Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903h.jpg" align="left" border="0" height="265" width="353">
The Markit PMIs turned higher in August. Across the main
reporting Markit economics we find MFG PMIs are over the break-even
mark of 50 in two of seven EU nations. Three others have readings with
a &#8216;49&#8217; handle. Italy back-slid in August and has the second weakest MFG
reading at 44.24; Ireland&#8217;s MFG PMI rose this month but stands at a
weaker level than Italy&#8217;s gauge, at 43.98. Still, all the countries in
the table sport PMI readings that reside in the upper 50% of their
range except Italy and Ireland. Country level readings are in the 60th
percentile or better. Greece and France post the highest relative
readings, in the 70th percentile of their respective ranges or better,
For EMU the current reading is 48.24 and that stands in the 60th
percentile, or in the top 40% of its range. 
 

The services readings for August also show widespread
improvement. The jump this month was very large for EMU and the gains
for services spread across all major individually reporting countries
in our six large-country sample. 
 

With both manufacturing and the services sectors are making
strong gains they are boosting the overall EMU composite index which
moved up above the mark of 50, signaling growth. For its part, the OECD
sees an end to the global recession. But it is warning of continued
difficulties and strong head winds. The outlook has improved but the
degree of improvement remains shrouded in caution. No agency is
sticking its neck out to look for strong growth, even though most are
now citing improvement and calls that say the recession is over are
becoming commonplace 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">NTC/Markit MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="grey3">
<td class="firstcol">Euro-13</td>
<td>48.24</td>
<td>46.25</td>
<td>42.62</td>
<td>45.70</td>
<td>41.43</td>
<td>39.34</td>
<td>60.9%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Germany</td>
<td>49.17</td>
<td>45.65</td>
<td>40.88</td>
<td>45.23</td>
<td>40.51</td>
<td>38.81</td>
<td>62.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">France</td>
<td>50.78</td>
<td>48.13</td>
<td>45.86</td>
<td>48.26</td>
<td>44.12</td>
<td>41.10</td>
<td>71.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Italy</td>
<td>44.25</td>
<td>45.36</td>
<td>42.69</td>
<td>44.10</td>
<td>40.87</td>
<td>39.24</td>
<td>42.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Spain</td>
<td>47.20</td>
<td>47.33</td>
<td>42.76</td>
<td>45.76</td>
<td>40.78</td>
<td>36.57</td>
<td>65.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Austria</td>
<td>49.95</td>
<td>46.46</td>
<td>42.01</td>
<td>46.14</td>
<td>41.73</td>
<td>40.07</td>
<td>65.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Greece</td>
<td>51.13</td>
<td>48.82</td>
<td>47.67</td>
<td>49.21</td>
<td>45.46</td>
<td>44.48</td>
<td>75.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Ireland</td>
<td>43.98</td>
<td>43.66</td>
<td>42.47</td>
<td>43.37</td>
<td>40.11</td>
<td>39.27</td>
<td>48.6%</td>
</tr>
<tr class="grey1">
<td colspan="8">EU</td>
</tr>
<tr class="grey2">
<td class="firstcol">UK</td>
<td>49.71</td>
<td>50.25</td>
<td>46.78</td>
<td>48.91</td>
<td>45.97</td>
<td>41.69</td>
<td>68.8%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">percentile is over range since March
2000</td>
</tr>
</tbody>
</table>
</body></html>

The Markit PMIs turned higher in August. Across the main reporting Markit economics we find MFG PMIs are over the break-even mark of 50 in two of seven EU nations. Three others have readings with a ‘49’ handle. Italy back-slid in [...]

