Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303d.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303e.jpg" border="0" height="265" width="312">

Growth in the Canadian economy slowed in the fourth quarter of
2007 to 0.79% at an annual rate, the slowest rate of increase since the
second quarter of 2003 as can be seen in the first chart. For the year
as a whole, GDP increased 2.65% compared with 2.76% in 2006.
In addition to the traditional quarterly series of GDP, Canada
also maintains a monthly series that is less comprehensive than the
quarterly series. The two series are compared in the second chart. The
monthly series has been aggregated to a quarterly basis for comparison.
The monthly series shows that the rate of growth deteriorated
sharply in the months of the final quarter. GDP in December was .67%
below November, as can be seen in the third chart.
The strength of the Canadian dollar which has affected exports
adversely and has encouraged imports has accounted for some of the slow
down in the Canadian economy. Last Friday, Canada announced a deficit
on its current account of $513 million Canadian, the first since the
second quarter of 1999.
As a result of the slow growth, there is growing speculation
that when the central bank meets tomorrow it will lower its target rate
of 4%. The target interest rate of Canada is shown in the fourth chart
with that of the United States. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303f.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303g.jpg" border="0" height="265" width="312"> 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">CANADA&nbsp;</th>
<th scope="col">Q4 07</th>
<th scope="col">Q3 07&nbsp;</th>
<th scope="col">Q2 07&nbsp;</th>
<th scope="col">Q1 07&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP Quarterly Series
(Percent Change at Annual Rate)</td>
<td>0.79</td>
<td>2.98</td>
<td>3.76</td>
<td>4.01</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP Monthly Series
(Percent Change at Annual Rate)&nbsp;</td>
<td>0.80</td>
<td>2.25</td>
<td>3.41</td>
<td>4.23</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;Current
Account (Million C$)</td>
<td>-513</td>
<td>1335</td>
<td>6400</td>
<td>6960</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Dec&nbsp; 07</td>
<td>Nov 07&nbsp;</td>
<td>Oct 07&nbsp;</td>
<td>Sep 07&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP Monthly (Percent
Change M/M)</td>
<td>-0.67</td>
<td>0.10</td>
<td>0.31</td>
<td>-0.02</td>
</tr>
</tbody>
</table>
</body></html>

Growth in the Canadian economy slowed in the fourth quarter of 2007 to 0.79% at an annual rate, the slowest rate of increase since the second quarter of 2003 as can be seen in the first chart. For the year as a whole, GDP increased [...]

Canadian GDP Report Fuels Speculation of a Rate Cut

Tom Moeller

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303c.jpg" width="353">
The value of construction put in place fell 1.7% during January, roughly repeating its little revised 1.3% December downdraft. The latest decline was the forth consecutive monthly drop but the last two were by far the largest of the bunch. Activity during the opening month of 2008 was 1.7% below the 4Q07 average. A 0.7% decline had been generally expected in January construction activity.
For the first month since late 2006, the value of nonresidential building activity fell. Building in the lodging area fell 3.0% (+55.1 y/y) and roughly repeated its downwardly revised 2.7% December decline. Office construction rose a modest 0.7% (7.1% y/y) but a previously reported large December gain was revised away. Multi-unit retail (shopping malls) fell 2.3% (+1.6% y/y).
Growth in the nonresidential area continued with a 2.1% (21.8% y/y) rise in education. Spending in the factory sector ticked up 0.1% (31.7 y/y) after little revised, very strong gains during the prior four months. Spending in the transportation area fell 0.8% (+15.2% y/y) and spending in the health care industry fell 1.0% (+4.8% y/y).
Private construction in total fell another 2.2%, pulled down further by a 3.0% drop in residential building, the largest since last October. Construction activity on new single family units tumbled 5.2% (-32.1% y/y), about the rate of decline as during the prior five months. Building activity on multi-family units also fell a sharp 1.7% (-18.6% y/y) while spending on improvements ticked down 0.2% (+5.2% y/y).
Housing and the &quot;R&quot; Word from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20080201/cover.pdf">here</a> .
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
Public construction spending fell slightly, by 0.2%. Construction on highways &amp; streets fell 1.3% (+0.9% y/y) for the third consecutive monthly decline. The value of construction on highways &amp; streets is nearly one third of the value of total public construction spending.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.</div>

