Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019e.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s Tertiary index (service sector index) rose in August
for the third month in a row. The chart above puts these increases in
perspective. While a nice, stable uptrend is emerging, the pace of the
rise is relatively moderate; yet the level of the index is well short
of the past cycle peak. 
 

The mining/MFG index fell extremely sharply in the depth of
the recession and while it has had a very sharp bounce back, it is too
soon to tell if the bounce-back will be complete. At a level of 83.9
the mining/MFG index is up sharply from its low of 69.5 but is still
&#8216;light-years&#8217; away from the past peak at 110.1. 
 

The rebound in the various sector indices is a good sign for
Japan&#8217;s beleaguered economy. Even so these bounces have a long way to
go to restore Japan to its precession levels of activity. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col">Up to date Japan Industry Survey</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Aug-2009</td>
<td>Jul-2009</td>
<td>Jun-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 class="odd">
<td class="firstcol">Mining and MFG</td>
<td>83.9</td>
<td>82.6</td>
<td>80.9</td>
<td>82.5</td>
<td>78.7</td>
<td>83.4</td>
<td>110.1</td>
<td>69.5</td>
<td>35.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary</td>
<td>97.1</td>
<td>96.8</td>
<td>96.1</td>
<td>96.7</td>
<td>96.1</td>
<td>97.8</td>
<td>103.5</td>
<td>89.1</td>
<td>55.6%</td>
</tr>
<tr>
<td colspan="10">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s Tertiary index (service sector index) rose in August for the third month in a row. The chart above puts these increases in perspective. While a nice, stable uptrend is emerging, the pace of the rise is relatively moderate; yet [...]

So Far, So Good: Japan Service Sector Advance Again

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019a.jpg" align="right" border="0" height="265" width="353">The U.S. government ran a budget deficit of $1.417 trillion
during Fiscal Year 2009. The figure was by far a record and more than
tripled the 2008 deficit of $454.8 billion. While somewhat below the
Congressional Budget Office's recent estimate for a deficit of $1.7
trillion, it nevertheless reached roughly 10% of GDP, the largest since
1945.
The recession in the U.S. economy drove the deficit higher
last year as revenues lagged sharply and spending increased. Net
revenues during FY09 were down 16.6% from FY08. Individual income tax
receipts fell 20.1% reflecting higher unemployment while corporate tax
receipts fell by more than one-half as profits dried up. Social
security contributions fell for the first time since 1995 and estate
&amp; gift taxes fell 18.6% after 10.8% growth last fiscal year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019b.jpg" align="right" border="0" height="265" width="353">
The wars in Iraq &amp; Afghanistan and the U.S. recession
boosted overall Federal spending by 18.2% versus FY08, double last
year's growth. Defense spending (19% of total outlays) rose 7.1% during
FY09. Though outlays for military personnel rose just 6.1% last year
after 8.9% growth during FY08, Army procurement jumped 15.8% after
36.9% growth during '08. On the home front, growth in Medicare
expenditures (12% of outlays) doubled and "income security" spending
(11% of outlays) jumped by one-quarter with higher unemployment. Social
security payments rose an elevated 10.7% but net interest payments
continued to fall sharply with lower interest rates.
Net outlays under the Government's Troubled Asset Relief
Program (TARP) started to fall by the end of FY09 but, for the fiscal
year as a whole, they amounted to $333.3B. The U.S. Treasury has
adopted the view that these TARP expenditures should be counted like
any other spending. When the banks repay the Treasury, these funds will
be counted as revenue. Accounted for in this way, TARP causes a surge
in the budget deficit when the funds are distributed to the banks, but
leads to a smaller deficit, or perhaps a surplus, when repayments are
received.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019c.jpg" align="right" border="0" height="265" width="353">
The Government's financial data are available in Haver's USECON
database, with extensive detail available in the specialized GOVFIN.
The Office of Management &amp; Budget's 2010
Budget can be found <a href="http://www.whitehouse.gov/omb/"> here.</a>
The Budget &amp; Economic Outlook: An Update from
the Congressional Budget Office can be found <a href="http://www.cbo.gov/ftpdocs/105xx/doc10521/08-25-BudgetUpdate.pdf">
here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US
Government Finance</a> &nbsp;</th>
<th scope="col">FY 2009</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-$1,417.1B</td>
<td>-$454.8B</td>
<td>-$161.5B</td>
<td>-$248.197B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; as a
percent of GDP</td>
<td>-10.0%</td>
<td>-3.2%</td>
<td>-1.2%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Net
Revenues (Y/Y % Change)</td>
<td>-16.6%</td>
<td>-1.7%</td>
<td>6.7%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Individual Income Taxes</td>
<td>-20.1</td>
<td>-1.5</td>
<td>11.5</td>
<td>12.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Corporate Income Taxes</td>
<td>-54.6</td>
<td>-17.8</td>
<td>4.6</td>
<td>27.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Social Insurance Taxes</td>
<td>-1.0</td>
<td>3.5</td>
<td>3.8</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Net
Outlays (Y/Y % Change)</td>
<td>18.2</td>
<td>9.1</td>
<td>2.8</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Nat'l Defense</td>
<td>7.6</td>
<td>11.8</td>
<td>4.1</td>
<td>6.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Health</td>
<td>19.1</td>
<td>5.4</td>
<td>5.5</td>
<td>0.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Medicare</td>
<td>10.1</td>
<td>4.1</td>
<td>13.8</td>
<td>10.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Income Security</td>
<td>24.9</td>
<td>16.8</td>
<td>3.5</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Social Security</td>
<td>10.7</td>
<td>5.3</td>
<td>6.9</td>
<td>4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Interest</td>
<td>-24.5</td>
<td>6.3</td>
<td>5.0</td>
<td>23.2</td>
</tr>
</tbody>
</table>
</body></html>

The U.S. government ran a budget deficit of $1.417 trillion during Fiscal Year 2009. The figure was by far a record and more than tripled the 2008 deficit of $454.8 billion. While somewhat below the Congressional Budget Office's [...]

