Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102k.jpg" align="right" border="0" height="265" width="353">Japanese
household consumption expenditures in the third quarter will not be
known until the "First Preliminary Release" of GDP for the third
quarter due November 16 is released.&nbsp; Some indication of what
the consumers is doing can be gleaned from recent monthly data from the
Family Income and Expenditure Survey and the data on wages and
employment.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102l.jpg" align="right" border="0" height="265" width="353">Results of
Japan's Family Income and Expenditure Survey
for September were released over the week end.&nbsp; In nominal
terms, the index of living expenditures declined in July to 95.0 (2005
= 100) from 97.0 in June, but rose in August and September to 96.9 and
97.3, respectively.&nbsp; Nevertheless, for the quarter, living
expenditures in nominal terms were 2.4% below the year ago
figure.&nbsp; As a result of continued deflation in the Japanese
economy, real living expenditures increased in August and September and
for the quarter were up 0.4% from the third quarter of 2008 as can be
seen in the first chart.
On the whole, the Family Income and
Expenditure Surveys for the last three months suggest that real
consumer spending may show a small increase in the third quarter.The
outlook for consumer incomes and hence their ability to spend is
mixed.&nbsp; Seasonally unadjusted wages in nominal terms have
continued to decline on a year to year basis--5.6% in July, 2.7% in
August and 1.59% in September.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102m.jpg" align="right" border="0" height="265" width="353">
But again adjusted for
deflation, real wages were up 0.9% in September over September, 2008
one of the few year over year increases in real wages that has occurred
over the past three years as can be seem in the second Chart.&nbsp;
Employment&nbsp; increased&nbsp; and unemployment decreased
marginally&nbsp; in August and September&nbsp; as can be seen
in the third chart.
<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">Sep 09</th>
<th scope="col">Aug&nbsp; 09</th>
<th scope="col">Jul 09</th>
<th scope="col">Jun 09</th>
<th scope="col">May 09</th>
<th scope="col">Apr 08&nbsp;</th>
<th scope="col">Mar 09</th>
<th scope="col">Feb 09</th>
<th scope="col">Jan 09</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real Living Expenditures (Y/Y %
Chg)</td>
<td>1.25</td>
<td>1.68</td>
<td>-1.75</td>
<td>0.84</td>
<td>-0.82</td>
<td>-1.16</td>
<td>-0.93</td>
<td>-18.4</td>
<td>-5.54</td>
</tr>
<tr>
<td class="firstcol">Nominal Living Expenditures
(Y/Y % Chg)</td>
<td>-1.22</td>
<td>-1.22</td>
<td>-4.62</td>
<td>-1.02</td>
<td>-1.81</td>
<td>-1.94</td>
<td>-0.92</td>
<td>-1.82</td>
<td>-5.76</td>
</tr>
<tr class="odd">
<td class="firstcol">Real Wages (Y/Y % Chg)&nbsp;</td>
<td>0.88</td>
<td>-0.12</td>
<td>-3.02</td>
<td>-5.2</td>
<td>-1.35</td>
<td>-2.64</td>
<td>-3.66</td>
<td>-2.44</td>
<td>-2.63</td>
</tr>
<tr>
<td class="firstcol">Nominal Wages (Y/Y % Chg)</td>
<td>-1.59</td>
<td>-2.71</td>
<td>-5.60</td>
<td>-7.01</td>
<td>-2.53</td>
<td>-2.73</td>
<td>-3.85</td>
<td>-2.43</td>
<td>-2.72</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment&nbsp; (10,000
Persons)</td>
<td>6264</td>
<td>6260</td>
<td>6231</td>
<td>6233</td>
<td>6201</td>
<td>6305</td>
<td>6311</td>
<td>6373</td>
<td>6395</td>
</tr>
<tr>
<td class="firstcol">Unemployment&nbsp;</td>
<td>352</td>
<td>362</td>
<td>376</td>
<td>336</td>
<td>343</td>
<td>334</td>
<td>320</td>
<td>295</td>
<td>276</td>
</tr>
</tbody>
</table>

</body></html>

Japanese household consumption expenditures in the third quarter will not be known until the "First Preliminary Release" of GDP for the third quarter due November 16 is released. Some indication of what the consumers is doing can be [...]

