Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104h.jpg" width="353">
According to the Institute for Supply Management, the December Business Activity Index for the non-manufacturing sector fell to 53.9 from 54.1. A figure above 50 indicates rising activity and the m/m decline somewhat outpaced Consensus expectations for a lesser fall.
Since the series&#39; inception in 1997 there has been a 44% correlation between the level of the Business Activity Index in the non-manufacturing sector and the Q/Q change in real GDP for the services and the construction sectors. The correlation of the factory sector ISM index with the change in real GDP less just services is a higher 57%, though over the last ten years it only has been 34%.
Both the new orders sub index and the employment sub index rose, though the latter remained ear the 2007 average which was down from 2006 which was down from 2005. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power eased m/m, but only slightly. Since inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
The Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the ISM manufacturing sector composite index is a weighted average of five components.
Sticky Prices: Why Firms Hesitate to Adjust the Price of Their Goods from the Federal Reserve Bank of New York an be found <a href="http://www.newyorkfed.org/research/current_issues/ci13-10.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">December &#39;06</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>53.9</td>
<td>54.1</td>
<td>56.7</td>
<td>56.0</td>
<td>58.0</td>
<td>60.2</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>72.7</td>
<td>76.5</td>
<td>59.7</td>
<td>63.9</td>
<td>65.2</td>
<td>68.0</td>
</tr>
</tbody>
</table>


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According to the Institute for Supply Management, the December Business Activity Index for the non-manufacturing sector fell to 53.9 from 54.1. A figure above 50 indicates rising activity and the m/m decline somewhat outpaced [...]

U.S. ISM Non-manufacturing Index Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104f.jpg" width="353">
U.S. sales of light vehicles rose all of 0.4% last month to a 16.27M unit annual selling rate, according to the Autodata Corporation. The uptick followed a 0.9% increase during November. These recent upticks left sales for the year down 2.2% from 2006 when sales fell 2.5% from 2005.
Sales of domestically made light vehicles fell 0.6% last month after a 1.0% November rise. For the full year domestically made vehicle sales fell 4.2%, a decline similar to the 5.9% drop in 2006. Sales of U.S. made cars fell 4.8% last month and were down 4.5% for the year. Sales of domestically made light trucks, however, rose 2.9% in December and made up a small part of the prior three months&#39; decline. For the year sales of domestically made light trucks fell 4.0% on top of an 8.7% 2006 decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104g.jpg" width="353">
Sales of imported light vehicles rose 3.6% last month for the fourth consecutive monthly increase. The rise to 4.14M units was to the new record level. Last month&#39;s increase was due to a 4.7% gain in sales of imported autos. A 1.7% rise in sales of imported light trucks lifted sales 8.2% for the full year.
Import&#39;s share of the U.S. light vehicle market rose to a near record 25.4% during December. The rise in import&#39;s share for all of 2007 to 24.6% was a new record for any year.
Today&#39;s speech by Fed Vice ChairmanDonald L. Kohn At the American Economic Association Session can be found <a href="http://www.federalreserve.gov/newsevents/speech/kohn20080104a.htm"> here</a>.
Stock Prices and Business Investment from the Federal eserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/br/2007/q4/leitner_stock-prices-and-investment.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">December</th>
<th scope="col">&nbsp;November</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.27</td>
<td>16.20</td>
<td>0.4%</td>
<td>16.18</td>
<td>16.55</td>
<td>16.96</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.82</td>
<td>7.97</td>
<td>-1.8%</td>
<td>7.58</td>
<td>7.77</td>
<td>7.65</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>5.21</td>
<td>5.47</td>
<td>-2.4%</td>
<td>5.07</td>
<td>5.31</td>
<td>5.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>2.62</td>
<td>2.50</td>
<td>-0.6%</td>
<td>2.51</td>
<td>2.45</td>
<td>2.25</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>8.44</td>
<td>8.22</td>
<td>-2.4%</td>
<td>8.60</td>
<td>8.78</td>
<td>9.32</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>6.92</td>
<td>6.73</td>
<td>-3.2%</td>
<td>7.12</td>
<td>7.42</td>
<td>8.12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.52</td>
<td>1.49</td>
<td>1.8%</td>
<td>1.48</td>
<td>1.37</td>
<td>1.20</td>
</tr>
</tbody>
</table>
</body>
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U.S. sales of light vehicles rose all of 0.4% last month to a 16.27M unit annual selling rate, according to the Autodata Corporation. The uptick followed a 0.9% increase during November. These recent upticks left sales for the year [...]

