Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121c.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in January fell to 95.8 versus Consensus expectations for little change m/m at 97.5. During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE.
Consumer expectations slumped 5.0% m/m and reversed nearly all of a 6.7% jump in December. The decline in expectations was to the lowest level since last May.
The reading of current conditions improved for the fourth consecutive month to the highest level since late 2000. During the last ten years there has been an 81% correlation between the current conditions index and y/y growth in payroll employment.
Sentiment amongst families earning less than $50,000 per year reversed most of the surge in December (+5.3% y/y. Consumer sentiment amongst families earning more than $50,000 per year rose moderately (-8.9% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
This 2003 article from the Federal Reserve Bank of Richmond examines &quot;<a href="http://www.rich.frb.org/pubs/economic_quarterly/pdfs/fall2003/mehra.pdf">Why Does Consumer Sentiment Predict Household Spending?</a>&quot;

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<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">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>95.8</td>
<td>97.1</td>
<td>-7.7%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.4</td>
<td>106.7</td>
<td>0.8%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>86.4</td>
<td>90.0</td>
<td>-13.7%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
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The University of Michigan's preliminary reading of consumer sentiment in January fell to 95.8 versus Consensus expectations for little change m/m at 97.5. During the last ten years there has been a 74% correlation between the level [...]

Lower Expectations Dropped U.S. Consumer Sentiment in January

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121a.jpg" width="353">
The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector fell sharply in January to 13.2 from a downwardly revised 25.4 the prior month. The Consensus expectation had been for a reading of 25.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 53% correlation with q/q growth in real GDP.
Lower readings for new orders and shipments were notable, both falling to the lowest levels in over a year. Conversely, the index for the number of employees improved moderately to the highest level since September.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months also fell sharply to the lowest level since March 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121b.jpg" width="353">
The prices paid index more than reversed the prior month&#39;s decline and rose to the highest level since 1980. During the last ten years there has been a 74% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 47% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0105.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<td class="firstcol">General Activity Index</td>
<td>13.2</td>
<td>25.4</td>
<td>35.5</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
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<td class="firstcol">Prices Paid Index</td>
<td>66.1</td>
<td>53.8</td>
<td>36.9</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
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The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector fell sharply in January to 13.2 from a downwardly revised 25.4 the prior month. The Consensus expectation had been for a reading [...]

Philadelphia Fed Activity Index Fell Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121a.jpg" width="353">
The Philadelphia Fed reported that its Index of General Business Conditions in the manufacturing sector fell sharply in January to 13.2 from a downwardly revised 25.4 the prior month. The Consensus expectation had been for a reading of 25.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 53% correlation with q/q growth in real GDP.
Lower readings for new orders and shipments were notable, both falling to the lowest levels in over a year. Conversely, the index for the number of employees improved moderately to the highest level since September.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months also fell sharply to the lowest level since March 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121b.jpg" width="353">
The prices paid index more than reversed the prior month&#39;s decline and rose to the highest level since 1980. During the last ten years there has been a 74% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 47% and with the CPI it&#39;s been 43%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0105.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>13.2</td>
<td>25.4</td>
<td>35.5</td>
<td>28.1</td>
<td>10.6</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>66.1</td>
<td>53.8</td>
<td>36.9</td>
<td>51.3</td>
<td>16.8</td>
<td>12.3</td>
</tr>
</tbody>
</table>
Lower Expectations Dropped U.S. Consumer Sentiment in January 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 21, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050121c.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment in January fell to 95.8 versus Consensus expectations for little change m/m at 97.5. During the last ten years there has been a 74% correlation between the level of consumer sentiment and the y/y change in real PCE.
Consumer expectations slumped 5.0% m/m and reversed nearly all of a 6.7% jump in December. The decline in expectations was to the lowest level since last May.
The reading of current conditions improved for the fourth consecutive month to the highest level since late 2000. During the last ten years there has been an 81% correlation between the current conditions index and y/y growth in payroll employment.
Sentiment amongst families earning less than $50,000 per year reversed most of the surge in December (+5.3% y/y. Consumer sentiment amongst families earning more than $50,000 per year rose moderately (-8.9% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
This 2003 article from the Federal Reserve Bank of Richmond examines &quot;<a href="http://www.rich.frb.org/pubs/economic_quarterly/pdfs/fall2003/mehra.pdf">Why Does Consumer Sentiment Predict Household Spending?</a>&quot;

