Robert Brusca

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201j.jpg" align="left" border="0" height="265" width="353">
Euro-Area
recovery continues - The EU/EMU nation PMIs continue to
show recovery. Greece, with its economic difficulties and huge fiscal
problems, already is showing signs of an uphill battle. Greece&#8217;s MFG
PMIs are lower over three months and over six months, only Spain,
another Mediterranean country with recovery issues, is in the same boat
with MFG PMIs lower over both 3- and 6-mnths. Spain however did mange a
PMI increase for the month of January.
Tensions tear at
the Euro-Area - The EMU MFG PMI is up for six month in a
row. But signs of differences among EMU member countries are beginning
to show and coupled with some very specific country-level problems
questions about commitment to the zone are starting to arise &#8211; right or
wrong. Greece has huge budget problems and Spain&#8216;s construction-based
ills are going to be a structural impediment to growth for some time to
come.
Europe&#8217;s
differences become a liability - Still, the EMU recovery
is looking more and more durable&#8230; even if not strong. That some members
are having trouble is not surprising. Not even a true single country is
uniform in the way a downturn impacts its various industries or
regions. Europe is known for its regional differences and differences
in efficiencies. For that reason it did not meld its finances together
when the EMU region was formed. Each member wanted to maintain its own
fiscal independence while some wanted to be shielded from the practices
of others. Yet some constraint was needed to keep the union members
fiscally close enough for a currency union to work. EMU adopted rules
for budget responsibility to constrain the budget gaps across nations.
It was hoped that the rules (Maastricht criteria) would succeed in
keeping finances on a reasonably similar footing so that fiscal
imbalances would not tear the union apart.
Recession as
Economic Cat-scan - In any event this severe recession has
come suddenly and exposed creeping or hidden imbalances and revealed
sharp fiscal differences. Greek government bonds are now some 400 bp in
yield above those in Germany and this is for government bonds in the
same union with no foreign exchange risk &#8211; except for those who think
the union could be split by this sort of pressure.
The missing link
in Europe - besides lacking true fiscal limitations that
work &#8211; is the lack of mechanism to close regional competitiveness gaps.
Sharp regional differences have endured and broadened. Without the
ability to depreciate exchange rates within the region it is hard for a
nation to regain when its competitiveness slips. While the growing
budget gaps are a public issue the growing competiveness gaps are a
bigger problem and one that is harder to solve. Cutting nominal wages
or boosting productivity are both hard to do it. Yet both are easier
said than done. Closing a fiscal imbalance by hiking taxes or cutting
spending is comparatively much easier &#8211; simple to do in fact although
hard to find the will.
Recovery in
train but not strong enough to bail out Greece - The
recovery is still ongoing and that is good news since growth can cure
all ills if the growth is fast enough. But the recovery in MFG is
already slowing. The EMU MFG index has risen by 6.14 points over six
months and by only 1.66 points over the last three months. Italy&#8217;s MFG
sector is showing the best maintained &#8216;pace of recovery&#8217; as it is up
6.39 point over six months and 2.51 points over three months indicating
only a slight slowing in the pace of improvement. Other are growing
faster over six months (France and Germany) but Italy is maintaining
its pace of expansion best.
 Euro laggards -
Spain and Greece are down the most from their past cycle peaks; among
the countries presented in the table each is down by some 12 points
compared to an 8 point shortfall for EMU as a whole. Contrast this to
the UK which has its MFG index back at its peak. Greece is also up by
only 8 points from its cycle low point, the feeblest recovery of this
group. Germany for example is up 21 points from its cycle low.
Questions for
the Euro-Area - On balance Europe has some issues that are
now starting to dog the euro. The dollar has regained some luster even
though the US fiscal situation is not exactly rosy. No one is quite
sure how deep Europe&#8217;s rift will run and what the Europeans will have
to do to solve their problems. When push came to shove Iceland got
bailed out and now Iceland is reluctant to undertake actions to pay
back those that bailed it out. Will the Union come to Greece&#8217;s aid or
will Greece be forces into an independent severe adjustment? In the end
the Zone looks a lot like the global banking sector operating with a
fatal flaw it thought it could circumvent with a simple rule as a fix.
Is the Zone really like a bank with off balance sheet obligations that
are about to be brought back on board or will Greece be left to deal
with its issues alone?
The Really BIG
risk - If the burden left squarely on Greece&#8217;s shoulders,
does that mean that Greece would try to opt out of the Union? If that
happened how would speculation spread to others? No one is quite sure
and since the euro-recovery does not seem to be strong enough to save
Greece on its own all these are live issues to one extent or another.
Thinking about one country exiting the Zone naturally will bring
pressures on some others. It is unclear if that means Europe will pitch
in to help Greece and set an undesirable precedent or not. Germany
already has made great sacrifice to pull the former E Germany into its
economic orbit. Would Germans be willing to do more to assist Greece
after the Zone was formed with a cushion to try and prevent that sort
of thing from happening? These are exactly the sorts of unexpected
issues that financial crises put on the table. The UK&#8217;s decision to
remain part of EU but to not join EMU is looking more and more
prescient. Stay tuned.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">Changes in
Markit MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td style="font-weight: bold;" colspan="3">Changes Mo/Mo</td>
<td style="font-weight: bold;" colspan="3">Change on Frequency</td>
<td style="font-weight: bold;" colspan="2">&nbsp;</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td style="font-weight: bold;">Jan-10</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Nov-09</td>
<td style="font-weight: bold;">3Mo</td>
<td style="font-weight: bold;">6Mo</td>
<td style="font-weight: bold;">12Mo</td>
<td style="font-weight: bold;">From Peak</td>
<td style="font-weight: bold;">From Low</td>
</tr>
<tr>
<td class="firstcol">Euro-13</td>
<td>0.80</td>
<td>0.39</td>
<td>0.47</td>
<td>1.66</td>
<td>6.14</td>
<td>17.97</td>
<td>-8.1</td>
<td>18.8</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>1.02</td>
<td>0.25</td>
<td>1.40</td>
<td>2.67</td>
<td>8.08</td>
<td>21.75</td>
<td>-7.2</td>
<td>21.8</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.73</td>
<td>0.31</td>
<td>-1.21</td>
<td>-0.17</td>
<td>7.31</td>
<td>17.54</td>
<td>-9.4</td>
<td>20.6</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.95</td>
<td>0.71</td>
<td>0.85</td>
<td>2.51</td>
<td>6.39</td>
<td>15.69</td>
<td>-8.2</td>
<td>17.2</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.08</td>
<td>-0.09</td>
<td>-1.02</td>
<td>-1.03</td>
<td>-2.06</td>
<td>13.76</td>
<td>-12.2</td>
<td>16.8</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>1.03</td>
<td>0.88</td>
<td>-1.12</td>
<td>0.79</td>
<td>5.38</td>
<td>18.72</td>
<td>-7.0</td>
<td>18.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Greece</td>
<td>-1.98</td>
<td>1.54</td>
<td>-0.72</td>
<td>-1.16</td>
<td>-2.01</td>
<td>6.83</td>
<td>-12.6</td>
<td>8.6</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>-0.72</td>
<td>0.02</td>
<td>0.78</td>
<td>0.08</td>
<td>4.43</td>
<td>9.15</td>
<td>-8.3</td>
<td>14.9</td>
</tr>
<tr style="font-weight: bold;" class="odd">
<td colspan="9">EU</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>2.05</td>
<td>2.32</td>
<td>-0.73</td>
<td>3.64</td>
<td>6.20</td>
<td>20.06</td>
<td>0.0</td>
<td>21.8</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">percentile
is over
range since March 2000</td>
</tr>
</tbody>
</table>
</body></html>

