Tom Moeller

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129a.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129b.jpg" style="width: 312px; height: 265px;">
The current
economic recovery picked up momentum last quarter. Constant dollar GDP
rose 5.7% (AR), more-than double the 3Q growth rate and the quickest
increase since 3Q 2003. Consensus expectations had been for a lesser
4.6% rise.&nbsp;&nbsp; The principle lift
to last quarter's growth was inventories. The 3.4 percentage point
contribution from inventory accumulation was necessitated by vigorous
decumulation dating back to 2005. It had reduced desired inventory
levels too far below demand even though sales were then declining.
Improvement in the foreign trade deficit also contributed one half of a
percentage point to growth last quarter as exports remained strong. The
18.1% rate of increase (-1.7% y/y) followed a 17.8% 3Q gain as the
lower value of the dollar continued to improve the competitiveness of
U.S. products. Real imports, conversely, rose at a lesser 10.5% rate
and remained down 7.7% versus last year. Growth in domestic final
demand moderated to 1.7% after a 2.3% 3Q rise. Nevertheless, these were
the first back-to-back quarterly increases since 2007. A 13.3% increase
(-8.7% y/y) in business investment in equipment &amp; software led
the gain after its 1.5% 3Q rise. Investment in business construction,
however, offset much of this increase with a 15.4% decline (-24.7%
y/y). Residential investment also was strong and posted its second
quarterly increase (-12.1% y/y). Personal consumption growth lagged
with a 2.0% gain (1.1% y/y) that was dragged down by a sharp quarterly
decline in spending on new autos with end of the "cash-for-clunkers"
sales campaign. Spending on furniture &amp; appliances rose for the
second straight quarter (0.1% y/y) while spending on clothing surged
q/q but remained down 0.7% y/y. Spending of services last quarter rose
moderately (0.6% y/y). Finally, quarterly spending by governments fell
slightly (+1.6% y/y), mostly due to a drop in defense spending though
it remained up 3.1% y/y. Price inflation
remained moderate. The chained GDP price index rose at a 0.6% annual
rate after a similarly small 3Q rise. Diminished price gains for all of
last year pulled the annual increase down to 1.2% which was nearly its
weakest increase since the early 1960s. The overall domestic final
sales price index was basically flat for the year despite an
accelerated 2.2% 4Q increase. The personal consumption chain price
index rose 2.7% in 4Q but increased just 0.2% for the year.· The U.S.
National Income &amp; Product Account data are available in Haver's
USECON and the USNA
databases. Focusing on Bank Interest Rate Risk Exposure
is the title of this mornings speech be Fed Vice Chairman Donald L Kohn
and it can be found&nbsp; <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/100129c.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129d.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/@E701/@E701.HTM">Chained
2005$, % AR</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">GDP</td>
<td>5.7</td>
<td>2.2</td>
<td>-0.7</td>
<td>0.1</td>
<td>-2.4</td>
<td>0.4</td>
<td>2.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;Inventory
Effect</td>
<td>3.4</td>
<td>0.7</td>
<td>-1.4</td>
<td>0.0</td>
<td>-0.7</td>
<td>-0.4</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>2.2</td>
<td>1.5</td>
<td>0.7</td>
<td>0.1</td>
<td>-1.7</td>
<td>0.8</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;Foreign
Trade Effect</td>
<td>0.5</td>
<td>-0.8</td>
<td>1.7</td>
<td>1.0</td>
<td>1.0</td>
<td>-1.2</td>
<td>0.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>1.7</td>
<td>2.3</td>
<td>-0.9</td>
<td>-0.9</td>
<td>-2.7</td>
<td>-0.4</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>0.6</td>
<td>0.4</td>
<td>-0.0</td>
<td>0.7</td>
<td>1.2</td>
<td>2.1</td>
<td>2.9</td>
</tr>
</tbody>
</table>
</body></html>

The current economic recovery picked up momentum last quarter. Constant dollar GDP rose 5.7% (AR), more-than double the 3Q growth rate and the quickest increase since 3Q 2003. Consensus expectations had been for a lesser 4.6% rise. [...]

