Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104h.jpg" align="right" border="0" height="265" width="353">While
Indonesia has had extensive damage from earthquakes, it has so far
escaped a recession.&nbsp; The closest it has come was the fourth
quarter of 2008 when real gross domestic product increased at an annual
rate of only 0.80%.&nbsp; Subsequent increases have been 3.58% in
the first quarter of 2009, 5.49% in the second and 6.64 in the third
quarter. The annual rates of increase in real GDP over the past six
years are shown in the first chart.
Today, the consumer price
index for December was released.&nbsp;Inflation continues to be
well behaved although there has been a slight increase in the last two
months.&nbsp; The rate of inflation as measured by the year to year
increase in the seasonally unadjusted consumer price index was 2.78%
down from 11.06% in December of 2008.&nbsp; The course of inflation
in Indonesia is shown in the second chart.
Also released
today were Indonesia's exports, imports and balance of trade.&nbsp;
There has been a rising trend in the balance of trade from the 640
million USD deficit in October,2008.&nbsp; Exports at 11,562
million USD are below the peak level of 12,499 million USD reached in
June of 2008 and imports at 9,563 million USD are well below the peak
of 12,142 million USD reached&nbsp; in July 2008.&nbsp; The
third chart shows exports, imports and the balance of trade over the
past six years.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104i.jpg" border="0" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104j.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col">INDONESIA</th>
<th scope="col">Q4 09</th>
<th scope="col">Q3 09</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1 09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08</th>
<th scope="col">Q2 08</th>
<th scope="col">Q1 08</th>
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="10" class="firstcol"> Real Gross Domestic
Product</td>
</tr>
<tr class="odd">
<td class="firstcol">Q/Q Annual Rate of Change in
Real GDP&nbsp; (%)</td>
<td>--</td>
<td>6.64</td>
<td>5.49</td>
<td>3.58</td>
<td>0.80</td>
<td>6.08</td>
<td>7.50</td>
<td>6.75</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Dec 09</td>
<td>Nov 09</td>
<td>Oct 09</td>
<td>Sep 09</td>
<td>Aug 09</td>
<td>Jul 09&nbsp;</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI Y/Y % Change (%)</td>
<td>2.78</td>
<td>2.41</td>
<td>2.57</td>
<td>2.83</td>
<td>2.75</td>
<td>2.71</td>
<td>3.65</td>
<td>6.04</td>
<td>7.31</td>
</tr>
<tr>
<td class="firstcol">Trade</td>
<td>Dec 09</td>
<td>Nov 09</td>
<td>Oct 09</td>
<td>Sep 09</td>
<td>Aug 09</td>
<td>Jul 09&nbsp;</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports&nbsp; (Millions US
$)</td>
<td>--</td>
<td>11562</td>
<td>12108</td>
<td>9588</td>
<td>10257</td>
<td>9260</td>
<td>9135</td>
<td>8756</td>
<td>8872</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports (Millions US $)</td>
<td>--</td>
<td>9563</td>
<td>9903</td>
<td>8288</td>
<td>8963</td>
<td>8161</td>
<td>7645</td>
<td>7165</td>
<td>6512</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance (Millions US $)</td>
<td>--</td>
<td>1999</td>
<td>2205</td>
<td>1308</td>
<td>1294</td>
<td>1099</td>
<td>1490</td>
<td>1591</td>
<td>2362</td>
</tr>
</tbody>
</table>

</body></html>

While Indonesia has had extensive damage from earthquakes, it has so far escaped a recession. The closest it has come was the fourth quarter of 2008 when real gross domestic product increased at an annual rate of only 0.80%. [...]

Indonesia Avoids Recession

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104e.jpg" align="right" border="0" height="265" width="353">Though its
rate of decline has moderated, construction spending has continued to
move lower. During November construction outlays fell 0.6% after a
little-revised 0.5% October shortfall. The latest decline left the y/y
change at -13.2% which was improved just modestly from the weakest
-15.8% September comparison. The latest decline about matched Consensus
estimates. Residential building activity renewed its decline with a
1.6% fall following a 4.8% October gain. The decline owed to a 4.1%
(-44.4% y/y) drop in multi-family building and a 3.9% (-2.8% y/y)
shortfall in spending on improvements. Single-family construction rose
1.3% (-25.2% y/y) for the sixth consecutive monthly increase. 
Nonresidential building activity was roughly unchanged after a steep
4.8% October decline. Since the 2008 peak, activity has fallen by
22.5%. Spending in the food &amp; beverage industry declined 44.1%
y/y while expenditures in the lodging were off by nearly one-half.
Commercial building overall fell 40.5% y/y while office building
dropped by more than one-third. Relatively moderate were the declines
in the education (-18.8% y/y), religious (-18.3% y/y) and health care
(-16.1% y/y) sectors.&nbsp;Factory sector spending (-7.0% y/y) was
buoyed by gains in the chemical and in the
computer/electronic/electrical sectors.In the public sector,
construction overall fell a modest 0.4% during November but y/y
expenditures rose despite lower tax revenues. Building activity on
highways &amp; streets fell 2.9% m/m but rose 5.7% y/y due to the
focus on infrastructure rebuilding. Public spending on health care
facilities increased a strong 12.2% y/y but building in the education
sector was off 2.6% y/y. The construction put-in-place figures are
available in Haver's USECON database.&nbsp;&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104f.jpg" border="0" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104g.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Construction
(%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.6</td>
<td>-0.5</td>
<td>-1.6</td>
<td>-13.2</td>
<td>-6.9</td>
<td>-1.6</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7</td>
<td>-0.8</td>
<td>-2.4</td>
<td>-20.0</td>
<td>-11.1</td>
<td>-5.7</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.6</td>
<td>4.8</td>
<td>-0.6</td>
<td>-19.2</td>
<td>-29.1</td>
<td>-19.7</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.0</td>
<td>-4.8</td>
<td>-3.7</td>
<td>-20.6</td>
<td>13.2</td>
<td>23.1</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>-0.4</td>
<td>0.0</td>
<td>-0.1</td>
<td>2.7</td>
<td>5.6</td>
<td>13.1</td>
<td>9.3</td>
</tr>
</tbody>
</table>
</body></html>

Though its rate of decline has moderated, construction spending has continued to move lower. During November construction outlays fell 0.6% after a little-revised 0.5% October shortfall. The latest decline left the y/y change at [...]

