Tom Moeller

Inflationary pressures continued to be diffused last month by the weak economy, but they increased for those who eat or drive a car. The PPI for finished goods rose 0.3% during October following declines during two of the prior three [...]

U.S. PPI Increases 0.3% Fueled By Food & Energy Prices

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116i.jpg" align="right" border="0" height="265" width="353">
The Japanese
economy grew more than expected in the third quarter.&nbsp; The
annual rate of increase was 4.79% continuing the recovery that began in
the second quarter with an annual rate of increase of 2.72%.&nbsp;
The annual rates of change in private consumption and fixed investment
and the annual rate of difference in net exports are show in the first
chart. Japan still has a long way to go to recoup the losses from the
recent deep depression.&nbsp; The annual rate of real GDP in the
third quarter was 531.3 trillion yen, compared the 569.1 trillion yen
reached in the first quarter of 2008.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116j.jpg" align="right" border="0" height="265" width="353">
Although both net exports and
private consumption continued to increase in the third quarter, their
annual rates of increase were lower than those in the second
quarter.&nbsp; Even with a lower rate decline in Gross Fixed
Domestic Investment, from 10.5% in the second quarter to 1.3 % in the
third quarter, the net effect of these factors does not appear to
account for the sharp increase reported for total GDP in the third
quarter.&nbsp; It should be noted that the data are preliminary and
some of the components, notably the change in inventories, is only
updated during the 2nd preliminary release.&nbsp; Given the
volatility and the large positive and negative contributions of
inventory changes to total growth, as shown in the second chart, it is
highly likely that the missing element in Japan's third quarter growth
was due to inventory accumulation.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116k.jpg" align="right" border="0" height="265" width="353">
Deflation continues to
characterize the Japanese economy.&nbsp; The third chart shows GDP
in nominal and real terms since 2000 when real GDP began to exceed
nominal, indicating a declining price
level.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Q3 09</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1&nbsp;09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08&nbsp;</th>
<th scope="col">Q2 08&nbsp;</th>
<th scope="col">Q1 08&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Private Consumption (SAAR)</td>
<td>2.8</td>
<td>3.9</td>
<td>-4.3</td>
<td>-2.8</td>
<td>0.0</td>
<td>-3.7</td>
<td>5.66</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Investment (SAAR)</td>
<td>-1.3</td>
<td>-10.5</td>
<td>-26.6</td>
<td>-14.9</td>
<td>-13.1</td>
<td>-5.9</td>
<td>3.9</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Exports (SAAD) Trillion Yen</td>
<td>9.8</td>
<td>244</td>
<td>-32.7</td>
<td>-52.7</td>
<td>-4.6</td>
<td>-10.3</td>
<td>15.7</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>2008</td>
<td>2007</td>
<td>2006</td>
<td>2005</td>
<td>2004&nbsp;</td>
<td>2003&nbsp;</td>
<td>2002&nbsp;</td>
<td>2001&nbsp;</td>
<td>2000&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Real (Trillion 2000Chn Yen)</td>
<td>556.6</td>
<td>560.5</td>
<td>547.7</td>
<td>536.8</td>
<td>526.6</td>
<td>512.5</td>
<td>505.4</td>
<td>504.5</td>
<td>503.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nominal (Trillion Yen)</td>
<td>507.6</td>
<td>515.8</td>
<td>507.4</td>
<td>501.7</td>
<td>515.8</td>
<td>490.3</td>
<td>491.3</td>
<td>497.7</td>
<td>503.0</td>
</tr>
</tbody>
</table>
</body></html>

The Japanese economy grew more than expected in the third quarter. The annual rate of increase was 4.79% continuing the recovery that began in the second quarter with an annual rate of increase of 2.72%. The annual rates of change in [...]

Japanese GDP Growth In Q3 Surprises: Due To Increased Demand Or Inventory Building?

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background-color:#b8b8b8; Empire State Factory Conditions Slip From October High
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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116f.jpg" align="right" border="0" height="265" width="353">The
Federal Reserve Bank of New York reported that its November Empire
State Factory Index of General Business Conditions slipped to 23.51
during November. Nevertheless, that level still remained near the
highest level since 2004. The latest reading compares to sharply
negative levels this past winter and suggests positive growth in
factory sector activity. The latest level fell short of Consensus
expectations for a reading of 30.0.
The figure is a diffusion index.
Since the series' inception in 2001, there has been a 75% correlation
between its level and the three-month change in U.S. factory sector
industrial production. Like the Philadelphia Fed Index of General
Business Conditions, the Empire State Business Conditions Index
reflects answers to independent survey questions; it is not a weighted
combination of the components. The series dates back only to 2001.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116g.jpg" align="right" border="0" height="265" width="353">The
new orders component fell to 16.66 from its October high. The shipments
index also fell as did the employment index to a slim 1.32 from its
highest level since 2007. In the history of the NY employment index,
there has been an 87% correlation between the employment index and the
three-month growth in overall U.S. factory sector employment as
reported by the Labor Department. The workweek index also fell m/m but
remained significantly higher than the February low.
The prices paid
index eased to its lowest level since July and remained down sharply
from all of last year. Since inception in 2001, there has been a 77%
correlation between the index of prices paid and the three-month change
in the core intermediate materials PPI.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116h.jpg" align="right" border="0" height="265" width="353">The Empire
State index
of expected business conditions in six months rose during
November rose to its highest level since early-2004. The subseries for
new orders, employment, prices and capital expenditures each rose. The
inventory subseries rose sharply to it highest since early last year.
The Empire State Manufacturing Survey is a monthly survey of
manufacturers in New York State. Participants from across the state in
a variety of industries respond to a questionnaire and report the
change in indicators from the previous month. Respondents also state
the likely direction of these same indicators six months ahead.
For more on the Empire State Manufacturing Survey, including
methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.
The Empire State data is available in Haver's SURVEYS
database.
Today's speech by Fed Chairman
Ben S. Bernanke On the Outlook for the Economy and Policy can
be found here <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20091116a.htm">here</a>.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM" style="color: rgb(255, 255, 255);">Empire State
Manufacturing Survey</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November '08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>23.51</td>
<td>34.57</td>
<td>-24.93</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>16.66</td>
<td>30.82</td>
<td>-22.29</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>1.32</td>
<td>10.39</td>
<td>-28.92</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>10.53</td>
<td>19.48</td>
<td>20.48</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>


