Robert Brusca

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On the surface Spain's prices appear to be fairly well behaved. In the recession producer prices, import prices and export prices all fell year-over-year. As recovery came, all these prices begin to expand year-over-year and generally with a good deal of vigor. That occurred until about the middle of 2012. Since then, prices in Spain have continued to ease their rate of expansion and have been posting extremely week rates of growth. Import prices ratcheted down year-over-year and export import prices both had also posted year-over-year drops and are now closer to posting flat trends.


When we dig slightly deeper into the commodity composition of price inflation we see very different things going on at the producer level, at the export level and at the import level for consumer prices, intermediate goods prices, and investment goods or capital goods prices.


We focus on 12-month price trends to simplify the comparisons. PPI prices are rising by 0.8% year-over-year. That's a small increases yet it is faster than for overall export or import prices, both of which are falling on balance over 12-months. Look at individual categories: we find consumer goods import prices are strongest, followed by producer prices and exports. Yet Spain's consumer sector does not seem very strong. Why are its import prices relatively so firm?


Intermediate goods prices are falling for all categories; their strongest result is for producer prices where the decline is only 0.5% over 12 months. For intermediate goods, the weakness grows for export prices and for import prices- the latter are down by 7.8% year-over-year. Lest you think this is being driven by commodity prices, the biggest year-over-year weakness is in imports but it's from capital goods down by 15.3% Year-over-year. By comparison capital goods export prices are down but only by 3.4% year-over-year and domestically investment goods prices are flat over 12 months.


If we look to see where Spain ranks in the Eurozone on inflation performance over the last 12 months it's back in the pack suffering a relatively higher inflation rate than most of the original European monetary union members; its producer price inflation ranks it as the seventh lowest among the original 11 EMU members who have reported figures. Spain is not doing an excellent job on inflation compared to the rest of the Zone. Its producer prices are generally holding up better than either export import prices. This is despite the fact that Spain's economy has been weak, yet the export and import universe appears to be much worse.


With weakness in global demand and rampant conditions of excess supply, it's not so surprising to find weakness in capital goods prices. In Spain's particular business cycle weakness was concentrated in the construction sector. It's not surprising to find capital goods prices are being dragged down by a tremendous oversupply and weakness in Spain's construction sector. Still globally capital goods export and import prices are even weaker than in Spain's domestic market. 


Spanish export goods generally are finding world markets weaker than the Spanish markets at home, at least judging from the performance of export prices for goods intermediate goods and capital goods and even for consumer goods.


While the trends for overall export, import and producer prices seem to more or less track together over the cycle, the various sectors are showing very wide differences in performance. And even with Spain as one of the weaker countries in the monetary union, the additional weakness in its export and import prices is not reassuring either for Spain or for the prospects for growth for the rest of EMU. 


Since 2001 export prices have risen relative to import prices for each commodity category but the rise has been greatest for intermediate goods where export prices have risen much more than import prices since 1991. 


Just today the Bundesbank has issued a warning for a slowdown in the German economy in the second half. The Bundesbank is admitting a pickup in the second quarter but attributing it largely to weather and is seeing further weakness as its view shifts to the third quarter. Germany does depend a lot on capital goods exports and we know it has cultivated Chinese markets. The weakness there may be having blowback effects on Germany and that may be another factor that's been picked up in week Spanish import prices for capital goods.


There are a lot of cross currents in Europe. This analysis of various trends in Spanish prices is a reminder to look deeper into price trends to find out what's really going on rather than to simply rely on headlines to tell the story. The headlines are not telling the story. This is especially true when you look at the headlines being made by our monetary policy makers or our fiscal policymakers or by our international policymakers at the G 20. Be very careful to look at the details because that's where you'll find the real story. The devil is truly in the details.



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On the surface Spain's prices appear to be fairly well behaved. In the recession producer prices, import prices and export prices all fell year-over-year. As recovery came, all these prices begin to expand year-over-year and generally [...]

Spain's price trends reveal global turbulence

Tom Moeller

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 The Chicago Federal Reserve indicated that its
 National Activity Index (CFNAI) again was negative last month. The rate of
 decline moderated, however,&nbsp; to -0.13 from its worst of -0.98 in
 August of last year. The three-month moving average of deterioration
 moderated slightly to -0.26, better than the low of -0.50 last August.
 During the last ten years, there has been a 79% correlation between the
 Chicago Fed Index and the q/q change in real GDP.
 Monthly changes in the index components have been mixed. The Production
 &amp; Income component showed the greatest m/m improvement with a m/m
 recovery to a minimal 0.04. That's up from last year's low of -0.49. The
 Employment, Unemployment &amp; Hours series gained minimally to 0.06. The
 Personal Consumption &amp; Housing reading deteriorated -0.19 and reversed
 four months of improvement. Sales, Inventories &amp; Inventories slipped
 to -0.04 and has been in a sideways trend since early 2011. The Chicago
 Fed reported that during June, 41 of the 85 individual indicators made
 positive contributions to the overall index while 44 made negative
 contributions.
 The CFNAI is a weighted average of 85 indicators of national economic
 activity. It is constructed to have an average value of zero and a
 standard deviation of one. Since economic activity tends toward trend
 growth rate over time, a positive index reading corresponds to growth
 above trend and a negative index reading corresponds to growth below
 trend.
 The Chicago Federal Reserve figures are available in Haver's SURVEYS
 database.&nbsp;
 
