Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216g.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s service sector as gauged by its tertiary sector index
advanced in October after registering a drop in September. The index is
down by 4.3 percent over 12-months compared to MFG and mining where the
index is down by 14% over 12-months. These drops compare to March and
February lows in the two indices, respectively. In March the tertiary
index was down by 8.6% Yr/Yr. In February the mining and MFG index
scored its largest 12-month drop at -36.9%.
Cleary Japan has been improving sharply from its recession
lows. But while the mining and MFG sector has eight straight months of
improvement in its mo/mo readings, services has only improved for one
month in a row. Services also has improved in five of the past six
months. Still, the tertiary sector is only up by 2.5% from its cycle
low point whereas MFG and mining is up by 23.8% from its cycle low
reading. MFG and mining currently stands by 21.8% below its cycle peak
whereas the services sector is off by just 6.4% from its cycle peak.
Two sectors are experiencing very different recession and recovery
forces.
The service sector stands in the 53rd percentile of its range
while Mining and MFG stands in the 40th percentile of its range, well
below its mid-way mark.
Still, the failure of services to post consistent gains or
strong gains while MFG is improving sharply is a sign that Japan is
still struggling. We know it is having some renewed problems with
deflation. In this environment because the service sector employs so
many, it is easy to see why confidence does not easily come back and
why Japan remains vulnerable to deflation even in face of some export
recovery and a strong MFG rebound. The rising yen has pre-empted the
possibility of compensation for service sector weakness with strong
export-led growth. While Japan&#8217;s exports are recovering they are also
hindered by the continuing strength of the yen. Japan&#8217;s recovery
continues to face a dilemma

&nbsp;Japan Industry Survey
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;</td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-2009</td>
<td>Sep-2009</td>
<td>Aug-2009</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Mining and MFG</td>
<td>86.1</td>
<td>85.7</td>
<td>83.9</td>
<td>85.2</td>
<td>83.1</td>
<td>80.7</td>
<td>110.1</td>
<td>69.5</td>
<td>40.9%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>96.8</td>
<td>96.3</td>
<td>96.9</td>
<td>96.7</td>
<td>96.4</td>
<td>97.0</td>
<td>103.5</td>
<td>89.1</td>
<td>53.5%</td>
</tr>
<tr class="odd">
<td colspan="10" class="firstcol">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s service sector as gauged by its tertiary sector index advanced in October after registering a drop in September. The index is down by 4.3 percent over 12-months compared to MFG and mining where the index is down by 14% over [...]

Japan's Service Sector Shows Improvement

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216d.jpg" align="right" border="0" height="265" width="353">The recent
recovery in home building has been hardly ebullient. Housing starts
rose 8.9% last month to 574,000 (AR) units versus 527,000 during
October, which was revised down slightly. These levels were, however,
6.2% below the 3Q average and remain down 12.4% y/y. More sobering is
the startling decline in housing in recent years. Since the peak in
January of 2006, starts have fallen by more than three-quarters.
November's figure fell short of Consensus expectations for 578,000
starts.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216e.jpg" align="right" border="0" height="265" width="353">Last
month, starts of single-family homes recovered
merely 2.1% to 482,000 after October's 7.1% decline. So far this
quarter, starts have fallen 4.2% from the 3Q average. Despite this loss
of forward momentum, single-family starts have recovered
from the February low. During the last ten years, there has been an 84%
correlation between the q/q change in single-family starts and their
contribution to quarterly GDP growth. The increase in
starts of single-family units was contained to the Southern (12.9% y/y)
and the Western (2.1% y/y) regions of the country. Elsewhere, starts in
the Northeast (2.1% y/y) and in the Midwest (-13.6% y/y) fell
month-to-month. A bit firmer were starts of multi-family units which
nearly doubled m/m during November from their record low. Starts of
apartments, condominiums &amp; town houses still were down 79.6%
from the January 2006 peak.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216f.jpg" align="right" border="0" height="265" width="353">Perhaps
more strength in starts is coming.
Building permits rose 6.0% during November to their highest level in
twelve months. As with starts, permits to build a single-family home
have been relatively strong versus the total. Moreover, they rose 5.3%
versus 3Q they have risen 38.3% from the January low.The
housing starts figures can be found in Haver's USECON database.Housing's
Great Fall: Putting Household Balance Sheets Together Again
from the Federal Reserve Bank of St. Louis is available <a href="http://www.stlouisfed.org/publications/re/articles/?id=1716">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">Housing
Starts (000s, SAAR)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Nov. 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>574</td>
<td>527</td>
<td>586</td>
<td>-12.4%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>482</td>
<td>472</td>
<td>508</td>
<td>5.5</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>92</td>
<td>55</td>
<td>78</td>
<td>-53.5</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>584</td>
<td>551</td>
<td>575</td>
<td>-7.3</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>

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The recent recovery in home building has been hardly ebullient. Housing starts rose 8.9% last month to 574,000 (AR) units versus 527,000 during October, which was revised down slightly. These levels were, however, 6.2% below the 3Q [...]

