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/060111b.jpg" width="353">
Five moderate-sized European countries reported industrial production today for November. That simple statement is about the only general statement we might make about their reports. It looks that one cannot make a simple, broad generalization about the condition of industry in this region as a whole. It is true that only one country, Sweden, saw production decline. And even though output rose in the other four, the trends are uneven. The biggest gain was in Ireland, a sizable 10.6% in just the one month, following 3.0% in October. This also produced a large 14.7% gain from a year ago. Even so, monthly amounts have swung widely, so we cannot conclude with any confidence that Ireland&#39;s industry will maintain a forward path. As seen in the table below, Ireland&#39;s production fell almost 9% in September and, for 2004 as a whole, it increased only 0.3%.
Somewhat more consistent growth is evident in the Czech Republic. While experiencing the occasional monthly decrease, production there has maintained a generally strong uptrend, with a 7.2% increase over the last 12 months. Transportation equipment is one industry that has contributed, although other individual industries have shown zigzag patterns. Neighboring Slovakia also keeping up a firm pace, although not as rapid as the Czechs; Slovakia&#39;s year-on-year advance is a nice 5.7%. Chemicals and metals are among sectors that have gained recently, while mining activity and transport equipment have lagged.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060111c.jpg" width="353">
The Netherlands saw a 5.0% surge in November, but that followed declines in the two previous months and the last 12 have managed only a minute 0.1% rise. Dutch production is on the slowest trend overall of these countries. Much of manufacturing has been sluggish, while the utilities sector behaved like industry as a whole, up in November, but after a sizable decline in October.
Finally, Sweden may have lost some output volume in the latest month, but it has otherwise grown modestly in general, averaging 1.7% since 2002. Recently clothing, wood products and machinery have added output, while mining and transport equipment have slowed.
These five countries illustrate that smaller production units may experience more volatility, and that neighboring countries may experience varying patterns of growth and decline despite their proximity. In one sense, this behavior resembles regions of the United States, where the fortunes of one state may be opposite to those of even the locale next door. In these smaller units, there is less diversity, making each location more vulnerable to developments in just a few products or materials. All this said, we&#39;d opine that the growth of industrial production in most of these countries is a sign that industry is resilient and adaptable in the face of moving exchange rates and substantially higher energy costs.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/INTERNATIONAL.HTM">Industrial Production (% Changes)</a></th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Year/- Year</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">Ireland</td>
<td>10.6</td>
<td>3.0</td>
<td>-8.9</td>
<td>14.7</td>
<td>0.3</td>
<td>4.7</td>
<td>7.2</td>
</tr>
<tr>
<td class="firstcol">Sweden</td>
<td>-0.6</td>
<td>1.0</td>
<td>2.0</td>
<td>1.0</td>
<td>3.1</td>
<td>2.5</td>
<td>1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands</td>
<td>5.0</td>
<td>-1.2</td>
<td>-0.5</td>
<td>0.1</td>
<td>2.6</td>
<td>-2.4</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">Czech Republic</td>
<td>3.0</td>
<td>0.9</td>
<td>-2.6</td>
<td>7.2</td>
<td>9.9</td>
<td>6.4</td>
<td>8.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia</td>
<td>4.5</td>
<td>-4.1</td>
<td>1.1</td>
<td>5.7</td>
<td>4.2</td>
<td>5.0</td>
<td>6.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Five moderate-sized European countries reported industrial production today for November. That simple statement is about the only general statement we might make about their reports. It looks that one cannot make a simple, broad [...]

Industrial Production Mixed in Europe in late 2005, but Mostly Keeping to Growth Path

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060111a.jpg" width="353">
The total number of mortgage applications recovered 9.9% during the opening week of 2006 following four consecutive weeks of decline. The rise, however, was to a level up just 1.0% from the December average.
Following four consecutive weeks of decline, purchase applications surged 9.3% w/w to a level 0.4% above the December average.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales
Applications to refinance also recovered 9.9%. On top of the prior week&#39;s 8.3% gain, refis were 5.8% above December.
The effective interest rate on a conventional 30-year mortgage slipped nine basis points to 6.33%, the fifth consecutive down week, versus an average 6.48% in December. The effective rate on a 15-year mortgage also fell to 5.95%, the first week below 6% since October. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">01/06/06</th>
<th scope="col">12/30/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>600.1</td>
<td>545.9</td>
<td>2.1%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>457.4</td>
<td>418.3</td>
<td>16.4%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,497.5</td>
<td>1,363.2</td>
<td>-13.0%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
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The total number of mortgage applications recovered 9.9% during the opening week of 2006 following four consecutive weeks of decline. The rise, however, was to a level up just 1.0% from the December average. Following four consecutive [...]