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The Federal Reserve Bank of New York reported that its November Empire State Factory Index of General Business Conditions slipped to 23.51 during November. Nevertheless, that level still remained near the highest level since 2004. The [...]

Empire State Factory Conditions Slip From October High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116d.jpg" width="353"><img align="left" quot border="0" height="265&gt;&lt;/td&gt;\r\r\n &lt;/tr&gt;&lt;/table&gt;\r\r\n&lt;table border=" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116e.jpg" width="353"><tbody></tbody>
Perhaps the recent, moderate turnaround in final demand evident in the economy has begun to affect business&#39; inclination to shed inventory. Or maybe there&#39;s nothing left on the lot, in the warehouse or on the shelf to let go. Either way, business inventories slipped just 0.4% during September which was one-third of the monthly decumulation averaged back to October of last year. The decline also fell short of Consensus expectations for a 0.7% drop.
The overall slowdown was caused by a 0.6% increase in retail inventories, the first gain since last July. That increase resulted from a 3.8% (-27.9% y/y) rise in auto inventories which also was the first since July of last year. In contrast, the monthly rate of decline in nonauto inventories continued at 0.6% (-7.5% y/y). Furniture inventories increased 0.1% (-12.5% y/y) but clothing inventories fell a sharp 1.7% (-10.8% y/y). General merchandise inventories fell 0.4% and were off 6.3% y/y while building materials stores slipped just 0.1% (-9.6% y/y). Factory inventories fell a hard 1.0%. Meanwhile, wholesale inventories were off 0.9% and the y/y decline reached a nadir of 15.0%. Excluding oil, wholesale inventories fell 0.9% and the 15.4% rate of decline also was a new low.
Despite a possible interest in slowing the rate of inventory cutbacks, the inventory-to-sales ratio for total business held at the cycle low of 1.32 versus a high of 1.46 in January. The latest was the lowest since last September. In the retail sector the ratio moved higher as a result of the auto inventory rise, but at 1.42 it still was the second lowest of the cycle. For manufacturers and wholesalers, the ratio fell to new cycle lows.
The business sales and inventory data are available in Haver&#39;s USECON database.
The Behavior of Household and Business Investment over the Business Cycle from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/research/economic_quarterly/2009/summer/pdf/hatchondo.pdf">here</a>.

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<colgroup><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">Business Inventories (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.4</td>
<td>-1.6</td>
<td>-1.1</td>
<td>-13.4</td>
<td>0.6</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.6</td>
<td>-2.6</td>
<td>-1.0</td>
<td>-13.9</td>
<td>-3.1</td>
<td>2.5</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Auto</td>
<td>-0.6</td>
<td>-0.7</td>
<td>-0.5</td>
<td>-7.5</td>
<td>-1.8</td>
<td>2.7</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-0.9</td>
<td>-1.3</td>
<td>-1.6</td>
<td>-15.0</td>
<td>3.1</td>
<td>6.2</td>
<td>8.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-1.0</td>
<td>-0.9</td>
<td>-0.9</td>
<td>-11.8</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Perhaps the recent, moderate turnaround in final demand evident in the economy has begun to affect business' inclination to shed inventory. Or maybe there's nothing left on the lot, in the warehouse or on the shelf to let go. Either [...]

