Tom Moeller

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New home sales during November declined 1.6% to 438,000 (-1.6% y/y) from
445,000 in October, initially reported as 458,000. The latest figure matched
expectations in the Action Economics Forecast Survey. These volume numbers are
quoted at seasonally adjusted annual rates.

The median price for a new home declined 3.2% to $280,900 (+1.4% y/y) from
$290,100, revised from $305,000. The average price of a new home declined 14.2%
to $321,800 (-4.1% y/y) from $375,200, revised from $401,100.

Home sales fell through most the country. Sales in the Northeast declined
12.0% to 22,000 and were off by one-third y/y. Sales in the South fell 6.4% to
233,000 (-4.1% y/y) and sales in the Midwest declined 6.3% to 59,000 (+3.5%
y/y). Sales in the West offset these setbacks with a 14.8% rise to 124,000 (10.7%
y/y).

The inventory of unsold homes increased 1.4% to 213,000 (15.1% y/y), the
highest level since June 2010 and up by nearly half from the 2012 low. The
months' sales supply of new homes inched up m/m to 5.8 months versus last year's
low of 3.9 months. The length of time to sell a new home was essentially stable
m/m at 3.0 months, down from 14.0 months at the end of 2009.

The data in this report are available in Haver's USECON database. The
consensus expectation figure from the Action Economics survey is available in
the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >U.S. New Home Sales</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total SAAR, 000s</td>
 <td >438</td>
 <td >445</td>
 <td >455</td>
 <td >-1.6</td>
 <td >430</td>
 <td >368</td>
 <td >306</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Northeast</td>
 <td >22</td>
 <td >25</td>
 <td >31</td>
 <td >-12.0</td>
 <td >31</td>
 <td >29</td>
 <td >21</td>
 </tr>
 <tr>
 <td class="firstcol" >Midwest</td>
 <td >59</td>
 <td >63</td>
 <td >58</td>
 <td >3.5</td>
 <td >61</td>
 <td >47</td>
 <td >45</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >South</td>
 <td >233</td>
 <td >249</td>
 <td >252</td>
 <td >-4.1</td>
 <td >233</td>
 <td >196</td>
 <td >168</td>
 </tr>
 <tr>
 <td class="firstcol" >West</td>
 <td >124</td>
 <td >108</td>
 <td >114</td>
 <td >10.7</td>
 <td >106</td>
 <td >97</td>
 <td >72</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Median Price (NSA, $)</td>
 <td >280,900</td>
 <td >290,100</td>
 <td >263,500</td>
 <td >1.4</td>
 <td >265,092</td>
 <td >242,108</td>
 <td >224,317</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

New home sales during November declined 1.6% to 438,000 (-1.6% y/y) from 445,000 in October, initially reported as 458,000. The latest figure matched expectations in the Action Economics Forecast Survey. These volume numbers are [...]

U.S. New Home Sales Pull Back With Prices

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GDP growth last quarter was revised sharply higher to 5.0%, up from last
month's estimate of 3.9% growth. The rise was the strongest since Q3 2003. Strengthened
growth in final demand accounted for the revision. The gain exceeded the 4.3%
rise in the Action Economics Forecast Survey. So far this year, growth averaged
2.4%, held back by the 2.1% Q1 decline.

Growth in domestic final demand was raised to 4.1% (2.7% y/y) from 3.2%.
Consumer spending grew 3.2% (2.7% y/y), up from the 2.2% estimated earlier. The
main source of the revision was a strengthened 2.5% rise (2.1 y/y) in services
spending, up from 1.1% estimated last month. Health care spending, up 4.6% (2.8%
y/y), accounted for most of the revision. Spending growth on recreation also was
raised to 0.7% (-0.5% y/y) instead of declining 3.2%. Durable goods spending
growth was increased to 9.2% (8.0% y/y) from 8.7% as motor vehicles purchases
improved 11.2% (10.2% y/y), revised from 10.5%. Growth was down, however, from
the 19.1% Q2 surge. Furniture &amp; home furnishings spending growth was
little-changed at 6.1% (5.9% y/y), though that was roughly half the Q2 increase.
Purchases of nondurable goods also was increased to 2.5% (1.8% y/y) from 2.2%. Apparel
spending slowed to a little-changed 1.2% rate (1.3% y/y). That compared to 5.6%
Q2 growth. Gasoline purchases grew a slight 0.9% (-0.1% y/y) instead of falling
marginally.

Business investment growth also was strengthened to 8.9% (7.6% y/y) from 7.1%.
Investment in intellectual property products gained 8.8% (5.6% y/y), changed
from 6.4% estimated earlier. Spending on equipment grew at an improved 11.0%
rate (8.7% y/y) led by a one-third rise (17.7% y/y) in transportation equipment.
That was offset by a 6.9% decline (+1.0% y/y) in information processing
equipment, earlier posted as -7.5%. Structures investment rose 4.8% (8.2% y/y),
revised down from 6.4%. Residential investment advanced 3.3% (-0.7% y/y), not
2.7%.

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Government spending grew at a 4.4% rate, the quickest since Q2'09. Defense
spending firmed at a 16.0% rate (-0.1% y/y), nondefense grew 0.4% (-1.5% y/y)
and state &amp; local buying rose at a 1.1% rate (0.9% y/y), these figures were
little-changed.

The effect on growth from foreign trade was unrevised at 0.8 percentage
points as exports rose 4.6% (3.8% y/y) and imports fell 0.9% (+3.4 y/y). The
roughly neutral effect on economic growth from inventories also was
little-revised.

Growth in corporate profits after tax was increased to 2.8% (5.1% y/y) from
1.7%. That still was down, however, from the 6.2% gain in Q2. So far this year
profits have risen at an 8.2% annual rate after a 4.7% gain last year. Financial
sector profits grew 3.6% (-8.2% y/y) and nonfinancial sector earnings rose 2.5%
(5.8% y/y). Profits earned from the rest of the world gained a strengthened 4.2%
(0.2% y/y).

The GDP price index increased at an unchanged 1.4% annual rate (1.6% y/y).
The personal consumption index slowed to 1.2% (1.5% y/y) as durable goods prices
fell 2.1% (-2.4% y/y). The service price index rose 1.8% (2.3% y/y), the weakest
gain in two years. The nonresidential investment price index rose at a steady 1.1%
rate (1.2% y/y) but the residential index jumped 7.2% (6.0% y/y).

The latest GDP figures can be found in Haver's USECON and USNA
databases; USNA contains basically all of the Bureau of Economic
Analysis' detail in the national accounts, including the integrated economic
accounts and the recently added GDP data for U.S. Territories. The Action
Economics consensus estimates can be found in AS1REPNA.

