Tom Moeller

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      <p>Orders in the manufacturing sector jumped 1.7% (3.0% y/y) during
      September following two months of decline. Expectations were for a 1.6%
      rise. Durable goods orders increased 3.8% (7.8% y/y), little changed from
      last week's advance report. It was driven by a surge in aircraft orders.
      Shipments of durable goods inched up 0.4% (4.6% y/y). Nondurable goods
      shipments (which equal orders) slipped 0.2% (-1.1% y/y), as strong monthly
      gains in apparel (4.0% y/y) and textile mill (5.6% y/y) shipments were
      offset by a 1.5% decline (-7.4% y/y) in shipments from petroleum
      refineries. Basic chemical shipments inched up 0.2% (0.1% y/y)</p>
    
      <p>Inventories in the manufacturing sector
      increased 0.4% during September. It was the firmest monthly increase since
      January. The y/y rate of inventory accumulation of 1.7% was down, however,
      from the 2.4% increase last year and a 10.2% rise during all of 2011.
      Unfilled orders gained 0.9% (6.5% y/y) and the rate of accumulation has
      picked up versus 3.7% during 2012.</p>
      
      <p>The factory sector figures are available in Haver's <b>USECON </b>database.
      The expectation figure is in Haver's<b> MMSAMER</b> database.</p>
      
      <p><a href="/comment/131104h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131104h.png"></a>
      <a href="/comment/131104i_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131104i.png"></a></p>
      
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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
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            <th class="firstcol" scope="col" ><b>Factory Sector -
              NAICS Classification </b>(%)</th>
            <th scope="col" ><b>Sep</b></th>
            <th scope="col" ><b>Aug</b></th>
            <th scope="col" ><b>Jul</b></th>
            <th scope="col" ><b>Y/Y</b></th>
            <th scope="col" ><b>2012</b></th>
            <th scope="col" ><b>2011</b></th>
            <th scope="col" ><b>2010</b></th>
          </tr>
        </thead>
        <tbody>
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            <td class="firstcol" >New Orders</td>
            <td  >1.7</td>
            <td  >-0.1</td>
            <td  >-2.8</td>
            <td  >3.0</td>
            <td  >2.9</td>
            <td  >12.9</td>
            <td  >16.3</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Shipments</td>
            <td  >0.1</td>
            <td  >0.2</td>
            <td  >1.1</td>
            <td  >1.5</td>
            <td  >4.0</td>
            <td  >12.1</td>
            <td  >11.0</td>
          </tr>
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            <td class="firstcol" >Inventories</td>
            <td  >0.4</td>
            <td  >0.2</td>
            <td  >0.3</td>
            <td  >1.7</td>
            <td  >2.4</td>
            <td  >10.2</td>
            <td  >9.8</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Unfilled Orders</td>
            <td  >0.9</td>
            <td  >0.1</td>
            <td  >0.2</td>
            <td  >6.5</td>
            <td  >3.7</td>
            <td  >10.0</td>
            <td  >5.4</td>
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Orders in the manufacturing sector jumped 1.7% (3.0% y/y) during September following two months of decline. Expectations were for a 1.6% rise. Durable goods orders increased 3.8% (7.8% y/y), little changed from last week's advance [...]

U.S. Factory Sector Orders and Inventories Improve

Robert Brusca

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<p><a href="/comment/131104e_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131104e.png" align="left"></a>
The chart of the manufacturing indices for the four largest EMU members Germany, France, Italy, and Spain shows a clear topping out over the last months. France even seems to be faltering and losing ground. This evidence bristles against conventional wisdom which is that EMU is in a bracing recovery. EMU manufacturing sectors do not seem to strongly embrace that notion over the past two months.
</p><p>
Of course, growth in PMI terms is not about the change in the PMI index but about its level. So when we look at the gradient of the PMI index, we are looking at momentum. EMU momentum has been lacking over the past two months, but the PMI indices are much higher than they were back in April. Momentum is not an absolute. It may be that the broader move up in the EMU PMI indices still is in gear. It is also possible that the last two months represent a morass. After all, the PMI index level is why matters and the PMIs are higher on balance, but they are not yet firmly entrenched in a region signaling growth.  
</p><p>
The PMI levels are higher in a way that is not very reassuring. Their levels have risen from some very weak positions depicting severe declines in manufacturing output by rising to a point where the best of respondents are barley registering growth!
</p><p>
Of the EMU members the highest PMI is at 54.41 in the Netherlands, followed by 52.72 in Austria and 51.54 in Germany. The overall EMU measure itself stands at 52.3. The Netherlands measure is the strongest relative to its history, having been higher only about 30% of the time since 2002.  Austria's PMI measure is higher about 40% of the time. Germany's PMI is higher about 45% of the time. The German PMI, the third strongest reading in our group of eight EMU countries, has an index that stands in just the 55th percentile of its historic queue, a very middling value. And it is supposed to the `strongman' of Europe. Good luck with that.
</p><p>
The non EMU members that are chronicled in the table, the UK, Sweden Hungary, and Denmark each slipped in the month, but each of them still holds manufacturing PMI values above 50. But all except the UK have weak PMI standings when evaluated against their respective historic standards.
</p><p>
The table shows in one of its columns the strong gains each country has had from its respective cycle low and, in another column, the much smaller increments that they stand below their respective cycle peaks. There has been clear and substantial progress made in Europe. But the questions of the future and of momentum are questions that still are up in the air and not well addressed by current trends.
</p><p>
Europe's banks continue to shed assets. The European Central Bank like the Federal Reserve has done a lot and, while some press for more action, the Germans remain the keepers of the Treaty; that seems to be a limiting factor for any substantial additional ECB measures.
</p><p>
EMU's momentum is in question. Its level of growth is weak. Its future is still clouded and it is still lacking in public institutions that can provide assistance. That is why I am slow to jump on the optimists' European bandwagon.
</p>

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The chart of the manufacturing indices for the four largest EMU members Germany, France, Italy, and Spain shows a clear topping out over the last months. France even seems to be faltering and losing ground. This evidence bristles [...]