U.S. FY '09 Federal Budget Deficit Tops $1.4 Trillion

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019a.jpg" align="right" border="0" height="265" width="353">The U.S. government ran a
budget deficit of $1.417 trillion
during Fiscal Year 2009. The figure was by far a record and more than
tripled the 2008 deficit of $454.8 billion. While somewhat below the
Congressional Budget Office's recent estimate for a deficit of $1.7
trillion, it nevertheless reached roughly 10% of GDP, the largest since
1945.
The recession in the U.S. economy drove the deficit higher
last year as revenues lagged sharply and spending increased. Net
revenues during FY09 were down 16.6% from FY08. Individual income tax
receipts fell 20.1% reflecting higher unemployment while corporate tax
receipts fell by more than one-half as profits dried up. Social
security contributions fell for the first time since 1995 and estate
&amp; gift taxes fell 18.6% after 10.8% growth last fiscal year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019b.jpg" align="right" border="0" height="265" width="353">
The wars in Iraq &amp; Afghanistan and the U.S. recession
boosted overall Federal spending by 18.2% versus FY08, double last
year's growth. Defense spending (19% of total outlays) rose 7.1% during
FY09. Though outlays for military personnel rose just 6.1% last year
after 8.9% growth during FY08, Army procurement jumped 15.8% after
36.9% growth during '08. On the home front, growth in Medicare
expenditures (12% of outlays) doubled and "income security" spending
(11% of outlays) jumped by one-quarter with higher unemployment. Social
security payments rose an elevated 10.7% but net interest payments
continued to fall sharply with lower interest rates.
Net outlays under the Government's Troubled Asset Relief
Program (TARP) started to fall by the end of FY09 but, for the fiscal
year as a whole, they amounted to $333.3B. The U.S. Treasury has
adopted the view that these TARP expenditures should be counted like
any other spending. When the banks repay the Treasury, these funds will
be counted as revenue. Accounted for in this way, TARP causes a surge
in the budget deficit when the funds are distributed to the banks, but
leads to a smaller deficit, or perhaps a surplus, when repayments are
received.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019c.jpg" align="right" border="0" height="265" width="353">
The Government's financial data are available in Haver's USECON
database, with extensive detail available in the specialized GOVFIN.
The Office of Management &amp; Budget's 2010
Budget can be found <a href="http://www.whitehouse.gov/omb/"> here.</a>
The Budget &amp; Economic Outlook: An Update from
the Congressional Budget Office can be found <a href="http://www.cbo.gov/ftpdocs/105xx/doc10521/08-25-BudgetUpdate.pdf">
here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US
Government Finance</a> &nbsp;</th>
<th scope="col">FY 2009</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-$1,417.1B</td>
<td>-$454.8B</td>
<td>-$161.5B</td>
<td>-$248.197B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; as a
percent of GDP</td>
<td>-10.0%</td>
<td>-3.2%</td>
<td>-1.2%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Net
Revenues (Y/Y % Change)</td>
<td>-16.6%</td>
<td>-1.7%</td>
<td>6.7%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Individual Income Taxes</td>
<td>-20.1</td>
<td>-1.5</td>
<td>11.5</td>
<td>12.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Corporate Income Taxes</td>
<td>-54.6</td>
<td>-17.8</td>
<td>4.6</td>
<td>27.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Social Insurance Taxes</td>
<td>-1.0</td>
<td>3.5</td>
<td>3.8</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Net
Outlays (Y/Y % Change)</td>
<td>18.2</td>
<td>9.1</td>
<td>2.8</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Nat'l Defense</td>
<td>7.6</td>
<td>11.8</td>
<td>4.1</td>
<td>6.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Health</td>
<td>19.1</td>
<td>5.4</td>
<td>5.5</td>
<td>0.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Medicare</td>
<td>10.1</td>
<td>4.1</td>
<td>13.8</td>
<td>10.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Income Security</td>
<td>24.9</td>
<td>16.8</td>
<td>3.5</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Social Security</td>
<td>10.7</td>
<td>5.3</td>
<td>6.9</td>
<td>4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Interest</td>
<td>-24.5</td>
<td>6.3</td>
<td>5.0</td>
<td>23.2</td>
</tr>
</tbody>
</table>
So Far, So Good: Japan Service
Sector Advance
Again
 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019e.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s Tertiary index (service sector index) rose in August
for the third month in a row. The chart above puts these increases in
perspective. While a nice, stable uptrend is emerging, the pace of the
rise is relatively moderate; yet the level of the index is well short
of the past cycle peak. 
 

The mining/MFG index fell extremely sharply in the depth of
the recession and while it has had a very sharp bounce back, it is too
soon to tell if the bounce-back will be complete. At a level of 83.9
the mining/MFG index is up sharply from its low of 69.5 but is still
&#8216;light-years&#8217; away from the past peak at 110.1. 
 

The rebound in the various sector indices is a good sign for
Japan&#8217;s beleaguered economy. Even so these bounces have a long way to
go to restore Japan to its precession levels of activity. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">Up to
date Japan Industry Survey</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Aug-2009</td>
<td>Jul-2009</td>
<td>Jun-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 class="odd">
<td class="firstcol">Mining and MFG</td>
<td>83.9</td>
<td>82.6</td>
<td>80.9</td>
<td>82.5</td>
<td>78.7</td>
<td>83.4</td>
<td>110.1</td>
<td>69.5</td>
<td>35.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary</td>
<td>97.1</td>
<td>96.8</td>
<td>96.1</td>
<td>96.7</td>
<td>96.1</td>
<td>97.8</td>
<td>103.5</td>
<td>89.1</td>
<td>55.6%</td>
</tr>
<tr>
<td colspan="10">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
Actual Exchange Rates in the
Developing World and Purchasing Power Parity 
by <a href="/comment/Curley.html">Louise
Curley</a> October 19, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019h.jpg" align="right" border="0" height="265" width="353">While
purchasing power parity (PPP) is not a major factor in determining a
country's actual exchange rate, it can be used as a rough guide in
deciding whether a particular currency is under or over
valued.&nbsp;&nbsp; Most developing countries with growing
current account balances, have preferred to pile up foreign exchange
reserves rather than let their currencies appreciate.&nbsp;
Meanwhile, the purchasing power parity of their currencies has
generally increased slowly and steadily as their economies have
prospered. As a result their currencies have continued to be
undervalued.

