Tom Moeller

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115a.jpg" align="right" border="0" height="265" width="353"></p>
<p>Some said earlier that it wouldn't happen, but last year it
did. For all of 2009, <b>consumer prices</b> declined
slightly. The 0.3% drop, the first since 1955, was pulled lower by a
decline in energy prices. Since the energy price decline, which mostly
happened at the end of 2008, prices picked up. December-to-December the
CPI rose 2.7% which was the fastest 12-month increase since October
2008. For December alone, the 0.1% CPI rise fell slightly short of
expectations but followed stronger gains during the prior four months
which were boosted by the rebound in energy prices.</p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115b.jpg" style="width: 353px; height: 265px;" align="right">
It was the weak economy, however, that lessened core pricing
power measured either way. For the full year prices less food &amp;
energy rose 1.7% which was the weakest increase since 2003.
December-to-December prices rose a similar 1.8% and that too was the
weakest 12-month gain since 2003. In the latest few months prices
remained weak, up an expected 0.1% in December after no change during
November.</p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115c.jpg" style="width: 353px; height: 265px;" align="right">
<b>Energy prices</b> posted just a 0.2% increase
last month but the 19.0% 12-month gain reversed most of the 2008
decline. Gasoline prices rose 0.2%, after a strong 6.4% November rise.
They rose by more than half over twelve months and more-than reversed
the 2008 decline. Fuel oil prices also rose a firm 1.7% (2.5% y/y)
following the 7.3% November gain. This 12-month gain reversed just a
piece of the 13.5% decline during 2008. Finally, prices for natural gas
&amp; electricity slipped 0.1% last month and over twelve months
declined 5.2%.</p>
<p><b>Food &amp; beverage prices</b> remained
weak, up just 0.2% in December. Moreover, the 12-month decline of 0.5%
remained near the weakest since 1960. Recent weakness has been led by
lower dairy prices (-7.6% y/y) and lower fruit &amp; vegetable
(-3.0% y/y) costs. Prices for meats, poultry, fish &amp; eggs also
fell 3.8% y/y while cereals &amp; bakery product prices slipped
0.8%. Finally, nonalcoholic beverage prices slipped 0.9% but alcoholic
beverage costs rose 1.9% following 4.5% and 3.8% twelve-month gains in
the prior two years.</p>
<p><b>Core goods prices</b> have been comparatively
firm, rising 0.2% last month and 3.0% since December 2008. The increase
followed little change during the prior several years. Higher tobacco
prices continued to account for much of the recent strength with
roughly a one-third increase y/y. New &amp; used motor vehicles
also firmed considerably. The 0.3% increase last month pulled them up
5.5% since December 2008. That compares with price deflation during the
prior two years. Apparel prices also firmed. The 0.4% December increase
pulled them up 1.9% since December 2008 following price declines which
extend back to 1994. Continuing weak were prices for household
furnishings &amp; operation which were unchanged in December. The
1.1% decline since the end of 2008 reversed a 2.0% increase in 2008.</p>
<p><b>Co</b><b>re services prices</b>
continued weak. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100115d.jpg" style="width: 353px; height: 265px;" align="right">
The 0.1% December uptick left them up just 1.3% for the
twelve months which was the weakest increase ever. Weakness in the
housing market continues to accounts for much of that moderation. Last
month, shelter prices were unchanged and rose just 0.3% for the year
after a 2.5% 2008 increase. Owners equivalent rent of primary
residences, a measure not equivalent to other house price measures,
slipped for the fifth month in the last six and rose just 0.7% in 2009
after a 2.1% increase during 2008. Elsewhere in services, public
transportation prices were strong again and posted a 1.4% December
increase which lifted them 3.2% y/y.Medical care services prices
increased 0.2% in December lifting them 3.4% since December 2008.
Finally, education costs remained strong with a 0.4% December increase
that lifted them 4.7% for the whole year after gains in excess of 5%
back to 2000. Recreation prices have really shown the recession's
effect and declined 0.4% in December for the fourth consecutive month
and by 0.4% y/y.</p>
<p>The chained CPI, which adjusts for shifts in consumption
patterns, slipped -0.2% last month and rose 2.8% year-to-year.
Conversely, chained prices less food and energy fell 0.2% for the
second month and the 1.3% full-year increase was the weakest since 2003.</p>
<p>The consumer price data is available in Haver's <b>USECON</b>
database while detailed figures can be found in the <b>CPIDATA</b>
database.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM" ="">Consumer Price Index</a> </b>
(%)</th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>October</b></th>
<th scope="col"><b>Dec. y/y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.1</td>
<td>0.4</td>
<td>0.3</td>
<td>2.7</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.1</td>
<td>0.0</td>
<td>0.2</td>
<td>1.8</td>
<td>1.7</td>
<td>2.3</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.2</td>
<td>0.2</td>
<td>0.4</td>
<td>3.0</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.1</td>
<td>-0.0</td>
<td>0.1</td>
<td>1.3</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>0.2</td>
<td>4.1</td>
<td>1.5</td>
<td>19.0</td>
<td>-18.0</td>
<td>13.5</td>
<td>5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.2</td>
<td>0.1</td>
<td>0.1</td>
<td>-0.4</td>
<td>1.9</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol"><b><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</b></td>
<td>-0.2</td>
<td>0.0</td>
<td>0.1</td>
<td>2.8</td>
<td>-0.5</td>
<td>3.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>-0.2</td>
<td>-0.2</td>
<td>0.3</td>
<td>1.5</td>
<td>1.3</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