<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/@E9/@E907/@E907.HTM">Construction</a></th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-1.7%</td>
<td>-1.3%</td>
<td>-3.3%</td>
<td>-2.7%</td>
<td>5.6%</td>
<td>10.7%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-2.2%</td>
<td>-1.3%</td>
<td>-6.4%</td>
<td>-6.8%</td>
<td>4.7%</td>
<td>12.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-3.0%</td>
<td>-2.6%</td>
<td>-19.7%</td>
<td>-18.1%</td>
<td>0.5%</td>
<td>13.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-1.2%</td>
<td>0.4%</td>
<td>17.3%</td>
<td>18.0%</td>
<td>15.2%</td>
<td>7.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.2%</td>
<td>-1.6%</td>
<td>6.6%</td>
<td>12.3%</td>
<td>9.2%</td>
<td>6.2%</td>
</tr>
</tbody>
</table>
</body>
</html>

The value of construction put in place fell 1.7% during January, roughly repeating its little revised 1.3% December downdraft. The latest decline was the forth consecutive monthly drop but the last two were by far the largest of the [...]

U.S. Construction Spending Fell. All Categories Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303a.jpg" width="353">
For the second month in the last three, the Institute of Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity was below the breakeven level of 50. The m/m decline to 48.3 was right in line with Consensus expectations for a drop to 48.4. Data points above 50 indicate growth in factory sector activity.
Last month&#39;s composite reading was down from 50.7 in January and 48.4 in December. The three month average level of 49.1 was its lowest since early 2003.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by being constructed using all of the absolute positive changes in activity added to one half of the no change in activity measures.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303b.jpg" width="353">
Sharp declines in each of the five component series, excepting new orders, contributed to last month&#39;s decline in the composite index. Production fell 4.5 points and reversed most of its January recovery. The inventory component fell 3.7 points and reversed all of its January rise while the vendor deliveries component fell 2.7 points to the lowest level since 2003.
The employment index fell a sharp 1.1 points, repeating most of the January decline, to the lowest level since 2003. During the last twenty years there has been a 67% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The new orders index fell a more moderate 0.4 points although domestic orders may have held up. The index of new export orders fell a sharp 2.5 points to 56.0, back to the average level during 4Q07 and 3Q07.
The prices paid index continued firm. A modest 0.5 point downtick during February followed very strong gains in three of the prior four months. That left the index at its highest level since August 2006. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.
The Benefits of Systematic Monetary Policy is today&#39;s speech by Philadelphia Fed President Charles I. Plosser and it can be found <a href="http://www.philadelphiafed.org/publicaffairs/speeches/plosser/2008/03-03-08_natl-assn-business-economics.cfm"> 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/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">February &#39;07</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">Composite Index</td>
<td>48.3</td>
<td>50.7</td>
<td>51.5</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>49.1</td>
<td>49.5</td>
<td>55.4</td>
<td>54.3</td>
<td>53.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>46.0</td>
<td>47.1</td>
<td>50.9</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>75.5</td>
<td>76.0</td>
<td>59.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
</body>
</html>

For the second month in the last three, the Institute of Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity was below the breakeven level of 50. The m/m decline to 48.3 was right in line with [...]

ISM Index Factory Sector Falls Below 50: Indicates Contraction

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303a.jpg" align="left" border="0" height="265" width="353">
For the second month in the last three, the Institute of
Supply Management (ISM) reported that its Composite Index of
Manufacturing Sector Activity was below the breakeven level of 50. The
m/m decline to 48.3 was right in line with Consensus expectations for a
drop to 48.4. Data points above 50 indicate growth in factory sector
activity.
Last month's composite reading was down from 50.7 in January
and 48.4 in December. The three month average level of 49.1 was its
lowest since early 2003.
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three month growth in
factory sector industrial production.
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by being constructed using all
of the absolute positive changes in activity added to one half of the
no change in activity measures.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303b.jpg" align="right" border="0" height="265" width="353">
Sharp declines in each of the five component series, excepting
new orders, contributed to last month's decline in the composite index.
Production fell 4.5 points and reversed most of its January recovery.
The inventory component fell 3.7 points and reversed all of its January
rise while the vendor deliveries component fell 2.7 points to the
lowest level since 2003.
The employment index fell a sharp 1.1 points, repeating most
of the January decline, to the lowest level since 2003. During the last
twenty years there has been a 67% correlation between the level of the
ISM employment Index and the three month growth in factory sector
employment.
The new orders index fell a more moderate 0.4 points although
domestic orders may have held up. The index of new export orders fell a
sharp 2.5 points to 56.0, back to the average level during 4Q07 and
3Q07.
The prices paid index continued firm. A modest 0.5 point
downtick during February followed very strong gains in three of the
prior four months. That left the index at its highest level since
August 2006. During the last twenty years there has been a 77%
correlation between the price index and the three month change in the
PPI for intermediate goods.
The Benefits of Systematic Monetary Policy
is today's speech by Philadelphia Fed President Charles I. Plosser and
it can be found <a href="http://www.philadelphiafed.org/publicaffairs/speeches/plosser/2008/03-03-08_natl-assn-business-economics.cfm">
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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">February '07</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">Composite Index</td>
<td>48.3</td>
<td>50.7</td>
<td>51.5</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>49.1</td>
<td>49.5</td>
<td>55.4</td>
<td>54.3</td>
<td>53.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>46.0</td>
<td>47.1</td>
<td>50.9</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>75.5</td>
<td>76.0</td>
<td>59.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Fell.
All Categories Down 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 3, 2008