Mortgage Applications Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104d.jpg" width="353">
The total number of mortgage applications recovered 9.9% during the opening week of 2006 following four consecutive weeks of decline. The rise, however, was to a level up just 1.0% from the December average.
Following four consecutive weeks of decline, purchase applications surged 9.3% w/w to a level 0.4% above the December average.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales
Applications to refinance also recovered 9.9%. On top of the prior week&#39;s 8.3% gain, refis were 5.8% above December.
The effective interest rate on a conventional 30-year mortgage slipped nine basis points to 6.33%, the fifth consecutive down week, versus an average 6.48% in December. The effective rate on a 15-year mortgage also fell to 5.95%, the first week below 6% since October. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">01/06/06</th>
<th scope="col">12/30/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>600.1</td>
<td>545.9</td>
<td>2.1%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>457.4</td>
<td>418.3</td>
<td>16.4%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,497.5</td>
<td>1,363.2</td>
<td>-13.0%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Industrial Production Mixed in Europe in late 2005, but Mostly Keeping to Growth Path 
by <a href="/comment/Stone.html">Carol Stone</a> January 11, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060111b.jpg" width="353">
Five moderate-sized European countries reported industrial production today for November. That simple statement is about the only general statement we might make about their reports. It looks that one cannot make a simple, broad generalization about the condition of industry in this region as a whole. It is true that only one country, Sweden, saw production decline. And even though output rose in the other four, the trends are uneven. The biggest gain was in Ireland, a sizable 10.6% in just the one month, following 3.0% in October. This also produced a large 14.7% gain from a year ago. Even so, monthly amounts have swung widely, so we cannot conclude with any confidence that Ireland&#39;s industry will maintain a forward path. As seen in the table below, Ireland&#39;s production fell almost 9% in September and, for 2004 as a whole, it increased only 0.3%.
Somewhat more consistent growth is evident in the Czech Republic. While experiencing the occasional monthly decrease, production there has maintained a generally strong uptrend, with a 7.2% increase over the last 12 months. Transportation equipment is one industry that has contributed, although other individual industries have shown zigzag patterns. Neighboring Slovakia also keeping up a firm pace, although not as rapid as the Czechs; Slovakia&#39;s year-on-year advance is a nice 5.7%. Chemicals and metals are among sectors that have gained recently, while mining activity and transport equipment have lagged.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060111c.jpg" width="353">
The Netherlands saw a 5.0% surge in November, but that followed declines in the two previous months and the last 12 have managed only a minute 0.1% rise. Dutch production is on the slowest trend overall of these countries. Much of manufacturing has been sluggish, while the utilities sector behaved like industry as a whole, up in November, but after a sizable decline in October.
Finally, Sweden may have lost some output volume in the latest month, but it has otherwise grown modestly in general, averaging 1.7% since 2002. Recently clothing, wood products and machinery have added output, while mining and transport equipment have slowed.
These five countries illustrate that smaller production units may experience more volatility, and that neighboring countries may experience varying patterns of growth and decline despite their proximity. In one sense, this behavior resembles regions of the United States, where the fortunes of one state may be opposite to those of even the locale next door. In these smaller units, there is less diversity, making each location more vulnerable to developments in just a few products or materials. All this said, we&#39;d opine that the growth of industrial production in most of these countries is a sign that industry is resilient and adaptable in the face of moving exchange rates and substantially higher energy costs.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/INTERNATIONAL.HTM">Industrial Production (% Changes)</a></th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
<th scope="col">Sept 2005</th>
<th scope="col">Year/- Year</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">Ireland</td>
<td>10.6</td>
<td>3.0</td>
<td>-8.9</td>
<td>14.7</td>
<td>0.3</td>
<td>4.7</td>
<td>7.2</td>
</tr>
<tr>
<td class="firstcol">Sweden</td>
<td>-0.6</td>
<td>1.0</td>
<td>2.0</td>
<td>1.0</td>
<td>3.1</td>
<td>2.5</td>
<td>1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands</td>
<td>5.0</td>
<td>-1.2</td>
<td>-0.5</td>
<td>0.1</td>
<td>2.6</td>
<td>-2.4</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">Czech Republic</td>
<td>3.0</td>
<td>0.9</td>
<td>-2.6</td>
<td>7.2</td>
<td>9.9</td>
<td>6.4</td>
<td>8.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia</td>
<td>4.5</td>
<td>-4.1</td>
<td>1.1</td>
<td>5.7</td>
<td>4.2</td>
<td>5.0</td>
<td>6.4</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110e.jpg" width="353">
After a sharp rise in confidence among institutional investors and analysts in Germany last month, confidence increased meaningfully again in January. The excess of optimists over pessimists expecting improved conditions over the next six months is now 71%. 9.4 percentage points above December, 2005, 44.1 points above January 2005 and the highest excess since January, 2004. The investors and analysts also became less pessimistic regarding current conditions. Although pessimists still exceed optimists in appraising current conditions by 31.6% in January, the excess of pessimists was 12.8% less than that of December, 2005 and 29.6% less than that of January, 2005 and well below the extreme pessimism of the first half of 2003 when the excess of pessimists averaged around 95%. The percent balances for expectations and current conditions in the German economy are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110f.jpg" width="353">
In its survey of investors and analysts, ZEW research also asks for opinions on profit expectations in a wide variety of industries. The results are expressed as the percent balance of those expecting increases over those expecting decreases. In the latest survey, the excess of those expecting increases over those expecting decreases varied from 68.7% for machinery to 3.4% for construction. The second chart shows profit expectations for the machinery and the consumption/trade industries. Expectations for rising profits have been strong for the machinery industry since Mid 2003 while those for the consumption/trade industry have been poor. The sharp rise in the excess of those expecting an increase over those expecting a decrease in the profits of the consumption/trade industry in January to 25.9% from 3.5 % last December is particularly encouraging.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110g.jpg" width="353">
As shown in the third chart the ZEW measure of confidence, which is based on a small sample of some 300 investors and analysts, frequently anticipates the results of the broader IFO measure which is based on replies from some 7000 firms engaged in manufacturing, construction, wholesaling and retailing. The IFO index is scheduled to be release on January 25.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Jan 06</th>
<th scope="col">Dec 05</th>
<th scope="col">Jan 05</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ZEW Investor Confidence Measure (% Balance) Exports</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Current Conditions</td>
<td>-31.6</td>
<td>-44.4</td>
<td>-61.2</td>
<td>12.8</td>
<td>29.6</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-92.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectation 6 Months Ahead</td>
<td>71.0</td>
<td>61.6</td>
<td>26.9</td>
<td>9.4</td>
<td>44.1</td>
<td>&nbsp;34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
<tr>
<td class="firstcol">Profit Expectations</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Machinery</td>
<td>68.7</td>
<td>51.0</td>
<td>44.4</td>
<td>17.7</td>
<td>23.3</td>
<td>44.7</td>
<td>53.4</td>
<td>7.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption/Trade</td>
<td>25.9</td>
<td>3.5</td>
<td>7.8</td>
<td>22.4</td>
<td>18.1</td>
<td>-0.4</td>
<td>-0.8</td>
<td>2.2</td>
</tr>
</tbody>
</table>
</body>
</html>

