Tom Moeller

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520h.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
The economic recovery continued this month according to the
Philadelphia Federal Reserve Bank. It indicated that its May index of
regional factory sector activity rose for the fourth consecutive month
to the second highest level since early-2005. At 21.4 the index roughly
matched Consensus expectations and has been positive since the summer.
The latest figure compared to those near -40.0 at the recent
recession's weakest.
During the last ten years there has been a 75% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 73% correlation with q/q growth in real GDP. The latest
survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2010/bos0510.pdf">here.</a>
Improved shipments powered the June index gain. It was
accompanied by higher new orders. Factory payrolls, however, eased but
still showed net-hiring for the sixth straight month. During the last
ten years, there has been a 90% correlation between the index level and
the three-month change in manufacturing sector payrolls.
The prices paid index slipped from the recent high. During the
last ten years there has been a 66% correlation between the prices paid
index and the three-month growth in the intermediate goods PPI. There
has been an 77% correlation with the change in core intermediate goods
prices.
The separate index of expected business conditions in six
months also fell, to the lowest level since April of last year.
Expected prices paid also fell to the lowest level since last August.
Expected capital expenditures also fell m/m and were well below the
February high.
The figures from the Philadelphia Federal Reserve can be found
in Haver's SURVEYS database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520i.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520j.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May '09</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">General Activity Index</td>
<td>21.4</td>
<td>20.2</td>
<td>18.9</td>
<td>-21.7</td>
<td>-7.6</td>
<td>-21.4</td>
<td>5.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>6.1</td>
<td>13.9</td>
<td>9.3</td>
<td>-23.2</td>
<td>-9.7</td>
<td>-14.7</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Shipments</td>
<td>15.8</td>
<td>5.6</td>
<td>13.6</td>
<td>-18.7</td>
<td>-8.0</td>
<td>-9.2</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Delivery Times</td>
<td>-1.2</td>
<td>5.4</td>
<td>7.9</td>
<td>-19.1</td>
<td>-15.3</td>
<td>-10.6</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Number of Employees</td>
<td>3.2</td>
<td>7.3</td>
<td>8.4</td>
<td>-29.8</td>
<td>-23.8</td>
<td>-8.8</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>-7.9</td>
<td>2.0</td>
<td>-11.0</td>
<td>-27.8</td>
<td>-24.0</td>
<td>-16.7</td>
<td>-3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index</td>
<td>35.5</td>
<td>42.7</td>
<td>38.6</td>
<td>-23.8</td>
<td>-3.9</td>
<td>36.3</td>
<td>26.3</td>
</tr>
</tbody>
</table>
</body></html>

The economic recovery continued this month according to the Philadelphia Federal Reserve Bank. It indicated that its May index of regional factory sector activity rose for the fourth consecutive month to the second highest level since [...]

Philadelphia Fed Index Increases As Shipments Rise

Robert Brusca

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Orders growth has recovered substantially in Germany and in
France. Despite the recovery in orders, with the rebounding rates of
orders growth, the level of orders is still some 20% to 30% below their
respective cycle highs for France and Italy.
Germany posted some very strong orders. France and Italy, too,
have posted some degree of orders strength in March. While France&#8217;s
jump of 6.5% in one month seems very impressive (better than a 100%
annual rate) orders in France still are rebounding from a 10.9% drop in
January. As a result French orders are still falling on balance over
three-months even with this strong monthly rebound. So are orders in
Italy.
Europe is certainly due for some kick to growth as the euro
has fallen over the past year and plunged sharply over the past few
months. But the persisting weakness in European stocks speaks to a loss
of confidence. In part the Greek stimulus plan is not fully funded and
is awaiting some final votes from Germany to disburse funds. In part it
is the still uncooperative tone in Greece where further strikes are
planned to protest austerity. In part it is due to concern that,
despite all the reluctance to obey the rule of austerity, the fiscal
consolidation will prove to be too great to allow European growth to
press ahead.
It is these two conflicting ideas that are driving markets
into a frenzy, even though they are at odds with each other. Which is
it? Are countries going to avoid austerity and not do the right thing?
Or, are countries going to be so virtuous with fiscal controls that
consolidation will prove to be a load too-heavy and cause growth to be
set back? Or is there a middle ground with a more positive result? We
have seen recent improvements in the US and European economic reports.
Reports with expectations components have shown some of the weakest
recent readings. Barometers of current activity have been strong,
especially in the UK just outside the Euro-Area
I think we are in a region of political economic uncertainty.
Markets are not happy with the stewardship of our political or economic
direction in recent years. The private sector has failed us too. It is
no wonder that markets feel like taking no prisoners. But it&#8217;s also
true that at the end of the day the markets know that stock indices
have come a long way from their recession bottoms, that interest rates
had crept up and are now lower as a result of this sell-off, that
central banks are not eager to tighten but are planning to discharge
their responsibilities, that &#8211; at the end of the day- inflation has
remained under wraps. The blow-off in commodity prices that had run
well ahead of reality is a welcome event (unless you were long, of
course). As we go over the final technical hurdles to get money to
Greece (and to thereby protect exposed German and French banks with
Greek paper on their balance sheets) we can expect things to settle
down and for markets to pay attention of fundamentals again. It&#8217;s not
just pabulum from a policymaker looking to calm markets. It&#8217;s true. The
fundamentals are good. Even with the high debt-to-GDP levels the
problems are tractable.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Italy
Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td style="font-weight: bold;" class="firstcol">Saar
exept m/m</td>
<td style="font-weight: bold;">Mar-10</td>
<td style="font-weight: bold;">Feb-10</td>
<td style="font-weight: bold;">Jan-10</td>
<td style="font-weight: bold;">3-mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>-2.8%</td>
<td>-8.7%</td>
<td>12.7%</td>
<td>9.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foreign</td>
<td>1.8%</td>
<td>-0.5%</td>
<td>-2.3%</td>
<td>-4.1%</td>
<td>22.0%</td>
<td>21.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Domestic</td>
<td>0.4%</td>
<td>-0.2%</td>
<td>-3.1%</td>
<td>-11.1%</td>
<td>7.7%</td>
<td>3.0%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>1.5%</td>
<td>-2.6%</td>
<td>2.6%</td>
<td>6.2%</td>
<td>8.3%</td>
<td>6.3%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">French Orders</td>
</tr>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>Mar-10</td>
<td>Feb-10</td>
<td>Jan-10</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>6.5%</td>
<td>-1.0%</td>
<td>-10.9%</td>
<td>-22.4%</td>
<td>2.2%</td>
<td>10.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>2.9%</td>
<td>1.0%</td>
<td>-8.7%</td>
<td>-19.1%</td>
<td>26.7%</td>
<td>28.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">IP xConstruct</td>
<td>0.8%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>7.0%</td>
<td>3.7%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
</body></html>

Orders growth has recovered substantially in Germany and in France. Despite the recovery in orders, with the rebounding rates of orders growth, the level of orders is still some 20% to 30% below their respective cycle highs for France [...]