Euro-Area recovery continues - The EU/EMU nation PMIs continue to show recovery. Greece, with its economic difficulties and huge fiscal problems, already is showing signs of an uphill battle. Greece’s MFG PMIs are lower over three [...]

EMU PMIs Continue To Recovery

Tom Moeller

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201g.jpg" style="width: 353px; height: 265px;" align="right">Construction
activity moved lower, again. During December construction outlays fell
1.2% after a 1.2% November shortfall that was double the initial
estimate. The latest decline was double the Consensus estimate. The
worst of the news, however, was that for the full year the 12.2%
shortfall in activity was nearly double the 2008 rate of decline and
the third consecutive yearly drop.The December decline in residential
building activity matched its November rate and pulled spending down
again by nearly one-third y/y. Moreover, the latest level was nearly
two-thirds below the 2006 high. Single-family construction activity has
shown positive growth for the last seven months; however, the monthly
gains have been steadily receding and overall activity was down
one-half for the year. That was fourth consecutive year of lower
residential building activity and it's off three-quarters from the 2006
peak. Multi-family construction activity fell nearly one-third for the
year and it is off nearly two-thirds from the 2007 peak. The source of
relative strength came from residential improvements which fell just
2.2% for 2009 and was off just one-quarter from the 2007
peak.&nbsp;&nbsp;Nonresidential building activity fell another 1.8%
during December and was off 11.2% for the year. Since the 2008 peak,
activity has fallen by 26.9%. Spending in the food &amp; beverage
industry fell by one-third for the year. Expenditures in the lodging
industry were off a similar amount. Commercial building overall fell by
two-thirds y/y while office building dropped similarly. Relatively
moderate were the declines in the education (-9.8% y/y), religious
(-10.6% y/y) and health care (-5.1% y/y) sectors.&nbsp;In the
public sector, construction rose 3.7% for the year, despite lower tax
revenues. Building activity on highways &amp; streets rose 3.3% for
the year as the focus on infrastructure rebuilding grew. Public
spending on health care facilities increased a strong 14.7% y/y but
building in the education sector rose just 1.5% for the full year.The
construction put-in-place figures are available in Haver's USECON
database.&nbsp;&nbsp;
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201h.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201i.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">Construction
(%)</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-1.2</td>
<td>-1.2</td>
<td>1.5</td>
<td>-9.9</td>
<td>-12.2</td>
<td>-6.9</td>
<td>-1.6</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.2</td>
<td>-1.1</td>
<td>4.7</td>
<td>-14.9</td>
<td>-18.5</td>
<td>-11.1</td>
<td>-5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.8</td>
<td>-1.4</td>
<td>11.8</td>
<td>-10.9</td>
<td>-27.8</td>
<td>-29.1</td>
<td>-19.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.2</td>
<td>-0.9</td>
<td>-3.6</td>
<td>-17.7</td>
<td>-10.6</td>
<td>13.2</td>
<td>23.1</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>-1.2</td>
<td>-1.2</td>
<td>-0.9</td>
<td>1.3</td>
<td>3.7</td>
<td>5.6</td>
<td>13.1</td>
</tr>
</tbody>
</table>
</body></html>

Construction activity moved lower, again. During December construction outlays fell 1.2% after a 1.2% November shortfall that was double the initial estimate. The latest decline was double the Consensus estimate. The worst of the [...]

U.S. Pending Home Sales Improve

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 




<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201d.jpg" style="width: 353px; height: 265px;" align="right">The
pace of
improvement in the U.S. factory sector picked up steam in the new year.
The National Association of Purchasing Management reported that its
January composite index showed unexpected strength, for the second
consecutive month, rising to 58.4 from 54.9 during December. The latest
figure was the highest since August 2004 and was up from the low of
32.9 reached in December '08. The latest jump exceeded Consensus
expectations for a reading of 55.2. (Any figure above the break-even
point of 50 suggests rising activity.) Last year's figures were revised
due to updated seasonal factors and the ISM data is available in
Haver's USECON database.
The latest ISM level is
consistent with roughly 4.0% growth in factory sector output. This
positive growth rate resembles recoveries from past severe recessions
but to fully mirror the strength of those recoveries the index needs to
rise to a level near or above 60.&nbsp;
The production component posted the
strongest m/m gain last month but remained lower than its 2004 high.
During the last ten years there has been an 84% correlation between the
level of the production component of the composite index and the
three-month growth in factory sector industrial production. It
is appropriate to correlate the ISM index level
with factory sector output growth because the ISM
index is a diffusion index. It measures growth by using all of the
positive changes in activity added to one half of the zero change in
activity measures.
The employment index also posted a strong
increase to 53.3 which indicated positive growth in factory sector
payrolls for three out of the last four months. It's up from a low
reading of 25.9 last February. Fifteen percent of respondents indicated
higher payrolls versus only five percent last January. Twelve percent
indicated a lower level of hiring versus 49% last January. During the
last ten years there has been a 90% correlation between the index level
and the three-month change in manufacturing payrolls.
The rise in the
inventory component to 46.5 brought it back near the October high.
Sixteen percent (NSA) of respondents indicated that they were raising
inventory levels versus 18% last January. During the strong 2005
inventory accumulation 26% of firms indicated that they were raising
inventories. Twenty-four percent of respondents indicated lower
inventories last month. The vendor performance indicator which measures
the speed of deliveries rose to 60.1. This indication of slower speeds
was its highest since 2005.
The new orders index showed a lesser m/m
increase, but it reached a new high of 65.9. The export order index
also rose to a new high and was up from its low of 35.5 in December
'08. During the last ten years there has been a 53% correlation between
the index and the q/q change in real exports of goods in the GDP
accounts.
The separate index of prices paid also rose to a new
cycle-high of 70.0. That was up from the December '08 low of 18.0.
During the last twenty years there has been a 79% correlation between
the price index and the three-month change in the PPI for intermediate
goods. Forty-four percent of respondents reported higher prices while
only 4 percent indicated lower prices.The ISM data are available in
Haver's USECON database.
Focusing
on
Bank Interest Rate Risk Exposure is Friday's speech by Fed
Vice Chairman Donald L. Kohn and it is available <a href="http://www.federalreserve.gov/newsevents/speech/kohn20100129a.htm">here</a>.
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201e.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201f.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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Jan. '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">Composite Index</td>
<td>58.4</td>
<td>54.9</td>
<td>53.7</td>
<td>35.5</td>
<td>46.2</td>
<td>45.5</td>
<td>51.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>65.9</td>
<td>64.8</td>
<td>61.5</td>
<td>33.2</td>
<td>51.6</td>
<td>42.1</td>
<td>54.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Employment</td>
<td>53.3</td>
<td>50.2</td>
<td>49.6</td>
<td>29.0</td>
<td>40.5</td>
<td>43.3</td>
<td>50.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Production</td>
<td>66.2</td>
<td>59.7</td>
<td>60.2</td>
<td>30.8</td>
<td>50.4</td>
<td>45.2</td>
<td>54.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Supplier Deliveries</td>
<td>60.1</td>
<td>56.8</td>
<td>55.7</td>
<td>45.9</td>
<td>51.4</td>
<td>51.6</td>
<td>51.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>46.5</td>
<td>43.0</td>
<td>41.4</td>
<td>38.4</td>
<td>37.1</td>
<td>45.5</td>
<td>45.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>70.0</td>
<td>61.5</td>
<td>55.0</td>
<td>29.0</td>
<td>48.3</td>
<td>66.5</td>
<td>64.6</td>
</tr>
</tbody>
</table>