U.S. Factory Inventories &Shipments Increase Again

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104b.jpg" align="right" border="0" height="265" width="353">Improvement
in the U.S. factory sector continued last month from its nadir reached
twelve months earlier. The National Association of Purchasing
Management reported that its December composite index showed unexpected
strength with a rise to 55.9 from 53.6 during November. The latest
figure was the highest since April 2006 and it was up from the low of
32.9 reached last December. A more modest gain to 54.0 had been the
Consensus expectation. (Any reading above the break-even point of 50
suggests rising activity.) The ISM data is available in Haver's USECON
database. The positive factory-sector growth rate
suggested by the ISM index is in line with recoveries accompanying past
upturns from severe recessions. To mirror the strength of those
recoveries, however, the index still needs to rise to a level near or
above the level of 60.The new orders index showed the greatest m/m
gain with its increase to a high of 65.5 from 60.3 in November. Working
the other way, the export order index fell moderately to 54.5 from its
recent high. Nevertheless the index was up from its low of 35.5 last
December. During the last ten years there has been a 53% correlation
between the index and the q/q change in real exports of goods in the
GDP accounts. The employment index showed a smaller gain 52.0.
Nevertheless, the level indicated positive growth in factory-sector
payrolls. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104c.jpg" align="right" border="0" height="265" width="353">
It has increased from a low reading of 26.1 last February.
Seventeen percent of respondents indicated higher payrolls versus only
seven percent last December. Eighteen percent indicated a lower level
of hiring versus fifty percent last December. During the last ten years
there has been a 90% correlation between the index level and the
three-month change in manufacturing payrolls. The production component
rose modestly to 61.8 but remained lower than its October high of 63.3.
During the last ten years there has been an 84% correlation between the
level of the production component of the composite index and the
three-month growth in factory sector industrial production. It
is appropriate to correlate the ISM index level
with factory sector output growth because the ISM
index is a diffusion index. It measures growth by using all of the
positive changes in activity added to one half of the zero change in
activity measures. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104d.jpg" align="right" border="0" height="265" width="353">
A two point gain in the inventory
component to 43.4 recovered some of its November decline but it still
was down from the October high. Thirteen percent (NSA) of respondents
indicated that they were raising inventory levels versus 18% last
December. During the strong 2005 inventory accumulation 26% of firms
indicated that they were raising inventories. Thirty percent of
respondents indicated lower inventories.The separate index of prices
paid made up more than half of its November decline and was up from the
December low of 18.0. During the last twenty years there has been a 79%
correlation between the price index and the three-month change in the
PPI for intermediate goods.The ISM data are available in Haver's USECON
database.Monetary Policy and the Housing Bubble
is the title of yesterday's speech by Fed Chairman Ben S. Bernanke and
it is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20100103a.htm">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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Dec. '08</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>55.9</td>
<td>53.6</td>
<td>55.7</td>
<td>32.9</td>
<td>46.3</td>
<td>45.5</td>
<td>51.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>65.5</td>
<td>60.3</td>
<td>58.5</td>
<td>23.1</td>
<td>51.7</td>
<td>42.1</td>
<td>54.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Employment</td>
<td>52.0</td>
<td>50.8</td>
<td>53.1</td>
<td>29.9</td>
<td>40.6</td>
<td>43.2</td>
<td>50.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Production</td>
<td>61.8</td>
<td>59.9</td>
<td>63.3</td>
<td>26.3</td>
<td>50.3</td>
<td>45.2</td>
<td>54.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Supplier Deliveries</td>
<td>56.6</td>
<td>55.7</td>
<td>56.9</td>
<td>45.7</td>
<td>51.4</td>
<td>51.6</td>
<td>51.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>43.4</td>
<td>41.3</td>
<td>46.9</td>
<td>39.6</td>
<td>37.2</td>
<td>45.5</td>
<td>45.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>61.5</td>
<td>55.0</td>
<td>65.0</td>
<td>18.0</td>
<td>48.3</td>
<td>66.5</td>
<td>64.6</td>
</tr>
</tbody>
</table>
</body></html>

Improvement in the U.S. factory sector continued last month from its nadir reached twelve months earlier. The National Association of Purchasing Management reported that its December composite index showed unexpected strength with a [...]

