Robert Brusca

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

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

Manufacturing Is Digging Out

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

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229b.jpg" align="right" border="0" height="265" width="353">Reports of
retail trade in Spain, Sweden and Hong Kong were among today's
statistical releases.&nbsp; Retail sales are sometimes good
indicators of trends in total GDP.&nbsp; In order to test this
hypothesis, we computed the correlation coefficients between the year
over year percent change in the quarterly values of the value index of
retail sales and the year over year percent change in the value of
total GDP over the past ten years*.&nbsp; The first three charts
show these correlations. The highest correlation was in Spain where
the correlation coefficient was .94.&nbsp; Hong Kong was next at
.87 and Sweden was the lowest at .64.&nbsp; The correlation
coefficient squared, R2, is a measure of the
explanatory power of one variable on the other when all other factors
are held constant.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229c.jpg" align="right" border="0" height="265" width="353">
Thus, in the case of Spain, based on the
experience of the last ten years, the year to year change in retail
sales explains about 88.4% of the variation in total GDP when all other
factors are held constant.&nbsp; In the case of Hong Kong, the year
to year change retail sales explains 75.7% of the change in total GDP
and in the case of Sweden, only 41%. The precise values are less
important than the order of magnitude.&nbsp; Thus, we should expect
the trend in retail sales in Spain to have a greater impact on the
trend in total GDP than that in Hong Kong or Sweden. The fourth chart
shows the year over year changes in monthly retail sales in the three
countries.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229d.jpg" align="right" border="0" height="265" width="353">
On the basis of the past relationship between
retail sales and total GDP the year to year changes in the value of
retail sales in October and November of 9.9% and 11.7% for Hong Kong
suggest there is a good chance that the year to year change in the
fourth quarter total GDP will increase from -1.99% in the third quarter
to perhaps a positive value. The continued negative, though
diminishing, yearly comparisons of retail sales in Spain suggest that
any improvements in year to year comparison for total GDP in the fourth
quarter is likely to be small.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091229e.jpg" align="right" border="0" height="265" width="353">
For Sweden, the year to year
increases in retail sales of 5.8% and 5.7% in October and November may
be large enough to have a positive effect on the increase in total GDP
in spite of the fact that the yearly change in retail sales has less
than a major effect on the change in total GDP. *(Computation of the
correlation coefficient can be done in DLXVG3 by clicking on
"Correlation" in the TOOLS menu.)&nbsp;&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Retail Sales,
Value Indexes Y/Y % Change</th>
<th scope="col">Nov 09</th>
<th scope="col">Oct&nbsp; 09</th>
<th scope="col">Sep 09</th>
<th scope="col">Aug 09</th>
<th scope="col">Jul 09&nbsp;</th>
<th scope="col">Jun 09</th>
<th scope="col">May 09</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar 09</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Sweden</td>
<td>5.74</td>
<td>5.80</td>
<td>3.38</td>
<td>1.80</td>
<td>7.51</td>
<td>5.16</td>
<td>0.32</td>
<td>5.21</td>
<td>1.26</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-4.99</td>
<td>-6.03</td>
<td>-6.08</td>
<td>-6.51</td>
<td>-7.75</td>
<td>-5.54</td>
<td>-10.91</td>
<td>-10.57</td>
<td>-9.30</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong</td>
<td>11.66</td>
<td>9.87</td>
<td>2.57</td>
<td>-0.07</td>
<td>-5.29</td>
<td>-4.71</td>
<td>-6.20</td>
<td>-4.30</td>
<td>-7.76</td>
</tr>
</tbody>
</table>

</body></html>

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

Retail Trade: Predictor Of Change In Total GDP?

