Tom Moeller

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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>
European Union Unemployment Eases to New Lows; Supplemental Eurostat Series Include New Members 
by <a href="/comment/Stone.html">Carol Stone</a> January 5, 2007


<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>
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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

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/070104g.jpg" width="353">
UK corporations had a record operating surplus in Q3 2006 and earned record rates of return on capital. All private nonfinancial corporations returned 13.4% in gross operating surplus against gross capital stock and 15.2% on a net basis. The gross return compared with 13.2% in Q2 and 13.0% in Q3 2005. Before this latest period, only four other quarters since 1989 had been as high as 13%. The net return comparison is even stronger: Q2 was 14.9% and besides these two latest periods, the high since 1989 was 14.4%. Annual data go back to 1965 and the earlier years were no higher, giving greater weight to the current, precedent-setting performance.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104h.jpg" width="353">
Clearly some of this has to do with high profitability in the oil industry. The second graph shows the recent strength in that sector, referred to as the UK Continental Shelf, with net returns in the mid-40% range. Q2 2006 does, though, appear to have been a peak and current performance is well off the highs of the mid-1980s.
&quot;Non-continental shelf companies&quot; are also doing well. Nonfinancial services are the source of considerable gain, and &quot;other&quot; industries contribute too (these include utilities, construction, agriculture and mining, not published separately). Service companies have returned more than 19% on capital so far in 2006, about 0.75% above the previous record of 18.5% in 1998. Manufacturing, by contrast, is lagging. The operating surplus in those industries reached a peak of just under &pound;35 billion in 1997, when the yield on capital was 15.3%. By 2005, the surplus had decreased to &pound;20.6 billion and has apparently fallen further in the first three quarters of 2006. This is still, however, better than in the late 1970s and early 1980s, which saw surpluses nearly vanish, generating meager returns as low as 1.3% (1981) and less than 5% for 10 years running.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104i.jpg" width="353">
These rate-of-return data all come from Haver&#39;s UK database, sourced from the UK Office for National Statistics. While they are issued with considerable lag -- more than three months after the end of the quarter they describe -- they appear to be quite helpful in assessing aggregate and sector corporate performance. Note also that the operating surplus figures that form the basis of these returns were reported two weeks ago on December 21. The published capital data are only annual, but within some limits, they could be inferred from the returns and the surplus data that are available. The ONS cautions though that these data are subject to more revision than other of their series, a common situation with residual information like profits.

<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/UK/@U2/@U224/@U224.HTM">PNFC* Rates of Return</a> &nbsp; (%, ex as noted)</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q3 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">Gross Operating Surplus (Bil.&pound;)</td>
<td>61,773</td>
<td>58,980</td>
<td>56,995</td>
<td>228,030</td>
<td>219,738</td>
<td>202,479</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>4.7</td>
<td>3.5</td>
<td>8.7 (Y/Y)</td>
<td>3.8</td>
<td>8.5</td>
<td>6.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Rate of Return:&nbsp;&nbsp; Gross</td>
<td>13.4</td>
<td>13.2</td>
<td>13.0</td>
<td>12.9</td>
<td>12.9</td>
<td>12.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Net</td>
<td>15.2</td>
<td>14.9</td>
<td>14.4</td>
<td>14.3</td>
<td>14.2</td>
<td>13.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Continental Shelf Companies (Net)</td>
<td>42.9</td>
<td>47.6</td>
<td>37.0</td>
<td>34.1</td>
<td>25.1</td>
<td>24.9</td>
</tr>
<tr>
<td class="firstcol">Non-Continental Shelf Companies (Net)**</td>
<td>13.9</td>
<td>13.4</td>
<td>13.4</td>
<td>13.4</td>
<td>13.5</td>
<td>12.8</td>
</tr>
</tbody>
</table>
</body>
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UK corporations had a record operating surplus in Q3 2006 and earned record rates of return on capital. All private nonfinancial corporations returned 13.4% in gross operating surplus against gross capital stock and 15.2% on a net [...]