After a sharp rise in confidence among institutional investors and analysts in Germany last month, confidence increased meaningfully again in January. The excess of optimists over pessimists expecting improved conditions over the next [...]

German Investors and Analysts More Confident of Improving Economy and Profits

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110d.jpg" width="353">
The rise yesterday in gold prices to $540 per ounce was to a level not attained in twenty five years. It underscored several concerns over the potential for future inflationary price pressure including 1) speculation of an end to Fed tightening with GDP growth strengthening worldwide, 2) the coming change in leadership at the Fed and 3) still high energy prices, up one third to one half from last year. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110c.jpg" width="353">
Gasoline prices rose nine cents last week to a retail average $2.33 per gallon. Yesterday, the strength diminished somewhat as the spot price for regular unleaded gas fell a nickel.
Earlier declines in gasoline prices fostered a sharp rebound in petroleum demand. In December, motor gasoline demand is estimated up 5.7% from a year earlier and in the latest week up up 16.7%.
International Transmission of Inflation Among G-7 Countries: A Data Determined VAR Analysis is available <a href="http://www.fma.org/Chicago/Papers/Intlinflation.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">Weekly Prices</th>
<th scope="col">01/09/06</th>
<th scope="col">01/02/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price (per gallon)</td>
<td>$2.33</td>
<td>$2.24</td>
<td>29.8%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
<tr>
<td class="firstcol">Gold: Handy &amp; Harmon, $ per Troy Oz.</td>
<td>$541.5</td>
<td>$530.0</td>
<td>28.9%</td>
<td>$444.7</td>
<td>$409.2</td>
<td>$363.13</td>
</tr>
</tbody>
</table>
</body>
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The rise yesterday in gold prices to $540 per ounce was to a level not attained in twenty five years. It underscored several concerns over the potential for future inflationary price pressure including 1) speculation of an end to Fed [...]

Gold & Gasoline Prices Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110b.jpg" width="353">
The index of small business optimism from the National Federation of Independent Business (NFIB) in December recovered a marginal 0.2% of the prior month&#39;s 2.4% drop. For the fourth quarter as a whole, optimism did improve 1.4% from 3Q but sharp declines early in the year pulled the 2005 levels down 2.8% from averaged during 2004, the first annual drop since 2001.
The marginal m/m improvement reflected fewer firms (22%) firms with one or more job openings and fewer firms (21%) expecting higher real sales in six months offset by slightly more expecting the economy to improve and slightly more expecting higher earnings.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
The percentage of firms planning to raise average selling prices backup off sharply from the November high to 27%. The percentage of firms actually raising average selling prices also fell sharply to 18%. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.
The latest press release from the NFIB is available <a href="http://www.nfib.com/object/I2_24996.html">here</a>.
The National Economy and Monetary Policy in the New Year from Kansas City Federal Reserve Bank President Thomas H. Hoenig can be found <a href="http://www.kansascityfed.org/SPCH&amp;BIO/HoenigKCCentExch010906.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/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>101.4</td>
<td>101.2</td>
<td>-4.4%</td>
<td>101.6</td>
<td>104.6</td>
<td>101.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The index of small business optimism from the National Federation of Independent Business (NFIB) in December recovered a marginal 0.2% of the prior month's 2.4% drop. For the fourth quarter as a whole, optimism did improve 1.4% from [...]

Small Business Optimism Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110a.jpg" width="353">
Chain store sales rose a slight 0.1% to open the new year according to the International Council of Shopping Centers (ICSC)-UBS survey. The up tick followed a 0.8% decline during the closing week of 2005.
Solid increases earlier in December followed a very weak start to the month. As a result, sales in December fell 0.3% m/m but January sales started 2.2% above the prior month.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales jumped 0.9% in the latest week and pulled December average up 0.2% from November.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Now is the Time to Strengthen Our Economic Foundation from Federal Reserve of Atlanta Bank President Jack Guynn is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=B0070AA3-5056-9F06-99459F26006025F8&amp;method=display"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/07/06</th>
<th scope="col">12/31/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>464.3</td>
<td>464.0</td>
<td>3.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Chain store sales rose a slight 0.1% to open the new year according to the International Council of Shopping Centers (ICSC)-UBS survey. The up tick followed a 0.8% decline during the closing week of 2005. Solid increases earlier in [...]