U.S. Housing Starts Improve Modestly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216a.jpg" align="right" border="0" height="265" width="353">Pricing
power took on a new dimension last month. Despite higher fuel costs,
core prices were unchanged, a result not seen since the depths of the
recent recession. The overall November CPI matched Consensus
expectations and rose 0.4% after an unrevised 0.3% October increase.
Other than energy &amp; food prices, however, consumer prices were
flat. The last time they were unchanged was December of last year when
recessionary forces were gathering steam.

Energy prices
jumped 4.1% m/m and have risen 18.7% so far this year. Gasoline prices
were quite strong posting a 6.4% (23.6% y/y) increase and rising by
more-than-half since December. Fuel oil prices also were firm and rose
7.3% (-7.7% y/y) following a 6.0% gain during October. Finally, prices
for natural gas &amp; electricity rose 1.4% (-5.0% y/y) but are
down 5.1% this year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216b.jpg" align="right" border="0" height="265" width="353">Food
&amp; beverage prices posted another
modest 0.1% uptick. So far this year, food prices have fallen an
unprecedented 0.5%. Recent weakness has been led by lower dairy prices
(-9.0% y/y) and lower fruit &amp; vegetable (-4.9% y/y) costs.
Prices for meats, poultry, fish &amp; eggs also fell 4.0% y/y while
cereals &amp; bakery product prices slipped 0.8%.
Consumer prices
less food &amp; energy were unchanged following two months of 0.2%
increase. A 0.1% November uptick had been expected. The 1.7% y/y gain
has been the annual growth rate of core prices all this year. Core
services prices continue to feel the recession's effect and
slipped slightly last month. Their 1.3% y/y gain was a record
low. Weakness in the housing market accounts for much of that
moderation. Last month, shelter prices slipped 0.2% and they've risen a
minimal 0.2% so far in 2009. Owners equivalent rent of primary
residences, a measure not equivalent to other house price measures,
slipped for the fourth month in the last five and have risen 0.7% so
far this year after a 2.5% increase during 2008. Elsewhere in services,
public transportation prices were strong again and posted a 2.6%
increase. Recent gains are, however, just making up for declines during
the recession.&nbsp;Medical care services prices increased 0.4%
(3.5% y/y). Finally, education costs have been firm, up 4.8% y/y after
a 5.8% gain during 2008. The annual gain is, however, down from the
6.9% increase during 2004. Recreation prices have really shown the
recession's effect and are down 0.2% y/y after a 1.6% 2008 gain. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216c.jpg" align="right" border="0" height="265" width="353">Despite
the weak economy, core goods prices have
been relatively firm and last month increased 0.2%. The increase lifted
prices 2.8% since December following no change during the prior two
years. Higher tobacco prices continued to account for much of the
recent strength and rose 1.0% last month (30.3% y/y). New &amp;
used motor vehicles also have firmed considerably. The 0.8% increase
last month lifted prices by 5.2% since December. That compares with
price deflation during the last two years. Working the other way,
apparel prices fell for the third month in the last four (1.0% y/y.
That follows price declines which extend back to 1994. Continuing weak
were prices for household furnishings &amp; operation. They fell
another 0.3%, leaving them down 1.1% so far this year. · The chained
CPI, which adjusts for shifts in consumption patterns, was unchanged
during November and year-to-year prices rose 1.6%. Conversely, chained
prices less food and energy edged 0.2% lower last month. 
The consumer
price data is available in Haver's USECON database
while detailed figures can be found in the CPIDATA
database.&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/@E8/@E801/@E80101/@E80101.HTM" style="color: white;">Consumer Price Index</a> 
(%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Nov. 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&nbsp;</td>
<td>0.4</td>
<td>0.3</td>
<td>0.2</td>
<td>1.8</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.2</td>
<td>0.4</td>
<td>0.3</td>
<td>2.6</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>-0.0</td>
<td>0.1</td>
<td>0.1</td>
<td>1.3</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>4.1</td>
<td>1.5</td>
<td>0.6</td>
<td>7.7</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.1</td>
<td>0.1</td>
<td>-0.1</td>
<td>-0.5</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: Black;">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.0</td>
<td>0.1</td>
<td>0.1</td>
<td>1.6</td>
<td>3.3</td>
<td>2.5</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>-0.2</td>
<td>0.3</td>
<td>0.2</td>
<td>1.3</td>
<td>1.9</td>
<td>1.9</td>
<td>2.2</td>
</tr>
</tbody>
</table>

</body></html>

Pricing power took on a new dimension last month. Despite higher fuel costs, core prices were unchanged, a result not seen since the depths of the recent recession. The overall November CPI matched Consensus expectations and rose 0.4% [...]

CPI's 0.4% Gain Is Fueled By Energy; Core Prices Are Unchanged

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216a.jpg" align="right" border="0" height="265" width="353">Pricing
power took on a new dimension last month. Despite higher fuel costs,
core prices were unchanged, a result not seen since the depths of the
recent recession. The overall November CPI matched Consensus
expectations and rose 0.4% after an unrevised 0.3% October increase.
Other than energy &amp; food prices, however, consumer prices were
flat. The last time they were unchanged was December of last year when
recessionary forces were gathering steam.