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<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">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">Consumer Sentiment</td>
<td>95.8</td>
<td>97.1</td>
<td>-7.7%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>110.4</td>
<td>106.7</td>
<td>0.8%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>86.4</td>
<td>90.0</td>
<td>-13.7%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120e.jpg" width="353">
UK businesses experienced less widespread gains in domestic (or &quot;home&quot;) sales in Q4 than earlier in 2004, according to the quarterly survey of the British Chambers of Commerce (&quot;BCC&quot;). The UK economy experienced good growth from the middle of 2003 to the middle of 2004, but this survey hints that some slowing may be in process.
Manufacturers&#39; sales conditions stood at +16 in Q4, down from +20 in Q3 and below the year&#39;s average of +19. These data are percent balance figures, the percentage of firms reporting sales gains less the percentage with sales declines. Manufacturers also report weaker employment, down at only +3 in Q4. However, several items in the survey showed more strength, export sales in particular, which picked up to +20 from +12. Profitability expectations also firmed, although these tend to be steadier and more optimistic than other survey items. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120d.jpg" width="353">
The service sector -- almost five times larger than manufacturing in terms of value added -- saw roughly the same pattern of activity. Domestic sales gains edged down from +30 to +29 in the quarter and orders eased from +23 to +21. However, employment in that sector looks better, advancing from +18 to +20. Export sales and orders both firmed, and profit expectations gained 6 percentage points. These last, however, remain lower than earlier in 2004.
This is an interesting survey, including a number of descriptive items: among others, employment expectations as well as current levels of employment and the characteristics of recruitment that follow from those expectations. Further, as noted in the two graphs here, the domestic sales measures in both the manufacturing and service sectors correspond well to year-on-year growth patterns in the national accounts &quot;value added&quot; data, with the highest correlations for a one-quarter lead-time in the BCC series. In manufacturing the correlation ratio is 73% and in services it is 83%. Thus, these survey results would bear consideration by business planners and government policymakers alike. Obviously, the high correlation ratios don&#39;t guarantee a specific outturn in value-added growth, but they do suggest that continued slowing in UK growth must be deemed a reasonable contingency.

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<th scope="col" class="firstcol">% Balance</th>
<th scope="col">Q4 2004</th>
<th scope="col">Q3 2004</th>
<th scope="col">Q2 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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<td colspan="7">Manufacturing</td>
</tr>
<tr>
<td class="firstcol">&quot;Home&quot; Sales</td>
<td>16</td>
<td>20</td>
<td>21</td>
<td>19</td>
<td>7</td>
<td>14</td>
</tr>
<tr class="odd">
<td class="firstcol">Export Sales</td>
<td>20</td>
<td>12</td>
<td>15</td>
<td>17</td>
<td>4</td>
<td>6</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>3</td>
<td>19</td>
<td>10</td>
<td>12</td>
<td>-3</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">Profitability Confidence</td>
<td>35</td>
<td>24</td>
<td>35</td>
<td>33</td>
<td>32</td>
<td>33</td>
</tr>
<tr>
<td colspan="7">Services</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Home&quot; Sales</td>
<td>29</td>
<td>30</td>
<td>38</td>
<td>32</td>
<td>21</td>
<td>24</td>
</tr>
<tr>
<td class="firstcol">Export Sales</td>
<td>17</td>
<td>13</td>
<td>11</td>
<td>12</td>
<td>1</td>
<td>5</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>21</td>
<td>18</td>
<td>20</td>
<td>19</td>
<td>9</td>
<td>13</td>
</tr>
<tr>
<td class="firstcol">Profitability Confidence</td>
<td>41</td>
<td>35</td>
<td>47</td>
<td>43</td>
<td>37</td>
<td>41</td>
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UK businesses experienced less widespread gains in domestic (or "home") sales in Q4 than earlier in 2004, according to the quarterly survey of the British Chambers of Commerce ("BCC"). The UK economy experienced good growth from the [...]