U.S. Vehicle Sales Tick Up in December, Down in 2007

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104e.jpg" align="left" border="0" height="265" width="353">
While France&#8217;s services sector is holding up pretty well the
consumer is not keeping up that sort of pace. Consumer confidence fell
by one point in December but the index has lost 16 points from its peak
in this cycle and the resulting index now stands at a relatively weak
position with respect to its recent range of values. Confidence is now
in the bottom ten percent of its range over the past eighteen years.
Consumers say it&#8217;s the worst price environment in the past 18 years.
They expect pricing conditions to ease up in the 12-months ahead. 
 

Households assess their living conditions over the past 12
months as in the bottom seven percentile of the past 18 year&#8217;s results.
They see that improving to the bottom 19 percentile in the year ahead. 
 

Households place unemployment prospects in the bottom 38th
percentile for the 12 months ahead. Their spending plans are in the
bottom third of their range, a similar reading Households assess their
current financial situation as middling: in the 52nd percentile of its
range. But over the past 12months they place it in the bottom fifth of
its range and over the next 12 months they expect a bottom quarter of
the range result. Consumer responses are certainly more downbeat than
the performance of the French services sector would let us infer.
France is clearly one to watch to see which way its various and
disparate readings eventually coalesce or if they do. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> INSEE
Household Monthly Survey</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="4">&nbsp;</td>
<td colspan="2">Since Jan 1990</td>
<td colspan="4">Since Jan 1990</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Dec 
07</td>
<td>Nov 
07</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr class="grey2">
<td class="firstcol">Household Confidence</td>
<td>-29</td>
<td>-28</td>
<td>-23</td>
<td>-21</td>
<td>9.3</td>
<td>196</td>
<td>10</td>
<td>-33</td>
<td>43</td>
<td>-17</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Living
Standards</td>
</tr>
<tr class="grey2">
<td class="firstcol">past 12 Mos</td>
<td>-61</td>
<td>-59</td>
<td>-54</td>
<td>-51</td>
<td>7.1</td>
<td>207</td>
<td>18</td>
<td>-67</td>
<td>85</td>
<td>-37</td>
</tr>
<tr class="grey2">
<td class="firstcol">Next 12-Mos</td>
<td>-31</td>
<td>-36</td>
<td>-25</td>
<td>-26</td>
<td>19.3</td>
<td>165</td>
<td>15</td>
<td>-42</td>
<td>57</td>
<td>-18</td>
</tr>
<tr class="grey2">
<td class="firstcol">Unemployment: Next 12</td>
<td>5</td>
<td>11</td>
<td>11</td>
<td>10</td>
<td>38.2</td>
<td>172</td>
<td>73</td>
<td>-37</td>
<td>110</td>
<td>30</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Price
Developments</td>
</tr>
<tr class="grey2">
<td class="firstcol">Past 12Mo</td>
<td>39</td>
<td>30</td>
<td>17</td>
<td>12</td>
<td>100.0</td>
<td>1</td>
<td>39</td>
<td>-57</td>
<td>96</td>
<td>-19</td>
</tr>
<tr class="grey2">
<td class="firstcol">Next 12-Mos</td>
<td>-23</td>
<td>-8</td>
<td>-19</td>
<td>-16</td>
<td>40.7</td>
<td>33</td>
<td>31</td>
<td>-60</td>
<td>91</td>
<td>-34</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Savings</td>
</tr>
<tr class="grey2">
<td class="firstcol">Favorable to save</td>
<td>30</td>
<td>27</td>
<td>31</td>
<td>36</td>
<td>72.2</td>
<td>32</td>
<td>40</td>
<td>4</td>
<td>36</td>
<td>23</td>
</tr>
<tr class="grey2">
<td class="firstcol">Ability to save Next 12</td>
<td>-12</td>
<td>-13</td>
<td>-7</td>
<td>-6</td>
<td>37.9</td>
<td>147</td>
<td>6</td>
<td>-23</td>
<td>29</td>
<td>-8</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Spending</td>
</tr>
<tr class="grey2">
<td class="firstcol">Favorable for major purchase</td>
<td>-23</td>
<td>-18</td>
<td>-11</td>
<td>-10</td>
<td>32.8</td>
<td>173</td>
<td>16</td>
<td>-42</td>
<td>58</td>
<td>-12</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="11">Financial
Situation</td>

