Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109e.jpg" width="353">
According to the International Council of Shopping Centers (ICSC)-UBS, chain store sales last week began the new year with a 0.7% rise. The gain lifted the opening level for 2007 3.0% above the December average which rose just 0.1% from November.
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.
Going the other way, the leading indicator of chain store sales from ICSC-UBS fell for the third straight week and posted a 0.4% decline.
Mortgage Innovation and Consumer Choice from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-38.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">1/06/07</th>
<th scope="col">12/30/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>480.3</td>
<td>476.8</td>
<td>3.4%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


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According to the International Council of Shopping Centers (ICSC)-UBS, chain store sales last week began the new year with a 0.7% rise. The gain lifted the opening level for 2007 3.0% above the December average which rose just 0.1% [...]

Weekly Chain Store Sales Opened The New Year With A Gain

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109a.jpg" width="353">
Small business optimism fell for the second consecutive month in December. The 3.2% decline followed a 1.0% November slip and left optimism 10.4% below its peak in late 2004, according to the National Federation of Independent Business (NFIB).
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.
Respondents expecting the economy to improve dropped sharply while the percentage of firms with job openings and those expecting higher real sales in six months fell moderately.
During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109b.jpg" width="353">
The percent planning to raise capital expenditures also dropped sharply to a three year low.
The percentage of firms planning to raise average selling prices rose moderately but the percentage of firms actually raising prices fell to the lowest level since early 2004. 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.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.
The Economic Outlook, yesterday&#39;s speech by Federal Reserve Board Vice Chairman Donald L. Kohn, can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2007/20070108/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>96.5</td>
<td>99.7</td>
<td>-4.9%</td>
<td>98.9</td>
<td>101.6</td>
<td>104.6</td>
</tr>
</tbody>
</table>
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Small business optimism fell for the second consecutive month in December. The 3.2% decline followed a 1.0% November slip and left optimism 10.4% below its peak in late 2004, according to the National Federation of Independent [...]