Japanese Consumers: Recent Trends In Spending And Income

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102j.jpg" align="right" border="0" height="265" width="353">
Without question, the sales price of most homes is under
pressure. Demand is down and supply is up. Nevertheless, home prices
recently have turned around after a decline that began early in 2006.
On a month-to-month basis home prices have risen for the last five
months, as measured by First American CoreLogic. Moreover, the y/y
decline is half that logged early this year. Nevertheless, prices still
are down 10.1% from August of 2008 and they have fallen 28.1% from the
peak during the spring of 2006. 
Until 2006, measuring the degree to which prices were affected
by distressed sales hadn't been much of an issue. Recently, however, it
has become relevant in providing perspective on home price performance.
When distressed sales are stripped out prices also are down y/y, but
the depth of the decline is less dramatic than the total. These prices
have risen for just the last four months, but the y/y change of -6.3%
is notably moderate. Since the peak these prices have fallen 20.8%. 
The Loan
Performance House Price Index (HPI) is a repeat-sales index that tracks
increases and decreases in sales prices for
the same homes over time. This approach provides a more accurate
"constant-quality"
view of pricing trends than basing analysis on all home sales. The data
are
developed by First American CoreLogic and are available from Haver's USECON
database.
Seasonal adjustment of the data is done by Haver Analytics.&nbsp;
Residential
and commercial real estate is the title of this morning's
testimony by Jon
D. Greenlee, Associate Director, Division of Banking Supervision and
Regulation
and it can be found here <a href="http://www.federalreserve.gov/newsevents/testimony/greenlee20091102a.htm">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">House
Price</a> (SA) </th>
<th scope="col">August</th>
<th scope="col">July</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 (year-to-year)</td>
<td>-10.1</td>
<td>-11.7</td>
<td>-14.6</td>
<td>-4.4</td>
<td>-7.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
month-to-month</td>
<td>0.7</td>
<td>1.5</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Distress Sales Excluded (y/y)</td>
<td>-6.3</td>
<td>-6.9</td>
<td>-10.9</td>
<td>-3.0</td>
<td>-6.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
month-to-month</td>
<td>0.1</td>
<td>0.7</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>


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Without question, the sales price of most homes is under pressure. Demand is down and supply is up. Nevertheless, home prices recently have turned around after a decline that began early in 2006. On a month-to-month basis home prices [...]

U.S. Home Prices On The Rise; Distressed Sales Matter

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102g.jpg" align="right" border="0" height="265" width="353">
Housing
demand is increasing faster than generally expected. The National
Association of Realtors (NAR) reported that September pending home
sales increased 6.1%. The gain was similar to the August increase and
continued stronger than June's 3.6% and July's 3.2% gains. Consensus
expectations had been for a slight m/m sales decline. The index level
of 110.1 was at its highest since December 2006 and up 26.9% from the
January low. The base for the index is 2001=100.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102h.jpg" align="right" border="0" height="265" width="353">
September sales likely were boosted by the pending expiration of an
$8,000 first-time home buyers tax credit; due to expire later this
month. Congress currently is considering extending the credit through
April of next year. In this report only the Northeast region of the
country failed to participate in the September sales gain. Sales in the
West jumped 10.2% after a 16.0% rise during August. The sales index
here was at its all-time high. Elsewhere, sales in the Midwest gained
8.1% on top of a 3.1% rise in August. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102i.jpg" align="right" border="0" height="265" width="353">
They were up more than one-third
from the January low. Sales in the South were the laggards with just a
4.9% gain but they also were up one-third from the January trough.
Sales in the Northeast slipped 2.0% during September, down for the
second month in the last three but still 44.6% higher than the January
low. These home sales figures are analogous to the new home sales
data from the Commerce Department in that they measure existing home
sales when the sales contract is signed, not at the time the sale is
closed. The series dates back to 2001.The pending home sales
data are available in Haver's PREALTOR database.
The number of homes on the market and prices are in the REALTOR
database.&nbsp;&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/WEEKLY/@W5/@W507/@W507.HTM">Pending
Home Sales (2001=100)&nbsp;</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>110.1</td>
<td>103.8</td>
<td>97.6</td>
<td>&nbsp;&nbsp; 21.1%</td>
<td>86.8</td>
<td>95.8</td>
<td>112.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>83.6</td>
<td>85.3</td>
<td>78.8</td>
<td>16.9</td>
<td>73.1</td>
<td>85.9</td>
<td>98.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Midwest</td>
<td>98.2</td>
<td>90.8</td>
<td>88.1</td>
<td>17.7</td>
<td>80.6</td>
<td>89.5</td>
<td>101.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>109.7</td>
<td>104.6</td>
<td>103.8</td>
<td>22.8</td>
<td>89.6</td>
<td>107.3</td>
<td>127.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; West</td>
<td>143.8</td>
<td>130.5</td>
<td>112.5</td>
<td>23.6</td>
<td>99.5</td>
<td>92.3</td>
<td>109.6</td>
</tr>
</tbody>
</table>
</body></html>