UK's BCC Survey for Q4 Points to Slower Growth

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<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120c.jpg" width="353">
The average price for unleaded regular gasoline firmed to $1.82 per gallon last week, up four cents from the low during the first week of January.
Through December, the price of gasoline relative to the nonenergy Consumer Price Index had fallen 5.6% from the high in October. The relative gasoline price also was down nearly one third from the high averaged during 1981. However, the 58% increase in the &quot;real&quot; price of gasoline during the last three years rivals the increase into early 1981.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120b.jpg" width="353">
The price of oil also firmed with the price of West Texas Intermediate crude last week rising to $48.39 from the lows below $42 last month. This week, crude oil prices have firmed another dollar.
Wholesale natural gas prices have moderated some. At $6.02/mmbtu last week, natural gas prices were down from last year&#39;s weekly highs over $7.00 but remained up from year ago levels.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Hard &quot;Core&quot; Inflation from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050201/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">01/17/05</th>
<th scope="col">12/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
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<td class="firstcol">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$1.82</td>
<td>$1.79</td>
<td>14.0%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr>
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$48.39</td>
<td>$41.78</td>
<td>35.2%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
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The average price for unleaded regular gasoline firmed to $1.82 per gallon last week, up four cents from the low during the first week of January. Through December, the price of gasoline relative to the nonenergy Consumer Price Index [...]

Gasoline Prices Firmer

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120a.jpg" width="353">
The Conference Board reported that the Composite Index of Leading Economic Indicators rose an expected 0.2% in December following an upwardly revised 0.3% gain in November. The increases followed five consecutive down months during 2004.
Six-month growth in the leaders stabilized at -1.4%. Six month growth in the leaders deeper than -2.5% preceded past US recessions.
The breadth of one month gain amongst the 10 components of the leading index narrowed to 45% from a widened 70% in November. However, the six month breadth improved to 60%, the best since May. The largest positive contributions were made in December by consumer expectations, stock prices and the money supply.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
A longer leading indicator, the ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess rose again to a record high.
The coincident indicators rose 0.3% after an upwardly revised gain in November. The six-month growth rate rose to 0.5%. During the last ten years there has been an 82% correlation between the six month growth in the coincident indicators and two quarter growth in real GDP.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
The latest Beige Book covering regional economic activity from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20050119/default.htm"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
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<td class="firstcol">Leading</td>
<td>0.2%</td>
<td>0.3%</td>
<td>-1.4%</td>
<td>2.8%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>2.3%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>-1.0%</td>
<td>-2.2%</td>
<td>-2.8%</td>
</tr>
</tbody>
</table>
</body>
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The Conference Board reported that the Composite Index of Leading Economic Indicators rose an expected 0.2% in December following an upwardly revised 0.3% gain in November. The increases followed five consecutive down months during [...]

Leading Indicators Rose Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120a.jpg" width="353">
The Conference Board reported that the Composite Index of Leading Economic Indicators rose an expected 0.2% in December following an upwardly revised 0.3% gain in November. The increases followed five consecutive down months during 2004.
Six-month growth in the leaders stabilized at -1.4%. Six month growth in the leaders deeper than -2.5% preceded past US recessions.
The breadth of one month gain amongst the 10 components of the leading index narrowed to 45% from a widened 70% in November. However, the six month breadth improved to 60%, the best since May. The largest positive contributions were made in December by consumer expectations, stock prices and the money supply.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
A longer leading indicator, the ratio of the coincident to the lagging indicators which measures actual economic performance relative to excess rose again to a record high.
The coincident indicators rose 0.3% after an upwardly revised gain in November. The six-month growth rate rose to 0.5%. During the last ten years there has been an 82% correlation between the six month growth in the coincident indicators and two quarter growth in real GDP.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
The latest Beige Book covering regional economic activity from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/fomc/beigebook/2005/20050119/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>0.2%</td>
<td>0.3%</td>
<td>-1.4%</td>
<td>2.8%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>2.3%</td>
<td>0.4%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>-1.0%</td>
<td>-2.2%</td>
<td>-2.8%</td>
</tr>
</tbody>
</table>
Gasoline Prices Firmer 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 20, 2005