 Data on the purchasing power parity of currencies can be
derived from data in the Haver data base, The World
Development Indicators.&nbsp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019f.jpg" align="right" border="0" height="265" width="353">
The data are annual so the
latest data point is 2008.&nbsp; PPP conversion factors for the
world countries are included in the section "Exchange Rates and
Prices".&nbsp; We&nbsp; chose four countries as examples:
China, Korea, Singapore and Brazil and the PPP Conversion
Factor (GDP) to market exchange rate ratio.
The conversion
factor is the ratio of PPP exchange rate to the actual exchange rate.
One minus the conversion factor, therefore is the percentage of under
or over valuation of the particular exchange rate relative to the
dollar.&nbsp; Thus for Korea,&nbsp; the conversion factor of
.684 in 2008 means that the Korea's actual exchange rate was 31.6%
undervalued relative to the dollar.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019g.jpg" align="right" border="0" height="265" width="353">
Since the actual exchange
rate is 1102.09 Won/$, a conversion factor of .684 means that the PPP
exchange rate is 753.98 Won/$ (.684 * 1102.09).&nbsp; The actual
exchange rates, the PPP exchange rates and the percent of
undervaluation of the currencies of the four countries are shown in the
table below.· Brazil has allowed its currency to appreciate
considerably.&nbsp; From an undervaluation of 61.9 in 2002, the
Rial was only 18.4% undervalued in 2008, as shown in the first
chart.&nbsp; By contrast, China has permitted only moderate
appreciation of the yuan as shown in the same chart. The Singapore
dollar has steadily reduced its undervaluation as can be seen in the
second chart.&nbsp; Korea, on the other hand experienced a sharp
increase in its undervaluation in 2008, also shown in the second
chart.
 The third chart brings up to date the actual exchange
rates of the four countries.&nbsp; They have, to varying degrees,
appreciated in 2009.&nbsp; Again, the Chinese Yuan has appreciated
the least and the Brazilian Real, the most. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">China</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate
(Yuan/$)</td>
<td>6.95</td>
<td>7.61</td>
<td>7.97</td>
<td>8.19</td>
<td>8.28</td>
<td>8.28</td>
<td>8.28</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>3.39</td>
<td>3.38</td>
<td>3.46</td>
<td>3.45</td>
<td>3.43</td>
<td>3.29</td>
<td>3.28</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>51.1</td>
<td>55.5</td>
<td>56.6</td>
<td>57.9</td>
<td>58.6</td>
<td>60.1</td>
<td>60.3</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Korea</td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate (Won/$)</td>
<td>1102.1</td>
<td>929.3</td>
<td>954.8</td>
<td>1024.1</td>
<td>1145.3</td>
<td>1191.1</td>
<td>1251.1</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>754.0</td>
<td>747.9</td>
<td>760.7</td>
<td>788.9</td>
<td>794.3</td>
<td>795.7</td>
<td>769.8</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>31.5</td>
<td>19.3</td>
<td>20.3</td>
<td>23.0</td>
<td>30.7</td>
<td>32.2</td>
<td>38.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Singapore</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate
(S$/US$)</td>
<td>1.41</td>
<td>1.51</td>
<td>1.59</td>
<td>1.66</td>
<td>1.69</td>
<td>1.74</td>
<td>1.79</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>1.08</td>
<td>1.09</td>
<td>1.06</td>
<td>1.08</td>
<td>1.10</td>
<td>1.09</td>
<td>1.12</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>&nbsp;23.7</td>
<td>27.7</td>
<td>33.3</td>
<td>35.7</td>
<td>34.9</td>
<td>37.6</td>
<td>37.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Brazil</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate
(Rial/$)</td>
<td>1.83</td>
<td>1.94</td>
<td>2.18</td>
<td>2.43</td>
<td>2.93</td>
<td>3.08</td>
<td>2.93</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>1.50</td>
<td>1.41</td>
<td>1.40</td>
<td>1.36</td>
<td>1.31</td>
<td>1.22</td>
<td>1.11</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1Conversion
factor)</td>
<td>&nbsp;18.4</td>
<td>27.6</td>
<td>35.8</td>
<td>44.2</td>
<td>55.3</td>
<td>57.6</td>
<td>61.9</td>
</tr>
</tbody>
</table>


U.S. Home Builders' Index Recovery
Stuttering This Month 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019i.jpg" align="left" border="0" height="265" width="353">
Housing continues to turn the corner toward recovery, but of
late that recovery stuttered. The National Association of Home Builders
reported that its October Composite Housing Market Index fell to 18
from 19 in September. Though the index remained double the low of 8
this past January, it's rate of improvement has slowed since the
Spring. The index is compiled from survey questions asking builders to
rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to
&#8220;very low&#8221;. The figure is a diffusion index,
therefore, numerical results over 50 indicate a predominance of &#8220;good&#8221;
readings.
The sub-index of sales during the next six months fell to 27
which was the lowest level since August. The present sales index also
fell to 17 which equaled the 3Q average. Much of easing in the October
composite index was due to a sharp decline in the West (+27.3% y/y). In
the Midwest (+30.5% y/y) and in the South (+12.5% y/y) the index fell
slightly while in the Northeast (+56.3% y/y) there was a continued gain.
The Home Builders' Association also reported that traffic of
prospective buyers slipped during October after firm gains this past
Spring and Summer.
The Home Builders' Housing Opportunity Index, which is the
share of homes sold that could be considered affordable to a family
earning the median income, fell slightly in the second quarter. It had
jumped earlier to a record high of 72.5% buoyed by lower home prices,
lower interest rates and higher income. (There is a break in the series
from 2002 to 2003.)<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019j.jpg" align="right" border="0" height="265" width="353">
The NAHB has compiled the Housing Market Index
since 1985. The weights assigned to the
individual index components are .5920 for single family detached sales,
present time; .1358 for single family detached sales, next six months;
and .2722 for traffic of prospective buyers. The results, along with
other housing and remodeling indexes from NAHB Economics, are included
in Haver&#8217;s SURVEYS database.
Asia and the Global Financial Crisis is
today's speech by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20091019a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">&nbsp;October '08</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">Composite Housing Market Index
(All Good = 100)</td>
<td>18</td>
<td>19</td>
<td>14</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>17</td>
<td>18</td>
<td>14</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>27</td>
<td>29</td>
<td>19</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>14</td>
<td>17</td>
<td>11</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
</body></html>

U.S. FY '09 Federal Budget DeficitTops $1.4 Trillion

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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016e.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s exports and imports both dropped on the month with
exports dropping faster. As a result, the trade gap widened. But the
gap has improved from its worst level at end of 2008. True, the deficit
has expanded again from it best level in May of 2009, but both exports
and imports are on the mend. The export drop this month was
particularly large and therefore it is hard to put in context; it will
take several more months to figure out if this is a new trend of sorts,
or an oddity. 
 

One problem is that Germany, too, had reported a sharp and
unexpected drop in exports. So the Italian drop may have something to
it. Even so it could be that the same rogue factor affected both of
them, it could be a coincidence, or it could be a fundamental weakening
in exports. It will take time to tell 
 

Because of the relatively sharp drop this month, -15.9% for
exports Vs -8.8% for imports, the Yr/Yr trends are probably distorted.
But both export and import growth are down sharply across major
category components (see the table, at the bottom). 
 