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 <thead>
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM" ;>Chained
 2009 $, %, AR</a></th>
 <th scope="col" >Q3'14 (3rd Estimate)</th>
 <th scope="col" >Q3'14 (2nd Estimate)</th>
 <th scope="col" >Q3'14 (Advance Estimate)</th>
 <th scope="col" >Q2'14</th>
 <th scope="col" >Q1'14</th>
 <th scope="col" >Q3 Y/Y</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Gross Domestic Product</td>
 <td >5.0</td>
 <td >3.9</td>
 <td >3.5</td>
 <td >4.6</td>
 <td >-2.1</td>
 <td >2.7</td>
 <td >2.2</td>
 <td >2.3</td>
 <td >1.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Inventory Effect</td>
 <td >-0.0</td>
 <td >-0.1</td>
 <td >-0.6</td>
 <td >1.4</td>
 <td >-1.2</td>
 <td >-0.1</td>
 <td >0.0</td>
 <td >0.1</td>
 <td >-0.1</td>
 </tr>
 <tr>
 <td class="firstcol" >Final Sales</td>
 <td >5.0</td>
 <td >4.1</td>
 <td >4.2</td>
 <td >3.2</td>
 <td >-1.0</td>
 <td >2.8</td>
 <td >2.2</td>
 <td >2.2</td>
 <td >1.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Foreign Trade Effect</td>
 <td >0.8</td>
 <td >0.8</td>
 <td >1.3</td>
 <td >-0.3</td>
 <td >-1.7</td>
 <td >0.1</td>
 <td >0.3</td>
 <td >0.1</td>
 <td >0.0</td>
 </tr>
 <tr>
 <td class="firstcol" >Domestic Final Sales</td>
 <td >4.1</td>
 <td >3.2</td>
 <td >2.7</td>
 <td >3.4</td>
 <td >0.7</td>
 <td >2.7</td>
 <td >1.9</td>
 <td >2.1</td>
 <td >1.7</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colspan="10" >Demand Components</td>
 </tr>
 <tr>
 <td class="firstcol" >Personal Consumption Expenditures</td>
 <td >3.2</td>
 <td >2.2</td>
 <td >1.8</td>
 <td >2.5</td>
 <td >1.2</td>
 <td >2.7</td>
 <td >2.4</td>
 <td >1.8</td>
 <td >2.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Business Fixed Investment</td>
 <td >8.9</td>
 <td >7.1</td>
 <td >5.5</td>
 <td >9.7</td>
 <td >1.6</td>
 <td >7.6</td>
 <td >3.0</td>
 <td >7.2</td>
 <td >7.7</td>
 </tr>
 <tr>
 <td class="firstcol" >Residential Investment</td>
 <td >3.3</td>
 <td >2.7</td>
 <td >1.9</td>
 <td >8.8</td>
 <td >-5.3</td>
 <td >-0.7</td>
 <td >11.9</td>
 <td >13.5</td>
 <td >0.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Government Spending</td>
 <td >4.4</td>
 <td >4.2</td>
 <td >4.6</td>
 <td >1.7</td>
 <td >-0.8</td>
 <td >0.3</td>
 <td >-2.0</td>
 <td >-1.4</td>
 <td >-3.0</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colspan="10" >Chain-Type Price Index</td>
 </tr>
 <tr>
 <td class="firstcol" >GDP&nbsp;&nbsp; &nbsp;&nbsp;</td>
 <td >1.4</td>
 <td >1.4</td>
 <td >1.3</td>
 <td >2.1</td>
 <td >1.3</td>
 <td >1.6</td>
 <td >1.5</td>
 <td >1.8</td>
 <td >2.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Personal Consumption Expenditures</td>
 <td >1.2</td>
 <td >1.3</td>
 <td >1.2</td>
 <td >2.3</td>
 <td >1.4</td>
 <td >1.5</td>
 <td >1.2</td>
 <td >1.8</td>
 <td >2.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Less Food/Energy</td>
 <td >1.4</td>
 <td >1.4</td>
 <td >1.4</td>
 <td >2.0</td>
 <td >1.2</td>
 <td >1.5</td>
 <td >1.3</td>
 <td >1.8</td>
 <td >1.5</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

GDP growth last quarter was revised sharply higher to 5.0%, up from last month's estimate of 3.9% growth. The rise was the strongest since Q3 2003. Strengthened growth in final demand accounted for the revision. The gain exceeded the [...]

U.S. GDP Growth in Q3 Revised Up to Strongest Since 2003; Final Demand Strengthened

Carol Stone, CBE

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New orders for durable goods fell 0.7% in November (+0.3% y/y) after rising 0.3% in October, which was marginally revised from 0.4%. The November decline confounded expectations for a 3.0% gain in the Action Economics Forecast Survey. The defense aircraft sector, which had supported orders in October, decreased in the latest month, along with several other industries.

Defense aircraft fell back 7.8% in November (+29.9% y/y), after their 43.5% bounce in October. Overall transportation sector orders fell 1.2% (-6.7% y/y) and total durable goods orders excluding transportation were still down, by 0.4% (+3.9% y/y) after a 1.0% decline in September. Among transportation equipment industries other than defense aircraft, motor vehicles and parts were up 0.2% (-0.7% y/y), after a 0.6% rise in October. Nondefense aircraft orders rose 0.6% m/m but were down 28.5% y/y; they had risen 0.8% in October.

Orders in other sectors were mostly down again last month. Primary metals orders fell 1.4% (3.2% y/y), after their October decline of 1.8%. Fabricated metal products were down 0.6% (+8.2% y/y) in November after a 0.3% October increase. Computer and electronics products orders fell 1.8% (-1.7% y/y) after a slim 0.1% rise. "All other" durable goods were off 0.1% (+6.9% y/y) after a 0.4% fall the previous month.

Machinery orders were an exception, gaining 0.9% in November (0.8% y/y), a partial rebound from their October drop of 2.0%. Electrical machinery and appliance orders were flat in November (6.2% y/y) after a 4.0% drop in October.

Durable goods shipments fell 0.4% last month (2.9% y/y) after their modest 0.1% fall in October, revised from +0.1%. Excluding transportation equipment, shipments were off 0.1% (+4.4% y/y) after a 0.3% decline. Total order backlogs rose 0.4% (+11.6% y/y) in November, after a 0.5% increase the month before. Excluding transportation, backlogs were up 0.3% (+6.6% y/y) after a 0.4% increase. Durable goods inventories rose 0.4% (+6.2% y/y), the same as a slightly revised October increase. Excluding the transportation sector, inventories were up 0.2% (4.3% y/y) in each November and October.

 The durable goods figures are available in Haver's USECON database.
 The Action Economics consensus forecast figure is in the AS1REPNA
 database.
 