<div align="left"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303c.jpg" align="left" border="0" height="265" width="353">

The value of construction put in place fell 1.7% during
January, roughly repeating its little revised 1.3% December downdraft.
The latest decline was the forth consecutive monthly drop but the last
two were by far the largest of the bunch. Activity during the opening
month of 2008 was 1.7% below the 4Q07 average. A 0.7% decline had been
generally expected in January construction activity.
For the first month since late 2006, the value of
nonresidential building activity fell. Building in the lodging area
fell 3.0% (+55.1 y/y) and roughly repeated its downwardly revised 2.7%
December decline. Office construction rose a modest 0.7% (7.1% y/y) but
a previously reported large December gain was revised away. Multi-unit
retail (shopping malls) fell 2.3% (+1.6% y/y).
Growth in the nonresidential area continued with a 2.1% (21.8%
y/y) rise in education. Spending in the factory sector ticked up 0.1%
(31.7 y/y) after little revised, very strong gains during the prior
four months. Spending in the transportation area fell 0.8% (+15.2% y/y)
and spending in the health care industry fell 1.0% (+4.8% y/y).
Private construction in total fell another 2.2%, pulled down
further by a 3.0% drop in residential building, the largest since last
October. Construction activity on new single family units tumbled 5.2%
(-32.1% y/y), about the rate of decline as during the prior five
months. Building activity on multi-family units also fell a sharp 1.7%
(-18.6% y/y) while spending on improvements ticked down 0.2% (+5.2%
y/y).
Housing and the "R" Word from the Federal
Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20080201/cover.pdf">here</a>
.
During the last twenty years there has been an 84% correlation
between the q/q change in the value of residential building and its
contribution to growth in real GDP.
Public construction spending fell slightly, by 0.2%.
Construction on highways &amp; streets fell 1.3% (+0.9% y/y) for
the third consecutive monthly decline. The value of construction on
highways &amp; streets is nearly one third of the value of total
public construction spending.
These more detailed categories represent the Census Bureau&#8217;s
reclassification of construction activity into end-use groups. Finer
detail is available for many of the categories; for instance,
commercial construction is shown for Automotive sales and parking
facilities, drugstores, building supply stores, and both commercial
warehouses and mini-storage facilities. Note that start dates vary for
some seasonally adjusted line items in 2000 and 2002 and that
constant-dollar data are no longer computed.
</div>


<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/@E9/@E907/@E907.HTM">Construction</a></th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-1.7%</td>
<td>-1.3%</td>
<td>-3.3%</td>
<td>-2.7%</td>
<td>5.6%</td>
<td>10.7%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-2.2%</td>
<td>-1.3%</td>
<td>-6.4%</td>
<td>-6.8%</td>
<td>4.7%</td>
<td>12.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-3.0%</td>
<td>-2.6%</td>
<td>-19.7%</td>
<td>-18.1%</td>
<td>0.5%</td>
<td>13.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-1.2%</td>
<td>0.4%</td>
<td>17.3%</td>
<td>18.0%</td>
<td>15.2%</td>
<td>7.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-0.2%</td>
<td>-1.6%</td>
<td>6.6%</td>
<td>12.3%</td>
<td>9.2%</td>
<td>6.2%</td>
</tr>
</tbody>
</table>
Canadian GDP Report
FuelsSpeculation of a Rate Cut 
by <a href="/comment/Curley.html">Louise
Curley</a> March 3, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303d.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303e.jpg" border="0" height="265" width="312">

