Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080312b.jpg" align="left" border="0" height="265" width="353">
In January Euro Area IP rose by a strong 0.9%. MFG output
advanced at a 1.2% pace and even consumer goods output was strong with
a gain of 0.8%. Consumer durables output led the advance within
consumption with a rise of 1.9% in the month. But capital goods
expansion was stronger still, rising by 2.7% in January as intermediate
goods output rose by 0.8%. These figures left Yr/Yr trends strong as
MFG output rose at a 3.2% pace over 12 months and capital equipment
rose at a 7.3% pace. Yr/Yr consumer output was up by just 1.3%.
However, in the new quarter with one month&#8217;s data overall IP is
expanding at a 7.2% pace led by capital equipment which is up at a
15.5% pace. Even consumer output is rising at a strong 4.4% pace in the
new quarter. 
 

As we saw in the country detail IP reports earlier, several
EMU nations experienced some exceptional factors that augmented growth
in January. The Bundesbank is looking for overall German growth to slow
below trend there. There is also the strong euro&#8217;s impact to consider.
While January was a stronger month it is best to be wary of what the
future holds for IP trends in the months ahead. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> E-zone and UK IP and MFG</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td colspan="3">Jan-08</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area Detail</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>Qtr-to-Date</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>1.2%</td>
<td>0.2%</td>
<td>-0.4%</td>
<td>3.8%</td>
<td>3.1%</td>
<td>3.2%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>0.8%</td>
<td>0.1%</td>
<td>-0.5%</td>
<td>1.7%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">Consumer Durables</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>-1.9%</td>
<td>-0.9%</td>
<td>-0.8%</td>
<td>0.1%</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Consumer Nondurables</td>
<td>0.6%</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>2.4%</td>
<td>1.9%</td>
<td>1.6%</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.8%</td>
<td>0.4%</td>
<td>-0.6%</td>
<td>2.0%</td>
<td>1.8%</td>
<td>2.1%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>2.7%</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>9.3%</td>
<td>7.3%</td>
<td>7.3%</td>
<td>15.5%</td>
</tr>
</tbody>
</table>
</body></html>

In January Euro Area IP rose by a strong 0.9%. MFG output advanced at a 1.2% pace and even consumer goods output was strong with a gain of 0.8%. Consumer durables output led the advance within consumption with a rise of 1.9% in the [...]

Euro-Area IP Rebounds in January

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080312a.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s GDP was revised lower in Q4 on weaker capital
spending. Japan's gross domestic product increased a real 0.9% in the
quarter during the October-December period, or 3.5% in annualized
terms. That was lower than the original estimate made a month ago of an
annualized 3.7% growth. Capital spending was revised down to a 2.0%
on-quarter rise from preliminary 2.9% advance. 
 

Japan&#8217;s GDP picture shows differing trends. The chart shows
that net exports are continuing to push GDP to stronger growth rates.
But real personal consumption trends are decelerating. Exports are
still growing strongly while real imports are being curtailed by
domestic weakness. Domestic demand in general is weakening with a Y/Y
growth rate of just 0.2% in Q4. Gross fixed capital formation is
negative and showing a sharp contraction. Housing is a leading negative
investment sector. Business plant and equipment expenditures have
steadied at a less than a 1% growth pace. In the recent quarter
government spending accelerated sharply hiking the yr/yr pace. Private
consumption did pick up in the quarter but the year/year pace
decelerated nonetheless. With the yen rising Japan will either have to
compete harder in overseas markets or supplement trade-led growth with
stronger domestic demand. 
 