</tr>
<tr class="grey2">
<td class="firstcol">Current</td>
<td>14</td>
<td>15</td>
<td>16</td>
<td>16</td>
<td>52.4</td>
<td>66</td>
<td>24</td>
<td>3</td>
<td>21</td>
<td>12</td>
</tr>
<tr class="grey2">
<td class="firstcol">Past 12 Mos</td>
<td>-23</td>
<td>-19</td>
<td>-17</td>
<td>-15</td>
<td>18.2</td>
<td>190</td>
<td>-5</td>
<td>-27</td>
<td>22</td>
<td>-16</td>
</tr>
<tr class="grey2">
<td class="firstcol">Next 12-Mos</td>
<td>-9</td>
<td>-8</td>
<td>-6</td>
<td>-5</td>
<td>25.9</td>
<td>206</td>
<td>11</td>
<td>-16</td>
<td>27</td>
<td>0</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp;</td>
<td colspan="5">Number of observations in the period</td>
<td>215</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

While France’s services sector is holding up pretty well the consumer is not keeping up that sort of pace. Consumer confidence fell by one point in December but the index has lost 16 points from its peak in this cycle and the [...]

French Consumer Confidence Continues to Slide

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104d.jpg" align="left" border="0" height="265" width="353">
The chart tells a clear story of malaise and decline in
Europe&#8217;s service sector. Survey readings for services industries in the
overall community are weak. Individual countries are weak across the
board with the exception of France which bucked the trend last month by
rising when other countries&#8217; indices fell hard. This month France&#8217;s
service sector index has edged lower but it is vastly stronger than in
most other major EMU nations. The UK, an EU member, is also showing
pronounced sector weakness. 
 

If we position the current readings in their respective ranges
of values since May of 2000 we find all are below their range midpoints
except France which stands in its 60th percentile. Germany and the
overall EMU measure are in their respective 44th to 45th percentiles.
Spain, Ireland and Italy are roughly in the bottom third of their
respective ranges with Italy even weaker than that. 
 

The service sector is an important engine of job growth in
Europe as it is in the US. And concerns over the euro&#8217;s strength and
the fallout from the financial sector problems in the US are problems
that are in play. The MFG sector in Europe has actually bounced from
its lows over the past two months in the face of such pressures.
Services however, continue to weaken. The ECB is on the spot with
another strong inflation reading in December that defies it to take
anti-inflation steps as oil prices spurt and while the euro is
screaming to stronger values. The actual weakness in the economy may
seem to make the ECB&#8217;s job that much harder, but in fact actual
weakness makes ECB temperance less of an act of bravado. Its failure to
hike rates in the face of inflation and spare the euro further stress
is easier if the economy is showing some real weakness up front. The
service sector is giving the ECB a real excuse for playing the waiting
game- right or wrong. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> NTC
Services Indices for EU/EMU</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Percentile</td>
</tr>
<tr class="grey1">
<td class="firstcol">Euro-13</td>
<td>53.14</td>
<td>54.14</td>
<td>55.81</td>
<td>54.36</td>
<td>55.62</td>
<td>56.58</td>
<td>43.5%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>51.24</td>
<td>53.09</td>
<td>55.08</td>
<td>53.14</td>
<td>55.12</td>
<td>56.49</td>
<td>44.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">France</td>
<td>58.89</td>
<td>59.15</td>
<td>58.48</td>
<td>58.84</td>
<td>58.44</td>
<td>58.60</td>
<td>60.4%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>49.71</td>
<td>50.77</td>
<td>55.27</td>
<td>51.92</td>
<td>54.04</td>
<td>54.86</td>
<td>15.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Spain</td>
<td>50.99</td>
<td>50.69</td>
<td>52.45</td>
<td>51.38</td>
<td>52.72</td>
<td>54.45</td>
<td>31.1%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>53.53</td>
<td>52.81</td>
<td>56.48</td>
<td>54.27</td>
<td>55.13</td>
<td>57.18</td>
<td>36.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">EU only</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">UK</td>
<td>52.36</td>
<td>51.95</td>
<td>53.08</td>
<td>52.46</td>
<td>54.78</td>
<td>56.25</td>
<td>42.5%</td>
</tr>
<tr>
<td colspan="6" class="firstcol">percentile
is over range since May
2000</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

The chart tells a clear story of malaise and decline in Europe’s service sector. Survey readings for services industries in the overall community are weak. Individual countries are weak across the board with the exception of France [...]

