Tom Moeller

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201a.jpg" style="width: 353px; height: 265px;" align="right">The
Commerce
Department's latest report on consumer income &amp; spending
indicated that times were never worse than in 2009. Cutbacks in
employment prompted a record 1.4% annual decline (it's never before
fallen y/y), though modest positive growth returned in the second half.
Indeed, income rose during December about as it did beginning in the
spring due to easing declines in employment, faster growth in dividend
income and rising transfer payments.&nbsp;&nbsp; Overall personal
income gained 0.4% during December after an upwardly revised
0.5% November increase. The latest figure outpaced Consensus
expectations for a 0.3% rise. Wages &amp; salaries ticked up 0.1%
after an upwardly revised 0.4% November increase but for the year wage
income fell by 3.3% due to fewer jobs and pay cuts. Wages in the
factory sector fell 0.3% and were down a hard 10.3% for the year. That
decline followed a 1.5% drop during 2008. In the service sector wages
rose a firmer 0.3% but were down an unprecedented 2.9% for the year. A
0.3% December rise in wages in the government sector and a 3.6% gain
for the full year offset a negligible portion of these private sector
declines.&nbsp; Disposable income rose a steady 0.4% during
December and for the year rose 1.5% due to tax cuts early in the year.
These cuts enabled the savings rate to rise to 4.8% which was near
where it began the year but up sharply from the 1.0% low at the
beginning of 2008.&nbsp; Due to the pickup in corporate profitability in
the second half of last year monthly dividend income began to grow.
However, earlier declines which extended back to 2007 pulled the
full-year figure down 19.2%. Offsetting some of the annual decline were
unemployment insurance payments which more than doubled for the year as
a whole. However, that growth turned negative by yearend as long-term
unemployment exhausted benefit claims.Personal spending ticked
up just 0.2% in December after an upwardly revised 0.7% November
increase. For the year spending fell an unprecedented 0.4%. Adjusted
for inflation the yearly decline mounted to 0.6% which was the second
year of negative growth. Pulling down the yearly figures were 8.8% and
13.6% declines in real spending on motor vehicles. Adding to that were
6.0% and 2.9% drops in furniture &amp; household durables as well
as less spending on clothing. Spending on services was roughly
unchanged as spending on recreation fell 1.3% while&nbsp; fewer
meals out &amp; fewer vacations lowered spending here by 2.9%.
These declines were unprecedented.The PCE chain price index
ticked up just 0.1% during December and 0.2% for the year pulled down
by the fourth year of decline in prices for furnishings &amp;
household durables. Higher gasoline prices through much of the year
failed to offset declines late in 2008 so for 2009 prices fell roughly
one-quarter from 2008. The core PCE price deflator ticked up just 0.1%
during December and the 0.2% gain for the year was a record low.&nbsp;The
personal income &amp; consumption figures are available in Haver's USECON
and USNA databases.
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100201c.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM" style="color: black;">Disposition of Personal Income</a>
(%)&nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4</td>
<td>0.5</td>
<td>0.3</td>
<td>0.5</td>
<td>-1.4</td>
<td>2.9</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
&nbsp;Disposable Personal Income</td>
<td>0.4</td>
<td>0.5</td>
<td>0.4</td>
<td>3.7</td>
<td>1.5</td>
<td>3.9</td>
<td>4.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption
Expenditures</td>
<td>0.2</td>
<td>0.7</td>
<td>0.6</td>
<td>4.0</td>
<td>-0.4</td>
<td>3.1</td>
<td>5.4</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>4.8</td>
<td>4.5</td>
<td>4.6</td>
<td>4.7 (Dec.'08)</td>
<td>4.6</td>
<td>2.6</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1</td>
<td>0.3</td>
<td>0.3</td>
<td>2.1</td>
<td>0.2</td>
<td>3.3</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;
Less food &amp; energy</td>
<td>0.1</td>
<td>0.0</td>
<td>0.2</td>
<td>1.5</td>
<td>1.5</td>
<td>2.4</td>
<td>2.4</td>
</tr>
</tbody>
</table>


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The Commerce Department's latest report on consumer income & spending indicated that times were never worse than in 2009. Cutbacks in employment prompted a record 1.4% annual decline (it's never before fallen y/y), though modest [...]