Manufacturing PMI Changes Are Negative in October

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      <p><b>Unit sales of light motor vehicles last month
      edged 0.3% lower (+5.8% y/y) versus September to 15.23 million (SAAR)</b>,
      according to the Autodata Corporation. The latest level of sales compares
      to the August peak of 16.09 million.</p>
      
      <p><b>Light truck </b>sales were firm and inched up
      0.6% (9.0% y/y) in October to 7.61 million. Strongest were sales of
      imported light trucks which increased 2.0% month-to-month (27.6% y/y) to
      1.12 million. Domestic light truck sales gained 0.4% (6.4% y/y) to 6.49
      million.</p>
      
      <p>Offsetting these gains was 1.2% m/m (+2.8% y/y)
      slip in <b>auto sales </b>to 7.63 million. Domestic car sales ticked 0.8%
      higher (4.2% y/y) to 5.40 million but sales of imports fell 5.8% (-0.4%
      y/y) to 2.23 million. </p>
      
      <p><b>Imports share </b>of the U.S. light vehicle market fell m/m to 22.0%
      during October. (Imported vehicles are those produced outside the United
      States.) That share remained down from its peak of 29.9% in Q1'09.
      Imports' share of the U.S. car market fell m/m to 29.3% and remained down
      from its 37.6% monthly peak in 2010. Imports' share of the light truck
      market was roughly flat at 14.7%.</p>
      
      <p>U.S. vehicle sales figures can be found in Haver's<b> USECON </b>database.</p>
      
      <p><a href="/comment/131104c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131104c.png"></a>
      <a href="/comment/131104d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131104d.png"></a></p>
      
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            <th class="firstcol" scope="col" >Light Vehicle Sales
              (SAAR, Mil. Units)</th>
            <th scope="col" ><b>Oct</b></th>
            <th scope="col" ><b>Sep</b></th>
            <th scope="col" ><b>Aug</b></th>
            <th scope="col" ><b>Y/Y %</b></th>
            <th scope="col" ><b>2012</b></th>
            <th scope="col" ><b>2011</b></th>
            <th scope="col" ><b>2010</b></th>
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            <td class="firstcol" >Total</td>
            <td  >15.23</td>
            <td  >15.28</td>
            <td  >16.09</td>
            <td  >5.8</td>
            <td  >14.49</td>
            <td  >12.78</td>
            <td  >11.59</td>
          </tr>
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            <td class="firstcol" >&nbsp;Autos</td>
            <td  >7.63</td>
            <td  >7.72</td>
            <td  >8.03</td>
            <td  >2.8</td>
            <td  >7.42</td>
            <td  >6.23</td>
            <td  >5.77</td>
          </tr>
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            <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
            <td  >5.40</td>
            <td  >5.35</td>
            <td  >5.64</td>
            <td  >4.2</td>
            <td  >5.10</td>
            <td  >4.21</td>
            <td  >3.76</td>
          </tr>
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            <td class="firstcol" >&nbsp;&nbsp;Imported</td>
            <td  >2.23</td>
            <td  >2.37</td>
            <td  >2.39</td>
            <td  >-0.4</td>
            <td  >2.32</td>
            <td  >2.02</td>
            <td  >2.01</td>
          </tr>
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            <td class="firstcol" >&nbsp;Light Trucks</td>
            <td  >7.61</td>
            <td  >7.56</td>
            <td  >8.06</td>
            <td  >9.0</td>
            <td  >7.08</td>
            <td  >6.55</td>
            <td  >5.82</td>
          </tr>
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            <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
            <td  >6.49</td>
            <td  >6.46</td>
            <td  >6.97</td>
            <td  >6.4</td>
            <td  >6.10</td>
            <td  >5.55</td>
            <td  >4.86</td>
          </tr>
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            <td class="firstcol" >&nbsp;&nbsp;Imported</td>
            <td  >1.12</td>
            <td  >1.10</td>
            <td  >1.09</td>
            <td  >27.6</td>
            <td  >0.97</td>
            <td  >1.00</td>
            <td  >0.96</td>
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Unit sales of light motor vehicles last month edged 0.3% lower (+5.8% y/y) versus September to 15.23 million (SAAR), according to the Autodata Corporation. The latest level of sales compares to the August peak of 16.09 million. Light [...]

U.S. Vehicle Sales Are Off Highs, But Up Year-to-Year

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Global growth has been and remained weak. The US has had consistent growth, but it has also fallen short of historic markers. Political developments make the future less certain. The US recently has attacked the `German model' of growth, which is to rely on export-led growth and to maintain a current account surplus. Most of the countries in the table above have relied on export-led growth and may be in for the same sorts of pressures from the US in the future. But if the US doesn't do it, someone else should. There is a great deal of reform needed to the underpinnings of our global trading system
</p><p>
The most highly developed countries in the world, roughly the G-10 countries, have relied too much on debt to drive their growth. Now it all has started to unravel. The modern export-led growth model that was developed in Japan to tap this growth, pursued by the Asian `dragons' and then taken to an extreme by China, has run to its logical conclusion. 
</p><p>
That program of export-led growth was never part of a sustained global growth model. Japan moved to the fore using export growth and a low savings rate to build a series of huge trade surpluses while building its foreign exchange reserves as its private financial firms also amassed dollar assets. After some point Japan's penetration of the US market became so great that `orderly marketing agreements' were used to slow the flow of Japanese automobile exports to the US. Japan began to erect factories in the US. A severely rising yen, the impact of the Tsunami and Japan's grappling with a transition away from nuclear power have greatly transformed the Japanese economy from its former export juggernaut days.
</p><p>
Except for China, the rest of the Asian exporters were smaller and did not raise the political backlash that Japan did. But the heavy debt load in the Western countries is beginning to slow demand and their growth rate of imports (exports to them). This, of course, has negative repercussions for nations that use the export-led growth strategy.
</p><p>
China was the game changer, the Baby Huey, who wanted the same thing as `the other kids' but whose size made that impossible. When China launched its own export-led growth drive, it sucked up all the air in the room. Output that had come from other developing economies often migrated to China where costs were even cheaper. China `learned' from Japan's experience and refused to let its currency rise. This allowed China to keep its low-cost advantage longer than it should have. China's international capital flows from its own surplus excesses helped to create the environment for the eventual financial collapse that occurred.
</p><p>
On balance we find the countries that have pursued export-led growth strategies as floundering. Some, like Brazil, blame the US. It blamed the US for the bad effects of QE and for planning to taper and the market effects that the expected taper spawned. This episode is a good example of why world growth needs to be balanced and whey trade needs to occur in a sustainable program. Countries need to take responsibility for their own growth.
</p><p>
Economics does not draw out clear rules on trade and current account balances. Conservatives may hold that a balance international position and domestic fiscal position is best. That is a safe policy but it may not be the best one. 
</p><p>
There is time when some nations should run surpluses and others should run deficits .For obvious reasons Saudi Arabia runs and will continue to run surpluses. Its situation is unusual. China cannot claim Saudi Arabia as a precedent. When countries at a high stage of development without any `clear need' to tap foreign savings are doing so and doing it year after year (as the US has done), there should be some questioning of that. Trade must eventually balance. It need not ever balance bilaterally. And in those two statements you can see room for a world of disagreement. When China was in its heyday it was growing fast and running large trade surpluses. Why was a county, in such need of development, running such large surpluses on its current account, accumulating financial assets instead of spending those resources on development? Why did China's consumption as percentage of GDP fall by so much? What kind of development was that?
</p><p>
It was exploitive. And this is the kind of development that is not only unsustainable but, instead, sure to help to contribute to the next meltdown because it is part of a disequilibrium process.
</p><p>
When we look at the progress of the formerly high growth developing economies, we see angst directed at others, as in the case of Brazil. We see China is trying to shift its focus to develop its own internal demand. China was not prepared for this. It stubbornly refused entreaties to let its currency rise and to go the route of normal development. China's path came to a sudden dead end instead of to a managed change in course because of its intransigence and inability to see how unsustainable its policies were. But economics were telling us that every day. 
</p><p>
As this growth cycle plays out there are many unanswered questions that all nations need to have answered.
</p><p>
First and foremost is this: Can we have free trade organizations -dedicated to free trade- if the rules of free trade are not ever met? Economists extoll the virtues of free trade, of comparative advantage and yet in the real world these concepts remain elusive. The benefits of comparative advantage are fleshed out in the framework of barter. But in the real world trade uses money (monies). To bridge that gap we need financial reforms. Free trade and comparative advantage principles do NOT play out in a world where currencies are misaligned especially not one where they are consistently misaligned. Following free-trade principles in a non-free trade environment leads to trouble
</p><p>
While trade flows are not a perfect judgment of whether trade is truly `free,' looking a trade flows and at reserve accumulation and at accumulated trade balances we can get a good idea of whose currency is breaking the rules.
</p><p>
We have many issues to deal with in the wake of the financial crisis. Developing nations that have long exploited demand by using a weak currency as a tool may feel deprived of an `old friend.' But if there is no exchange rate reform, we will simply be revisiting financial meltdowns again and again.
</p><p>
So as we watch this period of development play out, let's also watch what happens to trade and current account imbalances. If they are not becalmed, then we are simply on another road to our next BIG THING. And it won't be something good.
</p>