U.S. GDP Rise Is The Quickest Since 2003

Robert Brusca

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100128j.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left">
The EU indices rose in January improving to -13 from -16 for
all of EU. All the large country indices improved on the month from
Germany to France to Italy to Spain to the UK. While the EU Service
index is the highest raw reading at -2 in January as a percentage of
its range the reading only resides in the 46th percentile. Retailing,
with a raw reading of -3, stands at a much stronger 71st percentile of
its range. At -13 the industrial sector and consumer confidence metric
stand in the 56th percentiles of their respective ranges.
To compare sectors look at the percentile ranking or at the
ranking by queue in the third column from the right of the table
instead of at the raw readings. Theses measures position each component
as a percentile of its range or in a queue of past observations. Right
now the range percentile readings are much higher than the queue
percentiles. The sector readings have rebounded from the lower reaches
of their ranges but are still ranked weakly compared to the more common
habitat of those gauges when times are normalized. While the overall EU
index stands in the 66th percentile of its range, at the edge of the
top third of the range, when ranked by queue the reading is only in the
bottom one third of that range. That means the over index is only
weaker than the current reading one third of the time. That
interpretation gives a much better understanding of how weak Europe
still is.
The only truly strong queue percentile reading for EU is for
retailing; that sector is stronger than its current rating only 29% of
the time. All other sector readings are well below the 50% mark.
Construction is in the bottom 14% by queue and services are in the
bottom 19 percentile. These are still extremely weak readings.
By country Italy has the strongest queue percentile, and, at
51 percent, it is the only one above its midpoint. That means Italy is
the closest to being back to normal. Next best is France in the 39th
queue percentile. The worst off is Spain in the 15th percentile of its
queue and then Germany in the 33rd percentile of its queue.
That is not surprising since Germany and Spain have the lowest
statistical correlation to the overall EMU reading among large EMU
member countries. Both are lagging in this cycle
On balance the results may not be what you expected to see. It
is not the usual locomotive effect of the big two or three pulling away
from the pack which rides on their coat-tails but rather Italy that is
doing best by the queue measure and Spain being weakest, beset as it is
with real estate problems that are usually slow to mend &#8211; can&#8217;t export
your way out of a real estate problem. On a queue basis (probably the
best way to look at it) Europe is still well away from a sort of a
neutral reading on the EU Commission indices. On a range percentile
basis the EU is already back above the mid point for the overall index
and for all sectors except services and construction. The recovery,
however, is weak as it is leaving Spain behind and Germany is a
laggard, not a leader.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead><tr>
<th style="font-weight: normal;" scope="col" colspan="11">EU sectors and country level
overall sentiment</th>
<th style="font-weight: normal;" scope="col">by
 