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

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

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129h.jpg" style="width: 353px; height: 265px;" align="right">
Building on gains earlier in the month consumer sentiment for
all of January rose to its highest level since January of 2008. The
Reuters/University of Michigan Index of Consumer Sentiment for all of
January rose to 74.4 from 72.5 in December. The latest figure beat
Consensus expectations for a reading of 73.0 and it was up sharply from
the low of 55.3 in November 2008.<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129i.jpg" style="width: 353px; height: 265px;" align="right">
During the last ten years there has
been a two-thirds correlation between the level of sentiment and the
three-month change real consumer spending.
Sentiment about current economic conditions increased another
4.0% after its 13.4% jump from November. The latest was the highest
level since March of 2008. Assessments of current financial conditions
improved m/m to the highest since September of 2008. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129j.jpg" style="width: 353px; height: 265px;" align="right">
Buying conditions
for large household goods, including furniture, refrigerators, stoves
&amp; televisions, also moved up 3.9% to the highest level since
January 2008.
The January reading on expected economic conditions increased
sharply from mid-month. The 1.7% m/m increase pulled the index to its
highest level since September. Expectations for business conditions
during the next year improved and have more-than doubled since last
February.<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129k.jpg" style="width: 353px; height: 265px;" align="right">
Expectations for business conditions during the next five
years also improved m/m and rose sharply from the 2008 low.
Expectations for personal finances slipped m/m to the lowest since
March 2009 as expectations for family income growth remained
moderate-to-lower.
Expected price inflation during the next year rose m/m to 3.4%
and it was up from the December 2008 reading of 1.7%.Respondents' view
of government policy, which may eventually influence economic
expectations, improved following the sharp December decline. Just
fourteen percent of respondents thought that a good job was being done
by government versus 33% who thought a poor job was being done.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a ;="" href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM" style="color: white;">University of Michigan</a></th>
<th scope="col">January</th>
<th scope="col">Mid-January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Jan y/y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>74.4</td>
<td>72.8</td>
<td>72.5</td>
<td>67.4</td>
<td>21.6%</td>
<td>66.3</td>
<td>63.8</td>
<td>85.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>81.1</td>
<td>81.0</td>
<td>78.0</td>
<td>68.8</td>
<td>22.0</td>
<td>69.6</td>
<td>73.7</td>
<td>101.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>70.1</td>
<td>67.5</td>
<td>68.9</td>
<td>66.5</td>
<td>21.3</td>
<td>64.1</td>
<td>57.3</td>
<td>75.6</td>
</tr>
</tbody>
</table>
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Building on gains earlier in the month consumer sentiment for all of January rose to its highest level since January of 2008. The Reuters/University of Michigan Index of Consumer Sentiment for all of January rose to 74.4 from 72.5 in [...]