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 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Durable Goods
 NAICS Classification</th>
 <th>Nov</th>
 <th>Oct</th>
 <th>Sep</th>
 <th>Y/Y</th>
 <th>2013</th>
 <th>2012</th>
 <th>2011</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >New Orders (SA, %)</td>
 <td >-0.7</td>
 <td >0.3</td>
 <td >-0.7</td>
 <td >0.3</td>
 <td >5.2</td>
 <td >4.1</td>
 <td >11.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Transportation</td>
 <td >-1.2</td>
 <td >3.3</td>
 <td >-3.1</td>
 <td >-6.7</td>
 <td >7.9</td>
 <td >8.9</td>
 <td >14.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Total Excluding
 Transportation</td>
 <td >-0.4</td>
 <td >-1.0</td>
 <td >0.3</td>
 <td >3.9</td>
 <td >4.0</td>
 <td >2.1</td>
 <td >9.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Nondefense Capital
 Goods</td>
 <td >0.5</td>
 <td >-0.1</td>
 <td >-4.8</td>
 <td >-5.5</td>
 <td >8.7</td>
 <td >3.7</td>
 <td >15.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Excluding
 Aircraft</td>
 <td >0.0</td>
 <td >-1.9</td>
 <td >-1.1</td>
 <td >1.8</td>
 <td >5.0</td>
 <td >2.1</td>
 <td >11.6</td>
 </tr>
 <tr>
 <td class="firstcol" >Shipments</td>
 <td >-0.4</td>
 <td >-0.1</td>
 <td >0.3</td>
 <td >2.9</td>
 <td >3.7</td>
 <td >6.4</td>
 <td >9.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Inventories</td>
 <td >0.4</td>
 <td >0.4</td>
 <td >0.5</td>
 <td >6.2</td>
 <td >3.8</td>
 <td >4.5</td>
 <td >10.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Unfilled Orders</td>
 <td >0.4</td>
 <td >0.5</td>
 <td >0.4</td>
 <td >11.6</td>
 <td >7.0</td>
 <td >3.6</td>
 <td >10.0</td>
 </tr>
 </tbody>
 </table>
 
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New orders for durable goods fell 0.7% in November (+0.3% y/y) after rising 0.3% in October, which was marginally revised from 0.4%. The November decline confounded expectations for a 3.0% gain in the Action Economics Forecast Survey. [...]

U.S. Durable Goods Orders Show Unexpected Decline

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<title>Kansas City Fed Factory Sector Activity Improves by Tom Moeller&nbsp;
December 19</title>
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<a href="http://haver.com/comment/Moeller.html">Tom
Moeller</a>&nbsp; &nbsp;December 22, 2014
Existing single-family home sales fell 6.1% last month to 4.930 million
(AR) versus 5.250 in October, revised from 5.260 million. Sales were 8.4% below
their July 2003 high and well short of consensus expectations for 5.20
million in the Action Economics Forecast Survey. Single-family home sales
declined 6.3% to 4.330 million. Condo and co-op sales were off 4.8% to 0.600
million (0.0% y/y).
The median sales price of an existing home declined 1.0% to $205,300 (+5.0%
y/y) from $207,500, revised from $208,300. This was the fifth consecutive
monthly decline, usual for the recent five months in years past. The median price
declined 0.9% (+5.6% y/y), also the fifth straight month of decline.
By region, sales in the West declined 9.6% to 1.030 million (-1.0% y/y).
Sales in the Midwest were off 8.9% to 1.130 million (-1.7% y/y) and sales fell
3.2% to 2.090 million in the South (+5.0% y/y). Sales in the Northeast declined
4.2% to 680,000 (+4.6% y/y). 
The inventory of unsold homes increased 2.0% y/y to 2.090 million. Compared
to sales, this supply of unsold homes held at 5.1 months. That compares to an
11.9-month peak supply in July of 2010.
During October, home affordability slipped 0.4% (-1.7% y/y). Monthly mortgage
payments nudged up to 15.1% of median family income but remained down from their
recent high of 16.1%. Mortgage interest rates rose to 4.29% from 4.21% but
remained below the recent high of 4.54% in January.
The data on existing home sales, prices and affordability can be found in
Haver's USECON database. The regional price, affordability and inventory
data are available in the REALTOR database. The expectations figure is
from the Action Economics survey, reported in the AS1REPNA database.
<table class="centered" border="0" cellspacing="0" width="1871">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="747">Existing Home Sales (SAAR,
 000s)</th>
 <th scope="col" width="160">Nov</th>
 <th scope="col" width="160">Oct</th>
 <th scope="col" width="160">Sep</th>
 <th scope="col" width="160">Y/Y %</th>
 <th scope="col" width="160">2013</th>
 <th scope="col" width="160">2012</th>
 <th scope="col" width="160">2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="747">Total</td>
 <td align="center" width="160">4,930</td>
 <td align="center" width="160">5,250</td>
 <td align="center" width="160">5,180</td>
 <td align="center" width="160">2.1</td>
 <td align="center" width="160">5,073</td>
 <td align="center" width="160">4,659</td>
 <td align="center" width="160">4,277</td>
 </tr>
 <tr class="even">
 <td class="firstcol" width="747">&nbsp;&nbsp; Northeast</td>
 <td align="center" width="160">680</td>
 <td align="center" width="160">710</td>
 <td align="center" width="160">690</td>
 <td align="center" width="160">4.6</td>
 <td align="center" width="160">659</td>
 <td align="center" width="160">597</td>
 <td align="center" width="160">543</td>
 </tr>
 <tr>
 <td class="firstcol" width="747">&nbsp;&nbsp; Midwest</td>
 <td align="center" width="160">1,130</td>
 <td align="center" width="160">1,240</td>
 <td align="center" width="160">1,180</td>
 <td align="center" width="160">-1.7</td>
 <td align="center" width="160">1,193</td>
 <td align="center" width="160">1,064</td>
 <td align="center" width="160">917</td>
 </tr>
 <tr class="even">
 <td class="firstcol" width="747">&nbsp;&nbsp; South</td>
 <td align="center" width="160">2,090</td>
 <td align="center" width="160">2,160</td>
 <td align="center" width="160">2,110</td>
 <td align="center" width="160">5.0</td>
 <td align="center" width="160">2,032</td>
 <td align="center" width="160">1,834</td>
 <td align="center" width="160">1,683</td>
 </tr>
 <tr>
 <td class="firstcol" width="747">&nbsp;&nbsp; West</td>
 <td align="center" width="160">1,030</td>
 <td align="center" width="160">1,140</td>
 <td align="center" width="160">1,200</td>
 <td align="center" width="160">-1.0</td>
 <td align="center" width="160">1,190</td>
 <td align="center" width="160">1,164</td>
 <td align="center" width="160">1,133</td>
 </tr>
 <tr class="even">
 <td class="firstcol" width="747">Single-Family Sales</td>
 <td align="center" width="160">4,330</td>
 <td align="center" width="160">4,620</td>
 <td align="center" width="160">4,570</td>
 <td align="center" width="160">2.4</td>
 <td align="center" width="160">4,471</td>
 <td align="center" width="160">4,128</td>
 <td align="center" width="160">3,792</td>
 </tr>
 <tr>
 <td class="firstcol" width="747">Median Price Total ($, NSA)</td>
 <td align="center" width="160">205,300</td>
 <td align="center" width="160">207,500</td>
 <td align="center" width="160">209,100</td>
 <td align="center" width="160">5.0</td>
 <td align="center" width="160">195,667</td>
 <td align="center" width="160">175,442</td>
 <td align="center" width="160">164,542</td>
 </tr>
 </tbody>
</table>
&nbsp;
Chicago Fed National Activity Index Reaches Expansion
High 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;December
22, 2014