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

Italian Business Confidence Advances...But Still Lags

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

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091228a.jpg" align="right" border="0" height="265" width="353">
Industrial
production in Japan was reported today to have increased 2.6% in
November to 88.3 (2005=100).&nbsp; This was the ninth month in
which production increased from the low of 69.5 reached in February of
this year.&nbsp;&nbsp; It is, however, still 5.2% below
November, 2008 and 19.8% below the recent peak reached in February,
2008.&nbsp; The increase has been fueled primarily by foreign
demand.&nbsp; Exports were up almost 5% in the month of
November.&nbsp; Domestic demand as represented by retail sales, on
the other hand, increased by only 0.2% in November.&nbsp; Retail
sales have shown little growth over the past several years as can be
seem in the first chart that shows industrial production, exports and
retail sales.*&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091228b.jpg" align="right" border="0" height="265" width="353">The outlook for increased
foreign demand
remains favorable in spite of the high yen. In particular, demand from
China, Japan's largest export customer, is rising together with demand
from other Asian countries.&nbsp; The outlook for domestic demand
is more problematic.&nbsp; Also released today was the year over
year change in cash earnings in industries employing 30 or more
persons. This series, shown in the second chart, is a good indicator of
general&nbsp;&nbsp; employment conditions and hence an
important indicator of domestic demand.&nbsp; Cash earnings in
November were 4.5% below a year ago.&nbsp; This is an improvement
over October's 9.5% shortfall and the -23.4% of March, 2009 but it is
unlikely to mean a significant increase in domestic demand in the
immediate future.&nbsp;&nbsp;*In the first chart the data for
industrial production and retail sales are seasonally adjusted and
indexed to a 2005 base.&nbsp; In order to have a comparable series
for exports, we used the series for exports seasonally adjusted by the
Ministry of Finance (VEATTLA@JAPAN)
and indexed these data to a 2005 base using the specialized function in
DLX.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">JAPAN</th>
<th scope="col">Nov 09</th>
<th scope="col">Oct&nbsp; 09</th>
<th scope="col">Sep 09</th>
<th scope="col">M/M% Chg </th>
<th scope="col">Y/Y% Chg&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">Industrial Production (SA,
2005=100)</td>
<td>88.3</td>
<td>86.1</td>
<td>93.1</td>
<td>2.56</td>
<td>-5.16</td>
<td>103.8</td>
<td>107.4</td>
<td>104.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales&nbsp; (SA,
2005=100)</td>
<td>99.2</td>
<td>99.0</td>
<td>99.9</td>
<td>0.20</td>
<td>-0.70</td>
<td>100.2</td>
<td>100.1</td>
<td>100.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports&nbsp; (SA, 2005=100)</td>
<td>91.7</td>
<td>87.4</td>
<td>97.1</td>
<td>4.89</td>
<td>-5.57</td>
<td>123.6</td>
<td>128.1</td>
<td>114.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>M/M Pt Chg</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Y/Y change in Cash Earnings (%)</td>
<td>-4.5</td>
<td>-9.4</td>
<td>-8.5</td>
<td>4.9</td>
<td>4.0</td>
<td>-2.4</td>
<td>0.8</td>
<td>2.4</td>
</tr>
</tbody>
</table>

</body></html>

Industrial production in Japan was reported today to have increased 2.6% in November to 88.3 (2005=100). This was the ninth month in which production increased from the low of 69.5 reached in February of this year. It is, however, [...]