queue 
rank%</th>
<th style="font-weight: normal;" scope="col">r-sq
 
w/ 
Overall</th>
<th style="font-weight: normal;" scope="col">rank
 
of
 
change</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Jan 
10</td>
<td>Dec 
09</td>
<td>Nov 
09</td>
<td>Oct 
09</td>
<td>%tile</td>
<td>rank</td>
<td>max</td>
<td>min</td>
<td>range</td>
<td>mean</td>
<td colspan="3"> &nbsp; </td>
</tr>
<tr>
<td class="firstcol">Overall Index</td>
<td>97.1</td>
<td>95</td>
<td>91.5</td>
<td>90</td>
<td>61.8</td>
<td>167</td>
<td>115</td>
<td>68</td>
<td>47</td>
<td>100</td>
<td>33.5%</td>
<td>1.00</td>
<td>24</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>-13</td>
<td>-16</td>
<td>-19</td>
<td>-20</td>
<td>56.5</td>
<td>179</td>
<td>7</td>
<td>-39</td>
<td>46</td>
<td>-8</td>
<td>28.7%</td>
<td>0.90</td>
<td>3</td>
</tr>
<tr>
<td class="firstcol">Consumer 
Confid</td>
<td>-13</td>
<td>-14</td>
<td>-15</td>
<td>-15</td>
<td>55.9</td>
<td>159</td>
<td>2</td>
<td>-32</td>
<td>34</td>
<td>-11</td>
<td>36.7%</td>
<td>0.87</td>
<td>33</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-3</td>
<td>-6</td>
<td>-6</td>
<td>-12</td>
<td>71.0</td>
<td>72</td>
<td>6</td>
<td>-25</td>
<td>31</td>
<td>-6</td>
<td>71.3%</td>
<td>0.66</td>
<td>16</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-34</td>
<td>-33</td>
<td>-32</td>
<td>-34</td>
<td>17.4</td>
<td>215</td>
<td>4</td>
<td>-42</td>
<td>46</td>
<td>-17</td>
<td>14.3%</td>
<td>0.50</td>
<td>156</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-2</td>
<td>-2</td>
<td>-9</td>
<td>-11</td>
<td>46.0</td>
<td>129</td>
<td>32</td>
<td>-31</td>
<td>63</td>
<td>13</td>
<td>19.4%</td>
<td>0.89</td>
<td>65</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">% m/m</td>
<td>Jan 
10</td>
<td colspan="2">Based on 
Level</td>
<td colspan="4">Level</td>
<td colspan="3">&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>1.7%</td>
<td>2.4%</td>
<td>2.6%</td>
<td>95.7</td>
<td>54.9</td>
<td>186</td>
<td>116</td>
<td>71</td>
<td>46</td>
<td>100</td>
<td>25.9%</td>
<td>0.95</td>
<td>32</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.6%</td>
<td>1.6%</td>
<td>1.7%</td>
<td>96.1</td>
<td>45.8</td>
<td>168</td>
<td>121</td>
<td>75</td>
<td>46</td>
<td>101</td>
<td>33.1%</td>
<td>0.67</td>
<td>90</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.6%</td>
<td>4.1%</td>
<td>2.4%</td>
<td>99.2</td>
<td>56.2</td>
<td>151</td>
<td>119</td>
<td>74</td>
<td>44</td>
<td>100</td>
<td>39.8%</td>
<td>0.85</td>
<td>89</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>4.3%</td>
<td>2.6%</td>
<td>2.7%</td>
<td>101.4</td>
<td>62.0</td>
<td>121</td>
<td>120</td>
<td>71</td>
<td>50</td>
<td>100</td>
<td>51.8%</td>
<td>0.83</td>
<td>15</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>1.3%</td>
<td>1.2%</td>
<td>89.0</td>
<td>38.7</td>
<td>212</td>
<td>116</td>
<td>72</td>
<td>44</td>
<td>100</td>
<td>15.5%</td>
<td>0.75</td>
<td>109</td>
</tr>
<tr>
<td class="firstcol">Memo:UK</td>
<td>3.4%</td>
<td>6.9%</td>
<td>-2.6%</td>
<td>98.2</td>
<td>65.9</td>
<td>160</td>
<td>115</td>
<td>65</td>
<td>50</td>
<td>100</td>
<td>36.3%</td>
<td>0.56</td>
<td>41</td>
</tr>
<tr class="odd">
<td colspan="6" class="firstcol">All
since jan 1989
</td>
<td colspan="2"> 251-Count</td>
<td colspan="3">160 -Count</td>
<td colspan="3">&nbsp;</td>
</tr>
<tr class="grey2">
<td colspan="14" class="firstcol">Sentiment
is an index,
sector readings are net balance diffusion measures</td>
</tr>
</tbody>
</table>
</body></html>

The EU indices rose in January improving to -13 from -16 for all of EU. All the large country indices improved on the month from Germany to France to Italy to Spain to the UK. While the EU Service index is the highest raw reading at [...]