UK Trade Deficit Worsens As Exports Lag Imports

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
For last week, the Bureau of Labor Statistics reported that
initial claims for jobless insurance rose 25,000 to 471,000 following
declines during the prior five weeks. The latest disappointed Consensus
expectations for 440,000 claims. Even the earlier week's level was
revised up modestly. Still, claims remained near this cycle's lowest.
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
increased slightly to 453,500.
The latest claims figure covers the survey week for May
nonfarm payrolls. Claims fell 7,500 (-1.6%) from the April survey
period. During the last ten years there has been an 80% correlation
(inverse) between the level of initial claims and the m/m change in
nonfarm payrolls.
A 40,000 decline in continuing claims for unemployment
insurance during the latest week reversed the prior week's increase.
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 4.643M remained near the
cycle low. This series dates back to 1966.
Extended benefits for unemployment insurance rose w/w to
240,260. However, they were down by three-quarters from a peak of
597,688 reached in November.
The insured unemployment rate remained at 3.6% where it has
been since mid-February. 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.
The highest insured unemployment rates in the week ending May
1 were in Alaska (6.4%), Puerto Rico (6.0), Oregon (5.6), Nevada (5.0),
California (4.9), Pennsylvania (4.6), Wisconsin (4.6), Montana (4.5),
Idaho (4.4), North Carolina (4.4), and Washington (4.4). The lowest
insured unemployment rates were in Virginia (1.7), Texas (2.2), Georgia
(2.8), Maryland (2.9), Wyoming (3.0), Florida (3.1), Ohio (3.1), New
York (3.3) and Maine (3.4). 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.
The impact of low-skilled immigration on the youth
labor market from the Board of Governors can be found here <a href="http://www.federalreserve.gov/pubs/feds/2010/201003/201003abs.html">here.</a>

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520c.jpg" style="width: 312px; height: 265px;">
<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">05/15/10</th>
<th scope="col">05/08/10</th>
<th scope="col">05/01/10</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">Initial Claims</td>
<td>471</td>
<td>446</td>
<td>446</td>
<td>-24.6%</td>
<td>572</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,625</td>
<td>4,665</td>
<td>-28.3</td>
<td>5,809</td>
<td>3,340</td>
<td>2,549</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.6</td>
<td>3.6</td>
<td>4.9 (5/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

For last week, the Bureau of Labor Statistics reported that initial claims for jobless insurance rose 25,000 to 471,000 following declines during the prior five weeks. The latest disappointed Consensus expectations for 440,000 claims. [...]

U.S. Initial Jobless Insurance Claims Rise Unexpectedly

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
For last week, the Bureau of Labor Statistics reported that
initial claims for jobless insurance rose 25,000 to 471,000 following
declines during the prior five weeks. The latest disappointed Consensus
expectations for 440,000 claims. Even the earlier week's level was
revised up modestly. Still, claims remained near this cycle's lowest.
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
increased slightly to 453,500.
The latest claims figure covers the survey week for May
nonfarm payrolls. Claims fell 7,500 (-1.6%) from the April survey
period. During the last ten years there has been an 80% correlation
(inverse) between the level of initial claims and the m/m change in
nonfarm payrolls.
A 40,000 decline in continuing claims for unemployment
insurance during the latest week reversed the prior week's increase.
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 4.643M remained near the
cycle low. This series dates back to 1966.
Extended benefits for unemployment insurance rose w/w to
240,260. However, they were down by three-quarters from a peak of
597,688 reached in November.
The insured unemployment rate remained at 3.6% where it has
been since mid-February. 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.
The highest insured unemployment rates in the week ending May
1 were in Alaska (6.4%), Puerto Rico (6.0), Oregon (5.6), Nevada (5.0),
California (4.9), Pennsylvania (4.6), Wisconsin (4.6), Montana (4.5),
Idaho (4.4), North Carolina (4.4), and Washington (4.4). The lowest
insured unemployment rates were in Virginia (1.7), Texas (2.2), Georgia
(2.8), Maryland (2.9), Wyoming (3.0), Florida (3.1), Ohio (3.1), New
York (3.3) and Maine (3.4). 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.
The impact of low-skilled immigration on the youth
labor market from the Board of Governors can be found here <a href="http://www.federalreserve.gov/pubs/feds/2010/201003/201003abs.html">here.</a>