Energy prices
jumped 4.1% m/m and have risen 18.7% so far this year. Gasoline prices
were quite strong posting a 6.4% (23.6% y/y) increase and rising by
more-than-half since December. Fuel oil prices also were firm and rose
7.3% (-7.7% y/y) following a 6.0% gain during October. Finally, prices
for natural gas &amp; electricity rose 1.4% (-5.0% y/y) but are
down 5.1% this year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216b.jpg" align="right" border="0" height="265" width="353">Food
&amp; beverage prices posted another
modest 0.1% uptick. So far this year, food prices have fallen an
unprecedented 0.5%. Recent weakness has been led by lower dairy prices
(-9.0% y/y) and lower fruit &amp; vegetable (-4.9% y/y) costs.
Prices for meats, poultry, fish &amp; eggs also fell 4.0% y/y while
cereals &amp; bakery product prices slipped 0.8%.
Consumer prices
less food &amp; energy were unchanged following two months of 0.2%
increase. A 0.1% November uptick had been expected. The 1.7% y/y gain
has been the annual growth rate of core prices all this year. Core
services prices continue to feel the recession's effect and
slipped slightly last month. Their 1.3% y/y gain was a record
low. Weakness in the housing market accounts for much of that
moderation. Last month, shelter prices slipped 0.2% and they've risen a
minimal 0.2% so far in 2009. Owners equivalent rent of primary
residences, a measure not equivalent to other house price measures,
slipped for the fourth month in the last five and have risen 0.7% so
far this year after a 2.5% increase during 2008. Elsewhere in services,
public transportation prices were strong again and posted a 2.6%
increase. Recent gains are, however, just making up for declines during
the recession.&nbsp;Medical care services prices increased 0.4%
(3.5% y/y). Finally, education costs have been firm, up 4.8% y/y after
a 5.8% gain during 2008. The annual gain is, however, down from the
6.9% increase during 2004. Recreation prices have really shown the
recession's effect and are down 0.2% y/y after a 1.6% 2008 gain. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216c.jpg" align="right" border="0" height="265" width="353">Despite
the weak economy, core goods prices have
been relatively firm and last month increased 0.2%. The increase lifted
prices 2.8% since December following no change during the prior two
years. Higher tobacco prices continued to account for much of the
recent strength and rose 1.0% last month (30.3% y/y). New &amp;
used motor vehicles also have firmed considerably. The 0.8% increase
last month lifted prices by 5.2% since December. That compares with
price deflation during the last two years. Working the other way,
apparel prices fell for the third month in the last four (1.0% y/y.
That follows price declines which extend back to 1994. Continuing weak
were prices for household furnishings &amp; operation. They fell
another 0.3%, leaving them down 1.1% so far this year. · The chained
CPI, which adjusts for shifts in consumption patterns, was unchanged
during November and year-to-year prices rose 1.6%. Conversely, chained
prices less food and energy edged 0.2% lower last month. 
The consumer
price data is available in Haver's USECON database
while detailed figures can be found in the CPIDATA
database.&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/@E8/@E801/@E80101/@E80101.HTM" style="color: white;">Consumer Price Index</a> 
(%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Nov. 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&nbsp;</td>
<td>0.4</td>
<td>0.3</td>
<td>0.2</td>
<td>1.8</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.2</td>
<td>0.4</td>
<td>0.3</td>
<td>2.6</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>-0.0</td>
<td>0.1</td>
<td>0.1</td>
<td>1.3</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>4.1</td>
<td>1.5</td>
<td>0.6</td>
<td>7.7</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.1</td>
<td>0.1</td>
<td>-0.1</td>
<td>-0.5</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: Black;">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.0</td>
<td>0.1</td>
<td>0.1</td>
<td>1.6</td>
<td>3.3</td>
<td>2.5</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>-0.2</td>
<td>0.3</td>
<td>0.2</td>
<td>1.3</td>
<td>1.9</td>
<td>1.9</td>
<td>2.2</td>
</tr>
</tbody>
</table>

 U.S. Housing Starts Improve
Modestly 
by <a href="/comment/Moeller.html">Tom
Moeller</a> December 16, 2009