Michigan Consumer Sentiment Highest in Two Years

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129f.jpg" style="width: 353px; height: 265px;" align="right">unemployment dragged
the y/y change in the Employment Cost Index down
to its lowest on record. (The series dates back to 1980). Overall the
employment cost index for private industry workers rose 1.2% for the
year which ended with a 0.4% rise during 4Q following upwardly revised
gains during the prior two quarters. The latest rise about matched
Consensus expectations.
Weaker growth in both in wages and
benefits pulled the overall index lower. Wages grew just 1.5% last year
which was exactly half the 2008 gain. By the end of 2009, however,
growth did improve modestly as the recession ended. For the year
management, professional &amp; related workers saw their wages rise
just 1.1% after a after a 3.2% gain during 2008. <img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100129g.jpg" style="width: 353px; height: 265px;" align="right">
Sales &amp; office
worker wage gains also more-than-halved to 1.0%.
Total benefit costs in private sector increased just 1.2% for
the year,
a record low. In the management, professional &amp; related
businesses benefits grew just 0.7% but for production, transportation
&amp; materials handling industries growth held up and stable at
2.2% for the year. The cost of health benefits was an improved 4.4% in
the latest 12 months.
The employment cost index figures are
available in Haver's USECON database.
Myths about
Budget Deficits
from the American Enterprise Institute can be found <a href="http://www.aei.org/docLib/Myths%20About%20Budget%20Deficits.pdf">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI
- Private Industry Workers</a> (%)</th>
<th scope="col">4Q '09</th>
<th scope="col">3Q '09</th>
<th scope="col">2Q '09</th>
<th scope="col">4Q Y/Y</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.4</td>
<td>0.5</td>
<td>0.2</td>
<td>1.2</td>
<td>1.5</td>
<td>2.8</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp;
Salaries</td>
<td>0.5</td>
<td>0.5</td>
<td>0.2</td>
<td>1.3</td>
<td>1.5</td>
<td>3.0</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.4</td>
<td>0.3</td>
<td>0.2</td>
<td>1.0</td>
<td>1.2</td>
<td>2.6</td>
<td>2.4</td>
</tr>
</tbody>
</table>

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unemployment dragged the y/y change in the Employment Cost Index down to its lowest on record. (The series dates back to 1980). Overall the employment cost index for private industry workers rose 1.2% for the year which ended with a [...]

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

Robert Brusca

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

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

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

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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

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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

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

**The Global Monetary Policy Consensus**
The latest Blue Chip Financial Forecasts survey points to a notably more balanced global monetary policy outlook over the coming year. In contrast to the pronounced easing bias that dominated much of the past two years, expectations are now more symmetric, with a similar number of central banks projected to raise rates as to ease policy. Japan is seen delivering further tightening, while Canada is expected to initiate an interest rate hike in coming months. In Australia’s case, this tightening guidance was reinforced this week, with the Reserve Bank lifting its policy rate by 25 basis points. Elsewhere, and in contrast, the euro area, UK and US are expected to move in the opposite direction.

260205Z1.jpg

**US manufacturing activity**
The second chart underscores the recent improvement in US economic momentum, highlighted by an unexpected surge in the January ISM manufacturing PMI. After spending much of the past year hovering below the 50 threshold consistent with stagnation, the index jumped sharply back into expansionary territory, signalling a renewed pickup in industrial activity. This rebound has coincided with a broader run of stronger-than-anticipated US economic data, as reflected in the upswing in the Citigroup Economic Surprise Index. Together, these developments point to a US economy that continues to display notable resilience, complicating expectations of monetary easing in the near term.

260205Z2.jpg

**US Bank Lending Standards and Financial Stress** 
The next chart turns to US financial conditions, highlighting the latest readings from the Senior Loan Officer Opinion Survey. The net proportion of banks tightening lending standards on corporate loans and mortgages is now more modest by historical standards, and well below the extremes seen during past episodes of financial stress. Some easing in credit headwinds has occurred alongside relatively subdued readings on the OFR Financial Stress Index, which continues to hover below its long-run average. Together, these indicators suggest that the US financial system has continued to avoid the kind of acute stress typically associated with sharp slowdowns in credit availability—helping to underpin the recent resilience in economic activity.