Housing demand is increasing faster than generally expected. The National Association of Realtors (NAR) reported that September pending home sales increased 6.1%. The gain was similar to the August increase and continued stronger than [...]

U.S. Pending Home Sales Rise To Highest Since 2006

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102f.jpg" align="left" border="0" height="265" width="353">
Europe&#8217;s MFG sector is up over the neutral reading of 50 for
the first time in 17 months. The Markit/NTC gauges of the EMU economy
and for individual nations is a stronger reading than in the EU
Commission framework.
Five of the nine economies with individual readings in the
table are above the breakeven value of &#8216;50&#8217; in October. Among these
nine nations only Greece saw its reading slip in October.
The rebound now looks like that much talked above Vee-shape.
Despite rampant pessimism Europe is putting on a good recovery in
Manufacturing. The EMU countries as well as the UK are looking quite
strong.
The EMU percentile standings for these gauges are in the low
6oth percentile up to the 69th percentile for France and Austria; the
65th for Germany. This is evidence of a true recovery and is one of the
more optimistic reports out of Europe for some time.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th scope="col" colspan="8">NTC/Markit
MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-13</td>
<td>50.73</td>
<td>49.29</td>
<td>48.24</td>
<td>49.42</td>
<td>46.30</td>
<td>40.50</td>
<td>63.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>51.04</td>
<td>49.65</td>
<td>49.17</td>
<td>49.95</td>
<td>45.99</td>
<td>39.68</td>
<td>65.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>55.61</td>
<td>52.99</td>
<td>50.78</td>
<td>53.13</td>
<td>49.45</td>
<td>43.18</td>
<td>69.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>49.24</td>
<td>47.58</td>
<td>44.25</td>
<td>47.02</td>
<td>45.04</td>
<td>40.30</td>
<td>57.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>46.30</td>
<td>45.82</td>
<td>47.20</td>
<td>46.44</td>
<td>44.87</td>
<td>38.17</td>
<td>61.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Austria</td>
<td>51.05</td>
<td>50.31</td>
<td>49.95</td>
<td>50.44</td>
<td>46.51</td>
<td>41.06</td>
<td>69.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece</td>
<td>47.97</td>
<td>48.46</td>
<td>51.13</td>
<td>49.19</td>
<td>48.36</td>
<td>44.27</td>
<td>46.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ireland</td>
<td>48.01</td>
<td>46.57</td>
<td>44.01</td>
<td>46.20</td>
<td>44.01</td>
<td>40.20</td>
<td>63.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands</td>
<td>50.52</td>
<td>50.02</td>
<td>50.51</td>
<td>50.35</td>
<td>47.22</td>
<td>42.24</td>
<td>61.7%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">EU</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>53.68</td>
<td>49.85</td>
<td>50.47</td>
<td>51.33</td>
<td>49.57</td>
<td>43.58</td>
<td>87.8%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">percentile is over range since March
2000</td>
</tr>
</tbody>
</table>
</body></html>

Europe’s MFG sector is up over the neutral reading of 50 for the first time in 17 months. The Markit/NTC gauges of the EMU economy and for individual nations is a stronger reading than in the EU Commission framework. Five of the nine [...]