<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120c.jpg" width="353">
The average price for unleaded regular gasoline firmed to $1.82 per gallon last week, up four cents from the low during the first week of January.
Through December, the price of gasoline relative to the nonenergy Consumer Price Index had fallen 5.6% from the high in October. The relative gasoline price also was down nearly one third from the high averaged during 1981. However, the 58% increase in the &quot;real&quot; price of gasoline during the last three years rivals the increase into early 1981.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050120b.jpg" width="353">
The price of oil also firmed with the price of West Texas Intermediate crude last week rising to $48.39 from the lows below $42 last month. This week, crude oil prices have firmed another dollar.
Wholesale natural gas prices have moderated some. At $6.02/mmbtu last week, natural gas prices were down from last year&#39;s weekly highs over $7.00 but remained up from year ago levels.
For the latest Short Term Energy Outlook from the US Department of Energy click <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Hard &quot;Core&quot; Inflation from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20050201/cover.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/daily/@D3/@D306/@D306.HTM">Energy Prices</a></th>
<th scope="col">01/17/05</th>
<th scope="col">12/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline, Regular ($/Gal.)</td>
<td>$1.82</td>
<td>$1.79</td>
<td>14.0%</td>
<td>$1.85</td>
<td>$1.56</td>
<td>$1.35</td>
</tr>
<tr>
<td class="firstcol">Domestic Spot Market Price: West Texas Intermediate ($/Barrel)</td>
<td>$48.39</td>
<td>$41.78</td>
<td>35.2%</td>
<td>$41.78</td>
<td>$32.78</td>
<td>$31.23</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050119g.jpg" width="353">
Net purchases of securities by foreign investors in US markets surged to $81 billion in November, the largest in five months, and well above October&#39;s $48.3 billion. These increasingly prominent data are from the US Treasury&#39;s monthly Treasury International Capital (&quot;TIC&quot;) tabulation and were released yesterday. They are contained in Haver&#39;s USINT database in the section &quot;US International Investment Tables&quot;, shown by security type and country. They cover purchases and sales of securities with maturities longer than one year.
Foreign investors increased their net buying of every major type of domestic securities in November and reduced their liquidation of foreign bonds sold in US markets. The only sector where their net sales increased was foreign stocks traded in the US. Among countries, investors in several major regions increased their participation in US markets. Japanese net purchases were $19.8 billion, up from $4.8 billion in October. Chinese investors increased their purchases, mainly of Treasuries, to $13.9 billion from $6.4 billion the month before. UK investors bought on net $29.8 billion, heavily in equities.
These securities purchases have over long spans of time been highly correlated -- negatively -- with the current account balance. As seen in the graph, over the past 25 years, this correlation has stood at a substantial 95%! In one sense this is almost tautological: balance of payments accounting means a rising current account deficit must be accompanied by increasing foreign investment. But there are several other types of financial participation not covered by the TIC report: all short-term securities, bank loans, trade credit, direct investment and so on. So there are plenty of other ways to &quot;finance&quot; the current account. At the same time, some observers believe that a rising current account deficit is itself so indicative of fundamental imbalances in a country&#39;s economy, that it should discourage foreign participation in that nation&#39;s capital markets. There is some slight evidence that this might have occurred in 2004 as foreign securities purchases look to have interrupted their seemingly ever-expanding trend. However, as noted in the tight correlation ratio cited above, past performance suggests the current account per se has not bothered them before. Instead, they perhaps are asking the same kinds of questions that domestic investors ask: how will the US economy respond to the surge in energy prices? how is confidence impacted by the war in Iraq? are US consumers carrying too much debt? Before the election, uncertainty was even greater, and these November figures do indicate that once that question was answered, foreign investors resumed more vigorous activity in US financial markets. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases of Securities in US Markets (Billions US$)</th>
<th scope="col">Nov 2004</th>
<th scope="col">Oct 2004</th>
<th scope="col">Sept 2004</th>
<th scope="col">Last 12 Months Average </th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>81.0</td>
<td>48.3</td>
<td>61.1</td>
<td>69.0</td>
<td>57.0</td>
<td>47.9</td>
<td>41.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Treasuries</td>
<td>32.0</td>
<td>20.9</td>
<td>16.6</td>
<td>31.3</td>
<td>22.8</td>
<td>10.0</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Federal Agencies (mostly &quot;GSEs&quot;)</td>
<td>27.9</td>
<td>21.9</td>
<td>8.4</td>
<td>18.5</td>
<td>13.8</td>
<td>16.3</td>
<td>13.7</td>
</tr>
<tr class="odd">
<td class="firstcol">US Corporate Bonds</td>
<td>25.3</td>
<td>19.1</td>
<td>43.6</td>
<td>23.4</td>
<td>22.4</td>
<td>15.2</td>
<td>18.5</td>
</tr>
<tr>
<td class="firstcol">US Corporate Stocks</td>
<td>14.5</td>
<td>3.5</td>
<td>-2.9</td>
<td>2.7</td>
<td>3.2</td>
<td>4.2</td>
<td>9.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Bonds</td>
<td>-2.6</td>
<td>-4.5</td>
<td>-0.8</td>
<td>0.6</td>
<td>1.7</td>
<td>2.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Foreign Stocks</td>
<td>-16.1</td>
<td>-12.6</td>
<td>-3.8</td>
<td>-7.6</td>
<td>-6.9</td>
<td>-0.1</td>
<td>-4.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Net purchases of securities by foreign investors in US markets surged to $81 billion in November, the largest in five months, and well above October's $48.3 billion. These increasingly prominent data are from the US Treasury's monthly [...]

