Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817c.jpg" align="left" border="0" height="265" width="353">
According to the National Association of Home Builders, the
housing market continued its recent improvement during August. Their
Composite Housing Market Index rose to 18 which equaled the highest
level since June of last year, and it was up off the low of 8 this past
January. The index is compiled from survey questions asking builders to
rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to
&#8220;very low&#8221;. The figure is a diffusion index,
therefore, numerical results over 50 indicate a predominance of &#8220;good&#8221;
readings.
Also showing improvement during all of the first quarter was
the Home Builders' Housing Opportunity Index, which is the share of
homes sold that could be considered affordable to a family earning the
median income. It jumped to a record high of 72.5% buoyed by lower home
prices, lower interest rates and higher income. (There is a break in
the series from 2002 to 2003.)<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817d.jpg" align="right" border="0" height="265" width="353">
The Home Builders Association indicated that improvement in
the August figures was due to a rise in the sub-index of sales during
the next six months to the highest level since April '08. At a reading
of 30 the figure was double the lows of this past winter. The present
sales index was stable at 16.
The strength in the August composite index reading was led by
strong improvement in the Northeast to the highest level since November
2007. In the West the index also posted a firm gain to the highest
level since May of 2008. In the Midwest the index rose to its highest
since June '08 and in the South the index slipped after having risen
this past Spring.
The NAHB has compiled the Housing Market Index
since 1985. The weights assigned to the
individual index components are .5920 for single family detached sales,
present time; .1358 for single family detached sales, next six months;
and .2722 for traffic of prospective buyers. The results, along with
other housing and remodeling indexes from NAHB Economics, are included
in Haver&#8217;s SURVEYS database.
Strong Medicine for
an Ailing Economy from the Federal Reserve Bank of Atlanta
can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=084C6ABC-5056-9F12-1274013344A169C9&amp;method=display_body">here.</a>


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">&nbsp;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 Housing Market Index
(All Good = 100)</td>
<td>18</td>
<td>17</td>
<td>16</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>16</td>
<td>16</td>
<td>16</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>30</td>
<td>26</td>
<td>24</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>16</td>
<td>13</td>
<td>13</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
</body></html>

According to the National Association of Home Builders, the housing market continued its recent improvement during August. Their Composite Housing Market Index rose to 18 which equaled the highest level since June of last year, and it [...]

U.S. Home Builders' Index Seems To Be Crawling Out of the Cellar

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817a.jpg" width="353">
For August, the Federal Reserve Bank of New York reported that its Empire State Factory Index of General Business Conditions was positive and at its highest level in two years. The latest reading of 12.08 compares to sharply negative levels this past Winter and suggests positive growth in factory sector activity. The latest level was better than Consensus expectations for a reading of 3.0.
The figure is a diffusion index. Since the series&#39; inception in 2001, there has been a 75% correlation between its level and the three-month change in U.S. factory sector industrial production. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to independent survey questions; it is not a weighted combination of the components. The series dates back only to 2001.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State. Participants from across the state in a variety of industries respond to a questionnaire and report the change in indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/Empire2009/empiresurvey_20090817.html">here.</a><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817b.jpg" width="353">
The new orders component paced the August index gain with a rise to the highest level in two years. The shipments index also improved to its highest since early-2008 while the employment index jumped m/m to its highest level since last October. In the history of the NY employment index, there has been an 87% correlation between the employment index and the three-month growth in overall U.S. factory sector employment as reported by the Labor Department. The workweek index also improved sharply as the unfilled orders, inventories and delivery times series rose modestly.
The price index firmed to its highest level since November. Nevertheless, the index level remained down sharply from last year. Since inception in 2001, there has been a 77% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months rose during August to its highest level since early 2007. The subseries for new orders, shipments, employment and capital expenditures each ticked up.
The Empire State data is available in Haver&#39;s SURVEYS database.
Below the Line: Estimates of Negative Equity among Nonprime Mortgage Borrowers from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/09v15n1/0907haug.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/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>12.08</td>
<td>-0.55</td>
<td>-1.16</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>13.43</td>
<td>5.89</td>
<td>-3.50</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>-7.45</td>
<td>-20.83</td>
<td>-4.49</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>13.83</td>
<td>10.42</td>
<td>65.17</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>


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For August, the Federal Reserve Bank of New York reported that its Empire State Factory Index of General Business Conditions was positive and at its highest level in two years. The latest reading of 12.08 compares to sharply negative [...]