Small Business Optimism Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109a.jpg" width="353">
Small business optimism fell for the second consecutive month in December. The 3.2% decline followed a 1.0% November slip and left optimism 10.4% below its peak in late 2004, according to the National Federation of Independent Business (NFIB).
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.
Respondents expecting the economy to improve dropped sharply while the percentage of firms with job openings and those expecting higher real sales in six months fell moderately.
During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109b.jpg" width="353">
The percent planning to raise capital expenditures also dropped sharply to a three year low.
The percentage of firms planning to raise average selling prices rose moderately but the percentage of firms actually raising prices fell to the lowest level since early 2004. 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.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.
The Economic Outlook, yesterday&#39;s speech by Federal Reserve Board Vice Chairman Donald L. Kohn, can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2007/20070108/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>96.5</td>
<td>99.7</td>
<td>-4.9%</td>
<td>98.9</td>
<td>101.6</td>
<td>104.6</td>
</tr>
</tbody>
</table>
Weekly Chain Store Sales Opened The New Year With A Gain 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 9, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109e.jpg" width="353">
According to the International Council of Shopping Centers (ICSC)-UBS, chain store sales last week began the new year with a 0.7% rise. The gain lifted the opening level for 2007 3.0% above the December average which rose just 0.1% from November.
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.
Going the other way, the leading indicator of chain store sales from ICSC-UBS fell for the third straight week and posted a 0.4% decline.
Mortgage Innovation and Consumer Choice from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-38.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">1/06/07</th>
<th scope="col">12/30/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>480.3</td>
<td>476.8</td>
<td>3.4%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>
Gasoline Prices Down Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 9, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109c.jpg" width="353">
 Unleaded gasoline prices at the pump fell three cents last week to an average $2.31 per gallon after a penny decline during the prior week. Nevertheless, the average price for gasoline in January is up to $2.32 from the December average of $2.31 and the November average of $2.23 per gallon.
Further relief from higher retail gasoline prices may be signaled by declines in the spot market (NY harbor) price for a gallon of regular gasoline which have totaled twenty cents over the last two days.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109d.jpg" width="353">
Warmer weather also has helped crude oil prices lower. Yesterday, the spot price for WTI crude settled at $57.83 (-8.9% y/y), down four dollars from the December average of $61.94.
Warm temperatures also have pushed natural gas prices lower to $5.53 per mmbtu but a recent forecast of colder temps raised futures to $8.57
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Recycling Petrodollars from the Federal Reserve Bank of New York Can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-9.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">01/08/07</th>
<th scope="col">01/01/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price, Regular</td>
<td>$2.31</td>
<td>$2.33</td>
<td>-0.9%</td>
<td>$2.57</td>
<td>$2.27</td>
<td>$1.85</td>
</tr>
</tbody>
</table>
Mostly Positive News from Germany 
by <a href="/comment/Curley.html">Louise Curley</a> January 9, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109f.jpg" width="353">
Recent data from Germany are generally positive. Exports, while still strong, declined slightly in November from 80.9 billion euros in October to 80.5 billion euros--the result perhaps of the strong euro. However, imports declined by an even greater amount from 63.6 billion euros in October to 61.2 billion euros in November with the result that the trade balance increased to !9.3 billion euros from 17.3 billion euros in October. The first chart shows German exports and imports of goods.
Industrial production in November increased 1.8% from October and was 6.1% above November, 2005. Construction, which, earlier this year, appeared to have bottomed out, was particularly strong--up 6.2% in November and 13.4% above November, 2005--due in part to the unseasonally warm weather. Production in manufacturing, however, also increased 1.5% from October and 6.2$ from November, 2005. The second chart shows German industrial production in construction and manufacturing.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109g.jpg" width="353">
In spite of the deceleration in exports in November, the value of foreign manufacturing new orders increased 2.1% in November and were 6.4% above November, 2005. Domestic new orders increased only 0.6% in November from October, but were 9.9% above November, 2005. In the third chart, showing domestic and foreign new manufacturing orders, it can be seen that domestic new orders began to strengthen back in mid 2005 and to accelerate in the second quarter of 2006.
Retail sales have been the soft spot in the German economy. In view of the increased employment, noted earlier by Carol Stone, and the increase in the Value Added Tax on January 1, 2007, expectations had been for strong retail sales in the final months of 2006. Retail sales excluding autos and related stores, however, declined 1.5% in September, 0.1% in October and 0.1% again in November. Sales including autos and related stores did not fare much better. They were, respectively, -0.8%, 0.0% and 0.7%. The fourth chart shows retail sales excluding and including autos and related stores. The widening gap between the two series in recent months suggests that the impending increase in the VAT may have had at least stimulated purchases of autos.(We have rebased the retail sales from 2003=100 to 2000=100 to facilitate comparisons with the Industrial Production and New Orders data.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109h.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070109i.jpg" width="353">