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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="600">Chicago Federal Reserve
 Bank</th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Jun'12</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="600">CFNAI</td>
 <td >-0.13</td>
 <td >-0.29</td>
 <td >-0.37</td>
 <td >-0.47</td>
 <td >-0.08</td>
 <td >-0.08</td>
 <td >0.02</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="600">&nbsp;3-Month Moving Average</td>
 <td >-0.26</td>
 <td >-0.37</td>
 <td >-0.07</td>
 <td >-0.20</td>
 <td >--</td>
 <td >--</td>
 <td >--</td>
 </tr>
 <tr>
 <td class="firstcol" width="600">&nbsp;&nbsp;Personal Consumption
 &amp; Housing</td>
 <td >-0.19</td>
 <td >-0.15</td>
 <td >-0.18</td>
 <td >-0.27</td>
 <td >-0.22</td>
 <td >-0.30</td>
 <td >-0.30</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="600">&nbsp;&nbsp;Employment,
 Unemployment &amp; Hours</td>
 <td >0.06</td>
 <td >0.00</td>
 <td >-0.02</td>
 <td >0.01</td>
 <td >0.10</td>
 <td >0.14</td>
 <td >0.03</td>
 </tr>
 <tr>
 <td class="firstcol" width="600">&nbsp;&nbsp;Production &amp; Income</td>
 <td >0.04</td>
 <td >-0.12</td>
 <td >-0.26</td>
 <td >-0.04</td>
 <td >0.04</td>
 <td >0.05</td>
 <td >0.20</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="600">&nbsp;&nbsp;Sales, Orders &amp;
 Inventories</td>
 <td >-0.04</td>
 <td >-0.02</td>
 <td >0.10</td>
 <td >-0.13</td>
 <td >-0.01</td>
 <td >0.04</td>
 <td >0.09</td>
 </tr>
 </tbody>
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The Chicago Federal Reserve indicated that its National Activity Index (CFNAI) again was negative last month. The rate of decline moderated, however, to -0.13 from its worst of -0.98 in August of last year. The three-month moving [...]

U.S. Chicago Fed National Activity Index Remains Negative

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 Global Inflation Trends are Locked Together

 
 
 
 

 
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Local inflation trends seem to be launched on highly similar paths. Headline inflation in Canada is up by 1.2% compared to 1.8% in the US and 1.6% in the European Monetary Union. Canada's inflation of 1.2% is its highest since August 2012 when it ran a 1.3%. From November 2012 through May 2013 Canada's inflation rate has been under 1% for every month except February 2013 when it eked out 1.1%. However, it's poked up to 1.2% in June and the Bank of Canada, with a new governor, is looking to extend its record of having run excellent monetary policy.


Over the years economists have basically been taught to observe inflation as principally a monetary phenomenon which means it's principally a domestic monetary phenomenon. And, of course, no sooner do we teach everyone this sort of lesson that it no longer seems to be true. I realize that that's a bit of heresy.


Clearly global demand conditions have a lot to do with keeping inflation low on a worldwide basis at the moment. Having come through a financial crisis and, in fact, not having really having come all the way through it, we find that we are possibly still only in the eye of the storm. There is still the final leg of the extraction from the crisis to be accomplished. The crisis both revealed and created substantial worldwide debt problems. These problems, in turn, threw nations and their individual transactors into a state of disequilibrium, forcing them to deal with what they suddenly realized was a situation of excess debt. Thus the need for individuals and nations to devote more resources to paying off past debts rather than to piling on more debt and spending in excess of income has knocked spending trends off their patterns leaving many industries with excess supply. 

Excess supply drives prices lower.
In this situation, excess supply has exerted substantial pressure, downward pressure, on global prices. That's one of the reasons that we see inflation subdued globally. Countries are linked by international trading and capital flows so that price disturbances in one area also affect another area.


However, what we also see is that while there are substantial growth rate differences in the growth of the M2 money stocks in the United States, the European Monetary Union, and in Canada, their money growth rates also have broadly gone through the same sorts of transitions. 


Prior to the onset of the financial crisis money growth rates were accelerating. In EMU the growth rate of money peaked before the financial crisis; in both the US and in Canada the growth rate of money spurted and peaked during the crisis. 


In all three regions money growth rates dived during the crisis. Early on, during the workout phase, money growth was moderate and low in Canada and in EMU, accelerating only in middle-to-late 2011, while, in the US, money growth rates have been much stronger from the outset. They saw a bubble in the growth rate emerge, then growth rate settled back down below 7 1/2%. Currently growth rates in these three countries see M2 roughly between 5% and 7 1/2%.


Monetary theory warns us never to be too certain about predicting inflation. The monetary expert Milton Friedman long ago warned of how money supply had long and variable lags in its effect on the economy. However, I think in this increasingly open global economy, with increased reliance on capital flows, the rules and linkages between money supplies and prices have become even more complicated. Technology and the use of different kinds of monies for transactions also complicates the relationship between money supply and inflation overall.


When we compare national inflation rates we are comparing apples with apples. Whatever the new forces are that are interposing themselves between the money supply growth and inflation, are occurring throughout the global economy and having more or less the same effect on price developments everywhere. Central banks currently are trying to decide how much they can introduce more stimulus without risking the spillover to more inflation.


While the chart of money supply shows what's going on with money supply and we been warned about the effects of excess money growth on the price level, there is another, perhaps greater, risk than money growth. Countries have also been experimenting with policies of quantitative easing: the Federal Reserve in the United States, the Bank of England, the Bank of Japan and the National Bank of Switzerland, all have substantially ballooned the central bank balance sheets to an even greater extent than money supply begins to hint. 


