Robert Brusca

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<a href="/comment/100611d_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611d.png" align="left"></a>
A slowing in growth: The overall OECD area leading indicator rose by
0.2% this month as the growth rate over three-months fell short of the
six month pace and the six month pace fell short of the 12-month pace. 
 Slowing is on schedule in some sense - The Yr/Yr
growth rates are still at very elevated rates. But the pace is
beginning to slow. Since we are looking at the highest growth rates for
these three leading countries on this measure since the early 1970s it
is not surprising that the pace is beginning to ratchet lower. Rarely
have the three key OECD regions/countries grown at a pace in excess of
what they are showing now. 
 Euro-Area is being stung by its debt problem
fallout: The euro-area indicator, however, isn&#8217;t just slowing. Its
indicator is actually dropping by 4.7% month-to-month. It is perhaps
the first real sign that Europe&#8217;s growth is being ensnared by the
geopolitical and debt problems of the region. Over three months the
OECD measure for the euro-area is up by just 1% at an annual rate. This
compares to a 4% pace for the entire OECD region and a 7% pace for the
US.
 The decelerations: Over six months the OECD
growth rates have fallen to about 60% of their 12 month pace. For Japan
and the US things are holding up better as Japan&#8217;s current growth over
six-months is 82% of its twelve-month pace and for the US it is 75% of
its twelve-month pace. But for the euro-area growth it is only 36% of
its
twelve-month pace over the last six-months. The OECD prefers to look at
six month growth rates and if we compare the current six month pace
(Apr 2010-Oct 2009) to the previous six-month pace (May2009 to Oct2009)
the OECD deceleration is even more stark with growth in the recent six
month period that is only 21% of growth in the previous six month
period.
 Prospects: On balance the revival of the OECD
region, judging from the leading indicator growth, has been excellent.
But the real proof is in the sort of recovery that develops, not the
strength of the indicator that precedes it. The sharp recent fall-off
of the euro-area index is a warning of another sort. The sorts of
variables that plug into leading indicators can be accurate harbingers
and they can also be the sorts of things that overreact to events.
Right now the euroarea is trying to sort out the nature of the
geopolitical and economic mess that it is in. There has been far more
contagion that has affected expectations and other sensitive variables
outside the zone that there will be transmission of weakness from the
Zone to theses same regions. I also believe that the financial element
of the crisis is overblown &#8211;a bit like reinjuring an old wound before
it is fully healed. It will take time to see how much actual economic
data are affected by these ongoing developments in the Zone and in
Europe. I think the OECD indices overstate the prospects for weakness
in Europe.

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>

<thead><tr>
<th scope="col" colspan="7">OECD Trend-restored
leading
Indicators</th>
</tr>
</thead><tbody>
<tr class="grey3">
<td style="font-weight: bold;">&nbsp;</td>
<td style="font-weight: bold;" colspan="2">Growth:M/M</td>
<td style="font-weight: bold;" colspan="4">Growth
progression-SAAR</td>
</tr>
<tr class="even">
<td style="font-weight: bold;">&nbsp;</td>
<td style="font-weight: bold;">Apr-10</td>
<td style="font-weight: bold;">Mar-10</td>
<td style="font-weight: bold;">3Mos</td>
<td style="font-weight: bold;">6Mos</td>
<td style="font-weight: bold;">12mos</td>
<td style="font-weight: bold;">Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td style="color: red;">0.2%</td>
<td style="color: red;">0.3%</td>
<td style="color: red;">4.0%</td>
<td style="color: red;">5.9%</td>
<td>9.7%</td>
<td style="color: red;">-10.2%</td>
</tr>
<tr>
<td class="firstcol">OECD7</td>
<td style="color: red;">-5.2%</td>
<td style="color: red;">0.3%</td>
<td style="color: red;">4.1%</td>
<td style="color: red;">6.2%</td>
<td>10.1%</td>
<td style="color: red;">-11.7%</td>
</tr>
<tr>
<td class="firstcol">OECD.Euro-Area</td>
<td style="color: red;">-4.7%</td>
<td style="color: red;">0.1%</td>
<td style="color: red;">1.0%</td>
<td style="color: red;">3.0%</td>
<td>8.2%</td>
<td style="color: red;">-9.9%</td>
</tr>
<tr>
<td class="firstcol">OECD.Japan</td>
<td style="color: red;">0.2%</td>
<td style="color: red;">0.4%</td>
<td style="color: red;">4.5%</td>
<td style="color: red;">7.5%</td>
<td>9.1%</td>
<td style="color: red;">-13.9%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td style="color: red;">0.5%</td>
<td style="color: red;">0.6%</td>
<td style="color: red;">7.0%</td>
<td style="color: red;">8.7%</td>
<td>11.6%</td>
<td style="color: red;">-12.4%</td>
</tr>
<tr class="even">
<td style="font-weight: bold;">&nbsp;</td>
<td style="font-weight: bold;" colspan="2">Six
months</td>
<td style="font-weight: bold;" colspan="4">Six
month readings at 6-Mo Intervals:</td>
</tr>
<tr class="grey3">
<td style="font-weight: bold;">&nbsp;</td>
<td style="font-weight: bold;" colspan="2">Change
in 6m avg</td>
<td style="font-weight: bold;">Recent six</td>
<td style="font-weight: bold;">6Mo Ago</td>
<td style="font-weight: bold;">12Mo Ago</td>
<td style="font-weight: bold;">18MO Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td style="color: red;">4.6%</td>
<td style="color: red;">5.2%</td>
<td style="color: red;">5.9%</td>
<td>13.6%</td>
<td>-6.5%</td>
<td style="color: red;">-13.7%</td>
</tr>
<tr>
<td class="firstcol">OECD7</td>
<td style="color: red;">4.8%</td>
<td style="color: red;">5.5%</td>
<td style="color: red;">6.2%</td>
<td>14.2%</td>
<td>-8.7%</td>
<td style="color: red;">-14.6%</td>
</tr>
<tr>
<td class="firstcol">OECD.Eur</td>
<td style="color: red;">3.7%</td>
<td>4.5%</td>
<td style="color: red;">3.0%</td>
<td>13.6%</td>
<td>-4.1%</td>
<td style="color: red;">-15.2%</td>
</tr>
<tr>
<td class="firstcol">OECD.Japan</td>
<td style="color: red;">5.0%</td>
<td style="color: red;">5.3%</td>
<td style="color: red;">7.5%</td>
<td>10.7%</td>
<td style="color: red;">-14.6%</td>
<td style="color: red;">-13.1%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td style="color: red;">5.6%</td>
<td style="color: red;">6.0%</td>
<td style="color: red;">8.7%</td>
<td>14.6%</td>
<td>-10.2%</td>
<td style="color: red;">-14.5%</</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">Slowdowns
indicated by BOLD RED</td>
</tr>
</tbody>
</table>

</body></html>

A slowing in growth: The overall OECD area leading indicator rose by 0.2% this month as the growth rate over three-months fell short of the six month pace and the six month pace fell short of the 12-month pace. Slowing is on schedule [...]