<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;</th>
<th scope="col">Nov 06</th>
<th scope="col">Oct 06</th>
<th scope="col">Nov 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Exports&nbsp; (Bil Euro)</td>
<td>80.46</td>
<td>80.87</td>
<td>67.33</td>
<td>-0.51</td>
<td>19.50</td>
<td>783.62</td>
<td>727.41</td>
<td>666.78</td>
</tr>
<tr>
<td class="firstcol">Imports&nbsp; (Bil Euro)</td>
<td>61.17</td>
<td>63.58</td>
<td>52.82</td>
<td>-3.79</td>
<td>13.66</td>
<td>625.87</td>
<td>572.60</td>
<td>535.83</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods &nbsp;(Bil Euro)</td>
<td>19.29</td>
<td>17.29</td>
<td>13.51</td>
<td>2.00*</td>
<td>5.78*</td>
<td>157.75</td>
<td>154.81</td>
<td>130.95</td>
</tr>
<tr>
<td class="firstcol"> Industrial Production (2000=100) </td>
<td>112.0</td>
<td>110.0</td>
<td>105.6</td>
<td>1.82</td>
<td>6.06</td>
<td>103.7</td>
<td>100.8</td>
<td>98.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>115.4</td>
<td>113.7</td>
<td>108.7</td>
<td>1.50</td>
<td>6.16</td>
<td>106.4</td>
<td>102.7</td>
<td>99.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>87.9</td>
<td>82.3</td>
<td>72.1</td>
<td>6.20</td>
<td>13.36</td>
<td>76.7</td>
<td>80.6</td>
<td>84.9</td>
</tr>
<tr class="odd">
<td class="firstcol"> Mfg New Orders Value (2000=100)</td>
<td>128.0</td>
<td>126.3</td>
<td>118.3</td>
<td>1.35</td>
<td>8.20</td>
<td>111.7</td>
<td>105.0</td>
<td>99.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>115.0</td>
<td>114.3</td>
<td>104.6</td>
<td>0.61</td>
<td>9.94</td>
<td>101.4</td>
<td>98.3</td>
<td>94.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign</td>
<td>144.2</td>
<td>141.3</td>
<td>135.5</td>
<td>2.05</td>
<td>6.42</td>
<td>124.6</td>
<td>113.5</td>
<td>104.4</td>
</tr>
<tr>
<td class="firstcol">Retail Sales excl autos, etc (2000=100)</td>
<td>103.7</td>
<td>103.8</td>
<td>103.8</td>
<td>-0.10</td>
<td>-0.10</td>
<td>103.7</td>
<td>101.4</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales incl autos, etc (2000=100)</td>
<td>107.2</td>
<td>106.5</td>
<td>105.3</td>
<td>0.66</td>
<td>1.80</td>
<td>104.4</td>
<td>101.9</td>
<td>100.2</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108c.jpg" width="353">
The results of the Bank of Canada&#39;s Winter Business Outlook Survey were released today. The survey is conducted by analysts at the bank&#39;s regional offices who interviews senior management of approximately 100 firms. The regional offices tally the percent of respondents who see improvement over the next twelve months, those who see deterioration and those whose see no change.The balance of opinion is the difference between those who see improvement and those who see deterioration.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108d.jpg" width="353">
While there are bright spots in Winter Survey, the overall impression one gets is that of a slowing economy. The balance of opinion on sales improved in the current survey to 6.93% from 2.97% in the Fall Survey, but was 8.91 percentage points below the 2005 Winter Survey. Managements, in general, have tended to be less optimistic about future sales since early 2004, as can be seen in the first chart. They have, however, continued to invest in machinery and equipment and to take on employees, as seen in the second chart. However, although the Winter Survey showed an almost 5 percentage points increase in the percent balance expecting to increase investment spending to 19.80%, this level is significantly lower than the 34.65% and 26.73% shown in the first and second quarters of the year.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108e.jpg" width="353">
The balance of opinion on input and output price inflation is the difference between expectations of an acceleration and a deceleration of prices. The Fall Survey showed that managements were beginning to see a deceleration in both input and output prices. The current survey shows that the balance of opinion on input prices is -10.89% and that of output prices, -1.95%. (See the third chart)
Managements are seeing some increase in the difficulty of meeting demand, but there has been a slight decline in the balance of those who expect &quot;significant&quot; difficulty as shown in the table below.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">BANK OF CANADA OUTLOOK SURVEY&nbsp;(% Balance)</th>
<th scope="col">Q4 06</th>
<th scope="col">Q3 06</th>
<th scope="col">Q5 05</th>
<th scope="col">Q/Q Dif</th>
<th scope="col">Y/Y&nbsp;Dif&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sales&nbsp;</td>
<td>6.93</td>
<td>2.97</td>
<td>15.84</td>
<td>3.96</td>
<td>-8.91</td>
<td>4.18</td>
<td>17.43</td>
<td>17.91</td>
</tr>
<tr>
<td class="firstcol">Investment in Machinery and Equipment</td>
<td>19.80</td>
<td>14.95</td>
<td>19.00</td>
<td>4.95</td>
<td>0.80</td>
<td>24.01</td>
<td>19.20</td>
<td>16.95</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment Level&nbsp;</td>
<td>39.60</td>
<td>40.59</td>
<td>49.50</td>
<td>-0.99</td>
<td>-9.90</td>
<td>39.35</td>
<td>42.75</td>
<td>33.42</td>
</tr>
<tr>
<td class="firstcol">Input Price Inflation</td>
<td>-10.89</td>
<td>-5.94</td>
<td>16.83</td>
<td>-4.95</td>
<td>-27.72</td>
<td>-3.22</td>
<td>11.39</td>
<td>-3.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Output Price Inflation</td>
<td>-1.95</td>
<td>-7.92</td>
<td>2.97</td>
<td>5.94</td>
<td>-4.95</td>
<td>0.49</td>
<td>4.96</td>
<td>-3.19</td>
</tr>
<tr>
<td class="firstcol">Ability to Meet Demand</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Some Difficulty</td>
<td>35.60</td>
<td>31.70</td>
<td>34.70</td>
<td>3.90</td>
<td>0.90</td>
<td>33.43</td>
<td>32.58</td>
<td>34.00</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Significant Difficulty</td>
<td>13.90</td>
<td>14.90</td>
<td>14.90</td>
<td>-1.00</td>
<td>-1.00</td>
<td>13.65</td>
<td>11.20</td>
<td>7.25</td>
</tr>
</tbody>
</table>
</body>
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The results of the Bank of Canada's Winter Business Outlook Survey were released today. The survey is conducted by analysts at the bank's regional offices who interviews senior management of approximately 100 firms. The regional [...]