Corporate Profitability Strengthens in UK; Return on Capital Reaches Record 15.2% in Q3

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104a.jpg" width="353">
In December, U.S. sales of light vehicles rose 4.4% from the prior month to 16.75M units, according to the Autodata Corporation. The rise was to the highest level since July.
For the full year of 2006, however, vehicle sales fell 2.4% to 16.55M, the lowest level since 1998.
Improved domestic car sales lifted December vehicle sales with an 11.4% (3.8% y/y) gain but for the year domestic auto sales fell 1.4% versus 2005. Sales of imported autos also were strong last month and posted a 6.1% (8.5% y/y) gain and for the year rose 8.7%.
Imported light truck sales also rose 1.9% (19.0% y/y) last month to 1.51M units and for 2006 rose 14.4%.
Domestic light truck sales slipped for the third consecutive month. The 0.5% decline to 7.14M units (-12.4% y/y) still, however, garnered 84% of the U.S. market for light trucks during 2006.
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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</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">Total</td>
<td>16.75</td>
<td>16.04</td>
<td>-2.1%</td>
<td>16.55</td>
<td>16.96</td>
<td>16.87</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>8.09</td>
<td>7.38</td>
<td>5.3%</td>
<td>7.77</td>
<td>7.65</td>
<td>7.49</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.65</td>
<td>8.66</td>
<td>-8.2%</td>
<td>8.78</td>
<td>9.32</td>
<td>9.37</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104a.jpg" width="353">
The non-manufacturing sector Business Activity Index fell as expected to 57.1 last month and reversed all of November&#39;s 1.8 point increase. The figure from the Institute for Supply Management (ISM) averaged 57.9 last year versus an average of 60.1 during 2005 but did improve slightly during the fourth quarter from 3Q.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders sub-index fell hard during December to 54.4, the lowest level since August. The employment index, however, improved to 53.3, its highest since September. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power improved for the second month and rose to 59.1. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Dec. &#39;05</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>57.1</td>
<td>58.9</td>
<td>61.0</td>
<td>57.9</td>
<td>60.1</td>
<td>62.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>59.1</td>
<td>55.6</td>
<td>67.2</td>
<td>65.4</td>
<td>67.9</td>
<td>68.8</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104a.jpg" width="353">
Initial unemployment insurance claims popped 10,000 last week to 329,000 for the third consecutive weekly gain. The increase outpaced Consensus expectations for stability at 318,000.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims also rose to 317,500 (2.3% y/y) though that was down from the early December high of 328,750.
Continuing claims for unemployment insurance dropped a sharp 76,000.
The insured rate of unemployment remained at 1.9% for the seventh consecutive week and equaled the average rate since February.

<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/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/30/06</th>
<th scope="col">12/23/06</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">Initial Claims</td>
<td>329</td>
<td>319</td>
<td>11.5%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,446</td>
<td>-8.3%</td>
<td>-</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
Challenger Layoffs Off Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104a.jpg" width="353">
For December, announced job cuts reported by Challenger, Grey &amp; Christmas fell a sharp 28.8% to 54,643. The three month moving average of layoff announcements also fell to 66,864, its lowest level since August.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Layoffs fell sharply m/m in the automotive (+77.0% y/y) and apparel (+1.4% y/y) and services (-57.0% y/y) industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans fell sharply m/m (-84.4% y/y).

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</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">Announced Job Cuts</td>
<td>54,643</td>
<td>76,773</td>
<td>-49.3%</td>
<td>839,822</td>
<td>1,072,054</td>
<td>1,039,935</td>
</tr>
</tbody>
</table>


</html>

In December, U.S. sales of light vehicles rose 4.4% from the prior month to 16.75M units, according to the Autodata Corporation. The rise was to the highest level since July. For the full year of 2006, however, vehicle sales fell 2.4% [...]

U.S. Vehicle Sales Rose in December

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104f.jpg" width="353">
For December, announced job cuts reported by Challenger, Grey &amp; Christmas fell a sharp 28.8% to 54,643. The three month moving average of layoff announcements also fell to 66,864, its lowest level since August.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Layoffs fell sharply m/m in the automotive (+77.0% y/y) and apparel (+1.4% y/y) and services (-57.0% y/y) industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans fell sharply m/m (-84.4% y/y).

<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/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</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">Announced Job Cuts</td>
<td>54,643</td>
<td>76,773</td>
<td>-49.3%</td>
<td>839,822</td>
<td>1,072,054</td>
<td>1,039,935</td>
</tr>
</tbody>
</table>
</body>
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For December, announced job cuts reported by Challenger, Grey & Christmas fell a sharp 28.8% to 54,643. The three month moving average of layoff announcements also fell to 66,864, its lowest level since August. During the last ten [...]