While all nations are banking on trade to become an engine of
growth, US demand seems to be slow in starting and most industrialized
economies are having a hard time getting into gear, too. It is in this
environment in which it is hard to see why up to this point exports
have responded so well in the cycle. One man&#8217;s export is another&#8217;s
import and ultimately is linked to domestic demand which remains
globally challenged: that is the part that is hard to figure out. Whose
export demands have been strong and will they stay that way? 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy's
Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/mo % monthly rate</td>
<td colspan="4">Period Specified saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">Seasonally Adjusted</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">Current Account Bal</td>
<td>&#8364;&#8364;(3,237)</td>
<td>&#8364;&#8364;(1,382)</td>
<td>&#8364;&#8364;(2,378)</td>
<td>&#8364;&#8364;(2,332)</td>
<td>&#8364;&#8364;(2,099)</td>
<td>&#8364;&#8364;(3,656)</td>
<td>&#8364;&#8364;(3,927)</td>
</tr>
<tr class="grey2">
<td class="firstcol">Goods
Balance</td>
<td>&#8364;&#8364;(1,086)</td>
<td>&#8364;&#8364;814</td>
<td>&#8364;&#8364;939</td>
<td>&#8364;&#8364;222</td>
<td>&#8364;&#8364;592</td>
<td>&#8364;&#8364;163</td>
<td>&#8364;&#8364;86</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Exports</td>
<td>-15.9%</td>
<td>11.8%</td>
<td>-1.3%</td>
<td>-25.7%</td>
<td>-22.4%</td>
<td>-24.4%</td>
<td>-8.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Imports</td>
<td>-8.8%</td>
<td>12.9%</td>
<td>1.2%</td>
<td>17.9%</td>
<td>-10.9%</td>
<td>-26.0%</td>
<td>-2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services
Balance</td>
<td>&#8364;&#8364; 352</td>
<td>&#8364;&#8364; (399)</td>
<td>&#8364;&#8364; (788)</td>
<td>&#8364;&#8364; (278)</td>
<td>&#8364;&#8364; (585)</td>
<td>&#8364;&#8364; (766)</td>
<td>&#8364;&#8364; (458)</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports</td>
<td>10.4%</td>
<td>5.8%</td>
<td>-0.4%</td>
<td>83.3%</td>
<td>41.6%</td>
<td>-0.7%</td>
<td>-2.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>-15.6%</td>
<td>-12.1%</td>
<td>-3.3%</td>
</tr>
<tr class="grey4">
<td class="firstcol" colspan="7">Not
Seasonally Adjusted</td>
<td>All Yr/Yr</td>
</tr>
<tr class="grey3">
<td class="firstcol">Exports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-1.7%</td>
<td colspan="2">-1.7%</td>
<td colspan="2">7.2%</td>
<td>10.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-24.9%</td>
<td colspan="2">-8.2%</td>
<td colspan="2">15.9%</td>
<td>12.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-23.9%</td>
<td colspan="2">-7.9%</td>
<td colspan="2">9.0%</td>
<td>14.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Consumer Gds</td>
<td colspan="2">-14.1%</td>
<td colspan="2">-11.5%</td>
<td colspan="2">8.0%</td>
<td>8.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-44.2%</td>
<td colspan="2">4.3%</td>
<td colspan="2">4.5%</td>
<td>20.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Imports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-10.5%</td>
<td colspan="2">-0.5%</td>
<td colspan="2">6.4%</td>
<td>6.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-22.4%</td>
<td colspan="2">-10.5%</td>
<td colspan="2">13.1%</td>
<td>6.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-21.9%</td>
<td colspan="2">-6.2%</td>
<td colspan="2">11.6%</td>
<td>5.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol"> Consumer Gds</td>
<td colspan="2">-8.5%</td>
<td colspan="2">-5.7%</td>
<td colspan="2">8.3%</td>
<td>9.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-42.6%</td>
<td colspan="2">9.7%</td>
<td colspan="2">-0.1%</td>
<td>33.4%</td>
</tr>
<tr class="grey4">
<td colspan="8" class="firstcol">Balances
in Mlns of euros</td>
</tr>
</tbody>
</table>
</body></html>

Italy’s exports and imports both dropped on the month with exports dropping faster. As a result, the trade gap widened. But the gap has improved from its worst level at end of 2008. True, the deficit has expanded again from it best [...]

Italy's Trade Gap Widens On Weaker Exports

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016f.jpg" align="right" border="0" height="265" width="353"> Consumer
sentiment sagged this month but retraced just half of the rise during
September. The University of Michigan's mid-month October reading of
consumer sentiment fell to 69.4 from a September reading of 73.5.
Despite the decline sentiment remained up by roughly one-quarter from
the low last Fall. Consensus expectations had been for no change this
month versus September. During the last ten years, there has been a 69%
correlation between the level of sentiment and the growth in real
consumer spending during the next five months.The reading of expected
economic conditions fell the hardest this month with an 8.0% m/m
decline. That mostly erased September's gain. Despite the decline,
however, the index remained up by one-third from the February low.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016g.jpg" align="right" border="0" height="265" width="353">
The
latest decline was led by a sharp 18.7% drop in expected business
conditions during the next five years which reversed much of the recent
improvement. Expected conditions during the next year fell just
modestly and the index remained more than double the February low.
Conversely, the expected change in personal finances improved and the
index was up nearly one-quarter from the low during 2008 with the
higher stock market. The reading of current economic condition fell
just moderately as the reading of personal finances slipped m/m. It has
remained range-bound this year with higher unemployment. The reading of
buying conditions for large household goods held steady m/m but it is
up by one-third from the November low due to low prices. Expected
price inflation during the next year amounted to 3.1%; up slightly from
September but down from a high of 7% during May of last year. A low of
0.3% inflation was expected by 25% of respondents but 5.0% inflation
was expected by another quarter. Inflation of 3.4% during the next 5-10
years was the mean expectation.&nbsp;The opinion of
government policy, which may eventually influence economic
expectations, fell slightly from September and remained near
the&nbsp; lowest level since February. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016h.jpg" align="right" border="0" height="265" width="353">
Thirty percent of
respondents thought that a poor job was being done by government. A
reduced 19% thought that a good job was being done. It had hit 30% in
April.The University of Michigan survey data is not seasonally
adjusted. The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.Optimism
Amid Uncertainty from the Federal Reserve Bank of Dallas is
available <a href="http://dallasfed.org/research/update-us/index.cfm">
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/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Oct 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">Consumer Sentiment</td>
<td>69.4</td>
<td>73.5</td>
<td>65.7</td>
<td>20.5%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>72.1</td>
<td>73.4</td>
<td>66.6</td>
<td>23.5</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>67.6</td>
<td>73.5</td>
<td>65.0</td>
<td>18.6</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
</body></html>

Consumer sentiment sagged this month but retraced just half of the rise during September. The University of Michigan's mid-month October reading of consumer sentiment fell to 69.4 from a September reading of 73.5. Despite the decline [...]

Michigan Consumer Sentiment Sags M/M But Remains Improved From Its Low

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016a.jpg" align="left" border="0" height="265" width="353">
Industrial production is hardly overheating, but the nation's
industrial plant is starting to hum again. Output rose a surprising
0.7% during September after gains of 1.2% and 0.8% during the prior two
months. An uptick of a meager 0.1% had been the Consensus expectation,
based on the decline in factory sector employment last month. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016b.jpg" align="right" border="0" height="265" width="353">
The
productivity of those still working thus soared. The recent output
recovery follows a decline of 14.5% during the 21 months of recession
beginning in January of 2008.
Output of consumer goods rose a firm 1.1% for the third month
of increase following a 10.1% drop during the recession. Production of
autos led the increase with a 7.3% rise, after two months of decline
and a recession loss of 38.5%. Furniture &amp; appliance output
rose a lesser 0.3% which was the second in the last three months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016c.jpg" align="right" border="0" height="265" width="353">
Working the other way, the output of computers, video &amp; audio
equipment showed no sign of recovery, posting a 1.4% (-16.5% y/y)
decline. Outside of the auto and high-tech sectors output ticked 0.3%
higher (-5.3% y/y) during September for the third consecutive monthly
gain. That's against the 12.8% decline during the prior 21 months.
Apparel output rose for third consecutive month of strong gain
and the 2.2% increase cut the y/y decline to 11.4%. The output of
business equipment rose 0.2% (-8.0% y/y) but the output of construction
supplies continued 0.4% (-16.8% y/y) lower after four months of
relative stability. Construction supplies output fell 23.4% during this
recession.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016d.jpg" align="right" border="0" height="265" width="353">
Excess industrial capacity diminished during September for the
third consecutive month. In the factory sector alone, the rise to 67.5%
also was the third consecutive monthly gain but it nevertheless left
the figure near its lowest of the postwar period. Across industries,
utilization remained the smallest since WWII.
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></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">September</th>
<th scope="col">August</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>0.7</td>
<td>1.2</td>
<td>-6.0</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.8</td>
<td>1.2</td>
<td>-7.8</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>1.1</td>
<td>1.5</td>
<td>-1.8</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>0.2</td>
<td>1.1</td>
<td>-8.0</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>-0.4</td>
<td>0.5</td>
<td>-16.8</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-0.7</td>
<td>1.9</td>
<td>-2.1</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>70.5</td>
<td>69.9</td>
<td>74.5 (Sept. '08)</td>
<td>77.5</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
</body></html>

Industrial production is hardly overheating, but the nation's industrial plant is starting to hum again. Output rose a surprising 0.7% during September after gains of 1.2% and 0.8% during the prior two months. An uptick of a meager [...]