Markit MFG PMIs Turn Higher; Gains Are Widespread

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903e.jpg" align="right" border="0" height="265" width="353">Improvement
in service sector activity regained its legs last month. The Composite
Index for the nonmanufacturing sector from the Institute for Supply
Management (ISM) rose to 48.4 last month after having slipped to 46.4
during July. The latest level was the highest since September of last
year and the figure about matched Consensus expectations for a reading
of 48.0. A level of the ISM index below 50 indicates declining
activity. Since the series' inception in 1997 there has been a 65%
correlation between the level of the business activity index in the
nonmanufacturing sector and the Q/Q change in real GDP for the services
and the construction sectors.
ISM surveys more than 370 purchasing
managers in more than 62 industries including law firms, hospitals,
government and retailers. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903f.jpg" align="right" border="0" height="265" width="353">
The nonmanufacturing survey dates back to
July 1997. The figures are available in Haver's USECON database.
The improvement in the August index was broad-based amongst
the
component series. The business activity index for the service sector
broached the break-even level for the first time since last September
with a rise to 51.3. The new orders series neared that break-even level
with an increase to 49.9, up from November's low of 35.6. Finally, the
employment index rose to 43.5 and that was the highest level since
September. Since the series' inception in 1997 there has been a 56%
correlation between the level of the ISM nonmanufacturing employment
index and the m/m change in payroll employment in the service-producing
plus the construction industries.
 The rise in service sector
activity powered a sharp improvement in pricing power. The 21.8 point
m/m jump in the price index to 63.1&nbsp; placed the index at its
highest level since last September. Twenty-three percent of firms
reported higher prices while a significantly reduced 6%&nbsp;
reporting lower prices.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903g.jpg" align="right" border="0" height="265" width="353">
Since its inception ten years ago, there has
been a 60% correlation between the price index and the q/q change in
the GDP services chain price index.
Beginning with the
January 2008 Nonmanufacturing <cite>Report On Business</cite> &#174;,
the composite index is calculated as an indicator of the overall
economic condition for the non-manufacturing sector. It is a composite
index based on the diffusion indices of four of the indicators
(business activity, new orders, employment and supplier deliveries)
with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ismreport/mfgrob.cfm">here.</a>
Changes in the Use of Electronic Means of Payment:
1995-2007 also from the Federal Reserve Bank of Philadelphia
is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q3/brq309_changes-in-electronic-payment.pdf">here.</a>&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM
Nonmanufacturing Survey</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>48.4</td>
<td>46.4</td>
<td>50.4</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Business
Activity</td>
<td>51.3</td>
<td>46.1</td>
<td>50.8</td>
<td>47.4</td>
<td>56.0</td>
<td>58.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>43.5</td>
<td>41.5</td>
<td>45.6</td>
<td>43.8</td>
<td>52.0</td>
<td>53.8</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>63.1</td>
<td>41.3</td>
<td>74.1</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
</table>

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Improvement in service sector activity regained its legs last month. The Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) rose to 48.4 last month after having slipped to 46.4 during July. [...]

U.S. ISM Nonmanufacturing Index Improves While Prices Jump

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903d.jpg" width="353">
The outplacement firm of Challenger, Grey &amp; Christmas indicated that job cut announcements returned last month to near this cycle&#39;s low. They fell to 76,456 after having ticked up during July. The figures remain well below this cycle&#39;s peak level of layoffs which occurred this past January when there were 241,749 cuts.
During the last ten years there has been a 67% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment. Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
The problem with the reduction in job cuts is that, while hiring plans are up 34.1% from last year, the level remains low.
The Challenger figures are available in Haver&#39;s SURVEYS database.
The Exchange Rate: What&#39;s in It for Prices? from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q3/brq309_exchange-rate.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>76,456</td>
<td>97,373</td>
<td>-13.8%</td>
<td>1,223,993</td>
<td>768,264</td>
<td>839,822</td>
</tr>
<tr>
<td class="firstcol">Announced Hiring Plans</td>
<td>13,100</td>
<td>17,183</td>
<td>34.1</td>
<td>118,600</td>
<td>365,753</td>
<td>276,525</td>
</tr>
</tbody>
</table>
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The outplacement firm of Challenger, Grey & Christmas indicated that job cut announcements returned last month to near this cycle's low. They fell to 76,456 after having ticked up during July. The figures remain well below this [...]