OECD Leading Indicators Move Up But Slow Down

Tom Moeller

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<a href="/comment/100611a_big.png" name="modal"><img class="large" align="left" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611a.png"></a> U.S. consumers took a break
during May from their shopping spree after the recession's end. Retail
sales declined 1.2% last month following an upwardly revised 0.6% April
rise. The drop disappointed Consensus expectations for a 0.2% increase.
Nevertheless, sales have risen 5.7% since the recession's end last June.
 Despite last month's already reported increase in
unit sales, retail purchases of motor vehicles fell 1.7% during May.
The y/y gain of 12.6%, however, is close to the gain in unit purchases.
Finally, sales at gasoline service stations fell 3.3% (+20.2% y/y). It
was further evidence that higher prices are discouraging gas usage
since prices fell just 0.4% m/m.
 Nonauto sales declined 1.1% after the 0.6% April
increase which was revised up slightly. The decline also disappointed
Consensus expectations for a 0.1% uptick. The shortfall was paced by a
9.3% drop (+3.1% y/y) in sales at building materials and hardware
stores.
 Also disappointing was "core" discretionary
spending. Apparel store sales declined 1.3% (+4.1% y/y) after a 0.7%
April decline. General merchandise store sales also fell by 1.1%
following a 0.2% slip during April. Working the other way, sales of
furniture, home furnishings &amp; electronics rose 0.8% (5.2% y/y)
and recovered most of the April decline. Furniture sales alone rose
1.0% (5.3% y/y) while a 0.6% increase (5.0% y/y) in sales of
electronics &amp; appliances recovered all of the April drop. Sales
by internet &amp; catalogue vendors ticked up 0.2% (15.2% y/y) but
April sales were revised sharply higher and rose 2.5%.&nbsp;Food
service sales ticked 
 The retail sales data are available in Haver's USECON
database.
 The latest Beige Book
covering regional economic conditions from the Federal Reserve Board
can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2010/20100609/fullreport20100609.pdf">here</a>
.
<a href="/comment/100611b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611b.png"></a>
<a href="/comment/100611c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100611c.png"></a>

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col"></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May y/y</th>
<th scope="col">2009
</th><th scope="col">2008
</th><th scope="col">2007</th>
</tr></thead><tbody>
<tr class="even">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM" ;="">Total Retail Sales &amp; Food Services</a> (%)
</td>
<td>-1.2</td>
<td>0.6</td>
<td>2.1</td>
<td>6.8</td>
<td>-6.3</td>
<td>-1.0</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">Excluding Autos</td>
<td>-1.1</td>
<td>0.6</td>
<td>1.2</td>
<td>6.1</td>
<td>-5.1</td>
<td>2.3</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">Non-Auto Less
Gasoline</td>
<td>-0.8</td>
<td>0.6</td>
<td>1.2</td>
<td>4.4</td>
<td>-1.9</td>
<td>1.2</td>
<td>3.5</td>
</tr>
</tbody>
</table>

</html>

U.S. consumers took a break during May from their shopping spree after the recession's end. Retail sales declined 1.2% last month following an upwardly revised 0.6% April rise. The drop disappointed Consensus expectations for a 0.2% [...]

U.S. Retail Spending Disappoints Across-the-Board

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<a href="/comment/100610a_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610a.png"></a><a href="/comment/100610b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610b.png"></a>

The latest and revised
U.S. foreign trade figures paint the same picture as earlier. An April
deficit of $40.3B, stable since February, followed deterioration from
its shallowest last May. The latest figure roughly matched Consensus
expectations for a deficit of $41.0B.
The deficit's deterioration since last year
reflects the U.S. economic recovery. Non-oil imports slipped 0.7% in
April but it was the first monthly decline in nearly one year. The
21.1% y/y gain during the last twelve months reflects a two-thirds
increase in imports of automotive vehicles &amp; parts. Real
nonauto consumer goods imports rose 4.0% y/y while capital goods
imports jumped by nearly one-quarter with the strength in business
investment. Finally, services imports have risen 6.8% y/y. U.S. travels
abroad fell 0.7% y/y while passenger fares surged 15.0% y/y. "Other"
transportation services imports jumped 7.7% y/y. Imports of petroleum
products slipped marginally in April but were up by two-thirds from
last year with the surge in prices. 
Nominal exports slipped 0.7% during April
following their slightly-revised 3.8% jump during March. Year-to-year,
however, exports have risen a strong 19.9% with the dollar's lower
value. The monthly dip reflected a 5.3% drop in nonauto consumer goods
exports (+10.3% y/y) and a 7.6% drop in food &amp; beverages (+4.2%
y/y). These were offset by a 1.9% increase (50.3% y/y) in industrial
supplies exports and a 1.4% gain (+57.2% y/y) in autos. In addition,
exports of services rose 0.2% (8.0% y/y) as passenger fares were
strong. 
By country, the trade deficit with mainland China
deepened to $19.3B, its deepest since December. Trade with China surged
as exports jumped by one-quarter y/y and imports rose by a lesser
18.2%. The trade deficit with Japan eased to $4.8B but imports rose by
roughly one-third y/y with the U.S. economic recovery and exports rose
17.2% y/y. With the European Union the trade deficit eased to $5.7B as
exports rose 7.0% y/y and imports rose about the same.
The international trade data can be found in
Haver's USECON database. Detailed figures are
available in the USINT database.
<a href="/comment/100610c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610c.png"></a><a href="/comment/100610d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610d.png"></a>

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr></thead><tbody>
<tr>
<td class="firstcol">U.S.
Trade Deficit</td>
<td>$40.3B</td>
<td>$40.0B</td>
<td>$40.1B</td>
<td>$28.4B(4/09)</td>
<td>$378.6B</td>
<td>$695.9B</td>
<td>$701.4B</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports
- Goods &amp; Services (m/m)</td>
<td>-0.7%</td>
<td>3.8%</td>
<td>-0.1%</td>
<td>19.9%</td>
<td>-14.6%</td>
<td>11.5%</td>
<td>13.2%</td>
</tr>
<tr>
<td class="firstcol">Imports
- Goods &amp; Services</td>
<td>-0.4</td>
<td>2.9</td>
<td>2.8</td>
<td>23.9</td>
<td>-23.3</td>
<td>8.0</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">
Petroleum</td>
<td>-0.0</td>
<td>6.0</td>
<td>7.4</td>
<td>67.5</td>
<td>-44.0</td>
<td>37.0</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">
Nonpetroleum Goods</td>
<td>-0.7</td>
<td>3.2</td>
<td>1.9</td>
<td>21.1</td>
<td>-20.9</td>
<td>1.5</td>
<td>4.8</td>
</tr>
</tbody>
</table>

</html>

The latest and revised U.S. foreign trade figures paint the same picture as earlier. An April deficit of $40.3B, stable since February, followed deterioration from its shallowest last May. The latest figure roughly matched Consensus [...]