For Japan, several cyclical indicators have become more
positive already. Its own economy watchers index has stopped its
decline but is still weak. Machinery orders have picked up. And, the
OECD composite leading indicators show that Japan&#8217;s index is making a
turn for the better after experiencing the worst slump among OECD
member countries so far in this cycle. But the US leading indicator is
weakening and the US remains an important export market for Japan. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> Japan
GDP</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td colspan="3">Consumption</td>
<td colspan="3">Capital 
Formation</td>
<td colspan="3">Trade 
Domestic</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Gross 
Fixed 
Capital</td>
<td>Plant&amp; 
Eqpt</td>
<td>Housing</td>
<td>Exp Imp</td>
<td>Exports</td>
<td>Imports</td>
<td>Demand</td>
</tr>
<tr class="grey2">
<td colspan="11" class="firstcol">%
change Q/Q at annual
rates of change; X-M is Q/Q change in Bil of Real Yen</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q4-07</td>
<td>3.5%</td>
<td>0.9%</td>
<td>3.6%</td>
<td>-0.1%</td>
<td>8.1%</td>
<td>-32.3%</td>
<td>2.4</td>
<td>13.2%</td>
<td>2.2%</td>
<td>1.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-07</td>
<td>1.2%</td>
<td>0.6%</td>
<td>0.6%</td>
<td>-3.9%</td>
<td>3.7%</td>
<td>-29.4%</td>
<td>2.6</td>
<td>12.2%</td>
<td>-0.5%</td>
<td>-0.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q2-07</td>
<td>-1.5%</td>
<td>0.6%</td>
<td>1.2%</td>
<td>-9.6%</td>
<td>-6.4%</td>
<td>-16.4%</td>
<td>0.6</td>
<td>4.6%</td>
<td>2.1%</td>
<td>-2.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-07</td>
<td>3.8%</td>
<td>2.5%</td>
<td>0.8%</td>
<td>1.5%</td>
<td>-1.8%</td>
<td>-5.0%</td>
<td>2.3</td>
<td>14.8%</td>
<td>4.1%</td>
<td>2.1%</td>
</tr>
<tr class="grey2">
<td colspan="11" class="firstcol">%
change Yr/Yr; X-M is
Yr/Yr change in Gap in Bil of Real Yen</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q4-07</td>
<td>1.7%</td>
<td>1.1%</td>
<td>1.6%</td>
<td>-3.1%</td>
<td>0.8%</td>
<td>-21.5%</td>
<td>7.9</td>
<td>11.1%</td>
<td>2.0%</td>
<td>0.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-07</td>
<td>1.9%</td>
<td>2.0%</td>
<td>0.3%</td>
<td>-1.2%</td>
<td>0.6%</td>
<td>-11.4%</td>
<td>6.1</td>
<td>8.6%</td>
<td>1.5%</td>
<td>0.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q2-07</td>
<td>1.7%</td>
<td>1.0%</td>
<td>0.6%</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>-3.0%</td>
<td>5.4</td>
<td>7.9%</td>
<td>1.4%</td>
<td>0.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-07</td>
<td>2.9%</td>
<td>1.7%</td>
<td>0.8%</td>
<td>3.3%</td>
<td>7.1%</td>
<td>-1.1%</td>
<td>4.9</td>
<td>7.6%</td>
<td>1.9%</td>
<td>2.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">5-Yrs</td>
<td>2.1%</td>
<td>1.4%</td>
<td>1.3%</td>
<td>0.8%</td>
<td>5.2%</td>
<td>-4.2%</td>
<td>n.a.</td>
<td>9.6%</td>
<td>4.2%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s GDP was revised lower in Q4 on weaker capital spending. Japan's gross domestic product increased a real 0.9% in the quarter during the October-December period, or 3.5% in annualized terms. That was lower than the original [...]

Japan GDP is Revised Lower

Tom Moeller

The Mortgage Bankers' Association reported that during 4Q07, foreclosures were started on .83% of all mortgages outstanding. That was by far the highest foreclosure rate on record. Moreover, it raised the total for the full year to [...]

U.S. Mortgage Foreclosures Continued To Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311i.jpg" width="353">
According to the National Federation of Independent Business (NFIB), small business optimism recovered a modest 1.2% during February after the prior month&#39;s 3.0% decline. Optimism remained near the lowest level since during the recession of 1990.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
Nine percent fewer respondents expected the economy to improve following sharp declines during the prior four months. None of the respondents expected higher real sales in six months. In addition, none of the respondents indicated that now was a good time to expand the business.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311j.jpg" width="353">
The percent planning to increase employment ticked up slightly from the lowest level since early 2006 and the percentage with one or more job openings reversed all of the prior month&#39;s improvement. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.
The percentage of firms planning to increase capital expenditures rose m/m to 26% but that remained below the average of 29% last year, 30% in 2006 and 32% in 2005.
The percentage of firms actually raising prices rose m/m but, at 13%, remained below last year&#39;s average of 15%. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index. The percentage of firms planning to raise prices also fell to 22% versus last year&#39;s average 23% and 27% in 2006.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<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/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></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>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>92.9</td>
<td>91.8</td>
<td>-5.4%</td>
<td>96.7</td>
<td>98.9</td>
<td>101.6</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the National Federation of Independent Business (NFIB), small business optimism recovered a modest 1.2% during February after the prior month's 3.0% decline. Optimism remained near the lowest level since during the [...]

Small Business Optimism Ticked Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311k.jpg" width="353">
The International Council of Shopping Centers ICSC-UBS Chain Store survey indicated that chain store sales, last week, recovered just 0.3% of the prior period&#39;s 0.6% decline. The latest level of sales was about equal to the February average.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311l.jpg" width="353">
During the latest week the leading indicator of chain store sales from ICSC-UBS recovered 1.0% after sharp declines during the prior two months.The index has trended steadily lower since early January.
Retail gasoline prices last week jumped seven cents to a new high of $3.23 per gallon, according to the U.S. Department of Energy survey.The gain was pushed by the increase in the wholesale price of gasoline which was up another ten cents yesterday from last week&#39;s average.
Strength in crude oil prices has driven gasoline prices. Yesterday&#39;s price of $107.90was well up from last week&#39;s average $103.43 which had risen nearly three dollars from early this month.

