Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114e.jpg" align="right" border="0" height="265" width="353">
Total business inventories fell 0.7% during November and it was the
third consecutive monthly decline. Inventories just aren't needed as
sales drop. The 6.6% annual rate of decline in inventories during the
last three months is the swiftest since early 2002. The sales decline
during that period, including the 5.1% November shortfall, was 37.4% at
an annual rate. That mismatch left the inventory/sales ratio surging
upward to 1.41. The November level was the highest since during the
recession of 2001 and the increase in the ratio during the last year is
the swiftest since 1982. The reversal ended a twenty eight year
downtrend.Tighter inventory management enabled retailers to buck the
uptrend so inventories fell 1.3% during November. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114f.jpg" align="right" border="0" height="265" width="353">
That left the
three-month change at a negative 5.2%.&nbsp; Motor vehicle
inventories have led the decumulation. Down 1.7% during November, they
have fallen at a 9.7% annual rate during the last three months. But
they've got further to fall. The inventory-to-sales ratio for
automobiles has jumped to 2.57 which is by far a historic high. So
unless sales recover soon, expect further production cuts to reduce the
ratio.Outside of autos, retailers have been busy cutting inventory as
well. Furniture, home furnishings &amp; electronics inventories
fell all of 5.7% in November.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114g.jpg" align="right" border="0" height="265" width="353">
Apparel retailers were busy as
well, but less aggressive. Inventories here fell just 0.3% and they've
been flat for nearly two years. Unfortunately, given the weak
performance of sales the I/S ratio has risen sharply, to its highest
level since 2003.&nbsp; General merchandise inventories fell 0.6%
(-0.6% y/y) and that was been very much enough to keep the inventory
position in good shape.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Business
Inventories</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.7%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>3.3%</td>
<td>3.8%</td>
<td>5.9%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-1.3%</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>-1.2%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>-1.0%</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>0.6%</td>
<td>2.7%</td>
<td>4.9%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-0.6%</td>
<td>-1.2%</td>
<td>-0.4%</td>
<td>6.3%</td>
<td>5.5%</td>
<td>8.3%</td>
<td>7.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.3%</td>
<td>-0.6%</td>
<td>-0.8%</td>
<td>5.1%</td>
<td>3.7%</td>
<td>6.4%</td>
<td>8.9%</td>
</tr>
</tbody>
</table>
</body></html>

Total business inventories fell 0.7% during November and it was the third consecutive monthly decline. Inventories just aren't needed as sales drop. The 6.6% annual rate of decline in inventories during the last three months is the [...]

U.S. Business Inventories Fell Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114h.jpg" width="353">
During December, total U.S. import prices declined another 4.2% after the revised 7.0% November drop. The decline fell short of Consensus expectations for a 5.3% decline.
Petroleum prices continued down sharply last month by 21.4%. However, a recent turnaround has lifted imported oil prices by 9.0% versus the December average.
December import prices less petroleum were down for the fifth straight month. The 1.1% decline lowered them by 13.6% (AR) during the last three months versus the 12%-to-13% rates of positive growth this past spring.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114i.jpg" width="353">
 December-to-December, the foreign exchange value of the dollar rose 9.3% and thus reduced the change in U.S. import prices. During the last ten years there has been an 83% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices.
Capital goods import prices fell another 0.3% and on a three-month basis prices fell at a 3.4% annual rate after a 5%-to-6% rate of increase earlier this year. Less the lower prices of computers, capital goods prices fell 0.2% and the three-month growth rate fell to 1.8% rate over the last three months after 9.0% growth earlier this year. Prices of computers, peripherals &amp; accessories were down at an 8.1% rate during the last three months.
Prices for nonauto consumer goods ticked up 0.1% last month but the three-month rate of change remained a negative 0.8% versus the 5.9% peak earlier this year. Durable goods prices overall fell at a 0.8% rate during the last three months versus a 6.2% rate of increase earlier this year.
Total export prices fell 2.3% due to another sharp decline in agricultural prices. Their 6.5% drop left them down at a 60.2% annual rate during the last three months. Nonagricultural export prices by 1.9% for the fifth consecutive monthly decline.
Troubled Asset Relief Program is yesterday&#39;s testimony by Fed Vice-Chairman Donald L. Kohn and it is available <a href="http://www.federalreserve.gov/newsevents/testimony/kohn20090113a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA, %)</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>-4.2</td>
<td>-7.0</td>
<td>-9.3</td>
<td>11.6</td>
<td>4.2</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-21.4</td>
<td>-28.5</td>
<td>-47.0</td>
<td>38.3</td>
<td>11.6</td>
<td>20.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum</td>
<td>-1.1</td>
<td>-1.8</td>
<td>0.9</td>
<td>5.3</td>
<td>2.7</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>-2.3</td>
<td>-3.4</td>
<td>-3.2</td>
<td>6.0</td>
<td>4.9</td>
<td>3.6</td>
</tr>
</tbody>
</table>


</html>

During December, total U.S. import prices declined another 4.2% after the revised 7.0% November drop. The decline fell short of Consensus expectations for a 5.3% decline. Petroleum prices continued down sharply last month by 21.4%. [...]