Bank of Canada Survey: A Subdued Outlook

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108a.jpg" width="353">
Factory inventories increased just 0.2% in November after a downwardly revised 0.3% October increase. These gains were down from the 0.7% average during the prior six months.
Petroleum refineries&#39; inventories did rise 0.7% but that uptick followed sharp 6.3% and 4.3% declines during the prior two months due to lower oil prices. The new development in November was that less petroleum, factory inventories grew just 0.2% (7.0% y/y), down sharply from the 0.7% average of the prior six months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108b.jpg" width="353">
Machinery inventories fell 0.5% (+6.2% y/y) and primary metal inventories eased 0.3% (+18.9% y/y). Inventories of computers &amp; electronic products rose 0.8% (7.2% y/y) while inventories of electrical equipment rose 0.6% (11.0% y/y) and the 3-month change fell to only 1.2% (AR). Furniture inventories rose 1.0% and in a hint that the accumulation was involuntary the 3-month change rose to 10.3%, the highest in a year.
Total factory orders recovered 0.9% after the hard October plunge. Durable goods orders jumped 1.6% which was revised down slightly from the advance report. Factory orders less transportation fell 0.5% (+0.6% y/y), the third consecutive monthly decline. Much of the recently slower growth in this measure reflects petroleum where orders (which equal shipments), but non-transportation orders less oil fell 0.9% (+1.4% y/y) in November for the fourth consecutive monthly decline.
Factory shipments rose 0.1% for the second month but factory shipments less transportation &amp; petroleum slipped 0.2% (+1.4% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.2%</td>
<td>0.3%</td>
<td>7.1%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.9%</td>
<td>-4.5%</td>
<td>-0.8%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.7%</td>
<td>7.1%</td>
<td>6.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.7%</td>
<td>1.4%</td>
<td>20.4%</td>
<td>16.3%</td>
<td>4.5%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Factory inventories increased just 0.2% in November after a downwardly revised 0.3% October increase. These gains were down from the 0.7% average during the prior six months. Petroleum refineries' inventories did rise 0.7% but that [...]