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216d.jpg" align="right" border="0" height="265" width="353">The recent
recovery in home building has been hardly ebullient. Housing starts
rose 8.9% last month to 574,000 (AR) units versus 527,000 during
October, which was revised down slightly. These levels were, however,
6.2% below the 3Q average and remain down 12.4% y/y. More sobering is
the startling decline in housing in recent years. Since the peak in
January of 2006, starts have fallen by more than three-quarters.
November's figure fell short of Consensus expectations for 578,000
starts.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216e.jpg" align="right" border="0" height="265" width="353">Last
month, starts of single-family homes recovered
merely 2.1% to 482,000 after October's 7.1% decline. So far this
quarter, starts have fallen 4.2% from the 3Q average. Despite this loss
of forward momentum, single-family starts have recovered
from the February low. During the last ten years, there has been an 84%
correlation between the q/q change in single-family starts and their
contribution to quarterly GDP growth. The increase in
starts of single-family units was contained to the Southern (12.9% y/y)
and the Western (2.1% y/y) regions of the country. Elsewhere, starts in
the Northeast (2.1% y/y) and in the Midwest (-13.6% y/y) fell
month-to-month.
 A bit firmer were starts of multi-family units which
nearly doubled m/m during November from their record low. Starts of
apartments, condominiums &amp; town houses still were down 79.6%
from the January 2006 peak.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216f.jpg" align="right" border="0" height="265" width="353">Perhaps
more strength in starts is coming.
Building permits rose 6.0% during November to their highest level in
twelve months. As with starts, permits to build a single-family home
have been relatively strong versus the total. Moreover, they rose 5.3%
versus 3Q they have risen 38.3% from the January low.
The
housing starts figures can be found in Haver's USECON database.
Housing's
Great Fall: Putting Household Balance Sheets Together Again
from the Federal Reserve Bank of St. Louis is available <a href="http://www.stlouisfed.org/publications/re/articles/?id=1716">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">Housing
Starts (000s, SAAR)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Nov. 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>574</td>
<td>527</td>
<td>586</td>
<td>-12.4%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>482</td>
<td>472</td>
<td>508</td>
<td>5.5</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>92</td>
<td>55</td>
<td>78</td>
<td>-53.5</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>584</td>
<td>551</td>
<td>575</td>
<td>-7.3</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>

 Japan's Service Sector Shows
Improvement 
by <a href="/comment/Brusca.html">Robert
Brusca</a> December 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216g.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s service sector as gauged by its tertiary sector index
advanced in October after registering a drop in September. The index is
down by 4.3 percent over 12-months compared to MFG and mining where the
index is down by 14% over 12-months. These drops compare to March and
February lows in the two indices, respectively. In March the tertiary
index was down by 8.6% Yr/Yr. In February the mining and MFG index
scored its largest 12-month drop at -36.9%.
Cleary Japan has been improving sharply from its recession
lows. But while the mining and MFG sector has eight straight months of
improvement in its mo/mo readings, services has only improved for one
month in a row. Services also has improved in five of the past six
months. Still, the tertiary sector is only up by 2.5% from its cycle
low point whereas MFG and mining is up by 23.8% from its cycle low
reading. MFG and mining currently stands by 21.8% below its cycle peak
whereas the services sector is off by just 6.4% from its cycle peak.
Two sectors are experiencing very different recession and recovery
forces.
The service sector stands in the 53rd percentile of its range
while Mining and MFG stands in the 40th percentile of its range, well
below its mid-way mark.
Still, the failure of services to post consistent gains or
strong gains while MFG is improving sharply is a sign that Japan is
still struggling. We know it is having some renewed problems with
deflation. In this environment because the service sector employs so
many, it is easy to see why confidence does not easily come back and
why Japan remains vulnerable to deflation even in face of some export
recovery and a strong MFG rebound. The rising yen has pre-empted the
possibility of compensation for service sector weakness with strong
export-led growth. While Japan&#8217;s exports are recovering they are also
hindered by the continuing strength of the yen. Japan&#8217;s recovery
continues to face a dilemma

&nbsp;Japan Industry Survey
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;</td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-2009</td>
<td>Sep-2009</td>
<td>Aug-2009</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Mining and MFG</td>
<td>86.1</td>
<td>85.7</td>
<td>83.9</td>
<td>85.2</td>
<td>83.1</td>
<td>80.7</td>
<td>110.1</td>
<td>69.5</td>
<td>40.9%</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>96.8</td>
<td>96.3</td>
<td>96.9</td>
<td>96.7</td>
<td>96.4</td>
<td>97.0</td>
<td>103.5</td>
<td>89.1</td>
<td>53.5%</td>
</tr>
<tr class="odd">
<td colspan="10" class="firstcol">Ranges,
Max, Min since 1993</td>
</tr>
</tbody>
</table>
 FOMC Notes Economic &amp; Job
Market Improvement But Leaves Rates Unchanged 
by <a href="/comment/Moeller.html">Tom
Moeller</a> December 16, 2009

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216h.jpg" align="right" border="0" height="265" width="353">In an
anticipated and unanimous vote, the Federal Open Market Committee today
left the Federal funds rate in a "range from 0 to 1/4 percent." The
discount rate also was left unchanged at 0.5%. The action was as
expected and left the Fed funds rate at its lowest level ever.
"Information received since the Federal Open Market Committee
met in
November suggests that economic activity has continued to pick up and
that the deterioration in the labor market is abating." Thus reads the
opening statement from today's FOMC meeting press release. The
statement then cites improvement in each of the economy's sectors;
however, it notes that activity "is likely to remain weak for a time
..."
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216i.jpg" align="right" border="0" height="265" width="353">The
statement goes on to suggest that economic strengthening will
result from monetary &amp; fiscal stimulus. 
The Fed mentioned
price inflation twice, indicating that "higher levels of resource
utilization would occur in the context of price stability" and that
"inflation will remain subdued for some time" as resource utilization
remained low.
Again the Fed indicated that moderate economic growth
and slack capacity utilization would allow rates to say low for an
extended period of time. Also, "To provide support to mortgage lending
and housing markets and to improve overall conditions in private credit
markets, the Federal Reserve is in the process of purchasing $1.25
trillion of agency mortgage-backed securities and about $175 billion of
agency debt. In order to promote a smooth transition in markets, the
Committee is gradually slowing the pace of these purchases, and it
anticipates that these transactions will be executed by the end of the
first quarter of 2010."
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091216j.jpg" align="right" border="0" height="265" width="353">A complete
text of the Fed's latest press
release can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20091216a.htm">here</a>.
The Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.
 Supply
and Demand Shocks in Residential Mortgages from the Federal
Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/trends/2009/1209/01banfin.cfm">
here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>