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520c.jpg" style="width: 312px; height: 265px;">
<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a></th>
<th scope="col">05/15/10</th>
<th scope="col">05/08/10</th>
<th scope="col">05/01/10</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">Initial Claims</td>
<td>471</td>
<td>446</td>
<td>446</td>
<td>-24.6%</td>
<td>572</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,625</td>
<td>4,665</td>
<td>-28.3</td>
<td>5,809</td>
<td>3,340</td>
<td>2,549</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.6</td>
<td>3.6</td>
<td>4.9 (5/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
UK Trade Deficit Worsens As
Exports Lag Imports 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 20, 2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Orders growth has recovered substantially in Germany and in
France. Despite the recovery in orders, with the rebounding rates of
orders growth, the level of orders is still some 20% to 30% below their
respective cycle highs for France and Italy.
Germany posted some very strong orders. France and Italy, too,
have posted some degree of orders strength in March. While France&#8217;s
jump of 6.5% in one month seems very impressive (better than a 100%
annual rate) orders in France still are rebounding from a 10.9% drop in
January. As a result French orders are still falling on balance over
three-months even with this strong monthly rebound. So are orders in
Italy.
Europe is certainly due for some kick to growth as the euro
has fallen over the past year and plunged sharply over the past few
months. But the persisting weakness in European stocks speaks to a loss
of confidence. In part the Greek stimulus plan is not fully funded and
is awaiting some final votes from Germany to disburse funds. In part it
is the still uncooperative tone in Greece where further strikes are
planned to protest austerity. In part it is due to concern that,
despite all the reluctance to obey the rule of austerity, the fiscal
consolidation will prove to be too great to allow European growth to
press ahead.
It is these two conflicting ideas that are driving markets
into a frenzy, even though they are at odds with each other. Which is
it? Are countries going to avoid austerity and not do the right thing?
Or, are countries going to be so virtuous with fiscal controls that
consolidation will prove to be a load too-heavy and cause growth to be
set back? Or is there a middle ground with a more positive result? We
have seen recent improvements in the US and European economic reports.
Reports with expectations components have shown some of the weakest
recent readings. Barometers of current activity have been strong,
especially in the UK just outside the Euro-Area
I think we are in a region of political economic uncertainty.
Markets are not happy with the stewardship of our political or economic
direction in recent years. The private sector has failed us too. It is
no wonder that markets feel like taking no prisoners. But it&#8217;s also
true that at the end of the day the markets know that stock indices
have come a long way from their recession bottoms, that interest rates
had crept up and are now lower as a result of this sell-off, that
central banks are not eager to tighten but are planning to discharge
their responsibilities, that &#8211; at the end of the day- inflation has
remained under wraps. The blow-off in commodity prices that had run
well ahead of reality is a welcome event (unless you were long, of
course). As we go over the final technical hurdles to get money to
Greece (and to thereby protect exposed German and French banks with
Greek paper on their balance sheets) we can expect things to settle
down and for markets to pay attention of fundamentals again. It&#8217;s not
just pabulum from a policymaker looking to calm markets. It&#8217;s true. The
fundamentals are good. Even with the high debt-to-GDP levels the
problems are tractable.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Italy
Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td style="font-weight: bold;" class="firstcol">Saar
exept m/m</td>
<td style="font-weight: bold;">Mar-10</td>
<td style="font-weight: bold;">Feb-10</td>
<td style="font-weight: bold;">Jan-10</td>
<td style="font-weight: bold;">3-mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>-2.8%</td>
<td>-8.7%</td>
<td>12.7%</td>
<td>9.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foreign</td>
<td>1.8%</td>
<td>-0.5%</td>
<td>-2.3%</td>
<td>-4.1%</td>
<td>22.0%</td>
<td>21.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Domestic</td>
<td>0.4%</td>
<td>-0.2%</td>
<td>-3.1%</td>
<td>-11.1%</td>
<td>7.7%</td>
<td>3.0%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>1.5%</td>
<td>-2.6%</td>
<td>2.6%</td>
<td>6.2%</td>
<td>8.3%</td>
<td>6.3%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">French Orders</td>
</tr>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>Mar-10</td>
<td>Feb-10</td>
<td>Jan-10</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>6.5%</td>
<td>-1.0%</td>
<td>-10.9%</td>
<td>-22.4%</td>
<td>2.2%</td>
<td>10.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>2.9%</td>
<td>1.0%</td>
<td>-8.7%</td>
<td>-19.1%</td>
<td>26.7%</td>
<td>28.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">IP xConstruct</td>
<td>0.8%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>7.0%</td>
<td>3.7%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
U.S. Leading Economic Indicators
Slip 
by <a href="/comment/Moeller.html">Tom
Moeller</a> May 20,2010


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520e.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Following twelve consecutive monthly increases, the Conference
Board's Index of Leading Economic Indicators declined during April. The
index slipped 0.1% after a downwardly revised 1.3% March gain. The
three-month rate of increase also slipped to 6.5% (AR), its weakest in
roughly one year. The leading index is based on actual reports for
eight economic data series. The Conference Board initially estimates
two series, consumer and capital goods orders.
The breadth of increase amongst the component leading series
fell to its lowest since March of last year. Prominent in last month's
index decline were lower building permits, quicker vendor performance,
lower money supply growth and higher initial claims for unemployment
insurance. Just four of the ten components rose. These included higher
capital goods orders, a steeper interest rate yield curve, higher stock
prices and a longer workweek.
The index of coincident indicators rose 0.3%, the strongest
monthly gain since November. The three-month change of 2.0% was near
its high of late last year. Increases in all four of the component
series including industrial production, real personal income, business
sales and payroll employment contributed to last month's increase.
The lagging index rose slightly for the third month since
January 2009. Higher C&amp;I loans accounted for most of the
increase. The ratio of coincident-to-lagging indicators (another
leading indicator) rose slightly to the highest level since July, 2008.
The Conference Board figures are available in Haver's BCI
database. Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world. The latest
U.S. Leading Indicators release can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/acrawl.pdf">here</a>.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520f.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520g.jpg" style="width: 312px; height: 265px;">
<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/BCI/BCI.HTM" style="color: black;">Business Cycle Indicators</a>
(%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Dec. 6-Month % (AR)</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">Leading</td>
<td>-0.1</td>
<td>1.3</td>
<td>0.4</td>
<td>10.6</td>
<td>0.5</td>
<td>-2.7</td>
<td>-0.2</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3</td>
<td>0.1</td>
<td>0.1</td>
<td>1.4</td>
<td>-5.1</td>
<td>-1.2</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.1</td>
<td>0.1</td>
<td>0.2</td>
<td>-2.9</td>
<td>-1.6</td>
<td>3.2</td>
<td>3.0</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Increases
As Shipments Rise 
by <a href="/comment/Moeller.html">Tom
Moeller</a>May 20, 2010 


<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520h.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
The economic recovery continued this month according to the
Philadelphia Federal Reserve Bank. It indicated that its May index of
regional factory sector activity rose for the fourth consecutive month
to the second highest level since early-2005. At 21.4 the index roughly
matched Consensus expectations and has been positive since the summer.
The latest figure compared to those near -40.0 at the recent
recession's weakest.
During the last ten years there has been a 75% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 73% correlation with q/q growth in real GDP. The latest
survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2010/bos0510.pdf">here.</a>
Improved shipments powered the June index gain. It was
accompanied by higher new orders. Factory payrolls, however, eased but
still showed net-hiring for the sixth straight month. During the last
ten years, there has been a 90% correlation between the index level and
the three-month change in manufacturing sector payrolls.
The prices paid index slipped from the recent high. During the
last ten years there has been a 66% correlation between the prices paid
index and the three-month growth in the intermediate goods PPI. There
has been an 77% correlation with the change in core intermediate goods
prices.
The separate index of expected business conditions in six
months also fell, to the lowest level since April of last year.
Expected prices paid also fell to the lowest level since last August.
Expected capital expenditures also fell m/m and were well below the
February high.
The figures from the Philadelphia Federal Reserve can be found
in Haver's SURVEYS database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520i.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100520j.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May '09</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">General Activity Index</td>
<td>21.4</td>
<td>20.2</td>
<td>18.9</td>
<td>-21.7</td>
<td>-7.6</td>
<td>-21.4</td>
<td>5.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>6.1</td>
<td>13.9</td>
<td>9.3</td>
<td>-23.2</td>
<td>-9.7</td>
<td>-14.7</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Shipments</td>
<td>15.8</td>
<td>5.6</td>
<td>13.6</td>
<td>-18.7</td>
<td>-8.0</td>
<td>-9.2</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Delivery Times</td>
<td>-1.2</td>
<td>5.4</td>
<td>7.9</td>
<td>-19.1</td>
<td>-15.3</td>
<td>-10.6</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Number of Employees</td>
<td>3.2</td>
<td>7.3</td>
<td>8.4</td>
<td>-29.8</td>
<td>-23.8</td>
<td>-8.8</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>-7.9</td>
<td>2.0</td>
<td>-11.0</td>
<td>-27.8</td>
<td>-24.0</td>
<td>-16.7</td>
<td>-3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index</td>
<td>35.5</td>
<td>42.7</td>
<td>38.6</td>
<td>-23.8</td>
<td>-3.9</td>
<td>36.3</td>
<td>26.3</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Initial Jobless InsuranceClaims Rise Unexpectedly