Growth in the Canadian economy slowed in the fourth quarter of
2007 to 0.79% at an annual rate, the slowest rate of increase since the
second quarter of 2003 as can be seen in the first chart. For the year
as a whole, GDP increased 2.65% compared with 2.76% in 2006.
In addition to the traditional quarterly series of GDP, Canada
also maintains a monthly series that is less comprehensive than the
quarterly series. The two series are compared in the second chart. The
monthly series has been aggregated to a quarterly basis for comparison.
The monthly series shows that the rate of growth deteriorated
sharply in the months of the final quarter. GDP in December was .67%
below November, as can be seen in the third chart.
The strength of the Canadian dollar which has affected exports
adversely and has encouraged imports has accounted for some of the slow
down in the Canadian economy. Last Friday, Canada announced a deficit
on its current account of $513 million Canadian, the first since the
second quarter of 1999.
As a result of the slow growth, there is growing speculation
that when the central bank meets tomorrow it will lower its target rate
of 4%. The target interest rate of Canada is shown in the fourth chart
with that of the United States.
 <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303f.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303g.jpg" border="0" height="265" width="312"> 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">CANADA&nbsp;</th>
<th scope="col">Q4 07</th>
<th scope="col">Q3 07&nbsp;</th>
<th scope="col">Q2 07&nbsp;</th>
<th scope="col">Q1 07&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP Quarterly Series
(Percent Change at Annual Rate)</td>
<td>0.79</td>
<td>2.98</td>
<td>3.76</td>
<td>4.01</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP Monthly Series
(Percent Change at Annual Rate)&nbsp;</td>
<td>0.80</td>
<td>2.25</td>
<td>3.41</td>
<td>4.23</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;Current
Account (Million C$)</td>
<td>-513</td>
<td>1335</td>
<td>6400</td>
<td>6960</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Dec&nbsp; 07</td>
<td>Nov 07&nbsp;</td>
<td>Oct 07&nbsp;</td>
<td>Sep 07&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP Monthly (Percent
Change M/M)</td>
<td>-0.67</td>
<td>0.10</td>
<td>0.31</td>
<td>-0.02</td>
</tr>
</tbody>
</table>
Inflation Continues to be too
Strong in EMU in February 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 3, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303h.jpg" align="left" border="0" height="265" width="353">
The new FLASH estimate of EMU inflation stands at 3.2%
year/year in February 2008 the same pace as in January.
Germany's own headline rate rose by 0.2% in February and
that is the rate implied by the new 3.2% for all of EMU (no month/month
rate is released but one can be calculated form the released data but
with less overall precision). Even
with flaring oil prices headline inflation is not accelerating over the
sequential monthly rates. AT 2.5% the 3-month pace is much better than
the 4.3% over six months and 3.2% year/year but still above the ECB&#8217;s
desired ceiling of 2%. German inflation data which are up-to-date show
the same dampening of inflation trends. Italy does not. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Trends
in EMU HICP; Flash Index</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% month/month</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">EMU-13</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.5%</td>
<td> 4.3%</td>
<td> 3.2%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.5%</td>
<td> 2.7%</td>
<td> 2.3%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>-0.5%</td>
<td>0.1%</td>
<td>2.0%</td>
<td> 4.8%</td>
<td> 3.7%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>-0.2%</td>
<td>0.9%</td>
<td> 2.4%</td>
<td>0.4%</td>
<td> 2.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol"> HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>1.1%</td>
<td> 3.9%</td>
<td> 2.9%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.4%</td>
<td> 5.9%</td>
<td> 4.6%</td>
<td> 3.2%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.6%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>4.2%</td>
<td> 4.7%</td>
<td> 3.1%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.5%</td>
<td> 6.5%</td>
<td> 5.8%</td>
<td> 4.4%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td colspan="2" class="firstcol">
Core:xFE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td colspan="6" class="firstcol">Blue shaded
area data trail by one
month</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
UK MFG Sector Makes a Small Bounce 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 3, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080303i.jpg" align="left" border="0" height="265" width="353">
The UK MFG sector rebounded slightly in February although it
remains a weak reading for the sector at 52.26. Readings above 50
indicated expansion on this measure. The MFG measure stands in the 61st
percentile of its range, a moderately expansionary reading. Construction and services sector are
still relatively weaker in their respective ranges but are as yet only
available through January, not February.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">MFG,
Construction and Services PMI CIPS/NTC </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="2">Monthly readings</td>
<td colspan="3">Change over:</td>
<td>percentile</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>3MO</td>
<td>6MO</td>
<td>12MO</td>
<td>of range</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG</td>
<td>51.26</td>
<td>50.69</td>
<td>-2.02</td>
<td>-4.75</td>
<td>-3.09</td>
<td>61.8</td>
</tr>
<tr class="grey2">
<td class="firstcol">Construction</td>
<td>#N/A</td>
<td>53.87</td>
<td>-3.54</td>
<td>-7.95</td>
<td>-4.03</td>
<td>34.3</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services*</td>
<td>#N/A</td>
<td>52.46</td>
<td>-0.62</td>
<td>-4.56</td>
<td>-6.76</td>
<td>35.8</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">MFG range
since January
1992; Construction Since April 1997 Services Since July 1995.</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">*Services
&amp;
construction changes and ranking: Jan-08 which is the most current date.</td>
</tr>
</tbody>
</table>
</body></html>