Chain Store Sales: A Firm Start to the New Year

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110a.jpg" width="353">
Chain store sales rose a slight 0.1% to open the new year according to the International Council of Shopping Centers (ICSC)-UBS survey. The up tick followed a 0.8% decline during the closing week of 2005.
Solid increases earlier in December followed a very weak start to the month. As a result, sales in December fell 0.3% m/m but January sales started 2.2% above the prior month.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales jumped 0.9% in the latest week and pulled December average up 0.2% from November.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Now is the Time to Strengthen Our Economic Foundation from Federal Reserve of Atlanta Bank President Jack Guynn is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=B0070AA3-5056-9F06-99459F26006025F8&amp;method=display"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/07/06</th>
<th scope="col">12/31/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>464.3</td>
<td>464.0</td>
<td>3.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Small Business Optimism Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110b.jpg" width="353">
The index of small business optimism from the National Federation of Independent Business (NFIB) in December recovered a marginal 0.2% of the prior month&#39;s 2.4% drop. For the fourth quarter as a whole, optimism did improve 1.4% from 3Q but sharp declines early in the year pulled the 2005 levels down 2.8% from averaged during 2004, the first annual drop since 2001.
The marginal m/m improvement reflected fewer firms (22%) firms with one or more job openings and fewer firms (21%) expecting higher real sales in six months offset by slightly more expecting the economy to improve and slightly more expecting higher earnings.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
The percentage of firms planning to raise average selling prices backup off sharply from the November high to 27%. The percentage of firms actually raising average selling prices also fell sharply to 18%. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.
The latest press release from the NFIB is available <a href="http://www.nfib.com/object/I2_24996.html">here</a>.
The National Economy and Monetary Policy in the New Year from Kansas City Federal Reserve Bank President Thomas H. Hoenig can be found <a href="http://www.kansascityfed.org/SPCH&amp;BIO/HoenigKCCentExch010906.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/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>101.4</td>
<td>101.2</td>
<td>-4.4%</td>
<td>101.6</td>
<td>104.6</td>
<td>101.3</td>
</tr>
</tbody>
</table>
Gold & Gasoline Prices Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110d.jpg" width="353">
The rise yesterday in gold prices to $540 per ounce was to a level not attained in twenty five years. It underscored several concerns over the potential for future inflationary price pressure including 1) speculation of an end to Fed tightening with GDP growth strengthening worldwide, 2) the coming change in leadership at the Fed and 3) still high energy prices, up one third to one half from last year. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110c.jpg" width="353">
Gasoline prices rose nine cents last week to a retail average $2.33 per gallon. Yesterday, the strength diminished somewhat as the spot price for regular unleaded gas fell a nickel.
Earlier declines in gasoline prices fostered a sharp rebound in petroleum demand. In December, motor gasoline demand is estimated up 5.7% from a year earlier and in the latest week up up 16.7%.
International Transmission of Inflation Among G-7 Countries: A Data Determined VAR Analysis is available <a href="http://www.fma.org/Chicago/Papers/Intlinflation.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">Weekly Prices</th>
<th scope="col">01/09/06</th>
<th scope="col">01/02/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price (per gallon)</td>
<td>$2.33</td>
<td>$2.24</td>
<td>29.8%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
<tr>
<td class="firstcol">Gold: Handy &amp; Harmon, $ per Troy Oz.</td>
<td>$541.5</td>
<td>$530.0</td>
<td>28.9%</td>
<td>$444.7</td>
<td>$409.2</td>
<td>$363.13</td>
</tr>
</tbody>
</table>
 German Investors and Analysts More Confident of Improving Economy and Profits  
by <a href="/comment/Curley.html">Louise Curley</a> January 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110e.jpg" width="353">
After a sharp rise in confidence among institutional investors and analysts in Germany last month, confidence increased meaningfully again in January. The excess of optimists over pessimists expecting improved conditions over the next six months is now 71%. 9.4 percentage points above December, 2005, 44.1 points above January 2005 and the highest excess since January, 2004. The investors and analysts also became less pessimistic regarding current conditions. Although pessimists still exceed optimists in appraising current conditions by 31.6% in January, the excess of pessimists was 12.8% less than that of December, 2005 and 29.6% less than that of January, 2005 and well below the extreme pessimism of the first half of 2003 when the excess of pessimists averaged around 95%. The percent balances for expectations and current conditions in the German economy are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110f.jpg" width="353">
In its survey of investors and analysts, ZEW research also asks for opinions on profit expectations in a wide variety of industries. The results are expressed as the percent balance of those expecting increases over those expecting decreases. In the latest survey, the excess of those expecting increases over those expecting decreases varied from 68.7% for machinery to 3.4% for construction. The second chart shows profit expectations for the machinery and the consumption/trade industries. Expectations for rising profits have been strong for the machinery industry since Mid 2003 while those for the consumption/trade industry have been poor. The sharp rise in the excess of those expecting an increase over those expecting a decrease in the profits of the consumption/trade industry in January to 25.9% from 3.5 % last December is particularly encouraging.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060110g.jpg" width="353">
As shown in the third chart the ZEW measure of confidence, which is based on a small sample of some 300 investors and analysts, frequently anticipates the results of the broader IFO measure which is based on replies from some 7000 firms engaged in manufacturing, construction, wholesaling and retailing. The IFO index is scheduled to be release on January 25.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Jan 06</th>
<th scope="col">Dec 05</th>
<th scope="col">Jan 05</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ZEW Investor Confidence Measure (% Balance) Exports</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Current Conditions</td>
<td>-31.6</td>
<td>-44.4</td>
<td>-61.2</td>
<td>12.8</td>
<td>29.6</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-92.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectation 6 Months Ahead</td>
<td>71.0</td>
<td>61.6</td>
<td>26.9</td>
<td>9.4</td>
<td>44.1</td>
<td>&nbsp;34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
<tr>
<td class="firstcol">Profit Expectations</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Machinery</td>
<td>68.7</td>
<td>51.0</td>
<td>44.4</td>
<td>17.7</td>
<td>23.3</td>
<td>44.7</td>
<td>53.4</td>
<td>7.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption/Trade</td>
<td>25.9</td>
<td>3.5</td>
<td>7.8</td>
<td>22.4</td>
<td>18.1</td>
<td>-0.4</td>
<td>-0.8</td>
<td>2.2</td>
</tr>
</tbody>
</table>