Challenger Layoffs Approach Recent Low

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903a.jpg" align="right" border="0" height="265" width="353">Initial
claims for unemployment insurance indicate that the labor market
improved just modestly. For last week, the Labor Department indicated
that claims fell a scant 4,000 to 570,000. Though the decline was the
second in a row, the average for last month rose slightly to 571,000
from 559,000 during July. A decline in weekly claims to 560,000 had
been expected.
The Labor Department indicated that the
largest increases in initial claims for the week ending August 22 were
in California (+8,632, +35.5% y/y), Ohio (+2,018, 52.5% y/y), New
Hampshire (+1,237, +117.9% y/y), Wisconsin (+906, +58.0% y/y), and
Minnesota (+664, +64.1% y/y), while the largest decreases were in
Michigan (-2,968, +3.2% y/y), Florida (-1,653, +31.8% y/y),
Pennsylvania (-1,288, +60.9% y/y), New Jersey (-1,271, -2.9% y/y), and
Alabama (-1,266, +9.5% y/y).
Continuing claims for unemployment
insurance during the latest week rose and reversed most of the prior
period's decline. They remained down by nearly 10% from their late-June
high, a decline which probably owes to the exhaustion of benefits.
Continuing claims provide an indication of workers' ability to find
employment and the level of <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903b.jpg" align="right" border="0" height="265" width="353">
6,234,000 claims is up sharply
from the year-ago level.&nbsp; The four-week average of
continuing claims fell modestly to 6,216,750, near the lowest since
late-April. The series dates back to 1966.
Extended
benefits for unemployment insurance have risen sharply indicating that
worker rehiring continued weak. Though they fell in the latest week,
through mid-August extended benefits averaged 446,974 versus 416,630
during July. The insured rate of unemployment ticked up to 4.7%, but
that still was near the lowest level since mid-April. The rate reached
a high of 5.2% during late-June. During the last ten years, there has
been a 93% correlation between the level of the insured unemployment
rate and the overall rate of unemployment published by the Bureau of
Labor Statistics.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903c.jpg" align="right" border="0" height="265" width="353">The
highest insured unemployment rates in
the week ending August 15 were in Puerto Rico (7.3 percent), Oregon
(6.0), Pennsylvania (6.0), Nevada (5.7), Michigan (5.5), Wisconsin
(5.4), Connecticut (5.3), California (5.2), New Jersey (5.2), and North
Carolina (5.0). The lowest rates were in South Dakota (1.3) and North
Dakota (1.5), Virginia (2.4), Wyoming (2.8), Texas (2.9), Maine (3.0),
Colorado (3.2), Maryland (3.5), Minnesota (3.6), New York (4.2),
Mississippi (4.2), Georgia (4.2), and Florida (4.3).
 The unemployment
insurance claims data is available in Haver's WEEKLY
database and the state data is in the REGIONW
database.
 The minutes from the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20090812.pdf">here.</a>&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">08/29/09</th>
<th scope="col">08/22/09</th>
<th scope="col">08/15/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>570</td>
<td>574</td>
<td>580</td>
<td>26.7%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,234</td>
<td>6,142</td>
<td>80.9%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>4.7</td>
<td>4.6</td>
<td>2.6 (08/2008)</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>


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Initial claims for unemployment insurance indicate that the labor market improved just modestly. For last week, the Labor Department indicated that claims fell a scant 4,000 to 570,000. Though the decline was the second in a row, the [...]