U.S. Factory Sector Inventory Gain Dropped Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108a.jpg" width="353">
Factory inventories increased just 0.2% in November after a downwardly revised 0.3% October increase. These gains were down from the 0.7% average during the prior six months.
Petroleum refineries&#39; inventories did rise 0.7% but that uptick followed sharp 6.3% and 4.3% declines during the prior two months due to lower oil prices. The new development in November was that less petroleum, factory inventories grew just 0.2% (7.0% y/y), down sharply from the 0.7% average of the prior six months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108b.jpg" width="353">
Machinery inventories fell 0.5% (+6.2% y/y) and primary metal inventories eased 0.3% (+18.9% y/y). Inventories of computers &amp; electronic products rose 0.8% (7.2% y/y) while inventories of electrical equipment rose 0.6% (11.0% y/y) and the 3-month change fell to only 1.2% (AR). Furniture inventories rose 1.0% and in a hint that the accumulation was involuntary the 3-month change rose to 10.3%, the highest in a year.
Total factory orders recovered 0.9% after the hard October plunge. Durable goods orders jumped 1.6% which was revised down slightly from the advance report. Factory orders less transportation fell 0.5% (+0.6% y/y), the third consecutive monthly decline. Much of the recently slower growth in this measure reflects petroleum where orders (which equal shipments), but non-transportation orders less oil fell 0.9% (+1.4% y/y) in November for the fourth consecutive monthly decline.
Factory shipments rose 0.1% for the second month but factory shipments less transportation &amp; petroleum slipped 0.2% (+1.4% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.2%</td>
<td>0.3%</td>
<td>7.1%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.9%</td>
<td>-4.5%</td>
<td>-0.8%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.7%</td>
<td>7.1%</td>
<td>6.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.7%</td>
<td>1.4%</td>
<td>20.4%</td>
<td>16.3%</td>
<td>4.5%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>
Bank of Canada Survey:  A Subdued Outlook 
by <a href="/comment/Curley.html">Louise Curley</a> January 8, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108c.jpg" width="353">
The results of the Bank of Canada&#39;s Winter Business Outlook Survey were released today. The survey is conducted by analysts at the bank&#39;s regional offices who interviews senior management of approximately 100 firms. The regional offices tally the percent of respondents who see improvement over the next twelve months, those who see deterioration and those whose see no change.The balance of opinion is the difference between those who see improvement and those who see deterioration.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108d.jpg" width="353">
While there are bright spots in Winter Survey, the overall impression one gets is that of a slowing economy. The balance of opinion on sales improved in the current survey to 6.93% from 2.97% in the Fall Survey, but was 8.91 percentage points below the 2005 Winter Survey. Managements, in general, have tended to be less optimistic about future sales since early 2004, as can be seen in the first chart. They have, however, continued to invest in machinery and equipment and to take on employees, as seen in the second chart. However, although the Winter Survey showed an almost 5 percentage points increase in the percent balance expecting to increase investment spending to 19.80%, this level is significantly lower than the 34.65% and 26.73% shown in the first and second quarters of the year.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070108e.jpg" width="353">
The balance of opinion on input and output price inflation is the difference between expectations of an acceleration and a deceleration of prices. The Fall Survey showed that managements were beginning to see a deceleration in both input and output prices. The current survey shows that the balance of opinion on input prices is -10.89% and that of output prices, -1.95%. (See the third chart)
Managements are seeing some increase in the difficulty of meeting demand, but there has been a slight decline in the balance of those who expect &quot;significant&quot; difficulty as shown in the table below.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">BANK OF CANADA OUTLOOK SURVEY &nbsp;(% Balance)</th>
<th scope="col">Q4 06</th>
<th scope="col">Q3 06</th>
<th scope="col">Q5 05</th>
<th scope="col">Q/Q Dif</th>
<th scope="col">Y/Y&nbsp;Dif&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sales&nbsp;</td>
<td>6.93</td>
<td>2.97</td>
<td>15.84</td>
<td>3.96</td>
<td>-8.91</td>
<td>4.18</td>