Empire State Factory Conditions Improve To Highest Level in Two Years

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817a.jpg" align="left" border="0" height="265" width="353">
For August, the Federal Reserve Bank of New York reported that
its Empire State Factory Index of General Business Conditions was
positive and at its highest level in two years. The latest reading of
12.08 compares to sharply negative levels this past Winter and suggests
positive growth in factory sector activity. The latest level was better
than Consensus expectations for a reading of 3.0.
The figure is a diffusion index. Since the series' inception
in 2001, there has been a 75% correlation between its level and the
three-month change in U.S. factory sector industrial production. Like
the Philadelphia Fed Index of General Business Conditions, the Empire
State Business Conditions Index reflects answers to independent survey
questions; it is not a weighted combination of the components. The
series dates back only to 2001.
The Empire State Manufacturing Survey is a monthly survey of
manufacturers in New York State. Participants from across the state in
a variety of industries respond to a questionnaire and report the
change in indicators from the previous month. Respondents also state
the likely direction of these same indicators six months ahead.
For more on the Empire State Manufacturing Survey, including
methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/Empire2009/empiresurvey_20090817.html">here.</a><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817b.jpg" align="right" border="0" height="265" width="353">
The new orders component paced the August index gain with a
rise to the highest level in two years. The shipments index also
improved to its highest since early-2008 while the employment index
jumped m/m to its highest level since last October. In the history of
the NY employment index, there has been an 87% correlation between the
employment index and the three-month growth in overall U.S. factory
sector employment as reported by the Labor Department. The workweek
index also improved sharply as the unfilled orders, inventories and
delivery times series rose modestly.
The price index firmed to its highest level since November.
Nevertheless, the index level remained down sharply from last year.
Since inception in 2001, there has been a 77% correlation between the
index of prices paid and the three-month change in the core
intermediate materials PPI.
The Empire State index of expected business
conditions in six months rose during August to its highest
level since early 2007. The subseries for new orders, shipments,
employment and capital expenditures each ticked up.
The Empire State data is available in Haver's SURVEYS
database.



Below the Line: Estimates of Negative Equity
among Nonprime Mortgage Borrowers from the Federal Reserve
Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/09v15n1/0907haug.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/@S5/@S511/@S511.HTM">Empire
State Manufacturing Survey</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August '08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>12.08</td>
<td>-0.55</td>
<td>-1.16</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>13.43</td>
<td>5.89</td>
<td>-3.50</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>-7.45</td>
<td>-20.83</td>
<td>-4.49</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>13.83</td>
<td>10.42</td>
<td>65.17</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>
U.S. Home Builders' Index Seems To
Be Crawling Out of the Cellar 
by <a href="/comment/Moeller.html">Tom
Moeller</a> August 17, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817c.jpg" align="left" border="0" height="265" width="353">
According to the National Association of Home Builders, the
housing market continued its recent improvement during August. Their
Composite Housing Market Index rose to 18 which equaled the highest
level since June of last year, and it was up off the low of 8 this past
January. The index is compiled from survey questions asking builders to
rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to
&#8220;very low&#8221;. The figure is a diffusion index,
therefore, numerical results over 50 indicate a predominance of &#8220;good&#8221;
readings.
Also showing improvement during all of the first quarter was
the Home Builders' Housing Opportunity Index, which is the share of
homes sold that could be considered affordable to a family earning the
median income. It jumped to a record high of 72.5% buoyed by lower home
prices, lower interest rates and higher income. (There is a break in
the series from 2002 to 2003.)<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817d.jpg" align="right" border="0" height="265" width="353">
The Home Builders Association indicated that improvement in
the August figures was due to a rise in the sub-index of sales during
the next six months to the highest level since April '08. At a reading
of 30 the figure was double the lows of this past winter. The present
sales index was stable at 16.
The strength in the August composite index reading was led by
strong improvement in the Northeast to the highest level since November
2007. In the West the index also posted a firm gain to the highest
level since May of 2008. In the Midwest the index rose to its highest
since June '08 and in the South the index slipped after having risen
this past Spring.
The NAHB has compiled the Housing Market Index
since 1985. The weights assigned to the
individual index components are .5920 for single family detached sales,
present time; .1358 for single family detached sales, next six months;
and .2722 for traffic of prospective buyers. The results, along with
other housing and remodeling indexes from NAHB Economics, are included
in Haver&#8217;s SURVEYS database.
Strong Medicine for
an Ailing Economy from the Federal Reserve Bank of Atlanta
can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=084C6ABC-5056-9F12-1274013344A169C9&amp;method=display_body">here.</a>


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">&nbsp;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 Housing Market Index
(All Good = 100)</td>
<td>18</td>
<td>17</td>
<td>16</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>16</td>
<td>16</td>
<td>16</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>30</td>
<td>26</td>
<td>24</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>16</td>
<td>13</td>
<td>13</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
EMU Trade Surplus Is On An ASlight
Up-Trend Signs Of Real Recovery Remain Elusive 
by <a href="/comment/Brusca.html">Robert
Brusca</a> August 17, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817e.jpg" align="left" border="0" height="265" width="353">
Exports have the better trend among bad results 
EMU exports and imports are still on life support in terms of their
year-over-year drops. But exports are showing slightly more life in
recent months. Apart from splitting hairs, exports and imports were
roughly flat in June. 
 