There are great concerns of what happens when central banks began to unwind these policies. Although I think what that really means is that there are great concerns about what happens when economic conditions normalize and these excess reserve conditions begin to have that effect that we would construe as a normal impact on the economy requiring central banks to take countervailing actions.


Just today North Korea has asked that countries begin to think about some kind of global approach to what happens when United States actually begins its tapering activities and then eventually does what it needs to do to unwind the effects of its massive quantitative easing program. There will be international repercussions. The Fed won't be the only central bank with a balance sheet bloat to unwind. 


You'll remember that the initial impact of quantitative easing was to weaken the dollar and that led Brazil, and other BRIC countries, to scream bloody murder. In reaction, Fed Chairman Ben Bernanke urged to them to provide their own stimulus and lower their own domestic savings rates. This argument (that will never be settled!) is that the US deficit is in some sense the residual outcome of other countries running surpluses that are too large because they pursue strategies of export-led growth. In a monetary system with the dollar as the center country the US will be what economists call the 'N-minus-one' country and will soak up whatever is the residual of other countries actions. The Chinese have pushed back against this argument for a long time. However, with the financial crisis in tow, with US companies flush with funds on their balance sheet, with US banks having billions upon billions of dollars of excess reserves (which they choose not the lend), the question remains why is the US sucking and one half of one trillion dollars per year or more in capital flows? Why? 


Surely the US has plenty of capital and liquidity? It has no inability to satisfy financial needs. But, of course, the real reason the US does this is because it needs to finance its trade deficit not because it needs more capital inflows. The US does not need more 'capital', it needs more foreign currency to pay its bills or for the foreigners it increasingly owes to hold more dollars. The last thing the US needs is more capital inflows - or more foreign debt. Interest rates already are low and investors are scrambling to figure out what to do with their monies. The Fed's tilt on quantitative easing which is in fact a policy that leans heavily on the credit channel, is to scoop up most of the highly rated and safe financial assets and force the private sector to make decisions to engage in more risky lending. Foreign inflows are not a solution to the problem.


These capital flows often bring foreigners into markets that they understand less well than they should. To the extent that foreign monies are plowing into countries less for the reason of making a certain investment return than for the reason of pursuing a national macro-economic objective of pegging their exchange rate, the more likely it is that the monies invested are not invested productively.


For now problems, risks and uncertainties in the credit side of the market are constraining bank lending and risk-taking in securities markets. Banks, for their part, are lending more cautious because they are wary of changes that might come from ongoing legislation. Lawmakers are trying to solve the too big to fail problem as well as to make sure that banks are well enough capitalized so that the problems of the last financial crisis do not re-visit us.


This explains why the economic recovery is so much less than robust. We have not simply put our shoulder to the wheel to try to advance economic growth as fast as possible. We have been dealing with the problems caused by the past financial crisis and recession. In addition to dealing with those issues we have also been planning ahead, trying to reconfigure our economy and financial environment so that it is safer in the future. It's a little bit like trying to drive your car and to repair it at the same time.


This week has put the Federal Reserve in the limelight with the Federal Reserve Chairman's biannual presentation on monetary policy in front of the House and Senate financial committees. About the only thing that is clear in the wake of these testimonies is that the Fed really doesn't know what it's going to do yet. By that I don't mean that it's confused but that is still keeping its options open since there is still some dissent within the Fed about what the Fed's role should be and there is still considerable uncertainty about the economy - both domestic and global- as well as uncertainty about the US fiscal agenda that will be faced in the second half of the year.



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Local inflation trends seem to be launched on highly similar paths. Headline inflation in Canada is up by 1.2% compared to 1.8% in the US and 1.6% in the European Monetary Union. Canada's inflation of 1.2% is its highest since August [...]

As Central Banks Struggle With Policy,

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 Economic analysts suggest that GDP growth
 softened last quarter following its 1.8% rise during Q1'13. Recent
 movement in commodity prices support that conclusion. Yesterday's
 industrial commodity price index, from the Foundation for International
 Business and Economic Research (FIBER), was 163.2 and 8.2% lower than in
 mid-February.
 
 Prices in the miscellaneous group have led the decline. Prices
 for both structural panels and framing lumber have declined by roughly
 one-quarter since April. Natural rubber prices have moved down as well.
 Prices in the metals group have been only
 somewhat less weak. Aluminum prices are 17.0% below the December high and
 are off 6.0% during the last twelve months. Copper prices have fallen a
 like amount since February and are down 10.0% y/y. With a 12.0% decline
 since April, steel scrap prices (-6.4% y/y) have been weak as well.
 
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 In the textile group, prices also have
 been soft. Burlap prices are down 14.0% since March and by 7.0% y/y.
 Cotton prices have been more stable, showing little-change since April but
 a one-quarter improvement y/y. Also to the upside have been crude
 oil &amp; benzene prices. Crude oil prices have risen one-quarter
 since their November low but are still below the high of $113.93 per
 barrel in May 2011. Working the other way, prices for the petrochemical
 benzene are off 20.0% since February (-3.2% y/y). 
 
 The current industrial output forecast from the National Association
 for Business Economics calls for 3.1% growth this year but then a pickup
 to 3.5% in 2014. These growth rates suggest some future firming of
 industrial commodity prices. During the last ten years there has been a
 42% correlation between the three-month change in prices and the change in
 factory sector industrial production.
 
 Commodity price data can be found in Haver's DAILY, WEEKLY, USECON
 and CMDTY databases.
 