260205Z3.jpg

**Semiconductor Sales**
The fourth chart highlights the renewed surge in global semiconductor sales, with momentum strengthening sharply over recent months across the Americas, China and the broader Asia-Pacific region. After the cyclical downturn in 2022–23, sales have rebounded to fresh highs, reflecting a powerful revival in demand for advanced chips and related technologies. This upswing has taken place amid intense investor preoccupation with artificial intelligence, with expectations that AI adoption will drive a sustained wave of capital spending on data centres, cloud infrastructure and high-performance computing. In contrast, semiconductor sales in Europe remain comparatively subdued, reflecting the region’s smaller footprint in high-end chip manufacturing, weaker industrial demand, and the ongoing impact of slower economic growth. While semiconductors are inherently cyclical, markets have increasingly interpreted the current rebound elsewhere as structural rather than purely cyclical—underpinned by the belief that AI represents a transformative and durable source of demand growth.

260205Z4.jpg

**Large-Scale AI Models**
The next chart illustrates the rapid proliferation of large-scale AI models globally, with newly updated data for 2025 pointing to a further sharp acceleration in development activity. The United States continues to lead by a wide margin, while China has also seen a steep rise in model deployment in recent years, underscoring the intensifying technological competition between the two economies. Growth in the UK and other regions has been more modest by comparison, highlighting the increasingly concentrated nature of AI innovation. Taken together with the surge in semiconductor sales, these trends help explain the market’s strong preoccupation with AI as a potential driver of future productivity and investment cycles—although the geographic concentration of activity also raises questions about the uneven distribution of any resulting economic gains.

260205Z5.jpg

**An AI Bubble?** 
The final chart draws on the latest Blue Chip Financial Forecasts special questions, highlighting market participants’ perceptions of the economic gains likely to be delivered by artificial intelligence. While a sizeable share of respondents still believe that financial markets may be overestimating AI’s potential benefits, an increasing proportion now judge current expectations to be broadly accurate, with only a small minority viewing the gains as underestimated. Notably, this represents a softening in scepticism compared with the survey results from last month, when concerns about excessive market optimism were more pronounced. The shift suggests a growing acceptance that AI-related investment and innovation could translate into meaningful economic impacts—though uncertainty remains high around the scale, timing and distribution of these gains.

260205Z6.jpg

Financial markets have experienced renewed gyrations in recent weeks, as shifting geopolitical risks, questions around Federal Reserve independence, renewed talk of US dollar “debasement,” and ongoing enthusiasm surrounding artificial intelligence have combined to drive volatility across asset classes. These cross-currents have also contributed to a degree of rotation away from high-flying technology stocks, as investors reassess valuations and the timing of anticipated AI-driven gains. Against this backdrop, the charts in this week’s COTW highlight several important themes. Policy rate expectations now appear more balanced globally, marking a clear shift away from the one-sided easing bias of the past two years (chart 1), even as resilient US data—underscored by the unexpected jump in the January ISM index and a run of positive economic surprises—continues to complicate the outlook for monetary easing (chart 2). At the same time, US financial conditions remain relatively benign, with limited evidence of widespread credit stress or aggressive tightening in lending standards (chart 3). Meanwhile, the sharp rebound in semiconductor sales and the accelerating rollout of large-scale AI models underscore why investors remain so focused on the AI narrative, even as Europe lags behind due to weaker industrial momentum and a smaller footprint in advanced chip production (charts 4 and 5). Finally, while some scepticism about AI’s ultimate economic impact persists, the latest survey results suggest a moderation in concerns that markets are materially overestimating its gains (chart 6). Taken together, these developments paint a picture of a US economy that remains more resilient than many had anticipated, set against a financial landscape increasingly shaped by powerful—if sometimes competing—narratives around geopolitics, policy, and technological transformation.

Charts of the Week: Balanced Policy, Resilient Data and AI Narratives

260206E.jpg

With the December report, Germany’s production and some of the early European industrial production data reveal a good deal of chaos in terms of the embedded trends. On the month, German industrial production fell by 1.9%, with consumer goods output up by 0.5%, capital goods output falling by 5.3%, and intermediate goods output falling by 1.2%. Among the early reporters in the monetary union—France, Spain, and Portugal—only Spain showed an increase in manufacturing IP in December; however, Spanish industrial production is notoriously volatile.