Service Sector Still Pummeled in Europe…France Excepted

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104a.jpg" width="353">
For December, the Bureau of Labor Statistics reported that nonfarm payrolls rose a meager 18,000 versus expectations for a 50,000 increase. That expectation was ratcheted down after yesterday&#39;s ADP report of a modest 40,000 increase in private nonfarm payrolls.
The December increase was the weakest since 2003. It was accompanied by a slight upward revision to the gain in November jobs but a downward revision to October.
Private industries payrolls fell 13,000 (+0.9% y/y), the first monthly decline since 2003.
Perhaps portending further weakness in payroll jobs was a drop in the one month diffusion index of job gain. At 48.4% this measure of the breadth of job growth amongst industries was at its lowest and below 50 for the first time since 2003.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104c.jpg" width="353">
The unemployment rate surged to 5.0% last month from 4.7% in November. Household employment fell 436,000 (0.2% y/y and reversed most of November&#39;s 631,000 surge. The ranks of the unemployed grew 474,000 (13.2% y/y) and the labor force rose just 38,000 (0.8% y/y) after a 522,000 November jump. The labor force participation rate held steady at 66.0%, down from the 66.2% averaged last year.
The level of average hours worked has remained notably stable recently. As a result, the 4Q level of aggregate hours worked (employment times hours) rose just 1.0% (AR) following a 3Q rise of 1.2% and a 2.1% increase during 2Q. During the last ten years there has been a 44% correlation between the gain in hours and the gain in real GDP. That correlation is down from 56% over the last 20 years and from 74% over the last 30 due to the faster growth in worker productivity.
Factory sector payrolls fell another 31,000, the largest decline since August. Construction employment fell out of bed and posted a 49,000 drop last month which was the largest since February.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080104b.jpg" width="353">
Continuing the shortfall in last month&#39;s job gain was the modest 62,000 rise in private service sector employment (1.5% y/y). That was half the November gain and the weakest since 2005. Retail employment fell 24,000 (+0.3% y/y) while jobs in finance fell 4,000 (-0.2% y/y), the sixth decline in the last seven months. Jobs in clothing stores fell 7,900 (+0.4% y/y) and temporary help services jobs were unchanged (-1.7% y/y).
Firm were job gains in the health care sector which rose 36,900 (3.2% y/y). Professional &amp; business services rose 43,000 (1.8% y/y).
Employment in the government sector also rose a moderate 31,000 (1.2% y/y) after a 28,000 worker increase in November. Jobs with the Federal government fell 4,000 (-0.2% y/y).
Average hourly earnings increased 0.4% and the prior month&#39;s gain was revised up slightly. Factory sector earnings reversed all of the prior month&#39;s gain with a 0.5% decline (+2.6% y/y). Private service-providing earnings rose 0.5% (4.1% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment: 000s</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>18</td>
<td>115</td>
<td>159</td>
<td>1.0%</td>
<td>1.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Previous</td>
<td>--</td>
<td>94</td>
<td>170</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-31</td>
<td>-13</td>
<td>-23</td>
<td>-1.5%</td>
<td>-1.2%</td>
<td>-0.2%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-49</td>
<td>-37</td>
<td>-20</td>
<td>-2.5%</td>
<td>-0.8%</td>
<td>4.8%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8</td>
<td>33.9 (Dec &#39;06)</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>3.7%</td>
<td>3.9%</td>
<td>3.9%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.0%</td>
<td>4.7%</td>
<td>4.8%</td>
<td>4.4% (Dec &#39;06)</td>
<td>4.6%</td>
<td>4.6%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

For December, the Bureau of Labor Statistics reported that nonfarm payrolls rose a meager 18,000 versus expectations for a 50,000 increase. That expectation was ratcheted down after yesterday's ADP report of a modest 40,000 increase [...]