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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	<thead>
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 <th class="firstcol" scope="col" >FIBER Industrial
 Materials Price Index (1990=100)</th>
 <th scope="col" >07/18/13</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >All Items</td>
 <td >163.2</td>
 <td >1.1</td>
 <td >166.4</td>
 <td >173.0</td>
 <td >157.9</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Textiles</td>
 <td >77.8</td>
 <td >2.2</td>
 <td >77.9</td>
 <td >86.1</td>
 <td >81.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Cotton (cents per
 pound)</td>
 <td >79.8</td>
 <td >20.7</td>
 <td >74.5</td>
 <td >132.8</td>
 <td >87.8</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Metals</td>
 <td >222.2</td>
 <td >-2.1</td>
 <td >243.0</td>
 <td >278.7</td>
 <td >240.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Aluminum ($ per metric
 ton)</td>
 <td >1,772.0</td>
 <td >-5.1</td>
 <td >2,019.6</td>
 <td >2,400.9</td>
 <td >2,172.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Copper Scrap (cents per
 pound)</td>
 <td >314.0</td>
 <td >-8.8</td>
 <td >360.6</td>
 <td >400.3</td>
 <td >326.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Steel Scrap ($ per ton)</td>
 <td >324.3</td>
 <td >-6.7</td>
 <td >366.7</td>
 <td >412.6</td>
 <td >326.5</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Crude Oil &amp; Benzene</td>
 <td >211.8</td>
 <td >5.9</td>
 <td >204.1</td>
 <td >199.3</td>
 <td >182.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Crude Oil (WTI, $ per
 Barrel)</td>
 <td >106.4</td>
 <td >18.3</td>
 <td >94.2</td>
 <td >95.0</td>
 <td >79.4</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" >&nbsp;Miscellaneous</td>
 <td >205.0</td>
 <td >0.7</td>
 <td >205.3</td>
 <td >190.6</td>
 <td >179.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Framing Lumber ($ per
 1000 board ft.)</td>
 <td >335</td>
 <td >5.0</td>
 <td >321</td>
 <td >273</td>
 <td >283</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Natural Rubber (cents
 per pound)</td>
 <td >176.0</td>
 <td >-13.1</td>
 <td >211.9</td>
 <td >262.3</td>
 <td >182.9</td>
 </tr>
 </tbody>
 </table>
 
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Economic analysts suggest that GDP growth softened last quarter following its 1.8% rise during Q1'13. Recent movement in commodity prices support that conclusion. Yesterday's industrial commodity price index, from the Foundation for [...]

FIBER: Industrial Commodity Prices Weaken This Year

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The index of Leading Economic Indicators, published by the Conference Board,
was unchanged last month (2.8% y/y). The figure followed a 0.2% May
uptick, last month reported as 0.1%. A 0.3% rise had been expected for June. A
stable 55% of the component series had a positive influence on the index. A
steeper interest rate yield curve and the leading credit index had the largest
positive influences on the total. These were offset by fewer building permits
and a lower ISM new orders index.
The index of coincident indicators gained 0.2% (1.8% y/y) for the third
straight month. Each of the component series - payroll employment, personal
income less transfers, manufacturing &amp; trade sales and industrial production
- increased.
The index of lagging economic indicators rose 0.3% (3.4% y/y) after a minimal
0.4% May rise. These increases suggest economic excesses are building. A longer
duration of unemployment and a higher consumer installment/income ratio paced
last month's increase. 
Another leading economic series is the ratio of coincident-to-lagging
indicators. It measures how the economy is performing versus its excesses. The
figure was unchanged last month (-1.5% y/y) at its lowest level of the economic
expansion.
The Conference Board figures are available in Haver's BCI database;
the components are available there, and most are also in USECON. The
forecast figures for the Consensus are in the AS1REPNA database. Visit
the Conference Board's <a href="http://www.conference-board.org/">site</a> for
coverage of leading indicator series from around the world.&nbsp;
 
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 <th class="firstcol" scope="col" >Business Cycle Indicators (%)</th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Leading</td>
 <td >0.0</td>
 <td >0.2</td>
 <td >0.8</td>
 <td >2.8</td>
 <td >2.0</td>
 <td >5.1</td>
 <td >8.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Coincident</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >0.2</td>
 <td >1.8</td>
 <td >2.1</td>
 <td >2.4</td>
 <td >1.2</td>
 </tr>
 <tr>
 <td class="firstcol" >Lagging</td>
 <td >0.3</td>
 <td >0.4</td>
 <td >0.2</td>
 <td >3.4</td>
 <td >3.6</td>
 <td >2.7</td>
 <td >-3.1</td>
 </tr>
 </tbody>
 </table>
 
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The index of Leading Economic Indicators, published by the Conference Board, was unchanged last month (2.8% y/y). The figure followed a 0.2% May uptick, last month reported as 0.1%. A 0.3% rise had been expected for June. A stable 55% [...]