U.S. Weekly Claims For Jobless Insurance Slip Modestly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903a.jpg" align="right" border="0" height="265" width="353">Initial
claims for unemployment insurance indicate that the labor market
improved just modestly. For last week, the Labor Department indicated
that claims fell a scant 4,000 to 570,000. Though the decline was the
second in a row, the average for last month rose slightly to 571,000
from 559,000 during July. A decline in weekly claims to 560,000 had
been expected.
The Labor Department indicated that the
largest increases in initial claims for the week ending August 22 were
in California (+8,632, +35.5% y/y), Ohio (+2,018, 52.5% y/y), New
Hampshire (+1,237, +117.9% y/y), Wisconsin (+906, +58.0% y/y), and
Minnesota (+664, +64.1% y/y), while the largest decreases were in
Michigan (-2,968, +3.2% y/y), Florida (-1,653, +31.8% y/y),
Pennsylvania (-1,288, +60.9% y/y), New Jersey (-1,271, -2.9% y/y), and
Alabama (-1,266, +9.5% y/y).
Continuing claims for unemployment
insurance during the latest week rose and reversed most of the prior
period's decline. They remained down by nearly 10% from their late-June
high, a decline which probably owes to the exhaustion of benefits.
Continuing claims provide an indication of workers' ability to find
employment and the level of <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903b.jpg" align="right" border="0" height="265" width="353">
6,234,000 claims is up sharply
from the year-ago level.&nbsp; The four-week average of
continuing claims fell modestly to 6,216,750, near the lowest since
late-April. The series dates back to 1966.
Extended
benefits for unemployment insurance have risen sharply indicating that
worker rehiring continued weak. Though they fell in the latest week,
through mid-August extended benefits averaged 446,974 versus 416,630
during July.
 The insured rate of unemployment ticked up to 4.7%, but
that still was near the lowest level since mid-April. The rate reached
a high of 5.2% during late-June. During the last ten years, there has
been a 93% correlation between the level of the insured unemployment
rate and the overall rate of unemployment published by the Bureau of
Labor Statistics.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903c.jpg" align="right" border="0" height="265" width="353">The
highest insured unemployment rates in
the week ending August 15 were in Puerto Rico (7.3 percent), Oregon
(6.0), Pennsylvania (6.0), Nevada (5.7), Michigan (5.5), Wisconsin
(5.4), Connecticut (5.3), California (5.2), New Jersey (5.2), and North
Carolina (5.0). The lowest rates were in South Dakota (1.3) and North
Dakota (1.5), Virginia (2.4), Wyoming (2.8), Texas (2.9), Maine (3.0),
Colorado (3.2), Maryland (3.5), Minnesota (3.6), New York (4.2),
Mississippi (4.2), Georgia (4.2), and Florida (4.3).
 The unemployment
insurance claims data is available in Haver's WEEKLY
database and the state data is in the REGIONW
database.
 The minutes from the latest FOMC meeting can be found <a 
 href="http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20090812.pdf">here.</a>&nbsp;
<table border="0" cellspacing="0" width="100%">
 <colgroup><col><col><col><col><col><col><col></colgroup>
 <thead><tr>
 <th scope="col" class="firstcol"><a 
 href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
 <th scope="col">08/29/09</th>
 <th scope="col">08/22/09</th>
 <th scope="col">08/15/09</th>
 <th scope="col">Y/Y</th>
 <th scope="col">2008</th>
 <th scope="col">2007</th>
 <th scope="col">2006&nbsp;</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol">Initial Claims</td>
 <td>570</td>
 <td>574</td>
 <td>580</td>
 <td>26.7%</td>
 <td>420</td>
 <td>321</td>
 <td>313</td>
 </tr>
 <tr>
 <td class="firstcol">Continuing Claims</td>
 <td>--</td>
 <td>6,234</td>
 <td>6,142</td>
 <td>80.9%</td>
 <td>3,342</td>
 <td>2,552</td>
 <td>2,459</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Insured Unemployment Rate (%)</td>
 <td>--</td>
 <td>4.7</td>
 <td>4.6</td>
 <td>2.6 (08/2008)</td>
 <td>2.5</td>
 <td>1.9</td>
 <td>1.9</td>
 </tr>
 </tbody>
</table>