U.S. Factory Production Climbs For Third Month While Plant Utilization Reaches Seven-Month High

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016a.jpg" align="left" border="0" height="265" width="353">
Industrial production is hardly overheating, but the nation's
industrial plant is starting to hum again. Output rose a surprising
0.7% during September after gains of 1.2% and 0.8% during the prior two
months. An uptick of a meager 0.1% had been the Consensus expectation,
based on the decline in factory sector employment last month. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016b.jpg" align="right" border="0" height="265" width="353">
The
productivity of those still working thus soared. The recent output
recovery follows a decline of 14.5% during the 21 months of recession
beginning in January of 2008.
Output of consumer goods rose a firm 1.1% for the third month
of increase following a 10.1% drop during the recession. Production of
autos led the increase with a 7.3% rise, after two months of decline
and a recession loss of 38.5%. Furniture &amp; appliance output
rose a lesser 0.3% which was the second in the last three months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016c.jpg" align="right" border="0" height="265" width="353">
Working the other way, the output of computers, video &amp; audio
equipment showed no sign of recovery, posting a 1.4% (-16.5% y/y)
decline. Outside of the auto and high-tech sectors output ticked 0.3%
higher (-5.3% y/y) during September for the third consecutive monthly
gain. That's against the 12.8% decline during the prior 21 months.
Apparel output rose for third consecutive month of strong gain
and the 2.2% increase cut the y/y decline to 11.4%. The output of
business equipment rose 0.2% (-8.0% y/y) but the output of construction
supplies continued 0.4% (-16.8% y/y) lower after four months of
relative stability. Construction supplies output fell 23.4% during this
recession.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016d.jpg" align="right" border="0" height="265" width="353">
Excess industrial capacity diminished during September for the
third consecutive month. In the factory sector alone, the rise to 67.5%
also was the third consecutive monthly gain but it nevertheless left
the figure near its lowest of the postwar period. Across industries,
utilization remained the smallest since WWII.
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></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">September</th>
<th scope="col">August</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>0.7</td>
<td>1.2</td>
<td>-6.0</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.8</td>
<td>1.2</td>
<td>-7.8</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>1.1</td>
<td>1.5</td>
<td>-1.8</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>0.2</td>
<td>1.1</td>
<td>-8.0</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>-0.4</td>
<td>0.5</td>
<td>-16.8</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-0.7</td>
<td>1.9</td>
<td>-2.1</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>70.5</td>
<td>69.9</td>
<td>74.5 (Sept. '08)</td>
<td>77.5</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
Michigan Consumer Sentiment Sags
M/M But Remains Improved From Its Low 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 16, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016f.jpg" align="right" border="0" height="265" width="353"> Consumer
sentiment sagged this month but retraced just half of the rise during
September. The University of Michigan's mid-month October reading of
consumer sentiment fell to 69.4 from a September reading of 73.5.
Despite the decline sentiment remained up by roughly one-quarter from
the low last Fall. Consensus expectations had been for no change this
month versus September. During the last ten years, there has been a 69%
correlation between the level of sentiment and the growth in real
consumer spending during the next five months.

The reading of expected
economic conditions fell the hardest this month with an 8.0% m/m
decline. That mostly erased September's gain. Despite the decline,
however, the index remained up by one-third from the February low.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016g.jpg" align="right" border="0" height="265" width="353">
The
latest decline was led by a sharp 18.7% drop in expected business
conditions during the next five years which reversed much of the recent
improvement. Expected conditions during the next year fell just
modestly and the index remained more than double the February low.
Conversely, the expected change in personal finances improved and the
index was up nearly one-quarter from the low during 2008 with the
higher stock market.

The reading of current economic condition fell
just moderately as the reading of personal finances slipped m/m. It has
remained range-bound this year with higher unemployment. The reading of
buying conditions for large household goods held steady m/m but it is
up by one-third from the November low due to low prices.

Expected
price inflation during the next year amounted to 3.1%; up slightly from
September but down from a high of 7% during May of last year. A low of
0.3% inflation was expected by 25% of respondents but 5.0% inflation
was expected by another quarter. Inflation of 3.4% during the next 5-10
years was the mean expectation.&nbsp;

The opinion of
government policy, which may eventually influence economic
expectations, fell slightly from September and remained near
the&nbsp; lowest level since February. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016h.jpg" align="right" border="0" height="265" width="353">
Thirty percent of
respondents thought that a poor job was being done by government. A
reduced 19% thought that a good job was being done. It had hit 30% in
April.

The University of Michigan survey data is not seasonally
adjusted. The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.

Optimism
Amid Uncertainty from the Federal Reserve Bank of Dallas is
available <a href="http://dallasfed.org/research/update-us/index.cfm">
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/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Oct 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">Consumer Sentiment</td>
<td>69.4</td>
<td>73.5</td>
<td>65.7</td>
<td>20.5%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>72.1</td>
<td>73.4</td>
<td>66.6</td>
<td>23.5</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>67.6</td>
<td>73.5</td>
<td>65.0</td>
<td>18.6</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>

Italy's Trade Gap Widens On Weaker
Exports 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016e.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s exports and imports both dropped on the month with
exports dropping faster. As a result, the trade gap widened. But the
gap has improved from its worst level at end of 2008. True, the deficit
has expanded again from it best level in May of 2009, but both exports
and imports are on the mend. The export drop this month was
particularly large and therefore it is hard to put in context; it will
take several more months to figure out if this is a new trend of sorts,
or an oddity. 
 

One problem is that Germany, too, had reported a sharp and
unexpected drop in exports. So the Italian drop may have something to
it. Even so it could be that the same rogue factor affected both of
them, it could be a coincidence, or it could be a fundamental weakening
in exports. It will take time to tell 
 

Because of the relatively sharp drop this month, -15.9% for
exports Vs -8.8% for imports, the Yr/Yr trends are probably distorted.
But both export and import growth are down sharply across major
category components (see the table, at the bottom). 
 