U.S. Leading Economic Indicators Are Unchanged

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Economic momentum is picking up. The Philadelphia Federal Reserve Bank
reported that its General Business Conditions Index for July jumped to 19.8.
This figure was the highest level since March 2011 and it followed an unrevised
12.5 in June. Less of a rise to 7.8 had been expected. Haver Analytics
constructs a seasonally adjusted figure comparable to the ISM index. It slipped
to 49.4 but remained the highest level since December. During the last ten
years there has been a 71% correlation between the adjusted Philadelphia Fed
index and real GDP growth.
Improvement in the Composite Index was driven by a higher employment figure
of 7.7, the first positive number since March. During the last ten year there
has been a 79% correlation between the employment index and the m/m change in
nonfarm payrolls. The shipments series also rose to its highest level since
December, the unfilled orders increased to its best level in six months and the
vendor deliveries series turned positive, indicating slower delivery speeds.
Offsetting these improvements was a sharp drop in the new orders index and a
lower inventories reading.&nbsp;
Pricing power deteriorated slightly after its sharp June improvement. Twenty
nine percent of firms paid higher prices while eight percent paid less. During
the last ten years there has been a 71% correlation between the prices paid
index and three-month growth in the intermediate goods PPI.
The separate index of expected business conditions in six months jumped to
44.9, the highest level since March 2011. The employment figure surged to its
highest reading since 1984 (no typo). The new orders also firmed to its highest
level since 2003 while most other series improved significantly.
The survey panel consists of 150 manufacturing companies in Federal Reserve
District III (consisting of southeastern PA, southern NJ and Delaware.) The
diffusion indexes represent the percentage of respondents indicating an increase
minus the percentage indicating a decrease in activity. The ISM adjusted figure,
calculated by Haver Analytics, is the average of five diffusion indexes, new orders, production, employment, supplier deliveries and inventories
with equal weights (20% each). Each diffusion index is the sum of the percent responding "higher" and one-half of the percent responding "same".
The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS
database. The Consensus expectations figure is available in AS1REPNA.&nbsp;

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 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" >Philadelphia Fed (%, SA)</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Jul'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 General Business Conditions</td>
 <td >49.4</td>
 <td >49.6</td>
 <td >45.8</td>
 <td >45.7</td>
 <td >47.7</td>
 <td >51.9</td>
 <td >50.7</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >General Business Conditions</td>
 <td >19.8</td>
 <td >12.5</td>
 <td >-5.2</td>
 <td >-9.1</td>
 <td >-0.2</td>
 <td >7.7</td>
 <td >12.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;New Orders</td>
 <td >10.2</td>
 <td >16.6</td>
 <td >-7.9</td>
 <td >-2.1</td>
 <td >-0.1</td>
 <td >7.2</td>
 <td >5.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Shipments</td>
 <td >14.3</td>
 <td >4.1</td>
 <td >-8.5</td>
 <td >-7.5</td>
 <td >-1.4</td>
 <td >9.9</td>
 <td >8.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Unfilled Orders</td>
 <td >-1.8</td>
 <td >-7.9</td>
 <td >-9.3</td>
 <td >-8.6</td>
 <td >-6.5</td>
 <td >-0.9</td>
 <td >-3.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Delivery Time</td>
 <td >0.5</td>
 <td >-9.3</td>
 <td >-6.0</td>
 <td >-14.5</td>
 <td >-9.1</td>
 <td >-0.4</td>
 <td >0.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Inventories</td>
 <td >-21.6</td>
 <td >-6.6</td>
 <td >4.1</td>
 <td >-7.7</td>
 <td >-6.0</td>
 <td >-0.3</td>
 <td >-4.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Number of Employees</td>
 <td >7.7</td>
 <td >-5.4</td>
 <td >-8.7</td>
 <td >-4.7</td>
 <td >0.0</td>
 <td >11.0</td>
 <td >4.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Prices Paid</td>
 <td >21.5</td>
 <td >22.5</td>
 <td >6.9</td>
 <td >10.3</td>
 <td >17.6</td>
 <td >39.3</td>
 <td >29.0</td>
 </tr>
 </tbody>
 </table>
 
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Economic momentum is picking up. The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for July jumped to 19.8. This figure was the highest level since March 2011 and it followed an unrevised 12.5 [...]

Philadelphia Fed Business Conditions Index Improves To Two-Year High

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Retail sales in the United Kingdom edged higher by 0.2% in June after surging by 2.1% in May. The May rise more than offsets a 1.3% drop in April. Putting the tangled trail of retail sales together still leads the UK to a 4.1% growth rate in nominal retail sales over three-months compared to 5.7% over six-months and 3.8% over 12 months. Growth in the recent 12 month period, at 3.8%, is exceeding growth in the previous 12 month period which was 2.4%. Clearly there is an acceleration in retail sales of some sort or, a somewhat worse case, a stabilization of retail sales at a growth rate somewhere between 4% and 6%, but well above 2.4%. Neither of these outcomes is bad.

Excluding motor vehicles and parts the acceleration in retail sales is clearer. On that metric sales are up at a 5.2% annual rate over three months 4.6% over six months and 2.2% over 12 months. Food, beverage and tobacco sales have weakened somewhat in the recent three months, but the clothing and footwear purchases have accelerated sharply over the recent three months.

Retail sales volumes also tell a story of acceleration. Over three months retail volumes are up at a 5.2% annual rate compared with 4.6% annual rate over six months and 2.2% over 12 months. UK economy seems to be finding its legs.

Of course there are other signs of progress. The number of Britons claiming jobless benefit allowances posted the steepest decline in three years in June; the claimant count came in at 1.48 million down by 21,200 on the month. That was the largest drop since June 2010. And, while European auto sales have been carving out a 17 year low, car production in the UK continued to advance on increased demand in both the local and the export market as car production UK is up by 10.4% year-over-year.

Looking at the what-have-you-done-for-me-lately metric, the behavior of sales in the current quarter, where data have just come in for June to complete the quarterly picture, we see retail sales running at a 4.1% annual rate in nominal terms and 3.6% in real terms. That nominal increase of 4.1% is reduced to 3.6% when we look at retail sales excluding motor vehicles and parts.