The Chicago Federal Reserve reported that its National Activity Index (CFNAI)
for November improved to 0.73 from 0.31 during October, revised from 0.14. It
was the highest level since December, 2006. The three-month moving average rose
to 0.48, its highest point since May, 2010. During the last ten years, there has
been a 75% correlation between the Chicago Fed Index and the q/q change in real
GDP.
The driver for the increase was the Production &amp; Income component rising
to 0.64, its highest level since May, 2010. The Personal Consumption &amp;
Housing series held fairly steady at -0.10. The remaining components eased. The
Sales, Orders &amp; Inventories series backpedaled to 0.02. The Employment,
Unemployment &amp; Hours figure worked lower to 0.17. 
The CFNAI is a weighted average of 85 indicators of national economic
activity. It is constructed to have an average value of zero and a standard
deviation of one. Since economic activity tends toward trend growth rate over
time, a positive index reading corresponds to growth above trend and a negative
index reading corresponds to growth below trend.
The Chicago Federal Reserve figures are available in Haver's SURVEYS
database.
Declining Labor Force
Participation and Its Implications for
Unemployment and Employment Growth from the Federal Reserve Bank of Chicago
can be found here <a href="http://www.chicagofed.org/~/media/publications/economic-perspectives/2014/4q2014-part1-aaronson-etal-pdf.pdf">www.chicagofed.org/~/media/publications/economic-perspectives/2014/4q2014-part1-aaronson-etal-pdf.pdf</a>

&nbsp;
<table class="centered" border="0" cellspacing="0" width="1871">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="903">Chicago Federal Reserve Bank</th>
 <th scope="col" width="137">Nov</th>
 <th scope="col" width="137">Oct</th>
 <th scope="col" width="138">Sep</th>
 <th scope="col" width="138">Nov'13</th>
 <th scope="col" width="138">2013</th>
 <th scope="col" width="138">2012</th>
 <th scope="col" width="138">2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="903">CFNAI</td>
 <td align="center" width="137">0.73</td>
 <td align="center" width="137">0.31</td>
 <td align="center" width="138">0.38</td>
 <td align="center" width="138">0.70</td>
 <td align="center" width="138">-0.01</td>
 <td align="center" width="138">-0.05</td>
 <td align="center" width="138">-0.07</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="903">&nbsp;3-Month Moving Average</td>
 <td align="center" width="137">0.48</td>
 <td align="center" width="137">0.09</td>
 <td align="center" width="138">0.17</td>
 <td align="center" width="138">0.35</td>
 <td align="center" width="138">--</td>
 <td align="center" width="138">--</td>
 <td align="center" width="138">--</td>
 </tr>
 <tr>
 <td class="firstcol" width="903">&nbsp;&nbsp;Personal Consumption &amp;
 Housing</td>
 <td align="center" width="137">-0.10</td>
 <td align="center" width="137">-0.11</td>
 <td align="center" width="138">-0.15</td>
 <td align="center" width="138">-0.07</td>
 <td align="center" width="138">-0.15</td>
 <td align="center" width="138">-0.20</td>
 <td align="center" width="138">-0.29</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="903">&nbsp;&nbsp;Employment, Unemployment
 &amp; Hours</td>
 <td align="center" width="137">0.17</td>
 <td align="center" width="137">0.22</td>
 <td align="center" width="138">0.22</td>
 <td align="center" width="138">0.38</td>
 <td align="center" width="138">0.09</td>
 <td align="center" width="138">0.09</td>
 <td align="center" width="138">0.13</td>
 </tr>
 <tr>
 <td class="firstcol" width="903">&nbsp;&nbsp;Production &amp; Income</td>
 <td align="center" width="137">0.64</td>
 <td align="center" width="137">0.09</td>
 <td align="center" width="138">0.26</td>
 <td align="center" width="138">0.15</td>
 <td align="center" width="138">0.03</td>
 <td align="center" width="138">0.06</td>
 <td align="center" width="138">0.04</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="903">&nbsp;&nbsp;Sales, Orders &amp;
 Inventories</td>
 <td align="center" width="137">0.02</td>
 <td align="center" width="137">0.11</td>
 <td align="center" width="138">0.05</td>
 <td align="center" width="138">0.24</td>
 <td align="center" width="138">0.03</td>
 <td align="center" width="138">-0.00</td>
 <td align="center" width="138">0.03</td>
 </tr>
 </tbody>
</table>





</html>

Existing single-family home sales fell 6.1% last month to 4.930 million (AR) versus 5.250 in October, revised from 5.260 million. Sales were 8.4% below their July 2003 high and well short of consensus expectations for 5.20 million in [...]

U.S. Existing Home Sales and Prices Decline

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<a href="/comment/141222d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/141222d.png"></a>
 <a href="/comment/141222f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/141222f.png"></a>

Existing single-family home sales fell 6.1% last month to 4.930 million
(AR) versus 5.250 in October, revised from 5.260 million. Sales were 8.4% below
their July 2003 high and well short of consensus expectations for 5.20
million in the Action Economics Forecast Survey. Single-family home sales
declined 6.3% to 4.330 million. Condo and co-op sales were off 4.8% to 0.600
million (0.0% y/y).

The median sales price of an existing home declined 1.0% to $205,300 (+5.0%
y/y) from $207,500, revised from $208,300. This was the fifth consecutive
monthly decline, usual for the recent five months in years past. The median price
declined 0.9% (+5.6% y/y), also the fifth straight month of decline.

By region, sales in the West declined 9.6% to 1.030 million (-1.0% y/y).
Sales in the Midwest were off 8.9% to 1.130 million (-1.7% y/y) and sales fell
3.2% to 2.090 million in the South (+5.0% y/y). Sales in the Northeast declined
4.2% to 680,000 (+4.6% y/y).

The inventory of unsold homes increased 2.0% y/y to 2.090 million. Compared
to sales, this supply of unsold homes held at 5.1 months. That compares to an
11.9-month peak supply in July of 2010.

During October, home affordability slipped 0.4% (-1.7% y/y). Monthly mortgage
payments nudged up to 15.1% of median family income but remained down from their
recent high of 16.1%. Mortgage interest rates rose to 4.29% from 4.21% but
remained below the recent high of 4.54% in January.

The data on existing home sales, prices and affordability can be found in
Haver's USECON database. The regional price, affordability and inventory
data are available in the REALTOR database. The expectations figure is
from the Action Economics survey, reported in the AS1REPNA database.