Challenger Layoffs Approach Recent
Low 
by <a href="/comment/Moeller.html">Tom
Moeller</a> September 3, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903d.jpg" align="left" border="0" height="265" width="353">
The outplacement firm of Challenger, Grey &amp; Christmas
indicated that job cut announcements returned last month to near this
cycle's low. They fell to 76,456 after having ticked up during July.
The figures remain well below this cycle's peak level of layoffs which
occurred this past January when there were 241,749 cuts.
During the last ten years there has been a 67% (inverse)
correlation between the three month moving average of announced job
cuts and the three month change payroll employment.
Job cut announcements differ from layoffs. Many are achieved through
attrition, early retirement or just never occur.
The problem with the reduction in job cuts is that, while
hiring plans are up 34.1% from last year, the level remains low.
The Challenger figures are available in Haver's SURVEYS
database.
The Exchange Rate: What's in It for Prices? from the Federal
Reserve Bank of Philadelphia is available <a 
 href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q3/brq309_exchange-rate.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
 <colgroup><col><col><col><col><col><col></colgroup>
 <thead><tr>
 <th scope="col" class="firstcol"><a 
 href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger,
Gray &amp; Christmas</a></th>
 <th scope="col">August</th>
 <th scope="col">July</th>
 <th scope="col">Y/Y</th>
 <th scope="col">2008</th>
 <th scope="col">2007</th>
 <th scope="col">2006</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol">Announced Job Cuts</td>
 <td>76,456</td>
 <td>97,373</td>
 <td>-13.8%</td>
 <td>1,223,993</td>
 <td>768,264</td>
 <td>839,822</td>
 </tr>
 <tr>
 <td class="firstcol">Announced Hiring Plans</td>
 <td>13,100</td>
 <td>17,183</td>
 <td>34.1</td>
 <td>118,600</td>
 <td>365,753</td>
 <td>276,525</td>
 </tr>
 </tbody>
</table>
U.S. ISM Nonmanufacturing Index
Improves While Prices Jump 
by <a href="/comment/Moeller.html">Tom
Moeller</a> September 3, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903e.jpg" align="right" border="0" height="265" width="353">Improvement
in service sector activity regained its legs last month. The Composite
Index for the nonmanufacturing sector from the Institute for Supply
Management (ISM) rose to 48.4 last month after having slipped to 46.4
during July. The latest level was the highest since September of last
year and the figure about matched Consensus expectations for a reading
of 48.0. A level of the ISM index below 50 indicates declining
activity. Since the series' inception in 1997 there has been a 65%
correlation between the level of the business activity index in the
nonmanufacturing sector and the Q/Q change in real GDP for the services
and the construction sectors.
ISM surveys more than 370 purchasing
managers in more than 62 industries including law firms, hospitals,
government and retailers. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903f.jpg" align="right" border="0" height="265" width="353">
The nonmanufacturing survey dates back to
July 1997. The figures are available in Haver's USECON database.
The improvement in the August index was broad-based amongst
the
component series. The business activity index for the service sector
broached the break-even level for the first time since last September
with a rise to 51.3. The new orders series neared that break-even level
with an increase to 49.9, up from November's low of 35.6. Finally, the
employment index rose to 43.5 and that was the highest level since
September. Since the series' inception in 1997 there has been a 56%
correlation between the level of the ISM nonmanufacturing employment
index and the m/m change in payroll employment in the service-producing
plus the construction industries.
 The rise in service sector
activity powered a sharp improvement in pricing power. The 21.8 point
m/m jump in the price index to 63.1&nbsp; placed the index at its
highest level since last September. Twenty-three percent of firms
reported higher prices while a significantly reduced 6%&nbsp;
reporting lower prices.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903g.jpg" align="right" border="0" height="265" width="353">
Since its inception ten years ago, there has
been a 60% correlation between the price index and the q/q change in
the GDP services chain price index.
Beginning with the
January 2008 Nonmanufacturing <cite>Report On Business</cite> &#174;,
the composite index is calculated as an indicator of the overall
economic condition for the non-manufacturing sector. It is a composite
index based on the diffusion indices of four of the indicators
(business activity, new orders, employment and supplier deliveries)
with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ismreport/mfgrob.cfm">here.</a>
Changes in the Use of Electronic Means of Payment:
1995-2007 also from the Federal Reserve Bank of Philadelphia
is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q3/brq309_changes-in-electronic-payment.pdf">here.</a>&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM
Nonmanufacturing Survey</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>48.4</td>
<td>46.4</td>
<td>50.4</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Business
Activity</td>
<td>51.3</td>
<td>46.1</td>
<td>50.8</td>
<td>47.4</td>
<td>56.0</td>
<td>58.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>43.5</td>
<td>41.5</td>
<td>45.6</td>
<td>43.8</td>
<td>52.0</td>
<td>53.8</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>63.1</td>
<td>41.3</td>
<td>74.1</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
</table>

Markit MFG PMIs Turn Higher; Gains
Are Widespread 
by <a href="/comment/Brusca.html">Robert
Brusca</a> September 3, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090903h.jpg" align="left" border="0" height="265" width="353">
The Markit PMIs turned higher in August. Across the main
reporting Markit economics we find MFG PMIs are over the break-even
mark of 50 in two of seven EU nations. Three others have readings with
a ‘49’ handle. Italy back-slid in August and has the second weakest MFG
reading at 44.24; Ireland’s MFG PMI rose this month but stands at a
weaker level than Italy’s gauge, at 43.98. Still, all the countries in
the table sport PMI readings that reside in the upper 50% of their
range except Italy and Ireland. Country level readings are in the 60th
percentile or better. Greece and France post the highest relative
readings, in the 70th percentile of their respective ranges or better,
For EMU the current reading is 48.24 and that stands in the 60th
percentile, or in the top 40% of its range. 
 

The services readings for August also show widespread
improvement. The jump this month was very large for EMU and the gains
for services spread across all major individually reporting countries
in our six large-country sample. 
 