On balance UK sales are slightly weaker in real terms in the second quarter than they been over three months and over six months. Still, the 3.6% rate of increase is quite solid. It is buttressed by firm trends outside of motor vehicles and by performance in terms of demand for automobiles that has come from both inside and outside the United Kingdom. Of course, external demand does not boost UK retail sales but it boosts the UK economy overall and indirectly supports UK economic growth and demand. The recent plunge in jobless claims seekers is clearly good news for the labor market and potentially for income growth prospects as well. However, optimism on the UK needs to be tempered by the fact of its close association with countries in the euro-Zone where demand overall is flagging, economic growth is challenged, where domestic demand is weak, and where there is a good deal of political turmoil still in train.








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Retail sales in the United Kingdom edged higher by 0.2% in June after surging by 2.1% in May. The May rise more than offsets a 1.3% drop in April. Putting the tangled trail of retail sales together still leads the UK to a 4.1% growth [...]

UK Retail sales stay off to the races

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 First time unemployment insurance claims fell to 334,000 (-12.6%
 y/y) during the week ended July 13 from a revised 358,000 during the
 week prior, initially reported as 360,000. The decline outpaced
 expectations for a drop to 340,000. The four week moving average of claims
 fell to 346,000. The latest claims figure covers the survey week for July
 nonfarm payrolls and claims fell 21,000 (5.9%) from the June period.&nbsp;
 During the last ten years, there has been a 74% correlation between the
 level of claims and the m/m change in nonfarm payrolls.
 Continuing claims for unemployment insurance in the week ended July 6
 increased to 3.114 million (-6.1% y/y) from an upwardly revised 3.023
 million. The four week moving average of continuing claims rose to 3.019
 million. The insured rate of unemployment ticked up to 2.4% after two
 months at 2.3%. 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 June 29, the latest figure
 available, the grand total of all benefit recipients was unchanged w/w at
 4.520 million, (-21.5% y/y). That compares to a cycle peak of 12.060
 million in January 2010. The number of individuals who were collecting
 emergency and extended payments fell to a cycle low of 1.637 million (-35.2%
 y/y).
 By state, the insured rate of unemployment continued to vary greatly
 with Virginia (1.23%), Oklahoma (1.41%), Indiana (1.50%), Texas (1.59%),
 Ohio (1.59%), Georgia (1.66%), Tennessee (1.67%) and Maine (1.68%) at the
 low end of the range. At the high end were Michigan (1.91%), North
 Carolina (2.22%), Massachusetts (2.27%), Illinois (2.54%), New York (2.69%),
 California (3.16%), Pennsylvania (3.16%) and New Jersey (3.20%).
 Data on weekly unemployment insurance are contained in Haver's WEEKLY
 database and they are summarized monthly in USECON. Data for
 individual states are in REGIONW. The consensus estimates come from
 the Action Economics survey, carried in the AS1REPNA database.
 
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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" >Unemployment Insurance (000s)</th>
 <th>07/13/03</th>
 <th>07/06/13</th>
 <th>06/29/13</th>
 <th>Y/Y %</th>
 <th>2012</th>
 <th>2011</th>
 <th>2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Initial Claims</td>
 <td >334</td>
 <td >358</td>
 <td >344</td>
 <td >-12.6</td>
 <td >375</td>
 <td >409</td>
 <td >459</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Continuing Claims</td>
 <td >--</td>
 <td >3,114</td>
 <td >3,023</td>
 <td >-6.1</td>
 <td >3,318</td>
 <td >3,744</td>
 <td >4,544</td>
 </tr>
 <tr>
 <td class="firstcol" >Insured Unemployment Rate (%)</td>
 <td >--</td>
 <td >2.4</td>
 <td >2.3</td>
 <td >2.6 
 (7/12)</td>
 <td >2.6</td>
 <td >3.0</td>
 <td >3.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Total &quot;All Programs&quot;
 (NSA)</td>
 <td >--</td>
 <td >--</td>
 <td >4.520M</td>
 <td >-23.3</td>
 <td >6.047M</td>
 <td >7.750M</td>
 <td >9.850M</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

First time unemployment insurance claims fell to 334,000 (-12.6% y/y) during the week ended July 13 from a revised 358,000 during the week prior, initially reported as 360,000. The decline outpaced expectations for a drop to 340,000. [...]

U.S. Initial Claims for Unemployment Insurance Retreat

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

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

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Michael J. Moran

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The consumer price index rose 0.2% in January, slower than the expected increase of 0.3% (and it rounded up to reach the published advance – 0.17% when calculated with more precision; annual rate of 2.04%). The latest monthly increase left the year-over-year at 2.4%, down from a recent high of 3.0% in September and bested by only one other recent reading: 2.3% in April of last year.

A drop of 1.5% in energy prices helped to contain the headline index. The drop was led by sharp retreats in the prices of both fuel oil and gasoline (off 5.7% and 3.2%, respectively). Energy prices have jumped around from month-to-month, but they have stayed within a narrow range in the past two years. Food prices rose 0.2% in January after a surge of 0.7% in the prior month. The food category experienced severe pressure during the inflation burst in 2022 (peak of 11.4%). Pressure settled in 2024, with annual food inflation easing to a low of 2.0% in August of that year. However, prices picked up again in 2025, with the year-over-year increase moving to 3.2% in August and staying close to that pace in subsequent months. The year-over-year increase in January totaled 2.9%.