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229h.jpg" align="left" border="0" height="265" width="353">
February has seen a now dollar low VS the Euro, a new high for
gold and for other precious metals, as well as repeated new highs for
oil prices. In January EMU prices are up by 0.3% with inflation
accelerating in its sequential growth rates: up at a 4.8% pace for
three months, at a 4.2% pace for six months, at a 3.2% pace for twelve
months compared to a 1.9% pace over the previous twelve months. Even so
the inflation picture is brightening up in Europe.
Despite ongoing pressures from oil and now food stuffs, the
core inflation rate (that ECB goes out of its way to say it does not
target) is behaving in a very positive fashion.
In the last three months the core rate decelerated from a
monthly rate of 0.3% in Nov to 0.2% in Dec to a 0.1% rise in January.
Its three month rate of change is below its six month pace. Moreover,
Germany, the largest EMU economy, shows that three month of core
inflation decelerated while Spain and Italy show a lower three month
than six month pace.
Apart from that sort of technical trend stuff, there is the
gap between the headline rate and the core. That gap has widened
sequentially for EMU and for each of the countries in the table below.
Yet despite this greater pull of headline inflation pressures the
three-month pace of inflation has improved in three of four of the
countries as well as for EMU overall.
If headline inflation does not make core inflation worse, then
when the headline stops taking its pounding from the special interest
inflation categories, headline inflation will settle down rapidly and
gravitate toward the core. So far there is very little evidence of a
pass-through of inflation in Europe. But as long as the
headline-to-core rate of inflation gap remains, expect the ECB to pound
the market with anti-inflation rhetoric. At the moment it is concerned
with the ongoing round of wage negotiations.
The ECB still may not be happy with these developments. Surely
it is still wary of the strong increases in commodity prices and the
strong growth in European money and credit aggregates. But German,
Italian and Spanish inflation rates have come lower. Only France in
this group has some mild inflation that may be taking hold. Ultimately
this will undermine the ability of the French president and his finance
minister to carp at the ECB. To the extent that France has tried to go
its own way to and to pressure the ECB to support stronger growth, the
French fiscal and domestic policy stance reveals inflation trends that
remind us why the ECB should NOT be hostage to or influenced by
national desires. Politicians usually have one objective: stronger
growth. If it can be accompanied by low inflation, that&#8217;s fine. But for
politicians it is not a goal. Yet they are the first to complain when
inflation gets stoked and central banks must hike rates in response.
Only in Germany and a handful of other countries, do we find
governments that persistently understand the importance of keeping
inflation down and that do not try to jawbone the central bank. The ECB
has its priorities straight: protect against inflation first and resist
pressure. Now all we need is to get France&#8217;s Sarkozy to see the merits
in this approach and maybe the ECB can be even more effective. There is
nothing like having someone of influence chewing away at your
independence to undermine it. What we see amid this potential inflation
bubble is how well the ECB has acquitted itself so far despite the
pitfalls and the pressures&#8230; We can be optimistic for the time being but
the game is still engaged; it&#8217;s too soon to declare a victory.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> Trends in HICP </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</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>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.7%</td>
<td> 4.8%</td>
<td> 4.2%</td>
<td> 3.2%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.5%</td>
<td> 2.7%</td>
<td> 2.3%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>-0.5%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>2.0%</td>
<td> 4.8%</td>
<td> 3.7%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>-0.2%</td>
<td>0.9%</td>
<td>-0.1%</td>
<td> 2.4%</td>
<td>0.4%</td>
<td> 2.5%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol"> HICP</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">Germany</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>1.0%</td>
<td> 4.3%</td>
<td> 3.7%</td>
<td> 3.0%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.3%</td>
<td>0.4%</td>
<td>0.7%</td>
<td> 5.9%</td>
<td> 4.6%</td>
<td> 3.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>3.5%</td>
<td> 3.9%</td>
<td> 3.1%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.2%</td>
<td>0.5%</td>
<td>0.8%</td>
<td> 6.5%</td>
<td> 5.8%</td>
<td> 4.4%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol"> Core: xFE&amp;A</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">Germany</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>1.9%</td>
<td>2.0%</td>
<td> 2.1%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.3%</td>
<td> 3.5%</td>
<td> 3.1%</td>
<td> 2.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>1.9%</td>
<td> 2.7%</td>
<td> 2.5%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.3%</td>
<td> 4.1%</td>
<td> 3.2%</td>
<td>2.7%</td>
</tr>
</tbody>
</table>
</body></html>