U.S. Import Prices Down Sharply Again: Both Oil & Nonoil

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114d.jpg" align="left" border="0">
Recession clearly has come to the Euro Area and to its member
countries. Industrial output is dropping at a horrendous pace. The
sequential growth rates in the table below show that IP has gone from a
Yr/Yr decline of 7.1% to declining over six months at a pace of 10.3%
and to a drop over three months at minus 19.1%. The unraveling in the
EMU is rapid. It is also widespread with consumer durables and consumer
nondurables intermediate goods and capital goods all being swept up in
the acceleration of the decline. The
bottom of the table demonstrates that all the main euro member
countries and the UK are greatly affected. The
far right column reflects the declines for the special quarter in
progress, at this time that is 2008-Q4. The negative impact on growth
for the quarter is intense and, again, very widespread.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">Euro
Area
MFG IP</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area Detail</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Sep 
08</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12 
mo</td>
<td>12 
mo</td>
<td>Q-4</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>-1.7%</td>
<td>-1.7%</td>
<td>-1.9%</td>
<td>-19.1%</td>
<td>-11.5%</td>
<td>-10.3%</td>
<td>-10.4%</td>
<td>-7.1%</td>
<td>-5.6%</td>
<td>-16.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>-0.7%</td>
<td>-4.9%</td>
<td>-5.9%</td>
<td>-2.7%</td>
<td>-6.0%</td>
<td>-3.3%</td>
<td>-3.7%</td>
<td>-5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">C-Durables</td>
<td>-2.4%</td>
<td>-1.8%</td>
<td>-2.5%</td>
<td>-23.9%</td>
<td>-13.4%</td>
<td>-12.7%</td>
<td>-14.7%</td>
<td>-9.8%</td>
<td>-8.7%</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">C-Nondurables</td>
<td>0.1%</td>
<td>0.0%</td>
<td>-0.8%</td>
<td>-2.6%</td>
<td>-4.3%</td>
<td>-1.1%</td>
<td>-4.2%</td>
<td>-2.2%</td>
<td>-2.7%</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate</td>
<td>-2.8%</td>
<td>-2.4%</td>
<td>-3.1%</td>
<td>-28.5%</td>
<td>-16.5%</td>
<td>-15.6%</td>
<td>-13.9%</td>
<td>-10.3%</td>
<td>-7.7%</td>
<td>-23.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital</td>
<td>-1.8%</td>
<td>-2.3%</td>
<td>-1.9%</td>
<td>-21.8%</td>
<td>-11.5%</td>
<td>-11.4%</td>
<td>-12.4%</td>
<td>-7.2%</td>
<td>-5.1%</td>
<td>-18.1%</td>
</tr>
<tr>
<td style="font-weight: bold;" colspan="11" class="firstcol">Main
Euro Area Countries
and UK IP in MFG</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">MFG Only</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Sep 
08</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12 
mo</td>
<td>12 
mo</td>
<td>Q-2- 
Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany:</td>
<td>-3.5%</td>
<td>-2.1%</td>
<td>-3.7%</td>
<td>-31.4%</td>
<td>-9.8%</td>
<td>-13.6%</td>
<td>-10.7%</td>
<td>-6.9%</td>
<td>-3.7%</td>
<td>-22.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP ex
Construction</td>
<td>-2.4%</td>
<td>-3.7%</td>
<td>-0.7%</td>
<td>-24.1%</td>
<td>-18.1%</td>
<td>-13.0%</td>
<td>-14.2%</td>
<td>-9.0%</td>
<td>-8.0%</td>
<td>-23.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-2.3%</td>
<td>-1.7%</td>
<td>-3.4%</td>
<td>-25.8%</td>
<td>-17.6%</td>
<td>-15.1%</td>
<td>-15.0%</td>
<td>-9.1%</td>
<td>-7.8%</td>
<td>-21.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-11.5%</td>
<td>0.1%</td>
<td>2.9%</td>
<td>-30.9%</td>
<td>-26.4%</td>
<td>-23.9%</td>
<td>-29.6%</td>
<td>-17.2%</td>
<td>-11.2%</td>
<td>-30.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK: EU member</td>
<td>-2.9%</td>
<td>-1.4%</td>
<td>-1.0%</td>
<td>-19.2%</td>
<td>-11.2%</td>
<td>-12.7%</td>
<td>-8.4%</td>
<td>-7.4%</td>
<td>-5.0%</td>
<td>-16.3%</td>
</tr>
</tbody>
</table>
</body></html>

Recession clearly has come to the Euro Area and to its member countries. Industrial output is dropping at a horrendous pace. The sequential growth rates in the table below show that IP has gone from a Yr/Yr decline of 7.1% to [...]