The core component (ex food and energy) rose 0.3% in January, one of the sharpest advances of the past year or so. However, the increase was not especially troubling, as it was influenced by a jump of 6.5% in airfares, which added nearly a full tenth percentage point to the core component (0.08%). Airfares often move erratically, and the ups and downs in the past few years have left little net change. Discounting, most likely, will unfold in coming months. Even with the jump in airfares, the year-over-year increase in core prices moved to a new low for the current period of deceleration (2.5%). Core inflation appeared to be picking up in the spring and summer of last year (a recent peak of 3.1% in August), but pressure has eased since then.

The source of the waxing and waning in core prices lies primarily in the goods component of the CPI. Goods prices were declining noticeably in the first half of 2024 (deflation!), but, they began to shift direction in the second half of 2024 and moved to price increases in 2025. The upward trend seems to have peaked at 1.5% in September and October, with the year-over-year change easing to 1.1 percent in January. Service prices have been decelerating over the past few years, but the rate of decline began to slow last year, and the latest months have shown no further improvement, stuck at 3.0% in the past three months.

Within the core component, the movement of housing costs is notable. Rental rates rose 0.2% in January, a marked shift from the experience in 2022 and 2023, when increases in excess of 0.6% were common.  This component jumps around from month-to-month, but the downtrend is unmistakable. After peaking at 8.2% in 2022, the latest year-over-increase totaled 3.0% in January.

The cost of electricity is now gathering the attention of the public and politicians because of the pressure being exerted by the infrastructure requirements of artificial-intelligence. Costs were tame in January (down 0.1%), but increases have largely been the norm in the past year or so. The year-over-year increase totaled 6.3% in January, down from 7.0% in November but still a challenge for many households. Many observers are expecting more upward pressure down the road. Some observers perhaps recall (and fear) the experience in 2022, when electricity inflation touched 15.8%.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

260213N.jpg

260213O.jpg

- The year-over-year change in the headline index moved to the bottom of its recent range.
- The annual change in the core index moved to a new low for the current cycle.

Consumer Price Index: Slow, but Steady, Deceleration

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.

260212Z1.jpg

**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.

260212Z2.jpg

**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.

260212Z3.jpg

**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.

260212Z4.jpg

**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.

260212Z5.jpg

**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.

260212Z6.jpg

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

Winnie Tapasanun

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Existing home sales fell 8.4% m/m (-4.4% y/y) to a lower-than-expected 3.91 million units (SAAR) in January following a downwardly revised 4.4% gain to 4.27 million in December (previously +5.1%; 4.35 mil.), according to the National Association of Realtors (NAR). January sales registered the lowest level since September 2024 and the deepest m/m drop since February 2022, well below the Action Economics Forecast Survey expectation of 4.20 million. Sales were 39.2% below a high of 6.43 million in January 2022 and 40.8% below a peak of 6.60 million in January 2021. The sales fall accompanied a drop in the average 30-year fixed mortgage rate to 6.11% in January, the lowest since September 2022, after declining to 6.20% in December, according to Freddie Mac. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales slid 9.0% (-4.3% y/y) to 3.53 million units in January, the lowest level since September 2024, after a 4.3% gain to 3.88 million in December. Sales of condos and co-ops fell 2.6% (-5.0% y/y) to 380,000 following a 5.4% December rebound to 390,000.

By region, January existing home sales decreased m/m across all major regions. Sales in the West slumped 10.3% (-7.9% y/y) to 700,000 in January after a 4.0% increase in December, marking the third m/m decline in four months and the lowest level since December 2023. Sales in the South dropped 9.0% (-1.6% y/y) to 1.81 million, the lowest reading since October 2024, reversing a 6.4% December gain. Sales in the Midwest fell 7.1% (-7.1% y/y) to 920,000, the lowest level since September 2024, after a 2.1% December increase. Sales in the Northeast declined 5.9% (-4.0% y/y) to 480,000, the lowest level since June 2025, after rising 2.0% in December and November. The South remained the dominant region, accounting for 46.3% of total U.S. existing home sales.

The median price of all existing homes (NSA) fell 2.0% (+0.9% y/y) to $396,800 in January after a 1.2% decline to $405,100 in December ($405,400 initially), representing the sixth m/m fall in seven months and the lowest level since February 2025. Prices were 8.3% below a high of $432,700 in June 2025. The median price of an existing single-family home, also down for the sixth time in seven months, slid 2.2% (+0.6% y/y) to a one-year-low $400,300 in January after a 1.3% decline to $409,500 in December. The median price of condos and co-ops, up for the third time in four months, rose 0.9% (3.8% y/y) to $364,600, the highest level since August, after a 0.4% December increase to $361,200. Regionally, overall prices fell m/m in the Midwest (-3.6%; +2.3% y/y) and South (-2.3%; +0.1% y/y) in January, but increased m/m in the Northeast (+1.1%; +5.8% y/y) and West (+0.4%; -1.4% y/y).

Inventories of homes for sale weakened further in January. The number of existing homes for sale (NSA) fell 0.8% (+3.4% y/y) to 1.22 million units on top of a 14.6% December plunge to 1.23 million, posting the fourth consecutive m/m fall and the lowest level since January 2025. The supply of homes on the market at the current selling rate (NSA) rose to 3.7 months in January after falling to 3.5 months in December (the lowest since January 2025). The most recent high of 4.6 months was in August 2025, while a record low in supply of 1.6 months was in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- January sales -8.4% (-4.4% y/y) to 3.91 mil., below expectations; steepest m/m fall since Feb. ’22.
- Widespread regional m/m declines: West (-10.3%), South (-9.0%), Midwest (-7.1%), Northeast (-5.9%); all regions down y/y.
- Median sales price -2.0% (+0.9% y/y) to $396,800, lowest since Feb. ’25.
- Unsold inventory -0.8% (+3.4% y/y) to 1.22 mil. units, a one-year low; 3.7 months' supply.