</body></html>

CPI's 0.4% Gain Is Fueled ByEnergy; Core Prices Are Unchanged

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215g.jpg" align="right" border="0" height="265" width="353">
Industrial
production resumed the increase that began this past July. The November
0.8% gain followed an unrevised unchanged reading for October and it
exceeded Consensus expectations for a 0.6% rise. The improvement from
October was across-the-board but it was greatest in the construction
supplies and in the materials areas. Output of consumer goods rose a
moderate 0.3% and that was led by a 2.9% (-13.5% y/y) increase in
furniture production and a 1.9% (-6.9% y/y) increase in motor vehicle
output. Output of machinery also rose (-19.7% y/y) as did computers
&amp; electronics (-4.0% y/y) production. Less the motor vehicle
&amp; high-tech sectors output increased 0.8%&nbsp;(-5.1% y/y)
last month. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215h.jpg" align="right" border="0" height="265" width="353">During
November, production increases amongst
industries sagged somewhat to 52.9% of the total from the high of 60.6%
during August. The breadth of increase from last July also dipped to a
still-firm 59.9%, near the strongest since early-2007.

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215i.jpg" align="right" border="0" height="265" width="353">Capacity
utilization rose further to 71.3%, its
highest level since December. In the factory sector alone utilization
rose to 68.4%. Utilization in the primary metals area has risen sharply
to 59.1% with the rebound in output. There's also been a slight rise in
utilization in the machinery area but it's down most elsewhere. The
overall increase was caused by another estimated 0.1% (-0.9% y/y)
decline in industry capacity.The industrial production data
are available in Haver's USECON database.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Industrial
Production (SA,%)</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 Output</td>
<td>0.8</td>
<td>0.0</td>
<td>0.5</td>
<td>-5.2</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;Manufacturing</td>
<td>1.1</td>
<td>-0.2</td>
<td>0.6</td>
<td>-4.8</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Consumer
Goods</td>
<td>0.3</td>
<td>0.1</td>
<td>1.0</td>
<td>-1.9</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Business
Equipment</td>
<td>0.5</td>
<td>-0.3</td>
<td>-0.4</td>
<td>-8.1</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Construction
Supplies</td>
<td>1.6</td>
<td>-1.6</td>
<td>-1.2</td>
<td>-12.5</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Materials</td>
<td>1.2</td>
<td>0.1</td>
<td>0.7</td>
<td>-4.8</td>
<td>-1.9</td>
<td>2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-1.8</td>
<td>1.6</td>
<td>0.3</td>
<td>-5.1</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization
(%)</td>
<td>71.3</td>
<td>70.6</td>
<td>70.0</td>
<td>74.4 (Nov. '08)</td>
<td>77.5</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>

</body></html>

Industrial production resumed the increase that began this past July. The November 0.8% gain followed an unrevised unchanged reading for October and it exceeded Consensus expectations for a 0.6% rise. The improvement from October was [...]