**Broader IP trends in Germany and elsewhere in Europe**
As for other early industrial production reporters, both Sweden and Norway showed strong-to-solid gains in December and each of them showed two-months of gains in a row. Beyond that, sequential growth rates from 12-months to six-months to three-months show accelerating growth in German consumer goods output against decelerating growth for intermediate goods. Real manufacturing output and real sales show mixed results- no clear trends; however, real manufacturing orders in Germany are off the map strong. 

**German manufacturing/industrial Surveys**
German industrial surveys from the IFO for manufacturing shows persistent weakening as well as for IFO manufacturing expectations, and in the EU Commission industrial index in the last three months. More broadly, Germany shows some modest but ongoing step up all of these based on average levels from 12-months to six-months to three-months for IFO expectations and the EU Commission industrial readings with mixed results for other survey readings.

**IP trends in Europe**
For the early reporting EMU members France, Spain, and Portugal, who report industrial production trends, each show mixed monthly trends against ongoing decelerations for manufacturing output over the broader sequential periods (12-month, to 6-month, to 3-month). However, for other Europe, Sweden and Norway, manufacturing trends are steadily accelerating on this broader timeline.

**A feeling of ‘Deja- What?’**
These combinations of opposed trends mixed with a lack of trends leave us with this sense of confusion about what's going on in manufacturing. For Germany, the extreme strength in orders is reassuring since orders should be forward-looking rather than backward-looking or even contemporaneous. But orders can also be a fickle series and so we'll have to watch it to see if the trends for German orders hold up.

**Current quarter-What’s been happening now**
In addition, current quarter growth for Germany actually looks quite good with industrial production up 3.7% at an annual rate in the current quarter, led by output increases in manufacturing against a decline in the intermediate goods output. Real orders in the quarter are surging at a 44% growth rate, while real sales in manufacturing only had a 0.1% uptick at an annual rate. The industrial indicators for Germany in the quarter show weakness or flatness with the only exception being IFO manufacturing expectations that advanced by a small amount. The three EMU members who report industrial production data show positive growth in the just-completed quarter except for Portugal where industrial production is falling at a 2.9% rate in the fourth quarter. Sweden and Norway, European countries but not monetary union members, show a strong 22% annual rate gain in Sweden against the 3% annual rate decline in Norway.

260206.jpg

**Rankings**
**How growth rates stack up…**
Moving away from short-term trends, the rankings of growth rates of these various metrics using 12-month growth rates on data back to 2006, show below-median growth rates for German industrial production and all three of its major sectors. All of them have rankings below the 50% mark where the median resides. Germany’s manufacturing output growth rate is below its median as is the growth of real sales; and once again real manufacturing orders break out and show a stunning 90th percentile standing, extremely strong compared to other growth rates on this period.

**Indicator rankings are poor**
However, the survey based industrial indicators for Germany, ranked based on their index levels, are all extremely weak and much weaker than German sector or other German metrics. The strongest indicator reading is the 29th percentile standing for IFO manufacturing expectations while the current ZEW index, IFO manufacturing index, and the EU Commission industrial readings, all reside below their 15th percentile. The survey rankings suggest that industrial sentiment is in much worse shape than activity and growth.

**IP elsewhere in Europe**
However, the growth ranking of manufacturing industrial production for the reporting EMU members and other European members are all quite solid, with percentile standings ranging from the 66th up to the 93rd percentile.

**Summing up**
From these data, Germany emerges as the weak economy compared with historic norms based on industrial production growth and indicator readings. However, there's a glimpse of positivity from the growth of real orders, and at the same time, some concern about ongoing sentiment for manufacturing in Germany as distinct from actual performance.