U.S. Payrolls Weak, Unemployment Rate Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080103b.jpg" width="353">
Initial claims for jobless insurance fell 21,000 last week to 336,000 after a 9,000 rise during the prior week. During the week prior claims had risen a sharp 14,000, so the latest figure reversed nearly all of those two increases.
The four week moving average of initial claims, a measure which smoothes out most of the series&#39; w/w volatility, fell slightly to 343,750 (7.5% y/y) and backpedaled from the highest level since 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080103c.jpg" width="353">
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance surged 46,000 after a 77,000 jump during the prior week. The gain lifted continuing claims to the highest level since 2005.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment rose to 2.1% after five weeks at 2.0%. the latest was the highest since 2005.
What Do Worker Flows Tell Us About Cyclical Fluctuations in Employment? from the Federal Reserve Bank of Philadelphia is available <a href="http://www.phil.frb.org/files/br/2007/q2/fujita_worker-flows.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">12/29/07</th>
<th scope="col">12/22/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;336</td>
<td>357</td>
<td>3.1%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,761</td>
<td>13.8%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
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Initial claims for jobless insurance fell 21,000 last week to 336,000 after a 9,000 rise during the prior week. During the week prior claims had risen a sharp 14,000, so the latest figure reversed nearly all of those two increases. [...]

U.S. Initial Claims for Jobless Insurance Retreated, but 2005 Revisited

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080103d.jpg" width="353">
Challenger, Grey &amp; Christmas reported that job cut announcements in December fell back to 44,416 after 73,140 during November. The number of announcements was the lowest since the middle of last year.
Job cut announcements fell sharply m/m in the auto industry (+6.7% y/y), electronics (-65.5%) and the construction industries but rose sharply in the retail (89.7% y/y) industry.
During the last ten years there has been a 79% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans were roughly stable with the prior three months.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>44,416</td>
<td>73,140</td>
<td>-18.7%</td>
<td>839,822</td>
<td>1,072,054</td>
<td>1,039,935</td>
</tr>
</tbody>
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Challenger, Grey & Christmas reported that job cut announcements in December fell back to 44,416 after 73,140 during November. The number of announcements was the lowest since the middle of last year. Job cut announcements fell [...]

Challenger Layoffs Fell Back

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

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Andrew Cates

**Upbeat investors**
Despite a year marked by major headwinds — from renewed US tariffs and persistent geopolitical strains to shifting interest-rate expectations — incoming global economic data have consistently outperformed forecasters’ expectations. The Citigroup Economic Surprise Index has remained in positive territory for most of 2025, indicating that growth, labour, and spending indicators have been “less bad” or outright stronger than consensus predicted. That resilience has helped to underpin market sentiment: while bouts of concern have occasionally lifted the Cboe Volatility Index (VIX), volatility has stayed relatively subdued, and equity markets have remained buoyant. In effect, 2025 has been a year in which the real economy has quietly outpaced the gloom, keeping risk appetite supported even as the macro narrative remained fraught with shocks and uncertainty.

251113Z1.jpg

**Less restriction from monetary policy**
Another key source of support for investors through 2025 has been the steady easing in both inflation and monetary policy across the major advanced economies. Core CPI has continued to trend lower from its 2022–23 highs, reflecting softer goods prices, moderating wage growth, and the lagged effects of tighter policy. With inflation now back within sight of central bank targets, policy rates have been edging down for the first time in several years. That shift has eased financial conditions, lowered real borrowing costs, and helped sustain asset valuations even as growth expectations have moderated. In effect, 2025 has marked the transition from a phase of inflation anxiety and policy restraint to one of gentle disinflation and tentative monetary normalisation—an environment that has kept liquidity abundant and risk assets well supported.

251113Z2.jpg

**A thrust from fiscal policy**
A further policy tailwind in 2025 has come from the fiscal side, where governments in the major advanced economies have largely resisted meaningful consolidation despite earlier pledges to rebuild buffers. Across the US, Europe, and Japan, the cyclically adjusted primary balance remains firmly expansionary, helping to sustain demand at a time when private investment and trade have softened. In the United States, spending linked to industrial policy, energy transition, and defence has continued to underpin activity; in Europe, fiscal policy has remained loose as governments balance social pressures and investment needs; and in Japan, the new prime minister has signalled further stimulus to support household income and productivity growth. Yet this persistent fiscal support has also had a side effect: it has kept longer-term real yields unusually elevated, reflecting both heavy sovereign issuance and investor recognition that governments are still running structural deficits even in a low-growth environment. In other words, fiscal policy has been a crucial prop for near-term growth—but also one reason why the “new normal” for real yields now looks higher than in the pre-pandemic decade.