Some said earlier that it wouldn't happen, but last year it did. For all of 2009, consumer prices declined slightly. The 0.3% drop, the first since 1955, was pulled lower by a decline in energy prices. Since the energy price decline, [...]

CPI's 2009 Decline Is First Since 1955

CPI's 2009 Decline Is First Since1955

Carol Stone, CBE

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<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114j.jpg" style="width: 353px; height: 265px;" align="right">
Business
inventories grew again in November, expanding for a second month by
0.4%.&nbsp;These two gains followed 13 consecutive monthly
declines.&nbsp; As in October, the November increase occurred at
wholesalers and manufacturers; retailers apart from motor vehicle
dealers continued to reduce their stocks of merchandise.&nbsp;
Business sales also grew in November and the resulting inventory/sales
ratio fell to 1.28 from 1.30 in October.</p><p> The manufacturing and
wholesale inventories gains were, as in October, largest for petroleum
and also food and farm products.&nbsp; We presume these are mostly
price-driven.&nbsp; In both sectors, there were also some buildup
in stocks of computer equipment and scattered increases in various
metals industries.</p><p>Total retail inventories resumed
downward movement in November after being flat in October.&nbsp;
Cuts were widespread in the nonautomotive segments, especially
including furniture, building materials, clothing and general
merchandise.&nbsp; Auto dealer inventories edged up, but just 0.1%,
after a 0.6% rise in October, and food stores saw marginal increases
both months.</p><p>Retailers' inventory/sales ratio fell to 1.37 from 1.40
in October and 1.60 a year earlier.&nbsp; Wholesalers' sales surged
3.3% in November, pushing their I/S ratio down to 1.14 from 1.17 the
month before.&nbsp; And manufacturers' shipments were up 1.0% in
November, so that their I/S ratio decreased to 1.32 from 1.34 in
October.&nbsp; As indicated in the graph, these stock adjustments
bring the relationship of stocks to sales back to the general range
that was prevailing in the months before the economy's mid-2008
collapse.&nbsp; With such tight inventory control techniques now in
wide use, it's hard to know whether the low inventory positions are so
undesirably "low" compared to sales by now that stronger production
schedules are guaranteed, but at least the necessary corrections do
seem to have been accomplished.</p><p> The business sales and inventory data
are available in Haver's <b>USECON</b> database.</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114k.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114l.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"><b>Business
Inventories (%)</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>October</b></th>
<th scope="col"><b>September</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
<th scope="col"><b>2006</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.4</td>
<td>0.4</td>
<td>-0.5</td>
<td>-11.1</td>
<td>0.6</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-0.2</td>
<td>0.0</td>
<td>0.5</td>
<td>-12.0</td>
<td>-3.1</td>
<td>2.5</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>-0.4</td>
<td>-0.2</td>
<td>-0.7</td>
<td>-6.6</td>
<td>-1.8</td>
<td>2.7</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>1.5</td>
<td>0.6</td>
<td>-0.8</td>
<td>-11.0</td>
<td>3.1</td>
<td>6.2</td>
<td>8.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.2</td>
<td>0.6</td>
<td>-1.3</td>
<td>-10.3</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2</td>
</tr>
</tbody>
</table>
</span></body></html>

Business inventories grew again in November, expanding for a second month by 0.4%. These two gains followed 13 consecutive monthly declines. As in October, the November increase occurred at wholesalers and manufacturers; retailers [...]