EMU Industrial Production is Plunging

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114a.jpg" width="353">
Retail sales in December fell for the sixth consecutive month. Worse yet, the 9.8% year-to-year decline was a postwar record. The 2.7% drop last month followed declines of 2.1% and 3.4% during November and October which were greater than reported initially. Consensus expectations had been for a December sales decline of 1.2%. The retail sales data are available in Haver&#39;s USECON database.
Again in December, lower vehicle sales and lower gasoline prices accounted for much of the overall decline in sales. However, even excluding these two areas, sales fell 1.5% and the 0.2% November decline was downwardly revised from the initial report of a slight uptick. Year-to-year, excluding autos and gasoline, sales fell 2.2% which also was a record.
Motor vehicle &amp; parts sales slipped just 0.7% last month but they have declined in all but one month since last November. Year-to-year, dollar sales are down by one quarter. However, that decline is less than the more than one third y/y drop in unit sales of motor vehicles.
Lower prices continued to pull sales at gasoline service stations lower. Last month they fell 15.9% (-35.5% y/y) after like declines during the prior two months. That momentum stalled this month as gasoline prices have ticked slightly higher versus the December average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114b.jpg" width="353">
Hard-good sales were notably lower during December. Sales at furniture and electronics &amp; appliance stores took a 1.4% (-8.8% y/y) slide and the 0.4% November uptick was significantly lowered. Furniture store sales fell 1.8% (-13.2% y/y) for their seventh consecutive monthly decline. Sales of electronics &amp; appliances fell 1.0% (-4.2% y/y) after a downwardly revised 1.5% November increase.
In the soft goods area, apparel store sales dropped 2.5% for their fourth sharp monthly decline in the last five months. At general merchandise stores, the news wasn&#39;t much better as sales fell 1.3%; however, they posted a year-to-year decline of -0.4%.
Dining out became another casualty of the current recession. Restaurant &amp; drinking place sales fell 2.2% last month and the y/y decline of 0.5% compares to 5.2% growth during 2007. For all of 2008, restaurant sales rose a modest 3.5%.
Building materials sales continue to tumble with the drop off in housing. The 2.9% December drop was similar in size to the declines of the prior two months and it was the fifth consecutive large monthly shortfall.
Sales at nonstore (internet) retailers also have been hit hard. The 1.9% decline last month (-5.3% y/y) was the sixth in a row. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114c.jpg" width="353">
The Mismeasured Personal Saving Rate Is Still Useful: Using Real-Time Data to Improve Forecasting from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2008/q4/brq408_mismeasured-personal-saving-rate.pdf">here</a>.
Commitment Versus Discretion in Monetary Policy, also from the Federal Reserve Bank of Philadelphia, is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2008/q4/brq408_commitment-vs-discretion.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a> (%)</td>
<td>-2.7</td>
<td>-2.1</td>
<td>-3.4</td>
<td>-9.8</td>
<td>-0.4</td>
<td>4.2</td>
<td>5.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-3.1</td>
<td>-2.5</td>
<td>-2.9</td>
<td>-6.7</td>
<td>2.7</td>
<td>4.6</td>
<td>6.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Less Gasoline</td>
<td>-1.5</td>
<td>-0.2</td>
<td>-1.2</td>
<td>-2.2</td>
<td>1.8</td>
<td>4.2</td>
<td>6.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Retail sales in December fell for the sixth consecutive month. Worse yet, the 9.8% year-to-year decline was a postwar record. The 2.7% drop last month followed declines of 2.1% and 3.4% during November and October which were greater [...]

The Dismal Christmas: U.S. Retail Sales Fell Sharply

The Dismal Christmas: U.S. RetailSales Fell Sharply

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090113o.jpg" align="right" border="0" height="265" width="353">
The British Chamber of Commerce's economic survey conducted in
the fourth quarter of 2008 showed an economy losing ground at an
alarming rate. The survey collects the opinions of manufacturers and
service providers on the state of a wide variety of key business
indicators--domestic and export sales, domestic and export orders,
prices, employment, capacity utilization and cash flow--and on their
confidence in future sales, capital expenditure plans and
profitability. The results are expressed in percent balances--the
percent of respondents reporting an increase less the percent reporting
a decrease. The responses in the fourth quarter were almost universally
negative and many at record lows.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090113p.jpg" align="right" border="0" height="265" width="353">

The table below shows the deterioration in domestic and export
sales, employment expectations, plans for expansion and profitability
expectations since mid 2007 when the sub prime mortgage crisis in the
United States exposed the fragility of the financial system, not only
in the U. S. but worldwide.
In the year and a half since then, the
balance of opinion of manufacturers regarding their domestic sales, for
example, has gone from +37% to -38%.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090113r.jpg" align="right" border="0" height="265" width="353">
The three charts put the recent declines in domestic sales,
expectations of employment and of profitability in perspective. The
first shows that fourth quarter domestic sales of manufacturers and
service providers were about as low as they were in recession of the
early 90's. Expectations of employment in the fourth quarter, shown in
the second chart, were below those of the earlier recession and the
lowest so far recorded. The fourth quarter balances for expectations of
profitability, -39% and -34%, respectively for manufacturers and
service providers, shown in the third chart, compare with balances of
-6% and 1%, respectively, in the recession of the early 90's.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">BRITISH
CHAMBER OF COMMERCE SURVEY (% Balance)&nbsp;</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08&nbsp;</th>
<th scope="col">Q2 08&nbsp;</th>
<th scope="col">Q1 08&nbsp;</th>
<th scope="col">Q4 07</th>
<th scope="col">Q3 07</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Domestic&nbsp;
Sales -- Manufacturing&nbsp;</td>
<td>-38</td>
<td>-13</td>
<td>-3</td>
<td>12</td>
<td>32</td>
<td>37</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic&nbsp;
Sales -- Services</td>
<td>-31</td>
<td>-7</td>
<td>-2</td>
<td>17</td>
<td>28</td>
<td>29</td>
</tr>
<tr>
<td class="firstcol">Export Sales --
Manufacturing&nbsp;</td>
<td>-12</td>
<td>-3</td>
<td>28</td>
<td>16</td>
<td>22</td>
<td>31</td>
</tr>
<tr>
<td class="firstcol">Export Sales --
Services&nbsp;</td>
<td>-9</td>
<td>13</td>
<td>9</td>
<td>17</td>
<td>15</td>
<td>25</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment
Expectations (3 mo ahead) -- Mfg</td>
<td>-17</td>
<td>0</td>
<td>3</td>
<td>9</td>
<td>11</td>
<td>20</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment
Expectations (3 mo ahead) -- Services</td>
<td>-22</td>
<td>2</td>
<td>7</td>
<td>16</td>
<td>17</td>
<td>21</td>
</tr>
<tr>
<td class="firstcol">Plans for Expansion --
Manufacturing</td>
<td>-22</td>
<td>-4</td>
<td>2</td>
<td>12</td>
<td>21</td>
<td>33</td>
</tr>
<tr>
<td class="firstcol">Plans for Expansion --
Services</td>
<td>-27</td>
<td>-2</td>
<td>5</td>
<td>8</td>
<td>14</td>
<td>17</td>
</tr>
<tr class="odd">
<td class="firstcol">Profitability
Expectations (12 mo ahead) -- Mfg</td>
<td>-38</td>
<td>-11</td>
<td>5</td>
<td>27</td>
<td>39</td>
<td>35</td>
</tr>
<tr class="odd">
<td class="firstcol">Profitability
Expectations (12 mo ahead) -- Services</td>
<td>-34</td>
<td>-12</td>
<td>1</td>
<td>17</td>
<td>30</td>
<td>47</td>
</tr>
</tbody>
</table>
</body></html>