</body></html>

The pace of improvement in the U.S. factory sector picked up steam in the new year. The National Association of Purchasing Management reported that its January composite index showed unexpected strength, for the second consecutive [...]

ISM Manufacturing Index Reaches Highest Since 2004

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 




<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201a.jpg" style="width: 353px; height: 265px;" align="right">The
Commerce
Department's latest report on consumer income &amp; spending
indicated that times were never worse than in 2009. Cutbacks in
employment prompted a record 1.4% annual decline (it's never before
fallen y/y), though modest positive growth returned in the second half.
Indeed, income rose during December about as it did beginning in the
spring due to easing declines in employment, faster growth in dividend
income and rising transfer payments.&nbsp;&nbsp; Overall personal
income gained 0.4% during December after an upwardly revised
0.5% November increase. The latest figure outpaced Consensus
expectations for a 0.3% rise. Wages &amp; salaries ticked up 0.1%
after an upwardly revised 0.4% November increase but for the year wage
income fell by 3.3% due to fewer jobs and pay cuts. Wages in the
factory sector fell 0.3% and were down a hard 10.3% for the year. That
decline followed a 1.5% drop during 2008. In the service sector wages
rose a firmer 0.3% but were down an unprecedented 2.9% for the year. A
0.3% December rise in wages in the government sector and a 3.6% gain
for the full year offset a negligible portion of these private sector
declines.&nbsp; Disposable income rose a steady 0.4% during
December and for the year rose 1.5% due to tax cuts early in the year.
These cuts enabled the savings rate to rise to 4.8% which was near
where it began the year but up sharply from the 1.0% low at the
beginning of 2008.&nbsp; Due to the pickup in corporate profitability in
the second half of last year monthly dividend income began to grow.
However, earlier declines which extended back to 2007 pulled the
full-year figure down 19.2%. Offsetting some of the annual decline were
unemployment insurance payments which more than doubled for the year as
a whole. However, that growth turned negative by yearend as long-term
unemployment exhausted benefit claims.Personal spending ticked
up just 0.2% in December after an upwardly revised 0.7% November
increase. For the year spending fell an unprecedented 0.4%. Adjusted
for inflation the yearly decline mounted to 0.6% which was the second
year of negative growth. Pulling down the yearly figures were 8.8% and
13.6% declines in real spending on motor vehicles. Adding to that were
6.0% and 2.9% drops in furniture &amp; household durables as well
as less spending on clothing. Spending on services was roughly
unchanged as spending on recreation fell 1.3% while&nbsp; fewer
meals out &amp; fewer vacations lowered spending here by 2.9%.
These declines were unprecedented.The PCE chain price index
ticked up just 0.1% during December and 0.2% for the year pulled down
by the fourth year of decline in prices for furnishings &amp;
household durables. Higher gasoline prices through much of the year
failed to offset declines late in 2008 so for 2009 prices fell roughly
one-quarter from 2008. The core PCE price deflator ticked up just 0.1%
during December and the 0.2% gain for the year was a record low.&nbsp;The
personal income &amp; consumption figures are available in Haver's USECON
and USNA databases.
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201c.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/@E7/@E711/@E71102/@E71102.HTM" style="color: black;">Disposition of Personal Income</a>
(%)&nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4</td>
<td>0.5</td>
<td>0.3</td>
<td>0.5</td>
<td>-1.4</td>
<td>2.9</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
&nbsp;Disposable Personal Income</td>
<td>0.4</td>
<td>0.5</td>
<td>0.4</td>
<td>3.7</td>
<td>1.5</td>
<td>3.9</td>
<td>4.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption
Expenditures</td>
<td>0.2</td>
<td>0.7</td>
<td>0.6</td>
<td>4.0</td>
<td>-0.4</td>
<td>3.1</td>
<td>5.4</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>4.8</td>
<td>4.5</td>
<td>4.6</td>
<td>4.7 (Dec.'08)</td>
<td>4.6</td>
<td>2.6</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1</td>
<td>0.3</td>
<td>0.3</td>
<td>2.1</td>
<td>0.2</td>
<td>3.3</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;
Less food &amp; energy</td>
<td>0.1</td>
<td>0.0</td>
<td>0.2</td>
<td>1.5</td>
<td>1.5</td>
<td>2.4</td>
<td>2.4</td>
</tr>
</tbody>
</table>


</body></html>

The Commerce Department's latest report on consumer income & spending indicated that times were never worse than in 2009. Cutbacks in employment prompted a record 1.4% annual decline (it's never before fallen y/y), though modest [...]