U.S. Business Inventories Show a Second Monthly Gain

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<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114g.jpg" style="width: 353px; height: 265px;" align="right">The
job
market again deteriorated just slightly last week. The Labor Department
reported that initial claims for jobless insurance rose 11,000 to
444,000 following a 1,000 increase during the prior week. Nevertheless,
claims remained near the lowest level since late in August, 2008 and
were down from the recession peak of 674,000 hit last March. Consensus
expectations has been for an unchanged 433,000. Despite the weekly
gains, the four-week moving average of initial claims also fell to a
new cycle-low of 440,750.</p>
<p>Continuing claims for unemployment insurance
during the latest week again fell sharply. The 211,000 drop was the
largest since late-November and part of a one-third decline 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
4,855,00. This series dates back to 1966.&nbsp;·&nbsp;Extended
benefits for unemployment insurance ticked up slightly to 302,272
during the fourth week of December but remained down by one-half from
the peak reached during November of 597,688.</p>
<p> 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. 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.</p>
<p>The highest insured unemployment rates in the
week ending December 26 were in Alaska (7.4 percent), Oregon (6.6),
Idaho (6.2), Wisconsin (6.2), Michigan (5.9), Montana (5.7), Nevada
(5.7), North Carolina (5.6), Pennsylvania (5.5), and Washington (5.4).
The lowest insured unemployment rates were in Virginia (2.1%), North
Dakota (2.5), Texas (2.6), Maryland (3.0), Florida (3.4), Wyoming
(3.4),&nbsp; Ohio (3.7), Maine (3.7), New York (4.0) and
Mississippi (4.2). These data are not seasonally adjusted but the
overall insured unemployment rate is.</p>
<p>The unemployment insurance
claims data is available in Haver's <b>WEEKLY</b> database
and the state data is in the <b>REGIONW</b> database.</p><p> <strong>Labor
Market Globalization in the Recession and Beyond </strong>from
the Federal Reserve Bank of Dallas is available <a href="http://dallasfed.org/research/eclett/2009/el0910.pdf">here</a>.<span>&nbsp;&nbsp;</span></p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114h.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114i.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"><b><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" style="color: black;">Unemployment Insurance (000s)</a></b></th>
<th scope="col"><b>1/8/10</b></th>
<th scope="col"><b>1/1/10</b></th>
<th scope="col"><b>12/25/09</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>444</td>
<td>433</td>
<td>432</td>
<td>-17.0%</td>
<td>573</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,596</td>
<td>4,807</td>
<td>2.4%</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>
</span>
</body></html>

The job market again deteriorated just slightly last week. The Labor Department reported that initial claims for jobless insurance rose 11,000 to 444,000 following a 1,000 increase during the prior week. Nevertheless, claims remained [...]

U.S. Initial Jobless Insurance Claims Higher Again

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<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114e.jpg" style="width: 353px; height: 265px;" align="right">
The yearend
weakness in oil prices was modest but enough to hold overall monthly
import prices stable. The zero change in December import prices matched
Consensus expectations. For the year as whole, however, the picture was
more dramatic. Import prices fell 11.5% in 2009 and that reversed the
2008 increase. Excluding petroleum, import prices fell 4.1% last year
and reversed most of the 2008 increase.</p><p> Petroleum prices slipped 2.0%
last month following their 6.3% November increase. For the year
overall, the decline in prices reversed the climb in 2008. That pattern
masks, however, extreme volatility during the year. By yearend,
petroleum prices had nearly doubled the January trough. <b> </b>This
month, Brent crude oil prices have strengthened further to nearly $80
per barrel from a low just above $71 last month. </p><p>In addition, the
latest report from the U.S. Bureau of Labor Statistics indicated that
non-oil import prices rose 0.5% after a similar gain during November.
The lower value of the dollar has now helped lift these prices at a
6.8% annual rate during the last three months, reversing a 7.3% y/y
decline as of July. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114f.jpg" style="width: 353px; height: 265px;" align="right">
(During the last ten years, there has been a
negative 81% correlation between the nominal trade-weighted exchange
value of the US dollar vs. major currencies and the y/y change in
non-oil import prices.)</p><p> Excluding petroleum, last year
prices reversed most of the 2008 increase and the decline breaks down
as follows: Prices for iron &amp; steel mill products fell 28.5%
and reversed all the 2008 increase. Chemical prices fell 12.4% after a
24.0% 2008 increase. Food &amp; beverage prices slipped 2.8% after
a double-digit 2008 gain. Prices for nonauto consumer goods were weak
and slipped 0.3% after a 2.8% increase. That decline reflected a 0.6%
decline in durable consumer goods prices which reversed strong gains in
the prior two years. Home entertainment equipment prices fell 4.1% last
year and extended a decline dating back to 1996. Furniture prices
nudged up 0.6% after a 7.1% 2008 increase. Finally, apparel prices
slipped 0.1% after strong gains in 2007 and 2008.&nbsp;</p><p> Total
export prices fell 4.6% last year following strong gains dating back to
2003. The decline reflected a 12.8% drop in agricultural export prices
and a 3.7% drop in "non-ag" prices. These declines reversed just some
of the strength through 2008.</p><p>The import and export price
series can be found in Haver's <b>USECON </b>database.
Detailed figures are available in the <b>USINT</b>
database.</p><p><b><span class="heading1">Risks
to Sustained Economic Recovery (With Lessons Learned from Winston
Churchill and Teddy Roosevelt)</span> </b>from the Federal
Reserve Bank of Dallas can be found <a href="http://dallasfed.org/news/speeches/fisher/2010/fs100112.cfm">here</a>.&nbsp;</p>