</html>

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

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Sandy Batten

260515r1.jpg

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Industrial production (IP) rose a much larger-than-expected 0.7% m/m in April, rebounding from an upwardly revised 0.3% m/m decline in March (previously -0.5% m/m), according to data released by the Federal Reserve Board. The Action Economics Survey looked for a 0.2% monthly gain. The y/y rate also rebounded in April, rising to 1.4% y/y after having fallen to 0.7% in March. IP has clearly trended up since late last year. Since November 2025, it has grown at a 3.6% annual rate. The current level of output is the highest since August 2019 but is still 1.5% below the November 2018 series peak.

Manufacturing output led the April rebound, rising 0.6% m/m (1.3% y/y) following an upwardly revised 0.1% monthly increase in March (previously -0.1% m/m). Mining output fell in April for the second consecutive month, edging down 0.1% m/m (+0.2% y/y) after a 1.6% monthly drop in March (revised down from -1.2% m/m). Utilities production rebounded in April, jumping 1.6% m/m (2.7% y/y) and more than offsetting a 1.4% monthly decline in March (revised up from -2.3% previously). The rebound in utilities output reflected a 1.1% rise in electricity production and a 7.3% monthly jump in natural gas distribution, the first monthly gain in four months.

Within manufacturing, durable goods production jumped 1.2% m/m (3.2% y/y) in April after having been unchanged in March. A 3.7% m/m rebound in motor vehicles and parts production, the largest monthly gain since May 2025, led the April increase. Motor vehicles and parts production had fallen 2.4% m/m in March. Production of computers and electronic products increased 1.5% m/m, the fourth consecutive monthly rise. Aerospace output rose 1.6% m/m in April, the third consecutive monthly gain and the largest since July 2025. By contrast, furniture production fell 1.8% m/m, the third consecutive monthly decline. 

Output of nondurable manufactured goods edged down 0.1% m/m (-0.6% y/y) in April, the first monthly decline in four months. Production of apparel and leather goods slumped 2.2% m/m on top of a 2.0% monthly fall in March. Chemical output fell 0.9% m/m in April, its first monthly decline in four months. Output of plastics and rubber products fell 0.9% m/m, the first monthly fall in four months. By contrast, production of petroleum and coal products rose 1.0% m/m in April, the same monthly increase as in March.

By market group, output of consumer goods rebounded in April, increasing 0.9% m/m (-0.2% y/y) following a 0.8% m/m decline in March. Production of business equipment surged 1.5% m/m (+6.0% y/y) in April, the largest monthly gain since March 2025. Output of construction supplies was unchanged in April from March (+1.2% y/y) following a 0.9% m/m gain in March. Materials production rebounded in April, rising 0.5% m/m (1.2% y/y) after a 0.4% m/m decline in March.

In special classifications, output of selected high-tech industries increased 1.0% m/m (+9.2% y/y) in April following a 0.5% monthly gain in March. The rebound in motor vehicles and parts production reflected a 5.3% monthly surge in vehicle output, the largest monthly gain since May 2025. Manufacturing output excluding selected high-tech industries rose 0.6% m/m in April, the largest increase since February 2025, following a 0.1% m/m increase in March. Manufacturing output excluding both selected high-tech industries and motor vehicles and parts advanced 0.3% m/m in April, the same monthly gain as in March.

Capacity utilization rose to 76.1% in April from 75.7% in March. The April reading was the highest since last August but was still 3.3%-points below its long-term (1972-2025) average. Manufacturing capacity utilization increased to 75.8% in April from 75.4% in March, 2.4%-points below its long-term average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.



260515t1.jpg

260515u1.jpg

- Total industrial output increased a much larger-than-expected 0.7% m/m in April with a small upward revision to March.
- Manufacturing output increased 0.6% m/m, led by a 5.3% m/m rebound in vehicle production.
- Mining output edged down 0.1% m/m, while utilities production rose 1.9% m/m.
- The headline rate of capacity utilization rose to 76.1% in April, its highest reading since last August but still well below its long-term average.