<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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/07/08</th>
<th scope="col">02/29/08</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>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>488.3</td>
<td>487.0</td>
<td>1.6%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
<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/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">03/10/08</th>
<th scope="col">03/03/08</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>
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>3.23</td>
<td>3.16</td>
<td>26.0%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>103.43</td>
<td>100.88</td>
<td>70.0%</td>
<td>94.00</td>
<td>61.11</td>
<td>58.16</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers ICSC-UBS Chain Store survey indicated that chain store sales, last week, recovered just 0.3% of the prior period's 0.6% decline. The latest level of sales was about equal to the February [...]

U.S. Chain Store Sales Weak As Gasoline Price Surged

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311h.jpg" align="left" border="0" height="265" width="353">
The RICs survey by surveyors that tells the tendency of house
prices to rise or fall is at its weakest level ever. The index is an
up/down net balance reading and the balance of house prices falling is
the largest negative excess over this rising going back to 1999.
Expectations for prices did up tick slightly in February but they too
are near historic lows. Sales expectations are in much better shape by
comparison. They turned higher after a string of negative readings and
stand at a level of +2 in the 41st percentile of their historic range.
That is below the mid-point of the range at 50 but still only a
moderately weak reading. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">RICS: House prices and expectations for prices and sales </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3Mo Avg</td>
<td>6Mo Avg</td>
<td>12Mo Avg</td>
<td>Range Percentile</td>
</tr>
<tr>
<td class="firstcol">Prices</td>
<td>-64</td>
<td>-55</td>
<td>-49</td>
<td>-56</td>
<td>-41</td>
<td>-13</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Price Expectations</td>
<td>-58</td>
<td>-62</td>
<td>-62</td>
<td>-61</td>
<td>-48</td>
<td>-24</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Sales expectations</td>
<td>2</td>
<td>-11</td>
<td>-19</td>
<td>-9</td>
<td>-9</td>
<td>0</td>
<td>41.2%</td>
</tr>
<tr>
<td class="firstcol">New Sales</td>
<td>-31</td>
<td>-28</td>
<td>-20</td>
<td>-26</td>
<td>-29</td>
<td>-18</td>
<td>7.3%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Range percentile takes range back to
1999</td>
</tr>
</tbody>
</table>
</body></html>

The RICs survey by surveyors that tells the tendency of house prices to rise or fall is at its weakest level ever. The index is an up/down net balance reading and the balance of house prices falling is the largest negative excess over [...]

RICS House Prices Continue to Drop to New Lows

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311d.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311e.jpg" border="0" height="265" width="312">

Economy Watchers in Japan and the financial community in
Germany (as represented by participants in ZEW Survey) are still deeply
concerned about the prospect for the future of their economies. The
first and second charts show measures of the future outlook in both
countries relative to their long term averages.In Germany, the excess
of pessimists over optimist in March was 32.0
percentage points compared with a long term average of and excess of optimists
over pessimists of 30.3 percentage points. In Japan, the
diffusion index in February was 33.6 compared with a long term average
of 47.6.
The latest reports, however, suggest that they are beginning
to see some slight grounds for optimism. In Japan, the Economy
Watchers' diffusion index of current conditions in February rose 1.6
points from January and the diffusion index of future conditions rose
3.7 points. In Germany the financial community continues to downgrade
its appraisal of current conditions. The excess of pessimists over
optimists appraising the current situation increased by 1.6 percentage
points from February to March. However, the excess of pessimists
regarding the outlook six months ahead fell by 7.5 percentage points.
The third and fourth charts show the appraisals of current condition
and the outlook for Germany and Japan.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311f.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311g.jpg" border="0" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GERMANY&nbsp;ZEW
INDICATORS (% BALANCE)</th>
<th scope="col">Mar 08</th>
<th scope="col">Feb 08&nbsp;</th>
<th scope="col">Mar 07&nbsp;</th>
<th scope="col">M/M Dif&nbsp;</th>
<th scope="col">Y/Y Dif&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Current Conditions</td>
<td>32.1</td>
<td>33.7</td>
<td>69.2</td>
<td>-1.6</td>
<td>-37.1</td>
<td>75.9</td>
<td>18.3</td>
<td>-61.8</td>
</tr>
<tr class="even">
<td class="firstcol">Expectations 6 Months
Ahead </td>
<td>-32.0</td>
<td>-39.5</td>
<td>5.8</td>
<td>7.5</td>
<td>-37.8</td>
<td>-3.0</td>
<td>22.3</td>
<td>34.8</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">JAPAN ECONOMY WATCHERS
SURVEY (DIFFUSION INDEXES)</td>
<td>Feb 08</td>
<td>Jan 08&nbsp;&nbsp;</td>
<td>Feb 07&nbsp;</td>
<td>M/M Dif&nbsp;</td>
<td>Y/Y Dif&nbsp;</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr class="even">
<td class="firstcol">Judgment of Current
Conditions</td>
<td>33.6</td>
<td>31.8</td>
<td>49.2</td>
<td>1.80</td>
<td>-15.6</td>
<td>44.9</td>
<td>51.4</td>
<td>50.3</td>
</tr>
<tr class="even">
<td class="firstcol">Judgment of Future
Conditions</td>
<td>39.5</td>
<td>35.8</td>
<td>52.1</td>
<td>3.70</td>
<td>-12.60</td>
<td>46.9</td>
<td>52.9</td>
<td>51.5</td>
</tr>
</tbody>
</table>
</body></html>

