Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090916a.jpg" align="left" border="0" height="265" width="353">
Output and capacity: IP rose by 0.8% in August and
manufacturing capacity rose for the second month in a row. For MFG,
utilized capacity is just at 66.6% barely two thirds of the capacity
put in place. However, even going back to the overheated sixties when
capacity use rates were higher, capacity utilization has never
triggered a reading above 91.6. Still, it&#8217;s a lot of capacity that is
left unused and the economy is not exactly scooping up the excess at a
rapid rate. Manufacturing capacity use rose from 65.1 in June to 66.1
in July and to 66.6 in August. 
 

Manufacturing: Manufacturing output rose by 0.6% in August
lead by a 0.7% gain in nondurable goods. But durable good output rose
by 0.4% and that was on top of a gain of 1.4% the month before that,
implying a bit more momentum. 
 

By sector: Consumer goods output rose, led by the output
automobiles and products. Business equipment output rose led by the key
transportation sector. Materials output rose led by output in the
energy sector, although nondurables goods ex-energy output also moved
up strongly in the month. Consumer goods business equipment and
materials output all are up for two months running. 
 

Caution about the impact of this strong growth on GDP: In the
quarter to date, with two of three-month&#8217;s data in place, industrial
output is up at a 3.4% pace and MFG output is up at a strong 5.7% pace.
While these are strong numbers let me caution you that IP figures do
not easily translate into GDP growth. You have treat the IP report as
if it is an &#8216;indicator.&#8217; We measure GDP in the United States from the
expenditure side not from the output side and so the IP report per se
does not feed into GDP. One clear issue is that the IP report uses
different seasonal factors and they are real different for the auto
sector. Still, taken and an indicator, the fact that IP is growing at a
3.4% annual rate and MFG at a 5.7% annual rate suggests that there is a
lot of life to GDP. We would expect to find this output either sold to
US consumers, bought by US businesses, sold overseas as exports or
sitting on shelves as inventories (&#8230;although inventory data are so weak
that the last option seems less likely and is more there for the sake
of completing the taxonomy of options). So while that accounting is
correct what GDP finds may be different from what IP implies. 
 

What&#8217;s still weak? What is still weak in the third quarter is
consumer goods output excluding autos as that metric has output falling
at a 4.2% pace in Q3; the output of consumer energy goods also is
falling at a pace of 12.3% in Q3. In the business sector, the output of
computers and office equipment is falling in Q3 and in the materials
sector, the output of energy products is falling. 
 

But by and large the strength in the industrial sector is
impressive and its momentum into Q3 appears to be quite solid. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Industrial Production</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Monthly Pct. Changes</td>
<td colspan="3">At Annual Rates of Change</td>
<td>SAAR</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Month-to-month Pct. Change</td>
<td>3-Month</td>
<td>6-Month</td>
<td>Year/Year</td>
<td>09-Q3</td>
</tr>
<tr class="even">
<td class="firstcol">Industrial Output</td>
<td>Aug-09</td>
<td>Jun-09</td>
<td>Jul-09</td>
<td>%Change</td>
<td>%Change</td>
<td>%Change</td>
<td>Pct Change</td>
</tr>
<tr class="even">
<td class="firstcol">All
Production &amp; Materials</td>
<td>0.7%</td>
<td>0.9%</td>
<td>-0.9%</td>
<td>2.9%</td>
<td>-3.8%</td>
<td>-10.8%</td>
<td>3.4%</td>
</tr>
<tr class="even">
<td class="firstcol">All
Products</td>
<td>0.8%</td>
<td>0.8%</td>
<td>-0.8%</td>
<td>3.3%</td>
<td>-3.6%</td>
<td>-8.9%</td>
<td>3.2%</td>
</tr>
<tr class="even">
<td class="firstcol">Final Products</td>
<td>1.1%</td>
<td>0.9%</td>
<td>-0.9%</td>
<td>4.4%</td>
<td>-3.3%</td>
<td>-7.3%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">Manufacturing
only</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.6%</td>
<td>1.4%</td>
<td>-1.4%</td>
<td>2.5%</td>
<td>-2.9%</td>
<td>-12.2%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">MFG-Durables</td>
<td>0.4%</td>
<td>3.2%</td>
<td>-3.1%</td>
<td>1.7%</td>
<td>-4.7%</td>
<td>-17.7%</td>
<td>11.0%</td>
</tr>
<tr>
<td class="firstcol">MFG-Nondurables</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>2.9%</td>
<td>-0.2%</td>
<td>-6.2%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>1.3%</td>
<td>0.7%</td>
<td>-0.7%</td>
<td>5.4%</td>
<td>-0.6%</td>
<td>-4.2%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">Durables</td>
<td>2.0%</td>
<td>7.8%</td>
<td>-7.3%</td>
<td>8.1%</td>
<td>10.8%</td>
<td>-13.0%</td>
<td>38.4%</td>
</tr>
<tr>
<td class="firstcol">Automotive Products</td>
<td>5.8%</td>
<td>17.2%</td>
<td>-14.7%</td>
<td>23.3%</td>
<td>38.0%</td>
<td>-8.1%</td>
<td>113.6%</td>
</tr>
<tr>
<td class="firstcol">Excl Automotive Products</td>
<td>-1.3%</td>
<td>0.6%</td>
<td>-0.6%</td>
<td>-5.3%</td>
<td>-10.0%</td>
<td>-17.3%</td>
<td>-4.2%</td>
</tr>
<tr>
<td class="firstcol">Nondurables</td>
<td>1.2%</td>
<td>-0.8%</td>
<td>0.8%</td>
<td>4.7%</td>
<td>-3.0%</td>
<td>-1.9%</td>
<td>-2.4%</td>
</tr>
<tr>
<td class="firstcol">Nonenergy</td>
<td>1.2%</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>-1.0%</td>
<td>-2.8%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">Consumer Energy</td>
<td>0.9%</td>
<td>-2.0%</td>
<td>2.0%</td>
<td>3.4%</td>
<td>-9.5%</td>
<td>-0.4%</td>
<td>-12.3%</td>
</tr>
<tr>
<td class="firstcol">Business Equipment</td>
<td>0.6%</td>
<td>1.0%</td>
<td>-1.0%</td>
<td>2.2%</td>
<td>-10.6%</td>
<td>-14.7%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">Transportation</td>
<td>2.4%</td>
<td>4.4%</td>
<td>-4.2%</td>
<td>9.4%</td>
<td>-5.7%</td>
<td>-15.4%</td>
<td>20.7%</td>
</tr>
<tr>
<td class="firstcol">Computer &amp; Office
Equipment</td>
<td>-1.2%</td>
<td>-1.2%</td>
<td>1.2%</td>
<td>-4.7%</td>
<td>-19.6%</td>
<td>-23.8%</td>
<td>-16.3%</td>
</tr>
<tr>
<td class="firstcol">Excl Technology Transport</td>
<td>0.4%</td>
<td>0.5%</td>
<td>-0.5%</td>
<td>1.6%</td>
<td>-13.0%</td>
<td>-14.2%</td>
<td>-2.2%</td>
</tr>
<tr>
<td class="firstcol">Materials</td>
<td>0.5%</td>
<td>1.3%</td>
<td>-1.3%</td>
<td>2.1%</td>
<td>-4.3%</td>
<td>-13.1%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Durables</td>
<td>0.0%</td>
<td>3.5%</td>
<td>-3.3%</td>
<td>0.0%</td>
<td>-9.1%</td>
<td>-23.8%</td>
<td>9.3%</td>
</tr>
<tr>
<td class="firstcol">Nondurables
excl Energy</td>
<td>0.8%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>3.0%</td>
<td>3.7%</td>
<td>-8.7%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>1.1%</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>4.5%</td>
<td>-6.3%</td>
<td>-4.8%</td>
<td>-3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">Actual
Auto Production
Levels</td>
</tr>
<tr>
<td class="firstcol"></td>
<td colspan="3">Month-to-month Pct. Change</td>
<td>3-Month</td>
<td>6-Month</td>
<td>Year/Year</td>
<td>09-Q3</td>
</tr>
<tr>
<td class="firstcol">Vehicle
Production</td>
<td>Aug-09</td>
<td>Jun-09</td>
<td>Jul-09</td>
<td>%Change</td>
<td>%Change</td>
<td>%Change</td>
<td>Pct Change</td>
</tr>
<tr>
<td class="firstcol">Autos</td>
<td>55.9%</td>
<td>-7.0%</td>
<td>7.5%</td>
<td>223.6%</td>
<td>111.1%</td>
<td>-31.4%</td>
<td>164.0%</td>
</tr>
<tr>
<td class="firstcol">Trucks</td>
<td>37.1%</td>
<td>10.9%</td>
<td>-9.8%</td>
<td>148.5%</td>
<td>47.0%</td>
<td>-8.1%</td>
<td>121.8%</td>
</tr>
</tbody>
</table>
</body></html>