U.S. Business Inventory Decumulation Slows

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116a.jpg" align="right" border="0" height="265" width="353">
Consumers
seem to be gaining back the inclination to spend. Retail sales last
month rose 1.4% after a 2.3% September decline that was deeper than
reported initially. A 0.9% October gain was the Consensus expectation.
The increase improved the y/y change in sales to -1.7% from declines of
roughly 10% earlier this year. Moreover, spending on "core" retail
sales has improved. Month-to-month changes in overall sales in recent
months have been quite volatile due to auto sales promotions and rising
gasoline prices. Aside from these distortions, gains in consumer
spending have been steady during the last three months and y/y growth
also improved. The retail sales data are available in Haver's USECON
database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116b.jpg" align="right" border="0" height="265" width="353">
Auto sales of late have been influenced by Detroit's sales
programs. Last month, retail sales of motor vehicles jumped 7.4% after
a 14.3% decline during September and a 10.2% August jump. Less autos,
sales rose 0.2% versus a 0.4% expected gain. Higher gasoline prices
also have influenced overall sales growth. Without autos &amp;
gasoline, retail sales rose 0.3% last month, about as they did during
the prior two months.&nbsp;These gains raised the y/y change to
-0.8% from -4.4% as of July.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116c.jpg" align="right" border="0" height="265" width="353">
In soft goods, the 0.4%
increase in apparel store sales was the fourth gain in as many months
and the y/y change of 1.5% was improved from -9.7% during December.
Finally, improvement in sales at furniture, electronics &amp;
appliance store sales has been less impressive. Sales fell 0.7% last
month and the y/y change improved only to -7.3% from -14.3% at its
worst. Furniture store sales alone fell 0.8% (-7.6% y/y) after two
months of increase while sales of electronics &amp; appliances
slipped 0.6% (-7.0% y/y), also after two months of increase.Internet
and catalogue purchases were firmer and rose 1.0% (1.6% y/y). The gain
contrasted with a 7.6% y/y decline as of April. Finally, restaurant
sales jumped 1.2% (1.5% y/y) after little change either m/m or y/y as
of September. Finally, building materials sales continued their slump
and fell 2.4% (-15.0% y/y).



<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail
Sales &amp; Food Services</a> (%)</td>
<td>1.4</td>
<td>-2.3</td>
<td>2.4</td>
<td>-1.7</td>
<td>-0.8</td>
<td>3.3</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Autos</td>
<td>0.2</td>
<td>0.4</td>
<td>0.8</td>
<td>-2.6</td>
<td>2.5</td>
<td>3.9</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Less Gasoline</td>
<td>0.3</td>
<td>0.3</td>
<td>0.4</td>
<td>-0.8</td>
<td>1.6</td>
<td>3.6</td>
<td>5.7</td>
</tr>
</tbody>
</table>
</body></html>

Consumers seem to be gaining back the inclination to spend. Retail sales last month rose 1.4% after a 2.3% September decline that was deeper than reported initially. A 0.9% October gain was the Consensus expectation. The increase [...]

U.S. Retail Sales Rise As Core Sales Improve Again

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116a.jpg" align="right" border="0" height="265" width="353">Consumers
seem to be gaining back the inclination to spend. Retail sales last
month rose 1.4% after a 2.3% September decline that was deeper than
reported initially. A 0.9% October gain was the Consensus expectation.
The increase improved the y/y change in sales to -1.7% from declines of
roughly 10% earlier this year. Moreover, spending on "core" retail
sales has improved. Month-to-month changes in overall sales in recent
months have been quite volatile due to auto sales promotions and rising
gasoline prices. Aside from these distortions, gains in consumer
spending have been steady during the last three months and y/y growth
also improved. The retail sales data are available in Haver's USECON
database.

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116b.jpg" align="right" border="0" height="265" width="353">Auto sales of late have been
influenced by Detroit's sales
programs. Last month, retail sales of motor vehicles jumped 7.4% after
a 14.3% decline during September and a 10.2% August jump. Less autos,
sales rose 0.2% versus a 0.4% expected gain. Higher gasoline prices
also have influenced overall sales growth. Without autos &amp;
gasoline, retail sales rose 0.3% last month, about as they did during
the prior two months.&nbsp;These gains raised the y/y change to
-0.8% from -4.4% as of July.

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116c.jpg" align="right" border="0" height="265" width="353">In soft goods, the 0.4%
increase in apparel store sales was the fourth gain in as many months
and the y/y change of 1.5% was improved from -9.7% during December.
Finally, improvement in sales at furniture, electronics &amp;
appliance store sales has been less impressive. Sales fell 0.7% last
month and the y/y change improved only to -7.3% from -14.3% at its
worst. Furniture store sales alone fell 0.8% (-7.6% y/y) after two
months of increase while sales of electronics &amp; appliances
slipped 0.6% (-7.0% y/y), also after two months of increase.

Internet
and catalogue purchases were firmer and rose 1.0% (1.6% y/y). The gain
contrasted with a 7.6% y/y decline as of April. Finally, restaurant
sales jumped 1.2% (1.5% y/y) after little change either m/m or y/y as
of September. Finally, building materials sales continued their slump
and fell 2.4% (-15.0% y/y).
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail
Sales &amp; Food Services</a> (%)</td>
<td>1.4</td>
<td>-2.3</td>
<td>2.4</td>
<td>-1.7</td>
<td>-0.8</td>
<td>3.3</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Autos</td>
<td>0.2</td>
<td>0.4</td>
<td>0.8</td>
<td>-2.6</td>
<td>2.5</td>
<td>3.9</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Less Gasoline</td>
<td>0.3</td>
<td>0.3</td>
<td>0.4</td>
<td>-0.8</td>
<td>1.6</td>
<td>3.6</td>
<td>5.7</td>
</tr>
</tbody>
</table>