While all nations are banking on trade to become an engine of
growth, US demand seems to be slow in starting and most industrialized
economies are having a hard time getting into gear, too. It is in this
environment in which it is hard to see why up to this point exports
have responded so well in the cycle. One man&#8217;s export is another&#8217;s
import and ultimately is linked to domestic demand which remains
globally challenged: that is the part that is hard to figure out. Whose
export demands have been strong and will they stay that way? 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy's
Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/mo % monthly rate</td>
<td colspan="4">Period Specified saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">Seasonally Adjusted</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">Current Account Bal</td>
<td>&#8364;&#8364;(3,237)</td>
<td>&#8364;&#8364;(1,382)</td>
<td>&#8364;&#8364;(2,378)</td>
<td>&#8364;&#8364;(2,332)</td>
<td>&#8364;&#8364;(2,099)</td>
<td>&#8364;&#8364;(3,656)</td>
<td>&#8364;&#8364;(3,927)</td>
</tr>
<tr class="grey2">
<td class="firstcol">Goods
Balance</td>
<td>&#8364;&#8364;(1,086)</td>
<td>&#8364;&#8364;814</td>
<td>&#8364;&#8364;939</td>
<td>&#8364;&#8364;222</td>
<td>&#8364;&#8364;592</td>
<td>&#8364;&#8364;163</td>
<td>&#8364;&#8364;86</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Exports</td>
<td>-15.9%</td>
<td>11.8%</td>
<td>-1.3%</td>
<td>-25.7%</td>
<td>-22.4%</td>
<td>-24.4%</td>
<td>-8.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Imports</td>
<td>-8.8%</td>
<td>12.9%</td>
<td>1.2%</td>
<td>17.9%</td>
<td>-10.9%</td>
<td>-26.0%</td>
<td>-2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services
Balance</td>
<td>&#8364;&#8364; 352</td>
<td>&#8364;&#8364; (399)</td>
<td>&#8364;&#8364; (788)</td>
<td>&#8364;&#8364; (278)</td>
<td>&#8364;&#8364; (585)</td>
<td>&#8364;&#8364; (766)</td>
<td>&#8364;&#8364; (458)</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports</td>
<td>10.4%</td>
<td>5.8%</td>
<td>-0.4%</td>
<td>83.3%</td>
<td>41.6%</td>
<td>-0.7%</td>
<td>-2.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>-15.6%</td>
<td>-12.1%</td>
<td>-3.3%</td>
</tr>
<tr class="grey4">
<td class="firstcol" colspan="7">Not
Seasonally Adjusted</td>
<td>All Yr/Yr</td>
</tr>
<tr class="grey3">
<td class="firstcol">Exports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-1.7%</td>
<td colspan="2">-1.7%</td>
<td colspan="2">7.2%</td>
<td>10.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-24.9%</td>
<td colspan="2">-8.2%</td>
<td colspan="2">15.9%</td>
<td>12.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-23.9%</td>
<td colspan="2">-7.9%</td>
<td colspan="2">9.0%</td>
<td>14.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Consumer Gds</td>
<td colspan="2">-14.1%</td>
<td colspan="2">-11.5%</td>
<td colspan="2">8.0%</td>
<td>8.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-44.2%</td>
<td colspan="2">4.3%</td>
<td colspan="2">4.5%</td>
<td>20.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Imports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-10.5%</td>
<td colspan="2">-0.5%</td>
<td colspan="2">6.4%</td>
<td>6.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-22.4%</td>
<td colspan="2">-10.5%</td>
<td colspan="2">13.1%</td>
<td>6.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-21.9%</td>
<td colspan="2">-6.2%</td>
<td colspan="2">11.6%</td>
<td>5.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol"> Consumer Gds</td>
<td colspan="2">-8.5%</td>
<td colspan="2">-5.7%</td>
<td colspan="2">8.3%</td>
<td>9.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-42.6%</td>
<td colspan="2">9.7%</td>
<td colspan="2">-0.1%</td>
<td>33.4%</td>
</tr>
<tr class="grey4">
<td colspan="8" class="firstcol">Balances
in Mlns of euros</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Factory Production Climbs ForThird Month While Plant Utilization Reaches Seven-Month High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015l.jpg" width="353">
The Federal Reserve Bank of New York reported that its October Empire State Factory Index of General Business Conditions improved to its highest level since 2004. The latest reading of 34.57 compares to sharply negative levels this past Winter and suggests positive growth in factory sector activity. The latest level was much better than Consensus expectations for a reading of 18.0.
The figure is a diffusion index. Since the series&#39; inception in 2001, there has been a 75% correlation between its level and the three-month change in U.S. factory sector industrial production. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to independent survey questions; it is not a weighted combination of the components. The series dates back only to 2001.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State. Participants from across the state in a variety of industries respond to a questionnaire and report the change in indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.
The new orders component again paced the latest gain in the overall October index with a rise to the highest level since 2005. The shipments index also improved sharply while the employment index reached its highest level since 2007. In the history of the NY employment index, there has been an 87% correlation between the employment index and the three-month growth in overall U.S. factory sector employment as reported by the Labor Department. The workweek index also improved sharply as did unfilled orders and delivery times.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015m.jpg" width="353">
The price index eased slightly after having risen to its highest level in a year during September. Nevertheless, the index level remained down sharply from all of last year. Since inception in 2001, there has been a 77% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months rose during August to its highest level since early 2007. The subseries for new orders, shipments, employment and capital expenditures each ticked up.
The Empire State data is available in Haver&#39;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">October &#39;08&nbsp;</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">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>34.57</td>
<td>18.88</td>
<td>-24.30</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>30.82</td>
<td>19.84</td>
<td>-19.57</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>10.39</td>
<td>-8.33</td>
<td>-3.66</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>19.48</td>
<td>20.24</td>
<td>31.71</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>


</html>

The Federal Reserve Bank of New York reported that its October Empire State Factory Index of General Business Conditions improved to its highest level since 2004. The latest reading of 34.57 compares to sharply negative levels this [...]

Empire State Factory Conditions Improve To Highest Level Since 2004

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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Winnie Tapasanun

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New single-family home sales dipped 0.1% m/m (+18.7% y/y) to a seasonally adjusted annual rate of 737,000 units in October following rises of 3.8% to 738,000 in September and 11.3% to 711,000 in August (+20.5%, 800,000 previously), data from the U.S. Census Bureau showed. The Action Economics Forecast Survey had expected sales of 710,000 for October. The October figure was the first m/m decline since July, though sales remained 42.0% up from the July 2022 low of 519,000. The sales dip occurred alongside a drop in the average 30-year fixed mortgage rate to 6.25% in October, the lowest since September 2024, after declining to 6.35% in September; it had subsequently continued trending downward, according to Freddie Mac.

By region, October new home sales fell m/m in all major regions except the South. Sales in the West plunged 36.3% (-24.8% y/y) to 109,000 in October, the lowest level since July 2022, after a 9.6% increase in September. Sales in the Northeast dropped 14.3% (-40.0% y/y) to 24,000 after holding steady at 28,000 in September and August. Sales in the Midwest fell 9.0% (+21.3% y/y) to 91,000 following a strong 25.0% September gain. For these three regions, October marked the first m/m decline since July. In contrast, sales in the South surged 16.9% (42.1% y/y) to 513,000, the highest level since March 2021, after a 1.8% September decline. The South remained the dominant region, accounting for 69.6% of total U.S. new home sales.