Output and capacity: IP rose by 0.8% in August and manufacturing capacity rose for the second month in a row. For MFG, utilized capacity is just at 66.6% barely two thirds of the capacity put in place. However, even going back to the [...]

IP Trend Turns Higher

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915e.jpg" align="left" border="0" height="265" width="353">
Inventories fell again in the current month. Still the 1% drop
while large is the smallest drop in eight months. Inventories average a
1.3% monthly decline in Q2 so in Q4 inventories are improving by 30%
over the previous quarter. 
 

The inventory conundrum - For the impact
on GDP, it is not the change in inventory levels that matters but the
change in the change. If inventories fall by the same amount in each
month of Q2 and in Q3 the change in inventory investment will be zero
(the same amount of investment in each quarter). The fact that
inventories are falling by less in Q3 is the key to seeing there is a
boost in GDP in the offing even though inventories are still falling.
Right now the average drop per month in Q3 is $13bln compared to a drop
of $18bln in Q2. Annualize that difference and you get a large swing.
Still you still have to inflation-adjust those numbers and remember, it
is only one month in the new quarter. But you get the picture.
Inventories are a positive factor already. 
 

I to S ratio is LOW - In the table above we
show the percentile standing of the I-to-S ratio in its three-year
range. For retailers it is the lowest inventory-to-sales ratio in three
years. Wholesalers have inventories at a mid range mark, while for
manufacturers inventories are still in the top 22% of their three year
range (78th percentile) relative to sales. 
 

Sequential growth trend is your friend--
The sequential growth rates show that the pace of sales has moved from
the negative to the positive from 12-months to six-months to 3-months
across manufacturers, retailers and wholesalers. This is good news. The
pace of inventory declines for the most part seems to have plateaued as
three month growth rates are even with six month growth rates for the
major business sectors. 
 

The end of days&#8230;the dog days -- Despite the
fact that inventories are still declining you cans see the whites of
the business expansion&#8217;s eyes. The end of recession is at hand; the
start of recovery is in play. Sales are on an upswing across sectors
the I-to-S ratios are mostly low and the pace of the inventory decline
is flattening out. These facts should make inventories a positive
factor for growth in Q3 and could make them a powerful factor for Q4
growth as well. Remember that inventories are still falling and the
rebuilding process has not yet begun, so this switch powered eventually
by inventory growth, not just slower paring, could go on for some time.