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Global growth has been and remained weak. The US has had consistent growth, but it has also fallen short of historic markers. Political developments make the future less certain. The US recently has attacked the `German model' of [...]

Peripheral Countries Are Still Lagging: Will That Continue?

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      <p>October was a constructive month for the manufacturing sector. The
      Composite Index of Manufacturing Sector Activity from the Institute for
      Supply Management ticked up to 56.4 from an unrevised 56.2 in September.
      The latest reading was the highest level since April 2011. It beat
      expectations for a decline to 55.1, as measured by the Action Economics
      Survey. Any figure above 50 indicates an increasing level of activity in
      the factory sector. During the last ten years, there has been a 69%
      correlation between the ISM index and the q/q change in real GDP.</p>
      
      <p>The inventories component again provided the greatest lift to the
      Composite Index as it rose to the highest level since August of last year.
      The supplier deliveries series index also rose, indicating the slowest
      delivery speeds since June 2011. New orders ticked up but the export
      orders series rose sharply to the highest level since April of last year.
      The factory sector employment series retreated to its lowest point since
      this past June. During the last ten years there has been an 88%
      correlation between the employment index and the m/m change in factory
      payrolls. The production index also dropped to it lowest level since June.
      </p>
      
      <p>The prices paid index reversed roughly half of its prior month's gain
      but still was up versus the low three months ago. Twenty two percent of
      firms raised prices while 11 percent lowered them. During the last ten
      years there has been a 65% correlation between the index and the m/m
      change in the intermediate producer price index. The order backlog series
      increased to its highest level in six months.</p>
      
      <p>The figures from the Institute For Supply Management (ISM) are
      diffusion indexes and can be found in Haver's <b>USECON</b> database. The
      expectations number is in the <b>AS1REPNA</b> database.</p>
      
      <p><b>Taking Stock of the Labor Market Recovery</b> from the Federal
      Reserve Bank of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2013/1113/01labmar.cfm">here.</a></p>
      
      <p><a href="/comment/131101c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131101c.png"></a>
      <a href="/comment/131101d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131101d.png"></a></p>
      
      <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
      
        <thead>
          <tr>
            <th class="firstcol" scope="col" >ISM Mfg</th>
            <th scope="col" >Oct</th>
            <th scope="col" >Sep</th>
            <th scope="col" >Aug</th>
            <th scope="col" >Oct'12</th>
            <th scope="col" >2012</th>
            <th scope="col" >2011</th>
            <th scope="col" >2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >Composite Index</td>
            <td  >56.4</td>
            <td  >56.2</td>
            <td  >55.7</td>
            <td  >51.7</td>
            <td  >51.7</td>
            <td  >55.2</td>
            <td  >57.3</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;New Orders</td>
            <td  >60.6</td>
            <td  >60.5</td>
            <td  >63.2</td>
            <td  >52.8</td>
            <td  >52.9</td>
            <td  >56.4</td>
            <td  >59.2</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;Production</td>
            <td  >60.8</td>
            <td  >62.6</td>
            <td  >62.4</td>
            <td  >53.3</td>
            <td  >53.6</td>
            <td  >57.4</td>
            <td  >61.0</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;Employment</td>
            <td  >53.2</td>
            <td  >55.4</td>
            <td  >53.3</td>
            <td  >52.3</td>
            <td  >53.8</td>
            <td  >57.4</td>
            <td  >57.3</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;Supplier Deliveries</td>
            <td  >54.7</td>
            <td  >52.6</td>
            <td  >52.3</td>
            <td  >49.9</td>
            <td  >50.0</td>
            <td  >54.7</td>
            <td  >58.1</td>
          </tr>
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            <td class="firstcol" >&nbsp;Inventories</td>
            <td  >52.5</td>
            <td  >50.0</td>
            <td  >47.5</td>
            <td  >50.0</td>
            <td  >48.2</td>
            <td  >50.1</td>
            <td  >50.8</td>
          </tr>
          <tr>
            <td class="firstcol" >Prices Paid Index (NSA)</td>
            <td  >55.5</td>
            <td  >56.5</td>
            <td  >54.0</td>
            <td  >55.0</td>
            <td  >53.2</td>
            <td  >65.2</td>
            <td  >68.9</td>
 </tr>
              </tbody>
            </table>
            </span>
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October was a constructive month for the manufacturing sector. The Composite Index of Manufacturing Sector Activity from the Institute for Supply Management ticked up to 56.4 from an unrevised 56.2 in September. The latest reading was [...]