With both manufacturing and the services sectors are making
strong gains they are boosting the overall EMU composite index which
moved up above the mark of 50, signaling growth. For its part, the OECD
sees an end to the global recession. But it is warning of continued
difficulties and strong head winds. The outlook has improved but the
degree of improvement remains shrouded in caution. No agency is
sticking its neck out to look for strong growth, even though most are
now citing improvement and calls that say the recession is over are
becoming commonplace 


<table border="0" cellspacing="0" width="100%">
 <colgroup></colgroup>
 <thead><tr>
 <th colspan="8" scope="col">NTC/Markit
MFG Indices</th>
 </tr>
 </thead>
 <tbody>
 <tr class="grey4">
 <td class="firstcol">&nbsp;</td>
 <td>Aug-09</td>
 <td>Jul-09</td>
 <td>Jun-09</td>
 <td>3Mo</td>
 <td>6Mo</td>
 <td>12Mo</td>
 <td>Percentile</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol">Euro-13</td>
 <td>48.24</td>
 <td>46.25</td>
 <td>42.62</td>
 <td>45.70</td>
 <td>41.43</td>
 <td>39.34</td>
 <td>60.9%</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol">Germany</td>
 <td>49.17</td>
 <td>45.65</td>
 <td>40.88</td>
 <td>45.23</td>
 <td>40.51</td>
 <td>38.81</td>
 <td>62.5%</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol">France</td>
 <td>50.78</td>
 <td>48.13</td>
 <td>45.86</td>
 <td>48.26</td>
 <td>44.12</td>
 <td>41.10</td>
 <td>71.4%</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol">Italy</td>
 <td>44.25</td>
 <td>45.36</td>
 <td>42.69</td>
 <td>44.10</td>
 <td>40.87</td>
 <td>39.24</td>
 <td>42.2%</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol">Spain</td>
 <td>47.20</td>
 <td>47.33</td>
 <td>42.76</td>
 <td>45.76</td>
 <td>40.78</td>
 <td>36.57</td>
 <td>65.2%</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol">Austria</td>
 <td>49.95</td>
 <td>46.46</td>
 <td>42.01</td>
 <td>46.14</td>
 <td>41.73</td>
 <td>40.07</td>
 <td>65.4%</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol">Greece</td>
 <td>51.13</td>
 <td>48.82</td>
 <td>47.67</td>
 <td>49.21</td>
 <td>45.46</td>
 <td>44.48</td>
 <td>75.8%</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol">Ireland</td>
 <td>43.98</td>
 <td>43.66</td>
 <td>42.47</td>
 <td>43.37</td>
 <td>40.11</td>
 <td>39.27</td>
 <td>48.6%</td>
 </tr>
 <tr class="grey1">
 <td colspan="8">EU</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol">UK</td>
 <td>49.71</td>
 <td>50.25</td>
 <td>46.78</td>
 <td>48.91</td>
 <td>45.97</td>
 <td>41.69</td>
 <td>68.8%</td>
 </tr>
 <tr class="grey3">
 <td colspan="8" class="firstcol">percentile
is over range since March
2000</td>
 </tr>
 </tbody>
</table>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090902i.jpg" width="353">
Inventories still are being shed, but at a somewhat slower rate. That is a part of the recent improvement in the level of factory sector output. Manufactures&#39; inventories during July fell 0.7% after a June decline that was revised deeper to 1.1%. These still-significant declines are behind an easing of the decumulation rate to 10.0% from 15.9% this past Winter. Much of that deceleration is due, however, to lower oil prices. Nevertheless, excluding oil, factory inventories fell at a 12.2% three-month rate that was a slight moderation from 14.3% earlier.
The moderation in inventory decumulation rates continues spotty amongst various industries. Inventories of electrical equipment &amp; appliances have fallen at a reduced 14.7% rate and machinery inventories fell at a still-firm 18.7% rate. Conversely, steep production cuts lowered furniture inventories at a 25.7% rate which was only slightly reduced. Inventories of primary metals also fell at a fairly stable 31.3% pace and computer inventory decumulation accelerated to a 18.1% rate during the last three months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090902j.jpg" width="353">
Factory shipments have started to rise moderately. On a three-month basis they&#39;re up at a 7.0% rate after the 40% plus rates of decline last Winter. The rate of decline in the machinery industry slowed to 3.1% after dropping at a 52.7% rate in March While in the electrical equipment sector the rate of decline slowed to 7.1% from 48.8%. Most elsewhere the rates of decline in shipments moderated substantially.
Finally, new orders have improved. The 1.3% increase during July was the fifth increase this year. It reflected a sharp monthly rise both in primary metals (-45.0% y/y) and electrical equipment (-20.2% y/y). Unfilled orders also fell at a sharply reduced 4.4% rate through July.
The Manufacturers&#39; Shipments, Inventories and Orders (MSIO) data is available in Haver&#39;s USECON database.
Cross-Country Causes and Consequences of the 2008 Crisis: Early Warning from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/papers/2009/wp09-17bk.pdf"> here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS, %)</th>
<th scope="col">July</th>
<th scope="col">June</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">Inventories</td>
<td>-0.7</td>
<td>-1.1</td>
<td>-10.0</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.1</td>
<td>-1.4</td>
<td>-13.1</td>
<td>-0.6</td>
<td>2.7</td>
<td>7.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders</td>
<td>1.3</td>
<td>0.9</td>
<td>-23.2</td>
<td>0.1</td>
<td>1.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>-0.7</td>
<td>2.7</td>
<td>-23.2</td>
<td>3.1</td>
<td>1.2</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.0</td>
<td>1.8</td>
<td>-22.2</td>
<td>1.7</td>
<td>1.2</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>-0.1</td>
<td>1.9</td>
<td>-22.4</td>
<td>3.7</td>
<td>1.5</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Unfilled Orders</td>
<td>-0.0</td>
<td>-0.8</td>
<td>-10.1</td>
<td>3.5</td>
<td>17.1</td>
<td>15.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Transportation</td>
<td>-0.3</td>
<td>-0.1</td>
<td>-14.9</td>
<td>-1.0</td>
<td>8.2</td>
<td>16.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Inventories still are being shed, but at a somewhat slower rate. That is a part of the recent improvement in the level of factory sector output. Manufactures' inventories during July fell 0.7% after a June decline that was revised [...]