<td>17.43</td>
<td>17.91</td>
</tr>
<tr>
<td class="firstcol">Investment in Machinery and Equipment</td>
<td>19.80</td>
<td>14.95</td>
<td>19.00</td>
<td>4.95</td>
<td>0.80</td>
<td>24.01</td>
<td>19.20</td>
<td>16.95</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment Level&nbsp;</td>
<td>39.60</td>
<td>40.59</td>
<td>49.50</td>
<td>-0.99</td>
<td>-9.90</td>
<td>39.35</td>
<td>42.75</td>
<td>33.42</td>
</tr>
<tr>
<td class="firstcol">Input Price Inflation</td>
<td>-10.89</td>
<td>-5.94</td>
<td>16.83</td>
<td>-4.95</td>
<td>-27.72</td>
<td>-3.22</td>
<td>11.39</td>
<td>-3.54</td>
</tr>
<tr class="odd">
<td class="firstcol">Output Price Inflation</td>
<td>-1.95</td>
<td>-7.92</td>
<td>2.97</td>
<td>5.94</td>
<td>-4.95</td>
<td>0.49</td>
<td>4.96</td>
<td>-3.19</td>
</tr>
<tr>
<td class="firstcol">Ability to Meet Demand</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Some Difficulty</td>
<td>35.60</td>
<td>31.70</td>
<td>34.70</td>
<td>3.90</td>
<td>0.90</td>
<td>33.43</td>
<td>32.58</td>
<td>34.00</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Significant Difficulty</td>
<td>13.90</td>
<td>14.90</td>
<td>14.90</td>
<td>-1.00</td>
<td>-1.00</td>
<td>13.65</td>
<td>11.20</td>
<td>7.25</td>
</tr>
</tbody>
</table>
</body>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105d.jpg" width="353">
We&#39;ve been impressed for some time with the evident strength in the European economy. Today, a summary of unemployment data for the entire region for November illustrates this well. The EU-12 group experienced 7.6% unemployment, down from 7.7% in October and the lowest rate recorded since this compilation began in 1993. The previous low was 7.7% during several months in early 2001, just as the tech boom was ending. In November 2005, the rate was 8.4% and the cycle high was 8.9% in the spring of 2004.
In the broader grouping, the EU-25, the current rate is remarkably similar, 7.7%. It too eased 0.1% in November, and it is down from 8.6% a year earlier. We are struck by how closely the broader region&#39;s unemployment rate has run to the smaller group&#39;s since 1997. The degree of industrialization and development doesn&#39;t automatically mean significantly lower unemployment, it seems.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105e.jpg" width="353">
Notably in this release, Eurostat has added data series covering its newly expanded membership. On January 1, Bulgaria and Romania joined the European Union and Slovenia became a member of the Euro-Zone, adopting the euro currency. So the EU25 becomes EU27 and Euro-zone12 becomes Euro-zone13. The &quot;official&quot; aggregates for European data, i.e., the &quot;headline&quot; series, remain the groups of 12 and 25 for purposes of aggregating data through 2006. These will shift to 13 and 27 when data for 2007 start to be reported. Even so, since Eurostat has begun to publish supplemental series for these new aggregates, Haver is adding a select number as temporary series. These, along with other Eurostat data, will be found in the EUROSTAT and G10 databases.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105f.jpg" width="353">
The new series look much like the old, and a quick glance at the three new member countries tells why. Slovenia, the new euro currency user, has lower-than-average unemployment that has declined sharply in the last year. In the wider group of now-27, Bulgaria and Romania both have rates that are presently close to the total, although that for Bulgaria has historically been considerably higher.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Unemployment Rates (%, Month SA)</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Nov 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EA-12</td>
<td>7.6</td>
<td>7.7</td>
<td>7.7</td>
<td>8.4</td>
<td>8.6</td>
<td>8.8</td>
<td>8.7</td>
</tr>
<tr>
<td class="firstcol">EU-25</td>
<td>7.7</td>
<td>7.8</td>
<td>7.8</td>
<td>8.6</td>
<td>8.8</td>
<td>9.1</td>
<td>9.0</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">EA-13</td>
<td>7.6</td>
<td>7.6</td>
<td>7.7</td>
<td>8.4</td>
<td>8.6</td>
<td>8.8</td>
<td>8.7</td>
</tr>
<tr class="odd">
<td class="firstcol">EU-27</td>
<td>7.7</td>
<td>7.8</td>
<td>7.8</td>
<td>8.5</td>
<td>8.7</td>
<td>9.1</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovenia</td>
<td>5.6</td>
<td>5.6</td>
<td>5.7</td>
<td>6.9</td>
<td>6.5</td>
<td>6.3</td>
<td>6.7</td>
</tr>
<tr>
<td class="firstcol">Bulgaria</td>
<td>8.0</td>
<td>8.0</td>
<td>9.0</td>
<td>9.7</td>
<td>10.1</td>
<td>12.0</td>
<td>13.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Romania</td>
<td>--</td>
<td>7.9</td>
<td>7.7</td>
<td>6.9</td>
<td>7.2</td>
<td>8.1</td>
<td>7.0</td>
</tr>
</tbody>
</table>
</body>
</html>