U.S. Industrial Production Jumped in April

Robert Brusca

260515e.jpg

Industrial orders in Canada are back on an expansion path with orders growing 4.7% in March on top of a 6.9% gain in February. These statistics chronicle Canadian orders digging out from a hole they fell into early in 2026. Now the data show emerging sequential growth in Canadian orders, which are advancing 3.6% over 12 months at a 14.9% annual rate over six-months, and a 26.7% annual rate over three-months. Still, on the chart that plots the year-over-year growth rates these recent accelerated rates of growth appear as mere recoveries from what had been earlier weakness. It remains to be seen how much acceleration the Canadian economy will actually undergo.

Unfilled orders expanded in March for the second month in a row, growing 2.4% after growing 1.4% in February once again following the recovery theme.

Manufacturing shipments grew by 3% in March after growing 3.4% in February and after dropping sharply in January - again echoing the recovery theme. Durable goods show two months of increases with the March increase weak after a very strong rise in February. Motor vehicle output recovered very strongly in February, after falling at a 37.1% annual rate in January; motor vehicle output is up by 15% in March, a hefty growth rate but short of what was posted in February. Once again, we see an echo of the theme of recovery. However, shipments of durable goods excluding motor vehicles are less robust, after dropping 1.8% in January output rose by 3.8% in February and has fallen back, dropping by 1.1% in March, a small fly in the ointment of this recovery theme for Canada. And nondurable goods shipments saw a small increase in January of 0.2%, a flat February, and now an extremely strong, 5.6% month-to-month gain in March.

Canada's sequential growth rates are on the verge of showing broad acceleration. Orders clearly do accelerate from 12-months to six-months to three-months. Unfilled orders, however, accelerate over six-months compared to 12-months and then take a small step back over three-months to an annualized growth rate of 13.4% - a very small step back that is still far above the 12-month growth pace. Manufacturing shipments, too, show a small flaw in acceleration as the 6-month pace dips ever so slightly before logging a very strong 3-month pace. Durable goods then are an exception to the acceleration theme; however, nondurable goods get back on board with the strong acceleration move.

**Rankings**
The rank standings for these categories are based on annual growth rates and comparison with data extend back approximately 25 years. Orders have a 58-percentile standing, unfilled orders have a 57-percentile standing, while manufacturing shipments have a 62-percentile standing. Shipments for durable goods durables excluding motor vehicles and from motor vehicles as a stand-alone have rankings in their 30th- to 40th-percentiles, below their historic medians. (medians occur at a ranking of 50). However, nondurables have an extremely strong 80.5 percentile standing. The data are consistent, the recovery and progress with the exception that durable goods shipments that are not fully on board and languish below their historic median results. Ranking the data over six-month growth rates improves the results somewhat and brings motor vehicles on board for a growth rate that is above its historic median.

**Signs of improvement**
Goods-based industry shows signs of picking up even in March as oil prices were rising and industry was facing greater challenges. The US industrial production report for April, similarly, shows acceleration across the board, even as the economy continued to deal with the difficulties of rising oil prices. Of course, the Canadian US economies are closely linked; we would expect the manufacturing sectors to be performing with some degree of synchronization. However, there's no reason to be complacent about the outlook. Oil prices have continued to rise, the challenge to consumers is strong and across all countries. In the US special tax cuts enacted last year, which went into effect earlier this year, have helped to deliver extra money to consumers that have helped them deal with the oil price shock. But these were funds that were supposed to help stimulate the economy to higher growth and were planned by the President to help him with midterm elections coming later in the year. The US economy still has to deal with those realities with sharply divided political reality as well.

**Outlook**
The US acrimony with Canada has taken a back burner for a while. And as that has happened the Canadian economy has come back to life. However, Canada still has some problems with inflation although it also has a broader inflation target to accommodate some flexibility. And the prospect for more inflation because of global oil prices continues to hang in the balance. The results for March are encouraging but certainly not definitive. Canada has mounted a nice recovery after a period of difficulty earlier in the year but it's still hard to say what comes next.



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Canada

Canadian Industry Perks Up

Andrew Cates

**A Tug of War Between AI Hope and Geopolitical Shock**
The latest Blue Chip Economic Indicators survey highlights a growing divergence between economies benefiting from AI-driven optimism and those more exposed to the inflationary consequences of renewed geopolitical instability. Taiwan stands out as the clearest AI beneficiary, with growth forecasts revised sharply higher while inflation expectations have risen only modestly, reflecting surging semiconductor demand and continued investment in global technology supply chains. China also remains relatively resilient, supported by ongoing AI-related capital spending and stronger technology sectors. By contrast, the euro area and UK have seen much larger upward revisions to inflation forecasts alongside weaker or declining growth expectations, underscoring their greater vulnerability to the recent Middle East shock and higher energy costs. Korea sits somewhere in between: benefiting from the AI hardware cycle but still exposed to trade and energy headwinds. Overall, the chart illustrates the increasingly important push-and-pull shaping the global outlook: AI optimism and productivity hopes on one side, and geopolitical fragmentation, energy insecurity and supply-side inflation pressures on the other.