ISM Manufacturing Series Show Broad-Based Gains

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104a.jpg" align="left" border="0" height="265" width="353">
The PMI indices for MFG from Markit show an ongoing
improvement across the e-zone. The e-Zone index is still some 8.9
points from its cycle peak but it has risen by 18 points from its cycle
low. Greece at 10.6 points above its cycle low has had the smallest
recovery from its low point. The UK Germany and France have risen the
most from their respective low points but the UK stands the closest to
its cycle peak reading standing only 2.2 points below its cycle peak
reading in December. Spain, Greece and France are still the farthest
away from their respective cycle peaks.
In December among the countries in the table only Spain saw a
set back. This is marked improvement from November when five of these
countries experienced a set back in the month&#8217;s MFG PMI reading.
Spain&#8217;s index has fallen on balance over the last three
months. It is the only one in this group to do so. However Austria and
Greece rose by less than 0.5 points on balance over the last three
months compared to an e-Zone index rise of 2.3points. .The e-Zone
advance is now being led by improvements in Italy and in Germany but
all the e-Zone countries in the table above are advancing at a slower
rate than they had over six months (multiply the respective three month
gains by a factor of two to see this). The UK, an EU member, is an
exception to this trend as it is still accelerating.
Spain, Greece and Ireland are the only countries in the table
that are not back into pre-recession ranges for their MFG PMI readings
(levels). The UK is the only country that is near the top of its
pre-recession range in terms of its overall PMI index (March 2000- Jan
2008).
On balance the e-Zone is still making progress. Some
choppiness in the indices in this region is to be expected if the
recovery is going to continue but lose some of its gusto. If the
recovery is going to gain speed we will need to see these indices
continue to advance. The signals right now seem to favor a period of
consolidation and of continued but slow growth progress.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col"> Changes in Markit MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Changes Mo/Mo</td>
<td colspan="3">Change on Frequency</td>
<td colspan="2">&nbsp;&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-09</td>
<td>Nov-09</td>
<td>Oct-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>From Peak</td>
<td>From Low</td>
</tr>
<tr>
<td class="firstcol">Euro-13</td>
<td>0.39</td>
<td>0.47</td>
<td>1.44</td>
<td>2.30</td>
<td>8.97</td>
<td>17.72</td>
<td>-8.9</td>
<td>18.0</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.25</td>
<td>1.40</td>
<td>1.39</td>
<td>3.04</td>
<td>11.81</td>
<td>20.03</td>
<td>-8.2</td>
<td>20.7</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.31</td>
<td>-1.21</td>
<td>2.62</td>
<td>1.72</td>
<td>8.85</td>
<td>19.80</td>
<td>-10.1</td>
<td>19.9</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.71</td>
<td>0.85</td>
<td>1.66</td>
<td>3.22</td>
<td>8.11</td>
<td>15.26</td>
<td>-9.2</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-0.09</td>
<td>-1.02</td>
<td>0.48</td>
<td>-0.63</td>
<td>2.43</td>
<td>16.70</td>
<td>-12.3</td>
<td>16.7</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>0.88</td>
<td>-1.12</td>
<td>0.74</td>
<td>0.50</td>
<td>8.80</td>
<td>15.80</td>
<td>-8.0</td>
<td>17.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Greece</td>
<td>1.54</td>
<td>-0.72</td>
<td>-0.49</td>
<td>0.33</td>
<td>1.12</td>
<td>7.83</td>
<td>-10.6</td>
<td>10.6</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>0.02</td>
<td>0.78</td>
<td>1.44</td>
<td>2.24</td>
<td>6.34</td>
<td>10.94</td>
<td>-7.6</td>
<td>15.6</td>
</tr>
<tr class="even">
<td colspan="9" class="firstcol">EU</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>2.33</td>
<td>-1.16</td>
<td>2.94</td>
<td>4.11</td>
<td>6.87</td>
<td>18.53</td>
<td>-2.2</td>
<td>19.1</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">Percentile is over range since March
2000</td>
</tr>
</tbody>
</table>
</body></html>

The PMI indices for MFG from Markit show an ongoing improvement across the e-zone. The e-Zone index is still some 8.9 points from its cycle peak but it has risen by 18 points from its cycle low. Greece at 10.6 points above its cycle [...]

Manufacturing Is Digging Out

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104a.jpg" align="left" border="0" height="265" width="353">
The PMI indices for MFG from Markit show an ongoing
improvement across the e-zone. The e-Zone index is still some 8.9
points from its cycle peak but it has risen by 18 points from its cycle
low. Greece at 10.6 points above its cycle low has had the smallest
recovery from its low point. The UK Germany and France have risen the
most from their respective low points but the UK stands the closest to
its cycle peak reading standing only 2.2 points below its cycle peak
reading in December. Spain, Greece and France are still the farthest
away from their respective cycle peaks.
In December among the countries in the table only Spain saw a
set back. This is marked improvement from November when five of these
countries experienced a set back in the month&#8217;s MFG PMI reading.
Spain&#8217;s index has fallen on balance over the last three
months. It is the only one in this group to do so. However Austria and
Greece rose by less than 0.5 points on balance over the last three
months compared to an e-Zone index rise of 2.3points. .The e-Zone
advance is now being led by improvements in Italy and in Germany but
all the e-Zone countries in the table above are advancing at a slower
rate than they had over six months (multiply the respective three month
gains by a factor of two to see this). The UK, an EU member, is an
exception to this trend as it is still accelerating.
Spain, Greece and Ireland are the only countries in the table
that are not back into pre-recession ranges for their MFG PMI readings
(levels). The UK is the only country that is near the top of its
pre-recession range in terms of its overall PMI index (March 2000- Jan
2008).
On balance the e-Zone is still making progress. Some
choppiness in the indices in this region is to be expected if the
recovery is going to continue but lose some of its gusto. If the
recovery is going to gain speed we will need to see these indices
continue to advance. The signals right now seem to favor a period of
consolidation and of continued but slow growth progress.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col"> Changes
in Markit MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Changes Mo/Mo</td>
<td colspan="3">Change on Frequency</td>
<td colspan="2">&nbsp;&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-09</td>
<td>Nov-09</td>
<td>Oct-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>From Peak</td>
<td>From Low</td>
</tr>
<tr>
<td class="firstcol">Euro-13</td>
<td>0.39</td>
<td>0.47</td>
<td>1.44</td>
<td>2.30</td>
<td>8.97</td>
<td>17.72</td>
<td>-8.9</td>
<td>18.0</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.25</td>
<td>1.40</td>
<td>1.39</td>
<td>3.04</td>
<td>11.81</td>
<td>20.03</td>
<td>-8.2</td>
<td>20.7</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.31</td>
<td>-1.21</td>
<td>2.62</td>
<td>1.72</td>
<td>8.85</td>
<td>19.80</td>
<td>-10.1</td>
<td>19.9</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.71</td>
<td>0.85</td>
<td>1.66</td>
<td>3.22</td>
<td>8.11</td>
<td>15.26</td>
<td>-9.2</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-0.09</td>
<td>-1.02</td>
<td>0.48</td>
<td>-0.63</td>
<td>2.43</td>
<td>16.70</td>
<td>-12.3</td>
<td>16.7</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>0.88</td>
<td>-1.12</td>
<td>0.74</td>
<td>0.50</td>
<td>8.80</td>
<td>15.80</td>
<td>-8.0</td>
<td>17.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Greece</td>
<td>1.54</td>
<td>-0.72</td>
<td>-0.49</td>
<td>0.33</td>
<td>1.12</td>
<td>7.83</td>
<td>-10.6</td>
<td>10.6</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>0.02</td>
<td>0.78</td>
<td>1.44</td>
<td>2.24</td>
<td>6.34</td>
<td>10.94</td>
<td>-7.6</td>
<td>15.6</td>
</tr>
<tr class="even">
<td colspan="9" class="firstcol">EU</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>2.33</td>
<td>-1.16</td>
<td>2.94</td>
<td>4.11</td>
<td>6.87</td>
<td>18.53</td>
<td>-2.2</td>
<td>19.1</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">Percentile
is over range since March
2000</td>
</tr>
</tbody>
</table>
ISM Manufacturing Series Show
Broad-Based Gains 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 4, 2010