February has seen a now dollar low VS the Euro, a new high for gold and for other precious metals, as well as repeated new highs for oil prices. In January EMU prices are up by 0.3% with inflation accelerating in its sequential growth [...]

Is the ECB Winning or Losing on Inflation?

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229g.jpg" align="left" border="0" height="265" width="353">
EU sentiment indexes are also lower year over year. In
February the EU/EMU and all large countries' sentiment indexes fell
except in Germany where a small bounce was recorded. Conditions in the
UK (an EU member not an EMU member) deteriorated very sharply. Among
EMU members Italy&#8217;s recent slide is the worst.
In percentile terms the ESI (EU sentiment index) stands in the
62nd percentile of its range, about 12
percentage points above its mid-point. That is still a solid
expansionary reading. But, it has been slipping for eight straight
months, although no single ESI component has fallen for that many
months straight. The last two months show the percentage drops in the
ESI have accelerated.
Services has the highest absolute net balance reading among
ESI components but it is the relative lowest in terms of its percentile
standing in its range (residing in the 31st
percentile of range a very weak showing). Interestingly, despite
concerns about the strong euro, the weakest sector is seemingly, the
most trade insulated, services. However, there is another way to look
at this since the service sector while having some items for which
demand is relatively inelastic, like home services, probably also has a
large degree of consumer discretionary items and it contains tourism,
the latter is probably quite exchange rate sensitive. The demise of
this sector may be reflecting the drop in consumer confidence which, in
its 55th percentile, is weaker than any of the
economic sectors, except services. Moreover, services are very weak in
the UK, 8th percentile, and in Spain, 1.8
percentile. Tourism is important to Spain and the high euro could be
taking a toll there. That is also true of Italy where the services
sector is in the bottom 15 percent of its range.
Note none of the country specific ESI range readings are shown
in the table below. 
Retail confidence is relatively strong near the 80th
percentile, but is at the 57th percentile in the
UK, 50th percentile in Germany, and the 28th
percentile in Spain. Oddly with all the weakness signaled in the
various Italian reports the EMU retail index scores Italy in the 86th
percentile for retailing.
The retailing results stands in marked contrast to consumer
confidence which stands in the 38th percentile
for Italy. Spain&#8217;s rating for the consumer is also in the 37th
percentile. The UK stands in the 54th percentile
and France in the 52nd percentile. German consumer responses are in the
in the 67th percentile, relatively elevated for
this group.
Industry is holding up partly due to investment demand in and
around the euro area. Industry&#8217;s strongest component is export orders
in the 84th percentile of their range. And while
production expectations are at the 67th
percentile and order volume is in the 82nd
percentile the production trend expected is only in its 61st
percentile. This sector&#8217;s strong reading may be living on borrowed time.
Employment expectations have taken a hit in the services
sector. Expectations for employment grade out in the 44th
percentile and current employment also grades out below 50 at the 44th
percentile. Interestingly, retail and industrial sector employment
expectations are around the 90th percentiles of
their respective ranges.
In this cycle the ESI has taken the largest drop in the UK -20
points followed by Italy at -16.5 and Spain at -14. The EMU index is
off by 11.0 points while France and Germany are off by 7.5 and 7.9
points respectively.