U.S. Personal Income & Spending In Record Decline Last Year

U.S. Personal Income &Spending In Record Decline Last Year

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129h.jpg" style="width: 353px; height: 265px;" align="right">
Building on gains earlier in the month consumer sentiment for
all of January rose to its highest level since January of 2008. The
Reuters/University of Michigan Index of Consumer Sentiment for all of
January rose to 74.4 from 72.5 in December. The latest figure beat
Consensus expectations for a reading of 73.0 and it was up sharply from
the low of 55.3 in November 2008.<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129i.jpg" style="width: 353px; height: 265px;" align="right">
During the last ten years there has
been a two-thirds correlation between the level of sentiment and the
three-month change real consumer spending.
Sentiment about current economic conditions increased another
4.0% after its 13.4% jump from November. The latest was the highest
level since March of 2008. Assessments of current financial conditions
improved m/m to the highest since September of 2008. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129j.jpg" style="width: 353px; height: 265px;" align="right">
Buying conditions
for large household goods, including furniture, refrigerators, stoves
&amp; televisions, also moved up 3.9% to the highest level since
January 2008.
The January reading on expected economic conditions increased
sharply from mid-month. The 1.7% m/m increase pulled the index to its
highest level since September. Expectations for business conditions
during the next year improved and have more-than doubled since last
February.<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129k.jpg" style="width: 353px; height: 265px;" align="right">
Expectations for business conditions during the next five
years also improved m/m and rose sharply from the 2008 low.
Expectations for personal finances slipped m/m to the lowest since
March 2009 as expectations for family income growth remained
moderate-to-lower.
Expected price inflation during the next year rose m/m to 3.4%
and it was up from the December 2008 reading of 1.7%.Respondents' view
of government policy, which may eventually influence economic
expectations, improved following the sharp December decline. Just
fourteen percent of respondents thought that a good job was being done
by government versus 33% who thought a poor job was being done.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM" style="color: white;">University of Michigan</a></th>
<th scope="col">January</th>
<th scope="col">Mid-January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Jan 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">Consumer Sentiment</td>
<td>74.4</td>
<td>72.8</td>
<td>72.5</td>
<td>67.4</td>
<td>21.6%</td>
<td>66.3</td>
<td>63.8</td>
<td>85.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>81.1</td>
<td>81.0</td>
<td>78.0</td>
<td>68.8</td>
<td>22.0</td>
<td>69.6</td>
<td>73.7</td>
<td>101.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>70.1</td>
<td>67.5</td>
<td>68.9</td>
<td>66.5</td>
<td>21.3</td>
<td>64.1</td>
<td>57.3</td>
<td>75.6</td>
</tr>
</tbody>
</table>
</body></html>

Building on gains earlier in the month consumer sentiment for all of January rose to its highest level since January of 2008. The Reuters/University of Michigan Index of Consumer Sentiment for all of January rose to 74.4 from 72.5 in [...]

Michigan Consumer Sentiment Highest in Two Years

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 




<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129f.jpg" style="width: 353px; height: 265px;" align="right">unemployment dragged
the y/y change in the Employment Cost Index down
to its lowest on record. (The series dates back to 1980). Overall the
employment cost index for private industry workers rose 1.2% for the
year which ended with a 0.4% rise during 4Q following upwardly revised
gains during the prior two quarters. The latest rise about matched
Consensus expectations.
Weaker growth in both in wages and
benefits pulled the overall index lower. Wages grew just 1.5% last year
which was exactly half the 2008 gain. By the end of 2009, however,
growth did improve modestly as the recession ended. For the year
management, professional &amp; related workers saw their wages rise
just 1.1% after a after a 3.2% gain during 2008. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129g.jpg" style="width: 353px; height: 265px;" align="right">
Sales &amp; office
worker wage gains also more-than-halved to 1.0%.
Total benefit costs in private sector increased just 1.2% for
the year,
a record low. In the management, professional &amp; related
businesses benefits grew just 0.7% but for production, transportation
&amp; materials handling industries growth held up and stable at
2.2% for the year. The cost of health benefits was an improved 4.4% in
the latest 12 months.
The employment cost index figures are
available in Haver's USECON database.
Myths about
Budget Deficits
from the American Enterprise Institute can be found <a href="http://www.aei.org/docLib/Myths%20About%20Budget%20Deficits.pdf">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI
- Private Industry Workers</a> (%)</th>
<th scope="col">4Q '09</th>
<th scope="col">3Q '09</th>
<th scope="col">2Q '09</th>
<th scope="col">4Q 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">Compensation</td>
<td>0.4</td>
<td>0.5</td>
<td>0.2</td>
<td>1.2</td>
<td>1.5</td>
<td>2.8</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp;
Salaries</td>
<td>0.5</td>
<td>0.5</td>
<td>0.2</td>
<td>1.3</td>
<td>1.5</td>
<td>3.0</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.4</td>
<td>0.3</td>
<td>0.2</td>
<td>1.0</td>
<td>1.2</td>
<td>2.6</td>
<td>2.4</td>
</tr>
</tbody>
</table>

</body></html>

unemployment dragged the y/y change in the Employment Cost Index down to its lowest on record. (The series dates back to 1980). Overall the employment cost index for private industry workers rose 1.2% for the year which ended with a [...]

U.S. Employment Cost Index Fell To Lowest On Record

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
.odd{
background-color:#edf5ff;
}
.even{
background-color:#dde5ef;
}
.grey1{
background-color:#f0f0f0;
}
.grey2{
background-color:#e2e2e2;
}
.grey3{
background-color:#d4d4d4;
}
.grey4{
background-color:#c6c6c6;
}
.grey5{
background-color:#b8b8b8;
}
</style>
</head>
<body>
 