U.S. Existing Home Sales Drop in January; Lowest Level Since Sept. ’24

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped 5,000 to 227,000 in the week of February 7, from 232,000, revised from 231,000, in the week ended January 31. The four-week average rose 7,000 to 219,500 from 212,500. The Action Economics Forecast Survey looked for 225,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 21,000 to 1.862 million in the week ending January 31, from 1.841 million, revised from 1.844 million, in the week ending January 24. The four-week moving average stood at 1.847 million in the January 31 week, the lowest level for this average since October 5, 2024, when it was 1.846 million. The prior week was 1.850 million. The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous nine weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 24, the highest unemployment rates were in Rhode Island (2.95%), New Jersey (2.78%), Massachusetts (2.68%), Minnesota and Washington (both 2.58%), California (2.30%), and Montana (2.21%). The lowest rates were in Florida (0.31%), Arkansas (0.39%), North Carolina (0.43%), Louisiana (0.41%), and Alabama (0.45%). Rates in other notable states include Illinois (2.23%), New York (2.11%), Pennsylvania (1.91%), and Texas (1.16%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims dropped 5,000 to 227,000.
- Continuing claims rose to 1.862 million.
- The insured unemployment rate remained at 1.2% for the tenth consecutive week.

U.S. Initial Unemployment Claims Declined in Latest Week

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U.K. GDP slowed to a crawl at the end of the year, with growth at a 0.2% (annualized) rate logged in both the third and fourth quarters as 2025 drew to a close. The year had started with a strong 2.7% growth rate in Q1, which slipped to a 0.8% pace in the second quarter and decelerated to negligible growth at the end of the year.

These quarterly growth rates correspond to higher but obviously declining year over year growth rates. Because the quarterly growth rates diminished as the year progressed, year over year growth to start 2025 was at 1.8%; growth slipped to 1.4% in the second quarter and then to 1.2% in the third quarter. By the end of the year, growth had slipped to 1%.

The quarterly growth rates in the fourth quarter show public spending picked up to a 1.7% annual rate following 1% in the third quarter and erratic behavior in the first two quarters. Capital formation has remained relatively strong but has also oscillated, with first quarter growth at a blowout annual rate of 14.3%, falling to a contraction of 3.1% in Q2, rising back to 4.4% in Q3, and then declining at a 0.5% annual rate in Q4. So the year-over-year growth rates for capital formation during the course of the year only slipped from 4% in the first quarter to 3.6% in the fourth quarter, holding up fairly solidly and indicating strong rates of expansion for capital spending.

Housing, which was firm and strong in Q1 and Q2, slipped to a 0.8% annual rate of growth in the third quarter, and then housing investment fell at a 9.1% annualized rate in the fourth quarter. Year over year trends for housing show mostly low to moderate spending growth for residential investment.

U.K. exports have been floundering quarter-to-quarter, alternating between expanding and contracting; this corresponds to year over year growth rates that steadily diminish. In the first quarter of 2025, exports grew 3.5% year-over-year; that slipped to a 2% growth rate in Q2, then to a 1.5% growth rate in the third quarter. In the fourth quarter, U.K. exports are falling at a 0.5% annual rate of growth.
 
The export pattern contrasts with U.K. imports. They have mostly continued to grow, posting positive growth rates in three of the four quarters, starting the year with 5% quarterly growth and ending the fourth quarter with a 3.3% annual growth rate. Import growth rates have slipped, but not as much as other growth rates in GDP. For example, first quarter import growth was extremely strong at 7.6%; that year over year growth rate slips to 2.1% in Q2, then rises back to 5.3% in Q3, and finishes the year at 2.3%. There is slippage, but still significant growth, and the year began on a really high note.

Domestic demand has been fluctuating. In both quarterly and annual terms, there is unevenness. Quarterly growth rates range from 3.1% at an annual rate in Q1, to a 0.6% and 0.7% annual rate in the middle two quarters of the year; domestic demand ends the fourth quarter with a quarterly growth rate of 2.1% annualized. This causes year-over-year growth to be 2.9% in the first quarter; that falls to 1.2% in the second quarter, rebounds to 2.1% in the third quarter, and ends the year at 1.6% year-over-year.

Domestic demand has consistently been stronger than private consumption and it has been supported by both public consumption and by capital formation. Private consumption in 2025 has been erratic, logging 1.2% quarterly growth, annualized, in the first quarter; growth dropped to 0.2% in Q2, rising back to 1.7% in Q3, and then ending the year at a 0.6% rate of expansion quarter-over-quarter. The year-over-year data showed private consumption slipping but not dramatically, at a pace of 1.1% in the first quarter, up to 1.2% in the second quarter and then logging 0.9% in both the third and fourth quarters of 2025 as domestic demand ended the year stronger.

All of the U.K. growth rates are consistently and substantially below their five year growth rates. The economy continues to have a problem with inflation. Some recent inflation signals, however, suggest that there may be deceleration and progress, but the Bank of England hasn’t been convinced yet, even though Monetary Policy Committee members continue to speak favorably about the prospects for rate reductions ahead. The U.K. also has a corseted fiscal situation as there’s not much flexibility to spend more given its relatively bloated budget. The economy is waffling. The current administration has had its share of political issues, having recently had to eject several members from leadership positions in government. The outlook for growth is still touch and go. The outlook for inflation holds slightly more promise for deescalation. But overall, there is a lot of uncertainty over events and the growth path for the U.K. economy.