251113Z3.jpg

**The AI Boom**
One of the defining features of 2025 has been the AI investment boom, centred on the extraordinary surge in spending on US data centres and digital infrastructure. Real private investment in this sector has soared to record highs as firms race to expand computing capacity, driven by optimism about artificial intelligence and its potential to transform productivity. The pickup in utilisation-adjusted total factor productivity suggests that some efficiency gains may already be materialising, though it remains too early to tell whether these effects will endure. Investors have largely welcomed this capital deepening as a sign of renewed US dynamism, but it also carries familiar late-cycle risks — from valuation bubbles in AI-related equities to mounting energy demands and strain on power grids. The key question for 2026 and beyond is whether this unprecedented capex wave will deliver the sustained productivity lift needed to justify its scale, or whether it proves another costly technological exuberance.

251113Z4.jpg

**Global trade fragmentation** 
Global trade came under renewed strain in 2025 as President Trump moved quickly in his second term to escalate tariff actions against China and several key trading partners. The US effective tariff rate has surged from below 8% at the end of 2024 to around 21% by mid-2025, marking the most aggressive trade tightening since the late 2010s. The back-and-forth imposition of tariff and non-tariff barriers between Washington and Beijing has led to a sharp pullback in bilateral trade flows, with US imports from China falling markedly and Chinese imports from the US also sliding. The broader ripple effects have been significant: global supply chains are once again being re-routed, firms are diversifying production toward third-country hubs, and world trade growth has slowed. This latest round of protectionism has reinforced the trend toward strategic fragmentation — a more regional, politically filtered form of globalisation — that continues to reshape the post-pandemic trading landscape.

251113Z5.jpg

**Lingering uncertainties**
If there has been one constant through 2025, it has been uncertainty itself. Both global economic policy uncertainty and geopolitical risk indices have remained at historically high levels, underscoring an environment shaped by unpredictable policy shifts, heightened conflict risks, and volatile leadership transitions. Trade tensions between the US and China, renewed instability in the Middle East, and political fragmentation across Europe have all contributed to a pervasive sense of unease. For businesses and investors, this has meant navigating a world where the policy outlook can change overnight — from tariffs and fiscal surprises to shifting regulatory regimes. Yet despite this turbulence, financial markets have shown remarkable resilience, helped by disinflation, easier monetary policy, and continued technological investment. In short, 2025 has been a year in which uncertainty has become the new normal — less an episodic shock, more a defining structural feature of the global economic landscape.


251113Z6.jpg

The global economic story of 2025 has been one of resilience amid disruption. Despite a succession of shocks — from a renewed U.S.–China trade confrontation and elevated geopolitical risks, to a sharp rise in fiscal activism and the energy-intensive AI investment boom — the world economy has held up better than many feared. Activity data have consistently surprised on the upside, supporting buoyant equity markets and keeping volatility contained. Meanwhile, inflation has continued to ease and central banks have cautiously shifted toward easier policy, even as large government deficits have kept longer-term real yields elevated. At the same time, US tariff policies have re-emerged as a defining force in global trade, with steep new duties on Chinese, Canadian, and Mexican goods disrupting supply chains and prompting renewed fragmentation in world commerce. These measures have cooled bilateral trade flows and added another layer of uncertainty to an already unsettled policy environment. Yet uncertainty itself remains the dominant feature of 2025 — geopolitical tension, technological exuberance, and diverging fiscal and monetary paths have left investors navigating a world where optimism and fragility coexist.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/2maIAQuAmTWSmhhZOnQDq3?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: The Year in Review

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) increased 3.9% (-0.3% y/y) during September to 104.5 after rising 2.8% in August and 2.9% in July. The index roughly equaled the recent high of 104.8 in September of 2024. The level of home affordability was 16.2% higher than its low of 89.9 in October 2023, but remained 41.6% below the high of 179.0 in April 2020.

The rise in September affordability occurred as the median price of an existing single-family home fell 1.6% (+2.3% y/y) to $420,700. The price compared to the record $438,600 in June 2025. Mortgage rates fell to 6.43% after declining to 6.67% in August. The fall in mortgage rates left them above their low of 6.26% in September of last year, though below a 7.70% high in October of 2023. They remained well above a December 2020 low of 2.73%.