 U.S. Business Inventory
Decumulation Slows 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116d.jpg" align="left" border="0" height="265" width="353"><img quot src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116e.jpg" align="left" border="0" height="265" width="353">
Perhaps the recent, moderate turnaround in final demand
evident in the economy has begun to affect business' inclination to
shed inventory. Or maybe there's nothing left on the lot, in the
warehouse or on the shelf to let go. Either way, business inventories
slipped just 0.4% during September which was one-third of the monthly
decumulation averaged back to October of last year. The decline also
fell short of Consensus expectations for a 0.7% drop.
The overall slowdown was caused by a 0.6% increase in retail
inventories, the first gain since last July. That increase resulted
from a 3.8% (-27.9% y/y) rise in auto inventories which also was the
first since July of last year. In contrast, the monthly rate of decline
in nonauto inventories continued at 0.6% (-7.5% y/y). Furniture
inventories increased 0.1% (-12.5% y/y) but clothing inventories fell a
sharp 1.7% (-10.8% y/y). General merchandise inventories fell 0.4% and
were off 6.3% y/y while building materials stores slipped just 0.1%
(-9.6% y/y). Factory inventories fell a hard 1.0%. Meanwhile, wholesale
inventories were off 0.9% and the y/y decline reached a nadir of 15.0%.
Excluding oil, wholesale inventories fell 0.9% and the 15.4% rate of
decline also was a new low.
Despite a possible interest in slowing the rate of inventory
cutbacks, the inventory-to-sales ratio for total business held at the
cycle low of 1.32 versus a high of 1.46 in January. The latest was the
lowest since last September. In the retail sector the ratio moved
higher as a result of the auto inventory rise, but at 1.42 it still was
the second lowest of the cycle. For manufacturers and wholesalers, the
ratio fell to new cycle lows.
The business sales and inventory data are available in Haver's
USECON database.
The Behavior of Household and Business Investment
over the Business Cycle from the Federal Reserve Bank of
Richmond can be found <a href="http://www.richmondfed.org/publications/research/economic_quarterly/2009/summer/pdf/hatchondo.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Business
Inventories (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.4</td>
<td>-1.6</td>
<td>-1.1</td>
<td>-13.4</td>
<td>0.6</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.6</td>
<td>-2.6</td>
<td>-1.0</td>
<td>-13.9</td>
<td>-3.1</td>
<td>2.5</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>-0.6</td>
<td>-0.7</td>
<td>-0.5</td>
<td>-7.5</td>
<td>-1.8</td>
<td>2.7</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-0.9</td>
<td>-1.3</td>
<td>-1.6</td>
<td>-15.0</td>
<td>3.1</td>
<td>6.2</td>
<td>8.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-1.0</td>
<td>-0.9</td>
<td>-0.9</td>
<td>-11.8</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2</td>
</tr>
</tbody>
</table>
 Empire State Factory Conditions
Slip From October High 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 16, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116f.jpg" align="right" border="0" height="265" width="353">The
Federal Reserve Bank of New York reported that its November Empire
State Factory Index of General Business Conditions slipped to 23.51
during November. Nevertheless, that level still remained near the
highest level since 2004. The latest reading compares to sharply
negative levels this past winter and suggests positive growth in
factory sector activity. The latest level fell short of Consensus
expectations for a reading of 30.0.
The figure is a diffusion index.
Since the series' inception in 2001, there has been a 75% correlation
between its level and the three-month change in U.S. factory sector
industrial production. Like the Philadelphia Fed Index of General
Business Conditions, the Empire State Business Conditions Index
reflects answers to independent survey questions; it is not a weighted
combination of the components. The series dates back only to 2001.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116g.jpg" align="right" border="0" height="265" width="353">The
new orders component fell to 16.66 from its October high. The shipments
index also fell as did the employment index to a slim 1.32 from its
highest level since 2007. In the history of the NY employment index,
there has been an 87% correlation between the employment index and the
three-month growth in overall U.S. factory sector employment as
reported by the Labor Department. The workweek index also fell m/m but
remained significantly higher than the February low.
The prices paid
index eased to its lowest level since July and remained down sharply
from all of last year. Since inception in 2001, there has been a 77%
correlation between the index of prices paid and the three-month change
in the core intermediate materials PPI.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116h.jpg" align="right" border="0" height="265" width="353">The Empire
State index
of expected business conditions in six months rose during
November rose to its highest level since early-2004. The subseries for
new orders, employment, prices and capital expenditures each rose. The
inventory subseries rose sharply to it highest since early last year.
The Empire State Manufacturing Survey is a monthly survey of
manufacturers in New York State. Participants from across the state in
a variety of industries respond to a questionnaire and report the
change in indicators from the previous month. Respondents also state
the likely direction of these same indicators six months ahead.
For more on the Empire State Manufacturing Survey, including
methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.
The Empire State data is available in Haver's SURVEYS
database.
Today's speech by Fed Chairman
Ben S. Bernanke On the Outlook for the Economy and Policy can
be found here <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20091116a.htm">here</a>.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM" style="color: rgb(255, 255, 255);">Empire State
Manufacturing Survey</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November '08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>23.51</td>
<td>34.57</td>
<td>-24.93</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>16.66</td>
<td>30.82</td>
<td>-22.29</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>1.32</td>
<td>10.39</td>
<td>-28.92</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>10.53</td>
<td>19.48</td>
<td>20.48</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>