Factory Production Resumes Increase

Louise Curley

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background-color:#b8b8b8; German Investors A Little Less Optimistic
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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215d.jpg" align="right" border="0" height="265" width="353">
The ZEW
indicator of investors sentiment in Germany declined for the third
month in December.&nbsp; The percent balance of opinion on macro
expectations six months ahead is now at 50.4%, down 7.3 percentage
points from the peak of 57.7% in September.&nbsp; The
current&nbsp; level, however, is well above the long term average
of 27.0%.&nbsp; Although the balance between those respondents who
view current conditions negatively over those who view them positively
is still high at 60.6%, it declined five percentage points in December
and is well below the peak, 92.8%, reached in May of this year when it
was hard to find any optimists.&nbsp; The first chart shows the
percent balances for current conditions and the macro expectations over
the next six months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215e.jpg" align="right" border="0" height="265" width="353">
The survey is based on the opinions of 277
investors and analysts and took place from November 30 through December
14.&nbsp; During that period, data on new orders, industrial
production and retail sales for October were announced.&nbsp;
Industrial Production was down 1.86%, new orders for manufacturing were
down 2.57%, motor vehicle sales were down 1.37% and retail sales,
excluding motor vehicle sales, were flat.&nbsp; These data
suggested that the economic expansion might be somewhat slower than
earlier expectations and may have dampened some of the optimism of the
participants.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215f.jpg" align="right" border="0" height="265" width="353">
In spite of the decline in the overall outlook,
participants in the survey are still relatively optimistic regarding
the profit outlook.&nbsp; There are only four industries out of the
thirteen industries surveyed where the current balance of opinion is
for lower profits.&nbsp; These are: banking, construction,
utilities and services.&nbsp; They are shown in the second
chart.&nbsp;&nbsp; Of the remaining industries--insurance,
chemicals/pharmaceuticals, steel/metal, electronics, machinery,
telecommunications, information technology--the balance of opinion is
for higher profits; and for vehicles/automotive and consumption/trade,
the balance of opinion is for smaller losses.&nbsp; The balance of
opinion for higher profits has risen significantly for the information
technology, machinery, steel/metal and chemicals/pharmaceuticals
industries, as can be seen in the third chart.&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">&nbsp;</th>
<th scope="col">Dec 09</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">April 09</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Current Conditions</td>
<td>-60.6</td>
<td>-65.6</td>
<td>-72.2</td>
<td>-74.0</td>
<td>-77.2</td>
<td>-89.3</td>
<td>-89.7</td>
<td>-92.8</td>
<td>-91.6</td>
</tr>
<tr>
<td class="firstcol">Macro Expectations (6 Months
Ahead)&nbsp;</td>
<td>50.4</td>
<td>51.1</td>
<td>56.0</td>
<td>57.7</td>
<td>56.1</td>
<td>39.5</td>
<td>44.8</td>
<td>31.1</td>
<td>13.0</td>
</tr>
</tbody>
</table>
</body></html>

The ZEW indicator of investors sentiment in Germany declined for the third month in December. The percent balance of opinion on macro expectations six months ahead is now at 50.4%, down 7.3 percentage points from the peak of 57.7% in [...]

Rising Exports Fuel Rise in Japanese Industrial Production

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215a.jpg" align="right" border="0" height="265" width="353">There
was a
broadening of inflationary pressure last month as measured by the
producer price index. The PPI for finished goods jumped 1.8% after the
tame 0.3% October increase. The rise was by far the largest increase in
months and it lifted the y/y gain to 2.7%, its fastest since October of
last year. In addition, the November increase was more-than-double the
Consensus expectation.

 Higher energy costs led the strength in the
PPI last month. The 6.9% increase lifted the y/y increase to 10.6%, its
strongest since September 2008. Gasoline prices increased 8.2% (35.9%
y/y). Elsewhere, the gain in energy prices was more moderate. Fuel oil
prices increased 10.8% but they remained down 7.1% from last year.
Natural gas prices also increased a lesser 3.9% and they were down
15.6% from the year ago level. Food prices increased a moderate 0.5%
but the increase left prices 1.6% lower than last year. Beef &amp;
veal prices were off 8.4% y/y, dairy product prices fell 7.3% and
vegetable prices slumped 3.2% y/y.


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215b.jpg" align="right" border="0" height="265" width="353">Excluding
food
&amp; energy prices rose 0.5% and reversed the October decline. The
m/m increase in the core PPI contrasted with expectations for a modest
0.2% increase. The PPI for finished consumer goods less food &amp;
energy rose 0.5% (1.2% y/y) and also reversed the October
decline.&nbsp; Finished durables prices increased 0.6% (0.8% y/y)
while core finished consumer nondurable goods prices rose a modest 0.4%
(2.3% y/y). Capital equipment prices increased for the first time in
three months. The 0.4% increase nevertheless left prices up just 0.4%
y/y, nearly the weakest increase since 2003.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215c.jpg" align="right" border="0" height="265" width="353">
Prices for intermediate
goods jumped 1.4%, reflecting the strength in energy prices. Core
prices also firmed and the 0.3% increase reversed the October decline.
The y/y gain in prices amounted to 0.3% which was a reversal from the
2.4% price deflation at the end of last year. Chemical, lumber and
metals prices have firmed. The crude materials PPI again reflected the
strength in energy prices and rose 5.7%. Core prices gave back the
October gain but y/y were up 20.4% due to the improved economy.
The
producer price data is available in Haver's USECON
database. More detailed data is in the PPI and in
the PPIR databases.· Bank Relationships
and the Depth of the Current Economic Crisis from the
Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-38.html">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/@E8/@E802/@E80201/@E80201.HTM" style="color: rgb(255, 255, 255);">Producer Price Index</a>(%)</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">Finished Goods</td>
<td>1.8</td>
<td>0.3</td>
<td>-0.6</td>
<td>2.7</td>
<td>6.4</td>
<td>3.9</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.5</td>
<td>-0.6</td>
<td>-0.1</td>
<td>1.2</td>
<td>3.4</td>
<td>2.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.4</td>
<td>0.3</td>
<td>0.2</td>
<td>-1.5</td>
<td>10.5</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.3</td>
<td>-0.2</td>
<td>0.9</td>
<td>-3.0</td>
<td>7.4</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>5.7</td>
<td>5.4</td>
<td>-2.1</td>
<td>4.8</td>
<td>21.4</td>
<td>11.9</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.8</td>
<td>0.5</td>
<td>3.6</td>
<td>&nbsp;20.4</td>
<td>14.8</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>

</body></html>

There was a broadening of inflationary pressure last month as measured by the producer price index. The PPI for finished goods jumped 1.8% after the tame 0.3% October increase. The rise was by far the largest increase in months and it [...]