Net Foreign Purchases of Securities in US Market Up Sharply in November

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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

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Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped 16,000 to 199,000 in the week ending December 27, from 215,000 in the week of December 20, revised from 214,000. The latest claims represent the third consecutive weekly decline. The four-week moving average of initial claims was 218,750 in the December 27 week, an increase of 1,750 from 217,000 in the prior week, revised from 216,750.

Federal government employees initially filed 812 (NSA) jobless insurance claims in the week ended December 20, after filing 805 claims in the week ended December 13.

Continuing claims for unemployment insurance declined 47,000 to 1.866 million in the week of December 20, from 1.913 million in the week ending December 13, revised from 1.923 million. The four-week moving average was 1.873 million in the December 20 week, a decrease of 17,750 from 1.891 million in the week ending December 13, revised from 1.894 million. The insured unemployment rate stood at 1.2% in the week of December 20, unchanged from previous week of December 13.

Federal government employees’ continuing benefits claims were 13,390 (NSA) in the week ended December 13, up from 12,887 (NSA) in the week ending December 6. 

The insured unemployment rate varied greatly across individual states and territories. In the week ending December 13, the highest unemployment rates were in Washington (2.50%), New Jersey (2.40%), Massachusetts and Minnesota (both 2.20%), and California, Illinois and Rhode Island (all 2.10%). The lowest rates were in Florida (0.30%), and Alabama and North Carolina (both 0.40%). Rates in other notable states include New York (1.80%), Pennsylvania (1.70%), and Texas (1.20%). These state data are not seasonally adjusted.

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.

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- Initial claims declined from the prior week.
- Continuing claims declined from the prior week.
- The insured unemployment rate was unchanged.

U.S. Initial Claims for Unemployment Insurance Dropped Again in Latest Week

Winnie Tapasanun

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U.S. house prices rose 0.4% m/m in October following a 0.1% dip in September (0.0% initially) and a 0.4% rise in August (unrevised), according to the Federal Housing Finance Agency (FHFA) House Price Index. October marked the second m/m increase in three months after no change in July. The HPI reached a record high of 436.75 in October, up 13.4% from its August 2022 low of 384.98. The year-on-year rate of increase eased to 1.7% in October from 1.8% in September—the slowest pace since March 2012—down from 4.7% in October 2024 and well below a high of 18.6% in February 2022.

House prices increased m/m in October (vs. September) across seven of the nine census divisions. Gains were led by West South Central (+1.0% vs. -1.6%), followed by New England (+0.9% vs. -0.3%), East North Central (+0.6% vs. +0.7%), Mountain (+0.6% vs. -0.8%), West North Central (+0.6% vs. +0.6%), Middle Atlantic (+0.4% vs. +0.2%), and Pacific (+0.2% vs. +0.3%). In contrast, house prices fell m/m in two census divisions in October (vs. September): East South Central (-0.4% vs. +0.7%) and South Atlantic (-0.2% vs. -0.2%).