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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**Total job openings** fell 5.6% m/m (-12.9% y/y) to 6.542 million in December after a downwardly revised 7.0% decline to 6.928 million in November (previously -4.1% m/m; 7.146 million), according to the Job Openings and Labor Turnover Survey. December marked the third consecutive m/m fall and the lowest level since September 2020. The job openings rate declined to 3.9% in December, the lowest since April 2020, from 4.2% in November, remaining below a record-high 7.4% in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings. Significantly, the drop in job openings also lowered the **ratio of job openings to unemployed individuals** to 0.872 in December—the lowest since March 2021—from 0.890 in November, down from 1.085 in December 2024 and a pre-pandemic 1.211 in February 2020. A reading of 0.872 implies there were about 0.87 open jobs per unemployed person—indicating fewer openings than unemployed workers. December was the fifth time in six months that this ratio remained below 1.0.

**Private sector job openings** fell 6.8% (-12.5% y/y) to 5.804 million in December after a 6.6% fall to 6.227 million in November, registering the third successive m/m decline and the lowest level since September 2020. The private sector job openings rate fell to 4.1% in December, the lowest since April 2020, from 4.4% in November. The December m/m decline in private sector openings reflected drops of 27.7% (-36.9% y/y) in financial activities, 20.2% (-25.5% y/y) in professional & business services, 14.4% (-5.1% y/y) in trade, transportation & utilities, and 5.2% (-12.4% y/y) in private educational & health services. To the upside, private sector openings in the following categories rose m/m in December: other services (21.1%; 11.0% y/y), mining & lodging (17.6%; 0.0% y/y), information (13.5%; -4.7% y/y), manufacturing (8.5%; 0.5% y/y), leisure & hospitality (7.5%; -17.2% y/y), and construction (2.8%; 42.4% y/y). Meanwhile, government job openings rose 5.3% (-15.6% y/y) in December, the first m/m rise in three months, after a 10.6% drop in November.

**Total hiring** rebounded 3.4% (-1.5% y/y) to 5.293 million in December, the first m/m increase since September, following a 4.6% decrease to 5.121 million in November. The hiring rate edged up to 3.3% in December from 3.2% in November, though it remained below pre-pandemic levels. **Private sector hiring** rose 3.1% (-0.4% y/y) to 4.978 million in December, the third m/m rise in four months, after a 4.0% decline to 4.826 million in November. The private sector hiring rate rose to 3.7% in December from 3.5% in November, the same as in October and September. The December m/m increase in private sector hiring was led by a 32.1% jump (42.3% y/y) in information, followed by gains of 24.0% (-4.6% y/y) in financial activities, 23.5% (0.0% y/y) in mining & lodging, 6.5% (-4.8% y/y) in private educational & health services, 4.2% (-4.9% y/y) in trade, transportation & utilities, 3.6% (6.1% y/y) in construction, 3.4% (7.9% y/y) in leisure & hospitality, and 1.8% (-4.3% y/y) in manufacturing. To the downside, private sector hiring in professional & business services (-5.2%; +0.5% y/y) and other services (-4.3%; -16.5% y/y) declined m/m in December. Meanwhile, government hiring rebounded 6.4% (-16.3% y/y) in December, the first m/m rise since September, following a 13.5% drop in November.

**Total separations** rose 2.1% (3.3% y/y) to 5.251 million in December after a 1.5% rise to 5.144 million in November, marking the third m/m increase in four months and the highest level since September. The total separations rate edged up to 3.3% after holding at 3.2% in November and October. Private sector separations rose 1.6% (4.2% y/y) to 4.932 million in December, the highest level since June, while government sector separations jumped 10.4% (-9.1% y/y) to 319,000 following two consecutive m/m declines. **Total quits** (voluntary separations initiated by the employee) increased 0.3% (3.5% y/y) to 3.204 million in December, the third m/m rise in four months and the highest level since June, after a 7.4% rebound in November. The quits rate (a measure of workers’ willingness or ability to leave jobs) held at 2.0% in December and November, slightly below 2.3% in February 2020. Private sector quits eased 0.2% (+4.5% y/y) following an 8.4% November rebound. **Layoffs and discharges** (involuntary separations initiated by the employer) increased 3.6% (5.6% y/y) to 1.762 million in December, up for the third time in four months, after an 8.1% drop in November. The layoffs & discharges rate remained at 1.1% in December and November, marginally below 1.3% in February 2020. Private sector layoffs grew 4.3% (7.8% y/y) following a 7.3% November decrease.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