We've been impressed for some time with the evident strength in the European economy. Today, a summary of unemployment data for the entire region for November illustrates this well. The EU-12 group experienced 7.6% unemployment, down [...]

European Union Unemployment Eases to New Lows; Supplemental Eurostat Series Include New Members

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105b.jpg" width="353">
During December, nonfarm payrolls grew 167,000 and the prior two month&#39;s gains were upwardly revised. The gain easily outpaced Consensus expectations for a 115,000 rise.
During 2006 payrolls rose an average 153,000 per month versus a monthly average of 165,000 during 2005. The gain during the second half of last year picked up slightly to 161,000 per month.
The unemployment rate held at 4.5% last month. That reflected a solid 303,000 (2.2% y/y) surge in employment and a 326,000 (1.8% y/y) gain in the labor force. For the second month, the number of individuals not in the labor force fell and the y/y change in this measure dropped to zero versus growth in excess of 3% during 2003. That raised the labor force participation rate to 66.4%, the highest level since early 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105a.jpg" width="353">
Employment gains as measured by the household survey averaged 262,000 per month last year versus a 219,000 average during 2005.
Jobs in the private sector from the establishment survey rose 150,000 (1.4% y/y) though gains in prior months were revised down slightly. Private service sector jobs rose 161,000 (1.7% y/y) as professional &amp; business services employment rose 50,000 (2.5% y/y) and temporary help services jobs rose 14,600 (-0.6% y/y). Jobs in education &amp; health services rose 43,000 (2.6% y/y) and leisure &amp; hospitality jobs increased 31,000 (2.7% y/y). Financial sector jobs gained just 9,000 (1.9% y/y).
Jobs in the retail sector fell 9,200 last month and for the year were down 57,800 (-0.4%).
Factory sector payrolls fell again. The 12,000 worker decline during December followed a downwardly revised 20,000 drop the prior month and the average monthly decline last year was 6,000. Jobs in motor vehicle &amp; parts industries fell 4,600 (-4.1% y/y) while jobs in furniture fell 2,400 (-4.2% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070105c.jpg" width="353">
Construction employment fell 3,000 (+0.5% y/y). Since the August peak construction jobs have fallen 0.8%. That decline has been led by a 5.2% drop in residential specialty trade contractors since this group of workers&#39; peak employment month last February.
Government payrolls increased 17,000 (1.1% y/y).
Average hourly earnings nearly doubled the previous month&#39;s upwardly revised increase with a 0.5% gain. Factory sector earnings rose 0.3% (1.6% y/y).
The workweek held at the high 33.9 hours, the highest level since 2002. As a result, aggregate hours worked in 4Q rose 2.2% (AR), double the 3Q rate of increase. During the last ten years there has been a 54% correlation between the change in hours and real GDP.
The minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/FOMC/MINUTES/20061212.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/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>167,000</td>
<td>154,000</td>
<td>1.4%</td>
<td>1.4%</td>
<td>1.5%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-12,000</td>
<td>-20,000</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.9</td>
<td>33.8 (Dec. &#39;05)</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.5%</td>
<td>0.3%</td>
<td>4.2%</td>
<td>3.8%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.5%</td>
<td>4.5%</td>
<td>4.9% (Dec. &#39;05)</td>
<td>4.6%</td>
<td>5.1%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

During December, nonfarm payrolls grew 167,000 and the prior two month's gains were upwardly revised. The gain easily outpaced Consensus expectations for a 115,000 rise. During 2006 payrolls rose an average 153,000 per month versus a [...]

Another Firm U.S. Payroll Report with Upward Revisions

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Winnie Tapasanun

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Total retail sales were essentially flat m/m in December, falling short of expectations, following a 0.6% increase in November (unrevised) and a 0.2% decline in October (-0.1% previously), data from the U.S. Census Bureau showed. A 0.5% m/m December increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate decelerated to 2.4% in December, the lowest since September 2024, from 3.3% in November; this compared with 4.6% in December 2024 and remained far below a high of 17.1% in February 2022 and a record-high 51.8% in April 2021. For all of 2025, retail sales increased 4.0% after gains of 2.6% in 2024 and 3.5% in 2023.
Excluding motor vehicles & parts, retail sales were virtually unchanged (3.3% y/y) in December after a 0.4% rise in November (+0.5% initially), which marked the sixth consecutive m/m gain. A 0.4% m/m December increase had been expected. Sales of motor vehicles & parts fell 0.2% (-1.1% y/y) following a 1.2% November rebound; this compared to a 2.8% rise (-4.2% y/y) in unit light vehicle sales after a 2.7% November increase.

Sales in the retail control group, which excludes autos, building materials, gasoline stations, and food services, eased 0.1% (+3.4% y/y) in December, the first m/m decline since September, after a 0.2% increase in November. These sales are used in the construction of personal consumption expenditures in NIPA accounts. Nonauto sales excluding gasoline & building materials dipped 0.1% (+3.6% y/y), also down for the first time since September, following a 0.3% November rise.

Sales by category showed mixed performance in December. To the downside, furniture & home furnishing store sales slid 0.9% (-5.6% y/y) in December, the fourth m/m slide in five months, after a 0.1% easing in November. Miscellaneous store sales fell 0.9% (+9.4% y/y), the first m/m fall since August, after a 1.3% November rise. Clothing & accessory store sales declined 0.7% (+5.1% y/y), the first m/m decrease in three months, reversing a 0.5% November increase. Electronics & appliance store sales fell 0.4% (+2.1% y/y) after rising 0.2% in November and October. General merchandise store sales slipped 0.1% (+1.2% y/y) for the second consecutive month in December; within this grouping, department store sales fell 0.7% (-0.3% y/y), the third m/m fall in four months, following a 3.1% November drop.