Year-on-year house prices continued to rise in October across most regions, except West South Central and South Atlantic. The y/y pace accelerated in October (vs. September) in four of the nine census divisions: West North Central (+3.8% vs. +3.2%), New England (+3.7% vs. +3.2%), Mountain (+0.3% vs. -0.8%), and Pacific (+0.2% vs. -0.6%). Meanwhile, house price growth decelerated y/y in October (vs. September) in East South Central (+1.5% vs. +2.7%), East North Central (+5.1% vs. +5.4%), and Middle Atlantic (+5.3% vs. +5.4%). To the downside, West South Central (-0.7% vs. -1.0%) and South Atlantic (-0.5% vs. +0.4%) were the only regions posting y/y declines in October (vs. September).

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

The minutes to the December 9–10 **FOMC** meeting can be found [here](https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20251210.pdf).

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- FHFA HPI +0.4% m/m (+1.7% y/y) in Oct.; second m/m gain in three months.
- House prices up m/m in seven of nine census divisions but down in East South Central (-0.4%) and South Atlantic (-0.2%).
- House prices up y/y in seven of nine regions, led by Middle Atlantic (+5.3%), but down in West South Central (-0.7%) and South Atlantic (-0.5%).

U.S. FHFA House Prices Rebound in October Following September’s Easing

Robert Brusca

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When inflation numbers come hot off the griddle, some part of them might stick to the pan. That's the case this month with Spain’s release of inflation in December. It provides us with the headline for the HICP measure, a headline to the domestic measure, and the domestic measure excluding energy. But it does not release the sector detail for the rest of the report.

However, based upon what's been released, it’s clear that inflation in Spain has picked up. The part of the core that we have in-hand, which is just the portion excluding energy, still appears to be fairly well behaved; however, its gain is still slightly excessive.

**HICP trend**
Spain’s HICP measure in December rose 0.4% after rising by 0.5% in both October and November; those are hot numbers. That translates into a 5.7% annual rate over three months which is hotter than its pace of 4.5% over six months which in turn is hotter than the 12-month increase of 3%. The HCP headline for Spain has clearly been accelerating, the year-over-year rise is too-hot, and the shorter-term metrics are hotter still. This is not good news, and this is not a welcome progression.

**Domestic inflation**
Looking at Spain’s domestic CPI conditions, we find that they are still on the hot side with December showing a headline gain of 0.3% but gains in October and November of 0.5% each, producing a three-month annual rate of 5.4%, which is hotter than its 4.2% over six months, which, in turn, is hotter than the year-over-year gain at 2.9%. And these patterns/results are very similar to the pattern and the readings for the HICP. The domestic inflation picture is too hot over 12 months and accelerating over the shorter periods.

**Domestic inflation ex-energy:** The CPI excluding energy is not as bloated as the HICP or the domestic headline, but it is still a reading on rough terrain. Over 12 months, inflation excluding energy rises at a 2.6% annual rate; that's above the 2% pace sought by the ECB for the community as a whole. Over six months, the reading ramps up to a 3.1% annual rate, again moving the wrong direction and a reading at 3.1% is simply too hot. Over three months, there's a slight deceleration compared to six months but still a rate that is too hot, at 2.9%, and stronger than the 12-month pace. Core inflation is better behaved than headline inflation and both the domestic and the HICP frameworks, but inflation is unruly overall and, for the most part, showing either acceleration or at least a 3-month pace stronger than its 12-month pace. None of this is what the ECB is looking for or trying to achieve.

**Beyond the missing details**
The details of the Spanish report are missing for December because the data are too preliminary for the authorities to post. However, if we look at the sequential pace of inflation over 12 months, six months, and three months on a lagged basis, it is looking at data that are up-to-date through November rather than through December what's the numbers that are generally excessive and they show too much acceleration moving from 12-months to 6-months to 3-months. Over 12 months compared to a year ago, five of nine categories show inflation accelerating. Over 6 months compared to 12 months, four categories are accelerating. Over 3 months compared to 6 months, six of the nine categories are accelerating. These acceleration tendencies are worrisome.

