Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307e.jpg" align="left" border="0" height="265" width="353">
The OECD CLIs are largely still falling over the most recent
three months, but generally the three-month drops are at a slower pace
than the pace of the declines over six months. That is not the best
news but it is good news of sorts. Of course the US is an exception to
this observation since the three-month US decline is accelerating.
Japan is the other sort of exception with an actual rise over three
months and rise over six months. Japan had hit the skids in CLI terms
ahead of the pack. In real time Japan&#8217;s economy is still slipping.
We can hope that Japan&#8217;s resurgent indicator implies that it
has shrugged off a brush with recession. But the fact that key US
economy is sinking faster than anyone else should give us pause about
rosy scenarios. For the most
part the OECD characterizes these results as consistent with a moderate
slowdown. But with some of the recent weak data in the US, recent
financial market turmoil that has reappeared, and the CLI trend there
is clear downside risk. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="5" scope="col">OECD
Trend-restored leading Indicators </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="5" class="firstcol">Growth
progression-SAAR</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>3Mos</td>
<td>6Mos</td>
<td>12mos</td>
<td>Yr-Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD</td>
<td>-1.0%</td>
<td>-2.4%</td>
<td>-0.4%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD 7</td>
<td>-3.3%</td>
<td>-4.2%</td>
<td>-1.4%</td>
<td>0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Europe</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-0.8%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Japan</td>
<td>8.9%</td>
<td>0.5%</td>
<td>-1.8%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD US</td>
<td>-6.8%</td>
<td>-6.0%</td>
<td>-1.2%</td>
<td>0.2%</td>
</tr>
<tr class="grey2">
<td colspan="5" class="firstcol">Six
month readings at 6-Mo
Intervals:</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6Mo Ago</td>
<td>12Mo Ago</td>
<td>18MO Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD</td>
<td>-2.4%</td>
<td>1.7%</td>
<td>2.1%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD 7</td>
<td>-4.2%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Europe</td>
<td>-2.0%</td>
<td>0.4%</td>
<td>1.3%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Japan</td>
<td>0.5%</td>
<td>-4.1%</td>
<td>1.3%</td>
<td>0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD US</td>
<td>-6.0%</td>
<td>3.8%</td>
<td>1.5%</td>
<td>-1.1%</td>
</tr>
<tr class="grey1">
<td colspan="5" class="firstcol">Slowdowns
indicated by BOLD
RED</td>
</tr>
</tbody>
</table>
</body></html>

The OECD CLIs are largely still falling over the most recent three months, but generally the three-month drops are at a slower pace than the pace of the declines over six months. That is not the best news but it is good news of sorts. [...]