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104b.jpg" align="right" border="0" height="265" width="353">Improvement
in the U.S. factory sector continued last month from its nadir reached
twelve months earlier. The National Association of Purchasing
Management reported that its December composite index showed unexpected
strength with a rise to 55.9 from 53.6 during November. The latest
figure was the highest since April 2006 and it was up from the low of
32.9 reached last December. A more modest gain to 54.0 had been the
Consensus expectation. (Any reading above the break-even point of 50
suggests rising activity.) The ISM data is available in Haver's USECON
database.
 The positive factory-sector growth rate
suggested by the ISM index is in line with recoveries accompanying past
upturns from severe recessions. To mirror the strength of those
recoveries, however, the index still needs to rise to a level near or
above the level of 60.
The new orders index showed the greatest m/m
gain with its increase to a high of 65.5 from 60.3 in November. Working
the other way, the export order index fell moderately to 54.5 from its
recent high. Nevertheless the index was up from its low of 35.5 last
December. During the last ten years there has been a 53% correlation
between the index and the q/q change in real exports of goods in the
GDP accounts.
 The employment index showed a smaller gain 52.0.
Nevertheless, the level indicated positive growth in factory-sector
payrolls. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104c.jpg" align="right" border="0" height="265" width="353">
It has increased from a low reading of 26.1 last February.
Seventeen percent of respondents indicated higher payrolls versus only
seven percent last December. Eighteen percent indicated a lower level
of hiring versus fifty percent last December. During the last ten years
there has been a 90% correlation between the index level and the
three-month change in manufacturing payrolls.
 The production component
rose modestly to 61.8 but remained lower than its October high of 63.3.
During the last ten years there has been an 84% correlation between the
level of the production component of the composite index and the
three-month growth in factory sector industrial production. It
is appropriate to correlate the ISM index level
with factory sector output growth because the ISM
index is a diffusion index. It measures growth by using all of the
positive changes in activity added to one half of the zero change in
activity measures. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104d.jpg" align="right" border="0" height="265" width="353">A two
point gain in the inventory
component to 43.4 recovered some of its November decline but it still
was down from the October high. Thirteen percent (NSA) of respondents
indicated that they were raising inventory levels versus 18% last
December. During the strong 2005 inventory accumulation 26% of firms
indicated that they were raising inventories. Thirty percent of
respondents indicated lower inventories.
The separate index of prices
paid made up more than half of its November decline and was up from the
December low of 18.0. During the last twenty years there has been a 79%
correlation between the price index and the three-month change in the
PPI for intermediate goods.
The ISM data are available in Haver's USECON
database.
Monetary Policy and the Housing Bubble
is the title of yesterday's speech by Fed Chairman Ben S. Bernanke and
it is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20100103a.htm">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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Dec. '08</th>
<th scope="col">2009</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>55.9</td>
<td>53.6</td>
<td>55.7</td>
<td>32.9</td>
<td>46.3</td>
<td>45.5</td>
<td>51.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>65.5</td>
<td>60.3</td>
<td>58.5</td>
<td>23.1</td>
<td>51.7</td>
<td>42.1</td>
<td>54.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Employment</td>
<td>52.0</td>
<td>50.8</td>
<td>53.1</td>
<td>29.9</td>
<td>40.6</td>
<td>43.2</td>
<td>50.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Production</td>
<td>61.8</td>
<td>59.9</td>
<td>63.3</td>
<td>26.3</td>
<td>50.3</td>
<td>45.2</td>
<td>54.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Supplier Deliveries</td>
<td>56.6</td>
<td>55.7</td>
<td>56.9</td>
<td>45.7</td>
<td>51.4</td>
<td>51.6</td>
<td>51.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>43.4</td>
<td>41.3</td>
<td>46.9</td>
<td>39.6</td>
<td>37.2</td>
<td>45.5</td>
<td>45.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>61.5</td>
<td>55.0</td>
<td>65.0</td>
<td>18.0</td>
<td>48.3</td>
<td>66.5</td>
<td>64.6</td>
</tr>
</tbody>
</table>

U.S. Factory Inventories
&amp;Shipments Increase Again 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 4, 2010