U.S. Trade Deficit Stable M/M But Sharply Deeper Since Last Year

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<a href="/comment/100610a_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610a.png"></a><a href="/comment/100610b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610b.png"></a>

The latest and revised
U.S. foreign trade figures paint the same picture as earlier. An April
deficit of $40.3B, stable since February, followed deterioration from
its shallowest last May. The latest figure roughly matched Consensus
expectations for a deficit of $41.0B.
The deficit's deterioration since last year
reflects the U.S. economic recovery. Non-oil imports slipped 0.7% in
April but it was the first monthly decline in nearly one year. The
21.1% y/y gain during the last twelve months reflects a two-thirds
increase in imports of automotive vehicles &amp; parts. Real
nonauto consumer goods imports rose 4.0% y/y while capital goods
imports jumped by nearly one-quarter with the strength in business
investment. Finally, services imports have risen 6.8% y/y. U.S. travels
abroad fell 0.7% y/y while passenger fares surged 15.0% y/y. "Other"
transportation services imports jumped 7.7% y/y. Imports of petroleum
products slipped marginally in April but were up by two-thirds from
last year with the surge in prices. 
Nominal exports slipped 0.7% during April
following their slightly-revised 3.8% jump during March. Year-to-year,
however, exports have risen a strong 19.9% with the dollar's lower
value. The monthly dip reflected a 5.3% drop in nonauto consumer goods
exports (+10.3% y/y) and a 7.6% drop in food &amp; beverages (+4.2%
y/y). These were offset by a 1.9% increase (50.3% y/y) in industrial
supplies exports and a 1.4% gain (+57.2% y/y) in autos. In addition,
exports of services rose 0.2% (8.0% y/y) as passenger fares were
strong. 
By country, the trade deficit with mainland China
deepened to $19.3B, its deepest since December. Trade with China surged
as exports jumped by one-quarter y/y and imports rose by a lesser
18.2%. The trade deficit with Japan eased to $4.8B but imports rose by
roughly one-third y/y with the U.S. economic recovery and exports rose
17.2% y/y. With the European Union the trade deficit eased to $5.7B as
exports rose 7.0% y/y and imports rose about the same.
The international trade data can be found in
Haver's USECON database. Detailed figures are
available in the USINT database.
<a href="/comment/100610c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610c.png"></a><a href="/comment/100610d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610d.png"></a>

<table cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr></thead><tbody>
<tr>
<td class="firstcol">U.S.
Trade Deficit</td>
<td>$40.3B</td>
<td>$40.0B</td>
<td>$40.1B</td>
<td>$28.4B(4/09)</td>
<td>$378.6B</td>
<td>$695.9B</td>
<td>$701.4B</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports
- Goods &amp; Services (m/m)</td>
<td>-0.7%</td>
<td>3.8%</td>
<td>-0.1%</td>
<td>19.9%</td>
<td>-14.6%</td>
<td>11.5%</td>
<td>13.2%</td>
</tr>
<tr>
<td class="firstcol">Imports
- Goods &amp; Services</td>
<td>-0.4</td>
<td>2.9</td>
<td>2.8</td>
<td>23.9</td>
<td>-23.3</td>
<td>8.0</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">
Petroleum</td>
<td>-0.0</td>
<td>6.0</td>
<td>7.4</td>
<td>67.5</td>
<td>-44.0</td>
<td>37.0</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">
Nonpetroleum Goods</td>
<td>-0.7</td>
<td>3.2</td>
<td>1.9</td>
<td>21.1</td>
<td>-20.9</td>
<td>1.5</td>
<td>4.8</td>
</tr>
</tbody>
</table>
U.S. Initial Jobless
Insurance Claims Hover While Continuing Claims Plummet 
<a href="/comment/Moeller.html">Tom Moeller</a> June
10, 2010


<a href="/comment/100610e_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610e.png" align="left"></a>Job market improvement has
been scant this year after material gains during 2009. The Bureau of
Labor Statistics reported that initial claims for jobless insurance
slipped another 3,000 to 456,000 following a 4,000 decline the week
earlier which was less than initially reported. While the latest figure
was slightly lower than Consensus expectations for 448,000, claims have
been hovering near this cycle's low since January. Nevertheless, last
week's figure was down from the recession peak of 651,000 reached in
March of 2009. The four-week moving average of initial claims ticked up
to 463,000.
Continuing claims for unemployment insurance
during the latest week broke from their recent sideways movement and
dropped a sharp 255,000 to the lowest level since December of 2008.
Claims were down by one-third from the June '09 peak. The overall
decline is a function of the improved job market but also reflects the
exhaustion of 26 weeks of unemployment benefits. Continuing claims
provide an indication of workers' ability to find employment. The
four-week average of continuing claims at 4.618M remained near the
cycle low. This series dates back to 1966.&nbsp;
The above-mentioned decline in ongoing
claims does not reflect those who receive extended benefits. Extended
benefits for unemployment insurance rose sharply in the latest week to
394,380 and it was the highest level since November.&nbsp;These
figures do not include the 4.995 mil. benefit recipients under state
administered "EUC" emergency&nbsp;programs, but paid for by the
Federal government.
The insured unemployment rate dipped to 3.5% from
an upwardly-revised 3.7%. The rate reached a high of 4.9% during May of
2009. During the last ten years, there has been a 96% correlation
between the level of the insured unemployment rate and the overall rate
of unemployment published by the Bureau of Labor Statistics.&nbsp;
The highest insured unemployment rates in the
week ending May 22 were in Puerto Rico (6.2 percent), Alaska (5.5),
Oregon (5.3), California (4.8), Nevada (4.7), Pennsylvania (4.6), North
Carolina (4.3), Wisconsin (4.2), Connecticut (4.1), New Jersey (4.0),
and Rhode Island (4.0). The lowest insured unemployment rates were in
Virginia (1.8), Texas (2.1), Tennessee (2.5), Wyoming (2.5), Georgia
(2.9), Maryland (2.9), Ohio (2.9), Maine (2.9) Florida (3.0) and New
York (3.2). These data are not seasonally adjusted but the overall
insured unemployment rate is.
The unemployment insurance
claims data is available in Haver's WEEKLY database
and the state data is in the REGIONW database.
Fostering
Workforce Development is yesterday's speech by Fed Chairman
Ben S. Bernanke and it is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20100609a.htm">here</a>.

<a href="/comment/100610f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610f.png"></a><a href="/comment/100610g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610g.png"></a>
<table cellspacing="0" width="100%">
<colgroup><col><col><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></th>
<th scope="col">06/04/10</th>
<th scope="col">05/28/10</th>
<th scope="col">05/21/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr></thead><tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>456</td>
<td>459</td>
<td>463</td>
<td>-233.6%</td>
<td>572</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,462</td>
<td>4,717</td>
<td>-31.8</td>
<td>5,809</td>
<td>3,340</td>
<td>2,549</td>
</tr>
<tr>
<td class="firstcol">Insured Unemployment Rate(%)</td>
<td>--</td>
<td>3.5</td>
<td>3.7</td>
<td>4.9 (6/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
Credit Market's Net Borrowing
Stabilizes in Q1, Following Year-Long Contraction 
<a href="/comment/Stone.html">Carol Stone</a> June
10, 2010



<a href="/comment/100610h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610h.png"></a><a href="/comment/100610i_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610i.png"></a>