OECD Composite Leading Indicators: Moderate Slowing

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307a.jpg" width="353">
The Bureau of Labor Statistics reported that for the second consecutive month, nonfarm payrolls fell. A 63,000 decline last month followed a downwardly revised 22,000 drop during January. The December job gain also was revised weaker. Expectations had been for a modest 25,000 increase in February payrolls.
The decline in payrolls was the first consecutive two-month drop since 2003.
To the upside was job creation in the government sector where February employment rose 38,000 (1.1% y/y). Strength in hiring by state governments (1.2% y/y) and localities (1.3% y/y) has offset weakness in job creation by the Federal government (-0.1% y/y). This strength in government sector job creation only highlights weakness in the February labor report. Private sector employment fell 101,000 (+0.5% y/y), the largest decline of three during the last three months.
Weakness in factory sector hiring intensified as indicated by a 52,000 drop in payrolls. That was the deepest since 2003 and compared to an average monthly decline of 22,000 last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307c.jpg" width="353">
The rate of decline in construction employment also picked up steam. Employment here fell 39,000, twice the average monthly job loss last year.
The news out of the private service sector was perhaps more distressing. A 12,000 loss of jobs was the first since 2003. It dropped the two month change to a meager 8,000 and it compared to an average monthly gain of 109,000 last year. Professional &amp; business services jobs fell by 20,000 (+1.3% y/y) while temporary help services jobs cratered 27,600 (-3.9% y/y). They have been declining for more than a year. Jobs in retail trade also fell a hard 34,100 (-0.0% y/y) and a January increase was revised away. Employment in finance dropped as well by 12,000 and it fell 1.5% from the late 2006 peak. Weakness in the real estate sector continued to lead the softening with a 7,000 job loss last month. Since the 2006 peak jobs are down 2.2%
Jobs in education continued to grow. A firm 30,000 February increase was only slightly off last year&#39;s pace of 45,000 per month (3.0% y/y) while job gains in the health care sector rose 37,000 (2.9% y/y), right on last year&#39;s pace. Jobs in the leisure &amp; hospitality sector also rose a steady 21,000 (2.5% y/y) last month.
Continuing to portend further weakness in overall job creation was another decline in the one month diffusion index to 45.6%. This measure of the breadth of job creation amongst industries was its lowest level since 2003. The three month index also was a weak 46.9%.
What the employment numbers say about overall economic growth this quarter is not good. When the job figures are combined with what was a stable level of hours worked, the level of aggregate hours (employment times hours) fell both last month and in January. Those declines pulled the average for 1Q so far down 1.3% (AR) from 4Q07. During the last thirty years there has been a 76% correlation between the q/q change in aggregate hours worked and the change in real GDP. That correlation has fallen in recent years, however, as productivity has picked up. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307b.jpg" width="353">
Average hourly earnings rose a very steady 0.3%. Weakness in job creation, however, has lowered the y/y gain to 3.7% which is down slightly from the peak 4.0% rise during all of last year. Factory sector earnings rose 0.1% (3.0% y/y) and private service-providing earnings rose 0.3% (3.8% y/y).
The unemployment rate slipped again, last month to 4.8%. Household employment declined 255,000 (0.1% y/y) and that points up the deterioration in y/y job growth to 0.1% from a 1.1% gain during all of last year and of 1.9% in 2006. A decline in the labor force of 450,000 (+0.4% y/y) is what kept the February unemployment rate from rising.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307d.jpg" width="353">
The average duration of unemployment fell slightly to 16.8 weeks from 17.5 in January and from 16.9 weeks last year. 
Today&#39;s announcement that the Fed addressed heightened liquidity pressures can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080307a.htm">here</a>. 
Exchange Rate Pass-Through and Monetary Policy is today&#39;s speech by Federal Reserve Board Governor Frederic S. Mishkin and it is available <a href="http://www.federalreserve.gov/newsevents/speech/mishkin20080307a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment: 000s</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-63</td>
<td>-22</td>
<td>41</td>
<td>0.6%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Previous</td>
<td>--</td>
<td>-17</td>
<td>82</td>
<td>--</td>
<td>1.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-52</td>
<td>-31</td>
<td>-22</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-0.5%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-39</td>
<td>-25</td>
<td>-55</td>
<td>-2.9%</td>
<td>-1.0%</td>
<td>4.9%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
<td>33.7 (Feb. &#39;07)</td>
<td>33.8</td>
<td>33.9</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.7%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.8%</td>
<td>4.9%</td>
<td>5.0%</td>
<td>4.5% (Feb &#39;07)</td>
<td>4.6%</td>
<td>4.6%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>


</html>

The Bureau of Labor Statistics reported that for the second consecutive month, nonfarm payrolls fell. A 63,000 decline last month followed a downwardly revised 22,000 drop during January. The December job gain also was revised weaker. [...]