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<img align="left" alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;">
Moderate economic improvement since the middle of last year has done nothing to improve retail pricing power. The Consumer Price Index for April fell 0.1% (+2.2% y/y) and reversed a modest 0.1% uptick in March. The latest figure fell short of Consensus expectations for a 0.1% gain. Moreover, continuing weak was the 0.5% (AR) CPI increase so far this year.
A 1.4% drop in energy prices was behind much of last month&#39;s total decline, the third consecutive monthly slip. A 4.4% drop (-2.9% y/y) in natural gas prices led the decline followed by a 2.4% drop in gasoline prices (+38.3% y/y). Higher fuel oil prices (28.0% y/y) offset much of these declines along with an uptick in electricity costs (0.6% y/y).
Core consumer prices also were weak. They were unchanged for the second consecutive month. A 0.1% increase had been expected and prices have gained just 0.1% since October. Core goods prices led the weakness with a 0.3% decline, the third consecutive monthly shortfall. Lower apparel prices fell by a sharp 0.7% (-0.9% y/y) while prices of home furnishings &amp; operation declined by 0.5% (-2.8% y/y). New &amp; used motor vehicles prices rounded off the weakness and slipped 0.2% (+4.9% y/y). Tobacco prices nudged up 0.1% (6.1% y/y).
Core services prices strengthened marginally and rose 0.2% (0.9% y/y). That improvement was led by a quickened 1.7% increase (8.4% y/y) in the cost of public transportation. The 0.3% increase in recreation prices also was a bit improved (-0.4% y/y). Elsewhere, weakness in the housing market left shelter prices unchanged and down 0.6% y/y. Owners equivalent rent of primary residences, a measure not equivalent to other house price measures, slipped again m/m (-0.2% y/y). The slight y/y decline in this measure was the weakest reading since the series&#39; start in 1983. Elsewhere in services, education costs rose 0.5% (5.0% y/y) and medical care services prices again rose 0.3% (3.7% y/y).
Food &amp; beverage prices again firmed a bit by 0.2% and the y/y gain of 0.5% was improved from late-last year&#39;s low of -0.5%. Dairy prices firmed by 0.1% y/y versus the 10.4% decline last summer. Also showing less deflation were prices for meats, poultry, fish &amp; eggs (-0.2% y/y) but cereal &amp; bakery product prices continued weak (-0.9% y/y). Fruit &amp; vegetable prices slipped m/m but the 1.8% y/y increase is improved from a 6.5% decline as of last summer. Finally, the cost of eating out rose just 1.1% y/y, a record low increase, while alcoholic beverage prices also rose just 1.2% y/y, the least since 1995.
The chained CPI, which adjusts for shifts in consumption patterns, eased last month and rose 2.3% year-to-year. Chained prices less food &amp; energy gained just 0.6% y/y.
The consumer price data is available in Haver&#39;s USECON database while detailed figures can be found in the CPIDATA database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519c.jpg" style="width: 312px; height: 265px;">
<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/@E8/@E801/@E80101/@E80101.HTM" style="color: white;">Consumer Price Index</a> (%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">April 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&nbsp;</td>
<td>-0.1</td>
<td>0.1</td>
<td>0.0</td>
<td>2.2</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>0.0</td>
<td>0.1</td>
<td>1.0</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.3</td>
<td>-0.1</td>
<td>-0.1</td>
<td>1.2</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Services less Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>0.9</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>-1.4</td>
<td>-0.0</td>
<td>-0.5</td>
<td>18.0</td>
<td>-18.1</td>
<td>13.7</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Food &amp; Beverages</td>
<td>0.2</td>
<td>0.2</td>
<td>0.0</td>
<td>0.5</td>
<td>1.9</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr class="grey1">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.2</td>
<td>0.4</td>
<td>-0.0</td>
<td>2.3</td>
<td>-0.1</td>
<td>3.7</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>0.6</td>
<td>1.5</td>
<td>2.0</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Moderate economic improvement since the middle of last year has done nothing to improve retail pricing power. The Consumer Price Index for April fell 0.1% (+2.2% y/y) and reversed a modest 0.1% uptick in March. The latest figure fell [...]