The British Chamber of Commerce's economic survey conducted in the fourth quarter of 2008 showed an economy losing ground at an alarming rate. The survey collects the opinions of manufacturers and service providers on the state of a [...]

Grim News from the UK

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090113m.jpg" width="353">
The U.S. government&#39;s budget deficit for December continued to reflect the combined effects of a U.S. recession as well as wars in Iraq and Afghanistan.The monthly deficit rose to $83.6 billion. While not large, it compares to a usual budget surplus for December. For the first quarter of this fiscal year the government&#39;s budget deficit totaled $485.2B, four times that of last fiscal year&#39;s first quarter. Consensus projections were for a December deficit of $63.8B.
Many forecasts for the budget deficit during all of this fiscal year are near $700B. If realized, that would swell the deficit to about 5% of GDP following last year&#39;s roughly 3.2% and FY07&#39;s marginal 1.2%.The recent estimate from the Congressional Budget Office is for a much higher deficit this year of $1.2 trillion, or 8.3% of GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090113n.jpg" width="353">
Net revenues during December fell 14.1% from last year and for the first fiscal quarter were down 9.7%. Individual income tax receipts reflected lower employment levels and for 1Q fell 6.7% year-to-year. Corporate tax receipts were hit even harder and they fell 45.6%. Growth in unemployment and social insurance taxes grew just 0.9%, the least since late 2003.
U.S. government outlays surged by nearly one-half from last year&#39;s first fiscal quarter. Defense spending (19% of total outlays) rose 9.9%. The gain does not reflect the full cost of the resources devoted to Iraq &amp; Afghanistan since much of the spending would have occurred anyway. Medicare expenditures (12% of outlays) rose by 13.1% and social security spending (21% of outlays) rose 5.5% after 6.8% growth last year. &quot;Income security&quot; payments jumped 18.1% but net interest payments fell 11.8% y/y with lower interest rates.
The Budget and Economic Outlook: Fiscal Years 2009 to 2019 from the Congressional Budget Office can be found <a href="http://www.cbo.gov/ftpdocs/99xx/doc9958/01-08-Outlook_Testimony.pdf"> here</a>.
The Government&#39;s financial data are available in Haver&#39;s USECON database, with extensive detail available in the specialized GOVFIN.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-$83.6B</td>
<td>$-164.4B</td>
<td>$48.3B (12/07)</td>
<td>-$454.8B</td>
<td>-$161.5B</td>
<td>-$248.2B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$237.8B</td>
<td>$144.8B</td>
<td>-14.1%</td>
<td>-1.7%</td>
<td>6.7%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$321.4B</td>
<td>$309.2B</td>
<td>40.5%</td>
<td>9.1%</td>
<td>2.8%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The U.S. government's budget deficit for December continued to reflect the combined effects of a U.S. recession as well as wars in Iraq and Afghanistan.The monthly deficit rose to $83.6 billion. While not large, it compares to a usual [...]