U.S. Payrolls Again Fell Unexpectedly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307a.jpg" align="left" border="0" height="265" width="353">
The Bureau of Labor Statistics reported that for the second
consecutive month, nonfarm payrolls fell. A 63,000 decline last month
followed a downwardly revised 22,000 drop during January. The December
job gain also was revised weaker. Expectations had been for a modest
25,000 increase in February payrolls.
The decline in payrolls was the first consecutive two-month
drop since 2003.
To the upside was job creation in the government sector where
February employment rose 38,000 (1.1% y/y). Strength in hiring by state
governments (1.2% y/y) and localities (1.3% y/y) has offset weakness in
job creation by the Federal government (-0.1% y/y). This strength in
government sector job creation only highlights weakness in
the February labor report. Private sector employment fell
101,000 (+0.5% y/y), the largest decline of three during the last three
months.
Weakness in factory sector hiring intensified as indicated by
a 52,000 drop in payrolls. That was the deepest since 2003 and compared
to an average monthly decline of 22,000 last year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307c.jpg" align="right" border="0" height="265" width="353">
The rate of decline in construction employment also picked up
steam. Employment here fell 39,000, twice the average monthly job loss
last year.
The news out of the private service sector was perhaps more
distressing. A 12,000 loss of jobs was the first since 2003. It dropped
the two month change to a meager 8,000 and it compared to an average
monthly gain of 109,000 last year. Professional &amp; business
services jobs fell by 20,000 (+1.3% y/y) while temporary help services
jobs cratered 27,600 (-3.9% y/y). They have been declining for more
than a year. Jobs in retail trade also fell a hard 34,100 (-0.0% y/y)
and a January increase was revised away. Employment in finance dropped
as well by 12,000 and it fell 1.5% from the late 2006 peak. Weakness in
the real estate sector continued to lead the softening with a 7,000 job
loss last month. Since the 2006 peak jobs are down 2.2%
Jobs in education continued to grow. A firm 30,000 February
increase was only slightly off last year's pace of 45,000 per month
(3.0% y/y) while job gains in the health care sector rose 37,000 (2.9%
y/y), right on last year's pace. Jobs in the leisure &amp;
hospitality sector also rose a steady 21,000 (2.5% y/y) last month.
Continuing to portend further weakness in overall job creation
was another decline in the one month diffusion index to 45.6%. This
measure of the breadth of job creation amongst industries was its
lowest level since 2003. The three month index also was a weak 46.9%.
What the employment numbers say about overall economic growth
this quarter is not good. When the job figures are combined with what
was a stable level of hours worked, the level of aggregate hours
(employment times hours) fell both last month and in January. Those
declines pulled the average for 1Q so far down 1.3% (AR) from 4Q07.
During the last thirty years there has been a 76% correlation between
the q/q change in aggregate hours worked and the change in real GDP.
That correlation has fallen in recent years, however, as productivity
has picked up. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307b.jpg" align="left" border="0" height="265" width="353">
Average hourly earnings rose a very steady
0.3%. Weakness in job creation, however, has lowered the y/y gain to
3.7% which is down slightly from the peak 4.0% rise during all of last
year. Factory sector earnings rose 0.1% (3.0% y/y) and private
service-providing earnings rose 0.3% (3.8% y/y).
The unemployment rate slipped again, last
month to 4.8%. Household employment declined 255,000 (0.1% y/y) and
that points up the deterioration in y/y job growth to 0.1% from a 1.1%
gain during all of last year and of 1.9% in 2006. A decline in the
labor force of 450,000 (+0.4% y/y) is what kept the February
unemployment rate from rising.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307d.jpg" align="right" border="0" height="265" width="353">
The average duration of unemployment fell slightly to 16.8
weeks from 17.5 in January and from 16.9 weeks last year. 
 

Today's announcement that the Fed addressed
heightened liquidity pressures can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080307a.htm">here</a>. 
 