U.S. CPI: Broad-Based Weakness Is Behind Slight M/M Decline

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Industrial output in Japan soared in March but could not stave
off an erosion in the Yr/Yr rate of growth. Output was up by 1.2% m/m
across the major sectors. But that followed a result in February that
was less than stellar, headlined by a 0.6% drop in IP.
The sequential growth rates in the table show growth at a
Yr/Yr pace of 29.9%, a six month annualized pace of 25.6% and a
three-month annualized pace of 20.9%. While the growth rates
progressively step lower they are still way too elevated to be
sustainable. While there is still a lot of slack in Japan&#8217;s economy
some deceleration in the growth rates is just what the economy needs to
keep its expansion on the &#8216;long track&#8217; which is better than the &#8216;fast
track.&#8217;
Yesterday Japan reported its service sector index took a large
step back from the previous month&#8217;s value. That sort of step back is
more worrisome. Japan, the US, and Europe need to drive their
respective service sectors to better results. That sector is where the
jobs are and that sector has been growing painfully slowly across
countries.
Manufacturing continues to do well in the global economy.
Japan is farther from making a full recovery that Europe or the US but
it is pushing hard on the recovery path. This month&#8217;s IP report is a
good one.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">Japan
Industrial Production Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td style="font-weight: bold;" colspan="3">m/m %</td>
<td style="font-weight: bold;" colspan="3">Saar %</td>
<td style="font-weight: bold;">Yr/Yr</td>
<td style="font-weight: bold;" colspan="1" rowspan="2">Qtr-2 Date %AR&nbsp;</td>
<td style="font-weight: bold;" colspan="1" rowspan="2"> % 0f 
Cycle &nbsp;Peak&nbsp;</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">seas adjusted</td>
<td style="font-weight: bold;">Mar 10</td>
<td style="font-weight: bold;">Feb 10</td>
<td style="font-weight: bold;">Jan 10</td>
<td style="font-weight: bold;">3-mo</td>
<td style="font-weight: bold;">6-mo</td>
<td style="font-weight: bold;">12-mo</td>
<td style="font-weight: bold;">Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Mining &amp;
MFG</td>
<td>1.2%</td>
<td style="color: red;">-0.6%</td>
<td>4.3%</td>
<td>20.9%</td>
<td>25.6%</td>
<td>29.9%</td>
<td style="color: red;">-32.8%</td>
<td>30.9%</td>
<td>86.1%</td>
</tr>
<tr>
<td class="firstcol">Total Industry</td>
<td>1.2%</td>
<td style="color: red;">-1.1%</td>
<td>4.6%</td>
<td>20.3%</td>
<td>24.9%</td>
<td>28.9%</td>
<td style="color: red;">-32.0%</td>
<td>30.5%</td>
<td>86.5%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>1.2%</td>
<td style="color: red;">-0.6%</td>
<td>4.3%</td>
<td>20.9%</td>
<td>25.6%</td>
<td>30.0%</td>
<td style="color: red;">-33.0%</td>
<td>30.9%</td>
<td>86.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Textiles</td>
<td>1.2%</td>
<td style="color: red;">-2.6%</td>
<td>3.8%</td>
<td>9.4%</td>
<td>4.9%</td>
<td>2.1%</td>
<td style="color: red;">-23.1%</td>
<td>8.1%</td>
<td>72.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; T-port</td>
<td>1.2%</td>
<td>0.8%</td>
<td>12.2%</td>
<td>71.5%</td>
<td>59.5%</td>
<td>87.0%</td>
<td style="color: red;">-53.9%</td>
<td>88.5%</td>
<td>83.1%</td>
</tr>
<tr style="font-weight: bold;" class="odd">
<td colspan="10" class="firstcol">Product Group</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Consumer Gds</td>
<td>3.0%</td>
<td style="color: red;">-3.4%</td>
<td>0.9%</td>
<td>1.6%</td>
<td>8.9%</td>
<td>20.1%</td>
<td style="color: red;">-24.6%</td>
<td>4.9%</td>
<td>87.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Intermediate Gds</td>
<td style="color: red;">-0.6%</td>
<td style="color: red;">-0.2%</td>
<td>6.5%</td>
<td>24.8%</td>
<td>32.0%</td>
<td>43.6%</td>
<td style="color: red;">-37.6%</td>
<td>45.9%</td>
<td>89.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Investment Gds</td>
<td>2.0%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>51.2%</td>
<td>34.6%</td>
<td>15.9%</td>
<td style="color: red;">-31.4%</td>
<td>47.6%</td>
<td>76.3%</td>
</tr>
<tr>
<td class="firstcol">Miining</td>
<td>0.1%</td>
<td>3.3%</td>
<td>1.1%</td>
<td>19.2%</td>
<td style="color: red;">-8.6%</td>
<td>1.4%</td>
<td style="color: red;">-9.1%</td>
<td>14.1%</td>
<td>87.9%</td>
</tr>
<tr>
<td class="firstcol">Electric&amp;Gas</td>
<td>-0.9%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>14.3%</td>
<td>20.2%</td>
<td>7.8%</td>
<td style="color: red;">-7.5%</td>
<td>19.3%</td>
<td>94.5%</td>
</tr>
</tbody>
</table>
</body></html>

Industrial output in Japan soared in March but could not stave off an erosion in the Yr/Yr rate of growth. Output was up by 1.2% m/m across the major sectors. But that followed a result in February that was less than stellar, [...]

Japan’s IP Growth Rates Level Out And Decay

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Moderate economic improvement since the middle of last year
has done nothing to improve retail pricing power. The Consumer Price
Index for April fell 0.1% (+2.2% y/y) and reversed a modest 0.1% uptick
in March. The latest figure fell short of Consensus expectations for a
0.1% gain. Moreover, continuing weak was the 0.5% (AR) CPI increase so
far this year.
A 1.4% drop in energy prices was behind
much of last month's total decline, the third consecutive monthly slip.
A 4.4% drop (-2.9% y/y) in natural gas prices led the decline followed
by a 2.4% drop in gasoline prices (+38.3% y/y). Higher fuel oil prices
(28.0% y/y) offset much of these declines along with an uptick in
electricity costs (0.6% y/y).
Core consumer prices also were weak. They
were unchanged for the second consecutive month. A 0.1% increase had
been expected and prices have gained just 0.1% since October. Core
goods prices led the weakness with a 0.3% decline, the third
consecutive monthly shortfall. Lower apparel prices fell by a sharp
0.7% (-0.9% y/y) while prices of home furnishings &amp; operation
declined by 0.5% (-2.8% y/y). New &amp; used motor vehicles prices
rounded off the weakness and slipped 0.2% (+4.9% y/y). Tobacco prices
nudged up 0.1% (6.1% y/y).
Core services prices strengthened
marginally and rose 0.2% (0.9% y/y). That improvement was led by a
quickened 1.7% increase (8.4% y/y) in the cost of public
transportation. The 0.3% increase in recreation prices also was a bit
improved (-0.4% y/y). Elsewhere, weakness in the housing market left
shelter prices unchanged and down 0.6% y/y. Owners equivalent rent of
primary residences, a measure not equivalent to other house price
measures, slipped again m/m (-0.2% y/y). The slight y/y decline in this
measure was the weakest reading since the series' start in 1983.
Elsewhere in services, education costs rose 0.5% (5.0% y/y) and medical
care services prices again rose 0.3% (3.7% y/y).
Food &amp; beverage prices again firmed
a bit by 0.2% and the y/y gain of 0.5% was improved from late-last
year's low of -0.5%. Dairy prices firmed by 0.1% y/y versus the 10.4%
decline last summer. Also showing less deflation were prices for meats,
poultry, fish &amp; eggs (-0.2% y/y) but cereal &amp; bakery
product prices continued weak (-0.9% y/y). Fruit &amp; vegetable
prices slipped m/m but the 1.8% y/y increase is improved from a 6.5%
decline as of last summer. Finally, the cost of eating out rose just
1.1% y/y, a record low increase, while alcoholic beverage prices also
rose just 1.2% y/y, the least since 1995.
The chained CPI, which adjusts for shifts in consumption
patterns, eased last month and rose 2.3% year-to-year. Chained prices
less food &amp; energy gained just 0.6% y/y.
The consumer price data is available in Haver's USECON
database while detailed figures can be found in the CPIDATA
database.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100519c.jpg" style="width: 312px; height: 265px;">
<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/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> 
(%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">April 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&nbsp;</td>
<td>-0.1</td>
<td>0.1</td>
<td>0.0</td>
<td>2.2</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>0.0</td>
<td>0.1</td>
<td>1.0</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>-0.3</td>
<td>-0.1</td>
<td>-0.1</td>
<td>1.2</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>0.9</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>-1.4</td>
<td>-0.0</td>
<td>-0.5</td>
<td>18.0</td>
<td>-18.1</td>
<td>13.7</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.2</td>
<td>0.2</td>
<td>0.0</td>
<td>0.5</td>
<td>1.9</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.2</td>
<td>0.4</td>
<td>-0.0</td>
<td>2.3</td>
<td>-0.1</td>
<td>3.7</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>0.6</td>
<td>1.5</td>
<td>2.0</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