Activity in U.S. credit markets
experienced a
relative recovery in Q1, as total liabilities contracted a mere $10.3
billion, SAAR.&nbsp; This was a sharp improvement from the $841.3
billion rate of shrinkage in Q4 2009 and the year's average reduction
of $610.6 billion.&nbsp; These debt aggregates come from the
Federal Reserve's flow-of-funds statistics reported today, June 10, for
Q1 2010.
By sector, the biggest change was in
nonfinancial corporations, which raised debt at a $289 billion annual
rate, turning around from the net paydown of $57 billion in
Q4.&nbsp; Companies had the largest amount of net commercial paper
issuance since Q3 of 2008 and the largest volume of net new corporate
bonds in a year. The federal government, as might be expected,
increased its debt issuance from $956 billion in Q4 to $1,446 billion
in Q1, both seasonally adjusted annual rates.&nbsp; 
Households, on the other hand, continued
paying down debt.&nbsp; Their home mortgage debt fell at a $390
billion rate and consumer credit at a $39 billion rate.&nbsp; With
some partial offsets in other borrowing, their total credit usage
dropped at a $330 billion pace.&nbsp; This contributed, as today's
press reports have noted, to a further gain in their net worth to $54.6
trillion on March 31 from $53.5 trillion at year-end.&nbsp; 
he financial sector extends its
contraction.&nbsp; The debt of commercial banks, finance companies
and specialized lenders fell at a $1,336 billion rate in Q1, a fifth
consecutive quarterly drop, albeit the smallest.&nbsp; The largest
was $2,293 billion in Q2 2009.&nbsp; Commercial banks and issuers
of asset-backed securities (ABS) had the largest paydowns of their own
debt among various financial institutions, and both of those, along
with money market funds, also continued to reduce their provision of
credit to their own customers.
The rest of the world borrowed modestly in U.S.
markets in Q1, $112 billion on balance.&nbsp; As investors, these
foreign participants in U.S. financing provided $663 billion in total
funds, more than accounted for by acquisition of Treasury
securities:&nbsp; official holdings increased at a $451 billion
annual rate and private foreign investors took on $339 billion
worth.&nbsp; There were obviously liquidations of several other
asset positions, especially including commercial paper and private
holdings of agency and GSE-backed securities.
The flow-of-funds data are in Haver's FFUNDS
database, and the series on Mortgage Equity Withdrawal are in USECON.
<a href="/comment/100610j_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610j.png"></a>
<a href="/comment/100610k_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610k.png"></a>

<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstclass">Flow of Funds (Y/Y % Chg.)</th>
<th scope="col">% of Total Outstanding</th>
<th scope="col">Q1 '10
</th><th scope="col">4Q '09
</th><th scope="col">3Q '09
</th><th scope="col" colspan=3>End of Year
</th></tr></thead>
<tr class="grey2">
<td colspan=5>&nbsp;</td>
<td>2008</td>
<td>2007</td>
<td>2006</td>
</tr>
<tr>
<td class="firstcol">Total Credit Market Debt
Outstanding</td>
<td>100.0%</td>
<td>-1.5</td>
<td>-0.5</td>
<td>0.7</td>
<td>5.1</td>
<td>10.3</td>
<td>9.9</td>
</tr>
<tr class="odd">
<td class="firstcol">
Federal Government</td>
<td>15.9%</td>
<td>21.3</td>
<td>22.7</td>
<td>30.1</td>
<td>24.2</td>
<td>4.9</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">
Households</td>
<td>25.9%</td>
<td>-1.8</td>
<td>-1.7</td>
<td>-1.7</td>
<td>0.3</td>
<td>6.7</td>
<td>10.1</td>
</tr>
<tr class="odd">
<td class="firstcol">
Nonfinancial Corporate Business</td>
<td>13.8%</td>
<td>1.0</td>
<td>0.2</td>
<td>0.5</td>
<td>5.6</td>
<td>12.8</td>
<td>8.5</td>
</tr>
<tr>
<td class="firstcol">
Nonfarm, Noncorporate Business</td>
<td>6.7%</td>
<td>-8.3</td>
<td>-7.6</td>
<td>-5.1</td>
<td>5.3</td>
<td>14.2</td>
<td>14.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Sectors</td>
<td>28.7%</td>
<td>-12.0</td>
<td>-8.8</td>
<td>-5.8</td>
<td>5.6</td>
<td>13.4</td>
<td>10.0</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan=8>Trillions
of $</td>
</tr>
<tr>
<td class="firstcol">Net
Worth: Households &amp; Nonprofit Organizations</td>
<td>--</td>
<td>$54.565</td>
<td>$53.502</td>
<td>$52.974</td>
<td>$51,293</td>
<td>$64.358</td>
<td>$64.415</td>
</tr>
<tr class="odd">
<td class="firstcol">
Tangible Assets: Households</td>
<td>--</td>
<td>$22.994</td>
<td>$23.061</td>
<td>$23.081</td>
<td>$23.890</td>
<td>$28.037</td>
<td>$29.735</td>
</tr>
<tr>
<td class="firstcol">
Financial Assets: Households</td>
<td>--</td>
<td>$45.542</td>
<td>$44.510</td>
<td>$44.000</td>
<td>$41.668</td>
<td>$50.687</td>
<td>$48.124</td>
</tr>
<tr class="odd">
<td class="firstcol">
Total Liabilities: Households</td>
<td>--</td>
<td>$13.970</td>
<td>$14.068</td>
<td>$14.106</td>
<td>$14.265</td>
<td>$14.366</td>
<td>$13.444</td>
</tr>

</table>
U.S. Fiscal 'YTD Budget Deficit Narrows As
Receipt Decline Slows 
<a href="/comment/Moeller.html">Tom Moeller</a> June
10, 2010



<a href="/comment/100610e_big.png" name="modal"><img class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610l.png" align="left"></a>The Federal government ran
a budget deficit last month of $135.9B. The shortfall pulled the YTD
deficit to $935.6B but that was slightly diminished from the first
eight months of&nbsp; FY'09. The deficit's decline year-to-date is
in line with the latest projection from the Nat'l Association For
Business Economists of a diminished $1.310 trillion for 2010.
A slowing shortfall in net revenues during the
first eight months of FY'10 helped ease the deficit. Individual
income tax receipts fell 7.8% y/y as the unemployment rate remained
elevated. The rate of decline, however, continued lower than the peak
29.0% at the end of last year. Corporate tax receipts rose 17.5% 'YTD
versus the first eight months of last fiscal year with improved
corporate profits, and the gain is accelerating. Year-to-date,
employment taxes fell 4.4% (just lightly lower than the peak rate of
decline) but unemployment insurance tax receipts improved by 13.4%
versus the first eight months of last fiscal year. Estate &amp;
gift taxes fell by nearly one-quarter this fiscal year.
Overall, net outlays fell 3.5% so far this fiscal
year versus FY'09 as a commerce &amp; housing credit expired.
"Income security" spending (11% of outlays) continued to jump by
nearly&nbsp; one-quarter while defense spending (19% of total
outlays) rose 6.1%. Social Security payments (21% of outlays) rose 3.3%
and net interest payments (5% of outlays) rose 9.6%. Medicare
expenditures (12% of outlays) rose 5.1% and other health care services
spending (10% of outlays) rose 11.2%. 
The Government's financial data are available in
Haver's USECON database, with extensive detail
available in the specialized GOVFIN.
Fix Double Leverage Problem
from the American Enterprise Institute can be found here <a href="http://www.aei.org/article/102168">here</a>.
<a href="/comment/100610e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610m.png"></a>
<a href="/comment/100610e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100610n.png"></a>

<table 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/@E1/@E106/@E10602/@E106021.HTM">US
Government Finance</a> </th>
<th scope="col">May</th>
<th scope="col">FY 'YTD</th>
<th scope="col">FY 'YTD</th>
<th scope="col">FY 2009</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
</tr></thead>
<tr>
<td class="firstcol">Budget Balance</td>
<td>$-135.9B</td>
<td>$-935.6B</td>
<td>--</td>
<td>$-1,417.1B</td>
<td>$-454.8B</td>
<td>$-161.5B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$146.8B</td>
<td>$1,346.0B</td>
<td>-2.0%</td>
<td>-16.6%</td>
<td>-1.7%</td>
<td>6.7%</td>
</tr>
<tr>
<td class="firstcol">Net Outlays</td>
<td>$282.7B</td>
<td>$2,281.6B</td>
<td>-3.5%</td>
<td>18.2%</td>
<td>9.1%</td>
<td>2.8%</td>
</tr>