U.S. ISM Index Nudges Higher While Prices Index Slips

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      <br>
      
      <p><span id="articletext">Initial claims for unemployment insurance fell
      to 340,000 (-7.4% y/y) during the week ended October 26 from an unrevised
      350,000 during the prior week. The Labor Department indicated that no
      claims were due to a processing difficulties in California. For last week,
      the Action Economics Forecast Survey expected 340,000 claims. The
      four-week moving average of initial claims increased to 356,250, its
      highest level since late-May. During the last ten years there has been a
      74% correlation between the level of claims and the m/m change in payroll
      employment.
      <p>Continuing claims for unemployment insurance in the week ended October
      19 rose to 2.881 million (-11.3% y/y). The figure remained up from the
      early-September low of 2.788 million. The four-week moving average of
      continuing claims slipped to 2.879 million. The insured rate of
      unemployment remained at 2.2%, where it's been since late-August. This
      particular count covers only &quot;regular&quot; programs and does not
      include all extended benefit and other specialized jobless insurance
      programs. In the week of October 12, the latest figure available, the
      total of all benefit recipients increased slightly to 3.896 million (-22.6%
      y/y). This broader measure is not seasonally adjusted. It compares to a
      cycle peak of 12.060 million in January 2010 and pre-recession figures
      that averaged 2.596 million for 2007. The number of individuals collecting
      emergency and extended payments in the week of October 12 fell to 1.318
      million (-37.2% y/y), a new low for the economic recovery.</p>
      <p>By state, the insured rate of unemployment continued to vary greatly
      with South Dakota (0.36%), Virginia (1.13%), Florida (1.19%), Tennessee
      (1.28%), Indiana (1.37%), Georgia (1.42%) and Texas (1.42%) at the low end
      of the range. At the high end were Massachusetts (1.96%), Wisconsin (2.07%),
      Illinois (2.34%), Pennsylvania (2.55%), California (2.70%), New Jersey (2.92%)
      and Alaska (3.86%).</p>
      <p>Data on weekly unemployment insurance are contained in Haver's <b>WEEKLY</b>
      database and they are summarized monthly in <b>USECON</b>. Data for
      individual states are in <b>REGIONW</b>. The consensus estimates come from
      the Action Economics survey, carried in the <b>AS1REPNA</b> database.</p>
      <table class="centered" border="0" cellSpacing="0" width="1231">
        <thead>
          <tr>
            <th class="firstcol" 0801 width="407">Unemployment Insurance (000s)</th>
            <th 0801 width="117">10/26/13</th>
            <th 0801 width="117">10/19/13</th>
            <th 0801 width="117">10/12/13</th>
            <th 0801 width="117">Y/Y %</th>
            <th 0801 width="117">2012</th>
            <th 0801 width="117">2011</th>
            <th 0801 width="118">2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" 0801 width="407">Initial Claims</td>
            <td 0801 align="center" width="117">340</td>
            <td 0801 align="center" width="117">350</td>
            <td 0801 align="center" width="117">362</td>
            <td 0801 align="center" width="117">-7.4</td>
            <td 0801 align="center" width="117">375</td>
            <td 0801 align="center" width="117">409</td>
            <td 0801 align="center" width="118">459</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" 0801 width="407">Continuing Claims</td>
            <td 0801 align="center" width="117">--</td>
            <td 0801 align="center" width="117">2,881</td>
            <td 0801 align="center" width="117">2,850</td>
            <td 0801 align="center" width="117">-11.3</td>
            <td 0801 align="center" width="117">3,318</td>
            <td 0801 align="center" width="117">3,744</td>
            <td 0801 align="center" width="118">4,544</td>
          </tr>
          <tr>
            <td class="firstcol" 0801 width="407">Insured Unemployment Rate (%)</td>
            <td 0801 align="center" width="117">--</td>
            <td 0801 align="center" width="117">2.2</td>
            <td 0801 align="center" width="117">2.2</td>
            <td 0801 align="center" width="117">2.5<br>
              (10/12)</td>
            <td 0801 align="center" width="117">2.6</td>
            <td 0801 align="center" width="117">3.0</td>
            <td 0801 align="center" width="118">3.6</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" 0801 width="407">Total &quot;All Programs&quot;
              (NSA)</td>
            <td 0801 align="center" width="117">--</td>
            <td 0801 align="center" width="117">--</td>
            <td 0801 align="center" width="117">3.896 mil.</td>
            <td 0801 align="center" width="117">-22.6</td>
            <td 0801 align="center" width="117">6.047 mil.</td>
            <td 0801 align="center" width="117">7.750 mil.</td>
            <td 0801 align="center" width="118">9.850 mil.</td>
          </tr>
        </tbody>
      </table>
      </span>
    </p></div>
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      <span id="articletitle">MNI Chicago Index Jumps to Highest Level in Nearly
      Three Years</span><br>
      <span id="byline">by <a href="http://www.haver.com/comment/Moeller.html">Tom
      Moeller</a>&nbsp;&nbsp;October 31, 2013</span>
      <p><span id="byline">Factory sector activity in the Midwest region heated
      up this month.</span> <span id="articletext">The MNI Chicago Report
      business barometer jumped to 65.9, its highest level since March of 2011.
      Expectations in the Action Economics Forecast Survey were for 55.0. <b>Haver
      Analytics constructs a seasonally adjusted figure comparable to the MNI
      Barometer and it rose to 60.7, its highest level since November 2011.</b>
      During the last ten years there has been an 66% correlation between the
      adjusted Chicago index the quarterly change in real GDP.
      <p>Improvement in the components during September was broad-based. led by
      production, new orders and a slower pace of vendor deliveries. Working the
      other way, the employment index fell to its lowest level since April.
      During the last ten years there has been an 80% correlation between the
      employment index and the m/m change in factory sector payrolls.</p>
      <p>Pricing power also deteriorated as the prices index reversed its
      increases of the prior two months. During the last ten years there has
      been a 67% correlation between the prices paid index and three-month
      growth in the intermediate goods PPI.</p>
      <p>The survey panel consists of 200 manufacturing purchasing professionals
      in the Chicago area. The MNI figures are copyrighted by the MNI Chicago
      Report in partnership with the Institute for Supply Management-Chicago.
      The figures from the survey can be found in Haver's <b>SURVEYS</b>
      database. The Consensus expectations figure is available in <b>AS1REPNA</b>.&nbsp;</p>
      <table class="centered" border="0" cellSpacing="0" width="1231">
        <thead>
          <tr>
            <th class="firstcol" scope="col" width="690">MNI Chicago Report
              (Diff. Index, 50=No Chg.)</th>
            <th scope="col" width="76">Oct</th>
            <th scope="col" width="76">Sep</th>
            <th scope="col" width="77">Aug</th>
            <th scope="col" width="77">Oct'12</th>
            <th scope="col" width="77">2012</th>
            <th scope="col" width="77">2011</th>
            <th scope="col" width="77">2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" width="690">ISM-Adjusted Business Barometer</td>
            <td align="center" width="76">60.7</td>
            <td align="center" width="76">54.0</td>
            <td align="center" width="77">52.2</td>
            <td align="center" width="77">51.2</td>
            <td align="center" width="77">54.8</td>
            <td align="center" width="77">61.3</td>
            <td align="center" width="77">59.0</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="690">Business Barometer</td>
            <td align="center" width="76">65.9</td>
            <td align="center" width="76">55.7</td>
            <td align="center" width="77">53.0</td>
            <td align="center" width="77">50.7</td>
            <td align="center" width="77">54.6</td>
            <td align="center" width="77">62.7</td>
            <td align="center" width="77">61.3</td>
          </tr>
          <tr>
            <td class="firstcol" width="690">&nbsp;&nbsp;New Orders</td>
            <td align="center" width="76">74.3</td>
            <td align="center" width="76">58.9</td>
            <td align="center" width="77">57.2</td>
            <td align="center" width="77">50.6</td>
            <td align="center" width="77">55.1</td>
            <td align="center" width="77">65.3</td>
            <td align="center" width="77">63.4</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="690">&nbsp;&nbsp;Production</td>
            <td align="center" width="76">71.1</td>
            <td align="center" width="76">58.0</td>
            <td align="center" width="77">53.0</td>
            <td align="center" width="77">53.6</td>
            <td align="center" width="77">57.5</td>
            <td align="center" width="77">66.5</td>
            <td align="center" width="77">65.0</td>
          </tr>
          <tr>
            <td class="firstcol" width="690">&nbsp;&nbsp;Order Backlogs</td>
            <td align="center" width="76">61.0</td>
            <td align="center" width="76">46.7</td>
            <td align="center" width="77">46.5</td>
            <td align="center" width="77">45.6</td>
            <td align="center" width="77">48.0</td>
            <td align="center" width="77">55.5</td>
            <td align="center" width="77">54.5</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="690">&nbsp;&nbsp;Deliveries</td>
            <td align="center" width="76">52.3</td>
            <td align="center" width="76">53.7</td>
            <td align="center" width="77">50.8</td>
            <td align="center" width="77">51.0</td>
            <td align="center" width="77">54.8</td>
            <td align="center" width="77">60.0</td>
            <td align="center" width="77">61.0</td>
          </tr>
          <tr>
            <td class="firstcol" width="690">&nbsp;&nbsp;Inventories</td>
            <td align="center" width="76">48.0</td>
            <td align="center" width="76">46.0</td>
            <td align="center" width="77">45.0</td>
            <td align="center" width="77">49.6</td>
            <td align="center" width="77">51.4</td>
            <td align="center" width="77">55.2</td>
            <td align="center" width="77">50.5</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" width="690">&nbsp;&nbsp;Employment</td>
            <td align="center" width="76">57.7</td>
            <td align="center" width="76">53.2</td>
            <td align="center" width="77">54.9</td>
            <td align="center" width="77">51.1</td>
            <td align="center" width="77">55.3</td>
            <td align="center" width="77">59.4</td>
            <td align="center" width="77">55.2</td>
          </tr>
          <tr>
            <td class="firstcol" width="690">&nbsp;&nbsp;Prices Paid</td>
            <td align="center" width="76">56.7</td>
            <td align="center" width="76">57.1</td>
            <td align="center" width="77">65.2</td>
            <td align="center" width="77">60.8</td>
            <td align="center" width="77">62.2</td>
            <td align="center" width="77">72.4</td>
            <td align="center" width="77">65.3</td>
          </tr>
        </tbody>
      </table>
      </span>
    </p></div>
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Initial claims for unemployment insurance fell to 340,000 (-7.4% y/y) during the week ended October 26 from an unrevised 350,000 during the prior week. The Labor Department indicated that no claims were due to a processing [...]