Europe's MFG PMIs Continue To Rise. EMU PMI Rises Over 50 For First Time In 18 Months To Vee Or Not To Vee…Is That [...]

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102a.jpg" align="right" border="0" height="265" width="353">
The recession in U.S. factory sector activity is over,
according to the data from the National Association of Purchasing
Management. Their composite index for October rose to 55.7 which was
its highest level since April 2006. (Any reading above the break-even
point of 50 suggests rising activity.) The latest figure exceeded
Consensus expectations for a little-changed reading of 53.0 and was up
from the low of 32.9 reached last December. The ISM data is available
in Haver's USECON database.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102d.jpg" align="right" border="0" height="265" width="353">
While just above the break-even level of 50, the
factory-sector growth suggested by the ISM index is in line with
recoveries accompanying past upturns after severe recessions. To mirror
the strength of those recoveries, however, the index still needs to
rise to a level near or above the level of 60.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102e.jpg" align="right" border="0" height="265" width="353">
A sharp increase in the production component to a 63.3 led the
latest increase. During the last ten years there has been an 84%
correlation between the level of the production component of the
composite index and the three-month growth in factory sector industrial
production. It is appropriate to correlate the ISM index level
with factory sector output growth because the ISM
index is a diffusion index. It measures growth by using all of the
positive changes in activity added to one half of the zero change in
activity measures. Also rising was the inventories index to
46.9 which was its highest level since June of last year. Compared to
the low of 32.2 reached earlier this year, the latest figure suggests
that the correction of factory-sector inventory levels is about over.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102c.jpg" align="right" border="0" height="265" width="353">
Also to the upside, the employment index improved to 53.1 and
indicated growth in factory-sector payrolls for the first month since
July of last year. During the last ten years there has been a 90%
correlation between the index level and the three-month change in
manufacturing payrolls.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091102b.jpg" align="right" border="0" height="265" width="353">
The new orders index slipped m/m to a still-strong reading of
58.5, though it was shy of its recent high. Also to the downside was
the speed of supplier deliveries index which slipped and erased the
gains of the prior two months. Suggesting moderation in the economic
downturns abroad, the export order index rose to 55.5 which was the
highest level since August of last year. During the last ten years
there has been a 53% correlation between the index and the q/q change
in real exports of goods in the GDP accounts.
The separate index of prices paid continued to indicate
improved factory sector activity with a rise to 65.0. That recovered
the September decline and was up from the December low of 18.0. During
the last twenty years there has been a 79% correlation between the
price index and the three-month change in the PPI for intermediate
goods.
The Yield Curve, October 2009 from the
Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/trends/2009/1109/01monpol.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">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 Index</td>
<td>55.7</td>
<td>52.6</td>
<td>52.9</td>
<td>38.7</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>58.5</td>
<td>60.8</td>
<td>64.9</td>
<td>32.4</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Employment Index</td>
<td>53.1</td>
<td>46.2</td>
<td>46.4</td>
<td>34.2</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>65.0</td>
<td>63.5</td>
<td>65.0</td>
<td>37.0</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
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The recession in U.S. factory sector activity is over, according to the data from the National Association of Purchasing Management. Their composite index for October rose to 55.7 which was its highest level since April 2006. (Any [...]