 Japanese GDP Growth In Q3
Surprises: Due To Increased Demand Or Inventory Building? 
by <a href="/comment/Curley.html">Louise
Curley</a> November 16, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116i.jpg" align="right" border="0" height="265" width="353">The Japanese
economy grew more than expected in the third quarter.&nbsp; The
annual rate of increase was 4.79% continuing the recovery that began in
the second quarter with an annual rate of increase of 2.72%.&nbsp;
The annual rates of change in private consumption and fixed investment
and the annual rate of difference in net exports are show in the first
chart. Japan still has a long way to go to recoup the losses from the
recent deep depression.&nbsp; The annual rate of real GDP in the
third quarter was 531.3 trillion yen, compared the 569.1 trillion yen
reached in the first quarter of 2008.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116j.jpg" align="right" border="0" height="265" width="353">Although
both net exports and
private consumption continued to increase in the third quarter, their
annual rates of increase were lower than those in the second
quarter.&nbsp; Even with a lower rate decline in Gross Fixed
Domestic Investment, from 10.5% in the second quarter to 1.3 % in the
third quarter, the net effect of these factors does not appear to
account for the sharp increase reported for total GDP in the third
quarter.&nbsp; It should be noted that the data are preliminary and
some of the components, notably the change in inventories, is only
updated during the 2nd preliminary release.&nbsp; Given the
volatility and the large positive and negative contributions of
inventory changes to total growth, as shown in the second chart, it is
highly likely that the missing element in Japan's third quarter growth
was due to inventory accumulation.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091116k.jpg" align="right" border="0" height="265" width="353">Deflation
continues to
characterize the Japanese economy.&nbsp; The third chart shows GDP
in nominal and real terms since 2000 when real GDP began to exceed
nominal, indicating a declining price
level.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Q3 09</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1&nbsp;09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08&nbsp;</th>
<th scope="col">Q2 08&nbsp;</th>
<th scope="col">Q1 08&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Private Consumption (SAAR)</td>
<td>2.8</td>
<td>3.9</td>
<td>-4.3</td>
<td>-2.8</td>
<td>0.0</td>
<td>-3.7</td>
<td>5.66</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Investment (SAAR)</td>
<td>-1.3</td>
<td>-10.5</td>
<td>-26.6</td>
<td>-14.9</td>
<td>-13.1</td>
<td>-5.9</td>
<td>3.9</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Exports (SAAD) Trillion Yen</td>
<td>9.8</td>
<td>244</td>
<td>-32.7</td>
<td>-52.7</td>
<td>-4.6</td>
<td>-10.3</td>
<td>15.7</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>2008</td>
<td>2007</td>
<td>2006</td>
<td>2005</td>
<td>2004&nbsp;</td>
<td>2003&nbsp;</td>
<td>2002&nbsp;</td>
<td>2001&nbsp;</td>
<td>2000&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Real (Trillion 2000Chn Yen)</td>
<td>556.6</td>
<td>560.5</td>
<td>547.7</td>
<td>536.8</td>
<td>526.6</td>
<td>512.5</td>
<td>505.4</td>
<td>504.5</td>
<td>503.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nominal (Trillion Yen)</td>
<td>507.6</td>
<td>515.8</td>
<td>507.4</td>
<td>501.7</td>
<td>515.8</td>
<td>490.3</td>
<td>491.3</td>
<td>497.7</td>
<td>503.0</td>
</tr>
</tbody>
</table>

</body></html>

U.S. Retail Sales Rise As CoreSales Improve Again

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113h.jpg" align="right" border="0" height="265" width="353">
The U.S. economy is strengthening, so suggests price pressures
in the foreign trade accounts. Overall import prices rose 0.7%, though
the gain fell short of Consensus expectations for a 1.0% increase. The
rise was led by a 0.9% increase in petroleum prices which reversed a
like decline in September and promises to be followed by another strong
gain this month. The report indicated that non-oil import prices rose
0.7%, which was the strongest monthly increase since June of last year.
Moreover, on a three-month basis, these prices have risen at a 5.7%
annual rate after declining at a 13.6% rate as of last December.
(During the last ten years, there has been a negative 81% correlation
between the nominal trade-weighted exchange value of the US dollar vs.
major currencies and the y/y change in non-oil import prices.)<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113i.jpg" align="right" border="0" height="265" width="353">

Import prices break down as follows: Chemical import prices
were quite strong and posted a 2.9% increase but they still were down
16.1% from last year. Iron &amp; steel prices also were strong, up
2.4% m/m, but down by one-third from a year ago. Food prices increased
0.1% and at an 8.0% rate during the last three months. Capital goods
prices similarly posted a modest gain after five months of no change.
Prices for nonauto consumer goods rose 0.3% lifting the three-month
gain to 1.2% versus its weakest reading of -2.6% in January. Durable
consumer goods prices rose 0.4% (-0.9% y/y) but prices of household
goods slipped (-1.9% y/y) and furniture prices fell as well (-1.2%
y/y). Apparel prices were unchanged for the third month (-0.5% y/y).
Petroleum prices reversed their prior month's decline with a 0.9%
increase during October. This month crude oil prices have found further
strength with a rise to $76.94 yesterday from the October average of
$75.82 per barrel.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113j.jpg" align="right" border="0" height="265" width="353">

Total export prices resumed increasing modestly. The 0.3% rise
was led by a 0.3% gain in nonagricultural export prices, down 2.7% y/y.
Agricultural export prices actually fell 1.0% (-10.0% y/y).
The import and export price series can be found in Haver's USECON
database. Detailed figures are available in the USINT
database.