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Andrew Cates

**The growth consensus for 2026** 
Consensus growth forecasts for 2026 have continued to firm over the past six months, with upward revisions most pronounced in economies that are more directly exposed to the global AI investment cycle. Taiwan stands out, reflecting its central role in advanced semiconductor manufacturing and the spillovers from sustained AI-related capex across the global tech supply chain. The US has also seen a sizeable upgrade, consistent with strong domestic investment in AI infrastructure and data-centre capacity, alongside resilient demand for high-value tech services. Elsewhere in Asia, upgrades to South Korea and, to a lesser extent, China and India point to a broader regional benefit from the AI-driven electronics and capital-goods cycle, even as underlying macro conditions remain mixed. Canada has also seen modest upward revisions, likely reflecting its close integration with US investment trends. By contrast, revisions across much of Europe and Japan have been more muted, while forecasts for Russia remain under downward pressure.

260115Z1.jpg

**The next steps for central bank policy** 
Based on responses to the special questions in the latest Blue Chip survey, the chart highlights how uncertain panelists remain about the precise timing of the next policy move, even where there is broad agreement on direction. Expectations for both the Fed and the Bank of England are now loosely centred on March 2026 as the most likely window for the next easing step, but the spread of responses points to limited conviction and a high sensitivity to incoming data. By contrast, panelists continue to see the ECB as largely through its easing cycle, with a clear majority expecting any further move only later, if at all. The Bank of Japan remains the clear outlier: while further tightening is still the central expectation, views are split on timing, with panelists divided between a March move and a hike pushed beyond April 2026—highlighting ongoing uncertainty over the durability of domestic inflation and wage dynamics.

260115Z2.jpg

**The UK economy and BoE policy** 
While Blue Chip panelists remain divided on the precise timing of the Bank of England’s next policy cut, the latest run of UK data is tilting market expectations toward an earlier move. Economic releases have increasingly fallen short of expectations, a pattern that has coincided with a steady decline in short-dated gilt yields. The negative surprise profile reflects a combination of weak household demand and softer labour-market indicators. This has generated downside momentum in the data, reinforcing the case—at least from a market perspective—for earlier or deeper policy easing.

260115Z3.jpg

**The impact of Artificial Intelligence**
Responses to the special questions in the latest Blue Chip survey also suggest that panelists are divided over the timing of AI’s macroeconomic impact in the US. A sizeable share already reports seeing noticeable effects, consistent with the rapid pace of AI-related investment and adoption over the past year. At the same time, a similarly large group expects AI’s impact to become more evident only over the next one to three years, implying a belief that productivity and growth effects will materialise with a lag. These views are notable given that a majority of panelists continue to judge anticipated AI-related gains as being overstated in financial markets, underscoring the risk of disappointment—and potential equity market volatility—if realised outcomes fail to match elevated expectations.

260115Z4.jpg

**US business formation and productivity growth**
The chart points to a renewed pick-up in US productivity growth alongside a marked step-up in business applications, a combination that has naturally fuelled interest in the role of AI. The acceleration in output per hour over the past year coincides with a surge in corporate formations, potentially reflecting both heightened investment in new technologies and the emergence of new, AI-enabled business models. That said, productivity growth has historically been highly cyclical, often strengthening late in the cycle or during periods of labour hoarding and cost discipline, before fading again. As such, while AI may be contributing at the margin, it remains too early to conclude that the recent improvement marks a durable, technology-driven shift rather than another cyclical upswing.

260115Z5.jpg

**China’s export growth**
This week’s China trade data revealed that its export growth has continued to rotate away from the US and toward Europe and ASEAN, a pattern that has become more pronounced over the past year. While exports to the US have fallen sharply on a year-on-year basis, shipments to both Europe and ASEAN have held up markedly better, and in recent months have returned to positive growth. This divergence is consistent with the tightening of US trade policy toward China, including higher tariffs, expanded export controls and broader efforts to “de-risk” supply chains. By contrast, trade with Europe and ASEAN appears to be benefiting from trade diversion and re-routing, as Chinese firms redirect exports toward markets where barriers remain lower and supply-chain integration is deeper.

260115Z6.jpg

The global backdrop remains unsettled, reflected in rising gold prices amid geopolitical tensions—most recently around Venezuela—and renewed political noise, including questions over Federal Reserve independence. At the same time, however, many major equity indices remain at or close to all-time highs, buoyed by optimism around AI and reinforced by a run of relatively benign US inflation readings. Against this mixed backdrop, the charts this week point to a global outlook that is becoming more differentiated rather than uniformly weaker. Blue Chip forecasts for 2026 growth have edged higher over the past six months, with upgrades concentrated in economies most exposed to the AI investment cycle, notably the US and parts of Asia (chart 1). Central bank expectations remain fluid: while panelists broadly anticipate easing by the Fed and Bank of England, conviction around timing is limited, and the Bank of Japan remains an outlier with further tightening still expected (chart 2). In the UK, that uncertainty sits alongside a deteriorating data flow, with negative economic surprises increasingly tilting market expectations toward an earlier BoE rate cut (chart 3). Turning to the US, special questions highlight a divide over whether AI is already having a noticeable macro impact or whether its effects will emerge more gradually, a tension that mirrors concerns about over-optimism in financial markets (chart4). That debate is echoed in the recent pick-up in US productivity growth and the step-change in business formation—developments that may reflect AI-related dynamics but which also warrant caution given the historically cyclical nature of productivity (chart 5). Finally, China’s trade data point to a continued re-orientation of export growth away from the US and toward Europe and ASEAN, consistent with evolving US trade policy and broader supply-chain realignment (chart 6).