Exchange Rate Pass-Through and Monetary Policy is
today's speech by Federal Reserve Board Governor Frederic S. Mishkin
and it is available <a href="http://www.federalreserve.gov/newsevents/speech/mishkin20080307a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment:
000s</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-63</td>
<td>-22</td>
<td>41</td>
<td>0.6%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Previous</td>
<td>--</td>
<td>-17</td>
<td>82</td>
<td>--</td>
<td>1.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-52</td>
<td>-31</td>
<td>-22</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>-0.5%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-39</td>
<td>-25</td>
<td>-55</td>
<td>-2.9%</td>
<td>-1.0%</td>
<td>4.9%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
<td>33.7 (Feb. '07)</td>
<td>33.8</td>
<td>33.9</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.7%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.8%</td>
<td>4.9%</td>
<td>5.0%</td>
<td>4.5% (Feb '07)</td>
<td>4.6%</td>
<td>4.6%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>
OECD Composite Leading
Indicators:Moderate Slowing 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 7, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307e.jpg" align="left" border="0" height="265" width="353">
The OECD CLIs are largely still falling over the most recent
three months, but generally the three-month drops are at a slower pace
than the pace of the declines over six months. That is not the best
news but it is good news of sorts. Of course the US is an exception to
this observation since the three-month US decline is accelerating.
Japan is the other sort of exception with an actual rise over three
months and rise over six months. Japan had hit the skids in CLI terms
ahead of the pack. In real time Japan&#8217;s economy is still slipping.
We can hope that Japan&#8217;s resurgent indicator implies that it
has shrugged off a brush with recession. But the fact that key US
economy is sinking faster than anyone else should give us pause about
rosy scenarios. For the most
part the OECD characterizes these results as consistent with a moderate
slowdown. But with some of the recent weak data in the US, recent
financial market turmoil that has reappeared, and the CLI trend there
is clear downside risk. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="5" scope="col">OECD
Trend-restored leading Indicators </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="5" class="firstcol">Growth
progression-SAAR</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>3Mos</td>
<td>6Mos</td>
<td>12mos</td>
<td>Yr-Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD</td>
<td>-1.0%</td>
<td>-2.4%</td>
<td>-0.4%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD 7</td>
<td>-3.3%</td>
<td>-4.2%</td>
<td>-1.4%</td>
<td>0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Europe</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-0.8%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Japan</td>
<td>8.9%</td>
<td>0.5%</td>
<td>-1.8%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD US</td>
<td>-6.8%</td>
<td>-6.0%</td>
<td>-1.2%</td>
<td>0.2%</td>
</tr>
<tr class="grey2">
<td colspan="5" class="firstcol">Six
month readings at 6-Mo
Intervals:</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6Mo Ago</td>
<td>12Mo Ago</td>
<td>18MO Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD</td>
<td>-2.4%</td>
<td>1.7%</td>
<td>2.1%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD 7</td>
<td>-4.2%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Europe</td>
<td>-2.0%</td>
<td>0.4%</td>
<td>1.3%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Japan</td>
<td>0.5%</td>
<td>-4.1%</td>
<td>1.3%</td>
<td>0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD US</td>
<td>-6.0%</td>
<td>3.8%</td>
<td>1.5%</td>
<td>-1.1%</td>
</tr>
<tr class="grey1">
<td colspan="5" class="firstcol">Slowdowns
indicated by BOLD
RED</td>
</tr>
</tbody>
</table>
German IP Sees Huge Lift From
Capital Goods 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 7, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080307f.jpg" align="left" border="0" height="265" width="353">
German IP was a breath of fresh air in January. But it may not
have been made in the best of circumstances. Capital goods output
surged by 6.2% m/m possibly a result of special rules favoring
investment that are phasing out. Construction
output skyrocketed by 11.7% m/m on what obviously was a beneficial
weather effect that will not just go away but will unwind in the months