Challenger Layoffs Off Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104e.jpg" width="353">
Initial unemployment insurance claims popped 10,000 last week to 329,000 for the third consecutive weekly gain. The increase outpaced Consensus expectations for stability at 318,000.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims also rose to 317,500 (2.3% y/y) though that was down from the early December high of 328,750.
Continuing claims for unemployment insurance dropped a sharp 76,000.
The insured rate of unemployment remained at 1.9% for the seventh consecutive week and equaled the average rate since February.

<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/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/30/06</th>
<th scope="col">12/23/06</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">Initial Claims</td>
<td>329</td>
<td>319</td>
<td>11.5%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,446</td>
<td>-8.3%</td>
<td>-</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
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Initial unemployment insurance claims popped 10,000 last week to 329,000 for the third consecutive weekly gain. The increase outpaced Consensus expectations for stability at 318,000. During the last ten years there has been a [...]

Initial Unemployment Insurance Claims Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104a.jpg" width="353">
The non-manufacturing sector Business Activity Index fell as expected to 57.1 last month and reversed all of November&#39;s 1.8 point increase. The figure from the Institute for Supply Management (ISM) averaged 57.9 last year versus an average of 60.1 during 2005 but did improve slightly during the fourth quarter from 3Q.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders sub-index fell hard during December to 54.4, the lowest level since August. The employment index, however, improved to 53.3, its highest since September. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104b.jpg" width="353">
Pricing power improved for the second month and rose to 59.1. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Dec. &#39;05</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>57.1</td>
<td>58.9</td>
<td>61.0</td>
<td>57.9</td>
<td>60.1</td>
<td>62.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>59.1</td>
<td>55.6</td>
<td>67.2</td>
<td>65.4</td>
<td>67.9</td>
<td>68.8</td>
</tr>
</tbody>
</table>


</html>

The non-manufacturing sector Business Activity Index fell as expected to 57.1 last month and reversed all of November's 1.8 point increase. The figure from the Institute for Supply Management (ISM) averaged 57.9 last year versus an [...]

ISM Nonmanufacturing Index Slipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104d.jpg" width="353">
In December, U.S. sales of light vehicles rose 4.4% from the prior month to 16.75M units, according to the Autodata Corporation. The rise was to the highest level since July.
For the full year of 2006, however, vehicle sales fell 2.4% to 16.55M, the lowest level since 1998.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104c.jpg" width="353">
Improved domestic car sales lifted December vehicle sales with an 11.4% (3.8% y/y) gain but for the year domestic auto sales fell 1.4% versus 2005. Sales of imported autos also were strong last month and posted a 6.1% (8.5% y/y) gain and for the year rose 8.7%.
Imported light truck sales also rose 1.9% (19.0% y/y) last month to 1.51M units and for 2006 rose 14.4%.
Domestic light truck sales slipped for the third consecutive month. The 0.5% decline to 7.14M units (-12.4% y/y) still, however, garnered 84% of the U.S. market for light trucks during 2006.

<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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</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">Total</td>
<td>16.75</td>
<td>16.04</td>
<td>-2.1%</td>
<td>16.55</td>
<td>16.96</td>
<td>16.87</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>8.09</td>
<td>7.38</td>
<td>5.3%</td>
<td>7.77</td>
<td>7.65</td>
<td>7.49</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.65</td>
<td>8.66</td>
<td>-8.2%</td>
<td>8.78</td>
<td>9.32</td>
<td>9.37</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104d.jpg" width="353">
In December, U.S. sales of light vehicles rose 4.4% from the prior month to 16.75M units, according to the Autodata Corporation. The rise was to the highest level since July.
For the full year of 2006, however, vehicle sales fell 2.4% to 16.55M, the lowest level since 1998.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104c.jpg" width="353">
Improved domestic car sales lifted December vehicle sales with an 11.4% (3.8% y/y) gain but for the year domestic auto sales fell 1.4% versus 2005. Sales of imported autos also were strong last month and posted a 6.1% (8.5% y/y) gain and for the year rose 8.7%.
Imported light truck sales also rose 1.9% (19.0% y/y) last month to 1.51M units and for 2006 rose 14.4%.
Domestic light truck sales slipped for the third consecutive month. The 0.5% decline to 7.14M units (-12.4% y/y) still, however, garnered 84% of the U.S. market for light trucks during 2006.