To the upside, building materials & garden equipment store sales climbed 1.2% (0.5% y/y) for the second successive month in December, the first m/m gain since August. Sporting goods, hobby, book & music store sales rose 0.4% (6.0% y/y), the fifth m/m rise in six months, after a 0.9% November increase. Gasoline station sales grew 0.3% (1.6% y/y), the sixth m/m gain in seven months, on top of a 1.7% November rebound. Nonstore retail sales were up 0.1% (5.3% y/y) in December after virtually unchanged in November.

In the nondiscretionary sales categories, health & personal care store sales fell 0.2% (+6.4% y/y) in December, down for the second time in three months, following a 0.3% increase in November. Food & beverage store sales rose 0.2% (1.1% y/y) after a 0.1% November dip.
Consumers appeared to dine out less frequently in December amid still-high inflation (December CPI +0.3% m/m, +2.7% y/y; core CPI +0.2% m/m, +2.6% y/y). Restaurant & drinking place sales eased 0.1% (+4.7% y/y) in December, the second m/m decline in three months, following an upwardly revised 0.7% rise in November (+0.6% initially).

Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- December total retail sales -0.02%, below expectations; +2.4% y/y, lowest since Sept. ’24.
- Ex-auto sales +0.02% (+3.3% y/y) after six straight m/m rises; auto sales -0.2% (-1.1% y/y).
- Declines m/m: furniture stores (-0.9%), misc. stores (-0.9%), clothing stores (-0.7%).
- Gains m/m: bldg. materials (+1.2%), sporting goods (+0.4%), gasoline stations (+0.3%).

U.S. Retail Sales Hold Steady in December Following November’s Rebound

Sandy Batten

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The Bureau of Labor Statistics did not publish a report on export and import prices for October because of the government shutdown, and BLS was unable to construct statistics for October. Therefore, the charts here have a gap for October between the September and the November and December values.

Import prices rose 0.1% m/m (unchanged y/y) in December from November, in line with the expectations of the Action Economics Forecast Survey. Since there was no value for October value, a monthly change for November could not be calculated. Import prices fell 0.1% y/y in November. Export prices rose 0.3% m/m in December. Again, a monthly change for November could not be calculated. The Action Economics Forecast Survey expected a 0.1% monthly increase in December. The y/y reading fell to 3.1% in December from 3.2% in November.

Note that these indexes are not directly affected by tariffs because they measure the price of goods before taxes. Tariffs are considered taxes and thus are excluded from these calculations.

For imports, a 3.3% monthly decline in prices of imported petroleum and petroleum products restrained the rise in overall prices. Prices of nonpetroleum imports rose 0.4% m/m (1.0% y/y). Prices of imported food increased 0.5% m/m while prices of imported industrial supplies rose 0.4% m/m even with a 0.8% monthly decline in prices of fuels and lubricants. Prices of the remaining end-use categories were little changed in December. Given the recent weakness of the foreign exchange value of the dollar, there could be further upward pressure on nonpetroleum import prices in coming months.

For exports, prices of agricultural products 0.2% m/m (2.1% y/y) in December following a 0.9% m/m jump in November. Prices of nonagricultural exports increased 0.3% m/m in December. A monthly change could not be calculated for November. The y/y rate slowed to 3.1% in December from 3.3%. Exported food prices rose 0.4% m/m, down from a 1.1% monthly jump in November. Prices of exported industrial supplies also increased 0.4% m/m in December. Prices of exported consumer goods excluding autos jumped 0.8% m/m in December, their largest monthly increase since January 2023.

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Import prices rose 0.1% m/m in December, in line with expectations.
- The December increase reflected a 0.2% monthly gain in non-fuel import prices and a 0.8% m/m decline in fuel prices.
- Export prices rose 0.3% m/m against expectations of a 0.1% m/m increase. Both agricultural and nonagricultural prices rose in December.


U.S. Import and Export Prices Rise in December

Tian Yong Woon

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

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

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

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

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

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

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

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

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

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Asia

Economic Letter from Asia: Of Ballots and Bots

Robert Brusca

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

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

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

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

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

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

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Japan

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief: 2007

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