ahead and suck growth out of IP. As a result, in the new quarter
construction is advancing at 111% pace and capital goods output at a
40.2% annual rate - eye popping numbers. These are two special cases.
Meanwhile, consumer goods output tailed in the month falling by 0.6%
m/m. and intermediate goods output fell by 1% m/m. Still MFG IP rose by
1.9% in January and is up at a 19.6% pace in the new quarter. The IP
numbers are in sharp contrast to the 1.5% drop in January orders and
the 7.6% drop in orders in Q1.
So Germany has some cross-currents. Currently the strength is
lodged in areas that look be temporary or related to expiring stimulus.
The more important, lasting, force of consumer spending continues to
lag. Germans looking for better times in 2008 were uniformly pinning
hopes on the consumer. Consumer is now a clear laggard. The IP figure
tells us the same thing other retail reports have been saying about the
consumer. Moreover, the weakness in orders tell us that the surge in
output is not likely to last.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Total
German IP Quarter</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">SAAR except m/m</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter-to-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">IP total</td>
<td>1.8%</td>
<td>1.5%</td>
<td>-0.3%</td>
<td>13.2%</td>
<td>10.1%</td>
<td>7.0%</td>
<td>18.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer</td>
<td>-0.6%</td>
<td>2.7%</td>
<td>-1.2%</td>
<td>3.5%</td>
<td>8.5%</td>
<td>2.7%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital</td>
<td>6.2%</td>
<td>-0.8%</td>
<td>0.2%</td>
<td>24.7%</td>
<td>17.5%</td>
<td>11.4%</td>
<td>40.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate</td>
<td>-1.0%</td>
<td>3.8%</td>
<td>-0.2%</td>
<td>10.6%</td>
<td>7.1%</td>
<td>6.0%</td>
<td>8.7%</td>
</tr>
<tr>
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>11.7%</td>
<td>2.2%</td>
<td>-0.2%</td>
<td>68.5%</td>
<td>30.8%</td>
<td>4.5%</td>
<td>111.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG IP</td>
<td>1.9%</td>
<td>1.7%</td>
<td>-0.2%</td>
<td>14.8%</td>
<td>11.4%</td>
<td>7.5%</td>
<td>19.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Orders</td>
<td>-1.5%</td>
<td>-1.1%</td>
<td>3.0%</td>
<td>1.2%</td>
<td>9.3%</td>
<td>9.6%</td>
<td>-7.6%</td>
</tr>
</tbody>
</table>
</body></html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080306f.jpg" align="left" border="0" height="265" width="353">
The Teikoku indices show a weakening Japan economy. Just today
Japan policymakers, commenting on the state of the economy, were saying
that it is weak and did not know if the word &#8216;recession&#8217; should be used
in connection with it. The
Teikoku index hit a five year low in January and has recovered slightly
in February. The NTC MFG index is also weak but not quite as weak as
the Teikoku MFG reading; it is not in the bottom 5 percent of its range
but in the bottom 30% of it.
The Teikoku outlook indices show that progressively greater
weakness is expected looking ahead. While each of these indexes, the
current, the 6-mo ahead and 12-mo ahead index, has fallen, each has
also made a small rebound in February. Up until now, Japan has taken a
mostly upbeat view of the economy. It took Japanese officials a long
time to downgrade the economy and its prospects. But the slide in the
economy is now undeniable. Still, like the US, we do not yet know how
far the economy will skid.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Key
Japanese Surveys</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Yr range*</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
</tr>
<tr>
<td class="firstcol">NTC MFG</td>
<td>50.8</td>
<td>52.4</td>
<td>52.3</td>
<td>50.8</td>
<td>30.5%</td>
<td>47.4%</td>
<td>47.3%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">Econ
Trends (Teikoku'/50
neutral/weighted diffusion)</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>38.5</td>
<td>37.9</td>
<td>40.8</td>
<td>41.7</td>
<td>4.4%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>32.6</td>
<td>31.3</td>
<td>34.2</td>
<td>34.4</td>
<td>9.4%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>35.3</td>
<td>34.5</td>
<td>37.0</td>
<td>38.3</td>
<td>6.3%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>41.0</td>
<td>40.4</td>
<td>43.5</td>
<td>45.0</td>
<td>5.4%</td>
<td>0.0%</td>
<td>20.1%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>29.7</td>
<td>28.9</td>
<td>32.0</td>
<td>32.6</td>
<td>7.5%</td>
<td>0.0%</td>
<td>16.4%</td>
</tr>
</tbody>
</table>
</body></html>