U.S. Budget Deficit Continued To Swell Toward A Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090113k.jpg" width="353">
The Bureau of Labor Statistics indicated in its November Job Openings &amp; Labor Turnover Survey (JOLTS) report that the number of job openings fell 6.9% from October and by nearly one third from November 2007. The latest level was the lowest since October 2003. Since their peak in January of 2007 the number of job openings have fallen 35.2%.
The job openings rate also fell. The August rate was down to 2.3% versus an upwardly revised 2.5% in July. The latest figures are down from near 3% one year ago. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The actual number of job openings in the construction and manufacturing sectors halved versus November of 2007. Professional &amp; business services job openings fell by one third year-to-year while openings in the education &amp; health sectors also were weak and they fell 17.0%. Openings in retail trade rose 11.9% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090113l.jpg" width="353">
By region, openings in the South were off by one third while they fell by one quarter in the Midwest. In the West openings fell 30.7% and in the Northeast they were down 19.6%.
The hires rate fell to 2.6% which was the lowest in the series&#39; short eight year history.The hires rate is the number of hires during the month divided by employment.The actual number of hires fell by nearly one quarter year-to-year and no sector showed any strength. Hires in the construction sector were off by nearly one third. In the factory sector hires fell 38.8% y/y and in the professional &amp; business services sector they fell 20.3%. In the leisure and hospitality sector hires fell 31.6% y/y while hires in the educational &amp; health sector fell 16.9%.
The job separations rate rose just slightly to 3.6% but remained down versus last year. Separations include quits, layoffs, discharges, and other separations as well as retirements. The level of job separations fell 3.5% y/y.
The JOLTS survey dates only to December 2000 but has since followed the movement in nonfarm payrolls, though the actual correlation between the two series is low.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/pdf/jolts.pdf">here</a> and the figures are available in Haver&#39;s USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor &nbsp;Turnover Survey)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Job Openings, Total&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>2.0&nbsp;</td>
<td>2.1</td>
<td>2.8</td>
<td>2.8</td>
<td>3.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>2,793</td>
<td>3,001</td>
<td>3,972</td>
<td>3,974</td>
<td>4,272</td>
<td>3,863</td>
</tr>
<tr class="odd">
<td class="firstcol">Hires, Total</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>2.6</td>
<td>3.0</td>
<td>3.5</td>
<td>41.9</td>
<td>43.4</td>
<td>43.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>3,548</td>
<td>4,155</td>
<td>4,672</td>
<td>57,771</td>
<td>59,153</td>
<td>57,501</td>
</tr>
</tbody>
</table>
</body>
</html>

The Bureau of Labor Statistics indicated in its November Job Openings & Labor Turnover Survey (JOLTS) report that the number of job openings fell 6.9% from October and by nearly one third from November 2007. The latest level was the [...]

JOLTS: U.S. Job Openings Lowest Since 2003

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

**US trade with Europe** 
Geopolitical tensions surrounding Greenland have abruptly sharpened investor sensitivity to US trade and foreign-policy risk. What might once have been dismissed as rhetorical brinkmanship has taken on greater macro-financial relevance as Donald Trump has coupled renewed interest in Greenland’s strategic importance with explicit threats of higher tariffs on European imports. The first chart below highlights that the US is materially more exposed to EU goods than the EU is to US trade, making any escalation asymmetrically more costly for the US economy. Beyond the direct inflationary impact of higher tariffs, the more immediate risk lies in confidence effects and capital flows: early signs of capital reallocation away from US assets over the past 24 hours suggest that markets could be beginning to price a broader erosion of policy predictability. In this environment, tariffs risk functioning less as a targeted trade tool and more as a systemic confidence shock—tightening financial conditions, unsettling the dollar’s safe-haven status and increasing downside risks to US growth via weaker investment and higher risk premia.

260122Z1.jpg

**Japan’s JGB yields**
That said, recent capital outflows from US assets may owe as much to developments in Japan as to geopolitical and trade-related shocks. While tariff threats and policy unpredictability have clearly unsettled sentiment, an underappreciated driver of the sell-off in US Treasuries has been the sharp repricing in the Japanese government bond market. Renewed domestic political uncertainty and intensifying concerns over Japan’s debt dynamics have triggered a rapid rise in JGB yields, prompting portfolio rebalancing by Japanese investors and reducing the relative appeal of US duration. Given Japan’s role as one of the largest foreign holders of US Treasuries, yield gyrations at home can translate quickly into capital repatriation, hedging adjustments and reduced demand for US bonds. In this sense, recent moves in US yields may reflect less a direct reaction to geopolitical risk and more a globally transmitted capital-flow shock—originating in Japan but felt most acutely in US financial markets.

260122Z2.jpg

**Inflation expectations and oil prices**
Capital-flow dynamics may have also begun to spill over into how markets are pricing US inflation risk and monetary credibility. Historically, medium-term US inflation expectations have remained closely anchored to global energy prices, as illustrated by the strong co-movement between the 5-year forward inflation rate and Brent crude prices. More recently, however, that relationship has begun to fray: inflation expectations have proven notably resilient even as oil prices have softened, suggesting that markets are increasingly pricing political and policy risk rather than cost-push fundamentals alone. Renewed tariff threats under President Trump, combined with heightened geopolitical tensions involving Greenland and transatlantic relations, risk reinforcing concerns that future inflation outcomes could be shaped as much by political intervention as by macroeconomic conditions. Any perception that the Federal Reserve may face constraints on its operational independence would compound this shift—loosening inflation anchors, raising term premia and increasing the sensitivity of capital flows to US policy credibility.

260122Z3.jpg

**UK inflation** 
UK inflation data released this week show a small upside surprise in headline CPI at year-end. Headline CPI inflation specifically rose from 3.2% y/y in November to 3.4% in December, a little more than expected. The chart below shows that the pickup was driven by persistent underlying pressures—most notably in services. While a negative drag from energy prices has largely faded, services inflation continues to account for a disproportionate share of overall price growth, probably reflecting ongoing wage pressures and limited slack in parts of the domestic economy.