EMU Recovery Remains In Force

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100128g.jpg" style="width: 353px; height: 265px;" align="right">
Forward
momentum in the U.S. economy recently stalled. After earlier
improvement, the Chicago Fed National Activity Index (CFNAI) from the
Federal Reserve Bank of Chicago slipped last month to a reading of
-0.61 and remained down from the July high. Nevertheless, the index
level remained up from the series' low of -4.09 reached this past
January. Since 1970 there has been a 74% correlation between the level
of the index and the q/q change in real GDP but during the last ten
years that correlation has risen to 80%. The three-month
moving average which smoothes out some of the volatility of the index
was roughly stable near its highest level since February of 2008.
An index level at or below -0.70 typically has indicated negative U.S.
economic growth. A zero value of the CFNAI indicates that the economy
is expanding at its historical trend rate of growth of roughly 3%. The
complete CFNAI report is available <a href="http://www.chicagofed.org/digital_assets/publications/cfnai/2010/cfnai_january2010.pdf">here</a>.·
The Chicago Fed indicated that 36 of the series' individual indicators
made positive contributions to the November index while 49 made
negative contributions. The CFNAI is a weighted average of 85
indicators of economic activity. The indicators reflect activity in the
following categories: production &amp; income, the labor market,
personal consumption &amp; housing, manufacturing &amp; trade
sales, and inventories &amp; orders.In a separate survey, the
Chicago Fed indicated that its Midwest manufacturing index slipped
during December but remained near its highest level of the year.
Indicators for the auto, steel, machinery and resource sectors were
roughly unchanged. The Chicago Federal Reserve figures are available in
Haver's SURVEYS database.&nbsp;
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100128h.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100128i.jpg" style="width: 312px; height: 265px;">
<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/@S503/@S503.HTM" style="color: black;">Chicago Fed</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</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">CFNAI</td>
<td>-0.61</td>
<td>-0.39</td>
<td>-0.83</td>
<td>-1.64</td>
<td>-1.76</td>
<td>-0.34</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Moving
Average</td>
<td>-0.61</td>
<td>-0.68</td>
<td>-0.76</td>
<td></td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Personal Consumption &amp; Housing&nbsp;</td>
<td>-0.50</td>
<td>-0.46</td>
<td>-0.48</td>
<td>-0.51</td>
<td>-0.33</td>
<td>-0.10</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Employment, Unemployment &amp; Hours</td>
<td>-0.27</td>
<td>-0.11</td>
<td>-0.39</td>
<td>-0.74</td>
<td>-0.63</td>
<td>-0.15</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Production &amp; Income</td>
<td>0.13</td>
<td>0.25</td>
<td>0.02</td>
<td>-0.22</td>
<td>-0.56</td>
<td>-0.05</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Sales, Inventories &amp; Orders</td>
<td>0.03</td>
<td>-0.07</td>
<td>0.04</td>
<td>-0.17</td>
<td>-0.25</td>
<td>-0.06</td>
</tr>
</tbody>
</table>
</body></html>

Forward momentum in the U.S. economy recently stalled. After earlier improvement, the Chicago Fed National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago slipped last month to a reading of -0.61 and remained down from [...]