U.S. Initial Unemployment Insurance Filings Slip

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      <br>
      
      
      <p></p>

     
<p><a href="/comment/131031i_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031i.png" align="left"></a>
The GfK consumer climate survey that extrapolates a November figure for German confidence foresees a tailing off in consumer climate in Nov. 
</p><p> 
The GfK components are not updated for the projected climate reading in November, so they lag one month. But the indicators for income and buying propensities already had peaked and started lower. Income expectations peaked in July at a reading of 42.8 and have been rapidly losing ground ever since. The buying propensity had been moving higher until this month when it fell back from 45.0 to 44.4. It is the economic reading which has continued to surge higher, even in October. We cannot be sure what the shift in November is due to since we do not have component values for that month. But a decline is not really a surprise; except for the surging economic reading, the GfK components had already showed signs of exhaustion.
</p><p>
Still the German index is much better off than that for other EMU nations. The November Climate reading stands in the 89th percentile of its historic queue (count). This means it has been higher only about 11% of the time. The economic gauge stands in the 66th percentile of its queue, income stands in the 78th percentile of its queue and the buying propensity is in the 92nd percentile of its queue. From these assessments we can surmise that it is the economic index that has been surging and playing catch-up with the other metrics. The overall climate ranking is more in step with the rankings on income and buying than with the economy ranking.
</p><p>
When we compare these assessments with other EMU members, we find that over this same period from January 2002 to date, Italy's consumer metric stands only in the 28th percentile of its queue. France stands in the 26th percentile of its queue. German consumers are leagues ahead of other consumers in EMU.
</p><p>
It will be interesting to see if the German optimism is really going to start turning lower. European expectations have been lifted by the improved performance of the countries of Southern Europe and by Spain's emergence from recession. Still, it isn't at all clear what a setback in Germany would do to all this optimism. After all the German economy works off of export-led growth, not a phenomenon that helps to boost its neighbors.
</p><p>
In fact the US has just launched a criticism of the German model of export led growth in its semiannual report to Congress. Germany is already up in arms defending its system <a href="http://www.reuters.com/article/2013/10/31/us-germany-usa-trade-idUSBRE99U0M920131031">here.</a> 
</p><p>
But the fact is that demand is becoming increasingly scarce globally as formerly high consumption countries are pulling back as consumers are paying down debt and governments worldwide are becoming more debt-conscience, limiting their own spending. Countries whose national economics are geared to exploit that which is getting scare are bound to encounter criticism. In competitive markets a surplus country will find its currency is forced higher, diminishing its competiveness and causing its exports to slow. It follows that a country cannot have a policy of persistent export-led growth without manipulating exchange rate values.
</p><p>
In the case of Germany the exchange rate question becomes even more muddied since Germany is a highly competitive country whose currency should probably rise in value to diminish is export prowess (this will also increase German wealth and buying power-and eventually, German imports). But Germany is locked in a currency union with a lot of other nations with exactly the opposite problem! 
</p><p>
This is simply another way to see the inconsistencies in EMU and to recognize that the rest of the world is not immune from the effect of the imbalances created within the eurozone. 
</p>

<p><img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031.png" width="650" height="300"></p></html>

The GfK consumer climate survey that extrapolates a November figure for German confidence foresees a tailing off in consumer climate in Nov. The GfK components are not updated for the projected climate reading in November, so they lag [...]

German Consumer Climate Edges Lower with Repercussions?