ISM Factory Index Rises Further Continuing Respectable Rebound

ISM Factory Index Rises FurtherContinuing Respectable Rebound

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091030h.jpg" align="right" border="0" height="265" width="353">Employment
compensation picked up slightly last quarter, but high unemployment
dragged down the y/y change to its lowest on record. (The series dates
back to 1980). The total employment cost index for private industry
workers rose 0.5% during 3Q following gains of 0.2% during the prior
two quarters. The latest rise about matched Consensus
expectations.Improved wage and salary growth provided most
of the "oomph" to last quarter's gain with a 0.5% rise. However, here
again, the y/y gain of 1.3% was a new record low. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091030i.jpg" align="right" border="0" height="265" width="353">
In the factory sector
wages rose just 1.2% y/y but in the education &amp; health care
sectors wages rose a still-modest 1.8%. In the goods producing sector
wage growth fell to just 1.2% and in education &amp; health
services they rose 1.8%.Total benefit costs in private sector
increased just 0.3% and the 1.0% y/y gain was a record low. What y/y
strength there was was led by a 2.3% gain in production, transportation
&amp; materials handling industries and a 1.6% rise in services
occupations. The cost of health benefits showed a stable 4.7% rise in
the latest 12 months.&nbsp;· The employment cost index figures are
available in Haver's USECON database.Financial
Intermediaries and Monetary Economics from the Federal
Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr398.pdf">here.</a>&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI
- Private Industry Workers</a> (%)</th>
<th scope="col">3Q '09</th>
<th scope="col">2Q '09</th>
<th scope="col">1Q '09</th>
<th scope="col">3Q 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">Compensation</td>
<td>0.5</td>
<td>0.2</td>
<td>0.2</td>
<td>1.3</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp;
Salaries</td>
<td>0.5</td>
<td>0.2</td>
<td>0.2</td>
<td>1.3</td>
<td>3.0</td>
<td>3.4</td>
<td>&nbsp;2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.3</td>
<td>0.2</td>
<td>0.2</td>
<td>1.0</td>
<td>2.6</td>
<td>2.4</td>
<td>2.9</td>
</tr>
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Employment compensation picked up slightly last quarter, but high unemployment dragged down the y/y change to its lowest on record. (The series dates back to 1980). The total employment cost index for private industry workers rose [...]

U.S. Employment Cost Index Rose Slightly Q/Q But Reaches A New Low Y/Y

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091030f.jpg" width="353">
Consumer sentiment for all of October fell from September but the trend during the month improved. The University of Michigan indicated that its October reading of consumer sentiment of 70.6 was improved from the mid-month reading of 69.4 but both figures were down from a September figure of 73.5. Despite the latest decline, sentiment remained up by roughly one-quarter from the low last fall. Consensus expectations had been for a full-month figure of 70. 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 October reading of expected economic conditions fell a sharp 6.7% m/m. It was shallower-than reported at mid-month but still erased much of September&#39;s gain. The latest decline was led by a 16.5% drop in expected business conditions during the next five years which reversed much of the improvement since July. 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 slightly with the index rising nearly one-quarter from the low during 2008 with the higher stock market.
The reading of current economic conditions increased moderately. The readings of personal finances and of buying conditions for large household goods held steady m/m, but the latter was up by one-third from the November trough due to low prices.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091030g.jpg" width="353">
Expected price inflation during the next year amounted to 3.2%, up slightly from September but down from a high of 7.0% 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 3.2% during the next 5-10 years was the mean expectation.
The opinion of government policy, which may eventually influence economic expectations, fell from September and remained near the lowest level since February. Thirty-two percent of respondents thought that a poor job was being done by government. A reduced 18% thought that a good job was being done, down from 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. These results are based on about 300 interviews. The summary indexes are in Haver&#39;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>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">October (Final)</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>70.6</td>
<td>69.4</td>
<td>73.5</td>
<td>65.7</td>
<td>22.6%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>73.7</td>
<td>72.1</td>
<td>73.4</td>
<td>66.6</td>
<td>26.2</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>68.6</td>
<td>67.6</td>
<td>73.5</td>
<td>65.0</td>
<td>20.4</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
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Consumer sentiment for all of October fell from September but the trend during the month improved. The University of Michigan indicated that its October reading of consumer sentiment of 70.6 was improved from the mid-month reading of [...]

Michigan Consumer Sentiment Improves From Mid-Month

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

260205Z1.jpg

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

260205Z2.jpg

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

260205Z3.jpg

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

260205Z4.jpg

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

260205Z5.jpg

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

260205Z6.jpg

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

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

260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

260205X15.jpg

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

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

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

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

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

260205C15.jpg

260205D15.jpg

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

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

Sandy Batten

260205A2.jpg

260205B2.jpg

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

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

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

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

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

U.S. Initial Unemployment Claims Surged in Latest Week

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

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

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

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

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

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

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