In September, the principal plus interest payment fell 4.0% (+4.1% y/y) to $2,112 per month, down 8.6% from June’s record high of $2,311, but still well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a lessened 23.9% of income during September, down from 24.9% in August, but increased from a low of 14.0% of income in April 2020.

The decline in housing costs in September was accompanied by a 0.3% decline (+3.8% y/y) in median family income to $105,946 after rising 0.3% in both August and July. Qualifying income declined 4.0% (+4.1% y/y) to $101,376, the third straight month of sharp decline.

Housing affordability improved m/m across the country in September. The index rose in the Midwest, the country’s most affordable region, by 5.1% (-2.8% y/y) to 131.9. In the South, the index increased 2.2% (0.6% y/y) to 109.9, while the affordability index in the Northeast jumped 9.4% (-2.8% y/y) to 92.7. In the West, where homes are the least affordable, the index improved 2.3% (1.1% y/y) to 75.0 in September.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990. It reached an all-time high of 213.3 in January 2013.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

251113H5.jpg

251113I5.jpg

- Home prices & mortgage rates continue to decline.
- Median income edges lower.
- Affordability increases across country.

U.S. Housing Affordability Increases in September

251113E.jpg

Industrial output in the European Monetary Union in September advanced by 0.2% after falling by 1.1% in August and rising by 0.7% in July. Output of consumer goods fell in the month with overall consumer goods output falling by 2.5% and a 0.5% reduction in consumer durables output and a 2.6% reduction in the output of consumer nondurable goods. However, intermediate goods output grew by 0.3% and capital goods output rose by 0.3% in September. Output fell broadly across each of these sectors and subsectors in August but then it rose in all of them in July. Output metrics have been through a bit of turbulence over the last three months.

**Sequential Growth Performance**
Sequential calculations showing annual rates of growth over 12 months, six months and three months reveal some weakening in output and then some diminishing of that trend. Overall output rises by 1.4% over 12 months. Then output falls at a 4.9% annual rate over six months and that reduction in its cut to -0.8% over three months. Manufacturing follows that same pattern. Consumer goods output also follows that pattern, but durables and nondurables output of consumer goods are on the same wavelength with the only difference that consumer durables output also falls over 12 months. Intermediate goods output rises by 0.3% over 12 months, falls at a 3.3% rate over six months, and then rises at a 2.3% annual rate over three months. Capital goods output is up by 1.5% over 12 months, falls at a 2.9% annual rate for six months, and then is flat over three months. The sector results show a good deal of chaos in terms of trying to pin down a trend.

**Quarter-to-Date**
Quarter-to-date that now show results for the full third quarter on this preliminary note, reveal output eroding by 0.1% at an annual rate; manufacturing output falling at a 0.4% annual rate, with an increase in consumer goods at a 1% annual rate, created totally by an increase of 1.5% consumer nondurable goods output. Intermediate goods and capital goods both show output declines in the just-ended quarter.

**Rankings/Standings**
The percentile standings show that consumer durable goods output is below its median at a 39.9 percentile standing. Intermediate and capital goods output also are both below their medians (below 50%) but a 45-percentile standing for intermediate goods and a 46.8 percentile standing for capital goods prevail. However, these are not tremendously weak values; they're just slightly below their median rates of increase since the median rate of increase occurs at a ranking of 50%.

**Country Performance for Manufacturing**
We're revisiting the country data much of which has already been released. Out of 13 monetary union members in the table only 5 show output declines in September and none of the four largest economies log a decline in output in September. However, seven countries had logged declines in August, and six had logged declines in July.

**Countries Sequentially**
Turning to sequential data annual growth rates over 12 months, six months, and three months, there are declines in six countries over three months, in seven countries over six months but in only four countries over 12 months. The country's logging output declines over 12 months include Germany, Finland, Luxembourg, and Malta.

**Quarter-to-Date**
On a quarter-to-date to date basis, there are five countries that log output declines in the third quarter. They are Germany, Finland, Portugal, Luxembourg, and Malta.

**Country Standings**
The queue percentile standings show five countries with output increasing at a pace below its median pace since 2007. The average of the median standings across countries is a reading of 63.8% and that's the same as the standing for output in the whole euro area. While the performance of output is still somewhat irregular, conditions appear to be solidifying and risks to the downside appear to be diminishing. Conditions remain somewhat touch and go. The European Central Bank is in a waiting mode; it has not turned off its easing cycle. In the United States, it's unclear whether the Fed is going to continue the easing cycle or not. The government shutdown in the U.S. makes U.S. policy options more complicated although the outlook for growth in the United States in 2026 with new fiscal provisions in force and a rebound out of the government shutdown appear to be quite good. However, globally inflation is still largely excessive and central banks are definitely running out of room to become more stimulative.