In addition, over 12 months, six of nine categories have a pace above 2%. Over 6 months, six of nine categories have annualized gains above 2%, and over 3 months, the lagged data show six of nine categories with gains above 2%. Only apparel shows inflation tempered on all horizons (at or below 2%). Food, housing, transport, education and other all show above 2% inflation on all horizons.

251230.jpg

**Summing up-challenging times ahead?**
Is Spain past its best inflation performance? Is the inflation worm going to begin to turn more broadly? These are trends we will need to watch. Inflation broadly has slowed or stopped its declines and largely done that in Europe as well as in the United States. Inflation is now hovering at a pace that is too strong- maybe tolerable or maybe not. Central banks need to decide and tell us what a 2% target means. Then, the question of what’s next hangs in the air. U.K. inflation remains excessive but has stepped down as the economy has begun to experience some significantly weaker economic data. Is that the future? Is it stagflation? Is it recovering from a slowdown and higher rates of interest and inflation? Or will there be continued inflation progress? Open the door on 2026…the envelope… please.

Spain

Spanish Inflation Flares at Year-End

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General business activity in Texas declined further in December, according to the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas. The overall measure, the general business activity index, fell to -10.9 in December, the lowest level since June, from -10.4 in November and -5.0 in October. The index, while above a low of -35.8 in April, was well below a high of +14.1 in January and +4.5 in December 2024. The index had been in negative territory from February through December 2025, except for a one-month positive reading of +0.9 in July. In December, 12.7% of respondents reported improved business activity, down from 18.9% in November, while 23.6% of respondents reported worsened business conditions, down from November's 29.3%. The company outlook index dropped to -11.9 in December, the fourth consecutive negative reading and the lowest since April, from -6.3 in November. Just 10.8% of respondents expected improved company outlook this month while 22.7% expected deterioration. Data were collected between December 15 and 23 from 74 Texas manufacturers.

The production index, a key measure of state manufacturing conditions, plunged to -3.2 in December after a 15.3-point jump to 20.5 in November, indicating production contracted for the first time since February. A lessened 17.2% of respondents reported higher production this month while an increased 20.4% reported a decline. The capacity utilization index plummeted to -4.5 in December, the lowest reading since February, following a four-year-high 19.4 in November; it was up from a low of -15.0 in January 2024 but well below a record-high 46.3 in March 2021.

The growth rate of orders index declined steeply to -16.0 in December from -1.3 in November, marking the weakest of four successive negative readings and the lowest level since June. The index was above a low of -22.0 in April and a low of -24.3 in November 2023 but significantly below a peak of 29.6 in April 2021. The new orders index fell to -6.4 this month after rising to 4.8 in November, indicating a decline in demand for the third time in four months and the lowest level since June. The index was above a low of -20.0 in April and a low of -21.8 in November 2022 but well below a high of 22.6 in February 2022 and a record-high 38.6 in April 2021. The shipments index plunged to -10.6 this month after jumping to 15.1 in November, marking its first negative reading since June and the lowest since July 2024. The unfilled orders index dropped to -13.5 in December from -6.6 in November, registering the 16th straight negative reading and the lowest since November 2024. The index was below a high of 1.4 in August 2024 but above a low of -26.3 in July 2024. Meanwhile, the delivery time index increased to 3.3 this month, the highest reading since March, from -8.4 in November.

Labor market indexes showed flat employment conditions and shorter workweeks in December. The employment index slipped to -1.1 this month from 1.2 in November, marking its first negative reading since September, with the near-zero level indicating little change in employment. The latest reading, while up from a low of -9.7 in January 2024, was far below a high of 17.9 in January 2023 and a record-high 31.8 in April 2021. A lessened 12.3% of respondents reported net hiring in December while 13.4% reported net layoffs. The hours worked index fell sharply to -7.5 this month, the lowest reading since June, after rising to 9.9 in November. Meanwhile, the wages & benefits index climbed to 21.8 in December, the highest level since October 2024 and near its series average of 21.0, up from 15.4 in November; nevertheless, having been trending downward since a peak of 55.0 in March 2022.