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104e.jpg" align="right" border="0" height="265" width="353">Though its
rate of decline has moderated, construction spending has continued to
move lower. During November construction outlays fell 0.6% after a
little-revised 0.5% October shortfall. The latest decline left the y/y
change at -13.2% which was improved just modestly from the weakest
-15.8% September comparison. The latest decline about matched Consensus
estimates.
 Residential building activity renewed its decline with a
1.6% fall following a 4.8% October gain. The decline owed to a 4.1%
(-44.4% y/y) drop in multi-family building and a 3.9% (-2.8% y/y)
shortfall in spending on improvements. Single-family construction rose
1.3% (-25.2% y/y) for the sixth consecutive monthly increase. 
Nonresidential building activity was roughly unchanged after a
steep
4.8% October decline. Since the 2008 peak, activity has fallen by
22.5%. Spending in the food &amp; beverage industry declined 44.1%
y/y while expenditures in the lodging were off by nearly one-half.
Commercial building overall fell 40.5% y/y while office building
dropped by more than one-third. Relatively moderate were the declines
in the education (-18.8% y/y), religious (-18.3% y/y) and health care
(-16.1% y/y) sectors.&nbsp;Factory sector spending (-7.0% y/y) was
buoyed by gains in the chemical and in the
computer/electronic/electrical sectors.
In the public sector,
construction overall fell a modest 0.4% during November but y/y
expenditures rose despite lower tax revenues. Building activity on
highways &amp; streets fell 2.9% m/m but rose 5.7% y/y due to the
focus on infrastructure rebuilding. Public spending on health care
facilities increased a strong 12.2% y/y but building in the education
sector was off 2.6% y/y.
 The construction put-in-place figures are
available in Haver's USECON database.&nbsp;&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104f.jpg" border="0" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104g.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Construction
(%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.6</td>
<td>-0.5</td>
<td>-1.6</td>
<td>-13.2</td>
<td>-6.9</td>
<td>-1.6</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7</td>
<td>-0.8</td>
<td>-2.4</td>
<td>-20.0</td>
<td>-11.1</td>
<td>-5.7</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.6</td>
<td>4.8</td>
<td>-0.6</td>
<td>-19.2</td>
<td>-29.1</td>
<td>-19.7</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.0</td>
<td>-4.8</td>
<td>-3.7</td>
<td>-20.6</td>
<td>13.2</td>
<td>23.1</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>-0.4</td>
<td>0.0</td>
<td>-0.1</td>
<td>2.7</td>
<td>5.6</td>
<td>13.1</td>
<td>9.3</td>
</tr>
</tbody>
</table>

 Indonesia Avoids Recession 
by <a href="/comment/Curley.html">Louise
Curley</a> January 4, 2010



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104h.jpg" align="right" border="0" height="265" width="353">While
Indonesia has had extensive damage from earthquakes, it has so far
escaped a recession.&nbsp; The closest it has come was the fourth
quarter of 2008 when real gross domestic product increased at an annual
rate of only 0.80%.&nbsp; Subsequent increases have been 3.58% in
the first quarter of 2009, 5.49% in the second and 6.64 in the third
quarter. The annual rates of increase in real GDP over the past six
years are shown in the first chart.
Today, the consumer price
index for December was released.&nbsp;Inflation continues to be
well behaved although there has been a slight increase in the last two
months.&nbsp; The rate of inflation as measured by the year to year
increase in the seasonally unadjusted consumer price index was 2.78%
down from 11.06% in December of 2008.&nbsp; The course of inflation
in Indonesia is shown in the second chart.
Also released
today were Indonesia's exports, imports and balance of trade.&nbsp;
There has been a rising trend in the balance of trade from the 640
million USD deficit in October,2008.&nbsp; Exports at 11,562
million USD are below the peak level of 12,499 million USD reached in
June of 2008 and imports at 9,563 million USD are well below the peak
of 12,142 million USD reached&nbsp; in July 2008.&nbsp; The
third chart shows exports, imports and the balance of trade over the
past six years.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104i.jpg" border="0" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100104j.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDONESIA</th>
<th scope="col">Q4 09</th>
<th scope="col">Q3 09</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1 09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08</th>
<th scope="col">Q2 08</th>
<th scope="col">Q1 08</th>
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="10"> Real Gross Domestic
Product</td>
</tr>
<tr class="odd">
<td class="firstcol">Q/Q Annual Rate of Change in
Real GDP&nbsp; (%)</td>
<td>--</td>
<td>6.64</td>
<td>5.49</td>
<td>3.58</td>
<td>0.80</td>
<td>6.08</td>
<td>7.50</td>
<td>6.75</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Dec 09</td>
<td>Nov 09</td>
<td>Oct 09</td>
<td>Sep 09</td>
<td>Aug 09</td>
<td>Jul 09&nbsp;</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI Y/Y % Change (%)</td>
<td>2.78</td>
<td>2.41</td>
<td>2.57</td>
<td>2.83</td>
<td>2.75</td>
<td>2.71</td>
<td>3.65</td>
<td>6.04</td>
<td>7.31</td>
</tr>
<tr>
<td class="firstcol">Trade</td>
<td>Dec 09</td>
<td>Nov 09</td>
<td>Oct 09</td>
<td>Sep 09</td>
<td>Aug 09</td>
<td>Jul 09&nbsp;</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports&nbsp; (Millions US
$)</td>
<td>--</td>
<td>11562</td>
<td>12108</td>
<td>9588</td>
<td>10257</td>
<td>9260</td>
<td>9135</td>
<td>8756</td>
<td>8872</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports (Millions US $)</td>
<td>--</td>
<td>9563</td>
<td>9903</td>
<td>8288</td>
<td>8963</td>
<td>8161</td>
<td>7645</td>
<td>7165</td>
<td>6512</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance (Millions US $)</td>
<td>--</td>
<td>1999</td>
<td>2205</td>
<td>1308</td>
<td>1294</td>
<td>1099</td>
<td>1490</td>
<td>1591</td>
<td>2362</td>
</tr>
</tbody>
</table>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229b.jpg" align="right" border="0" height="265" width="353">Reports of
retail trade in Spain, Sweden and Hong Kong were among today's
statistical releases.&nbsp; Retail sales are sometimes good
indicators of trends in total GDP.&nbsp; In order to test this
hypothesis, we computed the correlation coefficients between the year
over year percent change in the quarterly values of the value index of
retail sales and the year over year percent change in the value of
total GDP over the past ten years*.&nbsp; The first three charts
show these correlations. The highest correlation was in Spain where
the correlation coefficient was .94.&nbsp; Hong Kong was next at
.87 and Sweden was the lowest at .64.&nbsp; The correlation
coefficient squared, R2, is a measure of the
explanatory power of one variable on the other when all other factors
are held constant.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229c.jpg" align="right" border="0" height="265" width="353">
Thus, in the case of Spain, based on the
experience of the last ten years, the year to year change in retail
sales explains about 88.4% of the variation in total GDP when all other
factors are held constant.&nbsp; In the case of Hong Kong, the year
to year change retail sales explains 75.7% of the change in total GDP
and in the case of Sweden, only 41%. The precise values are less
important than the order of magnitude.&nbsp; Thus, we should expect
the trend in retail sales in Spain to have a greater impact on the
trend in total GDP than that in Hong Kong or Sweden. The fourth chart
shows the year over year changes in monthly retail sales in the three
countries.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229d.jpg" align="right" border="0" height="265" width="353">
On the basis of the past relationship between
retail sales and total GDP the year to year changes in the value of
retail sales in October and November of 9.9% and 11.7% for Hong Kong
suggest there is a good chance that the year to year change in the
fourth quarter total GDP will increase from -1.99% in the third quarter
to perhaps a positive value. The continued negative, though
diminishing, yearly comparisons of retail sales in Spain suggest that
any improvements in year to year comparison for total GDP in the fourth
quarter is likely to be small.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229e.jpg" align="right" border="0" height="265" width="353">
For Sweden, the year to year
increases in retail sales of 5.8% and 5.7% in October and November may
be large enough to have a positive effect on the increase in total GDP
in spite of the fact that the yearly change in retail sales has less
than a major effect on the change in total GDP. *(Computation of the
correlation coefficient can be done in DLXVG3 by clicking on
"Correlation" in the TOOLS menu.)&nbsp;&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Retail Sales,
Value Indexes Y/Y % Change</th>
<th scope="col">Nov 09</th>
<th scope="col">Oct&nbsp; 09</th>
<th scope="col">Sep 09</th>
<th scope="col">Aug 09</th>
<th scope="col">Jul 09&nbsp;</th>
<th scope="col">Jun 09</th>
<th scope="col">May 09</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar 09</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sweden</td>
<td>5.74</td>
<td>5.80</td>
<td>3.38</td>
<td>1.80</td>
<td>7.51</td>
<td>5.16</td>
<td>0.32</td>
<td>5.21</td>
<td>1.26</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-4.99</td>
<td>-6.03</td>
<td>-6.08</td>
<td>-6.51</td>
<td>-7.75</td>
<td>-5.54</td>
<td>-10.91</td>
<td>-10.57</td>
<td>-9.30</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong</td>
<td>11.66</td>
<td>9.87</td>
<td>2.57</td>
<td>-0.07</td>
<td>-5.29</td>
<td>-4.71</td>
<td>-6.20</td>
<td>-4.30</td>
<td>-7.76</td>
</tr>
</tbody>
</table>