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	  <br>
      
      <span id="articletext">
      <p></p>
      
      <p><a href="/comment/131031e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031e.png"></a>
      <a href="/comment/131031f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031f.png"></a></p>  
      
      <p>Factory sector activity in the Midwest region heated
      up this month. The MNI Chicago Report
      business barometer for October jumped to 65.9, its highest level since March
      of 2011. Expectations in the Action Economics Forecast Survey were for 55.0.
      <b>Haver Analytics constructs a seasonally adjusted, ISM adjusted index
      and it rose to 60.7, its highest level since November 2011.</b> During the
      last ten years there has been an 67% correlation between the adjusted
      Chicago index the quarterly change in real GDP.</p>
      
      <p>Improvement in the component series during October was broad-based, but
      new orders, production and unfilled orders each jumped. The employment
      series also rose to its highest level since June. During the last ten
      years there has been an 80% correlation between the employment index and
      the m/m change in factory sector payrolls.</p>
      
      <p>Pricing power deteriorated as the prices paid index fell to its lowest
      level since May. During the last ten years there has been a 67%
      correlation between the prices paid index and three-month growth in the
      intermediate goods PPI.</p>
      
      <p>The survey panel consists of 200 manufacturing purchasing professionals
      in the Chicago area. The MNI figures are copyrighted by the MNI Chicago
      Report in partnership with the Institute for Supply Management-Chicago.
      The figures from the survey can be found in Haver's <b>SURVEYS</b>
      database. The Consensus expectations figure is available in <b>AS1REPNA</b>.&nbsp;</p>
      
      <p><a href="/comment/131031g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031g.png"></a>
      <a href="/comment/131031h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/131031h.png"></a></p>
      
      <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
      
        <thead>
          <tr>
            <th class="firstcol" scope="col" >MNI Chicago Report
              (Diff. Index, 50=No Chg.)</th>
            <th scope="col" >Oct</th>
            <th scope="col" >Sep</th>
            <th scope="col" >Aug</th>
            <th scope="col" >Oct'12</th>
            <th scope="col" >2012</th>
            <th scope="col" >2011</th>
            <th scope="col" >2010</th>
          </tr>
        </thead>
        <tbody>
          <tr>
            <td class="firstcol" >ISM-Adjusted Business Barometer</td>
            <td  >60.7</td>
            <td  >54.0</td>
            <td  >52.2</td>
            <td  >51.2</td>
            <td  >54.8</td>
            <td  >61.3</td>
            <td  >59.0</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >Business Barometer</td>
            <td  >65.9</td>
            <td  >55.7</td>
            <td  >53.0</td>
            <td  >50.7</td>
            <td  >54.6</td>
            <td  >62.7</td>
            <td  >61.3</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;New Orders</td>
            <td  >74.3</td>
            <td  >58.9</td>
            <td  >57.2</td>
            <td  >50.6</td>
            <td  >55.1</td>
            <td  >65.3</td>
            <td  >63.4</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Production</td>
            <td  >71.1</td>
            <td  >58.0</td>
            <td  >53.0</td>
            <td  >53.6</td>
            <td  >57.5</td>
            <td  >66.5</td>
            <td  >65.0</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;Order Backlogs</td>
            <td  >61.0</td>
            <td  >46.7</td>
            <td  >46.5</td>
            <td  >45.6</td>
            <td  >48.0</td>
            <td  >55.5</td>
            <td  >54.5</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Deliveries</td>
            <td  >52.3</td>
            <td  >53.7</td>
            <td  >50.8</td>
            <td  >51.0</td>
            <td  >54.8</td>
            <td  >60.0</td>
            <td  >61.0</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;Inventories</td>
            <td  >48.0</td>
            <td  >46.0</td>
            <td  >45.0</td>
            <td  >49.6</td>
            <td  >51.4</td>
            <td  >55.2</td>
            <td  >50.5</td>
          </tr>
          <tr class="odd">
            <td class="firstcol" >&nbsp;&nbsp;Employment</td>
            <td  >57.7</td>
            <td  >53.2</td>
            <td  >54.9</td>
            <td  >51.1</td>
            <td  >55.3</td>
            <td  >59.4</td>
            <td  >55.2</td>
          </tr>
          <tr>
            <td class="firstcol" >&nbsp;&nbsp;Prices Paid</td>
            <td  >56.7</td>
            <td  >57.1</td>
            <td  >65.2</td>
            <td  >60.8</td>
            <td  >62.2</td>
            <td  >72.4</td>
            <td  >65.3</td>
 </tr>
              </tbody>
            </table>
            </span>
</body></html>

Factory sector activity in the Midwest region heated up this month. The MNI Chicago Report business barometer for October jumped to 65.9, its highest level since March of 2011. Expectations in the Action Economics Forecast Survey were [...]

MNI Chicago Index Jumps to Highest Level in Nearly Three Years

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Andrew Cates

**The Blue Chip Growth Consensus**
The first chart this week highlights a striking feature of recent forecast revisions: the outperformance of Asia, and Taiwan in particular. Over the past six months, Blue Chip panelists have upgraded their 2026 GDP growth forecasts most aggressively for Taiwan, far outpacing revisions elsewhere. This reflects the central role Taiwan plays in the global AI supply chain, especially in advanced semiconductors, where demand linked to data centres, AI accelerators and high-performance computing continues to strengthen. More broadly, positive revisions across parts of Asia suggest that the current AI-driven investment cycle is not just a US story, but one that is increasingly feeding through global tech supply chains, boosting exports, industrial production and capital spending across the region. In contrast, forecast changes elsewhere remain far more muted, underscoring how tightly the near-term growth impulse from AI is concentrated in economies most directly exposed to the semiconductor and hardware build-out.

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**The Blue Chip Inflation Consensus**
The second chart highlights a growing theme of cross-country divergence, this time through the lens of inflation and monetary policy. Recent changes to Blue Chip CPI forecasts for 2026 show upward revisions in economies such as Japan, Australia and Canada, where inflation pressures are proving more persistent and policy tightening is either already under way or increasingly expected. In contrast, inflation forecasts in the US have been revised lower, consistent with softer recent data and reinforcing expectations of further monetary easing. The result is an increasingly asymmetric global policy backdrop: some central banks are still leaning against residual inflation risks, while others are preparing to shift toward rate cuts. This divergence, moreover, could matter more for global capital flows, exchange rates and financial conditions in the period ahead.

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**South Korea’s Semiconductor Trade**
The third chart provides a concrete, high-frequency illustration of the forces underpinning the forecast upgrades seen earlier for Asia. South Korea’s semiconductor exports have surged sharply on a year-on-year basis, marking one of the strongest upswings of the past decade and underscoring the revival of the global tech cycle. This acceleration is closely linked to AI-related demand, particularly for advanced memory chips used in data centres and high-performance computing. Alongside Taiwan, South Korea sits at the core of the AI hardware supply chain, and the strength of semiconductor exports helps explain why growth expectations in parts of Asia have been revised higher so decisively. In this sense, the chart offers a real-economy counterpart to the consensus forecast revisions: the AI boom is not just a financial or expectations story, but one that is already showing up clearly in trade and industrial data across the region.

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**Global Supply Chain Pressures**
The fourth chart places recent inflation dynamics in a broader supply-chain context and offers little evidence that current US tariff policies are materially exacerbating global bottlenecks. The Global Supply Chain Pressure Index has remained close to historical norms in recent months, a sharp contrast with the extreme dislocations seen during the pandemic period. Consistent with this, producer price inflation across advanced economies has remained muted, reinforcing the tight relationship between supply-chain stress and upstream price pressures. While tariffs may still influence relative prices at the margin and contribute to sector-specific adjustments, the data do not point to a broad-based resurgence in supply-chain pressures of the kind that would generate renewed, systemic inflationary pressure.