<a href="/comment/141222g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/141222g.png"></a>
 <a href="/comment/141222h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/141222h.png"></a>
 
 <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" >Existing Home Sales (SAAR,
 000s)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >4,930</td>
 <td >5,250</td>
 <td >5,180</td>
 <td >2.1</td>
 <td >5,073</td>
 <td >4,659</td>
 <td >4,277</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; Northeast</td>
 <td >680</td>
 <td >710</td>
 <td >690</td>
 <td >4.6</td>
 <td >659</td>
 <td >597</td>
 <td >543</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Midwest</td>
 <td >1,130</td>
 <td >1,240</td>
 <td >1,180</td>
 <td >-1.7</td>
 <td >1,193</td>
 <td >1,064</td>
 <td >917</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; South</td>
 <td >2,090</td>
 <td >2,160</td>
 <td >2,110</td>
 <td >5.0</td>
 <td >2,032</td>
 <td >1,834</td>
 <td >1,683</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; West</td>
 <td >1,030</td>
 <td >1,140</td>
 <td >1,200</td>
 <td >-1.0</td>
 <td >1,190</td>
 <td >1,164</td>
 <td >1,133</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >Single-Family Sales</td>
 <td >4,330</td>
 <td >4,620</td>
 <td >4,570</td>
 <td >2.4</td>
 <td >4,471</td>
 <td >4,128</td>
 <td >3,792</td>
 </tr>
 <tr>
 <td class="firstcol" >Median Price Total ($, NSA)</td>
 <td >205,300</td>
 <td >207,500</td>
 <td >209,100</td>
 <td >5.0</td>
 <td >195,667</td>
 <td >175,442</td>
 <td >164,542</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

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</head>
<body>
	 
 
 
 

<a href="/comment/141222d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/141222d.png"></a>
 <a href="/comment/141222f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/141222f.png"></a>

Sales of existing single-family homes fell 6.1% last month to 4.930 million
(AR) from 5.250 in October, revised from 5.260 million. Sales were 8.4% below
their July 2003 high. Sales were well short of consensus expectations for 5.20
million in the Action Economics Forecast Survey. Sales of single-family homes
declined 6.3% to 4.330 million. Sales of condos and co-ops were off 4.8% to 0.600
million (0.0% y/y).

The median sales price of an existing home declined 1.0% to $205,300 (+5.0%
y/y) from $207,500, revised from $208,300. This was the fifth consecutive
monthly decline, usual for these five months in years past. The median price
declined 0.9% (+5.6% y/y), also the fifth straight month of decline.

By region, sales in the West declined 9.6% to 1.030 million (-1.0% y/y).
Sales in the Midwest were off 8.9% to 1.130 million (-1.7% y/y) and sales fell
3.2% to 2.090 million in the South (+5.0% y/y). Sales in the Northeast declined
4.2% to 680,000 (+4.6% y/y).

During October, home affordability slipped 0.4% (-1.7% y/y). Monthly mortgage
payments nudged up to 15.1% of median family income but remained down from their
recent high of 16.1%. Mortgage interest rates rose to 4.29% from 4.21% but
remained below the recent high of 4.54% in January.

The inventory of unsold homes increased 2.0% y/y to 2.090 million. Compared
to sales, this supply of unsold homes held at 5.1 months. That compares to an
11.9-month peak supply in July of 2010.

The data on existing home sales, prices and affordability can be found in
Haver's USECON database. The regional price, affordability and inventory
data are available in the REALTOR database. The expectations figure is
from the Action Economics survey, reported in the AS1REPNA database.

<a href="/comment/141222g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/141222g.png"></a>
 <a href="/comment/141222h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/141222h.png"></a>
 
 <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" >Existing Home Sales (SAAR,
 000s)</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >4,930</td>
 <td >5,250</td>
 <td >5,180</td>
 <td >2.1</td>
 <td >5,073</td>
 <td >4,659</td>
 <td >4,277</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; Northeast</td>
 <td >680</td>
 <td >710</td>
 <td >690</td>
 <td >4.6</td>
 <td >659</td>
 <td >597</td>
 <td >543</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Midwest</td>
 <td >1,130</td>
 <td >1,240</td>
 <td >1,180</td>
 <td >-1.7</td>
 <td >1,193</td>
 <td >1,064</td>
 <td >917</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; South</td>
 <td >2,090</td>
 <td >2,160</td>
 <td >2,110</td>
 <td >5.0</td>
 <td >2,032</td>
 <td >1,834</td>
 <td >1,683</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; West</td>
 <td >1,030</td>
 <td >1,140</td>
 <td >1,200</td>
 <td >-1.0</td>
 <td >1,190</td>
 <td >1,164</td>
 <td >1,133</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >Single-Family Sales</td>
 <td >4,330</td>
 <td >4,620</td>
 <td >4,570</td>
 <td >2.4</td>
 <td >4,471</td>
 <td >4,128</td>
 <td >3,792</td>
 </tr>
 <tr>
 <td class="firstcol" >Median Price Total ($, NSA)</td>
 <td >205,300</td>
 <td >207,500</td>
 <td >209,100</td>
 <td >5.0</td>
 <td >195,667</td>
 <td >175,442</td>
 <td >164,542</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Sales of existing single-family homes fell 6.1% last month to 4.930 million (AR) from 5.250 in October, revised from 5.260 million. Sales were 8.4% below their July 2003 high. Sales were well short of consensus expectations for 5.20 [...]

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<a href="/comment/141222a_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/141222a.png" align="left"></a>
The Chicago Federal Reserve reported that its National Activity Index (CFNAI)
for November improved to 0.73 from 0.31 during October, revised from 0.14. It was
the highest level since December, 2006. The three-month moving average rose to
0.48, its highest point since May, 2010. During the last ten years, there has
been a 75% correlation between the Chicago Fed Index and the q/q change in real
GDP.

The driver for the increase was the Production &amp; Income component rising
to 0.64, its highest level since May, 2010. The Personal Consumption &amp;
Housing series held fairly steady at -0.10. The remaining components eased. The
Sales, Orders &amp; Inventories series backpedaled to 0.02. The Employment,
Unemployment &amp; Hours figure worked lower to 0.17.

The CFNAI is a weighted average of 85 indicators of national economic
activity. It is constructed to have an average value of zero and a standard
deviation of one. Since economic activity tends toward trend growth rate over
time, a positive index reading corresponds to growth above trend and a negative
index reading corresponds to growth below trend.

The Chicago Federal Reserve figures are available in Haver's SURVEYS
database.

Declining Labor Force Participation and Its Implications for Unemployment and 
Employment Growth from the Federal Reserve Bank of Chicago can be found 
<a href="http://www.chicagofed.org/~/media/publications/economic-perspectives/2014/4q2014-part1-aaronson-etal-pdf">here</a>.