</body></html>

Reports of retail trade in Spain, Sweden and Hong Kong were among today's statistical releases. Retail sales are sometimes good indicators of trends in total GDP. In order to test this hypothesis, we computed the correlation [...]

Retail Trade: Predictor Of Change In Total GDP?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229a.jpg" width="353">
Italian business confidence is shooting up strongly but still clings to relatively weak absolute readings. The level of the current reading stands in the 52nd percentile of the range of values occupied since October of 1996. But by rank the current index stands 136th out of 159 readings or in the bottom 12 percentile of all readings over that same span. That is not a very reassuring statistic despite the rise in the index this month. This percentile rank-in-queue measure is uniformly weak across the various components this month. Unfortunately inventories have the highest reading within each commodity category. Of all commodity types consumer goods are doing the best while investment goods and intermediates goods are lagging nearly equally.
The graphic below shows the strength of the current surge depicting both the absolute level of the index and its percentage rise on the same graph. We can hope that the rise continues and that it will bolster the level reading further. But for the rest of the e-Zone a good deal of pessimism remains.
France&#146;s final GDP figure confirms the weak rise in GDP in Q3 although it does show two quarterly gains in a row. In the UK private forecasters have reaffirmed their view of slow growth in the UK for the year to come. Italy&#146;s business survey results seem to fit snugly into this grouping of reports that shows some improvement but still no gusto.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Italy ISAE Business Sentiment
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="5">&nbsp;</td>
<td colspan="2">Since Oct 1996</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Dec-09</td>
<td>Nov-09</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Percentile</td>
<td>Rank</td>
<td>Rank%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Biz Confidence</td>
<td>82.6</td>
<td>79.4</td>
<td>77.8</td>
<td>74.6</td>
<td>52.0</td>
<td>139</td>
<td>12.7%</td>
</tr>
<tr class="grey2">
<td colspan="8">TOTAL INDUSTRY</td>
</tr>
<tr class="grey1">
<td colspan="8">&nbsp; &nbsp;Order books &amp; Demand</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Total</td>
<td>-40</td>
<td>-47</td>
<td>-50</td>
<td>-52</td>
<td>33.8</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Domestic</td>
<td>-41</td>
<td>-47</td>
<td>-49</td>
<td>-49</td>
<td>35.8</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Foreign</td>
<td>-41</td>
<td>-49</td>
<td>-54</td>
<td>-55</td>
<td>35.8</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Inventories</td>
<td>-2</td>
<td>-2</td>
<td>-3</td>
<td>1</td>
<td>37.5</td>
<td>125</td>
<td>21.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Production</td>
<td>-38</td>
<td>-45</td>
<td>-49</td>
<td>-47</td>
<td>28.6</td>
<td>147</td>
<td>7.6%</td>
</tr>
<tr class="grey2">
<td colspan="8">INTERMEDIATE</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp; &nbsp;Order books &amp; Demand</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Total</td>
<td>-52</td>
<td>-55</td>
<td>-57</td>
<td>-55</td>
<td>26.8</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Domestic</td>
<td>-53</td>
<td>-55</td>
<td>-57</td>
<td>-54</td>
<td>27.4</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Foreign</td>
<td>-49</td>
<td>-56</td>
<td>-56</td>
<td>-59</td>
<td>31.6</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Inventories</td>
<td>-4</td>
<td>-6</td>
<td>-7</td>
<td>-1</td>
<td>37.9</td>
<td>113</td>
<td>29.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Production</td>
<td>-48</td>
<td>-51</td>
<td>-52</td>
<td>-51</td>
<td>25.0</td>
<td>147</td>
<td>7.6%</td>
</tr>
<tr class="grey2">
<td colspan="8">INVESTMENT GOODS</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp; &nbsp;Order books &amp; Demand</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Total</td>
<td>-45</td>
<td>-56</td>
<td>-62</td>
<td>-61</td>
<td>26.7</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Domestic</td>
<td>-45</td>
<td>-54</td>
<td>-54</td>
<td>-55</td>
<td>30.0</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Foreign</td>
<td>-48</td>
<td>-54</td>
<td>-66</td>
<td>-61</td>
<td>25.3</td>
<td>147</td>
<td>7.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Inventories</td>
<td>-3</td>
<td>0</td>
<td>-1</td>
<td>-1</td>
<td>36.8</td>
<td>111</td>
<td>30.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Production</td>
<td>-45</td>
<td>-52</td>
<td>-61</td>
<td>-58</td>
<td>21.6</td>
<td>147</td>
<td>7.6%</td>
</tr>
<tr class="grey2">
<td colspan="8">CONSUMER GOODS</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp; &nbsp;Order books &amp; Demand</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp;&nbsp; &nbsp; Total</td>
<td>-23</td>
<td>-32</td>
<td>-36</td>
<td>-38</td>
<td>44.9</td>
<td>133</td>
<td>16.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Domestic</td>
<td>-23</td>
<td>-32</td>
<td>-36</td>
<td>-39</td>
<td>50.0</td>
<td>125</td>
<td>21.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Foreign</td>
<td>-31</td>
<td>-36</td>
<td>-41</td>
<td>-42</td>
<td>37.1</td>
<td>141</td>
<td>11.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Inventories</td>
<td>-2</td>
<td>1</td>
<td>-1</td>
<td>1</td>
<td>34.6</td>
<td>111</td>
<td>30.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp; &nbsp;Production</td>
<td>-21</td>
<td>-33</td>
<td>-37</td>
<td>-33</td>
<td>43.9</td>
<td>137</td>
<td>13.9%</td>
</tr>
<tr class="grey3">
<td colspan="8">Total number of months: 159</td>
</tr>
</tbody>
</table>
</body>
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Italian business confidence is shooting up strongly but still clings to relatively weak absolute readings. The level of the current reading stands in the 52nd percentile of the range of values occupied since October of 1996. But by [...]