</table>
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<a href="/comment/100609f_big.png" name="modal"><img class="large" align="left" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100609f.png"></a>
UK exports and imports each backtracked slightly in April after solid
to strong gains in March. The upshot is that the flirtation with
progress in deficit reduction has ground to halt and commenced a
backtracking over the last two months. This backtracking could be
reversed. This episode could be a pause in the process of ongoing
deficit reduction or it could be the start of some real backtracking.
For now it's too soon to tell. So we flash yellow cautionary lights
instead of red ones. 
 For now the trends in the UK data are still
beneficial ones for the prospect of further deficit reduction. Imports
are still growing solidly but steadily with growth rates of 10% to 13%
over various horizons from one-year to 3-months. For exports the growth
rates range from 13% to nearly 40% and the highest growth rates are
more recent ones. That suggests that export growth is still on a strong
track while imports are only steady. One worry of course is that with
the Euro weakened and the German export machine turned on UK exports
could suffer stiffer competition. But the pound has weakened even more
than the euro. Moreover, Germany has done nothing to pump up domestic
demand and the rest of Europe is under a cloud of austerity. Germany
itself is considering further austerity moves. 
 In looking at the UK situation we have three
facts to consider. One is that the trade deficit reduction process has
been under way since that reduction has been somewhat effective. The
second, is that the conditions that made that progress a reality seem
to still be in evidence as export momentum seems stronger than import
momentum over the more recent periods. The pound sterling has fallen in
value, augmenting UK competitiveness even Vs the euro-area. The third
point looks ahead: the macroeconomic facts of life seem to put the UK's
back to the wall. Although it can still do well in exporting to the US
which is growing solidly, the UK trade balance with the EMU group seems
more likely to pose challenges. EMU sends 12% of its exports to the UK.
It's an important market for EMU just as EMU is important to the UK.
Moreover, conditions in EMU will affect the UK. The broad euro real
effective exchange rate (trade-weighted and inflation adjusted) has
gone from being 20% above its estimated parity rate to near parity in
two years' time. There should be repercussions on trade flows from this
in trade with the Zone's key trading partners. But during this period
sterling has fallen sharply even against the Euro. The UK problem in
penetrating the e-Zone will not be price competitiveness but it will be
euro-demand. EMU growth is being stimulated by its trade flows riding
the back of its weak exchange rate, not stimulated from within by
domestic demand. In fact the UK deficit with EU countries widened to
&#163;3.3 billion in April, compared with a deficit of &#163;3.2 billion in
March. Exports rose by &#163;0.1 billion and imports rose by &#163;0.2 billion. A
weak European consumer - even in the Europe's strongest economy,
Germany - is the hurdle faced by UK exporters. Europe simply is not a
strong market even although UK exports can profitably sell there.


<table cellspacing="0" width="100%">
<colgroup><col> <col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=6 scope="col">UK
Trade trends for goods</th>
</tr>
<tr>
<th scope="col">&nbsp;
</th><td scope="col" colspan="2">m/m%</td>
<td scope="col" colspan="3">% Saar</td>
</tr></thead><tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Apr-10</td>
<td>Mar-10</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
</tr>
<tr>
<td class="firstcol">Balance*</td>
<td>- &#163;&nbsp;&nbsp;&nbsp;
7.28 </td>
<td>- &#163;&nbsp;&nbsp;&nbsp;
7.26 </td>
<td>- &#163;&nbsp;&nbsp;&nbsp;
6.94 </td>
<td>- &#163;&nbsp;&nbsp;&nbsp;
7.15 </td>
<td>- &#163;&nbsp;&nbsp;&nbsp;
6.90 </td>
</tr>
<tr class="odd">
<td class="firstcol" colspan=6>Exports
of Goods</td>
</tr>
<tr>
<td class="firstcol">All
Exp</td>
<td>-0.6%</td>
<td>1.0%</td>
<td>38.9%</td>
<td>13.3%</td>
<td>14.9%</td>
</tr>
<tr>
<td class="firstcol">Capital
gds</td>
<td>-1.3%</td>
<td>1.2%</td>
<td>3.1%</td>
<td>-3.3%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">Road
Vehicles</td>
<td>11.5%</td>
<td>-3.2%</td>
<td>59.9%</td>
<td>22.5%</td>
<td>77.3%</td>
</tr>
<tr>
<td class="firstcol">Basic
Materials</td>
<td>-4.3%</td>
<td>18.8%</td>
<td>577.7%</td>
<td>52.5%</td>
<td>35.4%</td>
</tr>
<tr>
<td class="firstcol">Food
Feed Bev &amp; Tbco</td>
<td>-0.5%</td>
<td>1.2%</td>
<td>32.8%</td>
<td>10.6%</td>
<td>5.8%</td>
</tr>
<tr>
<td class="firstcol" >Other
Exports</td>
<td>-1.7%</td>
<td>0.8%</td>
<td>36.3%</td>
<td>14.1%</td>
<td>12.2%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan=6>Imports
of Goods</td>
</tr>
<tr>
<td class="firstcol">All
IMP</td>
<td>-0.4%</td>
<td>4.3%</td>
<td>12.9%</td>
<td>10.5%</td>
<td>11.6%</td>
</tr>
<tr>
<td class="firstcol">Capital
gds</td>
<td>2.6%</td>
<td>-0.1%</td>
<td>5.5%</td>
<td>15.8%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Road
Vehicles</td>
<td>1.0%</td>
<td>5.1%</td>
<td>23.0%</td>
<td>24.0%</td>
<td>60.0%</td>
</tr>
<tr>
<td class="firstcol">Basic
Materials</td>
<td>-5.7%</td>
<td>6.1%</td>
<td>-4.7%</td>
<td>23.0%</td>
<td>19.7%</td>
</tr>
<tr>
<td class="firstcol">Food
Feed Bev &amp; Tbco</td>
<td>1.9%</td>
<td>1.7%</td>
<td>22.1%</td>
<td>-0.5%</td>
<td>-1.0%</td>
</tr>
<tr>
<td class="firstcol">Other
Imports</td>
<td>-1.3%</td>
<td>5.3%</td>
<td>12.4%</td>
<td>8.9%</td>
<td>9.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan=6>*Stg
Blns; mo or period average. All
data are
seasonally adjusted</td>
</tr>
</tbody>
</table>

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UK exports and imports each backtracked slightly in April after solid to strong gains in March. The upshot is that the flirtation with progress in deficit reduction has ground to halt and commenced a backtracking over the last two [...]

UK Trade Deficit Ceases Progress Toward Lower Deficits

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 Plans to buy consumer durables are rebounding.
The American Research Group, which surveys consumer buying intentions
as well as other issues, indicated that their Furniture Buying Index
rose this month to its highest level since November 2007. The index has
rebounded by one-third from its recession low. During the last fifteen
years there has been a 45% correlation between the y/y change in the
index and the change retail sales at furniture stores

America's Research Group specializes in consumer research, marketing
plans, strategic marketing, strategic planning, and marketing research.
It interviews more than three million American consumers about their
shopping habits.
 In a typical month, 80 percent of the consumers
interviewed can name a specific furniture item they intend to buy. The
Index's mark signifies what percent of the benchmark 80% actually have
a particular item in mind. The data can be found in Haver's
SURVEYS database.