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- Job openings down 5.6% (-12.9% y/y) to 6.542 mil., third straight m/m decline.
- Hiring up 3.4% (-1.5% y/y) to 5.293 mil., first m/m increase since September.
- Separations rise to a three-month high; quits reach a six-month high; layoffs rebound.

U.S. JOLTS: Openings Drop to Lowest Level Since Sept. ’20; Hiring Rebounds in December

Sandy Batten

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Initial claims for unemployment insurance jumped 22,000 to 231,000 in the week ended January 31 following an unrevised 209,000 in the prior week. The four-week average rose to 212,250 from 206,250. The Action Economics Forecast Survey looked for 213,000 claims to have been filed. Winter Storm Fern and the accompanying very cold temperatures could have provided a temporary boost. Historically speaking, claims remain at low levels.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 25,000 to 1.844 million in the week ending January 24, from a downwardly revised 1.819 million in the prior week (previously 1.827 million). The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous eight weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), and Texas (1.09%). These state data are not seasonally adjusted.

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

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- New claims jumped 22,000 to 231,000, the highest level since December 6.
- Continuing claims rose to 1.844 million from 1.819 million.

U.S. Initial Unemployment Claims Surged in Latest Week

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German real orders in December adjusted for inflation rose strongly again, gaining 7.8% month-to-month after rising 5.7% month-to-month in November. Foreign orders were up by 5.6% in December compared to 5.2% in November. Domestic orders surged by 10.7% in December after rising 6.4% in November and 10% in October.

**Real sales**
Real sales were mixed in December with overall sales falling 1.4% month-to-month mostly on weakness in capital goods sales.

**Broad categorical acceleration**
Many flows are accelerating this month. Sequential growth rates show acceleration. Total real orders accelerate from a year ago, to the current year, to six-months, and to three-months. Sales growth rates for consumer goods, consumer nondurables, and intermediate goods all show accelerations in gear. The exceptions are foreign orders that are not as strong over six months compared to their 12-month growth. And on the sales side, consumer durables sales and capital goods sales are weak.

**Quarter-to-quarter**
Quarterly annualized growth is complete for Q4 with this report. Foreign orders are the ‘weak flow’ expanding at a 13.6% annual rate – certainly not a weak growth rate. But domestic real orders are up at an astounding 101.9% annual rate. The net impact on the total real orders growth is to lift it to a pace of 44.1%. 

**Order ranking is very strong**
The table provides two rankings: one based on the level of variables and the other based on its year-on-year growth. The rankings this month for real orders overall, foreign, and domestic orders all reside in their top 80th to 90th percentiles- extremely strong based on level or growth. Sales do not follow suit. This gives us some reason to suspect that there is some lumpiness involved in the manufacturing data as distinct from strength. That will be something to watch. Overall mining and manufacturing sales growth is essentially at its historic median at a rank of 49.8. However, capital goods, intermediate goods and manufacturing sales all have rankings at or above their medians - as high as a 61-percentile standing for capital goods.

**Industrial confidence**
Industrial confidence for Germany, France, Italy and Spain (the EU’s big-four economies) show rankings based on these survey levels that are much lower at the 11th percentile for Germany, the 42nd and 36th percentiles, for France and Italy, respectively. Spain scores better with a 61.8 percentile standing on its industrial confidence measure. 

On balance, there is now an accelerating profile that is broad in sales trends and especially strong order trends. Perhaps Europe, under the pressure to stimulate its miliary capabilities, has a core of demand to help drive output ahead more consistently. This is something to watch in the coming months.

Economy in Brief

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