Inflationary pressures were little changed this month. The index for prices received for finished goods declined to 8.2 in December following a 3.1-point rise to 10.8 in November; it was up from a low of -7.0 in November 2023 but meaningfully below a high of 47.4 in March 2022 and a peak of 51.4 in October 2021. In December, 13.1% of respondents reported raising prices while only 4.9% reported lowering prices. The index of prices paid for raw materials rose to 36.0 this month, the highest reading since September, after a 1.9-point increase to 35.3 in November. The index was well above a low of 1.0 in June 2023 but significantly below 73.2 in March 2022 and a record-high 83.8 in November 2021.

Expectations on future manufacturing activity remained positive this month. The future general business activity index dipped to 10.8 in December after rising to 11.0 in November, registering the eighth straight positive reading. The future production index rose to a four-month-high 34.2 from November’s 33.7. Other indexes of future manufacturing activity also rose in December (vs. November), signaling increased activity six months ahead: company outlook (16.5 vs. 16.2), shipments (33.9 vs. 27.0), wages & benefits (42.5 vs. 39.1), and capital expenditures (17.7 vs. 12.9). Meanwhile, future indexes for capacity utilization (28.9 vs. 34.0), new orders (30.5 vs. 39.2), growth rate of new orders (24.9 vs. 27.8), and employment (20.9 vs. 22.3) declined in December (vs. November), but they remained in positive territory.

Each index is calculated by subtracting the percentage reporting a decrease in activity from the percentage reporting an increase. When all firms report rising activity, an index will register 100. An index will register -100 when all firms report a decrease. An index will be zero when the number of firms reporting an increase equals the number reporting a decrease. Data for the Texas Manufacturing Outlook, conducted by the Federal Reserve Bank of Dallas, can be found in Haver's **SURVEYS** database.

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- General Business Activity down in Dec. to -10.9, lowest level since June.
- Company Outlook (-11.9) negative for the fourth straight mth. and at an eight-month low; Production (-3.2) negative for the first time since Feb.
- New Orders Growth (-16.0) and New Orders (-6.4) at a six-month low.
- Employment (-1.1) negative for the first time since Sept.
- Prices Received down 2.6 pts. to 8.2; Prices Paid up 0.7 pts. to a three-month-high 36.0.
- Future General Business Activity down to 10.8, still positive for the eighth consecutive mth.

Texas General Business Activity Still Negative in December, But Expectations Remain Positive

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The Pending Home Sales Index, a forward-looking measure of home sales based on contract signings, rose 3.3% m/m to 79.2 in November after increases of 2.4% in October (+1.9% initially) and 0.1% in September (unrevised), according to the National Association of Realtors (NAR). The November reading registered the fourth consecutive m/m gain after declining in July and June. The year-on-year growth rate accelerated to 2.6% in November, the highest since August, from 0.1% in October, though still below +6.0% y/y in November 2024. Despite recent gains, the PHSI had fallen 36.7% since its October 2021 high of 125.1.

The m/m rise in November pending home sales coincided with a decline in the average 30-year mortgage rate to 6.24% in November, the lowest since September 2024, down from 6.25% in October and 6.35% in September. These rates, while below a peak of 7.62% in October 2023, had remained higher than a low of 5.22% in August 2022 and more than double a record-low 2.68% in December 2020.

Pending home sales rose m/m in November across all four major regions. Sales in the West recovered 9.2% (2.4% y/y) in November, the first m/m increase since August, following a 1.4% decline in October. Sales in the South rose 2.4% (3.3% y/y), the fourth straight m/m rise, on top of a 2.7% October advance. Sales in the Northeast grew 1.8% (1.8% y/y), the third successive m/m increase, after a 2.3% October gain. Sales in the Midwest rose 1.3% (2.2% y/y), up for the third time in four months, after a 5.3% November rebound.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- PHSI +3.3% (+2.6% y/y) in Nov., driven by lower mortgage rates.
- Home sales m/m up in all four major regions, w/ the highest rate in the West (+9.2%).
- Home sales y/y up across all regions, w/ the highest rate in the South (+3.3%).

Economy in Brief: 2005

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