<a href="/comment/100609d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100609d.png"></a><a href="/comment/100609e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100609e.png"></a>


<table width="100%" cellspacing="0" >
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">America's Research Group</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">June
'09
</th><th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr></thead><tbody>
<tr>
<td class="firstcol">Furniture
Buying Index</td>
<td>72</td>
<td>71</td>
<td>69</td>
<td>59</td>
<td>57</td>
<td>60</td>
<td>77</td>
</tr>
</tbody>
</table>

</html>

Plans to buy consumer durables are rebounding. The American Research Group, which surveys consumer buying intentions as well as other issues, indicated that their Furniture Buying Index rose this month to its highest level since [...]

U.S. Furniture Buying Index At Pre-Recession High

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<a href="/comment/100609a_big.png" name="modal"><img class="large" align="left" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100609a.png"></a> Still in the shadow of the expiration of the
government's housing tax credit, the Mortgage Bankers Association
reported that mortgage applications fell sharply last week reflecting a
collapse in purchase applications. Overall, applications fell 12.2% in
early June from the week earlier.

Applications to purchase a home dropped 5.7% w/w
for the fifth consecutive week of sharp decline. During the last ten
years there has been a 51% correlation between the y/y change in
purchase applications and the change in new plus existing single family
home sales. The correlation has lessened recently. Mortgage refinancings
also fell by 14.3% and reversed increases during the prior two weeks.
 The effective fixed interest rate on conventional
15-year mortgages averaged 4.49% during the latest week, a new cycle
low. For 30-year mortgages the rate also fell to an average 5.01%.
Interest rates on fixed 15-year and 30-year mortgages are closely
correlated (near-90%) with the rate on 10-year Treasury securities.
Rates on adjustable one-year mortgages held roughly steady at
7.01%.&nbsp;
The
Mortgage Bankers Association surveys between 20 to 35 of the top
lenders in the U.S. housing industry to derive its refinance, purchase
and market indexes. The weekly survey covers roughly 50% of all U.S.
residential mortgage applications processed each week by mortgage
banks, commercial banks and thrifts. Visit the Mortgage Bankers
Association site <a href="http://www.mbaa.org">here</a>.&nbsp;The figures for weekly
mortgage applications are available in Haver's SURVEYW
database.
 Economic and financial conditions and
the federal budget is this morning's House testimony by Ben
S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20100609a.htm">here</a>.
<a href="/comment/100609b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100609b.png"></a>
<a href="/comment/100609c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100609c.png"></a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup><thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM%22">BA Mortgage Applications (SA,3/16/90=100)</a>
</th><th scope="col">06/04/10</th>
<th scope="col">05/28/10</th>
<th scope="col">05/21/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr></thead><tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>560.9</td>
<td>639.0</td>
<td>633.5</td>
<td>-8.2%</td>
<td>736.4</td>
<td>642.9</td>
<td>652.6</td>
</tr>
<tr>
<td class="firstcol">Purchase</td>
<td>167.8</td>
<td>178.0</td>
<td>185.7</td>
<td>-38.0</td>
<td>263.5</td>
<td>345.4</td>
<td>424.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Refinancing</td>
<td>2,859.5</td>
<td>3,336.9</td>
<td>3,257.4</td>
<td>9.7</td>
<td>3,509.2</td>
<td>2,394.1</td>
<td>1,997.9</td>
</tr>
<tr>
<td class="firstcol">15-Year Mortgage Effective Interest Rate (%)</td>
<td>4.49</td>
<td>4.52</td>
<td>4.50</td>
<td>5.21 (06/09)</td>
<td>4.85</td>
<td>5.9</td>
<td>6.2</td>
</tr>
</tbody>
</table>

</html>

Still in the shadow of the expiration of the government's housing tax credit, the Mortgage Bankers Association reported that mortgage applications fell sharply last week reflecting a collapse in purchase applications. Overall, [...]

U.S. Mortgage Applications Collapse

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

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

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Andrew Cates

**The Global Monetary Policy Consensus**
The latest Blue Chip Financial Forecasts survey points to a notably more balanced global monetary policy outlook over the coming year. In contrast to the pronounced easing bias that dominated much of the past two years, expectations are now more symmetric, with a similar number of central banks projected to raise rates as to ease policy. Japan is seen delivering further tightening, while Canada is expected to initiate an interest rate hike in coming months. In Australia’s case, this tightening guidance was reinforced this week, with the Reserve Bank lifting its policy rate by 25 basis points. Elsewhere, and in contrast, the euro area, UK and US are expected to move in the opposite direction.

260205Z1.jpg

**US manufacturing activity**
The second chart underscores the recent improvement in US economic momentum, highlighted by an unexpected surge in the January ISM manufacturing PMI. After spending much of the past year hovering below the 50 threshold consistent with stagnation, the index jumped sharply back into expansionary territory, signalling a renewed pickup in industrial activity. This rebound has coincided with a broader run of stronger-than-anticipated US economic data, as reflected in the upswing in the Citigroup Economic Surprise Index. Together, these developments point to a US economy that continues to display notable resilience, complicating expectations of monetary easing in the near term.

260205Z2.jpg

**US Bank Lending Standards and Financial Stress** 
The next chart turns to US financial conditions, highlighting the latest readings from the Senior Loan Officer Opinion Survey. The net proportion of banks tightening lending standards on corporate loans and mortgages is now more modest by historical standards, and well below the extremes seen during past episodes of financial stress. Some easing in credit headwinds has occurred alongside relatively subdued readings on the OFR Financial Stress Index, which continues to hover below its long-run average. Together, these indicators suggest that the US financial system has continued to avoid the kind of acute stress typically associated with sharp slowdowns in credit availability—helping to underpin the recent resilience in economic activity.

260205Z3.jpg

**Semiconductor Sales**
The fourth chart highlights the renewed surge in global semiconductor sales, with momentum strengthening sharply over recent months across the Americas, China and the broader Asia-Pacific region. After the cyclical downturn in 2022–23, sales have rebounded to fresh highs, reflecting a powerful revival in demand for advanced chips and related technologies. This upswing has taken place amid intense investor preoccupation with artificial intelligence, with expectations that AI adoption will drive a sustained wave of capital spending on data centres, cloud infrastructure and high-performance computing. In contrast, semiconductor sales in Europe remain comparatively subdued, reflecting the region’s smaller footprint in high-end chip manufacturing, weaker industrial demand, and the ongoing impact of slower economic growth. While semiconductors are inherently cyclical, markets have increasingly interpreted the current rebound elsewhere as structural rather than purely cyclical—underpinned by the belief that AI represents a transformative and durable source of demand growth.

260205Z4.jpg

**Large-Scale AI Models**
The next chart illustrates the rapid proliferation of large-scale AI models globally, with newly updated data for 2025 pointing to a further sharp acceleration in development activity. The United States continues to lead by a wide margin, while China has also seen a steep rise in model deployment in recent years, underscoring the intensifying technological competition between the two economies. Growth in the UK and other regions has been more modest by comparison, highlighting the increasingly concentrated nature of AI innovation. Taken together with the surge in semiconductor sales, these trends help explain the market’s strong preoccupation with AI as a potential driver of future productivity and investment cycles—although the geographic concentration of activity also raises questions about the uneven distribution of any resulting economic gains.