The Teikoku indices show a weakening Japan economy. Just today Japan policymakers, commenting on the state of the economy, were saying that it is weak and did not know if the word ‘recession’ should be used in connection with it. The [...]

Japan Economy Shows Weakening Sectors and a Weakening Outlook

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080306e.jpg" align="left" border="0">
Manufacturing orders were a little weaker at the start of the
year than in the fourth quarter said the German ministry in a classic
understatement of the facts. It noted, however, mitigating factors,
such as a change in the tax depreciation system at the start of 2008
that caused many domestic companies to pull their orders backward into
2007. Even with that pull back December orders fell. And the 2008
growth rate as of January 2008 compared to the Q4 base sees a 7.6%
annual rate of decline in Q1 2008. Domestic orders are shrinking at a
2.4% pace. But foreign orders, an area unaffected by the depreciation
rule in Germany, sees Q1 orders are off at a 12.3% annual pace.
German orders are being compressed. German domestic orders
peaked in September 2006 and have been declining irregularly ever
since. There was an order rebound in November and December of 2007 but
the down shift is again in train.
In Germany sales trends show declines for consumer durables
and nondurables. Sales of intermediate goods have seen resurgence while
capital goods sales continue to be quite firm and have recently
re-accelerated. This is a
continuation of the same story that sees the consumer sector weak and
capital goods remaining strong. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> German Orders and Sales By Sector and Origin</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Real and SA</td>
<td colspan="3">% M/M</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>YrAgo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Orders</td>
<td>-1.5%</td>
<td>-1.1%</td>
<td>3.0%</td>
<td>1.2%</td>
<td style="color: red;">0.6%</td>
<td>9.6%</td>
<td>6.9%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>-1.3%</td>
<td>-2.5%</td>
<td>2.3%</td>
<td style="color: red;">-5.9%</td>
<td style="color: red;">-3.0%</td>
<td>13.3%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>-1.9%</td>
<td>0.4%</td>
<td>3.7%</td>
<td>9.1%</td>
<td style="color: red;">4.5%</td>
<td style="color: red;">5.8%</td>
<td>8.1%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">Sector Sales</td>
</tr>
<tr>
<td class="firstcol">MFG/Mining</td>
<td>1.4%</td>
<td>1.1%</td>
<td>-0.7%</td>
<td>7.3%</td>
<td style="color: red;">3.6%</td>
<td style="color: red;">5.9%</td>
<td>9.1%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td style="color: red;">-0.5%</td>
<td>0.5%</td>
<td>-0.6%</td>
<td style="color: red;">-2.3%</td>
<td style="color: red;">-1.1%</td>
<td style="color: red;">1.1%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Cons Durables</td>
<td style="color: red;">-2.6%</td>
<td>2.8%</td>
<td>-0.2%</td>
<td style="color: red;">-0.4%</td>
<td>-0.2%</td>
<td style="color: red;">-1.5%</td>
<td>7.0%</td>
</tr>
<tr>
<td class="firstcol">Cons Nondurable</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td style="color: red;">-2.6%</td>
<td style="color: red;">-1.3%</td>
<td style="color: red;">1.5%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>2.7%</td>
<td>0.9%</td>
<td>-2.1%</td>
<td>6.0%</td>
<td style="color: red;">3.0%</td>
<td style="color: red;">7.9%</td>
<td>11.3%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td style="color: red;">0.6%</td>
<td>1.9%</td>
<td>0.8%</td>
<td>14.1%</td>
<td>6.8%</td>
<td style="color: red;">6.2%</td>
<td>9.2%</td>
</tr>
<tr>
<td class="firstcol">All MFG Sales</td>
<td>1.3%</td>
<td>1.2%</td>
<td>-0.9%</td>
<td>6.7%</td>
<td style="color: red;">3.3%</td>
<td style="color: red;">5.6%</td>
<td>8.8%</td>
</tr>
</tbody>
</table>
</body></html>

Manufacturing orders were a little weaker at the start of the year than in the fourth quarter said the German ministry in a classic understatement of the facts. It noted, however, mitigating factors, such as a change in the tax [...]

