
<td>7.2%</td>
<td>1.2%</td>
<td>-4.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles</td>
<td>2.9%</td>
<td>-0.8%</td>
<td>0.1%</td>
<td>8.5%</td>
<td>17.7%</td>
<td>5.6%</td>
<td>-14.2%</td>
<td>14.7%</td>
</tr>
<tr>
<td class="firstcol">Food &amp; Beverage</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>2.6%</td>
<td>0.4%</td>
<td>2.4%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">Fabric apparel &amp;
accessories</td>
<td>1.2%</td>
<td>-2.6%</td>
<td>1.5%</td>
<td>0.0%</td>
<td>6.2%</td>
<td>0.0%</td>
<td>-24.6%</td>
<td>-0.7%</td>
</tr>
<tr>
<td class="firstcol">Rest of Retail</td>
<td>0.2%</td>
<td>-0.9%</td>
<td>1.2%</td>
<td>1.9%</td>
<td>7.8%</td>
<td>0.9%</td>
<td>-3.0%</td>
<td>0.1%</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s seasonally adjusted headline sales spurted over six months then slowed over three months. The three-month slowdown however is at a slightly slower pace than year-to-year sales. On the quarter-to-date sales are better than [...]

Japan Retail Sales: A Jump Then a Slowing

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ZEW Expectations Weaken Mildly

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Europe

Production in a Gradual Recovery in Europe Despite Recent Setbacks

Tian Yong Woon

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

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

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

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

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

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

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

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

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

Economy in Brief: 2008

Jump to:

U.S. Industrial Output Down

Inflation Flares Further in the Euro Area

BoF Indicator Continues to be Weak

Michigan Consumer Sentiment Fell Again

U.S. CPI Total & Core Unchanged

U.S. CPI Total & Core Unchanged

Japan's Industrial Sector Slows Down, Does the Economy?

Japan Retail Sales: A Jump Then a Slowing