U.S. Factory Inventory Decumulation Rate Eases Further

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090902g.jpg" align="left" border="0" height="265" width="353">
Revisions to the figures on 2Q worker productivity were small
and as a result cost pressures continue to show a sharp easing. Labor
productivity growth in the nonfarm business sector was revised up
slightly to 6.6% (AR) from the initial report of a 6.4% surge. It was
the strongest increase since the third quarter of 2003 and the gain
beat Consensus expectations for no change in estimated growth.
Compensation costs, however, were revised down sharply. They
barely rose at a 0.3% rate after a 4.7% 1Q decline. It was revised down
versus the initial report of a 2.4% drop. The recent weak figures leave
the y/y increase at just 0.7% which continues the downtrend from
roughly 4.0% growth back to 2001.
Last quarter, the surge in productivity and the moderation in
labor cost growth combined to drop unit labor costs. The 5.9% q/q
decline was slightly deeper than reported initially and lowered the y/y
change to -1.2%, the first material negative reading since early-2004.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090902h.jpg" align="right" border="0" height="265" width="353">
Worker productivity growth in the factory sector was, however,
revised down somewhat to 4.9% and that still was the first quarterly
increase in over one year. A benefit to workers was seen in a 5.1% rise
in 2Q compensation but downward revision to earlier figures lowered the
y/y growth to 5.2% from 6.0% reported initially. Nevertheless, the y/y
gain was the strongest since late-2003. The combination of strong
productivity and firm compensation left the quarterly increase in unit
labor cost at a downwardly-revised 0.2%. Still, year-to-year, growth of
6.7% y/y remains a multiple of last year's 2.2% growth.
The productivity &amp; cost figures are available in
Haver's USECON database.
Growth Accounting, Potential Output and the Current
Recession from the Federal Reserve Bank of San Francisco is
available <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-26.html">
here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm
Business Sector</a> (SAAR, %)</th>
<th scope="col">2Q '09</th>
<th scope="col">1Q '08</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">Output per Hour</td>
<td>6.6</td>
<td>0.3</td>
<td>1.9</td>
<td>1.8</td>
<td>1.9</td>
<td>0.9</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>0.3</td>
<td>-4.7</td>
<td>0.7</td>
<td>2.8</td>
<td>4.2</td>
<td>3.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-5.9</td>
<td>-5.0</td>
<td>-1.2</td>
<td>1.0</td>
<td>2.3</td>
<td>2.8</td>
</tr>
</tbody>
</table>
</body></html>

Revisions to the figures on 2Q worker productivity were small and as a result cost pressures continue to show a sharp easing. Labor productivity growth in the nonfarm business sector was revised up slightly to 6.6% (AR) from the [...]