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**Uncertainty in the US versus Europe** 
The fifth chart highlights a striking shift in the global policy uncertainty landscape. The US news-based economic policy uncertainty index has risen sharply and is now approaching levels more typically associated with Europe — a vivid contrast with the post-GFC and post-pandemic period, when US policy uncertainty was consistently well below European norms. This convergence likely reflects a combination of factors: renewed uncertainty around US trade policy and tariffs, questions over fiscal sustainability and debt dynamics, and growing debate around institutional independence, including the role of the Federal Reserve. At the same time, political polarisation and an increasingly unpredictable policy environment have become more prominent features of the US backdrop. The implications are potentially important for markets. A sustained rise in policy uncertainty would argue for a higher risk premium on US assets, particularly if it begins to influence corporate investment decisions, capital flows or the perceived safe-haven status of US markets.

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**The Global Business Cycle** 
The final chart brings the story together by highlighting a further strengthening in global economic sentiment in February. The Sentix global expectations index moved higher alongside a renewed run of positive economic surprises across a number of major economies, as captured by the Citi Global Economic Surprise Index. This combination points to an environment in which incoming data have consistently exceeded expectations, helping to reinforce investor confidence and support risk appetite. Taken together, the improvement in sentiment and the upside surprise in activity data underscore the constructive macroeconomic backdrop that markets have been responding to in recent months — one characterised by resilient growth, easing inflation pressures and still-supportive financial conditions, even as policy paths and regional dynamics continue to diverge.

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While markets have been unsettled at times by shifting policy expectations, geopolitical noise and questions around valuation, underlying global macroeconomic signals remain broadly supportive. Upgrades to Blue Chip consensus growth forecasts for parts of Asia — led by Taiwan — point to the tangible impact of the AI-driven tech cycle, a theme reinforced by the sharp rebound in semiconductor exports from South Korea (charts 1 and 3). At the same time, revisions to inflation forecasts underline a growing divergence in monetary policy paths, with easing still expected in the US and UK, while tighter stances persist elsewhere (chart 2). Importantly, there is little evidence so far that global supply-chain pressures are re-emerging in a way that would reignite inflation, notwithstanding lingering trade policy tensions (chart 4). Against this backdrop, rising policy uncertainty — particularly in the US — stands out as a potential source of risk, with implications for asset pricing and risk premia (chart 5). Yet the improvement in global sentiment surveys and a continued run of positive economic surprises suggest that markets are responding not just to policy noise, but to a genuinely resilient and improving macroeconomic environment (chart 6).

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Charts of the Week: AI-Led Growth Meets Monetary Divergence

Michael J. Moran

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Nonfarm payroll employment rose 130,000 in January, notably better than the expected increase of approximately 50,000 and far better than the average monthly gain of 15,000 in 2025. Some observers might not be impressed because the increase was concentrated in the health-care and social-services category (124,000), which is not especially sensitive to the business cycle. In addition, the increase in this category was unusually sharp, suggesting the possibility of random volatility.  The increase was the largest since the summer of 2020, when pandemic-related noise was driving activity.

To be sure, the employment gain outside of health-care and social-services was modest, but the report carried some bright spots nonetheless. The construction sector, which is highly sensitive to business conditions, rose sharply for the second time in the past three months (net gain of 65,000). Similarly, employment in business services, another area sensitive to the business cycle, rose for the third consecutive month, a marked shift from declines in nine of the prior ten months. The manufacturing sector added 5,000 jobs, a moderate change but a welcome break from 13 consecutive declines before January.

Results from the household survey also were favorable, with the unemployment dipping 0.1 percentage point for the second consecutive month. Also, it was a “strong” decline, with the drop reflecting a surge in employment as measured by the household survey (528,000) that exceeded a sharp increase in the size of the labor force (387,000). The broad unemployment rate (the so-calledU-6 measure) showed even sharper improvement (off 0.4 percentage point to 8.0%). Both of the two items added to the headline measure in the broad rate contribute to the decline. The number of individuals working part time for economic reasons fell 8.5% and the number of individuals marginally attached to the labor force fell 4.9%.

An increase of 0.4% in average hourly earnings could be viewed as a bright spot. The monthly change was in the upper end of the range from the past year or two, which left little change in the year-over-year increase (3.7%). The steady advance at a rate in excess of inflation shows that demand for workers has not evaporated.

The length of the average workweek often receives scant attention in reviews of the labor market, but it can be an important variable. Businesses can alter the pace of activity by adjusting hours worked rather than changing payrolls, and thus, shifts in the workweek can signal changes in the tempo of the economy. Fortunately, the workweek has been steady recently, rising 0.1 hour in January and moving to the upper end of the tight range that has been in place for the past year or two. 

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- The increase in employment in January was firm, although narrowly based.
- The unemployment rate dipped for the second consecutive month, led by strong employment as measured by the household survey.

January Employment Report: The Labor Market Has a Pulse

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Italian industrial production fell nearly across the board. In December, headline production fell by 0.2%; consumer goods output fell by 0.9% and intermediate goods output fell by 0.4%, while capital goods output was the exception, rising by 0.5%. Output had risen in all sectors in November; it had fallen across all sectors in October. As a result, the recent data are quite choppy and it's hard to make sense of what the underlying trend is or what might be developing.

Sequential data offer some opinions on this idea of where the trend is going. The headline output shows a 3.6% gain over 12 months, advances at a 1.1% annual rate over six months, and then declines at a 1.3% annualized rate over three months. The headline rate is clearly in a persistently declining phase. That phase is supported by intermediate goods where output is up 3.4% over 12 months, rises at a 0.7% annual rate over six months, and then falls at a 2.2% annualized pace over three months. Consumer goods and capital goods do not offer much clarity, swinging sequentially and failing to provide steppingstones to a new trend. Consumer goods output shows a 12-month gain of 0.3%, but that is substantially undermined by a 6.1% annualized decline over three months. However, for capital goods, a 7.2% growth rate over 12 months is quite similar to a 7% annualized gain over three months, showing that capital goods output has hardly lost a step despite a stumble over six months.

Output in the transportation sector in Italy is contrarily showing a tendency to acceleration in monthly data from October to November to December. Sequentially, this series is giving us no clear signals.

**Other trends**
In the quarter to date, Italian output is falling by a 0.8% annual rate, led by a 4.3% annual rate decline in consumer goods. However, capital goods output is increasing at a 3.4% annual rate, and intermediate goods output is up at a tepid 1.6% annualized pace. Since January 2021, the cumulative change in output is lower for manufacturing overall, for consumer goods output, and for intermediate goods, while capital goods output is up by 1.6% over that span. The ranking of year-over-year growth rates on data back to 2004 shows all the sectors with growth rates above the 50% mark, indicating that year-over-year growth across the Italian sectors is greater than their median over this broad period. Headline growth is exceptionally solid, with the ranking in its 81st percentile. The transportation sector, however, has a growth rate that ranks only at its 24th percentile.