German Orders Take Another Swing Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080306c.jpg" width="353">
Factory inventories surged 1.3% in January and posted the strongest m/m increase since early 2005. It followed an upwardly revised 0.9% December increase. Together the gains lifted the three month annualized rate of increase to 12.0%, up sharply from last year&#39;s lows which were at or below 1.0% through the Summer.
Excluding the volatile transportation sector where the aircraft industry can have an outsized effect on the total figures, the story of accelerated inventory accumulation isn&#39;t much different. Inventories rose the same 1.3% in January, the December rise was revised up, and the three month rate of accumulation was 9.6%, up from slight decumulation early last year. Inventories in the civilian aircraft industry rose 3.7% during January and the three month rate of gain was 51.3%.
Total factory orders fell 2.5% during January, pulled lower by a 30.4% m/m decline in orders for civilian aircraft (+86.7% y/y). Less that decline and less the transportation sector altogether, orders fell a slight 0.4% after a 0.6% December gain. The three month rate of increase at 6.9% was down from the double digit rates of increase seen last year. January orders for durable goods fell 5.1%, about the same as the advance report of a 5.3% decline.
Factory shipments surged 1.1%, again influenced by a strong aircraft industry where shipments rose 11.7% (19.1% y/y). Excluding the transportation sector shipments rose 0.8% and the three month rate of growth of 9.2% was down by half from last year&#39;s peak rates of gain.
Overall unfilled orders rose 0.7% in January and the three month rate of increase was a hefty 18.6%. Shipments of civilian aircraft &amp; parts still can&#39;t keep pace with orders, therefore backlogs rose 1.4% after a 4.0% surge in December (45.0% y/y). Excluding the transportation sector altogether unfilled orders rose a lesser 0.4% during January and the three month average growth rate was a still firm 9.2% (AR).
Macroeconomic Interdependence and the International Role of the Dollar from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr316.pdf"> here</a> .

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS, %)</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>1.3</td>
<td>0.9</td>
<td>5.0</td>
<td>3.7</td>
<td>6.4</td>
<td>8.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>1.3</td>
<td>0.5</td>
<td>4.0</td>
<td>2.5</td>
<td>7.1</td>
<td>8.0</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders</td>
<td>-2.5</td>
<td>2.0</td>
<td>7.7</td>
<td>1.4</td>
<td>5.1</td>
<td>11.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>-0.4</td>
<td>0.6</td>
<td>8.0</td>
<td>1.2</td>
<td>5.4</td>
<td>11.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.1</td>
<td>-0.4</td>
<td>7.1</td>
<td>1.1</td>
<td>4.3</td>
<td>10.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>0.8</td>
<td>-0.2</td>
<td>8.1</td>
<td>1.3</td>
<td>5.0</td>
<td>11.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Unfilled Orders</td>
<td>0.7</td>
<td>2.5</td>
<td>18.3</td>
<td>18.1</td>
<td>20.0</td>
<td>15.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Transportation</td>
<td>0.4</td>
<td>1.3</td>
<td>8.6</td>
<td>9.1</td>
<td>14.1</td>
<td>8.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Factory inventories surged 1.3% in January and posted the strongest m/m increase since early 2005. It followed an upwardly revised 0.9% December increase. Together the gains lifted the three month annualized rate of increase to 12.0%, [...]