Rising Exports Fuel Rise in Japanese Industrial Production

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091228a.jpg" align="right" border="0" height="265" width="353">Industrial
production in Japan was reported today to have increased 2.6% in
November to 88.3 (2005=100).&nbsp; This was the ninth month in
which production increased from the low of 69.5 reached in February of
this year.&nbsp;&nbsp; It is, however, still 5.2% below
November, 2008 and 19.8% below the recent peak reached in February,
2008.&nbsp; The increase has been fueled primarily by foreign
demand.&nbsp; Exports were up almost 5% in the month of
November.&nbsp; Domestic demand as represented by retail sales, on
the other hand, increased by only 0.2% in November.&nbsp; Retail
sales have shown little growth over the past several years as can be
seem in the first chart that shows industrial production, exports and
retail sales.*&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091228b.jpg" align="right" border="0" height="265" width="353">The
outlook for increased
foreign demand
remains favorable in spite of the high yen. In particular, demand from
China, Japan's largest export customer, is rising together with demand
from other Asian countries.&nbsp; The outlook for domestic demand
is more problematic.&nbsp; Also released today was the year over
year change in cash earnings in industries employing 30 or more
persons. This series, shown in the second chart, is a good indicator of
general&nbsp;&nbsp; employment conditions and hence an
important indicator of domestic demand.&nbsp; Cash earnings in
November were 4.5% below a year ago.&nbsp; This is an improvement
over October's 9.5% shortfall and the -23.4% of March, 2009 but it is
unlikely to mean a significant increase in domestic demand in the
immediate future.&nbsp;&nbsp;*In the first chart the data for
industrial production and retail sales are seasonally adjusted and
indexed to a 2005 base.&nbsp; In order to have a comparable series
for exports, we used the series for exports seasonally adjusted by the
Ministry of Finance (VEATTLA@JAPAN)
and indexed these data to a 2005 base using the specialized function in
DLX.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">JAPAN</th>
<th scope="col">Nov 09</th>
<th scope="col">Oct&nbsp; 09</th>
<th scope="col">Sep 09</th>
<th scope="col">M/M% Chg </th>
<th scope="col">Y/Y% Chg&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">Industrial Production (SA,
2005=100)</td>
<td>88.3</td>
<td>86.1</td>
<td>93.1</td>
<td>2.56</td>
<td>-5.16</td>
<td>103.8</td>
<td>107.4</td>
<td>104.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales&nbsp; (SA,
2005=100)</td>
<td>99.2</td>
<td>99.0</td>
<td>99.9</td>
<td>0.20</td>
<td>-0.70</td>
<td>100.2</td>
<td>100.1</td>
<td>100.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports&nbsp; (SA, 2005=100)</td>
<td>91.7</td>
<td>87.4</td>
<td>97.1</td>
<td>4.89</td>
<td>-5.57</td>
<td>123.6</td>
<td>128.1</td>
<td>114.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>M/M Pt Chg</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Y/Y change in Cash Earnings (%)</td>
<td>-4.5</td>
<td>-9.4</td>
<td>-8.5</td>
<td>4.9</td>
<td>4.0</td>
<td>-2.4</td>
<td>0.8</td>
<td>2.4</td>
</tr>
</tbody>
</table>

</body></html>

Rising Exports Fuel Rise inJapanese Industrial Production

Tom Moeller

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<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100126i.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100126j.jpg" style="width: 312px; height: 265px;">

The U.S. House Price Index from the Federal Housing and
Finance Agency (FHFA) continued to show improvement last fall. The
Purchase Only Index for November rose 0.7% after its 0.4% October
increase. Moreover, the year-to-year change turned positive for the
first time since late-2007. Since their peak in early-2007 home prices
nationwide have fallen 10.3%. The FHFA uses data provided by Fannie Mae
and Freddie Mac and is not value-weighted.
The HPI is calculated using a repeat sales index. That means
that the HPI measures changes in the price of the same property over
time but does not measure changes in property types over time. So if,
for example, the price of a larger, new home was not growing very
rapidly, but the number of people transitioning from smaller homes to
larger homes greatly increased, median house prices would go up (people
buying more expensive houses) much more than the HPI. In this way, the
HPI is a better measure of how any particular home is appreciating
while the median house price is a better measure of what the typical
home buyer is paying.
Notable monthly gains in home prices during November were
logged in the Pacific, South Atlantic and Mountain regions of the
country and the y/y declines moderated significantly.

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100126k.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100126l.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">FHFA
U.S. House Price Index Purchase Only (%)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.7</td>
<td>0.4</td>
<td>-0.3</td>
<td>0.5</td>
<td>-5.8</td>
<td>1.3</td>
<td>6.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New England</td>
<td>-0.3</td>
<td>0.7</td>
<td>0.5</td>
<td>0.3</td>
<td>-4.7</td>
<td>-1.7</td>
<td>1.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Middle
Atlantic</td>
<td>-0.1</td>
<td>1.3</td>
<td>-1.3</td>
<td>-1.6</td>
<td>-2.3</td>
<td>1.9</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; East North
Central</td>
<td>0.1</td>
<td>-0.9</td>
<td>0.9</td>
<td>0.1</td>
<td>-4.4</td>
<td>-1.3</td>
<td>1.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West North
Central</td>
<td>-0.0</td>
<td>0.4</td>
<td>-0.0</td>
<td>2.1</td>
<td>-2.8</td>
<td>1.0</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South
Atlantic</td>
<td>2.0</td>
<td>-1.5</td>
<td>0.0</td>
<td>-0.1</td>
<td>-7.3</td>
<td>1.3</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; East South
Central</td>
<td>-0.4</td>
<td>2.3</td>
<td>-1.6</td>
<td>1.5</td>
<td>-1.5</td>
<td>3.8</td>
<td>7.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; West South
Central</td>
<td>0.3</td>
<td>0.6</td>
<td>-0.3</td>
<td>2.5</td>
<td>0.6</td>
<td>4.7</td>
<td>7.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mountain</td>
<td>0.7</td>
<td>0.7</td>
<td>-1.3</td>
<td>-4.9</td>
<td>-6.2</td>
<td>3.9</td>
<td>10.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Pacific</td>
<td>2.3</td>
<td>2.2</td>
<td>-0.8</td>
<td>2.9</td>
<td>-17.3</td>
<td>0.1</td>
<td>9.8</td>
</tr>
</tbody>
</table>
</body></html>