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Charts of the Week: Between Optimism and Uncertainty

Michael J. Moran

260115J.jpg

260115K.jpg

The Bureau of Labor Statistics did not publish a report on export and import prices for October because of the government shutdown, and BLS was unable to construct statistics for October to include with the November report. The charts above have a gap in October, and the November figures are represented by a small dot.

Import prices have been remarkably stable in the past three years, as shown by the sideways movement in the level of the import price index (left chart). Focusing on percent changes (i.e. inflation rates) rather than the level of the index shows deflation in 2023 and early 2024 followed by higher prices more recently (right chart). Still, the net change in the past 12 months has totaled only 0.1% and the cumulative change in the past three years amounted to a decline of 0.4%.

A calm environment in the energy sector has helped to restrain import prices, as the price of crude oil showed little change in 2023 and 2024 and declined in 2025. Import prices excluding petroleum products have increased in recent years, but the changes have been modest: 0.9 in the past 12 months and 1.3% in the past three years.

The non-oil components of import prices have traced various patterns in recent years, but shifts have been largely offsetting. Prices of food and autos increased noticeably in 2023 and 2024, but they gave back much of those increases in 2025. Prices of capital goods were stable in 2023 and 2024, but they started to increase in 2025. Prices of consumer goods have been volatile, showing bursts of higher prices followed by discounting, leaving a modest net increase in the past three years.

The calm energy environment also seemed to play a role on the export side, as the industrial supply category showed little net change in prices over 2023 and 2024 before jumping in early 2025. Food prices followed a similar pattern, showing two years of restraint before moving higher in 2025. These two categories account for much of the upward movement in overall export prices in 2025. Prices of consumer goods also started to move higher in 2025 after little net change in the prior two years. Prices of capital goods and automobiles have traced reasonably steady upward paths.

Many observers might try to use the import component of this report to gain insight into the effect of tariffs on prices. That will be difficult because the figures from this report are pre-tariff; there will be no independent upward pressure on prices in this report because of tariffs. In fact, one should look for lower import prices in searching for a tariff effect. That is, if a foreign exporter were to absorb the tariff burden, that would be accomplished by reducing the pre-tariff price in order to keep the after-tariff price steady.

260115L.jpg

Some exporters to the US may have made such efforts. The nearby chart shows the month-to-month change in import prices in 2025, and May and June both showed lower prices. These months were especially important because they followed the announcement by President Trump of marked increases in tariffs in April. Also, some of the downward pressure occurred in components that would be sensitive to price (autos and consumer goods). Of course, May and June might be too soon after the announcement of draconian tariffs for foreign exporters to assess and change their pricing strategy.

The chart on monthly changes ends in September because the absence of an October reading prevents the calculation of the month-to-month changes for October and November. However, the two-month change from September to November is easily calculated, and the increase of 0.4% suggests little or no effort to absorb the burden of tariffs.

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

- Import prices have changed little in the past three years.
- Export prices were stable in 2023-24, but moved higher in 2025.

Import & Export Prices: Generally Modest Changes

Winnie Tapasanun

260115J39.jpg

260115JK9.jpg

The Empire State Manufacturing Index of General Business Conditions rose to a higher-than-expected 7.7 in January following a 17.2-drop to -3.7 in December, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of 1.0 for January had been expected in the Action Economics Forecast Survey. The positive January figure indicated that the business activity in New York State expanded for the third time in four months; it was an improvement from -7.4 in January 2025 and a low of -29.7 in January 2024, though still below a high of 16.8 in November 2024. The percentage of respondents reporting an increase in general business conditions was 34.2% in January, up from 31.7% in December; the percentage reporting a decrease was 26.5%, down from December’s 35.4%. The latest survey was conducted between January 2 and January 9.

The headline index reflects the answer to a single question concerning the state of economic activity and is not calculated from the components. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index increased to 51.2 in January following a 4.2-point decline to the neutral-level 50.0 in December (the lowest level since September); it was slightly up from 50.7 in January 2025 and well above a low of 43.0 in January 2024. The index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

In the latest survey, the new orders index rose to 6.6 in January after a 10.6-point drop to -1.0 in December, marking the third m/m gain in orders in four months and a sharp improvement from a low of -30.7 in January 2024. The shipments index jumped to 16.3 in January, the highest level since November 2024, following a 16.5-point fall to -5.0 in December; it was well above a low of -21.7 in April 2024. The unfilled orders index improved to -8.2 in January after a 9.1-point decrease to -14.9 in December, indicating that unfilled orders contracted for the eighth straight month but at a less severe pace; the index reached a low of -24.2 in January 2024. The inventories index fell to -2.1 in January, the lowest level since September, after a 2.7-point decline to 4.0 in December, signaling the first inventory contraction since October. Meanwhile, the delivery times index increased to 0.0 in January from -5.9 in December, with 12.4% of respondents reporting longer delivery times and an identical 12.4% reporting shorter times, indicating that delivery times were unchanged.

On the labor front, the number of employees index fell to -9.0 in January after a 1.0-point increase to 7.5 in December, indicating that employment contracted for the first time since September and reached its lowest level since January 2024. The index remained well below a peak of 24.9 in February 2022. In January, only 7.9% of respondents reported an increase in employment while a higher 16.8% reported a decline. The average workweek index dropped to -5.4 in January from 2.5 in December, turning negative for the first time since October and hitting the lowest level since April 2025.

Inflation pressures eased in January but remained high. The prices paid index fell to 42.8 in January, the lowest level since March 2025, after a 5.9-point decrease to 44.2 in December. Although still well below a peak of 84.9 in April 2022, the index remained above a low of 25.9 in December 2024 and a low of 20.8 in December 2023. In January, 44.5% of respondents reported higher prices paid while only 1.7% reported lower prices paid. The prices received index fell to 14.4 in January, the lowest reading since January 2025, from 25.4 in December. The index was up from a low of 7.5 in December 2024 and a low of 7.7 in July 2023 but far below a high of 51.9 in March 2022. In January, 18.9% of respondents reported higher prices received while 4.4% reported lower prices received.