<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">2009.Jul</th>
<th colspan="9" scope="col">Inventory
and Sales Paired Growth Rates by Major Divisions</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2"> 3-Mo Growth</td>
<td colspan="2"> 6-Mo Growth</td>
<td colspan="2"> 12-Mo Growth</td>
<td colspan="2"> YrAgo Growth</td>
<td style="font-weight: bold;">I:S ratio</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>%-tile</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Business</td>
<td> 4.7%</td>
<td>-13.6%</td>
<td> -1.9%</td>
<td>-14.2%</td>
<td> -17.8%</td>
<td>-11.8%</td>
<td> 7.9%</td>
<td>6.7%</td>
<td> 52.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturers</td>
<td> 3.8%</td>
<td>-10.0%</td>
<td> -3.6%</td>
<td>-11.8%</td>
<td> -22.2%</td>
<td>-10.0%</td>
<td> 7.1%</td>
<td>7.8%</td>
<td> 78.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Retailers</td>
<td> 5.5%</td>
<td>-14.6%</td>
<td> 0.2%</td>
<td>-13.9%</td>
<td> -9.5%</td>
<td>-12.9%</td>
<td> 1.5%</td>
<td>2.2%</td>
<td> 0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesalers</td>
<td> 5.0%</td>
<td>-17.0%</td>
<td> -2.0%</td>
<td>-17.4%</td>
<td> -19.8%</td>
<td>-12.8%</td>
<td> 15.2%</td>
<td>11.0%</td>
<td> 52.2%</td>
</tr>
<tr>
<td class="firstcol" colspan="10">
Ratio of STOCKS to Sales;
Stocks Vs Flows</td>
</tr>
<tr class="even">
<td colspan="7" class="firstcol">Inventory-to-Sales
Ratios
In Perspective</td>
<td colspan="3">Over three Years</td>
</tr>
<tr class="odd">
<td class="firstcol"> 2009.Jul</td>
<td> Current</td>
<td> 3Mo Ago</td>
<td> 6Mo Ago</td>
<td> Yr Ago</td>
<td> 2Yrs Ago</td>
<td> 3Yrs Ago</td>
<td> %-tile</td>
<td> Max</td>
<td> Min</td>
</tr>
<tr class="odd">
<td class="firstcol"> Total Business</td>
<td>1.36</td>
<td>1.43</td>
<td>1.46</td>
<td>1.27</td>
<td>1.28</td>
<td>1.28</td>
<td>52.4%</td>
<td>1.46</td>
<td>1.25</td>
</tr>
<tr class="odd">
<td class="firstcol"> Manufacturers</td>
<td>1.40</td>
<td>1.45</td>
<td>1.46</td>
<td>1.21</td>
<td>1.20</td>
<td>1.19</td>
<td>78.6%</td>
<td>1.46</td>
<td>1.18</td>
</tr>
<tr class="odd">
<td class="firstcol"> Retailers</td>
<td>1.45</td>
<td>1.53</td>
<td>1.57</td>
<td>1.51</td>
<td>1.50</td>
<td>1.50</td>
<td>0.0%</td>
<td>1.62</td>
<td>1.45</td>
</tr>
<tr class="odd">
<td class="firstcol"> Wholesalers</td>
<td>1.23</td>
<td>1.31</td>
<td>1.34</td>
<td>1.13</td>
<td>1.17</td>
<td>1.17</td>
<td>52.2%</td>
<td>1.34</td>
<td>1.11</td>
</tr>
</tbody>
</table>
</body></html>

Inventories fell again in the current month. Still the 1% drop while large is the smallest drop in eight months. Inventories average a 1.3% monthly decline in Q2 so in Q4 inventories are improving by 30% over the previous quarter. The [...]

Sales Trim Losses As Inventories Are Looking Lean

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915d.jpg" align="left" border="0" height="265" width="353">
The PPI headline spurted by 1.7% in August as the core rose by
02% and core for consumer prices at the producer level edged up by just
0.1%. Finished energy prices rose by 8% in the month. The headline
displays an accelerating pattern of growth rates for 12-month to
6-month to 3-month rates of inflation. But the core pattern has been
more settled and core pattern for consumer prices at the producer level
has been even more tranquil. 
 

We learned from the last time energy prices spiked in the
recession that a transmission of their gains to the core was not
automatic. Rising energy prices have both inflationary and deflationary
effects. When consumers and firms do not have the power to bargain for
wage and price hikes, as is the case now, it is more likely that rising
energy prices impact growth adversely instead of impacting inflation
positively. 
 

Still what we are seeing here are volatile price movements.
Energy prices have had a standard deviation of 5 percentage points on
the month to month percentage changes since the recession began. That
kind of volatility tends to impart considerable uncertainty into the
headline PPI each month. 
 

The 8% m/m rise in energy prices in August is the largest
since a 10.2% gain in November 2007. Energy prices are up in four of
the last five months and in six of the last eight months. Prior to that
energy prices had fallen for five months in a row. 
 

Spot oil prices on world markets, however, have been hovering
around the $70/bbl mark for a number of months. Oil prices have been
playing catch up since the recession has come off its worst of times
and oil prices have bounced and are trying and find a new higher
equilibrium. 
 

For now the core PPI price patterns are reassuring. Since
global oil price trends are not running away we can look for the energy
market in the US to find a level that is consistent with global prices
and for the energy component of the PPI to settle down. It does not
look very inflationary now in this economy but we are looking for
recovery to set in. As that happens the risk will multiply and the
potential for inflation to take root will improve somewhat. I am no
inflation monger. But circumstance will change. For now inflation is
not the worry, it&#8217;s just a bad monthly result in the least important of
all US inflation reports. 
 

Long live the CPI and the PCE deflator where trends are more
important. In that regard the tranquil inflation embedded in core
consumer prices at the producer prices level is reassuring.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="6" scope="col">Key Trends In Producer Prices</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Aug-09</td>
<td colspan="4">PPI Trends By Type Of Good</td>
</tr>
<tr class="odd">
<td class="firstcol">PPI</td>
<td>1Mo:M/M</td>
<td>3-Mo:ar</td>
<td>6-Mo:ar</td>
<td>1-Yr</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Total PPI</td>
<td>1.7%</td>
<td>11.0%</td>
<td>4.3%</td>
<td>-4.3%</td>
<td>9.8%</td>
</tr>
<tr>
<td class="firstcol">Finished Consumer Gds</td>
<td>2.3%</td>
<td>14.4%</td>
<td>5.5%</td>
<td>-5.9%</td>
<td>11.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Foods</td>
<td>0.4%</td>
<td>0.0%</td>
<td>-1.7%</td>
<td>-3.9%</td>
<td>9.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Finished C Gds Excl
Foods</td>
<td>2.9%</td>
<td>19.5%</td>
<td>8.1%</td>
<td>-7.0%</td>
<td>12.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Nondurables less Food</td>
<td>3.9%</td>
<td>26.6%</td>
<td>10.4%</td>
<td>-10.4%</td>
<td>16.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
ConsNonDurxF&amp;E</td>
<td>0.0%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>3.0%</td>
<td>5.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Durable Goods</td>
<td>0.3%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.5%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Finished Core Cons Gds</td>
<td>0.1%</td>
<td>2.2%</td>
<td>2.0%</td>
<td>2.8%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.3%</td>
<td>2.3%</td>
<td>0.6%</td>
<td>1.8%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG Industries</td>
<td>0.1%</td>
<td>0.8%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; NonMFG Industries</td>
<td>0.3%</td>
<td>2.9%</td>
<td>0.8%</td>
<td>2.2%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">Core PPI</td>
<td>0.2%</td>
<td>2.4%</td>
<td>1.4%</td>
<td>2.3%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">Memo: Finished Energy</td>
<td>8.0%</td>
<td>59.6%</td>
<td>19.8%</td>
<td>-21.3%</td>
<td>27.9%</td>
</tr>
</tbody>
</table>
</body></html>

The PPI headline spurted by 1.7% in August as the core rose by 02% and core for consumer prices at the producer level edged up by just 0.1%. Finished energy prices rose by 8% in the month. The headline displays an accelerating pattern [...]