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 <a href="/comment/141222c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/141222c.png"></a>
 
 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Chicago Federal Reserve Bank</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov'13</th>
 <th scope="col" >2013</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >CFNAI</td>
 <td >0.73</td>
 <td >0.31</td>
 <td >0.38</td>
 <td >0.70</td>
 <td >-0.01</td>
 <td >-0.05</td>
 <td >-0.07</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;3-Month Moving Average</td>
 <td >0.48</td>
 <td >0.09</td>
 <td >0.17</td>
 <td >0.35</td>
 <td >--</td>
 <td >--</td>
 <td >--</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Personal Consumption &amp;
 Housing</td>
 <td >-0.10</td>
 <td >-0.11</td>
 <td >-0.15</td>
 <td >-0.07</td>
 <td >-0.15</td>
 <td >-0.20</td>
 <td >-0.29</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Employment, Unemployment
 &amp; Hours</td>
 <td >0.17</td>
 <td >0.22</td>
 <td >0.22</td>
 <td >0.38</td>
 <td >0.09</td>
 <td >0.09</td>
 <td >0.13</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Production &amp; Income</td>
 <td >0.64</td>
 <td >0.09</td>
 <td >0.26</td>
 <td >0.15</td>
 <td >0.03</td>
 <td >0.06</td>
 <td >0.04</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Sales, Orders &amp;
 Inventories</td>
 <td >0.02</td>
 <td >0.11</td>
 <td >0.05</td>
 <td >0.24</td>
 <td >0.03</td>
 <td >-0.00</td>
 <td >0.03</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The Chicago Federal Reserve reported that its National Activity Index (CFNAI) for November improved to 0.73 from 0.31 during October, revised from 0.14. It was the highest level since December, 2006. The three-month moving average [...]

Chicago Fed National Activity Index Reaches Expansion High

Robert Brusca

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German import prices are holding relatively steady in negative territory, bringing a steady deflation impulse to the German economy. At the same time, German export prices have accelerated, rising at a 0.3% pace over 12 months to a 1.4% pace over six months and then ticking up to a 1.5% pace over three months. German exports are exhibiting some pricing power and are rising even faster than German domestic inflation, keeping exporting as a lucrative activity. The same trends hold excluding petroleum. With German export prices rising faster than import prices on a steady basis, Germany's terms of trade are improving. An improvement in a country's terms of trade raises its welfare since that country is getting more from what it sells than it is paying for what it buys. This is true as long as the country remains competitive with those faster-growing export prices.

In this case, Germany's export prices (measured in euro terms) are rising as the euro falls. A cheaper euro improves German (and all EMU members') competitiveness. As the foreign currency cost of EMU members exports falls, it permits that member to raise its euro-based prices somewhat and to still achieve competitive inroads vs. foreign pricing as well as to increase profitability. However, a weak euro should raise import prices, too. And while German ex-petroleum import prices are still weaker than overall German import prices, they are still falling.

About one third of German exports and imports are to/from countries within the EMU region. That portion of German trade is unaffected directly by exchange rate movements.

On balance, Germany is prospering in this environment relative to most of its counterpart EMU members. Still, Germany has a special problem since it sends about 3.5% of its exports to Russia, a country that is under trade sanctions. Germany gets just less than 3% of its imports from Russia, most of that energy and, so far that, import flow has been maintained. 

The German economy with its strong trade orientation and fiscal conservatism has been able to weather the storm that has engulfed Europe and the EMU. Still the Bundesbank has been cutting its outlook for growth. If it were to continue, the weak German (ex-energy) import price would pose a problem for German import-competing industries. But at some point, the falling euro should cause the opposite trend: import prices should start to rise as the euro falls and as imports become more expensive just as German exports become cheaper to their competitors' prices. And at that point, we would expect import prices to start providing an inflation impulse.

But German inflation is still low and inflation throughout the EMU is running at 0.3% year over year. For now, that weakness is reinforced by falling energy prices. The falling euro is occurring in a weak EMU economy. It is not impacting import prices as expected. But we expect the euro drop to continue for some time. The weak euro is having an impact on German exports and we see that in export prices as well as in the German trade surplus which, as large as it is, is sure to get bigger. But we don't see much impact on the import side because demand conditions and consumption are still so tempered in the EMU. So far, there is a pass-through asymmetry.

For now, Germany is still growing and doing better than the rest of Europe. We expect the falling euro to have some impact on German import prices and on European events, but possibly not until mid-2015. Meanwhile, Germany is opposed to the QE plan that most of the rest of the EMU wants, which is somewhat disingenuous since Germany is doing better than the rest of the EMU. I think we can be sure of three things. One is that the ECB will find a way to launch QE, given the widespread need. The second is that the Germans will find a way to keep the program small and largely ineffective. The third is that, that will keep the euro on its downward path throughout 2015. 


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German import prices are holding relatively steady in negative territory, bringing a steady deflation impulse to the German economy. At the same time, German export prices have accelerated, rising at a 0.3% pace over 12 months to a [...]

Germany Is Still Importing Deflation: How Long?

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) improved 0.9% (3.6% y/y) to 106.2 in October after rising 4.7% in September, revised from 3.9%, following a 2.8% increase in August. The index level was the highest since February 2023. The level of home affordability was 18.1% higher than its low of 89.9 in October 2023, but 40.7% below the peak of 179.0 in April 2020.

The rise in October affordability occurred as the average mortgage rate fell to 6.33% from 6.43% in September. The fall in mortgage rates left them above their low of 6.26% in September of last year, though below a 7.70% high in October of 2023. They remained well above a December 2020 low of 2.73%. The median price of an existing single-family home rose 0.7% (2.2% y/y) to $420,600. That price compared to the record $438,600 in June 2025. In October, the principal plus interest payment eased 0.3% (+0.2% y/y) to $2,089 per month, down 9.6% from June’s record high of $2,311, but still well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a slightly lessened 23.5% of income during October, but remained well above a low of 14.0% of income in April 2020.

The change in housing costs in October was accompanied by a 0.5% rise (3.8% y/y) in median family income to $106,478 after falling 0.3% in September. Qualifying income declined 0.3% (+0.2% y/y) to $100,272, after falling for three straight months.

Housing affordability improved m/m in most of the country in October. The index in the Midwest, the country’s most affordable region, rose 1.5% (0.9% y/y) to 134.4. In the South, the index increased 0.7% (5.4% y/y) to 112.1, while the affordability index in the Northeast strengthened 1.1% (-1.4% y/y) to 93.7. Declining, however, was the affordability index in the West, where homes are the least affordable. The index eased 0.3% (+5.3% y/y) to 75.2 in October.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990. It reached an all-time high of 213.3 in January 2013.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Mortgage rates continue to decline.
- Median income strengthens.
- Affordability improves in most of country.

U.S. Housing Affordability Edges Higher in October

Andrew Cates

**The Blue Chip Consensus**
Before turning to the risks that could unsettle the global outlook in 2026, it’s worth noting the backdrop against which those risks are emerging. The first chart shows that forecasters have, if anything, become more optimistic in recent months, raising their 2026 GDP projections across many major economies. The upgrades are most visible in Asia’s tech-focused economies, where the semiconductor and AI upturn is lifting expectations, but the US has also benefited from stronger-than-expected momentum and fading concerns that tariffs would deliver a major growth hit. In short, the starting point for the global outlook has improved—making the downside scenarios explored in the next few charts all the more important to test.