The U.S. House Price Index from the Federal Housing and Finance Agency (FHFA) continued to show improvement last fall. The Purchase Only Index for November rose 0.7% after its 0.4% October increase. Moreover, the year-to-year change [...]

FHFA Home Price Index Ticks Up Both M/M And Y/Y

Crude oil price has returned to pre-conflict level but traffic through Hormuz still subpar

Surging orders for computers and electronics propelling durable goods orders

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

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

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Sandy Batten

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The luster fell a bit off the employment rose in June with nonfarm payrolls rising 57,000 against expectations of a 115,000 increase, according to today’s report from the Bureau of Labor Statistics. Moreover, the increases previously reported for April and May were revised down by a total of 74,000. Upon revision, payrolls increased 148,000 in April versus 179,000 previously reported and rose 129,000 in May versus 172,000 previously reported. The average increase over the past three months fell to 111,000 from 164,000 in May while the average increase over the past six months rose to 92,000 in June, its highest reading since February 2025, from 80,000 in May. Both remain on a modest uptrend and much stronger than payroll gains last year. In 2025, monthly payroll gains averaged only 10,000.

The weaker-than-expected payroll report was reinforced by a weak report from the **household survey**. While the number of unemployed fell 213,000 and the unemployment rate edged down to 4.2% from 4.3% in May, the number of employed slumped 507,000 in June, the largest monthly decline since May 2025 (with population adjustment to January 2026). The labor force plunged 720,000 with the labor force participation rate falling to 61.5%, its lowest level since March 2021.

Growth of average hourly earnings (AHE), a key variable for the Federal Reserve, was relatively well behaved in June. AHE increased 0.3% m/m, the same monthly gain as in May, in line with expectations. The y/y rate of advance edged up to 3.5% in June from 3.4% in May. Wage growth in private services-producing firms picked up in June, rising 0.4% m/m (3.4% y/y) versus 0.2% m/m (3.2% y/y) in May. Goods-producing wages increased 0.2% m/m in June after 0.3% monthly gains in both April and May with the y/y rate holding at 4.1%.

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In the **establishment survey**, private-sector employment was also weaker than expected in June, increasing only 49,000 against an expected 115,000 increase. Moreover, April and May figures were also revised down by a total of 50,000. Government employment rose 8,000 following a 32,000 increase in May. Private goods-producing employment increased 10,000, its largest monthly gain in three months with an 11,000 gain in construction and a 3,000 rise in manufacturing jobs, the first increase in three months. In contrast, services-producing employment increased only 39,000 in June, its weakest monthly performance in four months. Private education and health services jobs posted another solid gain of 69,000, up from 45,000 in May. However, retail jobs fell 7,500, their first monthly decline in four months, and leisure and hospitality jobs slumped 61,000, their largest monthly decline since December 2020, after increasing 40,000 in May. There had been speculation in the market that the World Cup would generate additional leisure and hospitality jobs, but this obviously failed to pan out. On a brighter note, although the one-month payroll diffusion index, a measure of the breadth of job gains, slipped to 54.4 in June from 56.0 in May, it remained well above the key 50 level that indicates that more industries were adding jobs than losing them.