U.S. PPI Jumps As Fuel Costs Surge; Core Prices Remain Strong

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215a.jpg" align="right" border="0" height="265" width="353">There
was a
broadening of inflationary pressure last month as measured by the
producer price index. The PPI for finished goods jumped 1.8% after the
tame 0.3% October increase. The rise was by far the largest increase in
months and it lifted the y/y gain to 2.7%, its fastest since October of
last year. In addition, the November increase was more-than-double the
Consensus expectation.


 Higher energy costs led the strength in the
PPI last month. The 6.9% increase lifted the y/y increase to 10.6%, its
strongest since September 2008. Gasoline prices increased 8.2% (35.9%
y/y). Elsewhere, the gain in energy prices was more moderate. Fuel oil
prices increased 10.8% but they remained down 7.1% from last year.
Natural gas prices also increased a lesser 3.9% and they were down
15.6% from the year ago level. Food prices increased a moderate 0.5%
but the increase left prices 1.6% lower than last year. Beef &amp;
veal prices were off 8.4% y/y, dairy product prices fell 7.3% and
vegetable prices slumped 3.2% y/y.


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215b.jpg" align="right" border="0" height="265" width="353">Excluding
food
&amp; energy prices rose 0.5% and reversed the October decline. The
m/m increase in the core PPI contrasted with expectations for a modest
0.2% increase. The PPI for finished consumer goods less food &amp;
energy rose 0.5% (1.2% y/y) and also reversed the October
decline.&nbsp; Finished durables prices increased 0.6% (0.8% y/y)
while core finished consumer nondurable goods prices rose a modest 0.4%
(2.3% y/y). Capital equipment prices increased for the first time in
three months. The 0.4% increase nevertheless left prices up just 0.4%
y/y, nearly the weakest increase since 2003.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215c.jpg" align="right" border="0" height="265" width="353">
Prices for intermediate
goods jumped 1.4%, reflecting the strength in energy prices. Core
prices also firmed and the 0.3% increase reversed the October decline.
The y/y gain in prices amounted to 0.3% which was a reversal from the
2.4% price deflation at the end of last year. Chemical, lumber and
metals prices have firmed. The crude materials PPI again reflected the
strength in energy prices and rose 5.7%. Core prices gave back the
October gain but y/y were up 20.4% due to the improved economy.
The
producer price data is available in Haver's USECON
database. More detailed data is in the PPI and in
the PPIR databases.· Bank Relationships
and the Depth of the Current Economic Crisis from the
Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-38.html">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/@E8/@E802/@E80201/@E80201.HTM" style="color: rgb(255, 255, 255);">Producer Price Index</a>(%)</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">Finished Goods</td>
<td>1.8</td>
<td>0.3</td>
<td>-0.6</td>
<td>2.7</td>
<td>6.4</td>
<td>3.9</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.5</td>
<td>-0.6</td>
<td>-0.1</td>
<td>1.2</td>
<td>3.4</td>
<td>2.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.4</td>
<td>0.3</td>
<td>0.2</td>
<td>-1.5</td>
<td>10.5</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.3</td>
<td>-0.2</td>
<td>0.9</td>
<td>-3.0</td>
<td>7.4</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>5.7</td>
<td>5.4</td>
<td>-2.1</td>
<td>4.8</td>
<td>21.4</td>
<td>11.9</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.8</td>
<td>0.5</td>
<td>3.6</td>
<td>&nbsp;20.4</td>
<td>14.8</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>

 Rising Exports Fuel Rise in
Japanese Industrial Production 
by <a href="/comment/Curley.html">Louise
Curley</a> December 15, 2009