Firms remained fairly optimistic about the future business outlook in the latest survey. The index for future business conditions eased to 30.3 in January after rising to 33.5 in December, with 50.6% of respondents expecting business conditions to improve over the next six months. Future new orders edged down to 33.3 in January from 34.5 in December, while future shipments rose to 34.9—the highest level since March 2022—from December’s 30.7. Growth in future employment strengthened to 14.9, the highest reading since November 2024, from December’s 7.8. Capital spending plans remained positive for the third consecutive month in January, with the future capital expenditures index rising to 10.3 from December’s 6.9. Expected prices paid fell to 52.6 in January from 55.4 in December and expected prices received fell to 36.5 from 41.6, with both measures at their lowest levels since December 2024.

The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

260115L39.jpg

260115M39.jpg

- General Business Conditions Index up 11.4 pts. to 7.7 in January.
- Positive: Shipments (16.3, highest since Nov. ’24) and new orders (6.6).
- Negative: Employment (-9.0, lowest since Jan. ’24), unfilled orders (-8.2), and inventories (-2.1, a four-month low).
- Prices paid at a 10-month-low 42.8 and prices received at a one-year-low 14.4.
- Firms fairly optimistic: Future Business Conditions Index down to a still-positive 30.3; future prices paid at a one-year-low 52.6.

U.S. Empire State Manufacturing Index Returns to Positive Territory in January

Sandy Batten

260115N2.jpg

260115O2.jpg

The Current Activity Diffusion Index from the latest Manufacturing Business Outlook Survey (MBOS) conducted by the Federal Reserve Bank of Philadelphia rose to 12.6 in January from -8.8 in December. The survey covers the third Federal Reserve District. A reading of -4.5 for January was expected by the Action Economics Forecast Survey. Over 23% of respondents reported increases in activity in January (up from 21% last month), exceeding the 11% reporting decreases (down from 30%); 63% of the firms reported no change in current activity (up from 50%). Survey responses were collected from January 5 to January 12.

The headline index is the answer to just one question: whether activity increased, decreased or was unchanged from the previous month. Haver Analytics calculates an ISM-adjusted current activity diffusion index from the five key components using the methodology employed to construct the national ISM index. This figure rose to 52.9 in January from 52.5 in December, inching further above the critical 50 value that separates contraction from expansion.

For the component indexes, the new orders index rose to 14.4 from 5.7 in December. The percentage of respondents reporting an increase in orders edged up to 28.3% in January from 27.4% in the prior month while 13.9% reported a decrease, down markedly from 21.7% in December. The shipments index increased to 9.5 in January from 3.2 in December. The percentage of respondents reporting an increase in shipments rose slightly to 27.3% from 26.2% while the percentage reporting a decrease fell to 17.8% from 23.0%. Delivery times lengthened marginally to 7.3 in January from 5.2 in December. The inventories index fell 17 points to -8.4 in January, its lowest level since July 2024.

Respondents continued to report overall increases in employment with the employment index remaining in positive territory. However, the index fell to 9.7 in January from 13.0 in December, indicating that gains in employment slowed in the latest month. The percentage of respondents reporting an increase in employment rose to 19.8% from 13.6% in December but the percentage reporting a decline jumped to 10.1% in January from 0.6% in December. The average workweek index fell from 12.5 in December to 9.1 in January.

On balance, the firms continued to report overall increases in prices. The prices paid index edged down 2 points to 46.9 in January, its second consecutive decrease and its lowest level since June. Nearly 47% of respondents reported increases in input prices, while none reported decreases; 53% reported no change. The current prices received index ticked up 2 points to 27.8. More than 31% of respondents reported increases in the prices of their own goods, 3% reported decreases, and 66% reported no change.

The diffusion index for future general activity declined from a revised reading of 38.1 in December to 25.5 in January, its lowest reading since July. Nearly 35% of respondents expect an increase in activity over the next six months (down from 53% last month), exceeding the 9% that expect a decrease. The future new orders index fell 6 points to 32.9, while the future shipments index ticked up 1 point to 40.8. On balance, the firms continue to expect increases in employment over the next six months with the future employment index rising 4 points to 28.8. Both future price indexes were well above their long-run averages: The future prices paid index rose 2 points to 66.6; the future prices received index moved up 5 points to 61.8. The index for future capital expenditures edged up 1 point to 30.3.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The indexes range from -100 to +100 with positive values indicating an increase in activity. The series from the survey dating back to May 1968 can be found in Haver’s **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- The headline index increased to 12.6 in January, the highest reading since September, from -8.8 in December.
- Both new orders and shipments increased in January.
- Delivery times lengthened while the pace of input price increases slowed.
- Employment decreased but remained in positive territory, indicating further gains in employment though at a slower pace.

Philly Fed Manufacturing Activity Rebounds in January

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined by 9,000 to 198,000 in the week ending January 10, from 207,000 in the week ending January 3, revised from 208,000. The four-week moving average of initial claims was 205,000 in the January 10 week, a decline of 6,500 from 211,500 in the January 3 week, revised from 211,750, and reaching is the lowest level for this average since January 20, 2024, when it was 203,250.

Federal government employees initially filed 646 (NSA) jobless insurance claims in the week ended January 3, after filing 476 claims in the week ended December 27.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” –decreased by 19,000 to 1.884 million in the week ended January 3 from 1.903 million in the December 27 week, revised from 1.914 million. The four-week moving average was 1.889 million in the week ending January 3, a decrease of 250 from the prior week, revised from 1.893 million. The insured unemployment rate stood at 1.2% in the week of January 3, unchanged from previous 5 weeks.

Federal government employees’ continuing benefits claims were 12,803 (NSA) in the week of December 27, 12,161 (NSA) from 12,129 (NSA) in the week of December 20. 

The insured unemployment rate varied greatly across individual states and territories. In the week ending December 27, the highest unemployment rates were in Rhode Island (2.86%), New Jersey (2.85%), Washington (2.81%), Minnesota (2.74%), Massachusetts (2.59%), Oregon (2.28%), Montana (2.16%), California and Connecticut (both 2.12%) and Alaska (2.06%). The lowest rates were in Florida (0.31%), North Carolina (0.41%), Louisiana (0.43%), Alabama and Virginia (both 0.49%). Rates in other notable states include Illinois (2.18%), New York (2.10%), Pennsylvania (2.02%), and Texas (1.20%). These state data are not seasonally adjusted.

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

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- Initial claims declined from the prior week.
- Continuing claims declined from the prior week.
- The insured unemployment rate was unchanged.

Economy in Brief

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