260122Z4.jpg

**Wage growth in the US and Europe** 
Labour-market data from the Indeed Hiring Lab reinforce the picture of persistent services-side pressure in the UK inflation mix. As the chart shows, UK posted wage growth remains elevated relative to both the euro area and the US, even though momentum has eased from its 2023 peak. At around the mid-5% range on a three-month moving average basis, UK wage growth is still running at a pace that is difficult to reconcile with a rapid return of services inflation to target. By contrast, posted wage growth in the euro area has slowed more decisively, while the US has seen a sharper deceleration from earlier extremes.

260122Z5.jpg

**China’s property market**
Finally, the Q4 GDP figures released in China this week sit uneasily alongside continued weakness in its domestic property sector, which remains a key drag on both investment and consumption. While Q4 growth of 4.5% y/y brought full-year GDP broadly in line with the authorities’ 5% target, the chart highlights how property-market adjustment is still running deep beneath the surface. Prices of existing homes across China’s 70 cities remain in year-on-year decline, while real estate investment continues to contract sharply, underscoring the scale and persistence of the sector’s retrenchment. This helps explain why fixed asset investment has softened further and why household demand remains subdued, despite more resilient industrial output.

260122Z6.jpg

This week’s data and market moves have been framed by an abrupt escalation in geopolitical tensions surrounding Greenland, which has served as a catalyst for broader financial unease rather than a standalone shock. The episode has sharpened investor focus on US policy predictability, amplifying concerns already evident in the charts on EU–US trade exposure, where tariff threats risk feeding directly into confidence effects and capital flows. At the same time, recent turbulence in Japanese government bonds appears to have been an underappreciated driver of the sell-off in US Treasuries, highlighting how global capital reallocation—rather than geopolitics alone—has contributed to higher US yields. These forces intersect with growing questions around the durability of US monetary credibility, as inflation expectations have shown signs of decoupling from traditional oil-price anchors, raising the sensitivity of markets to any perceived constraints on the Federal Reserve. Beyond the US, UK data delivered a modest upside surprise in headline inflation, with persistent services and wage pressures reinforcing a cautious policy backdrop for the Bank of England. In China, meanwhile, Q4 GDP growth of 4.5% y/y kept full-year expansion aligned with the government’s target, but continued weakness in the property sector remains a significant drag on investment and household confidence. Taken together, the week’s developments point to a global outlook increasingly shaped by geopolitical risk, capital-flow dynamics and domestic  structural constraints, rather than by straightforward cyclical momentum alone.

Charts of the Week: Seeing Green

260123E.jpg

The S&P PMIs for January show flash readings that indicate broadly stronger conditions across the early reporters in this table. Exceptions are the European Monetary Union as a whole with its composite reading weaker and France with its composite reading weaker, but Germany, the United Kingdom, Japan, Australia, India, and the United States all have composite readings that are stronger month-to-month in January. With these eight countries, there are 24 readings in each period, three for each country: a composite, one for manufacturing, and one for services. Among these 24 readings, only five of them were weaker month-to-month in January. Of course, this follows a December when only 6 of the readings were stronger month-to-month.

The sequential readings, that we calculate only off hard data (which means that calculations are done from December backward) are still mixed. Substantially weaker conditions period-to-period are reported comparing three-months to six-months. Over three months, only nine of the 24 readings are stronger whereas over six months only one of the 24 readings is weaker when compared to the 12-month average. Over 12 months, the average is stronger than it was one-year ago in 15 of the 24 readings. 

Only the United States and France have service sectors that are below their medians over this period back to 2022. Only France and India have composite readings that are below their respective medians over this period. But by comparison, there are very strong composite readings as well. There is a 91-percentile standing on the composite in Australia, an 87-percentile standing in Japan and the United Kingdom. The German composite has a 79-percentile standing.

The recent data have been running sporadically hot and cold, making it difficult to make sense out of what's happening. But broadly, it's clear that the PMIs in the European Monetary Union have been working their way higher and this is the general theme.

For the 8 reporters in the table back to January 2022, all of them except India show weaker manufacturing readings in January 2026 than what they showed in January 2022. But January 2022 was, of course, part of the COVID recovery move. Manufacturing in the European Monetary Union slipped from its high point over this period to its low point around mid-2023.

260123.jpg

Looking at point-to-point changes over the last three months, we find 3-sector cumulative drops in the United States, the European Monetary Union, and Germany. India has two sectors weakening with a decline in its composite as well as its manufacturing reading. Meanwhile, all the rest of the readings in the table over these three months show improved results. On a broad basis, we have to conclude there's more strength than weakness. However, since the weakness is concentrated and widespread and the largest economic units: the United States, the European Monetary Union, and the German economy, it's better to refer to the last three months as generating mixed economic statistics.

Looking forward, conditions are still hard to sort out. There's this obvious recovery in January after an equally obvious weak spot in December. The two of them cancel one another out in some sense. The average composite reading for all countries in the table shows some improvement in the manufacturing sector but waffling on the services sector. We get the same sort of readings looking at sequential averages; they do more of waffling than any kind of clear trend. On balance, the S&P readings don't give us a lot to go on this month. The survey is a bounce-back after a weak December and that's good news. But that doesn't give us a good handle on the trend yet.

S&P Flash PMIs Rebound But Emit No Clear Signal

Sandy Batten

260122N8.jpg

260122C8.jpg

Real GDP increased 4.4% q/q saar in the third quarter of 2025 in the final estimate, up marginally from 4.3% in the first release. The Action Economics Forecast Survey expected no revision. Growth from a year ago was unrevised at 2.3% y/y. Growth of corporate profits was revised up to 4.5% q/q not annualized from 4.2% in the previous report.