<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM" style="color: white;">Import/Export Prices (NSA, %)</a></b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>October</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>0.0</td>
<td>1.6</td>
<td>0.9</td>
<td>8.6</td>
<td>-11.5</td>
<td>11.5</td>
<td>4.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-2.0</td>
<td>6.3</td>
<td>2.4</td>
<td>78.4</td>
<td>-35.9</td>
<td>37.7</td>
<td>11.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum</td>
<td>0.5</td>
<td>0.6</td>
<td>0.5</td>
<td>-0.2</td>
<td>-4.1</td>
<td>5.3</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Export - All Commodities</td>
<td>0.6</td>
<td>0.9</td>
<td>0.0</td>
<td>3.4</td>
<td>-4.6</td>
<td>6.0</td>
<td>4.9</td>
</tr>
</tbody>
</table>
</span></body></html>

The yearend weakness in oil prices was modest but enough to hold overall monthly import prices stable. The zero change in December import prices matched Consensus expectations. For the year as whole, however, the picture was more [...]

U.S. Import Prices Are Stable As Oil Costs Slip

Robert Brusca

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114d.jpg" align="left" border="0" height="265" width="353"></p>
<p>German inflation, while beginning to edge up at year-end in
its HICP and CPI formats has registered the lowest annual pace in
20-years. The small two-line panel at the table top shows overall
statistics for the German CPI (as opposed to the harmonized HICP
treatment) where the core measure is available for December (the core
reading is not yet available for the HICP format). In terms of the
Germany&#8217;s CPI while the headline rate rose at year end, the core rate&#8217;s
3-month pace was still declining.</p>
<p>Diffusion measures the breadth of inflation&#8217;s acceleration
regardless of the pace across categories. Calculated on the various
3-mo 6-mo and 12-mo periods, inflation rates of the HICP across
categories reveal that inflation is not accelerating. The diffusion
reading of 45.5% over three months is below the neutral mark of 50%..
That statistic means, roughly, that inflation is only accelerating in
45.5% of the categories over three months (compared to six months) and
that it is decelerating in 54.5% of the categories. Thus even with the
bump up in overall inflation, diffusion tells us that inflation forces
are not widespread. And, of course, inflation is low to boot.</p>
<p>While the Bundesbank and the ECB are headline
inflation-watchers it must be some solace to them that the Core rate
remains so subdued and so steady. In the last cycle the core rate
proved to be a very good signal about inflation and how entrenched it
had become. Headline inflation failed as an inflation siren as it
howled too shrilly in the recession as oil and other commodity prices
soared. But the core rate remained pretty low and stable even as the
headline soared. The Fed, which takes its cue more from the core rate
(it does not target inflation however) had the flexibility to cut rates
when it chose. The ECB, in contrast, needed to cut rates as part of
international deal on the &#8216;expectation&#8217; that inflation would recede. Of
course, it did recede, but central banks do not like to be cutting
rates with inflation over their stated targets.</p>
<p>Nonetheless it is a good end to 2009 on the inflation side.
The bump up in headline inflation at year- end is oil- related and it
appears to have exerted no pull on core prices. These developments