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**Policy divergence**
The second chart highlights one of the central risks to the 2026 outlook: monetary-policy calibration. Even as growth expectations have firmed, forecasters remain convinced that the major central banks still have a little further to go in their easing cycles. For both the Fed and the Bank of England, respondents expect additional rate cuts in early 2026, albeit with growing uncertainty about the exact timing and pace. The broader message is that the heavy lifting on disinflation is now largely done, and what remains are finer calibration risks—where cutting too slowly risks choking momentum, while cutting too aggressively risks undoing progress on inflation. The ECB outlook is far more fragmented. A large share of forecasters sees the next step as a cut—though not necessarily soon—but a meaningful minority lean toward a possible hike. At the opposite pole is the Bank of Japan. Unlike its peers, the BoJ is still expected to tighten policy, reflecting Japan’s firmer growth foundation and a more durable inflation process. This creates a notable US–Japan policy divergence, which has already influenced currency and bond-market behaviour and could become a larger global shock-transmission channel in 2026.

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**Financial market stress**
The third chart highlights another source of downside risk: the widening gap between financial-market calm and real-economy anxiety. The US VIX has spent most of the past year hovering near multi-decade lows, consistent with rich valuations, abundant liquidity and a broadly optimistic macro narrative. Yet measured global economic policy uncertainty remains unusually elevated, reflecting geopolitical fragmentation, shifting trade regimes, and highly uncertain fiscal trajectories. This disconnect matters. Periods in which markets price near-perfection while the policy environment deteriorates have often been precursors to sharp repricing episodes. With valuations stretched and volatility compressed, it would not take much—a policy misstep, a geopolitical shock, or a rapid shift in rate expectations—to trigger a correction big enough to destabilise confidence in 2026.

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**AI expectations**
Against that backdrop, our next chart highlights a more subtle but no less important vulnerability: expectations around AI-driven growth. While AI has undoubtedly been a powerful tailwind for market sentiment—and arguably a key reason why forecasters have nudged up 2026 growth projections—our survey suggests that most respondents believe financial markets are overestimating the likely economic gains. Only around a third think current expectations are broadly accurate; almost nobody believes markets are underestimating AI’s impact. This imbalance matters. When valuations are rich and optimism is heavily front-loaded, any disappointment in AI adoption, productivity gains or investment payoffs could unwind a meaningful chunk of the recent market strength. In other words, the same force lifting the outlook today could become a meaningful downside catalyst in 2026 if reality fails to keep pace with expectation.

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**Trade disruption** 
A further downside risk comes from the latent fragilities in global trade and logistics. The Baltic Dry Index has climbed sharply in recent months, hinting at firmer shipping demand and rising transport costs, even as the Global Supply Chain Pressure Index has edged lower. That combination is telling: headline congestion may not yet be building, but underlying pressures—tight vessel availability, shifting trade routes, selective port bottlenecks and stronger goods flows—are quietly re-accumulating beneath the surface. None of this resembles the acute disruptions of 2021–22, but the risk is that a seemingly contained system can tighten very quickly. For a global economy that remains vulnerable to cost shocks and production delays, any renewed squeeze in trade logistics would add another meaningful downside risk as we look toward 2026.

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**Geopolitical shocks** 
Geopolitical risk has eased from the extremes seen during the early stages of the Israel–Gaza conflict, but the broader backdrop remains far from settled. The global Geopolitical Risk Index is still running well above its pre-pandemic norm, and volatility is now being driven less by any single flashpoint and more by a crowded field of simmering risks. These range from an unstable Russia–Ukraine stalemate and intensifying U.S.–China strategic rivalry to ongoing tensions across the Taiwan Strait, a fragile security environment in the South China Sea, periodic flare-ups in the Caucasus and Sahel, and rising political strain ahead of multiple major elections in 2026. Venezuela’s increasing instability—both domestically and in relation to its border dispute with Guyana—adds another potential source of disruption, particularly for energy markets. While none of these risks is dominating headlines at present, history shows that geopolitical shocks rarely give advance warning. A sudden escalation in any of these theatres could easily unsettle trade flows, energy prices or investor sentiment—another meaningful downside risk as we approach 2026.

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As 2025 draws to a close, the global economy enters 2026 with a surprisingly resilient backdrop: equity markets are still trading near cycle highs, volatility is subdued, and consensus forecasts have been drifting upward in recent months—helped by a robust US economy, firmer momentum across Asia, and optimism that AI-related investment will continue to lift the medium-term outlook (chart 1). Against this relatively constructive starting point, we focus this week on the key downside risks that could challenge the consensus narrative next year: the possibility of monetary-policy miscalibration (chart 2); the gap between elevated policy uncertainty and unusually calm financial markets (chart 3); the risk that financial markets may be overestimating the gains from AI (chart 4); renewed strain in global trade (chart 5); and geopolitical tensions (chart 6). These risks do not dominate the baseline outlook, but they help frame the vulnerabilities that could matter if global conditions deteriorate. Next week, we will turn to the upside risks—the forces that could allow the world economy to outperform again in 2026.

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Charts of the Week: The Downside Risks

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The U.S. trade deficit in goods and services (BOP basis) narrowed to $52.8 billion in September from $59.3 billion in August, revised from $59.6 billion, according to the U.S. Census Bureau. The Action Economics Forecast Survey expected a deficit of $64.6 billion. The goods deficit fell to $79.0 billion in September from $86.1 billion in August, while the services surplus slipped to $26.2 billion from $26.8 billion in August. The real (inflation-adjusted) trade deficit in goods narrowed to $79.0 (2017$) in September from $83.7 billion in August. For all of Q3’25, the real deficit averaged $87.4 billion versus $87.7 billion in Q2, and thus it should be a modest addition to Q3 economic growth after a 4.8 percentage point addition in Q2.

Exports of goods & services rose 3.0% (5.7% y/y) in September following a 0.2% August slip. Goods exports (Census basis) strengthened 4.9% after a 0.8% slip. Nonauto consumer goods exports surged 19.1%. Industrial supplies & materials exports increased 12.1% while foods, feeds & beverage exports rose 3.4%. “Other” goods exports rose 7.6%. To the downside, capital goods exports excluding autos declined 5.3% while auto & parts exports fell 2.2%. Services exports eased 0.4%. Exports of financial services rose 1.4% while exports of maintenance & service repairs rose 0.8%. Exports of government goods and services rose 1.7%.

Imports of goods & services in September increased 0.6% (-3.7% y/y) after a 5.2% decline. Goods imports rose 0.7% (-5.9% y/y) in September after a 6.6% August decline. Nonauto consumer goods jumped 18.4% while industrial supplies & materials imports were little-changed. Elsewhere, imports fell. Capital goods excluding auto imports slumped 6.0%, auto imports fell 4.1% and food imports declined 1.6%. Total services imports rose 0.3% in September after a 0.3% decline. Maintenance & repair services increased 3.1%, construction service imports rose 1.1%, transport rose 1.5% but travel weakened 1.2%. Imports of government goods & services held steady.