Italian Business Confidence Advances...But Still Lags

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229a.jpg" align="left" border="0" height="265" width="353">
Italian business confidence is shooting up strongly but still
clings to relatively weak absolute readings. The level of the current
reading stands in the 52nd percentile of the range of values occupied
since October of 1996. But by rank the current index stands 136th out
of 159 readings or in the bottom 12 percentile of all readings over
that same span. That is not a very reassuring statistic despite the
rise in the index this month. This percentile rank-in-queue measure is
uniformly weak across the various components this month. Unfortunately
inventories have the highest reading within each commodity category. Of
all commodity types consumer goods are doing the best while investment
goods and intermediates goods are lagging nearly equally.
The graphic below shows the strength of the current surge
depicting both the absolute level of the index and its percentage rise
on the same graph. We can hope that the rise continues and that it will
bolster the level reading further. But for the rest of the e-Zone a
good deal of pessimism remains.
France&#8217;s final GDP figure confirms the weak rise in GDP in Q3
although it does show two quarterly gains in a row. In the UK private
forecasters have reaffirmed their view of slow growth in the UK for the
year to come. Italy&#8217;s business survey results seem to fit snugly into
this grouping of reports that shows some improvement but still no gusto.

Italy ISAE Business Sentiment
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="5">&nbsp;</td>
<td colspan="2">Since Oct 1996</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Dec-09</td>
<td>Nov-09</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Percentile</td>
<td>Rank</td>
<td>Rank%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Biz Confidence</td>
<td>82.6</td>
<td>79.4</td>
<td>77.8</td>
<td>74.6</td>
<td>52.0</td>
<td>139</td>
<td>12.7%</td>
</tr>
<tr class="grey2">
<td colspan="8">TOTAL INDUSTRY</td>
</tr>
<tr class="grey1">
<td colspan="8">&nbsp; &nbsp;Order books
&amp; Demand</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Total</td>
<td>-40</td>
<td>-47</td>
<td>-50</td>
<td>-52</td>
<td>33.8</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Domestic</td>
<td>-41</td>
<td>-47</td>
<td>-49</td>
<td>-49</td>
<td>35.8</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Foreign</td>
<td>-41</td>
<td>-49</td>
<td>-54</td>
<td>-55</td>
<td>35.8</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Inventories</td>
<td>-2</td>
<td>-2</td>
<td>-3</td>
<td>1</td>
<td>37.5</td>
<td>125</td>
<td>21.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Production</td>
<td>-38</td>
<td>-45</td>
<td>-49</td>
<td>-47</td>
<td>28.6</td>
<td>147</td>
<td>7.6%</td>
</tr>
<tr class="grey2">
<td colspan="8">INTERMEDIATE</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp; &nbsp;Order books
&amp; Demand</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Total</td>
<td>-52</td>
<td>-55</td>
<td>-57</td>
<td>-55</td>
<td>26.8</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Domestic</td>
<td>-53</td>
<td>-55</td>
<td>-57</td>
<td>-54</td>
<td>27.4</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Foreign</td>
<td>-49</td>
<td>-56</td>
<td>-56</td>
<td>-59</td>
<td>31.6</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Inventories</td>
<td>-4</td>
<td>-6</td>
<td>-7</td>
<td>-1</td>
<td>37.9</td>
<td>113</td>
<td>29.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Production</td>
<td>-48</td>
<td>-51</td>
<td>-52</td>
<td>-51</td>
<td>25.0</td>
<td>147</td>
<td>7.6%</td>
</tr>
<tr class="grey2">
<td colspan="8">INVESTMENT GOODS</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp; &nbsp;Order books
&amp; Demand</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Total</td>
<td>-45</td>
<td>-56</td>
<td>-62</td>
<td>-61</td>
<td>26.7</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Domestic</td>
<td>-45</td>
<td>-54</td>
<td>-54</td>
<td>-55</td>
<td>30.0</td>
<td>146</td>
<td>8.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Foreign</td>
<td>-48</td>
<td>-54</td>
<td>-66</td>
<td>-61</td>
<td>25.3</td>
<td>147</td>
<td>7.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Inventories</td>
<td>-3</td>
<td>0</td>
<td>-1</td>
<td>-1</td>
<td>36.8</td>
<td>111</td>
<td>30.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Production</td>
<td>-45</td>
<td>-52</td>
<td>-61</td>
<td>-58</td>
<td>21.6</td>
<td>147</td>
<td>7.6%</td>
</tr>
<tr class="grey2">
<td colspan="8">CONSUMER GOODS</td>
</tr>
<tr class="grey2">
<td colspan="8">&nbsp; &nbsp;Order books
&amp; Demand</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp;&nbsp; &nbsp;
Total</td>
<td>-23</td>
<td>-32</td>
<td>-36</td>
<td>-38</td>
<td>44.9</td>
<td>133</td>
<td>16.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Domestic</td>
<td>-23</td>
<td>-32</td>
<td>-36</td>
<td>-39</td>
<td>50.0</td>
<td>125</td>
<td>21.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Foreign</td>
<td>-31</td>
<td>-36</td>
<td>-41</td>
<td>-42</td>
<td>37.1</td>
<td>141</td>
<td>11.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Inventories</td>
<td>-2</td>
<td>1</td>
<td>-1</td>
<td>1</td>
<td>34.6</td>
<td>111</td>
<td>30.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; &nbsp;
&nbsp;Production</td>
<td>-21</td>
<td>-33</td>
<td>-37</td>
<td>-33</td>
<td>43.9</td>
<td>137</td>
<td>13.9%</td>
</tr>
<tr class="grey3">
<td colspan="8">Total number of months: 159</td>
</tr>
</tbody>
</table>
Retail Trade: Predictor Of Change
In Total GDP? 
by <a href="/comment/Curley.html">Louise
Curley</a> December 29, 2009