leave us in good stead to take a fresh a look at 2010. So far 2010 is
looking like a year in which growth will be a hotter topic than
inflation.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">German HICP </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-09</td>
<td>Nov-09</td>
<td>Oct-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr>
<td class="firstcol">HICP Total</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>0.9%</td>
<td>0.8%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>#N/A</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol"><span style="font-weight: bold;">CPI</span> </td>
</tr>
<tr>
<td class="firstcol">All</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.2%</td>
<td style="color: red;">1.9%</td>
<td>0.7%</td>
<td>0.8%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
CPIxF&amp;E</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>0.4%</td>
<td style="color: red;">1.1%</td>
<td>1.0%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Food</td>
<td>-0.2%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td style="color: red;">0.7%</td>
<td>-2.3%</td>
<td>-2.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Alcohol</td>
<td>-0.3%</td>
<td>-0.5%</td>
<td>0.0%</td>
<td>-2.9%</td>
<td>-2.0%</td>
<td>-0.9%</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">Clothing &amp;
Shoes</td>
<td>2.3%</td>
<td>-1.4%</td>
<td>0.2%</td>
<td>3.9%</td>
<td style="color: red;">3.9%</td>
<td style="color: red;">2.5%</td>
<td>0.7%</td>
</tr>
<tr>
<td class="firstcol">Rent &amp;Util</td>
<td>0.0%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td style="color: red;">0.4%</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Health Care</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Transport</td>
<td>-0.3%</td>
<td>2.1%</td>
<td>0.0%</td>
<td style="color: red;">7.5%</td>
<td style="color: red;">5.6%</td>
<td style="color: red;">4.1%</td>
<td>-2.8%</td>
</tr>
<tr>
<td class="firstcol">Communication</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>-1.3%</td>
<td style="color: red;">-0.9%</td>
<td><span style="color: red;">-1.8%</span></td>
<td>-3.3%</td>
</tr>
<tr>
<td class="firstcol">Rec
&amp;Culture</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>-1.2%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Education</td>
<td>0.7%</td>
<td>1.5%</td>
<td>0.2%</td>
<td style="color: red;">9.8%</td>
<td style="color: red;">5.9%</td>
<td style="color: red;">-1.1%</td>
<td>-3.8%</td>
</tr>
<tr>
<td class="firstcol">Restaurant
&amp; Hotel</td>
<td>0.7%</td>
<td>-0.4%</td>
<td>0.5%</td>
<td style="color: red;">3.4%</td>
<td style="color: red;">2.4%</td>
<td>1.9%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Other</td>
<td>0.4%</td>
<td>-0.4%</td>
<td>0.7%</td>
<td>3.0%</td>
<td style="color: red;">3.0%</td>
<td style="color: red;">2.1%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Diffusion</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>45.5%</td>
<td style="color: red;">54.5%</td>
<td>45.5%</td>
<td>&nbsp;--</td>
</tr>
<tr class="grey1">
<td class="firstcol">Type:</td>
<td colspan="3">Diffusion: Current
Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>&nbsp;</td>
</tr>
</tbody>
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German inflation, while beginning to edge up at year-end in its HICP and CPI formats has registered the lowest annual pace in 20-years. The small two-line panel at the table top shows overall statistics for the German CPI (as opposed [...]