260205Z5.jpg

**An AI Bubble?** 
The final chart draws on the latest Blue Chip Financial Forecasts special questions, highlighting market participants’ perceptions of the economic gains likely to be delivered by artificial intelligence. While a sizeable share of respondents still believe that financial markets may be overestimating AI’s potential benefits, an increasing proportion now judge current expectations to be broadly accurate, with only a small minority viewing the gains as underestimated. Notably, this represents a softening in scepticism compared with the survey results from last month, when concerns about excessive market optimism were more pronounced. The shift suggests a growing acceptance that AI-related investment and innovation could translate into meaningful economic impacts—though uncertainty remains high around the scale, timing and distribution of these gains.

260205Z6.jpg

Financial markets have experienced renewed gyrations in recent weeks, as shifting geopolitical risks, questions around Federal Reserve independence, renewed talk of US dollar “debasement,” and ongoing enthusiasm surrounding artificial intelligence have combined to drive volatility across asset classes. These cross-currents have also contributed to a degree of rotation away from high-flying technology stocks, as investors reassess valuations and the timing of anticipated AI-driven gains. Against this backdrop, the charts in this week’s COTW highlight several important themes. Policy rate expectations now appear more balanced globally, marking a clear shift away from the one-sided easing bias of the past two years (chart 1), even as resilient US data—underscored by the unexpected jump in the January ISM index and a run of positive economic surprises—continues to complicate the outlook for monetary easing (chart 2). At the same time, US financial conditions remain relatively benign, with limited evidence of widespread credit stress or aggressive tightening in lending standards (chart 3). Meanwhile, the sharp rebound in semiconductor sales and the accelerating rollout of large-scale AI models underscore why investors remain so focused on the AI narrative, even as Europe lags behind due to weaker industrial momentum and a smaller footprint in advanced chip production (charts 4 and 5). Finally, while some scepticism about AI’s ultimate economic impact persists, the latest survey results suggest a moderation in concerns that markets are materially overestimating its gains (chart 6). Taken together, these developments paint a picture of a US economy that remains more resilient than many had anticipated, set against a financial landscape increasingly shaped by powerful—if sometimes competing—narratives around geopolitics, policy, and technological transformation.

Charts of the Week: Balanced Policy, Resilient Data and AI Narratives

260206E.jpg

With the December report, Germany’s production and some of the early European industrial production data reveal a good deal of chaos in terms of the embedded trends. On the month, German industrial production fell by 1.9%, with consumer goods output up by 0.5%, capital goods output falling by 5.3%, and intermediate goods output falling by 1.2%. Among the early reporters in the monetary union—France, Spain, and Portugal—only Spain showed an increase in manufacturing IP in December; however, Spanish industrial production is notoriously volatile.

**Broader IP trends in Germany and elsewhere in Europe**
As for other early industrial production reporters, both Sweden and Norway showed strong-to-solid gains in December and each of them showed two-months of gains in a row. Beyond that, sequential growth rates from 12-months to six-months to three-months show accelerating growth in German consumer goods output against decelerating growth for intermediate goods. Real manufacturing output and real sales show mixed results- no clear trends; however, real manufacturing orders in Germany are off the map strong. 

**German manufacturing/industrial Surveys**
German industrial surveys from the IFO for manufacturing shows persistent weakening as well as for IFO manufacturing expectations, and in the EU Commission industrial index in the last three months. More broadly, Germany shows some modest but ongoing step up all of these based on average levels from 12-months to six-months to three-months for IFO expectations and the EU Commission industrial readings with mixed results for other survey readings.

**IP trends in Europe**
For the early reporting EMU members France, Spain, and Portugal, who report industrial production trends, each show mixed monthly trends against ongoing decelerations for manufacturing output over the broader sequential periods (12-month, to 6-month, to 3-month). However, for other Europe, Sweden and Norway, manufacturing trends are steadily accelerating on this broader timeline.

**A feeling of ‘Deja- What?’**
These combinations of opposed trends mixed with a lack of trends leave us with this sense of confusion about what's going on in manufacturing. For Germany, the extreme strength in orders is reassuring since orders should be forward-looking rather than backward-looking or even contemporaneous. But orders can also be a fickle series and so we'll have to watch it to see if the trends for German orders hold up.

**Current quarter-What’s been happening now**
In addition, current quarter growth for Germany actually looks quite good with industrial production up 3.7% at an annual rate in the current quarter, led by output increases in manufacturing against a decline in the intermediate goods output. Real orders in the quarter are surging at a 44% growth rate, while real sales in manufacturing only had a 0.1% uptick at an annual rate. The industrial indicators for Germany in the quarter show weakness or flatness with the only exception being IFO manufacturing expectations that advanced by a small amount. The three EMU members who report industrial production data show positive growth in the just-completed quarter except for Portugal where industrial production is falling at a 2.9% rate in the fourth quarter. Sweden and Norway, European countries but not monetary union members, show a strong 22% annual rate gain in Sweden against the 3% annual rate decline in Norway.

260206.jpg

**Rankings**
**How growth rates stack up…**
Moving away from short-term trends, the rankings of growth rates of these various metrics using 12-month growth rates on data back to 2006, show below-median growth rates for German industrial production and all three of its major sectors. All of them have rankings below the 50% mark where the median resides. Germany’s manufacturing output growth rate is below its median as is the growth of real sales; and once again real manufacturing orders break out and show a stunning 90th percentile standing, extremely strong compared to other growth rates on this period.

**Indicator rankings are poor**
However, the survey based industrial indicators for Germany, ranked based on their index levels, are all extremely weak and much weaker than German sector or other German metrics. The strongest indicator reading is the 29th percentile standing for IFO manufacturing expectations while the current ZEW index, IFO manufacturing index, and the EU Commission industrial readings, all reside below their 15th percentile. The survey rankings suggest that industrial sentiment is in much worse shape than activity and growth.

**IP elsewhere in Europe**
However, the growth ranking of manufacturing industrial production for the reporting EMU members and other European members are all quite solid, with percentile standings ranging from the 66th up to the 93rd percentile.

**Summing up**
From these data, Germany emerges as the weak economy compared with historic norms based on industrial production growth and indicator readings. However, there's a glimpse of positivity from the growth of real orders, and at the same time, some concern about ongoing sentiment for manufacturing in Germany as distinct from actual performance.

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

260205X15.jpg

260205Y15.jpg

**Total job openings** fell 5.6% m/m (-12.9% y/y) to 6.542 million in December after a downwardly revised 7.0% decline to 6.928 million in November (previously -4.1% m/m; 7.146 million), according to the Job Openings and Labor Turnover Survey. December marked the third consecutive m/m fall and the lowest level since September 2020. The job openings rate declined to 3.9% in December, the lowest since April 2020, from 4.2% in November, remaining below a record-high 7.4% in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings. Significantly, the drop in job openings also lowered the **ratio of job openings to unemployed individuals** to 0.872 in December—the lowest since March 2021—from 0.890 in November, down from 1.085 in December 2024 and a pre-pandemic 1.211 in February 2020. A reading of 0.872 implies there were about 0.87 open jobs per unemployed person—indicating fewer openings than unemployed workers. December was the fifth time in six months that this ratio remained below 1.0.