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229b.jpg" align="right" border="0" height="265" width="353">Reports of
retail trade in Spain, Sweden and Hong Kong were among today's
statistical releases.&nbsp; Retail sales are sometimes good
indicators of trends in total GDP.&nbsp; In order to test this
hypothesis, we computed the correlation coefficients between the year
over year percent change in the quarterly values of the value index of
retail sales and the year over year percent change in the value of
total GDP over the past ten years*.&nbsp; The first three charts
show these correlations.
 The highest correlation was in Spain where
the correlation coefficient was .94.&nbsp; Hong Kong was next at
.87 and Sweden was the lowest at .64.&nbsp; The correlation
coefficient squared, R2, is a measure of the
explanatory power of one variable on the other when all other factors
are held constant.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229c.jpg" align="right" border="0" height="265" width="353">
Thus, in the case of Spain, based on the
experience of the last ten years, the year to year change in retail
sales explains about 88.4% of the variation in total GDP when all other
factors are held constant.&nbsp; In the case of Hong Kong, the year
to year change retail sales explains 75.7% of the change in total GDP
and in the case of Sweden, only 41%. The precise values are less
important than the order of magnitude.&nbsp; Thus, we should expect
the trend in retail sales in Spain to have a greater impact on the
trend in total GDP than that in Hong Kong or Sweden.
 The fourth chart
shows the year over year changes in monthly retail sales in the three
countries.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229d.jpg" align="right" border="0" height="265" width="353">
On the basis of the past relationship between
retail sales and total GDP the year to year changes in the value of
retail sales in October and November of 9.9% and 11.7% for Hong Kong
suggest there is a good chance that the year to year change in the
fourth quarter total GDP will increase from -1.99% in the third quarter
to perhaps a positive value. The continued negative, though
diminishing, yearly comparisons of retail sales in Spain suggest that
any improvements in year to year comparison for total GDP in the fourth
quarter is likely to be small.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229e.jpg" align="right" border="0" height="265" width="353">
For Sweden, the year to year
increases in retail sales of 5.8% and 5.7% in October and November may
be large enough to have a positive effect on the increase in total GDP
in spite of the fact that the yearly change in retail sales has less
than a major effect on the change in total GDP. *(Computation of the
correlation coefficient can be done in DLXVG3 by clicking on
"Correlation" in the TOOLS menu.)&nbsp;&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Retail Sales,
Value Indexes Y/Y % Change</th>
<th scope="col">Nov 09</th>
<th scope="col">Oct&nbsp; 09</th>
<th scope="col">Sep 09</th>
<th scope="col">Aug 09</th>
<th scope="col">Jul 09&nbsp;</th>
<th scope="col">Jun 09</th>
<th scope="col">May 09</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar 09</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sweden</td>
<td>5.74</td>
<td>5.80</td>
<td>3.38</td>
<td>1.80</td>
<td>7.51</td>
<td>5.16</td>
<td>0.32</td>
<td>5.21</td>
<td>1.26</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-4.99</td>
<td>-6.03</td>
<td>-6.08</td>
<td>-6.51</td>
<td>-7.75</td>
<td>-5.54</td>
<td>-10.91</td>
<td>-10.57</td>
<td>-9.30</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong</td>
<td>11.66</td>
<td>9.87</td>
<td>2.57</td>
<td>-0.07</td>
<td>-5.29</td>
<td>-4.71</td>
<td>-6.20</td>
<td>-4.30</td>
<td>-7.76</td>
</tr>
</tbody>
</table>

</body></html>

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

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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.

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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

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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.

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- 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

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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.

Economy in Brief

Jump to:

Indonesia Avoids Recession

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Manufacturing Is Digging Out

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Italian Business Confidence Advances...But Still Lags