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**Forecasters See Contained Pass-Through**
Against this backdrop, our latest Blue Chip special question sought to gauge whether economists believe the recent rise in energy prices will remain largely contained — or whether it risks spilling more meaningfully into underlying global inflation dynamics. The results suggest forecasters have become somewhat less concerned about a broad and persistent inflationary impulse since April. A larger share of respondents in the May survey now expect only a “limited and temporary” pass-through into core inflation, while the proportion anticipating “moderate and persistent” effects has declined noticeably. Very few panelists expect significant second-round effects, implying that most still believe inflation expectations and wage-setting behaviour remain relatively well anchored. In part, this reflects confidence in central bank credibility and the view that softer global demand conditions will constrain firms’ pricing power. Yet the persistence of a sizeable minority still expecting moderate pass-through underscores the uncomfortable tension facing policymakers. 

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**Energy Reawakens as a US Inflation Driver**
While survey respondents generally expect only limited pass-through from higher energy prices into broader inflation, the latest US CPI data provide a reminder that the process may already be underway at the margin. April’s CPI report showed core inflation coming in slightly firmer than expected, suggesting underlying price pressures remain more persistent than many policymakers had hoped. The decomposition of CPI inflation highlights that services continue to dominate overall inflation dynamics, reflecting still-elevated wage and labour-intensive price pressures across the economy. However, the more notable recent development has been the renewed contribution from energy prices, which had previously acted as a disinflationary force through much of 2025. Food inflation has also remained comparatively steady, while non-energy goods prices continue to exert only modest upward pressure despite ongoing tariff and supply-chain concerns. Taken together, the data reinforce the idea that the US economy is not facing a classic demand collapse, but rather a more uncomfortable supply-side environment in which geopolitical energy shocks risk colliding with still-resilient domestic demand, AI-related investment spending and sticky service-sector inflation.

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**AI: The Powerful Counterweight to Geopolitical Headwinds**
If rising energy prices and geopolitical instability represent one major force shaping the current macroeconomic outlook, the extraordinary surge in AI-related investment represents the other. The latest data from Our World in Data show global private investment in AI accelerating sharply again in 2025, reaching close to $300 billion — more than double the level seen just two years earlier. The United States continues to dominate the global AI landscape, accounting for the overwhelming majority of private investment spending, while China and Europe remain considerably smaller contributors despite continued growth. The scale and speed of the 2025 increase is particularly striking given the broader backdrop of elevated policy uncertainty, trade fragmentation and concerns about slowing global productivity growth. In effect, the global economy is now being pulled in two competing directions: on one side, geopolitical tensions, supply-chain fragilities and more recent energy shocks are weighing on confidence and raising supply-side costs; on the other, AI enthusiasm is driving an enormous wave of capital expenditure, infrastructure build-out and technology-related demand. This helps explain why growth expectations — particularly in the US and parts of Asia — have remained comparatively resilient despite an increasingly uncertain global environment.

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**Industrial Winners and Losers in a Fragmenting Global Economy**
The divergence in industrial performance across advanced economies has become increasingly striking. Taiwan has emerged as one of the clearest beneficiaries of the global AI boom, with industrial production surging as semiconductor demand, data-centre investment and advanced electronics exports continue to accelerate. Denmark has also significantly outperformed, though for very different reasons, with the extraordinary global success of its pharmaceutical sector — particularly weight-loss and diabetes drugs — driving a powerful expansion in manufacturing output. By contrast, the UK and Germany have experienced a far weaker industrial recovery. In both cases, elevated energy costs and greater dependence on imported energy have weighed heavily on industrial competitiveness since the post-pandemic energy shock. Germany’s large manufacturing sector has been particularly exposed to higher natural gas prices and weaker external demand, while the UK has continued to struggle with a combination of high energy costs, weak productivity growth and subdued business investment. The chart highlights an increasingly important feature of the global economy: countries exposed to powerful structural growth themes such as AI or pharmaceuticals are pulling away from those still burdened by energy dependence and deteriorating industrial competitiveness.

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**China’s Pulse Is Picking Up Again**
China’s economic backdrop has shown clearer signs of improvement in recent months, with both the Citigroup Economic Surprise Index and the Yicai High Frequency Economic Activity Index moving higher. The rebound suggests that incoming data have begun consistently outperforming expectations after a prolonged period of disappointment. Part of the recent improvement likely reflects the cumulative effects of policy easing, including targeted fiscal support, infrastructure spending and further efforts to stabilise the property sector. Export demand has also remained more resilient than many expected, helped in part by the continued strength of global technology and AI-related supply chains. At the same time, improving domestic mobility and energy usage indicators point to firmer underlying activity momentum. The Yicai index itself is designed to provide a near real-time pulse of the Chinese economy using a basket of high-frequency indicators including subway usage, air pollution, coal consumption, freight activity, unemployment and bankruptcy trends. While China still faces significant structural headwinds — including weak household confidence, property-sector fragilities and deflationary pressures — the recent pickup suggests that growth momentum may be stabilising at a time when several other major economies are becoming more vulnerable to geopolitical and energy-related shocks.