By country, the goods trade deficit with China narrowed to $11.4 billion (SA) in September from $15.4 billion in August. Exports to China rose 1.8% while imports from China weakened 16.1%. The trade deficit with the European Union doubled m/m to $17.8 billion in September. Exports rose 13.2% but imports surged by one-third. The deficit with Japan declined sharply to $3.6 billion in September. Exports increased 7.9% while imports declined 12.7%.

The international trade data can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Foreign trade deficit shrinks to lowest since June 2020.
- Surge in exports is driven by foods, industrial supplies & nonauto consumer goods.
- Minimal import increase is held down by fewer capital goods, autos & foods.
- Services surplus eases.

U.S. Trade Deficit Narrows to Five-Year Low in September

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose 44,000 to 236,000 during the week of December 6, after declining to 192,000 during the week of November 29, revised from 191,000. The four-week moving average of initial claims was 216,750, an increase of 2,000 from the previous week unrevised average of 214,750, which was the lowest level since January 2025.

Federal government employees initially filed 643 (NSA) jobless insurance claims in the week ended November 29, after 1,126 filed in the week ended November 22, revised from 1,125.

Continuing claims for unemployment insurance posted a sharp decline of 99,000 to 1,838,000 in the week ending November 29, from 1,937,000 the prior week, revised from 1.939 million. The four-week moving average decreased by 27,000 to 1,918,000 in the week ended November 29, from 1945,250 the prior week, revised from 1.945 million. The insured unemployment rate stood at 1.2% in the week of November 29, a decrease from 1.3% in the prior week.

Federal government employees continuing benefits fell to 12,732 (NSA) in the week ended November 22, from 17,862 in the week ended November 15, revised from 17,851.

The insured unemployment rate varied greatly across individual states and territories. In the week ended November 22, the highest unemployment rates were in New Jersey (2.18%), Washington (2.23%), Massachusetts (1.95%), Connecticut (1.83%) and Rhode Island (1.82%). The lowest rates were in Florida (0.27%), South Dakota (0.34%), North Carolina (0.39%), Louisiana (0.42%), Alabama (0.44%), Virginia and Tennessee (both 0.46%), and Arkansas and Nebraska (both 0.48%). Rates in other notable states include California (1.74%), New York (1.63%), Pennsylvania (1.46%), Illinois (1.45%), and Texas (1.07%). 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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U.S. Initial Claims for Unemployment Insurance Rose in Latest Week

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Sweden’s inflation rate has developed into a very interesting oddity as headline inflation as measured by the harmonized index of consumer prices (HICP), that is used in Europe, has come to diverge sharply from the Swedish national rate of inflation measured by its national CPI. The HICP inflation rate is 2.2% over the last 12 months; Sweden’s national rate is up by only 0.2%. If we rank each of these two inflation rates on data back to 2001, the rank of the HICP is in its 72.2 percentile while the rank of the national CPI is in only its 19.4 percentile, the lower one-fifth of its historic range of national inflation rates. These two rankings occur over the same periods and so there's nothing about the periodicity that's responsible for this; there's simply very different performance over the recent span.

**About measuring inflation**
The HICP was adopted in Europe once the monetary union was formed and the countries of Europe were not able to get together to decide how to treat housing costs, which are important element in the CPI. They had entered into CPIs in different countries in different ways at that point. In the United States, inflation statistics are often criticized because of the way the housing component fits into them. Housing has such a large weight in the U.S. inflation measure. U.S. housing costs consider the cost of running the house in terms of taxes and utility costs; they look at the rental equivalent values, and they also have an owner imputed rent for people who live in their own homes. Of course, owner equivalent rent is a made-up number; it's completely imputed. Because a lot of European mortgages are short-term and they reprice when the central bank changes its rate, it’s very important to be careful how interest rates are treated in the housing cost indexes in Europe. The central bank did not want to be in a position where it would be raising interest rates to fight inflation and causing inflation to be higher because they were raising the mortgage interest rates on homes and causing the cost of housing to go up. For this reason, the HICP measures do not include housing costs. As we can see in the Swedish details for this month, housing and fuel costs are down 3.1% year-over-year. If we look at the ranking of housing costs for year-over-year growth, we see that they rank in the lower 6.4 percentile and are one of the most important factors in driving the national CPI lower and, of course, that metric is absent from the HICP.

**Inflation is always rife with controversy**: All of this is simply just another way to point out that inflation, while we measure it and talk about it, it's a controversial subject. How we measure it does matter. However, for monetary policy purposes, if we construct a measure that is reasonable and if we follow it consistently over the years, it should give us good signals and a good way to measure inflation and engage monetary policy. Yet, very clearly, if there are two competing gauges, it could become a real problem to jump from one to the other because they track different circumstances.

**The current state of Swedish inflation**: Swedish inflation in November fell by 0.3% month-to-month after rising by 0.5% in October and falling by 0.1% in September. The diffusion, or breadth, of inflation acceleration was only 33.3% in November. It jumped up to 55.6% in October, but it had been lower in September at 33%. Looking at Swedish inflation over 12-month, 6-month, and 3-month periods, the HICP goes from 2.2% over 12 months to an annualized pace of 5.7% over 6 months and then back down to 0.5% over 3 months. The national CPI has the same sort of topography but different growth rates with the CPI up by only 0.2% over 12 months, accelerating to 1.5% over 6 months and then declining at a -0.9% annual rate over 3 months. Inflation diffusion over 3 months in the national index is only 11.1%, over 6 months it jumps up to 66.7%, and over 12 months it's at 44.4% which is below 50% marking inflation as having more deceleration than acceleration.

**Controlled inflation**: On balance, Swedish inflation appears to be under control using either method. The ranking for inflation by category shows high inflation for food & nonalcoholic beverages, education, other goods & services, and medical care. However, inflation is below its median pace and bears low rankings for clothing & footwear, housing, fuel & lighting, recreation & culture, and transportation. Inflation is always somewhat mixed across sectors. That’s another thing that makes it hard to pin down exactly what inflation is, because people who consume different baskets of goods are going to experience different inflation rates. However, Sweden appears to have its inflation situation under control whichever metric you look at. The chart makes it clear that after its spike during COVID, inflation has come back down to a reasonable long-term pace that appears to be close to something that the central bank would find acceptable. The recent rise in HICP inflation seems to be unwinding and year-over-pace is down to a moderate 2.2%.

Economy in Brief

Jump to:

U.S. New Home Sales Pull Back With Prices

U.S. GDP Growth in Q3 Revised Up to Strongest Since 2003; Final Demand Strengthened

U.S. Durable Goods Orders Show Unexpected Decline

U.S. Existing Home Sales and Prices Decline

U.S. Existing Home Sales and Prices Decline

U.S. Existing Home Sales and Prices Decline

Chicago Fed National Activity Index Reaches Expansion High

Germany Is Still Importing Deflation: How Long?