Economy Watchers in Japan and the financial community in Germany (as represented by participants in ZEW Survey) are still deeply concerned about the prospect for the future of their economies. The first and second charts show measures [...]

The Financial Community in Germany and Economy Watchers in Japan Are a Bit less Pessimistic about Their Economies

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311a.jpg" width="353">
During January the U.S. foreign trade deficit widened to $58.2B from a revised $57.9B in December, which was shallower than initially reported. Consensus expectations had been for a deficit of $59.6B.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311b.jpg" width="353">
Lifted by the weaker dollar, U.S. exports during January again were strong. They posted a 1.6% jump following the unrevised 1.5% December gain. Exports of goods rose 1.3% (15.2% y/y) as exports of foods, feeds &amp; beverages surged. A 7.6% m/m jump in food exports lifted the y/y rise to 42.0%. Exports of industrial supplies &amp; materials also were quite strong and jumped 2.8% (25.1% y/y). Exports of capital goods have wobbled during the last several months and fell 1.3% (+7.6% y/y) during January. Weaker exports of civilian aircraft accounted for most of that wobble, declining 12.6% (+10.8% y/y). Exports of computers rose 5.2% (6.3% y/y) while exports of nonauto consumer goods were again strong and rose 3.8% (12.9 y/y).
U.S. exports of services in January jumped 1.8% (18.2% y/y). Travel exports rose 26.0% y/y and passenger fares were up 27.6%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311c.jpg" width="353">
Overall imports fully reversed the December decline and rose 1.3%. Higher oil prices raised nominal petroleum imports by 10.6%. Petroleum imports in constant dollars, however, rose a lesser 8.8% m/m and in fact fell 1.6% during the last twelve months. In constant dollars, imports of nonauto consumer goods reflected the weaker U.S. economy and fell 4.6% (-0.8% y/y) while real capital goods imports fell 0.4% (+2.4% y/y).
The U.S. trade deficit in goods with China deepened m/m to $20.3B but that remained well below last year&#39;s monthly record of $25.9B. Growth in imports from China has slowed to 2.1% during the last twelve months after growth between 10% and 30% during the last several years. Exports to China for January showed a 15.1% decline but that followed huge gains during the past several years, also between 10% and 30%.
G-10 central banks announced measures and will consult regularly on liquidity pressures in funding markets. The statement by the Federal Reserve can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080311a.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"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">January</th>
<th scope="col">December</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">U.S. Trade Deficit</td>
<td>$58.2B</td>
<td>$57.9B</td>
<td>$57.4B (1/07)</td>
<td>$708.5</td>
<td>$758.5</td>
<td>$714.4B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>1.6%</td>
<td>1.5%</td>
<td>16.6%</td>
<td>12.6%</td>
<td>12.7%</td>
<td>10.9%</td>
</tr>
<tr>
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>1.3%</td>
<td>-1.2%</td>
<td>11.9%</td>
<td>6.0%</td>
<td>10.4%</td>
<td>12.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>10.6%</td>
<td>3.6%</td>
<td>59.0%</td>
<td>9.5%</td>
<td>20.1%</td>
<td>39.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>-1.1%</td>
<td>-2.9%</td>
<td>2.5%</td>
<td>4.6%</td>
<td>9.1%</td>
<td>10.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

During January the U.S. foreign trade deficit widened to $58.2B from a revised $57.9B in December, which was shallower than initially reported. Consensus expectations had been for a deficit of $59.6B. Lifted by the weaker dollar, U.S. [...]

U.S. Trade Deficit Widened

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

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