PPI Headline Spurts As Core Is Stable

Louise Curley

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<body>
 




<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915b.jpg" align="left" border="0" height="265" width="353">
In the September ZEW survey, released today, German analysts
and institutional investors were only slightly more optimistic about
the next six months than they were in August. The ZEW balance of
optimists over pessimists rose only 1.2 percentage points from 56.1% to
57.7%. The views of the financial community tend to be considerably
more volatile than the views of those engaged in industry, trade and
services. The latter represented in the IFO measure of German economic
opinion, were still showing an excess of pessimism regarding
the outlook for the next six months of 7.7% in August. The two measures
are shown in the first chart. The correlation between the two series is
only .41 suggesting that the two groups frequently differ as to the
outlook.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915c.jpg" align="right" border="0" height="265" width="353">
The German investors were also subdued in appraising the
current situation. The excess of pessimists regarding the current
situation declined only 3.2 percentage points to 74.0 from 77.2 in
August. Again, the views of the financial community are more volatile
than those of the participants in the IFO survey. The excess of
pessimists among the latter was only 31% in August. In contrast to
their often divergent views on the outlook the two communities tend to
view the current outlook similarly. In spite of the greater volatility,
the views of the financial community move in the same direction as that
of the business community, as attested by the high degree of
correlation--.94--between the two series shown in the second chart.
According to the President of ZEW, Prof, Dr. Dr. h.c. mult.
Wolfgang Franz, "The economic expectations for Germany are consistent
with the picture that the Germany economy is recovering, but at a slow
pace."

<table border="0" cellspacing="0" width="100%">
<colgroup><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">Sep 08</th>
<th scope="col">M/M&nbsp;</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008&nbsp;</th>
<th scope="col">2007 </th>
<th scope="col"> 2006 </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> ZEW % balance</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td>-74.0</td>
<td>-77.2</td>
<td>-1.0</td>
<td>3.2</td>
<td>-73.0</td>
<td>7.3</td>
<td>75.9</td>
<td>18.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations for Economy 6 mos
ahead</td>
<td>57.7</td>
<td>56.1</td>
<td>-1.0</td>
<td>1.6</td>
<td>98.8</td>
<td>-47.5</td>
<td>-3.0</td>
<td>22.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">IFO % balance</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td>n.a.</td>
<td>-31.0</td>
<td>--</td>
<td>n.a.</td>
<td>n.a.</td>
<td>4.0</td>
<td>18.1</td>
<td>12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations 6 mos ahead</td>
<td>n.a.</td>
<td>-7.7</td>
<td>--</td>
<td>n.a.</td>
<td>n.a.</td>
<td>-17.4</td>
<td>5.2</td>
<td>7.9</td>
</tr>
</tbody>
</table>
</body></html>

In the September ZEW survey, released today, German analysts and institutional investors were only slightly more optimistic about the next six months than they were in August. The ZEW balance of optimists over pessimists rose only 1.2 [...]

Optimism Among German Investors Somewhat Subdued

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915a.jpg" align="left" border="0" height="265" width="353">
US retail sales rang up strong results in August. The cash for
clunkers program aided auto sales to a greater extent that most
economists had anticipated. Sales rose by 2.7% month-over-month boosted
by vehicle sales which rose by 10.7% on the month. Most major
categories of sales rose in the month; furniture and electronics was a
minor exception dropping by 0.1% and building materials was a major
exception falling by an outsized 1.2% on the month. Stripping out
gasoline stations where sales rose 5.1% mostly on higher prices and
removing motor vehicles as well left retail sales up by 0.6% on the
month. That particular sub-group exhibits improving sequential growth
rates as well. 
 

Year-over-year sales declines are still severe and that is a
legacy of the severity of the recession and its impact on the consumer.
Over 7miln jobs have been lost in the business cycle and that is a huge
loss of income and of spending power for those consumers. But while the
Yr/Yr drops are severe there are also some distortions. Nondurable
goods sales excluding gas stations are down by only 0.9% Yr./Yr.
Durables spending is down by 5.8% Yr/Yr on large declines in building
materials and in furniture. The boost to vehicle sales this month
leaves them lower Yr/Yr by just 1%. 
 

The messages from this report are that the consumer sector has
been hit hard by recession. Cash for clunkers has boosted auto&#8217;s up
form weakness overall and has given those sales a huge boost in the
month- a boost that is likely not sustainable &#8211; that&#8217;s the bad news
looking ahead. Still, the August results leave sales in the new quarter
(Q3) expanding at an annual rate of 9.5%. Extracting the vehicle
component that growth rate comes down to 2.7%. Ex food and energy sales
are up at a pace of 8.5% in Q3 and estimating the inflation impact
leaves real core sales up at a pace of nearly 7% at an annual rate in
Q3 compared to Q2. This is the compounded growth rate for Q3, two
months into the quarter. But a drop off in auto sales is likely to trim
this impact of quarterly consumer spending on retail sales by the time
the quarter&#8217;s final numbers are in. 
 