The revision to GDP mostly reflected slightly stronger nonresidential fixed investment, a larger increase in exports and a smaller decrease in inventory investment. Nonresidential fixed investment increased a revised 3.2% q/q saar versus a 2.8% gain in the previous release. This reflected a smaller decline in structures, a smaller increase in equipment and a larger increase in intellectual property products than previously estimated. Residential investment was revised weaker with a 7.1% quarterly decline versus -5.1% in the previous estimate.

Upon revision, exports rose 9.6% q/q in Q3 versus 8.8% in the first estimate. Consequently, the trade deficit narrowed a little more than in the first estimate, resulting in net exports adding 1.62%-points to overall growth, 0.03%-point more previously estimated. The decline in inventory investment in Q3 was smaller than previously estimated, reducing the drag from inventories by 0.1%-point versus the previous estimate. The decline in inventories subtracted 0.12%-point in Q3 on top of a 3.44%-point subtraction in Q2.

Domestic demand growth remained solid in Q3 but was revised down 0.1%-point. Final sales to domestic purchasers grew a revised 2.8% q/q saar in Q3 versus 2.9% in the first estimate. Final sales to private domestic purchasers increased 2.9% q/q, down slightly from 3.0% previously.

260122O8.jpg

260122P8.jpg

The primary driver of overall growth continued to be personal consumption expenditures. They increased an unrevised 3.5% q/q saar in Q3, adding 2.34%-points to total GDP growth. This reflected a 3.0% increase in spending on goods versus 3.1% previously and a 3.6% gain in spending on services versus 3.7% previously. The rise in government spending was unrevised at 2.2% q/q. However, spending by the federal government was revised slightly slower to 2.7% from 2.9% while spending by state and local governments was revised up slightly to 2.0% from 1.8%.

Key measures of inflation were unrevised. Inflation as measured by the GDP price index remained at 3.8% q/q saar in Q3, but this was up markedly from 2.1% in Q2. Similarly, PCE inflation in Q3 was unrevised at 2.8% versus 2.1% in Q2. Core PCE inflation was also unrevised at 2.9% in Q3.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Real GDP grew 4.4% q/q saar in Q3 2025, up slightly from 4.3% previously reported.
- The modest upward revision was due mostly to slightly stronger nonresidential fixed investment, a larger increase in exports and a smaller decrease in inventories.
- Growth of domestic demand remained solid in Q3 but was revised down 0.1%-point.
- GDP and PCE inflation were unrevised at 3.8% and 2.8%, respectively. Both are meaningful accelerations from Q2.

U.S. Q3 GDP Growth Revised Slightly Faster

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance edged up 1,000 to 200,000 in the week ending January 17, from 199,000 in the week ending January 10, revised from 198,000. The four-week moving average of initial claims was 201,500 in the January 17 week, down 3,750 from 205,250 in the January 10 week, revised from 205,000, and reaching the lowest level for this average since January 13, 2024, when it was 200,000.

Federal government employees initially filed 1010 (NSA) jobless insurance claims in the week ended January 10, after filing 646 (NSA) claims in the week ended January 3.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” –decreased by 26,000 to 1.849 million in the week ended January 10 from 1.875 million in the week ending January 3, revised from 1.884 million. The four-week moving average was 1.871 million in the latest week, down from 1.887 million in the January 3 week, revised from 1.889 million. The insured unemployment rate remained at 1.2% in the week of January 10, unchanged from previous 6 weeks.

Federal government employees’ continuing benefits claims were 12,977 (NSA) in the week ending January 3, from 12,803 (NSA) in the week of December 27.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 3, the highest unemployment rates were in Rhode Island (3.27%), New Jersey (3.17%), Washington (2.85%), Minnesota (2.75%), Massachusetts (2.74%), Oregon (2.37%), Connecticut (2.31%), Montana (2.26%), California (2.21%), and Alaska (2.06%). The lowest rates were in Florida (0.29%), North Carolina (0.40%), and Louisiana (0.43%). Rates in other notable states include New York (2.28%), Pennsylvania (2.23%), Illinois (2.21%), and Texas (1.14%). 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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U.S. Initial Claims for Unemployment Insurance Edged Up in Latest Week

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The National Bank of Belgium index for January 2026 rose to +4 from -1 in December, stronger than its November 2025 reading of +2. The survey value is exceptionally strong, lying in the top 6% of all observations back to 1991, even as the survey contains significant variations that range from strong to quite weak across its various components. What is most notable is that the index itself is extremely high-ranking; the current situation appraisal is also quite high-ranking; and, that the forecast for unemployment embedded in this survey is at a 35-year low. Considering current circumstances, against the events of the last 35 years, that's a rather remarkable finding especially considering the world situation.

**The times, they are a changin’ was Dylan 50 years early?** 
These have been remarkable times in a number of different ways with a clear transition from the circumstances of the post-war period under way. The solidarity of the NATO alliance is clearly in a situation in flux, revealed since Russia invaded Ukraine. Prior to that, the Europeans had resisted putting more money into the NATO pot as the United States had been frantically asking them while it funded most of the security umbrella. Now, in the wake of these new events, and with the changes to the global stage wrought by climate shifting, the U.S. finds Greenland to be a more important piece on the geopolitical chess board and wants to have more say there in order to protect its own flank as Arctic ice packs recede. This is after a period when NATO basically failed to engage in the front-line protections of its own doorstep that the U.S. had thought were necessary. Not surprisingly, the U.S. found that whole episode unsatisfactory and is now reluctant to give up control to NATO of what it regards as the protection of its own back door for the area around Greenland. But at last, Europe and the U.S. appear to have a deal or the makings of one, so, stay tuned. Maybe all civility is not lost.