<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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</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">Total</td>
<td>16.75</td>
<td>16.04</td>
<td>-2.1%</td>
<td>16.55</td>
<td>16.96</td>
<td>16.87</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>8.09</td>
<td>7.38</td>
<td>5.3%</td>
<td>7.77</td>
<td>7.65</td>
<td>7.49</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.65</td>
<td>8.66</td>
<td>-8.2%</td>
<td>8.78</td>
<td>9.32</td>
<td>9.37</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104a.jpg" width="353">
The non-manufacturing sector Business Activity Index fell as expected to 57.1 last month and reversed all of November&#39;s 1.8 point increase. The figure from the Institute for Supply Management (ISM) averaged 57.9 last year versus an average of 60.1 during 2005 but did improve slightly during the fourth quarter from 3Q.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders sub-index fell hard during December to 54.4, the lowest level since August. The employment index, however, improved to 53.3, its highest since September. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104b.jpg" width="353">
Pricing power improved for the second month and rose to 59.1. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Dec. &#39;05</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>57.1</td>
<td>58.9</td>
<td>61.0</td>
<td>57.9</td>
<td>60.1</td>
<td>62.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>59.1</td>
<td>55.6</td>
<td>67.2</td>
<td>65.4</td>
<td>67.9</td>
<td>68.8</td>
</tr>
</tbody>
</table>
Initial Unemployment Insurance Claims Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104e.jpg" width="353">
Initial unemployment insurance claims popped 10,000 last week to 329,000 for the third consecutive weekly gain. The increase outpaced Consensus expectations for stability at 318,000.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims also rose to 317,500 (2.3% y/y) though that was down from the early December high of 328,750.
Continuing claims for unemployment insurance dropped a sharp 76,000.
The insured rate of unemployment remained at 1.9% for the seventh consecutive week and equaled the average rate since February.

<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/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/30/06</th>
<th scope="col">12/23/06</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">Initial Claims</td>
<td>329</td>
<td>319</td>
<td>11.5%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,446</td>
<td>-8.3%</td>
<td>-</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
Challenger Layoffs Off Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104f.jpg" width="353">
For December, announced job cuts reported by Challenger, Grey &amp; Christmas fell a sharp 28.8% to 54,643. The three month moving average of layoff announcements also fell to 66,864, its lowest level since August.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Layoffs fell sharply m/m in the automotive (+77.0% y/y) and apparel (+1.4% y/y) and services (-57.0% y/y) industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans fell sharply m/m (-84.4% y/y).

<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/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</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">Announced Job Cuts</td>
<td>54,643</td>
<td>76,773</td>
<td>-49.3%</td>
<td>839,822</td>
<td>1,072,054</td>
<td>1,039,935</td>
</tr>
</tbody>
</table>
Corporate Profitability Strengthens in UK; Return on Capital Reaches Record 15.2% in Q3 
by <a href="/comment/Stone.html">Carol Stone</a> January 4, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104g.jpg" width="353">
UK corporations had a record operating surplus in Q3 2006 and earned record rates of return on capital. All private nonfinancial corporations returned 13.4% in gross operating surplus against gross capital stock and 15.2% on a net basis. The gross return compared with 13.2% in Q2 and 13.0% in Q3 2005. Before this latest period, only four other quarters since 1989 had been as high as 13%. The net return comparison is even stronger: Q2 was 14.9% and besides these two latest periods, the high since 1989 was 14.4%. Annual data go back to 1965 and the earlier years were no higher, giving greater weight to the current, precedent-setting performance.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104h.jpg" width="353">
Clearly some of this has to do with high profitability in the oil industry. The second graph shows the recent strength in that sector, referred to as the UK Continental Shelf, with net returns in the mid-40% range. Q2 2006 does, though, appear to have been a peak and current performance is well off the highs of the mid-1980s.
&quot;Non-continental shelf companies&quot; are also doing well. Nonfinancial services are the source of considerable gain, and &quot;other&quot; industries contribute too (these include utilities, construction, agriculture and mining, not published separately). Service companies have returned more than 19% on capital so far in 2006, about 0.75% above the previous record of 18.5% in 1998. Manufacturing, by contrast, is lagging. The operating surplus in those industries reached a peak of just under &pound;35 billion in 1997, when the yield on capital was 15.3%. By 2005, the surplus had decreased to &pound;20.6 billion and has apparently fallen further in the first three quarters of 2006. This is still, however, better than in the late 1970s and early 1980s, which saw surpluses nearly vanish, generating meager returns as low as 1.3% (1981) and less than 5% for 10 years running.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070104i.jpg" width="353">
These rate-of-return data all come from Haver&#39;s UK database, sourced from the UK Office for National Statistics. While they are issued with considerable lag -- more than three months after the end of the quarter they describe -- they appear to be quite helpful in assessing aggregate and sector corporate performance. Note also that the operating surplus figures that form the basis of these returns were reported two weeks ago on December 21. The published capital data are only annual, but within some limits, they could be inferred from the returns and the surplus data that are available. The ONS cautions though that these data are subject to more revision than other of their series, a common situation with residual information like profits.