<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/@E807/@E807.HTM">Import/Export
Prices (NSA, %)</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.7</td>
<td>0.2</td>
<td>1.6</td>
<td>-5.7</td>
<td>11.5</td>
<td>4.2</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>0.9</td>
<td>-0.9</td>
<td>7.7</td>
<td>-12.2</td>
<td>37.7</td>
<td>11.6</td>
<td>20.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum</td>
<td>0.7</td>
<td>0.4</td>
<td>0.3</td>
<td>-3.8</td>
<td>5.3</td>
<td>2.7</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Export - All Commodities</td>
<td>0.3</td>
<td>-0.2</td>
<td>0.6</td>
<td>-3.4</td>
<td>6.0</td>
<td>4.9</td>
<td>3.6</td>
</tr>
</tbody>
</table>
</body></html>

The U.S. economy is strengthening, so suggests price pressures in the foreign trade accounts. Overall import prices rose 0.7%, though the gain fell short of Consensus expectations for a 1.0% increase. The rise was led by a 0.9% [...]

U.S. Import Prices Rise, Both Oil & Nonoil

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091113d.jpg" align="left" border="0" height="265" width="353">
European GDP turned higher in Q3 but the results were
generally less than expected. Among the early &#8216;flash&#8217; GDP reporters
France posted a small rise but it was the second rise in a row for
France. Greece with always volatile results posted the strongest rise
followed by Austria. Italy and The Netherlands have the largest Yr/Yr
declines in this group; the EMU Yr/Yr drop is of 4.1%. Greece is lower
Yr/Yr by just 1.6% Austria but just 2.2%. Germany the largest e-Area
economy is off by 4.8% Yr/Yr even though it has two quarters in a row
of solid growth under its belt. 
 

Flash reports do not provide any GDP detail but the various
authorities do offer some account of their results. Both Germany and
France cited the role of exports in pushing growth ahead. In Germany
investment demand was also described as a key factor. 
 

Paragon of strength or parasite of growth? 
-- An unfolding theme in the Area is that exports, external demand, is
driving the European recovery. In France domestic demand was flat in
the quarter despite a ton of ongoing stimulus that has left France
unable to get its fiscal budget gap in line as soon as the EU
Commission wants it to. Hungary, in its GDP release today, complained
that exports were weak and that was sapping GDP strength. The largest
industrial economies would seem to be good candidates to spur world
growth with their own domestic demand instead of relying on the demand
increases elsewhere. Chancellor Merkel has defended Germanys &#8216;right&#8217; to
be a leading exporters, Japan always seeks a surplus to &#8216;defend&#8217;
against the country&#8217;s lack of oil and dependence on oil and other
natural resource imports. China&#8217;s trade surplus grew larger last month.
How can &#8216;everyone&#8217; have export led growth? How can the US (whose
current account deficit surged in November) get its deficit in line if
major competitor countries insist on running trade surpluses, spurring
exports and maintaining weak domestic demand at home? This is something
the G-20 has been completely unable to sort out. 
 

These sorts of structural imbalances helped to lead to the
last financial crisis. Such flows underpinned the 1973-78 oil boom-bust
cycle. Factors that put persistent surpluses sand deficits in play are
dangerous and the G-20 has not plan to sort it out. At the weaker
dollar works to mitigate the US imbalance problem even if it is playing
with fire. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> European Growth for Selected Flash GDP Results</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Q/Q Saar</td>
<td colspan="3">Yr/Yr</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td> Q3-09</td>
<td> Q2-09</td>
<td> Q1-09</td>
<td>Q3-09</td>
<td>Q2-09</td>
<td>Q1-09</td>
</tr>
<tr class="even">
<td class="firstcol">Austria</td>
<td>14.0%</td>
<td>-3.7%</td>
<td>-13.8%</td>
<td>-2.2%</td>
<td>-5.4%</td>
<td>-4.8%</td>
</tr>
<tr class="even">
<td class="firstcol">France</td>
<td>1.1%</td>
<td>1.1%</td>
<td>-5.5%</td>
<td>-2.4%</td>
<td>-2.9%</td>
<td>-3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.9%</td>
<td>1.8%</td>
<td>-13.4%</td>
<td>-4.8%</td>
<td>-5.8%</td>
<td>-6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece</td>
<td>17.6%</td>
<td>32.7%</td>
<td>-29.8%</td>
<td>-1.6%</td>
<td>-1.2%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>2.4%</td>
<td>-1.9%</td>
<td>-10.5%</td>
<td>-4.6%</td>
<td>-5.9%</td>
<td>-6.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands</td>
<td>1.7%</td>
<td>-4.0%</td>
<td>-9.4%</td>
<td>-4.0%</td>
<td>-5.1%</td>
<td>-4.2%</td>
</tr>
<tr>
<td class="firstcol"> EMU</td>
<td> 1.5%</td>
<td> -0.7%</td>
<td> -9.6%</td>
<td> -4.1%</td>
<td> -4.8%</td>
<td> -4.9%</td>
</tr>
</tbody>
</table>
</body></html>