**Geopolitical shifts meld with economic issues to change the landscape**
Geopolitical shifts are part of the problem because geopolitics and economics help shape one another. And there has been a great deal of economic turmoil as well. The U.S., after reassessing the Post War order, is bringing back to life tariffs, in order to try to get economic leverage after running 33 consecutive years of current account deficits under what people want to call a free trade system. The U.S. finds itself with a still very overvalued dollar and in a situation where its current account deficits are poised to continue to run high and perhaps get higher. Economists say tariffs are not the solution, but maybe they ARE the wake-up call that will lead to a solution? Europeans have also shifted to embracing a larger and larger government sector and ever larger fiscal deficits and more fiscal debt while absorbing migrants. This is constraining its ability to have any kind of a flexible macroeconomic policy and is a severe problem already for the U.K. and France. And these changes are wreaking havoc with what has been a very solid post-war Atlantic alliance.

**Views change**
But the changes that the U.S. has pushed on to the system from its geopolitical adventurism to its use of tariffs and other strong rhetorical comments have led economists to focus on the elevation of uncertainty in the economic system. Elevating uncertainty has an adverse impact on the economy and on growth. I mentioned this with the obvious caveat that this warning by economists seems to have been completely wrong. U.S. growth has turned out to be quite resilient and even strong. It is not the only adamant position that has proved to be wrong and malleable. Despite the reality of climate change, the view that once took carbon as the main and unequivocal climate change agent, itself is shifting. Opposition to carbon has dwindled, more as the U.S. is embracing nuclear power. Artificial intelligence is becoming a strong bet for stronger growth in the future, and this explains why there have been so many shifting views on energy since artificial intelligence requires massive amounts of energy and would make it impossible to make progress on carbon and to push ahead with the AI agenda at the same time. So, instead of delaying AI, the view on carbon had to go. So much for ‘science.’

**Why are Belgians so satisfied?**
The finding that in Belgium consumer confidence has risen sharply in this environment and fears of unemployment are the lowest they've been in 35 years is another shocking development in this pantheon of incredible and shocking changes. As the above discussion points out, a lot is changing and NATO is at odds with the U.S., its lynchpin. Yet, there is no clear increase in uncertainty in Belgium, while they maybe more in Brussels.

**The Belgian Survey: strong despite waffles**
Belgians do not read the economic situation over the next 12 months as that strong at a reading of -29 on the survey; it has weakened over the last few months, and the economic situation assessment is only at its 8.3 percentile, an extremely weak standing. Price trends are the opposite; they have eased somewhat in the recent months, but over the next 12 months the assessment still has a top 14-percentile evaluation. It is in this context that the unemployment forecast, which is the lowest in 35 years, emerges as surprising. The environment to make major household purchases over the next 12 months is only a mid-range at a 45.7 percentile standing. And people rate their financial situation over the next 12 months slightly better than at the end of last year but at only a 34.2 percentile standing. However, the appraisal of the current situation moved up sharply in January and has a 97.7 percentile standing, which is extremely strong.

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**Low unemployment fear spurs confidence**
The reason for consumer confidence to be strong is clear when you see how low concerns are about unemployment. But it's hard to understand why concerns about unemployment are so low with the rest of the economic metrics so varied in the survey. This is especially true with Belgium nestled in the heart of Europe and all of these concerns between the U.S. and NATO swirling around as well as a still very hot war occurring on Europe's border between Ukraine and Russia. Meanwhile, the U.S. position about this war continues to seem to back Ukraine a lot less than it should.

**Belgium is a good bellwether**
The Belgian survey is not the most important bit of economic activity. Belgium is not an extremely important country in Europe, although it's in the heart of the European Union, a member of the European Monetary Union, linked closely to Germany, and to other key European economies through trade, so that its performance likely is a good reflection of what's going on in Europe. It is not a European border country. It is in the heartland of Europe. That may explain a little bit why Belgians are not perhaps as nervous as Poles, are or Finns or the small Baltic countries, and others, with potentially more border proximity and vulnerability to the Russia-Ukraine conflict.

**Belgian optimism flies in out of the blue**
This is an observation. I think it's the kind of observation in this world economy that we find striking and unusual and will bear some further watching and some watching of other similar readings in Europe to see if there's evidence that there's some kind of new resilience that we might have missed. Economists seem hung-up broken-record style on uncertainty. Certainly, there's something here that economists have missed who have only seen these new actions by the U.S. as creating more uncertainty since we do not know what the new Greenland deal is. And uncertainty should create more adversity for growth except that it hasn't worked out that way. And it's a reminder that separating economics from geopolitics may take more than a crowbar. And also that uncertainty comes in many shapes and sizes while some may argue that there still is not a Greenland deal, what we see is a lowering of the temperature, a calming of the rhetoric and a sense that the parties have a horse trade they think they can do to resolve their differences. And while there is still uncertainty, there is also clear progress and a clear reduction in risk. Still, the times are changing.

Economy in Brief: 2009

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