Jump In 2Q U.S. Worker Productivity Revised Up Slightly & Cost Pressures Eased

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090902k.jpg" align="left" border="0" height="265" width="353">
German retail sales edged higher in July but this is after
several months of declining. Despite the minor rise in sales ex-autos,
retail sales in Q3 (one month into the new quarter) are dropping at an
annual rate of 5.7% or 2.7% in real terms. The rise in real retail
sales in July was a much larger 0.7%., not a barn burner but that did
help to blunt the Q3 decline in retail sales compared to their level in
Q2. 
 

Car registration growth turned negative in July to boot after
a bounce in June. 
 

On balance it is clear that Germany is not building its
recovery on the consumer. Its revival, instead, will be a factory-based
export-led affair and will depend on the performance of exports
relative to imports: those trends will be the real keys. But for a
solid recovery to take hold the German consumer will have to be
involved. 
 

As of July, we are still waiting for that to happen. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">German
Real and Nominal Retail Sales</th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>May-09</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr-Ago</td>
<td>Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>0.1%</td>
<td>-1.1%</td>
<td>-1.0%</td>
<td>-7.7%</td>
<td>-1.2%</td>
<td>-2.3%</td>
<td>2.0%</td>
<td>-5.7%</td>
</tr>
<tr>
<td class="firstcol">MV and Parts</td>
<td>0.7%</td>
<td>-1.3%</td>
<td>-1.0%</td>
<td>-6.1%</td>
<td>-1.3%</td>
<td>-1.0%</td>
<td>-1.6%</td>
<td>-2.7%</td>
</tr>
<tr>
<td class="firstcol">Food Bev &amp; Tobacco</td>
<td>-0.9%</td>
<td>-3.2%</td>
<td>0.8%</td>
<td>-12.5%</td>
<td>-3.4%</td>
<td>-2.6%</td>
<td>0.0%</td>
<td>-15.5%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>2.7%</td>
<td>-0.3%</td>
<td>-1.8%</td>
<td>2.3%</td>
<td>8.2%</td>
<td>2.1%</td>
<td>1.5%</td>
<td>11.8%</td>
</tr>
<tr>
<td class="firstcol">Car registrations (units)</td>
<td>-5.8%</td>
<td>6.5%</td>
<td>-6.2%</td>
<td>-21.4%</td>
<td>113.6%</td>
<td>29.6%</td>
<td>1.6%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">Real</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>0.7%</td>
<td>-1.3%</td>
<td>-1.0%</td>
<td>-6.1%</td>
<td>-1.3%</td>
<td>-1.0%</td>
<td>-1.6%</td>
<td>-2.7%</td>
</tr>
</tbody>
</table>
</body></html>

German retail sales edged higher in July but this is after several months of declining. Despite the minor rise in sales ex-autos, retail sales in Q3 (one month into the new quarter) are dropping at an annual rate of 5.7% or 2.7% in [...]

German Retail Sales Still Short Of Dependable

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

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

260205Z2.jpg

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

260205Z3.jpg

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

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

260205Z5.jpg

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

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

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

260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

260205X15.jpg

260205Y15.jpg

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

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

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

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

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

260205C15.jpg

260205D15.jpg

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

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

Sandy Batten

260205A2.jpg

260205B2.jpg

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

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

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

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

260205C2.jpg

260205D2.jpg

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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

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

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

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

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

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

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

Economy in Brief

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Markit MFG PMIs Turn Higher; Gains Are Widespread

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U.S. Weekly Claims For Jobless Insurance Slip Modestly

U.S. Weekly Claims For Jobless Insurance Slip Modestly

U.S. Factory Inventory Decumulation Rate Eases Further

Jump In 2Q U.S. Worker Productivity Revised Up Slightly & Cost Pressures Eased

German Retail Sales Still Short Of Dependable