The length of the workweek was unchanged at 34.3 hours in June with the aggregate weekly hours index edging up 0.1% m/m, the same monthly gain as in May. The aggregate hours index rose 1.3% q/q saar in Q2, the fastest quarterly gain in four quarters, providing a solid base for Q2 real GDP growth. The goods-producing workweek was unchanged at 40.1 hours, the highest since January 2023, while the private service-producing workweek edged down to 33.2 hours from 33.3 hours in May.

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

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- U.S. nonfarm payrolls increased 57,000 in June with meaningful downward revisions to both April and May.
- The market consensus looked for a 115,000 increase.
- The unemployment rate edged down to 4.2% from 4.3%, due mostly to a large decrease in the labor force.
- Average hourly earnings rose 0.3% m/m (3.5% y/y), in line with expectations.

U.S. Payroll Employment Gains Smaller than Expected in June

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Unemployment rates in the European Monetary Union (EMU) were steady in May at 6.2%, the same level as in April, after April had fallen to 6.2% from 6.3%. The 6.2% reading is the lowest for the community since it was formed. Meanwhile, for the larger community, the EU, the unemployment rate has stabilized at 5.9%, the same as in April, again, a tick lower than it was in March. This 5.9% reading is a tick above the historic low for the European Union (EU). In both cases, the performance of these two economic conglomerations is quite excellent.

**Monthly**
The table looks at 12 of the most senior members of the monetary union, including an observation for the United Kingdom based on its claimant-count unemployment rate, presented at the bottom of the table. In May, the monetary union saw 4 of 12 members in the table with lower unemployment rates than they had in April. In April, five members had lower unemployment rates than in March. In March, seven members had lower unemployment rates than they posted in February. The progression to lower unemployment rates has slowed based on monthly data.

**Sequentially**
Looking at changes in the unemployment rates over broader sequential periods—three months, six months, and 12 months—6 out of 12 reporters have lower unemployment rates over three months; 7 have lower unemployment rates over six months; only 4 report unemployment rates that are lower over 12 months. The broader periods for comparison show changes in the unemployment rates that report more declines over the shorter and more recent periods compared to the longer/older periods. This is not the same trend leaning that we get from the last three months of data. It'll be good to watch these developments in the coming months to see if the tendency to lower unemployment rates is slowing or whether dropping unemployment is continuing in force.

**Rankings**
The ranking of unemployment rates since 1990 finds only three of these 12 monetary union members with unemployment rates above their medians. Those are Luxembourg, with a 98.2 percentile standing, Finland with an 81.9 percentile standing, and Austria with a 76.6 percentile standing. Italy, on the other hand, is reporting the lowest unemployment rate that it has seen during this period. The Greek unemployment rate has been this low or lower only about 3% of the time, while in Spain the unemployment rate has been this low or lower 11% of the time. For Portugal, the unemployment ranking figure has been weaker 13% of the time. The monetary union continues to report excellent labor market results even though economic growth has been relatively disappointing.

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**Summing up and central bankers**
In the wake of the monetary conference in the Sintra this past week, central banks featuring contributions from the European Central Bank, the Bank of England, the Federal Reserve, and the Bank of Canada, saw central bank heads talking about getting back to basics and stopping the use of some of the newer tools that had been pressed into service after the great financial crisis and during COVID. Bankers are getting back to basics to focus on short-term interest rates and say they will stop fiddling with the size of the balance sheet and to largely set aside the use of forward guidance. It will take time to determine what these changes are going to mean in terms of how policy performs and how markets will react. While there was a lot of discussion, and in some places concerns about the loss of forward guidance, what is clear is that, with forward guidance gone, there will be more volatility; however, the markets will be freer to price economic events themselves and will not be so stuck to the outlook of the central bank.  That could turn out to be a gigantic win for both markets and central bankers.