While it is good news for August and it the best news may be
that sales have spread beyond autos, and have done so without a
government help plan. The real question is how far will auto sales fall
when the cash for clunkers program ends? There will be a spillover of
some sales into September but Q4 will have to do what it can without
any boost from this special program. All that raises some questions
about the future, despite some nice improving fundamentals for the
economy. The downside of government support programs is that those
programs one day end&#8230; a second downside factor is that somebody has to
pay for them. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="6" scope="col">Retail Sales Trends</th>
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>Mo/Mo</td>
<td colspan="4">Seasonally Adjusted Annual
Rate</td>
</tr>
<tr class="grey5">
<td class="firstcol">Retail Aggregates</td>
<td>2009.Aug</td>
<td>3-Mo</td>
<td>6Mo</td>
<td>Yr/Yr</td>
<td>YrAgo:Y/Y</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail &amp; Food
Service</td>
<td>2.7%</td>
<td>14.3%</td>
<td>4.7%</td>
<td>-5.3%</td>
<td>0.8%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail Excl
MV&amp;Parts</td>
<td>1.1%</td>
<td>5.1%</td>
<td>0.1%</td>
<td>-6.2%</td>
<td>4.7%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail Excl
MV&amp;Parts&amp;Gas</td>
<td>0.6%</td>
<td>1.0%</td>
<td>-2.3%</td>
<td>-2.9%</td>
<td>2.5%</td>
</tr>
<tr class="grey5">
<td class="firstcol">Durables</td>
<td>2009.Aug</td>
<td>3-Mo</td>
<td>6Mo</td>
<td>Yr/Yr</td>
<td>YrAgo:Y/Y</td>
</tr>
<tr class="grey3">
<td class="firstcol">Totals</td>
<td>5.9%</td>
<td>32.1%</td>
<td>10.8%</td>
<td>-5.8%</td>
<td>-10.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Building Materials</td>
<td>-1.2%</td>
<td>-13.6%</td>
<td>-9.5%</td>
<td>-13.6%</td>
<td>-2.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Motor Vehicles
&amp; Parts</td>
<td>10.6%</td>
<td>70.3%</td>
<td>29.5%</td>
<td>-1.0%</td>
<td>-14.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; MV Dealers</td>
<td>11.9%</td>
<td>83.3%</td>
<td>35.0%</td>
<td>-0.8%</td>
<td>-15.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Furniture,electonics,etc</td>
<td>-0.2%</td>
<td>-4.5%</td>
<td>-15.9%</td>
<td>-11.6%</td>
<td>-5.0%</td>
</tr>
<tr class="grey5">
<td class="firstcol">NonDurables</td>
<td>2009.Aug</td>
<td>3-Mo</td>
<td>6Mo</td>
<td>Yr/Yr</td>
<td>YrAgo:Y/Y</td>
</tr>
<tr class="grey2">
<td class="firstcol">Totals</td>
<td>1.4%</td>
<td>7.8%</td>
<td>2.3%</td>
<td>-5.1%</td>
<td>6.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Food&amp;Bev</td>
<td>0.5%</td>
<td>0.9%</td>
<td>1.9%</td>
<td>-1.1%</td>
<td>6.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Health</td>
<td>0.4%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>3.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Gasoline</td>
<td>5.1%</td>
<td>47.4%</td>
<td>24.5%</td>
<td>-26.7%</td>
<td>20.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Clothing</td>
<td>2.4%</td>
<td>1.2%</td>
<td>-4.8%</td>
<td>-5.1%</td>
<td>0.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">SportGoods</td>
<td>2.3%</td>
<td>12.8%</td>
<td>0.4%</td>
<td>-0.4%</td>
<td>0.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">GenlMerch</td>
<td>1.6%</td>
<td>5.0%</td>
<td>-1.9%</td>
<td>-0.7%</td>
<td>3.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">NonStore Retailers</td>
<td>0.1%</td>
<td>9.7%</td>
<td>2.5%</td>
<td>-2.6%</td>
<td>4.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Misc Retail</td>
<td>0.2%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>3.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">NonDurables EXCL Gas</td>
<td>0.8%</td>
<td>3.2%</td>
<td>-0.4%</td>
<td>-0.9%</td>
<td>3.8%</td>
</tr>
<tr class="grey5">
<td class="firstcol">Services</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food Service &amp;
Drinking</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>-1.7%</td>
<td>0.7%</td>
<td>3.7%</td>
</tr>
</tbody>
</table>
</body></html>

US retail sales rang up strong results in August. The cash for clunkers program aided auto sales to a greater extent that most economists had anticipated. Sales rose by 2.7% month-over-month boosted by vehicle sales which rose by [...]

US Retail Sales Make Strong Gains...

US Retail Sales Make StrongGains...

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090914a.jpg" align="left" border="0" height="265" width="353">
Retail sales in New Zealand fell 0.46% in July, contrary to
expectations of a rise. Moreover, June sales were revised downward from
a 0.1% increase to a 0.06% decline. The upturn in sales in April and
May has fizzled out as can be seen in the first chart. Excluding motor
vehicles and related sales, sales were down 0.49% indicating that
vehicles and related sales increased slightly. Among the few other
areas where spending increased were fresh produce, clothing, and
recreation all of which represent relatively small portions of total
sales. Among the biggest losers were the more important supermarkets
and department stores, which declined 0.3% and 2.0% respectively<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090914b.jpg" align="right" border="0" height="265" width="353">.
Retail sales have become a less reliable indicator of total
consumption over the years as can be seen in the second chart that
shows the ratio of retail sales to total private consumption in the
National Accounts. In the last ten years the ratio has dropped from .62
to .51. New Zealand has yet to release national account data for the
second quarter. In spite of their diminished importance in total
consumption, the retail sales data suggest that consumption has added
little to the economy in the second quarter and so far in the third
quarter.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">NEW
ZEALAND</th>
<th scope="col">Jul 09</th>
<th scope="col">Jun&nbsp; 09</th>
<th scope="col">Jul 08</th>
<th scope="col">M/M %&nbsp;</th>
<th scope="col">Y/Y %</th>
<th scope="col">2008&nbsp;</th>
<th scope="col">2007 </th>
<th scope="col"> 2006 </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> Retail Sales
(Millions NZ$)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>5392</td>
<td>6417</td>
<td>5485</td>
<td>-0.46</td>
<td>-1.70</td>
<td>65847</td>
<td>65071</td>
<td>61329</td>
</tr>
<tr>
<td class="firstcol">Fresh Produce</td>
<td>87</td>
<td>85</td>
<td>79</td>
<td>2.35</td>
<td>10.13</td>
<td>911</td>
<td>893</td>
<td>921</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation</td>
<td>203</td>
<td>196</td>
<td>188</td>
<td>3.57</td>
<td>7.98</td>
<td>2276</td>
<td>2358</td>
<td>2197</td>
</tr>
<tr>
<td class="firstcol">Clothing</td>
<td>212</td>
<td>209</td>
<td>221</td>
<td>1.44</td>
<td>-4.07</td>
<td>2578</td>
<td>2594</td>
<td>2445</td>
</tr>
<tr class="odd">
<td class="firstcol">Supermarkets</td>
<td>1293</td>
<td>1297</td>
<td>1180</td>
<td>-0.31</td>
<td>9.58</td>
<td>14369</td>
<td>13518</td>
<td>12587</td>
</tr>
<tr>
<td class="firstcol">Department Stores</td>
<td>299</td>
<td>305</td>
<td>329</td>
<td>-1.97</td>
<td>-912</td>
<td>3855</td>
<td>3770</td>
<td>3570</td>
</tr>
</tbody>
</table>
</body></html>

Retail sales in New Zealand fell 0.46% in July, contrary to expectations of a rise. Moreover, June sales were revised downward from a 0.1% increase to a 0.06% decline. The upturn in sales in April and May has fizzled out as can be [...]