<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129e.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
Tight money
isn&#8217;t funny &#8211; With the Fed&#8217;s balance sheet bloated like
glutton at a roman feast, tensions have run high on the prospects of
inflation. Like Mr Creosote in the Monty Python skit everyone is sure
that with the equivalent of just one wafer thin mint the whole mess
will explode in a frenzy of inflation forces&#8230;. Meanwhile, back at the
ranch where reality rules the roost, money supply growth rates among
the world&#8217;s key industrial country aggregates is tempered, steady or
falling. At the same time a rise in oil prices has given the appearance
of inflation. Europe in December has just reported out its fastest rise
in the CPI (HICP) in nearly one year. But Japan has posted the largest
drop in inflation in the history of its CPI series that began in 1970
(a drop 1.2% in the month).
I would hope that after the last business cycle in which oil
traded up nearly to $150/bbl and yet core inflation in the US and in
Europe remained &#8216;restrained&#8217; was a lesson to not spend so much time
looking at headline inflation. Still, headline inflation has its
advocates. They must be the same people who love to watch the action on
those bobble-headed dolls sitting on the dashboard of a car as it
travels over a bumpy road. There is not much else to commend headline
inflation-watching.
Money supply, the key driver of inflation over the long haul,
is not flashing any warning signals about inflation. It is giving no
reason to have inflation concerns alt all. Money supply growth in the
UK, in EMU and in the US has dropped its growth rate dramatically and
steadily. The drop off in money growth is ONGOING in the UK, in EMU and
in Japan whereas, in the US, money growth has bounced up off its
six-month low to see its three-month growth rate hover at the pace of
year-over-year money growth at 3.5% - hardly a barn burner.
In EMU credit growth remains restrained in terms of over
overall loan growth and in terms of credit to residents. Both of these
measures of credit are declining in real terms and the rate of
shrinkages is either large or is accelerating from one-year to
six-months to three-months. That is not a good story if you want it end
with everyone living &#8216;happily ever after.&#8217;
Money and credit are the raw material or fuel for growth.
Right now the tanks are dang near empty across the major monetary
center countries. Even China has begun a program of pulling back on
credit, but there it is after a period of excessive growth.
On balance for all the concerns about inflation all we really
have is some volatile oil price that on occasion feeds though to bash
headline inflation like cars in a long train bumping into one another
on down the line, long after the locomotive has stopped. Inflation by
the core measures remains tame. Inflation fundamentals are rock solid
as there are huge GDP-gaps around the world and an all-too ample supply
of labor. Money supply growth is tame, tempered or outright withering.
Worrying about too-liquid bank reserves while banks are bottling up
credit growth makes no sense at all. Yet I like to understand this fear
by pointing out that a large block of the economics profession forms a
school called &#8216;monetarism&#8217; and if it did not register horror at the
size of those bank reserves all those economists probably would have to
find a new &#8216;religion.&#8217; It may be in time that those reserves will be
worth worrying about. Once banks lose their fear and start lending
again, reserves may one again be a risk. But forest fires rarely start
in the wet and rainy season; that is what we have as an economic
environment right now. Inflation starting in an environment like this
is really a very small risk. Conversely, it is growth that is at risk
and it is lending that is needed to keep it going. So far that spark of
lending is lacking just about everywhere. We should not douse a spark
to warm our hands for fear of burning a forest.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th scope="col" colspan="8"> Look at Global and Euro Liquidity Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar-all</td>
<td colspan="3">Euro Measures (E13):
Money &amp; Credit</td>
<td colspan="3">G-10 Major Markets:
Money</td>
<td>Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&#8364;-Supply M2</td>
<td>Credit:Resid</td>
<td>Loans</td>
<td>$US M2</td>
<td>&#163;UK M4</td>
<td>&#165;Jpn M2+Cds</td>
<td>OIL:WTI</td>
</tr>
<tr>
<td class="firstcol">3-MO</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>3.5%</td>
<td>3.1%</td>
<td>1.7%</td>
<td>33.5%</td>
</tr>
<tr>
<td class="firstcol">6-MO</td>
<td>0.6%</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>2.0%</td>
<td>5.7%</td>
<td>2.4%</td>
<td>15.3%</td>
</tr>
<tr>
<td class="firstcol">12-MO</td>
<td>2.0%</td>
<td>0.7%</td>
<td>-0.2%</td>
<td>3.4%</td>
<td>5.3%</td>
<td>3.1%</td>
<td>74.0%</td>
</tr>
<tr>
<td class="firstcol">2Yr</td>
<td>5.5%</td>
<td>4.1%</td>
<td>2.9%</td>
<td>6.5%</td>
<td>10.8%</td>
<td>2.4%</td>
<td>-9.5%</td>
</tr>
<tr>
<td class="firstcol">3Yr</td>
<td>7.1%</td>
<td>7.2%</td>
<td>5.6%</td>
<td>6.4%</td>
<td>11.2%</td>
<td>2.3%</td>
<td>6.3%</td>
</tr>
<tr class="odd">
<td colspan="8">Real Balances: deflated
by Own CPI. Oil deflated by US CPI</td>
</tr>
<tr>
<td class="firstcol">3-MO</td>
<td>-2.8%</td>
<td>-2.2%</td>
<td>-1.8%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>2.6%</td>
<td>29.2%</td>
</tr>
<tr>
<td class="firstcol">6-MO</td>
<td>-0.9%</td>
<td>-1.4%</td>
<td>-2.2%</td>
<td>-0.9%</td>
<td>2.4%</td>
<td>3.7%</td>
<td>12.1%</td>
</tr>
<tr>
<td class="firstcol">12-MO</td>
<td>1.0%</td>
<td>-0.2%</td>
<td>-1.1%</td>
<td>0.6%</td>
<td>2.4%</td>
<td>4.8%</td>
<td>69.3%</td>
</tr>
<tr>
<td class="firstcol">2Yr</td>
<td>4.2%</td>
<td>2.8%</td>
<td>1.7%</td>
<td>5.1%</td>
<td>7.6%</td>
<td>3.1%</td>
<td>-10.7%</td>
</tr>
<tr>
<td class="firstcol">3Yr</td>
<td>5.2%</td>
<td>5.2%</td>
<td>3.7%</td>
<td>4.0%</td>
<td>8.2%</td>
<td>2.5%</td>
<td>4.0%</td>
</tr>
</tbody>
</table>
</body></html>

Tight money isn’t funny – With the Fed’s balance sheet bloated like glutton at a roman feast, tensions have run high on the prospects of inflation. Like Mr Creosote in the Monty Python skit everyone is sure that with the equivalent of [...]

Ain’t No Sunshine When It's Gone…Money Growth

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

Deflation continues in China

Our global data offering is unparalleled in terms of coverage, quality, and organization. We offer 290+ databases from 2500 government and private sources, a wealth of key survey and forecast data covering the world’s economies, and a robust offering of archive databases that drive machine learning for big data applications.

Optimized for precision analytics, our data is seamlessly integrated with Microsoft Office and all leading statistical packages through our DLX® software and platform independent HaverView™ website. We further offer direct database feeds, client server or cloud-based delivery, and RESTful API.


Privacy Policy

Disclaimer

Contact us

Service Health

A premier time series data platform for the global strategy, research, and quant communities. 

London

Singapore

Tokyo

New York

Economy in Brief

Viewpoints

Contact Us

Our Data

Our Products

What We Do

Our Authors

About Us

Data News

Featured Data Additions

Resources

Release Calendars

Training Center

Webinars

Newsletters

Download Software

For Clients

Live Updates

Tian Yong Woon

This week, we highlight several pertinent developments that have shaped the start of the year and may carry longer-lasting implications. To begin with, the recent capture of former Venezuelan President Maduro by the US authorities and the subsequent crude oil trade deal could have far-reaching effects—potentially altering China’s imports of Venezuelan crude and broader bilateral trade dynamics (chart 1), as well as global energy supply considerations (chart 2).

In Japan, Prime Minister Takaichi’s reported consideration of early snap elections, if enacted, would likely inject near-term political uncertainty (chart 3). However, should her gambit succeed, it could reduce  policy uncertainty and pave the way for more fiscal policy activism. Against this backdrop, it is unsurprising that investors remain divided over the timing of the Bank of Japan’s next policy tightening, although the upcoming Spring wage negotiations (chart 4) ought to provide clearer signals for the monetary policy outlook.