Europe

Unemployment Remains Quite Low in Europe

Andrew Cates

**Tightening Bias Intact, but Unevenly Distributed**
The July Blue Chip Financial Forecasts survey's expectations for policy rate changes over the next twelve months reveal a striking divergence across the major advanced economies, as chart 1 below makes clear. Across the board, the rate outlook is higher than it was in late February, before the US-Iran conflict escalated: the energy price shock and its inflationary consequences have left an imprint on the panel's thinking, even as oil prices have since retreated. Japan tops the list with an expected increase of around 40 basis points, reflecting the building pressure on the Bank of Japan to respond to yen weakness and still-elevated domestic inflation. Canada and the euro area also sit firmly in positive territory, with expected increases of around 30 and 20 basis points respectively. The US and the UK, by contrast, are in negative territory — the US barely so, the UK more distinctly, with the panel pencilling in modest rate reductions over the coming year. This pattern is not simply a reflection of where each economy sits in the inflation cycle. It also encodes a judgement about the current stance of monetary policy: in Japan, the euro area and Canada, policy is likely seen as insufficiently tight relative to the inflation challenge, and the conflict has reinforced that view. In the US and UK, by contrast, policy is judged to be closer to or already beyond neutral, meaning the next move is more likely to be an easing than a further tightening — even if, in the US case, that easing has been pushed well into 2027.

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**When Will the Next Move Come?**
Chart 2 below adds a timing dimension to the rate outlook, showing where the BCFF panel currently places the next policy move for the Fed, ECB, Bank of England and Bank of Japan. For the BoJ, the distribution is concentrated around the near term, with a significant share of respondents expecting action in September or October — consistent with the building pressure illustrated in chart 1 and with the BoJ’s next scheduled decision on 31 July. For the ECB, September or later than November emerge as the most likely timing for the next step. The Bank of England panel is more spread, with a meaningful share expecting action to come later. For the Fed, the dominant view places the next move firmly in the ‘later’ category, consistent with the BCFF consensus that the Fed funds rate will hold through the rest of 2026, with a first cut not expected until Q2 2027. Under chair Kevin Warsh, the June FOMC meeting delivered a hawkish dot plot that shifted some participants toward a hike before year-end, but the panel as a whole has not moved that far.

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**Headline Up, Core Contained: The Inflation Picture Across Advanced Economies**
One of the more reassuring features of the current inflation episode has been the limited pass-through from energy prices to underlying price dynamics. Across the advanced economies, headline CPI inflation has risen materially since the conflict escalated in March, driven overwhelmingly by consumer energy costs. Core inflation — stripping out food and energy — has edged higher, but only modestly, suggesting that second-round effects remain contained for now. In the United States, the pressures are arguably more alarming, with core PCE rising sharply between February and May to its highest level since October 2023. In the euro area, the focus this week has been firmly on Eurostat's June flash CPI estimate, published yesterday. Headline inflation fell back to 2.8% from a peak of 3.2% in May, as energy costs — the main driver of the surge since the conflict began — eased meaningfully. Crucially, core inflation also ticked down, and services inflation retreated as well. The June data therefore tell a broadly reassuring story: the energy shock is unwinding without leaving a lasting imprint on underlying price dynamics — precisely what the ECB will have been hoping for.

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**Consumer Price Expectations: Are Households Convinced?**
The aggregate inflation picture looks relatively contained at the macro level, but whether households are similarly reassured is a separate question. Chart 4 below draws on the European Commission's consumer survey data on price expectations — one of the more timely and widely watched indicators of inflation psychology in the euro area. The survey captures whether consumers expect prices to rise, stay the same or fall over the coming twelve months, and its relationship with actual inflation outturns has historically been close. A sustained elevation in consumer price expectations risks becoming self-fulfilling, feeding into wage demands and pricing behaviour in ways that complicate the ECB's task considerably. The June survey, however, brought an encouraging development: expectations fell steeply, suggesting that households have begun to register the reversal in energy prices and the broader easing of the inflationary impulse. That said, the absolute level of expectations remains elevated relative to the pre-conflict period, and one month's decline does not constitute a trend. Whether the June reading marks the beginning of a sustained normalisation — or proves a temporary dip before expectations re-anchor at a higher level — will be one of the key variables shaping the ECB's decision calculus in the months ahead.