Disappointing Retail Sales In New Zealand

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

US production rebounded in Q2, but demand continued to slow

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Negative US inflation surprises leading G10 down

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Andrew Cates

**The growth consensus for 2026** 
Consensus growth forecasts for 2026 have continued to firm over the past six months, with upward revisions most pronounced in economies that are more directly exposed to the global AI investment cycle. Taiwan stands out, reflecting its central role in advanced semiconductor manufacturing and the spillovers from sustained AI-related capex across the global tech supply chain. The US has also seen a sizeable upgrade, consistent with strong domestic investment in AI infrastructure and data-centre capacity, alongside resilient demand for high-value tech services. Elsewhere in Asia, upgrades to South Korea and, to a lesser extent, China and India point to a broader regional benefit from the AI-driven electronics and capital-goods cycle, even as underlying macro conditions remain mixed. Canada has also seen modest upward revisions, likely reflecting its close integration with US investment trends. By contrast, revisions across much of Europe and Japan have been more muted, while forecasts for Russia remain under downward pressure.

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**The next steps for central bank policy** 
Based on responses to the special questions in the latest Blue Chip survey, the chart highlights how uncertain panelists remain about the precise timing of the next policy move, even where there is broad agreement on direction. Expectations for both the Fed and the Bank of England are now loosely centred on March 2026 as the most likely window for the next easing step, but the spread of responses points to limited conviction and a high sensitivity to incoming data. By contrast, panelists continue to see the ECB as largely through its easing cycle, with a clear majority expecting any further move only later, if at all. The Bank of Japan remains the clear outlier: while further tightening is still the central expectation, views are split on timing, with panelists divided between a March move and a hike pushed beyond April 2026—highlighting ongoing uncertainty over the durability of domestic inflation and wage dynamics.

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**The UK economy and BoE policy** 
While Blue Chip panelists remain divided on the precise timing of the Bank of England’s next policy cut, the latest run of UK data is tilting market expectations toward an earlier move. Economic releases have increasingly fallen short of expectations, a pattern that has coincided with a steady decline in short-dated gilt yields. The negative surprise profile reflects a combination of weak household demand and softer labour-market indicators. This has generated downside momentum in the data, reinforcing the case—at least from a market perspective—for earlier or deeper policy easing.

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**The impact of Artificial Intelligence**
Responses to the special questions in the latest Blue Chip survey also suggest that panelists are divided over the timing of AI’s macroeconomic impact in the US. A sizeable share already reports seeing noticeable effects, consistent with the rapid pace of AI-related investment and adoption over the past year. At the same time, a similarly large group expects AI’s impact to become more evident only over the next one to three years, implying a belief that productivity and growth effects will materialise with a lag. These views are notable given that a majority of panelists continue to judge anticipated AI-related gains as being overstated in financial markets, underscoring the risk of disappointment—and potential equity market volatility—if realised outcomes fail to match elevated expectations.

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**US business formation and productivity growth**
The chart points to a renewed pick-up in US productivity growth alongside a marked step-up in business applications, a combination that has naturally fuelled interest in the role of AI. The acceleration in output per hour over the past year coincides with a surge in corporate formations, potentially reflecting both heightened investment in new technologies and the emergence of new, AI-enabled business models. That said, productivity growth has historically been highly cyclical, often strengthening late in the cycle or during periods of labour hoarding and cost discipline, before fading again. As such, while AI may be contributing at the margin, it remains too early to conclude that the recent improvement marks a durable, technology-driven shift rather than another cyclical upswing.

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**China’s export growth**
This week’s China trade data revealed that its export growth has continued to rotate away from the US and toward Europe and ASEAN, a pattern that has become more pronounced over the past year. While exports to the US have fallen sharply on a year-on-year basis, shipments to both Europe and ASEAN have held up markedly better, and in recent months have returned to positive growth. This divergence is consistent with the tightening of US trade policy toward China, including higher tariffs, expanded export controls and broader efforts to “de-risk” supply chains. By contrast, trade with Europe and ASEAN appears to be benefiting from trade diversion and re-routing, as Chinese firms redirect exports toward markets where barriers remain lower and supply-chain integration is deeper.

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The global backdrop remains unsettled, reflected in rising gold prices amid geopolitical tensions—most recently around Venezuela—and renewed political noise, including questions over Federal Reserve independence. At the same time, however, many major equity indices remain at or close to all-time highs, buoyed by optimism around AI and reinforced by a run of relatively benign US inflation readings. Against this mixed backdrop, the charts this week point to a global outlook that is becoming more differentiated rather than uniformly weaker. Blue Chip forecasts for 2026 growth have edged higher over the past six months, with upgrades concentrated in economies most exposed to the AI investment cycle, notably the US and parts of Asia (chart 1). Central bank expectations remain fluid: while panelists broadly anticipate easing by the Fed and Bank of England, conviction around timing is limited, and the Bank of Japan remains an outlier with further tightening still expected (chart 2). In the UK, that uncertainty sits alongside a deteriorating data flow, with negative economic surprises increasingly tilting market expectations toward an earlier BoE rate cut (chart 3). Turning to the US, special questions highlight a divide over whether AI is already having a noticeable macro impact or whether its effects will emerge more gradually, a tension that mirrors concerns about over-optimism in financial markets (chart4). That debate is echoed in the recent pick-up in US productivity growth and the step-change in business formation—developments that may reflect AI-related dynamics but which also warrant caution given the historically cyclical nature of productivity (chart 5). Finally, China’s trade data point to a continued re-orientation of export growth away from the US and toward Europe and ASEAN, consistent with evolving US trade policy and broader supply-chain realignment (chart 6).