Turning to investor expectations from the latest Blue Chip survey, India is once again seen as the growth leader among major Asian economies, while also poised to record the highest inflation (chart 5). China, by contrast, is expected to deliver sub-5% growth this year alongside muted inflation. Lastly, in Southeast Asia, pockets of geopolitical tension persist—notably between Thailand and Cambodia (chart 6)—as Thailand prepares for snap elections next month.

**The US, Venezuela, and China**
2026 got off to a turbulent start following a recent US military operation in Venezuela that resulted in the capture of former President Maduro and his transfer to the US to face drug-related charges. In the aftermath, Venezuela’s former vice president (Delcy Rodriguez) was sworn in as interim leader, while US and Venezuelan authorities have reportedly already reached a new crude oil deal. Under the agreement, Venezuela would sell 30–50 million barrels of crude to the US at market prices, with the proceeds controlled by the US. These developments have several potential implications. First, some Venezuelan crude initially destined for China would likely be diverted to the US. China has been the main buyer of Venezuelan oil in recent years, although this is likely underreported in official data (chart 1), which would tighten conditions for the crude-import-dependent country. Second, an eventual increase in Venezuelan crude supply—previously constrained by heavy US sanctions—would likely exert downward pressure on global oil prices, all else equal, although significant challenges remain, as discussed below.

260112T1.jpg

To illustrate the potential significance of Venezuela’s crude oil industry, chart 2 shows that the country holds nearly a fifth of the world’s proved crude oil reserves. However, output remains disproportionately low relative to reserves, possibly reflecting years of US sanctions as well as mismanagement and chronic underinvestment. Given the current state of the industry, substantial investment will likely be required for Venezuela to restore production to historically high levels and to more fully tap its deep proved reserves. As a result, any meaningful surge in Venezuelan crude output is likely to take time, which may help explain the muted market response to recent US–Venezuelan developments. Also of note, China has been a major lender to Venezuela, including through “oil-for-loan” arrangements in which repayments are made in crude oil. It remains to be seen how these existing and future agreements may be affected by recent developments.

260112T2.jpg

**Japan**
Setting aside the interplay between the US, Venezuela, and China, another economy worth watching early this year is Japan. Developments continue to unfold following renewed China–Japan tensions after Prime Minister Takaichi assumed office. With her approval ratings having remained consistently high since taking the helm, Takaichi is reportedly considering snap elections as early as next month to strengthen her ruling coalition’s parliamentary position. While a stronger mandate could reduce policy uncertainty, near-term political uncertainty would be the likely case. This interim uncertainty may be weighing on the yen. It is being compounded by expectations of upcoming pro-growth measures, including the $118 million supplementary budget passed last December and the prospect of additional fiscal stimulus next fiscal year, contingent on an electoral win (chart 3).

260112T3.jpg

Turning back to Japan and the monetary policy outlook, investors remain divided over the timing of the Bank of Japan’s (BoJ) next policy move following its December rate hike. This uncertainty is understandable given the multiple moving parts shaping the BoJ’s path, including the factors discussed above. Looking ahead, the upcoming annual wage negotiations and broader trends in wage growth (chart 4) will be closely watched by the BoJ as key preconditions for further rate hikes. Reflecting this uncertainty, our latest Blue Chip Economic Indicators survey shows investors split between expectations for a hike in March and views that the next move will only come after April.

260112T4.jpg

**Blue Chip Economic Indicators**
Delving into the latest Blue Chip survey results, chart 5 summarizes panellists’ expectations for growth and inflation this year. Focusing on major Asian economies, and as in 2025, India is seen to be leading the pack in terms of both real GDP growth and CPI inflation. That said, the inflation outlook may be subject to further revisions should India’s currently muted inflation—driven by falling food prices—persist for longer. For China, panellists currently expect sub-5% growth this year, implying a likely miss should a 5% growth target again be pursued. Inflation in China is once again expected to remain subdued. Japan, meanwhile, is forecast to post sub-1% real GDP growth, while CPI inflation is expected to hover around the authorities’ preferred 2% level. Looking ahead, attention will also turn to the IMF’s upcoming World Economic Outlook forecasts, due later this month.

260112T5.jpg

**Southeast Asia**
Last but not least, turning to Southeast Asia, promising AI- and tech-related growth continues in economies such as Malaysia and Vietnam. However, pockets of geopolitical tension persist, notably between Thailand and Cambodia, where border clashes have occurred despite previous attempts at peace, including one co-brokered by US President Trump. Against this backdrop, Thailand’s Prime Minister Anutin is preparing for snap elections in early February, amid a reported rise in nationalist sentiment linked to the ongoing clashes. These developments create latent risks for both Thailand and Cambodia (chart 6), while the uncertainty surrounding the elections also clouds the implementation of longer-term policies aimed at addressing Thailand’s deeper structural challenges.

260112T6.jpg

Asia

Economic Letter from Asia: A Bumpy Start

Michael J. Moran

260109A.jpg

260109B.jpg

Nonfarm payrolls rose 50,000 in December, continuing a pattern of modest increases that began in early 2025 and intensified last spring. The December results were constrained by an outright decline in the goods-producing sector, with both construction companies and manufacturers shedding workers. The private service sector was in the plus column, but the gain of 58,000 was not especially impressive. The retail trade sector was notably soft (-25,000), and a drop of 9,000 among firms in the business-service area was disappointing.

Revisions to results in October and November were more notable than the new figures for December, as downward adjustments of 76,000 more than offset the gain in December and left a net decline in the fourth quarter. Several areas contributed to the revisions (retail trade, construction, health care, transportation & warehousing, business services).

Not only were the recent job numbers soft, but the average workweek among those employed eased 0.1 hour to 34.2 hours. The reading was still within the range of observations from the past two years, but it moved to the bottom of the range. A dip of 0.1 hour might seem trivial, but when applied to 160 million workers, it represents a constraint on production. This decline added to the soft tone of the report.

260109C.jpg

Although the payroll numbers were soft, the unemployment rate dipped 0.1 percentage point to 4.4%. The drop reflected a jump of 232,000 in employment as measured by the survey of households. This employment measure is more volatile than the payroll figures from the survey of business establishments, and thus the gain might contain a healthy dose of random volatility. Still, it offered encouragement in that December marked the fifth consecutive gain, perhaps signaling that the bottom was not falling out of the labor market. 

Average hourly earnings also suggested that the labor market still had a pulse. December showed an increase of 0.3% in average hourly earnings, and results in the prior month were firmer than previously estimated (0.2% growth rather than 0.1%). The underlying trend is still cooling, but the year-over-year advance of 3.8% still represents a gain in real earnings.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

- Modest job growth in December, and downward revisions in October & November.
- The unemployment rate, though, inched lower.