The median sales price of a new home fell 3.3% (-8.0% y/y) to $392,300 in October on top of a 3.4% decline to $405,800 in September, marking the fourth m/m fall in five months and the lowest level since July 2021. The median sales price had fallen 14.8% since its record high of $460,300 in October 2022. Meanwhile, the average sales price of a new home rose 3.0% (-4.6% y/y) to $498,000 in October after an 8.1% drop to $483,500. The average price was 8.0% below a high of $541,200 in July 2022. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market held steady at 488,000 (+1.7% y/y) in October after four straight m/m declines. The latest figure was 14.6% above a low of 426,000 in July 2023. The seasonally adjusted months' supply of new homes for sale remained at 7.9 months in October and September—the lowest reading since September 2024—after falling to 8.3 months in August. The latest reading, while above a low of 6.9 months in May 2023, remained below a high of 10.6 months in July 2022.

The median number of months a new home stayed on the market rose to 2.7 months in October, the highest since March 2025, after registering at 2.4 months in September and August. The latest number was above its record low of 1.5 months in both September and October of 2022 but well below a peak of 5.1 months in March 2021. These figures date back to January 1975.

New home sales are recorded when the sales contract is signed. New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

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- October sales -0.1% (+18.7% y/y) to 737,000; still 42.0% above the July ’22 low.
- Sales fall m/m in all major regions except the South (+16.9%).
- Median sales price down to $392,300, lowest since July ’21; avg. price up to $498,000.
- Months' supply of new homes for sale holds steady at 7.9 mths., lowest since Sept. '24.

U.S. New Home Sales Ease in October After Two Straight M/M Increases

Michael J. Moran

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The consumer price index rose 0.3% in December, while the core index (prices excluding food and energy) rose 0.2%. Both measures were faster than the averages of 0.1 percent in the prior two months. (The Bureau of Labor Statistics did not publish a CPI for October because of the government shutdown. Both the headline and core indexes showed increases of 0.2% for the two-month period from September to November.)

The December results were not pronounced enough to suggest that the restraint in October and November reflected distortions triggered by the government shutdown. At the same time, they were not soft enough to suggest that October and November were signaling faster deceleration in inflation. The past three months seemed to be showing the same degree of random volatility seen in the prior two years, with the underlying trends showing a slight degree of deceleration. The year-over-year increase in headline CPI totaled 2.7%, only slightly slower than 3.0% in mid-2024. The Core has eased a bit more: 2.6% in December versus 3.3% in mid 2024.

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Prices of core goods and services have been following different paths in the past few years, and they carried different signals in December. Prices of core goods showed no month-to-month change in December, which kept the year-over-year trajectory moving sideways. The flat pattern is encouraging in that it suggests that core goods inflation is perhaps steadying after trending upward since mid-2024. Core service prices rose 0.3 percent in December, in line with the recent average. Core service inflation showed little easing in the early part of 2025, but hints of slowing emerged from September to November. December results, though, raised questions about faster deceleration in service inflation.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

- Not by enough to suggest that restraint in October and November reflected distortions from the government shutdown
- But by enough to suggest that October and November reflected normal volatility rather than the beginning of a slower trend.

December CPI: Price Increases Quickened After Two Slow Months

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Japan’s economy watchers index at year-end weakened slightly, but the future index strengthened slightly to counterbalance the drop-off. The December current index is weaker than it was in October as well, as is the headline for the future index. But the queue, or rank, standings of these indexes show the current index at a 60th percentile standing and a queue standing for the future index at its 70th percentile. Despite the end of year give back, the index headline readings are still, for the most part, firm-to-solid.

**The Current Index**
That is an assessment about the rankings of the December data compared to their respective histories back to end 2004- a twenty-year period. However, in terms of the diffusion values of the index per se, the current index has only two readings above the 50 mark indicating actual expansion. Expansion is the rule in current services industries and in nonmanufacturing, a broader sector dominated by services. Employment and readings for corporations overall both show readings close to neutral with diffusion at 49.2 or better, but still short of 50. Current retail at 46.5 is the weakest sector and shows the second weakest diffusion reading.  

The current index standings on employment has a reading below 50%- and that is despite having a diffusion reading near 50 -nearly  unchanged employment month-to-month. That diffusion reading for December is a low relative to its own history. The strongest two sectors on rankings are services and eating & drinking places with standings in the 70-percentile range. Apart from the weak employment standing, the weakest rankings are in the range of the lower sixty percentiles with only retailing lower, in its 56.5 percentile, manufacturing at its 61.7 percentile. 

**The Future Index**
The Future index has a slightly higher queue standing than the current index as noted above, but it is not vastly different. No future components rankings are below their 50%, but again, employment is weakest with a ranking in its 50th-percentile and with housing in its 53rd percentile. Nonmanufacturing and services have the highest queue standings.

In terms of diffusion readings as opposed to standings, the future index headline is above 50 unlike for the current headline. Six of nine observations in December have future readings in their respective 50.6 percentiles. The weakest future reading, housing, with a 46.2 reading, is followed by retailing and eating & drinking places, each at 49.6. But the above-50 readings ae not strong per-se either. The strongest is the services sector at 52.4, then nonmanufacturing at 51.7, followed by employment at 51.4 (and it has the weakest queue standing among future readings). Corporations have a diffusion reading at 50.9, households at 50.3, and manufacturers at 50.2. And that 50.2 reading for manufacturers has a 70.4 percentile standing.

Always remember that diffusion and the rank standings are different things and very different concepts even though they are both measured as percentages; they can be quite different. Various series have different histories and tendencies. Not too surprisingly the current and future diffusion readings are highly correlated (0.96) while the standings are not so well correlated in December between the current and future (0.37). The correlation I speak about above between diffusion and standing is at 0.20 for the current readings in December but is higher at 0.53 for the December future components.

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**Summing up**
The differences in the diffusion values tell us that retailing, households and employment are expected to pick up over the next six months. But housing is expected to weaken.

Japan is still in a fragile state with a relatively new PM still getting adjusted (but rumored to be considering an early snap-election). And with the economy generating excess inflation even with a shrinking population, addressing inflation in Japan is trickier since the Bank of Japan does not want to slay inflation at the cost of bringing back deflation. So, policy is Japan walks on eggshells.

Japan

Japan’s Economy Watchers Survey in December 2025

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Swiss consumer confidence at end-2025 (in Q4) fell to -34.5 from -32.7 in 2025-Q3. The average level for the confidence reading on data back to 1982 is -16.7 and the current queue standing is 13.9%. The Q4 reading is clearly weak- well below its own average and weaker than this month, less than 15% of the time.

Outlook confidence in Q4 fell to -44.9 from -38.0 in Q3, registering a 15.6 percentile standing. The past confidence reading at -61.2 at end-2025 is down from -43.5 at the end of the third quarter. The standing for this reading is in its 19th percentile. All of these are extremely weak readings.

People provide a job security response in Q4 that eases to -50.1, still well above its historic average of -58.2 for a queue ranking at its 57th percentile.