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Charts of the Week: Between Optimism and Uncertainty

Michael J. Moran

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The Bureau of Labor Statistics did not publish a report on export and import prices for October because of the government shutdown, and BLS was unable to construct statistics for October to include with the November report. The charts above have a gap in October, and the November figures are represented by a small dot.

Import prices have been remarkably stable in the past three years, as shown by the sideways movement in the level of the import price index (left chart). Focusing on percent changes (i.e. inflation rates) rather than the level of the index shows deflation in 2023 and early 2024 followed by higher prices more recently (right chart). Still, the net change in the past 12 months has totaled only 0.1% and the cumulative change in the past three years amounted to a decline of 0.4%.

A calm environment in the energy sector has helped to restrain import prices, as the price of crude oil showed little change in 2023 and 2024 and declined in 2025. Import prices excluding petroleum products have increased in recent years, but the changes have been modest: 0.9 in the past 12 months and 1.3% in the past three years.

The non-oil components of import prices have traced various patterns in recent years, but shifts have been largely offsetting. Prices of food and autos increased noticeably in 2023 and 2024, but they gave back much of those increases in 2025. Prices of capital goods were stable in 2023 and 2024, but they started to increase in 2025. Prices of consumer goods have been volatile, showing bursts of higher prices followed by discounting, leaving a modest net increase in the past three years.

The calm energy environment also seemed to play a role on the export side, as the industrial supply category showed little net change in prices over 2023 and 2024 before jumping in early 2025. Food prices followed a similar pattern, showing two years of restraint before moving higher in 2025. These two categories account for much of the upward movement in overall export prices in 2025. Prices of consumer goods also started to move higher in 2025 after little net change in the prior two years. Prices of capital goods and automobiles have traced reasonably steady upward paths.

Many observers might try to use the import component of this report to gain insight into the effect of tariffs on prices. That will be difficult because the figures from this report are pre-tariff; there will be no independent upward pressure on prices in this report because of tariffs. In fact, one should look for lower import prices in searching for a tariff effect. That is, if a foreign exporter were to absorb the tariff burden, that would be accomplished by reducing the pre-tariff price in order to keep the after-tariff price steady.

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Some exporters to the US may have made such efforts. The nearby chart shows the month-to-month change in import prices in 2025, and May and June both showed lower prices. These months were especially important because they followed the announcement by President Trump of marked increases in tariffs in April. Also, some of the downward pressure occurred in components that would be sensitive to price (autos and consumer goods). Of course, May and June might be too soon after the announcement of draconian tariffs for foreign exporters to assess and change their pricing strategy.

The chart on monthly changes ends in September because the absence of an October reading prevents the calculation of the month-to-month changes for October and November. However, the two-month change from September to November is easily calculated, and the increase of 0.4% suggests little or no effort to absorb the burden of tariffs.

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

- Import prices have changed little in the past three years.
- Export prices were stable in 2023-24, but moved higher in 2025.

Import & Export Prices: Generally Modest Changes

Winnie Tapasanun

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The Empire State Manufacturing Index of General Business Conditions rose to a higher-than-expected 7.7 in January following a 17.2-drop to -3.7 in December, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of 1.0 for January had been expected in the Action Economics Forecast Survey. The positive January figure indicated that the business activity in New York State expanded for the third time in four months; it was an improvement from -7.4 in January 2025 and a low of -29.7 in January 2024, though still below a high of 16.8 in November 2024. The percentage of respondents reporting an increase in general business conditions was 34.2% in January, up from 31.7% in December; the percentage reporting a decrease was 26.5%, down from December’s 35.4%. The latest survey was conducted between January 2 and January 9.

The headline index reflects the answer to a single question concerning the state of economic activity and is not calculated from the components. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index increased to 51.2 in January following a 4.2-point decline to the neutral-level 50.0 in December (the lowest level since September); it was slightly up from 50.7 in January 2025 and well above a low of 43.0 in January 2024. The index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

In the latest survey, the new orders index rose to 6.6 in January after a 10.6-point drop to -1.0 in December, marking the third m/m gain in orders in four months and a sharp improvement from a low of -30.7 in January 2024. The shipments index jumped to 16.3 in January, the highest level since November 2024, following a 16.5-point fall to -5.0 in December; it was well above a low of -21.7 in April 2024. The unfilled orders index improved to -8.2 in January after a 9.1-point decrease to -14.9 in December, indicating that unfilled orders contracted for the eighth straight month but at a less severe pace; the index reached a low of -24.2 in January 2024. The inventories index fell to -2.1 in January, the lowest level since September, after a 2.7-point decline to 4.0 in December, signaling the first inventory contraction since October. Meanwhile, the delivery times index increased to 0.0 in January from -5.9 in December, with 12.4% of respondents reporting longer delivery times and an identical 12.4% reporting shorter times, indicating that delivery times were unchanged.

On the labor front, the number of employees index fell to -9.0 in January after a 1.0-point increase to 7.5 in December, indicating that employment contracted for the first time since September and reached its lowest level since January 2024. The index remained well below a peak of 24.9 in February 2022. In January, only 7.9% of respondents reported an increase in employment while a higher 16.8% reported a decline. The average workweek index dropped to -5.4 in January from 2.5 in December, turning negative for the first time since October and hitting the lowest level since April 2025.

Inflation pressures eased in January but remained high. The prices paid index fell to 42.8 in January, the lowest level since March 2025, after a 5.9-point decrease to 44.2 in December. Although still well below a peak of 84.9 in April 2022, the index remained above a low of 25.9 in December 2024 and a low of 20.8 in December 2023. In January, 44.5% of respondents reported higher prices paid while only 1.7% reported lower prices paid. The prices received index fell to 14.4 in January, the lowest reading since January 2025, from 25.4 in December. The index was up from a low of 7.5 in December 2024 and a low of 7.7 in July 2023 but far below a high of 51.9 in March 2022. In January, 18.9% of respondents reported higher prices received while 4.4% reported lower prices received.