A Soft Tone in the Labor Market

Winnie Tapasanun

260109F17.jpg

260109G17.jpg

Total housing starts fell 4.6% m/m in October to a seasonally adjusted annual rate of 1.246 million units—below expectations—following a 1.2% increase to 1.306 million in September and a 9.1% drop to 1.291 million in August (-8.5% m/m, 1.307 million previously), data from the U.S. Census Bureau showed. The Action Economics Forecast Survey had expected 1.321 million starts for October. The October figure marked the lowest level since May 2020 and represented the second m/m decline in three months after m/m increases in July and June. The year-on-year rate was at -7.8% in October, the steepest y/y drop since November 2024, following -3.8% in September and -1.2% in October 2024. Overall, starts remained 31.5% below the April 2022 peak of 1.820 million.

Single-family starts rebounded 5.4% (-7.8% y/y) to 874,000 in October, the highest level since July, after declines of 4.6% to 829,000 in September and 8.6% to 869,000 in August (890,000 previously). They reached a high of 1.218 million in November 2021 and a high of 1.273 in December 2020. Multi-family starts plunged 22.0% (-7.9% y/y) to 372,000, the lowest level since May, following a 13.0% September gain to 477,000 and a 10.0% August drop to 422,000 (417,000 previously). They reached a high of 629,000 units in November 2022 and a high of 616,000 units in April 2022.

By region, housing starts delivered a mixed performance. Starts in the West slumped 21.9% (-25.9% y/y) to 243,000 in October, the lowest level since July, after a 1.6% increase in September. Starts in the Northeast slid 0.6% (+41.3% y/y) to 154,000, the third m/m slide in four months, after a 58.2% September surge. To the upside, starts in the South rebounded 1.2% (-2.1% y/y) to 650,000 in October after a 3.6% decline in September and starts in the Midwest rose 0.5% (-20.7% y/y) to 199,000 after a 10.4% September decrease; for both regions, October represented the first m/m increase since July. Notably, the South continued to lead all regions with 650,000 starts, accounting for 52.2% of total U.S. housing starts; the region previously peaked at 1.044 million in April 2022.

Building permits fell 0.2% (-1.1% y/y) to 1.412 million in October, the sixth m/m fall in seven months, following a 6.4% rise to 1.415 million in September and a 2.3% decline to 1.330 million in August. They remained well below a high of 1.920 million in January 2022 and a high of 1.855 million in January 2021. Single-family permits fell 0.5% (-9.4% y/y) to 876,000, the second m/m fall in three months, after a 2.6% September increase to 880,000. They reached highs of 1.243 million in both January 2022 and January 2021. In contrast, multi-family permits rose 0.2% (16.3% y/y) to 536,000, the highest level since February 2024, after a 13.3% September gain to 535,000. They reached a peak of 817,000 units in February 2023 and a high of 787,000 units in June 2022. Regionally, permits fell m/m in the South (-3.3%; -3.9% y/y), the Midwest (-2.0%; -0.5% y/y), and the Northeast (-1.4%; +5.8% y/y), but increased m/m in the West (+9.1%; +2.1% y/y).

The housing starts and building permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

260109H17.jpg

260109I17.jpg

- Housing starts -4.6% (-7.8% y/y) to 1.246 mil. in Oct.; second m/m fall in three months.
- Single-family starts up to a three-month high; multi-family starts down to a five-month low.
- Housing starts m/m down the West and Northeast but up in the South and Midwest.
- Building permits fall for the sixth time in seven months, led by a drop in single-family permits.

U.S. Housing Starts Decline in October; Lowest Level Since May ’20

260109E.jpg

German industrial production advanced by 0.8% month-to-month in November performing better than had been expected. Consumer goods output fell by 0.3% month-to-month, capital goods output soared with a 4.9% gain, while intermediate goods output fell back by 0.8%.  

On the whole, manufacturing output had been expected to be weak. But looking at manufacturing alone, rather than total industrial production, the gain was even stronger at 2.1% month-to-month. Real manufacturing orders in November rose by 5.6%, real sales in manufacturing rose by 2.7%. This is solid performance.

**Survey data have been weak and listless**
However, apart from anecdotal evidence, as monthly data unfold, the kinds of numbers that we have to look at first are various economic surveys that come from diffusion data. The ZEW’s current index was slightly stronger month-to-month at a still very weak -78.7 (net) reading compared to -80 in October although both of those were weaker than the ZEW net September reading of -76.4. IFO manufacturing weakened month-to-month in November at 87.1 compared to 88.1 in October and it was slightly weaker than its September value as well. IFO manufacturing expectations slipped to 94.1 in November from 96.9 in October although expectations were slightly higher than their level in September. The EU Commission index weakened in November to -18.9 from -18.1 in October although there was an improvement from -20.1 in September.

These comparisons show us that the survey data which we had in hand before getting the industrial production reading from Germany had given us a lot of weak readings and a lot of very weak momentum.

**Compare survey data to IP data using ranking technique**
We can compare industrial production data to survey data using two different columns in this table. The first is the queue standing column where we see the industrial production data with rankings mostly in their 50th percentile: intermediate goods have a ranking of 37.7% with construction at 33.4%; they are the weaker exceptions. We rank IP data by sector according to their annual growth rates compared to past growth rates.  However, by comparison the survey data (that we rank on levels) range between 12.1% and 29.8%; all of those are very weak readings. No wonder a focus on survey data leads to a weak upcoming assessment of production data. We can also look at a slightly more up-to-date, but shorter ranking, from January 2021. There we see that the industrial production data average rankings from the mid-60th percentile up to the 81.4 percentile for total industrial production. Surveys generally have rankings in the 20th and 30th percentile with the exception of IFO manufacturing expectations which reaches 67.8%, which is a solid reading.

260109.jpg

**Survey data signals should be downgraded?**
These comparisons show us that while it's hard to compare industrial output directly to the diffusion readings if we take those two metrics over the same timeline and compare the level of the diffusion index to the growth rate of the manufacturing index we get the capability to compare the two on more even footing. When we do that, we see that manufacturing data are doing better than the survey data very broadly speaking. So, while there's some surprise on the strength of manufacturing data, maybe we should place a greater emphasis on it because those data come from a real accounting process rather than from a survey process that is much less closely linked to magnitudes. And, essentially, we are really much more interested in magnitudes than just if something is higher and lower.

**Other Europe doing ‘well’, too**
Not so incidentally the industrial production readings for France, Spain, Portugal, and Norway, all of whom are fairly early reporters of industrial production data, rank well on the queue standing column as well as in the shorter rank standing column from January 2021. In fact, for these countries the difference in ranking between the two periods is not markedly different, certainly not as markedly different as it is for Germany. On the whole, it may be that Europe has been doing better than we thought because we've been spending too much time looking at the more up-to-date survey data on a PMI basis, rather than waiting for the more traditional and lagging industrial production reports that are accounting-based data and more thorough.