Chicago Fed Index Slipped

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100128e.jpg" style="width: 353px; height: 265px;" align="right">
The Labor
Department reported that initial claims for jobless insurance slipped
8,000 to 470,000 following strong increases during the prior two weeks.
Despite the earlier increases, claims remained near the lowest level
since late August, 2008 and were down from the recession peak of
674,000 hit last March. Consensus expectations had been for 450,000
claims. The weekly gains raised the four-week moving average of initial
claims to 456,250 .which remained near the cycle low. Continuing
claims for unemployment insurance during the latest week fell sharply
to a new cycle low. The 57,000 drop reversed all of the prior week's
increase and claims were down by one-third since late-June. Continuing
claims were at the lowest level since mid-January of last year. The
overall decline is a function of the improved job market but also
reflects the exhaustion of 26 weeks of unemployment benefits.
Continuing claims provide an indication of workers' ability to find
employment. The four-week average of continuing claims fell to
4,669,250. This series dates back to 1966. Extended
benefits for unemployment insurance slipped to another cycle low of
261,962 during the second week of January and were down by more than
one-half from a peak of 597,688 reached in November. The
insured rate of unemployment also fell to a new low of 3.5%. The rate
reached a high of 5.2% during late-June. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100128f.jpg" style="width: 353px; height: 265px;" align="right">
During the last ten years,
there has been a 93% correlation between the level of the insured
unemployment rate and the overall rate of unemployment published by the
Bureau of Labor Statistics.&nbsp;· The highest insured unemployment
rates in the week ending January 2 were in Wisconsin (7.3 percent),
Alaska (7.1), Pennsylvania (6.9), Idaho (6.8), Michigan (6.2), North
Carolina (6.1), Montana (6.0), Washington (6.0) and Connecticut (5.8).
The lowest insured unemployment rates were in Virginia (2.5), Texas
(2.6), Florida (3.4), Wyoming (3.6),&nbsp;Maryland (3.8), Maine
(4.0), Ohio (4.1), New York (4.5) and Mississippi (4.4). These data are
not seasonally adjusted but the overall insured unemployment rate is. The unemployment insurance claims data is available in Haver's WEEKLY
database and the state data is in the REGIONW
database. Labor Market Globalization in the Recession
and Beyond from the Federal Reserve Bank of Dallas is
available <a href="http://dallasfed.org/research/eclett/2009/el0910.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"><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" style="color: black;">Unemployment Insurance (000s)</a></th>
<th scope="col">1/23/10</th>
<th scope="col">1/16/10</th>
<th scope="col">1/09/10</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>470</td>
<td>478</td>
<td>444</td>
<td>-20.3%</td>
<td>573</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,602</td>
<td>4,659</td>
<td>-1.5%</td>
<td>5,835</td>
<td>3,345</td>
<td>2,552</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.5</td>
<td>3.6</td>
<td>3.5 (1/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

The Labor Department reported that initial claims for jobless insurance slipped 8,000 to 470,000 following strong increases during the prior two weeks. Despite the earlier increases, claims remained near the lowest level since late [...]

U.S. Initial Jobless Insurance Claims Slip

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100128a.jpg" style="width: 353px; height: 265px;" align="right">
The pace of improvement in factory sector activity eased after
material improvement early last year. Durable goods orders during
December provided another indication of a slower rate of gain with a
0.3% increase following two months of modest declines which were
revised lower. A 2.0% December increase had been the Consensus
expectation. The recently flat orders pattern nevertheless left orders
6.3% above the March low. For all of last year, orders fell 19.9%
following a 6.0% drop during 2008.
Transportation sector orders provided much of the shortfall
during the last two months with 2.0% and 8.1% declines. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100128b.jpg" style="width: 353px; height: 265px;" align="right">
These were led
by sharply lower orders for nondefense aircraft &amp; parts which
fell by one-half during all of last year after a one-third 2008
decline. New orders for motor vehicles &amp; parts improved
slightly during the second half of 2009 but were off by one-quarter for
the year.
Primary metals orders improved sharply during the second half
of last year but still were off by one-third for 2009. Machinery orders
also improved steadily during the second half but fell 25% for the year
as a whole. Electrical equipment orders were volatile m/m and fell
19.1% for the year. Orders for computers &amp; related equipment
also showed sketchy improvement late in the year but nevertheless fell
10.6% for 2009 overall.
Capital goods orders ended 2009 on a firm note. Nondefense
capital goods orders less aircraft rose 1.3% (-2.0% y/y) and rose 12.3%
from the April low.
Shipments of durable goods jumped 2.9% during December (-3.9%
y/y) and firmed by 7.2% during the second half of 2009. Shipments of
primary metals have been notably strong (2.0% y/y) logging a one-third
increase since mid-year. Machinery shipments also firmed late in the
year (-16.0% y/y) as did electrical equipment shipments (-8.4% y/y).
Perhaps the factory sector's inventory cycle is ending but
it's not over. Durable goods inventories slipped 0.2% during December
(-11.3% y/y) after similar declines during the prior two months. These
declines followed monthly drops between 1.0% and 1.7% during the first
nine months of the year. As a result of the decumulation the ratio of
inventories-to-shipments was at its lowest since October of 2008, off
sharply from the January high.. The pace of the decline in unfilled
orders accelerated at a yearend with a 1.2% drop (-10.4% y/y) after a
0.7% November decline. The transportation sector saw the largest
shortfall (-11.7% y/y). Less transportation, backlogs were roughly
unchanged during the last three months of 2009 (-8.7% y/y).