**Private sector job openings** fell 6.8% (-12.5% y/y) to 5.804 million in December after a 6.6% fall to 6.227 million in November, registering the third successive m/m decline and the lowest level since September 2020. The private sector job openings rate fell to 4.1% in December, the lowest since April 2020, from 4.4% in November. The December m/m decline in private sector openings reflected drops of 27.7% (-36.9% y/y) in financial activities, 20.2% (-25.5% y/y) in professional & business services, 14.4% (-5.1% y/y) in trade, transportation & utilities, and 5.2% (-12.4% y/y) in private educational & health services. To the upside, private sector openings in the following categories rose m/m in December: other services (21.1%; 11.0% y/y), mining & lodging (17.6%; 0.0% y/y), information (13.5%; -4.7% y/y), manufacturing (8.5%; 0.5% y/y), leisure & hospitality (7.5%; -17.2% y/y), and construction (2.8%; 42.4% y/y). Meanwhile, government job openings rose 5.3% (-15.6% y/y) in December, the first m/m rise in three months, after a 10.6% drop in November.

**Total hiring** rebounded 3.4% (-1.5% y/y) to 5.293 million in December, the first m/m increase since September, following a 4.6% decrease to 5.121 million in November. The hiring rate edged up to 3.3% in December from 3.2% in November, though it remained below pre-pandemic levels. **Private sector hiring** rose 3.1% (-0.4% y/y) to 4.978 million in December, the third m/m rise in four months, after a 4.0% decline to 4.826 million in November. The private sector hiring rate rose to 3.7% in December from 3.5% in November, the same as in October and September. The December m/m increase in private sector hiring was led by a 32.1% jump (42.3% y/y) in information, followed by gains of 24.0% (-4.6% y/y) in financial activities, 23.5% (0.0% y/y) in mining & lodging, 6.5% (-4.8% y/y) in private educational & health services, 4.2% (-4.9% y/y) in trade, transportation & utilities, 3.6% (6.1% y/y) in construction, 3.4% (7.9% y/y) in leisure & hospitality, and 1.8% (-4.3% y/y) in manufacturing. To the downside, private sector hiring in professional & business services (-5.2%; +0.5% y/y) and other services (-4.3%; -16.5% y/y) declined m/m in December. Meanwhile, government hiring rebounded 6.4% (-16.3% y/y) in December, the first m/m rise since September, following a 13.5% drop in November.

**Total separations** rose 2.1% (3.3% y/y) to 5.251 million in December after a 1.5% rise to 5.144 million in November, marking the third m/m increase in four months and the highest level since September. The total separations rate edged up to 3.3% after holding at 3.2% in November and October. Private sector separations rose 1.6% (4.2% y/y) to 4.932 million in December, the highest level since June, while government sector separations jumped 10.4% (-9.1% y/y) to 319,000 following two consecutive m/m declines. **Total quits** (voluntary separations initiated by the employee) increased 0.3% (3.5% y/y) to 3.204 million in December, the third m/m rise in four months and the highest level since June, after a 7.4% rebound in November. The quits rate (a measure of workers’ willingness or ability to leave jobs) held at 2.0% in December and November, slightly below 2.3% in February 2020. Private sector quits eased 0.2% (+4.5% y/y) following an 8.4% November rebound. **Layoffs and discharges** (involuntary separations initiated by the employer) increased 3.6% (5.6% y/y) to 1.762 million in December, up for the third time in four months, after an 8.1% drop in November. The layoffs & discharges rate remained at 1.1% in December and November, marginally below 1.3% in February 2020. Private sector layoffs grew 4.3% (7.8% y/y) following a 7.3% November decrease.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

260205C15.jpg

260205D15.jpg

- Job openings down 5.6% (-12.9% y/y) to 6.542 mil., third straight m/m decline.
- Hiring up 3.4% (-1.5% y/y) to 5.293 mil., first m/m increase since September.
- Separations rise to a three-month high; quits reach a six-month high; layoffs rebound.

U.S. JOLTS: Openings Drop to Lowest Level Since Sept. ’20; Hiring Rebounds in December

Sandy Batten

260205A2.jpg

260205B2.jpg

Initial claims for unemployment insurance jumped 22,000 to 231,000 in the week ended January 31 following an unrevised 209,000 in the prior week. The four-week average rose to 212,250 from 206,250. The Action Economics Forecast Survey looked for 213,000 claims to have been filed. Winter Storm Fern and the accompanying very cold temperatures could have provided a temporary boost. Historically speaking, claims remain at low levels.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 25,000 to 1.844 million in the week ending January 24, from a downwardly revised 1.819 million in the prior week (previously 1.827 million). The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous eight weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), and Texas (1.09%). 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.

260205C2.jpg

260205D2.jpg

- New claims jumped 22,000 to 231,000, the highest level since December 6.
- Continuing claims rose to 1.844 million from 1.819 million.

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

German real orders in December adjusted for inflation rose strongly again, gaining 7.8% month-to-month after rising 5.7% month-to-month in November. Foreign orders were up by 5.6% in December compared to 5.2% in November. Domestic orders surged by 10.7% in December after rising 6.4% in November and 10% in October.

**Real sales**
Real sales were mixed in December with overall sales falling 1.4% month-to-month mostly on weakness in capital goods sales.

**Broad categorical acceleration**
Many flows are accelerating this month. Sequential growth rates show acceleration. Total real orders accelerate from a year ago, to the current year, to six-months, and to three-months. Sales growth rates for consumer goods, consumer nondurables, and intermediate goods all show accelerations in gear. The exceptions are foreign orders that are not as strong over six months compared to their 12-month growth. And on the sales side, consumer durables sales and capital goods sales are weak.

**Quarter-to-quarter**
Quarterly annualized growth is complete for Q4 with this report. Foreign orders are the ‘weak flow’ expanding at a 13.6% annual rate – certainly not a weak growth rate. But domestic real orders are up at an astounding 101.9% annual rate. The net impact on the total real orders growth is to lift it to a pace of 44.1%. 

**Order ranking is very strong**
The table provides two rankings: one based on the level of variables and the other based on its year-on-year growth. The rankings this month for real orders overall, foreign, and domestic orders all reside in their top 80th to 90th percentiles- extremely strong based on level or growth. Sales do not follow suit. This gives us some reason to suspect that there is some lumpiness involved in the manufacturing data as distinct from strength. That will be something to watch. Overall mining and manufacturing sales growth is essentially at its historic median at a rank of 49.8. However, capital goods, intermediate goods and manufacturing sales all have rankings at or above their medians - as high as a 61-percentile standing for capital goods.

**Industrial confidence**
Industrial confidence for Germany, France, Italy and Spain (the EU’s big-four economies) show rankings based on these survey levels that are much lower at the 11th percentile for Germany, the 42nd and 36th percentiles, for France and Italy, respectively. Spain scores better with a 61.8 percentile standing on its industrial confidence measure. 

On balance, there is now an accelerating profile that is broad in sales trends and especially strong order trends. Perhaps Europe, under the pressure to stimulate its miliary capabilities, has a core of demand to help drive output ahead more consistently. This is something to watch in the coming months.

Economy in Brief

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OECD Leading Indicators Move Up But Slow Down

U.S. Retail Spending Disappoints Across-the-Board

U.S. Retail Spending Disappoints Across-the-Board

U.S. Trade Deficit Stable M/M But Sharply Deeper Since Last Year

U.S. Trade Deficit Stable M/M But Sharply Deeper Since Last Year

UK Trade Deficit Ceases Progress Toward Lower Deficits

U.S. Furniture Buying Index At Pre-Recession High

U.S. Mortgage Applications Collapse