Personal financial readings are moderate to weak across the board. However, current financial conditions rose to 38.4 in Q4 from 35.2 at the end of Q3 and a queue standing above its median at its 56th percentile. But the outlook for financial conditions is much weaker and also weakened quarter-to-quarter to -31.4 in Q4 from a level of -28.6 in Q3 to a queue ranking in its 8.7 percentile. The evaluation of past financial conditions improved by a very small margin, rising to -38.3 in Q4 from -38.7 in Q3, and to a queue standing at the 11.6 percentile.

The spending environment in Switzerland improved slightly but remained weak, rising to -23.3 in Q4 from -25.5 in Q3 to a standing at their 23.1 percentile standing.

The best part of the report is that the perception of job security is above average, and the current financial situation is above its median. After that, all the individual assessment metrics are weak including overall confidence – everything except assessments for inflation.

On the inflation front, the price outlook is high, rising to a reading of 97.7 in Q4 from 95.8 in Q3 but is still below the second quarter reading at 113.1. The price outlook has a moderately high standing at its 70.5 percentile. This standing is slightly below the standing for prices past which is at 76.3%. The past metric was still rising in the fourth quarter but was weaker than its reading in both Q1 and Q2 of 2025.

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**Summing up**
Inflation fears appear to still linger, but they are not as intense as they once were. Confidence overall is weak, but the most important aspects of job security and assessment of financial conditions have the strongest readings; yet, the environment for major purchases is still at a weak position. In Switzerland, people do not feel threatened or financially unstable, but they are not positive enough to spend freely either. And inflation fears are creeping up again all key trends to watch.

Switzerland

Swiss Confidence Sags at End-2025

Tian Yong Woon

This week, we highlight several pertinent developments that have shaped the start of the year and may carry longer-lasting implications. To begin with, the recent capture of former Venezuelan President Maduro by the US authorities and the subsequent crude oil trade deal could have far-reaching effects—potentially altering China’s imports of Venezuelan crude and broader bilateral trade dynamics (chart 1), as well as global energy supply considerations (chart 2).

In Japan, Prime Minister Takaichi’s reported consideration of early snap elections, if enacted, would likely inject near-term political uncertainty (chart 3). However, should her gambit succeed, it could reduce  policy uncertainty and pave the way for more fiscal policy activism. Against this backdrop, it is unsurprising that investors remain divided over the timing of the Bank of Japan’s next policy tightening, although the upcoming Spring wage negotiations (chart 4) ought to provide clearer signals for the monetary policy outlook.

Turning to investor expectations from the latest Blue Chip survey, India is once again seen as the growth leader among major Asian economies, while also poised to record the highest inflation (chart 5). China, by contrast, is expected to deliver sub-5% growth this year alongside muted inflation. Lastly, in Southeast Asia, pockets of geopolitical tension persist—notably between Thailand and Cambodia (chart 6)—as Thailand prepares for snap elections next month.

**The US, Venezuela, and China**
2026 got off to a turbulent start following a recent US military operation in Venezuela that resulted in the capture of former President Maduro and his transfer to the US to face drug-related charges. In the aftermath, Venezuela’s former vice president (Delcy Rodriguez) was sworn in as interim leader, while US and Venezuelan authorities have reportedly already reached a new crude oil deal. Under the agreement, Venezuela would sell 30–50 million barrels of crude to the US at market prices, with the proceeds controlled by the US. These developments have several potential implications. First, some Venezuelan crude initially destined for China would likely be diverted to the US. China has been the main buyer of Venezuelan oil in recent years, although this is likely underreported in official data (chart 1), which would tighten conditions for the crude-import-dependent country. Second, an eventual increase in Venezuelan crude supply—previously constrained by heavy US sanctions—would likely exert downward pressure on global oil prices, all else equal, although significant challenges remain, as discussed below.

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To illustrate the potential significance of Venezuela’s crude oil industry, chart 2 shows that the country holds nearly a fifth of the world’s proved crude oil reserves. However, output remains disproportionately low relative to reserves, possibly reflecting years of US sanctions as well as mismanagement and chronic underinvestment. Given the current state of the industry, substantial investment will likely be required for Venezuela to restore production to historically high levels and to more fully tap its deep proved reserves. As a result, any meaningful surge in Venezuelan crude output is likely to take time, which may help explain the muted market response to recent US–Venezuelan developments. Also of note, China has been a major lender to Venezuela, including through “oil-for-loan” arrangements in which repayments are made in crude oil. It remains to be seen how these existing and future agreements may be affected by recent developments.

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**Japan**
Setting aside the interplay between the US, Venezuela, and China, another economy worth watching early this year is Japan. Developments continue to unfold following renewed China–Japan tensions after Prime Minister Takaichi assumed office. With her approval ratings having remained consistently high since taking the helm, Takaichi is reportedly considering snap elections as early as next month to strengthen her ruling coalition’s parliamentary position. While a stronger mandate could reduce policy uncertainty, near-term political uncertainty would be the likely case. This interim uncertainty may be weighing on the yen. It is being compounded by expectations of upcoming pro-growth measures, including the $118 million supplementary budget passed last December and the prospect of additional fiscal stimulus next fiscal year, contingent on an electoral win (chart 3).

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Turning back to Japan and the monetary policy outlook, investors remain divided over the timing of the Bank of Japan’s (BoJ) next policy move following its December rate hike. This uncertainty is understandable given the multiple moving parts shaping the BoJ’s path, including the factors discussed above. Looking ahead, the upcoming annual wage negotiations and broader trends in wage growth (chart 4) will be closely watched by the BoJ as key preconditions for further rate hikes. Reflecting this uncertainty, our latest Blue Chip Economic Indicators survey shows investors split between expectations for a hike in March and views that the next move will only come after April.

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**Blue Chip Economic Indicators**
Delving into the latest Blue Chip survey results, chart 5 summarizes panellists’ expectations for growth and inflation this year. Focusing on major Asian economies, and as in 2025, India is seen to be leading the pack in terms of both real GDP growth and CPI inflation. That said, the inflation outlook may be subject to further revisions should India’s currently muted inflation—driven by falling food prices—persist for longer. For China, panellists currently expect sub-5% growth this year, implying a likely miss should a 5% growth target again be pursued. Inflation in China is once again expected to remain subdued. Japan, meanwhile, is forecast to post sub-1% real GDP growth, while CPI inflation is expected to hover around the authorities’ preferred 2% level. Looking ahead, attention will also turn to the IMF’s upcoming World Economic Outlook forecasts, due later this month.

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**Southeast Asia**
Last but not least, turning to Southeast Asia, promising AI- and tech-related growth continues in economies such as Malaysia and Vietnam. However, pockets of geopolitical tension persist, notably between Thailand and Cambodia, where border clashes have occurred despite previous attempts at peace, including one co-brokered by US President Trump. Against this backdrop, Thailand’s Prime Minister Anutin is preparing for snap elections in early February, amid a reported rise in nationalist sentiment linked to the ongoing clashes. These developments create latent risks for both Thailand and Cambodia (chart 6), while the uncertainty surrounding the elections also clouds the implementation of longer-term policies aimed at addressing Thailand’s deeper structural challenges.