European GDP turned higher in Q3 but the results were generally less than expected. Among the early ‘flash’ GDP reporters France posted a small rise but it was the second rise in a row for France. Greece with always volatile results [...]

European GDP Turns Higher-But Disappoints

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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Winnie Tapasanun

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Industrial production (IP) rose a more-than-expected 0.4% m/m in December following a 0.4% rise in November (+0.2% initially) and a 0.3% decline in October (-0.1% previously), data from the Federal Reserve Board showed. December marked the third m/m gain in four months. A 0.1% m/m December increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate slowed to 2.0% in December, the lowest since September, from 2.5% in November; this compared with a 0.3% y/y decline in December 2024. The December IP index at 102.3 was 3.1% above a low of 99.2 in January 2024. IP rose 0.2% q/q in Q4 2025 after a 0.6% q/q gain in Q3 2025, increasing at a 0.7% annualized rate following a 2.3% Q3 annualized pace. In 2025, IP rose 1.3% after declines of 0.7% in 2024 and 0.2% in 2023.

By **industry groups**, manufacturing production grew 0.2% (2.0% y/y) in December, up for the third time in four months, following a 0.3% increase in November (0.0% initially) and a 0.6% drop in October (-0.4% previously). Durable goods production edged up 0.1% (3.1% y/y) in December, the first m/m increase since September, after a 0.1% downtick in November. Within durables, the following categories rose m/m in December, including output rises of 2.4% (3.5% y/y) in primary metals, 1.7% (1.3% y/y) in electrical equipment, appliances & components, 1.5% (17.2% y/y) in aerospace & miscellaneous transportation equipment, 0.8% (-2.2% y/y) in furniture & related products, 0.2% (4.8% y/y) in machinery, and 0.1% (7.4% y/y) in computer & electronic products. Notably, aircraft & parts production climbed 2.1% (30.0% y/y), the third m/m increase in four months, reversing a 2.1% November drop. To the downside, the following durable goods categories fell m/m in December, including drops of 2.3% (-5.5% y/y) in wood products, 1.1% (-2.8% y/y) in motor vehicles & parts, 1.1% (-1.0% y/y) in nonmetallic mineral products, 0.1% (+2.6% y/y) in fabricated metal products, and 0.1% (-3.7% y/y) in miscellaneous durables goods.

Nondurable goods production increased 0.3% (1.0% y/y) in December, the third m/m gain in four months, after a 0.8% rebound in November. The December increase reflected m/m output rises of 1.8% (2.1% y/y) in petroleum & coal products, 0.5% (1.9% y/y) in food, beverages & tobacco, and 0.3% (-0.2% y/y) in plastics & rubber products. In contrast, the following nondurable goods categories declined m/m in December, including output drops of 1.3% (-0.8% y/y) in textiles & product mills, 1.1% (-0.5% y/y) in apparel & leather goods, 0.3% (-3.1% y/y) in paper, 0.3% (-3.4% y/y) in printing & related support activities, and 0.1% (+1.6% y/y) in chemicals.

Utilities output recovered 2.6% (2.3% y/y) in December, the third m/m rise in four months, following a 0.3% decline in November (-0.4% initially), reflecting a 1.2% rebound (1.3% y/y) in electric utilities output and a 12.0% jump (8.7% y/y) in natural gas utilities output. Mining activity, however, fell 0.7% (+1.7% y/y), the third m/m slide in four months, after an unrevised 1.7% November gain.

By **market groups**, business equipment output advanced 0.8% (10.1% y/y) in December, up for the third time in four months, after a 0.3% increase in November. Consumer goods output rose 0.7% (0.7% y/y) after a 0.7% November rebound, reflecting a 0.7% decline (-3.5% y/y) in durable consumer goods and a 1.1% gain (1.8% y/y) in nondurable consumer goods. Materials production grew 0.2% (1.7% y/y), the third m/m increase in four months, after a 0.5% November rise. In contrast, construction supplies production fell 0.3% (+1.3% y/y) in December, the second m/m fall in three months, reversing a 0.3% increase in November.

In **special classifications**, factory output of selected high-tech industries rose 0.7% (10.9% y/y) in December, the third successive m/m rise, following a downwardly revised 0.5% gain in November (+1.1% initially). Manufacturing production excluding selected high-tech industries grew 0.2% (1.7% y/y) in December, the third m/m gain in four months, after a 0.3% increase in November. Meanwhile, manufacturing production excluding selected high-tech and motor vehicles & parts rose 0.3% (2.1% y/y), also up for the third time in four months, after a 0.4% November increase.