Germany

German Industrial Production Perks Up-Surprise!

Andrew Cates

**Global growth**
This first chart below highlights a still-fragmented global growth picture, with momentum and current activity levels varying markedly across economies. India stands out at the top-left of the chart, combining a very strong composite PMI reading with some recent cooling in momentum, suggesting activity remains robust even as growth rates moderate. Brazil and Spain sit at another end of the spectrum, pairing solid expansionary PMI levels with strong positive three-month momentum, signalling accelerating activity into year-end. By contrast, much of continental Europe — including France, Germany and Italy — remains clustered close to the 50 threshold, with modest (or no) improvements in momentum and only tentative signs of underlying expansion, underscoring the euro area’s sluggish growth backdrop. The US occupies a middle ground by remaining in expansionary territory, but recent momentum has softened, consistent with a gradual cooling rather than a downturn. Overall, the chart reinforces the message that while global growth remains positive, it is neither synchronised nor particularly strong.


260108Z1.jpg

**Supply chain pressures and inflation surprises**
The NY Fed’s Global Supply Chain Pressure Index has remained subdued in recent months, reinforcing the view that supply-side frictions are no longer a material source of inflation risk. After the extreme dislocations of 2021–22, the index has settled close to, and at times below, its long-run average, consistent with largely normalised delivery times, inventories and transportation costs. The latest reading for December 2025, however, does point to some marginal tightening in supply-chain conditions, though from very low levels and still well within historical norms. Still, this modest firming has so far coincided with a broadly benign profile for inflation surprises across the G10. While geopolitical risks and trade fragmentation remain medium-term considerations, the current signal from global supply chains continues to point to limited immediate upside pressure on inflation.

260108Z2.jpg

**Policy rate expectations**
In the meantime, policy-rate expectations across the major economies continue to diverge, reflecting differences in inflation dynamics and where central banks sit in their respective cycles. The latest Blue Chip survey of Financial Forecasts points to further easing over the next 12 months in the UK and the US. By contrast, expectations for the euro area and Canada are more subdued, in part because both central banks are already at a more advanced stage of their easing campaigns, leaving less scope for additional near-term adjustment. Australia stands apart, with lingering inflation pressures tempering expectations for rate cuts despite softer growth momentum. Japan, meanwhile, remains at a very different point in the cycle: having only recently begun a less accommodative campaign from ultra-loose policy, it is the sole major economy where forecasters still anticipate modest further policy tightening rather than easing.

260108Z3.jpg

**Venezuela, the oil market and implications**
Venezuela’s outsized share of _world crude oil proved reserves_ — nearly one-fifth of the global total — looms large in market narratives even as its _actual production_ has languished well below historic highs. At the start of 2026, dramatic political and strategic events — including the capture of President Nicolás Maduro by U.S. forces and a tightening U.S. oil blockade that has halted Venezuelan exports — have injected fresh uncertainty into oil markets. While immediate impacts on global prices have been modest amid ample global supplies, geopolitical risk premiums have briefly lifted crude benchmarks, reflecting market sensitivity to potential supply disruptions and future policy shifts. In the short run, sustained low exports and production cuts due to storage constraints could tighten crude balances marginally, but most analysts see limited influence on overall market fundamentals this year. Over the longer term, however, any successful revival of Venezuelan output — contingent on massive investment, infrastructure rehabilitation and changes to sanctions policy — could eventually expand heavy crude availability and weigh on prices, with broader implications for OPEC+ dynamics and energy security in the Western Hemisphere.

260108Z4.jpg

**China’s excess capacity and traded goods price disinflation** 
China’s export sector looks set to remain a key swing factor for the global economy in the year ahead, not least because of persistent surplus manufacturing capacity and weak domestic demand. As the chart illustrates, periods of falling relative export prices have tended to coincide with rising export volumes, highlighting China’s ability — and willingness — to clear excess capacity through external markets. With producer prices still under pressure and policy support focused more on supply than demand, the risk is that excess capacity is once again exported via more aggressive price competition, rather than absorbed domestically. If sustained, this dynamic would reinforce global disinflation forces, intensify competitive pressures on manufacturers elsewhere, and heighten trade tensions, particularly in sectors already sensitive to Chinese overcapacity such as autos, machinery and green technologies. In that sense, China’s export pricing behaviour may prove as important for the global inflation and trade outlook in 2026 as any shift in domestic growth momentum.

260108Z5.jpg

**Public sector indebtedness**
This next chart, drawn up by the IMF, underlines a defining feature of the post-pandemic macro landscape: public debt is not only higher than before Covid, but is set to keep rising — and at a faster pace — with the largest economies doing much of the heavy lifting. The clustering of the biggest bubbles in the upper-right quadrant shows that countries accounting for roughly two-thirds of global GDP have already experienced sizeable increases in debt-to-GDP ratios since 2019 and are projected to see further rises through the second half of the decade. This combination of elevated starting points and ongoing fiscal expansion reflects the persistence of structural pressures — higher interest costs, ageing populations, defence spending and climate-related investment — rather than temporary crisis measures. For the global economy, the implication is a world in which fiscal policy remains active but increasingly constrained, raising difficult questions about debt sustainability, the tolerance for higher real interest rates, and the scope for counter-cyclical fiscal support when the next downturn arrives.

260108Z6.jpg

Over the past few weeks, global financial markets have taken comfort from cooling inflation, resilient earnings and continued upside surprises in the dataflow, with equity markets extending gains as confidence in a soft-landing outcome has firmed. While AI-related optimism was questioned toward the end of last year, amid valuation concerns and uncertainty over near-term payoffs, sentiment has improved again in recent days. Latest business surveys suggest little immediate cause for alarm on the global growth front (chart 1), despite clear signs of divergence across regions. At the same time, there are few near-term inflation concerns evident in the data, with global supply-chain pressures remaining subdued (chart 2). Taken together, these developments leave little immediate challenge to the prevailing outlook for monetary policy, with expectations for further gradual easing across several major economies remaining broadly intact (chart 3). At the same time, geopolitical shocks — most notably the upheaval in Venezuela — have reignited focus on energy market risks and sovereign debt uncertainties, adding complexity to oil price expectations and fiscal trajectories (chart 4). Shifting focus, China’s role also continues to remain pivotal: surplus industrial capacity and competitive export pricing continue to shape global trade and exert disinflationary influence (chart 5). Against this backdrop, public debt levels that are both elevated and still rising in many large economies underscore the structural imbalances that could limit policy flexibility and amplify market sensitivities in the immediate months ahead (chart 6).

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/1jXNsSMGpl60LzAx0fmibN?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>