251113.jpg

Europe

EMU Industrial Output Advances in September

251112C20.jpg

251112D20.jpg

Retail gasoline prices for all grades rose to an average $3.19 per gallon (0.3% y/y) in the week ended November 10 after easing to $3.15 in the previous week. The recent high was $3.79 in the week ending April 22, 2024. Their all-time high of $5.11 occurred in the week ending June 13, 2022. Haver Analytics seasonally adjusts the retail price of regular grade gasoline. That price rose to $3.10 last week from $3.05 in the previous week. Diesel fuel prices rose to $3.84 per gallon last week (9.0% y/y) after increasing to $3.75 per gallon in the prior week.

The price of West Texas Intermediate crude oil fell to an average $60.08 per barrel (-16.1% y/y) in the week ended November 7 after improving to $60.70 per barrel in the prior week. Prices remained below a recent high of $74.17 during the third week of June. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $61.04 per barrel. The price of European Brent crude declined to $64.30 per barrel (-15.0% y/y) in the week of November 7 after rising to $65.02 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in June 2022. Yesterday, the price was $63.86 per barrel.

Natural gas prices strengthened to an average $3.54/mmbtu (137.6% y/y) in the week ended November 7 after rising to $3.43/mmbtu in the prior week. The rise left prices at the highest level since the second week of April and well above the low of $1.40/mmbtu in the week of March 15, 2024. Yesterday, the price was $3.80 per mmbtu.

Gasoline demand declined 2.1% y/y in the four weeks ending October 31, following a 4.2% y/y decline in the prior four weeks. Demand for all petroleum products weakened 1.2% y/y in the four weeks ending October 31, after falling 0.9% y/y in the previous four-week period. Crude oil input to refineries declined 4.5% y/y in the four weeks ending October 31, after falling 1.7% y/y in the prior four weeks.

Gasoline inventories fell 2.5% y/y in the week ending October 31 following a 0.1% y/y slip in the prior week. Residual fuel oil inventories fell 7.1% y/y in the October 31 week after falling 10.0% y/y in the prior week. Working higher, crude oil inventories rose 1.9% y/y in the week of October 31 after increasing 1.7% y/y in the previous week.

Measured in days’ supply, gasoline inventories fell to 23.7 days in the week of October 31 from 24.3 days in the prior week. The recent low was 22.9 days in the week of November 8, 2024. The supply of crude oil rose to 27.5 days in the week of October 31 from 26.7 days in the prior week. The supply remained below a recent high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** and **USENERGY** databases.

- Gasoline prices rise to four-week high.
- Crude oil prices decline.
- Natural gas prices move to highest level since April.
- Demand for gasoline & all petroleum products falls.

U.S. Energy Prices Remain Mixed in Latest Week

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The number of weekly mortgage loan edged 0.6% higher (73.7% y/y) during the week ended November 7 after falling 1.9% during the prior week and rising 7.1% one week earlier.

The effective interest rate on a 30-year fixed-rate mortgage rose to 6.52% after rough stability at 6.48% during the prior week. These rates stand below their January average of 7.20%. Rates on a 15-year fixed rate loan were 5.86% while interest rates on a 30-year JUMBO loan averaged 6.57%. Rates on a 5-year ARM eased to 5.82%.

Purchase loan applications last week increased 5.8% (29.6% y/y) after falling 0.6% in the prior week and rising 4.5% one week earlier. Applications to refinance an existing loan declined 3.4% (+146.5% y/y) following a 2.8% decline in the prior week and rising 9.3% one week earlier.

Loans to refinance an existing mortgage fell to 55.6% of total applications from 57.0% in the prior week. The percentage of total loans that were ARMs declined to 7.8% from 8.7% one week earlier.

The average loan size declined to $396,500 last week from $414,900. The size of conventional purchase loans declined to $431,400 from $435,100 while the size of refinanced loans declined to $368,700 from $399,700 one week earlier.

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.

- Mortgage interest rates rise to three-week high.
- Purchase loans surge but refinancing declines.

Economy in Brief: 2008

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