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**Japan: A Weak Yen at the Worst Possible Time**
Japan occupies a particularly uncomfortable position in the current global conjuncture. The yen has depreciated to levels not seen since December 1986, with USD/JPY touching 162 this week. The move reflects the persistence of a large interest rate differential: even as the Bank of Japan has continued its gradual tightening, the Fed’s hawkish pivot under chair Kevin Warsh — with the mid-June FOMC dot plot signalling a possible hike before year-end — has reinforced the carry trade dynamics weighing on the currency. For Japan, which imports virtually all of its energy, yen weakness at a time of still-elevated global oil prices is a double burden, amplifying domestic inflation and squeezing real incomes. Verbal warnings from Japan’s Finance Ministry have had only a modest and short-lived effect on the exchange rate. The Bank of Japan’s next policy decision is on 31 July, and the pressure to act more decisively is building. The BCFF panel’s July survey revised upward its expectation for a stronger US dollar against the yen over the coming year — consistent with the fundamental picture that chart 5 below describes.

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**AI: Optimism on the Technology, Scepticism on the Price**
Returning to the BCFF survey, its special questions reveal a panel that continues to look beyond the current cyclical turbulence toward a longer-horizon structural narrative. On artificial intelligence, respondents are broadly optimistic: 45% expect a noticeable impact on US productivity and growth within one to three years, with a further 45% believing those effects are already becoming evident. That is a striking degree of conviction about a technology whose macro-level productivity impact remains, by most empirical measures, still to fully materialise. Yet the same panellists are considerably more cautious about financial markets than about the technology itself. Nearly all respondents believe that expected AI gains are already fully reflected — or even over-reflected — in current asset prices. Chart 6 below captures this tension. It is a combination — high conviction on transformative potential, high scepticism on current valuations — that has historically been associated with stretched risk premia and vulnerability to disappointment, even where the underlying technology story ultimately proves correct.

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Global financial markets have had a more settled feel this week, reflecting the continued unwinding of the geopolitical risk premium that had built up during the worst of the US-Iran conflict. Oil prices have fallen further, equity markets have been broadly supported, and incoming inflation data — notably the euro area’s June flash CPI estimate — have come in below expectations. The US holiday-shortened week ahead, with Independence Day on Friday, is likely to keep volumes thin and activity subdued. The bigger picture, however, remains one of tension between a more benign near-term inflation trajectory and central banks that may not yet be ready to stand down. In the charts below we look first at what the latest Blue Chip Financial Forecasts (BCFF) survey reveals about the expected change in and timing of policy rates across the major economies (charts 1 and 2), then at the divergence between headline and core inflation across the advanced economies (chart 3), and at what euro area consumers are more specifically expecting about inflation in the period ahead (chart 4). We turn next to Japan and the yen’s slide this week to 40-year lows (chart 5), and finally to the BCFF survey’s special questions on artificial intelligence and asset valuations (chart 6).

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Charts of the Week: Forecasters Hold Firm

Winnie Tapasanun

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The ISM U.S. manufacturing PMI fell to a lower-than-expected 53.3 in June, the first m/m fall since February, following a 1.3-point increase to 54.0 in May, according to data from the Institute for Supply Management. The June reading, above the 50 expansion-contraction threshold, indicated the U.S. manufacturing sector expanded for the sixth straight month, albeit at a slightly slower pace. A reading of 53.8 for June had been expected in the Action Economics Forecast Survey. The June manufacturing PMI, while above a contraction-level 49.0 in June 2025 and a low of 47.0 in October 2024, remained below a peak of 63.8 in March 2021.

The production index declined to 52.2 in June from 54.3 in May, indicating production expanded for the eighth consecutive month but at the slowest pace since December. The index was above a low of 44.8 in April 2025 but below a peak of 66.5 in March 2021. In June, 19.0% (NSA) of respondents reported higher production while 13.0% reported lower production. The new orders index slipped to 56.0 in June from 56.8 in May, signaling new orders grew for the sixth straight month following four successive months of contraction. The index remained well above a low of 41.8 in January 2023 but below a high of 67.0 in May 2021. In June, 22.3% (NSA) of respondents reported higher new orders while 13.4% reported declines. The inventories index climbed to 51.4 in June from 49.9 in May, marking the first expansion since April 2025. The index was slightly below a high of 52.7 in March 2025 but above a low of 43.8 in October 2024. Meanwhile, the supplier deliveries index fell to 57.4 in June from 60.6 in May and April, indicating slowing delivery performance for the seventh consecutive month after faster deliveries in November. In June, 18.1% (NSA) of respondents reported slower delivery speeds while 3.4% reported faster speeds.