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The global economy is still caught between two powerful and competing forces. On one side, the AI investment boom continues to support growth, industrial activity and equity markets, particularly in the US and parts of Asia. On the other, renewed Middle East tensions and higher energy prices are adding to inflation risks and broader policy uncertainty. The latest Blue Chip survey reflects this divide clearly: growth expectations have generally held up best in economies tied to AI-related investment and technology supply chains, while inflation forecasts have risen more sharply in more energy-exposed economies such as the UK and euro area (chart 1). Forecasters still largely expect only limited pass-through from higher energy prices into core inflation, although recent US CPI data suggest underlying price pressures remain somewhat sticky (charts 2 and 3). At the same time, the extraordinary continued surge in global AI investment — now approaching $300 billion annually — highlights the sheer scale of capital being deployed into semiconductors, data centres and digital infrastructure, particularly in the United States (chart 4). The divergence in industrial production trends also reinforces the growing gap between economies benefiting from structural growth drivers — such as Taiwan’s semiconductor sector and Denmark’s pharmaceutical industry — and those struggling with higher energy costs and weaker competitiveness, notably Germany and the UK (chart 5). Meanwhile, improving Chinese activity indicators suggest policy support and stronger technology demand may finally be helping to stabilise growth (chart 6). Overall, the world economy remains resilient, but increasingly uneven, with AI-related investment continuing to offset — though not eliminate — the drag from geopolitical fragmentation and rising energy insecurity.

Charts of the Week: The Tug of War

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Total retail sales rose a solid 0.5% m/m (4.9% y/y) in April on top of a slightly downwardly revised 1.6% monthly jump in March (previously 1.7%), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 05% m/m gain. Excluding autos, other sales increased 0.7% m/m (6.3% y/y) in April following an unrevised 1.9% monthly jump in March. Expectations were for a 0.6% monthly increase. The strong performance in March and the additional solid gain in April put the April level up 7.8% at an annual rate from the Q1 average, providing a very solid start for Q2.

As expected, the continued rise in retail gasoline prices boosted gasoline sales further in April. Gasoline sales increased 2.8% m/m in April following a 13.7% m/m surge in March and accounted for more than 40% of the April increase in total sales. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.3% m/m in April versus a 0.7% monthly gain in March. Sales excluding both autos and gasoline increased 0.5% m/m in April following a 0.7% m/m rise in March.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in March, rising 0.5% m/m in April following an upwardly revised 0.8% m/m increase in March (previously (0.7% m/m). The solid performances of the control group sales in March and April provide a strong start to Q2. April control-group sales are 5.4% at an annual rate above the Q1 average, in line with the 5.7% annualized increase in Q1. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales across major sectors were varied in April. Consumers clearly spent more on necessities, owing largely to higher prices. Food sales increased 0.8% m/m in April on top of a 1.0% m/m rise in March. And as already noted, gasoline sales posted another outsized monthly increase. By contrast, department store sales slumped 3.2% m/m, clothing sales fell 1.5% m/m, auto sales declined 0.4% m/m and furniture sales fell 2.0% m/m. More encouragingly, sales of nonstore retailers rose 1.1% m/m, their fourth consecutive solid monthly gain. And sales at restaurants increased 0.6% m/m in April, their third consecutive monthly rise. Analysts frequently use restaurant sales as a barometer of consumer attitudes, believing that consumers would not eat out regularly if they were under serious financial stress.

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


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- Total sales increase 0.5% m/m in April after a 1.6% monthly jump in March.
- Gasoline sales rose 2.8% m/m in April on top of a 13.7% surge in March.
- Auto sales fell 0.4% m/m after a 0.6% m/m rise in March.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in April versus a 0.7% m/m rise in March.
- Sales of the retail control group that is used to construct PCE rose 0.5% m/m in April and are 5.4% annualized above the Q1 average, providing a good start to Q2.


U.S. Retail Sales Slowed in April But Remained Solid

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose by 12,000 to 211,000 in the week ending May 9, from 199,000 in the week ending May 2, revised from 200,000. The four-week average rose 750 to 203,750 in the week ending May 9, from 203,000 the May 2 week, revised from 203,250. The Action Economics/Haver Analytics Survey looked for 205,000 claims to have been filed. 

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 24,000 to 1.782 million in the week ending May 2, from 1.758 million in the week ending April 25, revised from 1.766 million. The four-week moving average declined to 1.781 million in the latest week from 1.788 million in the April 25 week. The four-week moving average reached the lowest level since May 2024. The insured unemployment rate rose back to 1.2% in the week of May 2 from the one-week dip to 1.1% in the April 25 week. It had been at 1.2% since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 25, the highest unemployment rates were in Rhode Island (2.29%), New Jersey and Massachusetts (both 2.20%), and Washington (2.15%). The lowest rates were in Florida and Louisiana (both 0.31%), South Dakota (0.32%), Alabama and Arkansas (both 0.36%), North Carolina (0.38%), Tennessee (0.47%) and Iowa, Kansas and Virginia (all 0.48%). Rates in other notable states include California (1.99%), New York (1.66%), Illinois (1.56%), Pennsylvania (1.28%), and Texas (1.03%). 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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- New claims rose by 12,000 to 211,000.
- Continuing claims rose by 24,000 to 1.782 million.
- The insured unemployment rate was back up to 1.2% in the week of May 2, from the one-week dip to 1.1% the prior week.

Economy in Brief: 2006

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Industrial Production Mixed in Europe in late 2005, but Mostly Keeping to Growth Path

Mortgage Applications Recovered

Mortgage Applications Recovered

German Investors and Analysts More Confident of Improving Economy and Profits

Gold & Gasoline Prices Up

Small Business Optimism Up Slightly

Chain Store Sales: A Firm Start to the New Year

Chain Store Sales: A Firm Start to the New Year