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215d.jpg" align="right" border="0" height="265" width="353">The ZEW
indicator of investors sentiment in Germany declined for the third
month in December.&nbsp; The percent balance of opinion on macro
expectations six months ahead is now at 50.4%, down 7.3 percentage
points from the peak of 57.7% in September.&nbsp; The
current&nbsp; level, however, is well above the long term average
of 27.0%.&nbsp; Although the balance between those respondents who
view current conditions negatively over those who view them positively
is still high at 60.6%, it declined five percentage points in December
and is well below the peak, 92.8%, reached in May of this year when it
was hard to find any optimists.&nbsp; The first chart shows the
percent balances for current conditions and the macro expectations over
the next six months.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215e.jpg" align="right" border="0" height="265" width="353">The survey
is based on the opinions of 277
investors and analysts and took place from November 30 through December
14.&nbsp; During that period, data on new orders, industrial
production and retail sales for October were announced.&nbsp;
Industrial Production was down 1.86%, new orders for manufacturing were
down 2.57%, motor vehicle sales were down 1.37% and retail sales,
excluding motor vehicle sales, were flat.&nbsp; These data
suggested that the economic expansion might be somewhat slower than
earlier expectations and may have dampened some of the optimism of the
participants.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215f.jpg" align="right" border="0" height="265" width="353">In spite
of the decline in the overall outlook,
participants in the survey are still relatively optimistic regarding
the profit outlook.&nbsp; There are only four industries out of the
thirteen industries surveyed where the current balance of opinion is
for lower profits.&nbsp; These are: banking, construction,
utilities and services.&nbsp; They are shown in the second
chart.&nbsp;&nbsp; Of the remaining industries--insurance,
chemicals/pharmaceuticals, steel/metal, electronics, machinery,
telecommunications, information technology--the balance of opinion is
for higher profits; and for vehicles/automotive and consumption/trade,
the balance of opinion is for smaller losses.&nbsp; The balance of
opinion for higher profits has risen significantly for the information
technology, machinery, steel/metal and chemicals/pharmaceuticals
industries, as can be seen in the third chart.&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">&nbsp;</th>
<th scope="col">Dec 09</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">April 09</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Current Conditions</td>
<td>-60.6</td>
<td>-65.6</td>
<td>-72.2</td>
<td>-74.0</td>
<td>-77.2</td>
<td>-89.3</td>
<td>-89.7</td>
<td>-92.8</td>
<td>-91.6</td>
</tr>
<tr>
<td class="firstcol">Macro Expectations (6 Months
Ahead)&nbsp;</td>
<td>50.4</td>
<td>51.1</td>
<td>56.0</td>
<td>57.7</td>
<td>56.1</td>
<td>39.5</td>
<td>44.8</td>
<td>31.1</td>
<td>13.0</td>
</tr>
</tbody>
</table>

 Factory Production Resumes
Increase 
by <a href="/comment/Moeller.html">Tom
Moeller</a> December 15, 2009

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215g.jpg" align="right" border="0" height="265" width="353">Industrial
production resumed the increase that began this past July. The November
0.8% gain followed an unrevised unchanged reading for October and it
exceeded Consensus expectations for a 0.6% rise. The improvement from
October was across-the-board but it was greatest in the construction
supplies and in the materials areas. Output of consumer goods rose a
moderate 0.3% and that was led by a 2.9% (-13.5% y/y) increase in
furniture production and a 1.9% (-6.9% y/y) increase in motor vehicle
output. Output of machinery also rose (-19.7% y/y) as did computers
&amp; electronics (-4.0% y/y) production. Less the motor vehicle
&amp; high-tech sectors output increased 0.8%&nbsp;(-5.1% y/y)
last month. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215h.jpg" align="right" border="0" height="265" width="353">During
November, production increases amongst
industries sagged somewhat to 52.9% of the total from the high of 60.6%
during August. The breadth of increase from last July also dipped to a
still-firm 59.9%, near the strongest since early-2007.

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091215i.jpg" align="right" border="0" height="265" width="353">Capacity
utilization rose further to 71.3%, its
highest level since December. In the factory sector alone utilization
rose to 68.4%. Utilization in the primary metals area has risen sharply
to 59.1% with the rebound in output. There's also been a slight rise in
utilization in the machinery area but it's down most elsewhere. The
overall increase was caused by another estimated 0.1% (-0.9% y/y)
decline in industry capacity.
The industrial production data
are available in Haver's USECON database.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Industrial
Production (SA,%)</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 Output</td>
<td>0.8</td>
<td>0.0</td>
<td>0.5</td>
<td>-5.2</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;Manufacturing</td>
<td>1.1</td>
<td>-0.2</td>
<td>0.6</td>
<td>-4.8</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Consumer
Goods</td>
<td>0.3</td>
<td>0.1</td>
<td>1.0</td>
<td>-1.9</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Business
Equipment</td>
<td>0.5</td>
<td>-0.3</td>
<td>-0.4</td>
<td>-8.1</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Construction
Supplies</td>
<td>1.6</td>
<td>-1.6</td>
<td>-1.2</td>
<td>-12.5</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;Materials</td>
<td>1.2</td>
<td>0.1</td>
<td>0.7</td>
<td>-4.8</td>
<td>-1.9</td>
<td>2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-1.8</td>
<td>1.6</td>
<td>0.3</td>
<td>-5.1</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization
(%)</td>
<td>71.3</td>
<td>70.6</td>
<td>70.0</td>
<td>74.4 (Nov. '08)</td>
<td>77.5</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>

</body></html>

U.S. PPI Jumps As Fuel CostsSurge; Core Prices Remain Strong

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

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Michael J. Moran

260109A.jpg

260109B.jpg

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

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

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

260109C.jpg

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

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

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

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

A Soft Tone in the Labor Market

Winnie Tapasanun

260109F17.jpg

260109G17.jpg

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

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

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

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

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

260109H17.jpg

260109I17.jpg

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

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

260109E.jpg

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

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

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

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

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

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

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

Germany

German Industrial Production Perks Up-Surprise!

Andrew Cates

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


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

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

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

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

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

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

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Charts of the Week: Cooling Inflation, Diverging Growth

Sandy Batten

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

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

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

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

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