On the labor front, the employment index improved to 49.7 in June from 48.6 in May, showing employment contracted for the 33rd straight month but at the slowest contraction pace since January 2025. The index was above a low of 44.1 in November 2025 but below a high of 56.5 in March 2022. In June, 16.2% (NSA) of respondents reported higher employment while 13.8% reported lower hiring.

On the pricing front, the prices paid index fell to a still-high 73.0 (NSA) in June, a 9.1-point drop—the largest decline since July 2022—from 82.1 in May, indicating raw materials prices rose for the 21st straight month but at the slowest rising pace since February. The index remained well above a low of 39.4 in December 2022 but below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. In June, 55.1% (NSA) of respondents reported higher prices while 9.2% reported price declines.

In other ISM series not included in the composite index, the new export orders index fell to 48.5 in June from 50.6 in May, indicating new export orders contracted for the third time in four months. The index was up from a low of 40.1 in May 2025 but down from a high of 52.4 in January 2025 and a peak of 57.1 in February 2022. The imports index edged down to 52.9 in June from 53.0 in May, suggesting imports expanded for the fifth successive month. The index was below its recent high of 54.9 in February but above a low of 39.9 in May 2025. The order backlog index decreased to 50.5 (NSA) in June from 52.2 in May, showing backlog levels grew at the slowest pace in six months. The index was below a high of 56.6 in February and a peak of 70.6 in May 2021 but well above a low of 37.5 in May 2023.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- ISM Mfg. PMI down slightly to 53.3 in June; sixth straight month above 50.
- Production (52.2) expands for the eighth consecutive mth.; new orders (56.0) for the sixth successive mth.
- Employment (49.7) contracts for the 33rd straight mth.; at the slowest contraction pace since Jan. ’25.
- Prices Index (73.0) at a four-month low, still indicating prices rising for the 21st consecutive mth.
- Exports (48.5) contract for the third time in four mths.; imports (52.9) continue to grow.

U.S. ISM Manufacturing PMI Still Expansionary in June; New Orders and Production Growing at a Slower Pace; Employment Contracting

Michael J. Moran

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The monthly report on construction activity receives scant attention in the financial press, and investors and traders in financial markets typically pay little heed. However, it is a valuable report for economists, as it provides a broad-based view of building activity, covering private residential and business construction, as well as government-related activity. The figures feed into the calculation of GDP. Unfortunately, results have been soft since early 2025.

Total construction activity rose 0.1 percent in May, marking the third consecutive increase. However, the gains have not been especially large, averaging 0.3%, and they have barely dented the string of weak readings in the preceding 17 months. The year-over-year change in May totaled -1.5%.

Private residential construction, the largest component of the total (41% share), rose 0.3% in May, adding to an average gain of 1.1% in the prior two months and leaving a year-over-year increase of 1.8% (chart, upper left). Most of the advance in the past year was the result of improvements to existing homes (up 8.1%). Construction of new multi-family units has shown little net change in the past year or so, while new single-family building has traced a mild downward trend (off 4.0% in the past year). Public construction has been flat in the past year, with both the federal government and state and local governments showing little net change (chart, upper right).

Private nonresidential construction (34% of the total) has received considerable press attention in the past few years because of explosive growth in the building of data centers. Growth has indeed been vigorous. Building started in 2020 and grew moderately at first, but this sector took off in 2022, about the time when artificial intelligence models became publicly available (chart, lower left, in levels to show the strong trend more clearly). Average annual growth for the three years ended 2025 totaled 48%.

Interestingly, despite the rapid growth in the building of data centers, the private nonresidential sector has been the weakest area of the construction report, with activity trending lower since early 2025 (chart, lower right). Some components of private nonresidential construction have held steady or improved (e.g. amusement & recreation, electric power), but three areas stand out on the soft side: general office, commercial, and manufacturing.

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- Building activity in the US was firm in 2023 and 2024, but it has lost ground since then.
- Government-related construction and private residential building have been little changed in the past year or so.
- Private nonresidential construction has been notably weak, despite robust activity in the building of data centers.

Economy in Brief

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