**Indicators and surveys**
The bottom panel of the table presents performance by surveys; these tend to be more up-to-date, and they've come to be relied upon. Here we feature indicators from the EU industrial survey and from Istat on current orders and on the outlook for current production. In December, all three of these metrics showed declines; in November they all showed increases, and they showed increases in October similar to the increases logged in November. The changes in the levels of the variables over different horizons show a mild tendency toward weakening, but nothing that is clear or dramatic, looking at changes from 3-months. to 6-months, to 12-months. In the just-completed quarter (QTD), the change in the indicators is either flat or lower. All of them track below their historic median levels (rankings <50). The indicators clearly are showing weaker conditions than actual production data. These sorts of rifts are common between accounting data and survey-style diffusion data. They also generate controversy about which is right. I favor the accounting data.

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Italy

Italian IP Shows Gains in Progress

Kathleen Stephansen, CBE

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Mortgage applications edged down 0.3% w/w (+43.4% y/y) in the week ending February 6, following a drop of 8.9% w/w (+47.2% y/y) in the week ending January 30, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house declined 2.4% w/w (+5.5% y/y) in the latest week, after contracting 14.4% w/w (+5.6% y/y) in the week ending January 30.  Applications for loan refinancing rose 1.2% w/w (100.5% y/y) in the February 6 week, after declining 4.7% w/w (+117.3% y/y) in the January 30 week.

The effective interest rate on a 30-year fixed-rate loan edged up 1bp to 6.38% in the week ending February 6 from 6.37% in the week ending January 30. The rate on 15-year fixed-rate mortgages rose 6bps to 5.82% in the latest week from 5.76% in the prior week. The 30-year Jumbo rate fell 2bps to 6.40% in the February week from 6.42% in the January 30 week. The rate on a 5-year ARM edged down 1bp to 5.58% in the latest week from 5.59% in the week ending January 30.

The share of applications for refinancing an existing loan declined to 56.4% of total applications in the February 6 week from 57.1% in the January 30 week. The adjustable-rate mortgage (ARM) share of activity rose to 8.0% in the week ending February 6 from 7.5% in the week ending January 30.

The average size of a mortgage loan declined 1.2% w/w (+3.1% y/y) to $405,700 in the week ending February 6, after rising 1.9% w/w (6.6% y/y) to $410,800 in the week ending January 30. The average size of a purchase loan declined 1.6% w/w (-2.4% y/y) to $445,000 in the latest week, following a 2.6% w/w to $452,100 in the week ending January 30. The average size of a loan to refinance a mortgage declined 1.2% w/w (+24.9% y/y) to $375,200 in the week ending February 6, following a rise of 1.5% w/w to $379,700 in the week ending January 30.

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

- Applications for loans to purchase declined in the latest week while refinancing loan applications rose.
- Effective interest rate on 30-year fixed loans rose 1bp to 6.38%.
- Average loan size declined.

U.S. Mortgage Applications Edged Down in the February 6 Week

Winnie Tapasanun

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Total retail sales were essentially flat m/m in December, falling short of expectations, following a 0.6% increase in November (unrevised) and a 0.2% decline in October (-0.1% previously), data from the U.S. Census Bureau showed. A 0.5% m/m December increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate decelerated to 2.4% in December, the lowest since September 2024, from 3.3% in November; this compared with 4.6% in December 2024 and remained far below a high of 17.1% in February 2022 and a record-high 51.8% in April 2021. For all of 2025, retail sales increased 4.0% after gains of 2.6% in 2024 and 3.5% in 2023.

Excluding motor vehicles & parts, retail sales were virtually unchanged (3.3% y/y) in December after a 0.4% rise in November (+0.5% initially), which marked the sixth consecutive m/m gain. A 0.4% m/m December increase had been expected. Sales of motor vehicles & parts fell 0.2% (-1.1% y/y) following a 1.2% November rebound; this compared to a 2.8% rise (-4.2% y/y) in unit light vehicle sales after a 2.7% November increase.

Sales in the retail control group, which excludes autos, building materials, gasoline stations, and food services, eased 0.1% (+3.4% y/y) in December, the first m/m decline since September, after a 0.2% increase in November. These sales are used in the construction of personal consumption expenditures in NIPA accounts. Nonauto sales excluding gasoline & building materials dipped 0.1% (+3.6% y/y), also down for the first time since September, following a 0.3% November rise.

Sales by category showed mixed performance in December. To the downside, furniture & home furnishing store sales slid 0.9% (-5.6% y/y) in December, the fourth m/m slide in five months, after a 0.1% easing in November. Miscellaneous store sales fell 0.9% (+9.4% y/y), the first m/m fall since August, after a 1.3% November rise. Clothing & accessory store sales declined 0.7% (+5.1% y/y), the first m/m decrease in three months, reversing a 0.5% November increase. Electronics & appliance store sales fell 0.4% (+2.1% y/y) after rising 0.2% in November and October. General merchandise store sales slipped 0.1% (+1.2% y/y) for the second consecutive month in December; within this grouping, department store sales fell 0.7% (-0.3% y/y), the third m/m fall in four months, following a 3.1% November drop.

To the upside, building materials & garden equipment store sales climbed 1.2% (0.5% y/y) for the second successive month in December. Sporting goods, hobby, book & music store sales rose 0.4% (6.0% y/y), the fifth m/m rise in six months, after a 0.9% November increase. Gasoline station sales grew 0.3% (1.6% y/y), the sixth m/m gain in seven months, on top of a 1.7% November rebound. Nonstore retail sales were up 0.1% (5.3% y/y) in December after virtually unchanged in November.

In the nondiscretionary sales categories, health & personal care store sales fell 0.2% (+6.4% y/y) in December, down for the second time in three months, following a 0.3% increase in November. Food & beverage store sales rose 0.2% (1.1% y/y) after a 0.1% November dip.

Consumers appeared to dine out less frequently in December amid still-high inflation (December CPI +0.3% m/m, +2.7% y/y; core CPI +0.2% m/m, +2.6% y/y). Restaurant & drinking place sales eased 0.1% (+4.7% y/y) in December, the second m/m decline in three months, following an upwardly revised 0.7% rise in November (+0.6% initially).

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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- December total retail sales -0.02%, below expectations; +2.4% y/y, lowest since Sept. ’24.
- Ex-auto sales +0.02% (+3.3% y/y) after six straight m/m rises; auto sales -0.2% (-1.1% y/y).
- Declines m/m: furniture stores (-0.9%), misc. stores (-0.9%), clothing stores (-0.7%).
- Gains m/m: bldg. materials (+1.2%), sporting goods (+0.4%), gasoline stations (+0.3%).