German Posts Lowest Annual Inflation Rate In 20-Years

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<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114a.jpg" style="width: 353px; height: 265px;" align="right">d less evident at the end of last year's holiday shopping
season. December retail sales slipped 0.3% last month though the
November increase was revised up to 1.8% from 1.3% reported last month.
The latest figure was weaker than Consensus expectation for a 0.5%
rise. Reinforcing the notion of a weak end to 2009 was a 0.3% decline
retail sales less autos after an upwardly revised 1.9% jump in November
sales. Aside from the monthly volatility, however, the trend in retail
spending improved. On a three-month basis, retail sales rose at an
11.3% annual rate through December, by far improved from the 29.7% rate
of decline one year earlier. Less autos, the rate of spending also
recovered to 7.1% from negative 28.9% at its depths.</p><p>Higher
gasoline prices obviously played a part in the retail sales picture.
Gasoline purchases rose 1.0% last month and they're up by one-third
from last year. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114b.jpg" style="width: 353px; height: 265px;" align="right">
Yet without gasoline there still has been firming in
spending. Less autos &amp; gasoline retail sales fell 0.3% last
month after a 1.0% November jump. On a three-month basis, these sales
rose at a 3.1% rate, up from the worst of -12.2% at the end of 2008.</p><p>
It's been internet &amp; catalogue purchases that have shown the
bulk of the improvement in retail spending. These sales rose 1.4% in
December (10.3% y/y) after similar increases during the prior three
months. The three-month rate of gain rose to 21.2% from a negative
22.5% at the end of 2008.</p><p>Motor vehicle sales slipped 0.8%
last month after a 1.2% November increase and a 7.4% October gain.
Reflecting price discounts, these changes lag the increases in unit
vehicle sales. Elsewhere, discretionary "core" spending improved some
but <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100114c.jpg" style="width: 353px; height: 265px;" align="right">
it's been less pronounced. Sales at furniture &amp; appliance
stores fell 1.2% during December (-2.2% y/y) after a 1.8% November
increase. The three-month rate of growth improved to -0.9% from -25.9%
at its worst. Sales at furniture stores alone rose 0.3% after a 0.7%
November gain and three-month growth improved to 0.3% from -21.6% at
its worst. Sales of electronics &amp; appliances fell 2.6% (-0.7%
y/y) and reversed all of the November increase. Three-month growth
slipped to -2.0%. In soft goods, apparel store sales slipped 0.6%
(+5.0% y/y) for the third consecutive monthly decline.&nbsp;General
merchandise store sales fell 0.8% (+2.1% y/y) while three-month growth
improved to 1.7% from -11.2% at its worst late in 2008.</p><p>The retail
sales data are available in Haver's <b>USECON</b>
database.</p><p>The Federal Reserve's most recent<b> Beige Book</b>
covering regional economic conditions an be found <a href="http://www.federalreserve.gov/fomc/beigebook/2010/20100113/default.htm">here</a>.&nbsp;</p>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>October</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM" style="color: black;">Total Retail Sales &amp; Food
Services</a> (%)</td>
<td>-0.3</td>
<td>1.8</td>
<td>1.3</td>
<td>5.4</td>
<td>-6.0</td>
<td>-0.8</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol"><b>&nbsp; </b>Excluding
Autos</td>
<td>-0.2</td>
<td>1.9</td>
<td>-0.0</td>
<td>5.2</td>
<td>-4.7</td>
<td>2.4</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Non-Auto Less Gasoline</td>
<td>-0.3</td>
<td>1.0</td>
<td>0.1</td>
<td>2.3</td>
<td>-1.8</td>
<td>1.6</td>
<td>3.6</td>
</tr>
</tbody>
</table>
</span></body></html>

d less evident at the end of last year's holiday shopping season. December retail sales slipped 0.3% last month though the November increase was revised up to 1.8% from 1.3% reported last month. The latest figure was weaker than [...]

U.S. Retail Sales Weaken At Yearend But 2009 Improved

U.S. Retail Sales Weaken AtYearend But 2009 Improved

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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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.

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**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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Charts of the Week: Cooling Inflation, Diverging Growth

Sandy Batten

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Nonfarm business labor productivity (output per hour) exhibited further robust growth in Q3, increasing 4.9% q/q SAAR following an upwardly revised 4.1% quarterly increase in Q2 (previously +3.3%). A quarterly gain of 4.1% was expected by the Action Economics Forecast Survey. Compared to a year ago, productivity rose 1.9% in Q3 versus 1.5% in Q2. Since productivity growth began to accelerate at the beginning of 2023, it has grown at a well above trend 2.7% annual rate. Strong productivity is a key factor for boosting real incomes and restraining inflation pressures going forward.

Nonfarm business output increased 5.4% q/q in Q3 on top of a 5.2% quarterly rise in Q2 while hours worked edged up just 0.5% q/q, down from 1.0% in Q2. Compensation growth picked up to 2.9% q/q in Q3 from a downwardly revised 1.1% q/q in Q2 (previously +4.3%) although compensation growth from a year ago slowed to 3.2% in Q3 from 3.5%. As a result, unit labor costs declined 1.9% q/q in Q3 following a downwardly revised 2.9% quarterly decline in Q2 (previously +1.0%). On a y/y basis, unit labor costs advanced only 1.2% y/y in Q2, the smallest annual gain since Q3 2023.

Growth of factory output slowed to 2.6% q/q in Q3 from 2.9% in Q2. However, hours worked fell 0.7% in Q3 after having been unchanged in Q2. Consequently, factory productivity growth accelerated to 3.3% from 2.9% in Q2. Factory compensation growth picked up to 4.8% q/q in Q3 from 4.0% in Q2, resulting in a pickup in unit labor cost growth to 1.5% from 1.1% in Q2.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

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- Nonfarm business output per hour rose 4.9% q/q SAAR in Q3 on top of an upward revision to Q2.
- Compensation increased 2.9% in Q3 resulting in a 1.9% quarterly decline in unit labor costs.