<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="12" scope="col"> EU Sectors and Country Level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">EU</td>
<td>Feb 
08</td>
<td>Jan 
08</td>
<td>Dec 
07</td>
<td>Nov 
07</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>R-Sq 
w/ 
Overall</td>
</tr>
<tr class="odd">
<td class="firstcol">Overall</td>
<td>100.2</td>
<td>103.3</td>
<td>105.8</td>
<td>106.6</td>
<td>62.9</td>
<td>107</td>
<td>116</td>
<td>73</td>
<td>43</td>
<td>100</td>
<td>1.00</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial</td>
<td>0</td>
<td>2</td>
<td>2</td>
<td>3</td>
<td>79.4</td>
<td>53</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-7</td>
<td>0.88</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Confidence</td>
<td>-11</td>
<td>-10</td>
<td>-7</td>
<td>-7</td>
<td>55.2</td>
<td>111</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-10</td>
<td>0.83</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail</td>
<td>1</td>
<td>-3</td>
<td>2</td>
<td>4</td>
<td>81.5</td>
<td>22</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-6</td>
<td>0.46</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>-7</td>
<td>-4</td>
<td>-3</td>
<td>-1</td>
<td>77.8</td>
<td>45</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-17</td>
<td>0.43</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>6</td>
<td>11</td>
<td>15</td>
<td>14</td>
<td>31.6</td>
<td>106</td>
<td>32</td>
<td>-6</td>
<td>38</td>
<td>17</td>
<td>0.81</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>% m/m</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU</td>
<td>-1.6%</td>
<td>-1.6%</td>
<td>-0.7%</td>
<td>-1.2%</td>
<td>61.5</td>
<td>102</td>
<td>117</td>
<td>73</td>
<td>44</td>
<td>99</td>
<td>0.95</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.6%</td>
<td>-1.9%</td>
<td>-0.3%</td>
<td>0.2%</td>
<td>59.8</td>
<td>77</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>99</td>
<td>0.66</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>-1.6%</td>
<td>-0.5%</td>
<td>71.6</td>
<td>74</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>0.79</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-3.7%</td>
<td>-1.3%</td>
<td>2.3%</td>
<td>-4.2%</td>
<td>47.2</td>
<td>146</td>
<td>121</td>
<td>71</td>
<td>50</td>
<td>100</td>
<td>0.78</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-3.4%</td>
<td>-1.6%</td>
<td>-1.4%</td>
<td>-0.1%</td>
<td>40.5</td>
<td>188</td>
<td>118</td>
<td>67</td>
<td>51</td>
<td>100</td>
<td>0.65</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: UK</td>
<td>-8.7%</td>
<td>-2.2%</td>
<td>-1.0%</td>
<td>-4.5%</td>
<td>52.3</td>
<td>156</td>
<td>118</td>
<td>69</td>
<td>50</td>
<td>100</td>
<td>0.42</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Since 1990
except Services (Oct
1996) 208 -Count&nbsp;&nbsp;&nbsp; Services: 126-Count</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">Sentiment is
an index, sector
readings are net balance diffusion measures</td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body></html>

EU sentiment indexes are also lower year over year. In February the EU/EMU and all large countries' sentiment indexes fell except in Germany where a small bounce was recorded. Conditions in the UK (an EU member not an EMU member) [...]

EU Indexes Point Lower - Across the Board

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229e.jpg" width="353">
The Chicago Purchasing Manager&#39;s Association reported that its February business barometer dropped hard from January to a reading of 44.5, the lowest level since late 2001. The latest figure was quite a bit lower than Consensus expectations.
During the last ten years there has been a 66% correlation between the index and the three-month change in US factory sector industrial production. There has been an 85% correlation between the Chicago figure and the national ISM index (due for release on Monday) and that is the highest correlation of all the regional series with the Nat&#39;l index.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229f.jpg" width="353">
The new orders component of the index did rise slightly m/m, but most other component series fell quite hard. The employment index fell to its lowest since 2002 while the production series fell that sharply as well.
The prices paid index backed off just a bit from the January level which was a recent high, but the level remained at its highest since May 2006.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S203/@S203.htm">Chicago PMI</a></th>
<th scope="col">&nbsp;February</th>
<th scope="col">&nbsp; January</th>
<th scope="col">Feb. &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Chicago PMI Business Barometer Index</td>
<td>44.5</td>
<td>51.5</td>
<td>49.4</td>
<td>54.4</td>
<td>56.8</td>
<td>60.4</td>
</tr>
</tbody>
</table>
</body>
</html>

The Chicago Purchasing Manager's Association reported that its February business barometer dropped hard from January to a reading of 44.5, the lowest level since late 2001. The latest figure was quite a bit lower than Consensus [...]