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100128c.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100128d.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/@ED/@ED01/@ED0101/@ED0101.HTM" style="color: white;">NAICS Classification
</a>(%)</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>0.3</td>
<td>-0.4</td>
<td>-0.1</td>
<td>-3.1</td>
<td>-19.9</td>
<td>-6.0</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Excluding Transportation</td>
<td>0.9</td>
<td>2.1</td>
<td>-0.5</td>
<td>0.5</td>
<td>-17.4</td>
<td>-1.4</td>
<td>-0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-0.2</td>
<td>-3.0</td>
<td>2.0</td>
<td>-2.2</td>
<td>-24.0</td>
<td>-7.0</td>
<td>3.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>1.3</td>
<td>3.1</td>
<td>-1.8</td>
<td>-2.0</td>
<td>-18.3</td>
<td>-0.5</td>
<td>-2.7</td>
</tr>
</tbody>
</table>
</body></html>

The pace of improvement in factory sector activity eased after material improvement early last year. Durable goods orders during December provided another indication of a slower rate of gain with a 0.3% increase following two months [...]

U.S. Durable Goods Orders' Improvement Abates

U.S. Durable Goods Orders'Improvement Abates

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100127h.jpg" style="width: 312px; height: 265px;" align="right"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100127i.jpg" style="width: 312px; height: 265px;" align="right">

The Federal
Open Market Committee today left the Federal funds rate in a "range
from 0 to 1/4 percent." The Fed funds rate remained unchanged from
late-2008 at its lowest level ever. The discount rate also was left
unchanged at 0.5%. The action was as expected.

The FOMC statement
regarding the economy was upgraded slightly. "Information received
since the Federal Open Market Committee met in December suggests that
economic activity has continued to strengthen and that the
deterioration in the labor market is abating."

Regarding inflation the
statement was succinct. "With substantial resource slack continuing to
restrain cost pressures and with longer-term inflation expectations
stable, inflation is likely to be subdued for some time."
 Finally, the
Fed left little-changed its prior comments on the improved functioning
of financial markets. Moreover, one board member indicated "that
economic and financial conditions had changed sufficiently that the
expectation of exceptionally low levels of the federal funds rate for
an extended period was no longer warranted."
A complete text of the
Fed's latest press release can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20100127a.htm">here</a>
.
 The Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
</tr>
</tbody>
</table>

</body></html>

The Federal Open Market Committee today left the Federal funds rate in a "range from 0 to 1/4 percent." The Fed funds rate remained unchanged from late-2008 at its lowest level ever. The discount rate also was left unchanged at 0.5%. [...]

FOMC Leaves Interest Rates Unchanged

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

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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.


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**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.

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**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.

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**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.

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**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.

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**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.

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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).

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Economy in Brief

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U.S. GDP Rise Is The Quickest Since 2003

U.S. GDP Rise Is The Quickest Since 2003

EMU Recovery Remains In Force

Chicago Fed Index Slipped

U.S. Initial Jobless Insurance Claims Slip

U.S. Durable Goods Orders' Improvement Abates

U.S. Durable Goods Orders'Improvement Abates

FOMC Leaves Interest Rates Unchanged