Firms remained fairly optimistic about the future business outlook in the latest survey. The index for future business conditions eased to 30.3 in January after rising to 33.5 in December, with 50.6% of respondents expecting business conditions to improve over the next six months. Future new orders edged down to 33.3 in January from 34.5 in December, while future shipments rose to 34.9—the highest level since March 2022—from December’s 30.7. Growth in future employment strengthened to 14.9, the highest reading since November 2024, from December’s 7.8. Capital spending plans remained positive for the third consecutive month in January, with the future capital expenditures index rising to 10.3 from December’s 6.9. Expected prices paid fell to 52.6 in January from 55.4 in December and expected prices received fell to 36.5 from 41.6, with both measures at their lowest levels since December 2024.

The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- General Business Conditions Index up 11.4 pts. to 7.7 in January.
- Positive: Shipments (16.3, highest since Nov. ’24) and new orders (6.6).
- Negative: Employment (-9.0, lowest since Jan. ’24), unfilled orders (-8.2), and inventories (-2.1, a four-month low).
- Prices paid at a 10-month-low 42.8 and prices received at a one-year-low 14.4.
- Firms fairly optimistic: Future Business Conditions Index down to a still-positive 30.3; future prices paid at a one-year-low 52.6.

U.S. Empire State Manufacturing Index Returns to Positive Territory in January

Sandy Batten

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The Current Activity Diffusion Index from the latest Manufacturing Business Outlook Survey (MBOS) conducted by the Federal Reserve Bank of Philadelphia rose to 12.6 in January from -8.8 in December. The survey covers the third Federal Reserve District. A reading of -4.5 for January was expected by the Action Economics Forecast Survey. Over 23% of respondents reported increases in activity in January (up from 21% last month), exceeding the 11% reporting decreases (down from 30%); 63% of the firms reported no change in current activity (up from 50%). Survey responses were collected from January 5 to January 12.

The headline index is the answer to just one question: whether activity increased, decreased or was unchanged from the previous month. Haver Analytics calculates an ISM-adjusted current activity diffusion index from the five key components using the methodology employed to construct the national ISM index. This figure rose to 52.9 in January from 52.5 in December, inching further above the critical 50 value that separates contraction from expansion.

For the component indexes, the new orders index rose to 14.4 from 5.7 in December. The percentage of respondents reporting an increase in orders edged up to 28.3% in January from 27.4% in the prior month while 13.9% reported a decrease, down markedly from 21.7% in December. The shipments index increased to 9.5 in January from 3.2 in December. The percentage of respondents reporting an increase in shipments rose slightly to 27.3% from 26.2% while the percentage reporting a decrease fell to 17.8% from 23.0%. Delivery times lengthened marginally to 7.3 in January from 5.2 in December. The inventories index fell 17 points to -8.4 in January, its lowest level since July 2024.

Respondents continued to report overall increases in employment with the employment index remaining in positive territory. However, the index fell to 9.7 in January from 13.0 in December, indicating that gains in employment slowed in the latest month. The percentage of respondents reporting an increase in employment rose to 19.8% from 13.6% in December but the percentage reporting a decline jumped to 10.1% in January from 0.6% in December. The average workweek index fell from 12.5 in December to 9.1 in January.

On balance, the firms continued to report overall increases in prices. The prices paid index edged down 2 points to 46.9 in January, its second consecutive decrease and its lowest level since June. Nearly 47% of respondents reported increases in input prices, while none reported decreases; 53% reported no change. The current prices received index ticked up 2 points to 27.8. More than 31% of respondents reported increases in the prices of their own goods, 3% reported decreases, and 66% reported no change.

The diffusion index for future general activity declined from a revised reading of 38.1 in December to 25.5 in January, its lowest reading since July. Nearly 35% of respondents expect an increase in activity over the next six months (down from 53% last month), exceeding the 9% that expect a decrease. The future new orders index fell 6 points to 32.9, while the future shipments index ticked up 1 point to 40.8. On balance, the firms continue to expect increases in employment over the next six months with the future employment index rising 4 points to 28.8. Both future price indexes were well above their long-run averages: The future prices paid index rose 2 points to 66.6; the future prices received index moved up 5 points to 61.8. The index for future capital expenditures edged up 1 point to 30.3.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The indexes range from -100 to +100 with positive values indicating an increase in activity. The series from the survey dating back to May 1968 can be found in Haver’s **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- The headline index increased to 12.6 in January, the highest reading since September, from -8.8 in December.
- Both new orders and shipments increased in January.
- Delivery times lengthened while the pace of input price increases slowed.
- Employment decreased but remained in positive territory, indicating further gains in employment though at a slower pace.

Philly Fed Manufacturing Activity Rebounds in January

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined by 9,000 to 198,000 in the week ending January 10, from 207,000 in the week ending January 3, revised from 208,000. The four-week moving average of initial claims was 205,000 in the January 10 week, a decline of 6,500 from 211,500 in the January 3 week, revised from 211,750, and reaching is the lowest level for this average since January 20, 2024, when it was 203,250.

Federal government employees initially filed 646 (NSA) jobless insurance claims in the week ended January 3, after filing 476 claims in the week ended December 27.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” –decreased by 19,000 to 1.884 million in the week ended January 3 from 1.903 million in the December 27 week, revised from 1.914 million. The four-week moving average was 1.889 million in the week ending January 3, a decrease of 250 from the prior week, revised from 1.893 million. The insured unemployment rate stood at 1.2% in the week of January 3, unchanged from previous 5 weeks.

Federal government employees’ continuing benefits claims were 12,803 (NSA) in the week of December 27, 12,161 (NSA) from 12,129 (NSA) in the week of December 20. 

The insured unemployment rate varied greatly across individual states and territories. In the week ending December 27, the highest unemployment rates were in Rhode Island (2.86%), New Jersey (2.85%), Washington (2.81%), Minnesota (2.74%), Massachusetts (2.59%), Oregon (2.28%), Montana (2.16%), California and Connecticut (both 2.12%) and Alaska (2.06%). The lowest rates were in Florida (0.31%), North Carolina (0.41%), Louisiana (0.43%), Alabama and Virginia (both 0.49%). Rates in other notable states include Illinois (2.18%), New York (2.10%), Pennsylvania (2.02%), and Texas (1.20%). 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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- Initial claims declined from the prior week.
- Continuing claims declined from the prior week.
- The insured unemployment rate was unchanged.

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