Chicago Purchasing Managers Barometer Lowest Since 2001

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229c.jpg" width="353">
For all of February the University of Michigan&#39;s consumer sentiment index fell just 9.7% to a level of 70.8. That decline was a little better than the 11.2% plunge from January reported at mid-month. It also was better than the reading of 70 that had been generally expected. Nevertheless, it was the largest m/m decline since 2005 and it was to the lowest level since early 1992.
Opinions about government policy continued down sharply. The 11.5% m/m (-21.6% y/y) decline was deeper than initially indicated and dropped the measure of opinions to the lowest level since 1993. Just 9% of those surveyed indicated that they thought government was doing a good job and 40% indicated that a bad job was being done.
The index of expected business conditions during the next year improved very slightly from the preliminary reading but it still fell a hard 8.4% m/m, to its lowest level since just after the recession of 1990. Expectations for business conditions during the next five years fell 5.7% (-15.3% y/y) while expectations for personal finances reversed all of a January increase and fell 3.4%.
The current conditions index fell a bit more than initially indicated. The 11.2% m/m drop was to the lowest level since 1992. Current conditions for buying large household goods continued down 15.8% m/m to the lowest level since 1992. The view of current personal finances also fell 4.1% (-21.0% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080229d.jpg" width="353">
Expectations for inflation during the next twelve months fell just slightly to 3.9% but that still was up from a 3.6% expectation in February &#39;07. For the next five to ten years expectations held steady at 3.4%.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.
The Reaction of Consumer Spending and Debt to Tax Rebates &#150; Evidence from Consumer Credit Data from the Federal Reserve Bank of Chicago can be found <a href="http:/www.chicagofed.org/publications/workingpapers/wp2007_10.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Feb (Final)</th>
<th scope="col">Feb (Prelim.</th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Feb&nbsp; 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">Consumer Sentiment</td>
<td>70.8</td>
<td>69.6</td>
<td>78.4</td>
<td>75.5</td>
<td>-22.5% </td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">Current Conditions</td>
<td>83.8</td>
<td>85.4</td>
<td>94.4</td>
<td>91.0</td>
<td>-21.5%</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>62.4</td>
<td>59.4</td>
<td>68.1</td>
<td>65.6</td>
<td>-23.4%</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
</body>
</html>

For all of February the University of Michigan's consumer sentiment index fell just 9.7% to a level of 70.8. That decline was a little better than the 11.2% plunge from January reported at mid-month. It also was better than the [...]

Michigan Consumer Sentiment Lowered By A Foul Opinion of Government

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 number of weekly mortgage loan edged 0.6% higher (73.7% y/y) during the week ended November 7 after falling 1.9% during the prior week and rising 7.1% one week earlier.

The effective interest rate on a 30-year fixed-rate mortgage rose to 6.52% after rough stability at 6.48% during the prior week. These rates stand below their January average of 7.20%. Rates on a 15-year fixed rate loan were 5.86% while interest rates on a 30-year JUMBO loan averaged 6.57%. Rates on a 5-year ARM eased to 5.82%.

Purchase loan applications last week increased 5.8% (29.6% y/y) after falling 0.6% in the prior week and rising 4.5% one week earlier. Applications to refinance an existing loan declined 3.4% (+146.5% y/y) following a 2.8% decline in the prior week and rising 9.3% one week earlier.

Loans to refinance an existing mortgage fell to 55.6% of total applications from 57.0% in the prior week. The percentage of total loans that were ARMs declined to 7.8% from 8.7% one week earlier.

The average loan size declined to $396,500 last week from $414,900. The size of conventional purchase loans declined to $431,400 from $435,100 while the size of refinanced loans declined to $368,700 from $399,700 one week earlier.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Mortgage interest rates rise to three-week high.
- Purchase loans surge but refinancing declines.

U.S. Weekly Mortgage Applications & Interest Rates Edge Higher

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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.

Economy in Brief: 2008

Jump to:

Canadian GDP Report Fuels Speculation of a Rate Cut

U.S. Construction Spending Fell. All Categories Down

ISM Index Factory Sector Falls Below 50: Indicates Contraction

ISM Index Factory Sector Falls Below 50: Indicates Contraction

Is the ECB Winning or Losing on Inflation?

EU Indexes Point Lower - Across the Board

Chicago Purchasing Managers Barometer Lowest Since 2001

Michigan Consumer Sentiment Lowered By A Foul Opinion of Government