U.S. Factory Inventory Gain Strong, Orders Reverse December Rise

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080306d.jpg" width="353">
The National Association of Realtors reported that the January level of pending sales of existing homes was unchanged from December. The reading contrasted slightly with Consensus expectations for a modest decline. The latest level also was unchanged from last year&#39;s low reached in August.
These figures are analogous to the new home sales data from the Commerce Dept. They measure existing home sales when the sales contract is signed, not at the time the sale is closed.
In contrast to the stability in overall sales, pending home sales in the Northeast continued to fall. The 4.1% m/m January decline was the sixth in the last seven months and sales were down 40.1% from the monthly peak early in 2005. Sales in the South also were quite weak in January and fell 6.1% m/m, the fourth down month in a row. Sales were off 35.5% from the 2005 peak.
Sales in the Midwest recently have shown some stability. They rose 0.6% in January and were up 7.4% from the low last August. Nevertheless, sales were one third lower than the 2004 peak. Out West sales recovered in January. The 13.0% rise was first m/m gain on record but sales were still 44.6% below the late 2005 peak.
The Realtors also indicated in an earlier report that the number of homes on the market and available for sale rose 5.5% (18.4% y/y) in January.
The pending home sales data are available in Haver&#39;s PREALTOR database and the number of homes on the market are in the REALTOR database.

<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">Pending Home Sales (2001=100)&nbsp;</a></th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>85.9</td>
<td>&nbsp;85.9</td>
<td>&nbsp;&nbsp; -19.6%</td>
<td>95.7</td>
<td>112.1&nbsp;</td>
<td>124.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>69.6</td>
<td>72.6</td>
<td>-28.0</td>
<td>85.6</td>
<td>98.5</td>
<td>108.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>85.2</td>
<td>84.7</td>
<td>-13.3</td>
<td>89.6</td>
<td>102.0</td>
<td>116.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>89.5</td>
<td>95.3</td>
<td>-23.8</td>
<td>107.3</td>
<td>127.3</td>
<td>134.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>93.8</td>
<td>83.0</td>
<td>-12.7</td>
<td>92.3</td>
<td>109.5</td>
<td>128.6</td>
</tr>
</tbody>
</table>
</body>
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The National Association of Realtors reported that the January level of pending sales of existing homes was unchanged from December. The reading contrasted slightly with Consensus expectations for a modest decline. The latest level [...]

U.S. Pending Home Sales Unchanged in January

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080306a.jpg" width="353">
Initial claims for unemployment insurance fell 24,900 to 351,000 last week. The decline reversed all of the 21,000 increase during the prior week which was revised to show a slightly stronger rise. During February claims averaged 359,000 (+6.3% y/y) per week, up 9.8% from the January average.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance continued their recent rise. A 29,000 increase during the latest week followed a 16,000 gain during the prior period which was revised down slightly. Insured unemployment stood at its highest level since Summer 2005. The figure provides some indication of workers&#39; ability to find employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080306b.jpg" width="353">
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment remained at 2.1% for the fifth consecutive week.
The latest Beige Book from the Federal Reserve covering regional economic conditions can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2008/20080305/fullreport20080305.pdf">here</a>.
An Expanded Look at Employment from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20080301/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">03/01/08</th>
<th scope="col">02/23/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;351</td>
<td>375</td>
<td>7.3%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,831</td>
<td>12.3%</td>
<td>2,551</td>
<td>2,459</td>
<td>2,662</td>
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Initial claims for unemployment insurance fell 24,900 to 351,000 last week. The decline reversed all of the 21,000 increase during the prior week which was revised to show a slightly stronger rise. During February claims averaged [...]

U.S. Weekly Jobless Insurance Claims Fell

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ZEW Expectations Weaken Mildly

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Europe

Production in a Gradual Recovery in Europe Despite Recent Setbacks

Tian Yong Woon

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

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

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

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

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

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

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

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

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

Economy in Brief: 2008

Jump to:

OECD Composite Leading Indicators: Moderate Slowing

U.S. Payrolls Again Fell Unexpectedly

U.S. Payrolls Again Fell Unexpectedly

Japan Economy Shows Weakening Sectors and a Weakening Outlook

German Orders Take Another Swing Lower

U.S. Factory Inventory Gain Strong, Orders Reverse December Rise

U.S. Pending Home Sales Unchanged in January

U.S. Weekly Jobless Insurance Claims Fell