Capacity utilization rose to 76.3% in December, the highest since July, from 76.1% in November (76.0% initially). The Action Economics Forecast Survey forecasted 76.0%. The December reading was 3.2 percentage points below its long-run (1972–2024) average. Manufacturing capacity utilization held at 75.6% in December and November (75.4% previously); the December rate was 2.6 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- December IP +0.4% (+2.0% y/y), third m/m rise in four months, led by a 2.6% gain in utilities.
- Manufacturing +0.2% (+2.0% y/y), w/ durables +0.1% and nondurables +0.3%.
- Selected high-tech +0.7%, third consecutive m/m rise; motor vehicles -1.1%, fourth straight m/m fall.
- Mining -0.7%, third m/m decline in four months.
- Key categories in market groups mostly increase.
- Capacity utilization at a five-month-high 76.3%; mfg. capacity utilization steady at 75.6%.

U.S. Industrial Production Increases in December on Utilities Rebound

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The European Monetary Union has concluded a year of weak-to-moderate growth with inflation largely toeing the line. As always, the inflation picture is more complicated than a simple statement. When we look at inflation, we look at the headline, we look at the core, to make sure that the volatile food & energy elements aren't dominating the index, and then we look across some of the main participants to see if the trend for inflation is shared broadly across the largest countries in the Monetary Union. When we apply those kinds of standards, the grading for the year is reduced. However, based on the headline alone, it was an excellent year for the ECB.

**Headline Inflation in 2025**
Headline inflation in 2025 rose by 2%, exactly on the target of the European Central Bank. It rose over six months at a 2% annual rate and then concluded the year over the last three months, rising at a 1.6% annual rate with some margin below the target set by the central bank itself.

**Country Headline Inflation Trends**
On a country basis, the performance is not nearly as good. While year-on-year results look pretty good, with Germany at 2%, France at 0.7% and Italy at 1.3%, Spain comes in at 3.1%. So the three largest monetary union economies come in at or below 2% with Spain as a rogue observation. When we look further at the sequence of inflation within the year, we see Germany at 2% over 12 months, rising to 3.1% over 6 months, rising further to 4% over 3 months. Inflation is accelerating at the end of the year even as Germany hits the target! This is something to keep an eye on. For France, the inflation rate also accelerates slightly but stays below the bar of 2% over three months, six months, and 12 months. For Italy, inflation is decelerating from 1.3% over 12 months to -0.3% over six months, and then inflation in Italy is contracting at a 1.9% annual rate over three months. Spanish inflation shows clear trouble with a 3.1% 12-month pace, rising to 4.6% at an annual rate over six months, and rising further to 5.9% at an annual rate over three months.

**Core Inflation**
For core inflation, the Monetary Union’s consolidated numbers are not yet compiled. However, for the four largest economies, we do have core or ex-energy inflation. For Germany, it's inflation excluding energy. On that basis, German inflation is 2.2% over 12 months, it rises to 2.7% over six months, then falls back to a 2% annual pace over three months All-in-all not a bad performance. For France, core inflation is below 2% over 12 months, six months, and three months. In Italy, once again, we see inflation decelerating: Italian inflation is 2% over 12 months - right on the ECB target. It falls to a 1.3% annual rate over six months and then falls further to a 0.3% annual rate over three months. For Spain, the core has another very difficult story for the Monetary Union. Inflation is 2.7% over 12 months, it rises to 3.1% over six months and stays at an annual rate of about 3% over three months. This is too high and it looks stubborn, particularly because it is the core.

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**Across the Big Four**
On balance, what we see is that the ECB grades-out well, based on headline inflation and based on its sequential performance for the European economic union as a whole. But large countries, show headline inflation building some steam particularly in the largest economy, Germany, and in Spain, the smallest of the BIG-4 economies. Inflation is once again mixed in the Monetary Union with German and Spanish inflation too high and with French and Italian inflation running either at or below the 2% mark and with Italy showing a tendency towards weaker prices for both the headline and the core. The change in prices over these various periods shows inflation gets the most help from oil prices over 12 months where Brent, measured in euros, falls by 22.6%; over six months Brent prices fall by 37% at an annual rate; and over three months Brent oil prices are unchanged, so that the headline isn't getting help at all from oil prices except through lagged effects.

**Summing Up**
Meanwhile, there are some signs of stronger growth taking root in Europe, especially in Germany with better industrial production being logged and with German industrial production looking significantly stronger than the PMI data, suggesting that perhaps PMI data are missing something about the rebound that is developing. Nonetheless, it was a good year for inflation and the ECB; however, it doesn't exactly end the year in the catbird’s seat. On the other hand, it does not end the year behind the curve. There are scattered pressures and needs among member countries which always makes monetary policy difficult. When some countries need higher interest rates and others need lower interest rates, the ECB is in a difficult spot. Clearly, Spain and Germany are experiencing different phenomenon than France and Italy. That could be the policy challenge for the year ahead.

Europe

Big Four Inflation in EMU 2025-Final

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.

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**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.

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**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.

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**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.

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**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.

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**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.

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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

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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.

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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

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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.

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- 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.

Economy in Brief: 2009

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