<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/UK/@U2/@U224/@U224.HTM">PNFC* Rates of Return</a> &nbsp; (%, ex as noted)</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q3 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">Gross Operating Surplus (Bil.&pound;)</td>
<td>61,773</td>
<td>58,980</td>
<td>56,995</td>
<td>228,030</td>
<td>219,738</td>
<td>202,479</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>4.7</td>
<td>3.5</td>
<td>8.7 (Y/Y)</td>
<td>3.8</td>
<td>8.5</td>
<td>6.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Rate of Return:&nbsp;&nbsp; Gross</td>
<td>13.4</td>
<td>13.2</td>
<td>13.0</td>
<td>12.9</td>
<td>12.9</td>
<td>12.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Net</td>
<td>15.2</td>
<td>14.9</td>
<td>14.4</td>
<td>14.3</td>
<td>14.2</td>
<td>13.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Continental Shelf Companies (Net)</td>
<td>42.9</td>
<td>47.6</td>
<td>37.0</td>
<td>34.1</td>
<td>25.1</td>
<td>24.9</td>
</tr>
<tr>
<td class="firstcol">Non-Continental Shelf Companies (Net)**</td>
<td>13.9</td>
<td>13.4</td>
<td>13.4</td>
<td>13.4</td>
<td>13.5</td>
<td>12.8</td>
</tr>
</tbody>
</table>


</html>

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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Michael J. Moran

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The Employment Cost Index rose at an annual rate of 3.0% in the final three months of 2025 (0.7% not annualized). The latest observation reinforced the deceleration that began in the latter part of 2022 and returned the change to the range in place before the pandemic - albeit the upper portion of that range.

Most of the deceleration occurred in the goods-producing sector, where the latest increase of 2.5% (annual rate) trailed the average of 3.9% in the prior three quarters. The service sector saw compensation growth of 3.1%, down from an average of 3.5% in the prior three quarters. The difference between the performances of goods and service is not surprising, as compensation growth in the goods-producing sector tends to be more volatile, and it has typically been softer in the past few years.

Fed Chair Jerome Powell has argued recently that labor costs are not a driving force behind above-target inflation, and recent results on the employment cost index support this view. While the increase in compensation of 3.0% in Q4 is a percentage point above the Fed’s target, businesses can maintain profits without passing along the full extent of the increase. Productivity growth, which has been strong recently (average growth of 2.3% in the past eight quarters), can effectively offset compensation growth and dampen the inflation impulse.

The chart on the upper right shows quarterly growth in total compensation less the 8-quarter increase in productivity (the 8-quarter average smooths the high degree of volatility in productivity growth). This metric, which gives insight into the likely path of inflation, has been below 2.0% for the past 6 quarters, with the latest increase totaling less than 1.0%. (the chart ends in 2025-Q3 because productivity statistics for Q4 are not available).

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Total compensation in the ECI includes both wages and benefits. In the third quarter, both components rose by the same amount (0.7% quarter-to-quarter, or 3.0% at an annual rate). This balance is a shift from the pattern of recent years, when wages typically posted firmer growth. The advantage to wages in the past few years, in turn, represents a break from the more common tendency for benefits to grow at a faster pace.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

- Vigorous growth during the pandemic-related recovery gives way to moderate advances recently.
- Labor costs seem in line with the Fed’s inflation target.

Employment Cost Index: Continued Deceleration

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.

Economy in Brief: 2007

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Another Firm U.S. Payroll Report with Upward Revisions

Corporate Profitability Strengthens in UK; Return on Capital Reaches Record 15.2% in Q3

U.S. Vehicle Sales Rose in December

Challenger Layoffs Off Sharply

Initial Unemployment Insurance Claims Rose

ISM Nonmanufacturing Index Slipped

U.S. Vehicle Sales Rose in December

U.S. Vehicle Sales Rose in December