The end of the end but where is the new beginning? 
Although there has been some pick up in orders for industrial goods,
exports themselves are not popping in Europe. Europe is getting ready
to exit recession based on the fact that the EMU&#8217;s GDP barely fell in
2009-Q2 as Germany and France posted positive GDP growth numbers.
Today, Japan posted an increase in its Q2 GDP so the list of countries
exiting recession is growing. Yet, some of those exiting recession do
not seem to have very good breadth or strength to the various key
economic sectors that need to drive and sustain a true recovery. 
 

Technical recovery 
The economies exiting recession are doing so rather narrowly on barely
positive GDP without much breadth or momentum to their turnaround
raising questions about the strength of recovery as well as about its
sustainability. The OECD leading indicators see a lot of momentum shift
in Europe, but not so much lift in Japan. Both Europe and Japan depend
a lot on trade for growth. The U is the sole country in this group of
four that has not yet posted positive GDP. But the US is, in contrast,
showing a lot of upward momentum as well as decreased downward
momentum; it has trimmed its deep negative growth rates across most
sectors and business cycle measures. US GDP only fell at a -1% annual
rate in 2009-Q2. It too, Like EMU, is on the brink of recovery. 
 

Searching for Mr. Good -Growth 
For Europe the end of recession is not being created by much if any
increase in consumer spending. Business fixed investment is still
chilled. And as we see here exports have the smallest of possible
upward gradients in train. While recessions have been deemed as
technically over in a number of countries I think we are still on the
outlook for a real recovery anywhere. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> E-
Area&nbsp; 16-Trade trends for goods</th>
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M%</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Jun-09</td>
<td>May-09</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
<td>12M Ago</td>
</tr>
<tr class="grey3">
<td class="firstcol">Balance*</td>
<td>&#8364;&#8364; 1,042</td>
<td>&#8364;&#8364; 1,108</td>
<td>&#8364;&#8364; (2,399)</td>
<td>&#8364;&#8364; (1,142)</td>
<td>&#8364;&#8364; (481)</td>
<td>&#8364;&#8364; 698</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="7">Exports</td>
</tr>
<tr class="grey1">
<td class="firstcol">All Exp</td>
<td>-0.1%</td>
<td>-1.8%</td>
<td>-10.3%</td>
<td>-24.8%</td>
<td>-22.8%</td>
<td>3.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food and Drinks</td>
<td>0.0%</td>
<td>-2.0%</td>
<td>-7.6%</td>
<td>-16.6%</td>
<td>-9.9%</td>
<td>10.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Raw materials</td>
<td>0.4%</td>
<td>2.2%</td>
<td>16.0%</td>
<td>8.8%</td>
<td>-21.2%</td>
<td>7.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other</td>
<td>-0.1%</td>
<td>-1.9%</td>
<td>-11.0%</td>
<td>-26.0%</td>
<td>-23.7%</td>
<td>3.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; MFG</td>
<td>-3.0%</td>
<td>-2.3%</td>
<td>-25.4%</td>
<td>-30.7%</td>
<td>-25.2%</td>
<td>1.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="7">IMPORTS</td>
</tr>
<tr class="grey1">
<td class="firstcol">All IMP</td>
<td>0.0%</td>
<td>-2.5%</td>
<td>-19.8%</td>
<td>-26.9%</td>
<td>-25.9%</td>
<td>9.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food and Drinks</td>
<td>-2.8%</td>
<td>-2.6%</td>
<td>-34.5%</td>
<td>-15.3%</td>
<td>-8.8%</td>
<td>8.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Raw materials</td>
<td>-0.8%</td>
<td>-4.1%</td>
<td>-35.8%</td>
<td>-59.5%</td>
<td>-42.4%</td>
<td>4.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other</td>
<td>0.2%</td>
<td>-2.5%</td>
<td>-17.7%</td>
<td>-25.7%</td>
<td>-26.0%</td>
<td>10.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp; MFG</td>
<td>-2.5%</td>
<td>-1.7%</td>
<td>-29.8%</td>
<td>-29.1%</td>
<td>-23.2%</td>
<td>-0.2%</td>
</tr>
<tr class="grey4">
<td colspan="7" class="firstcol">*Eur
mlns; mo or period
average</td>
</tr>
</tbody>
</table>
Skepticism Greets Announcement Of
Japan's 2nd Quarter GDP 
by <a href="/comment/Curley.html">Louise
Curley</a> August 17, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817f.jpg" align="left" border="0" height="265" width="353">
As generally expected, Japan's GDP rose in the second quarter,
but the 3.7% annual rate of increase was below the 4-4.5% consensus
estimate and failed to impress the financial markets. Japan's Nikkei
225 stock price index greeted the rise with a resounding drop of 3.10%,
its worst one day drop since March 30.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090817g.jpg" align="right" border="0" height="265" width="353">
The quarter to quarter rise of 0.9% was accounted for by an
increases in net exports of 1.6 percentage points and in private
consumption of 0.5 percentage points. These positives were offset by a
0.6 point decline in gross fixed capital formation, a 0.5 point decline
in private inventories and a 0.1 pt decline in government consumption.
Except for the contribution of government consumption, the
contributions of the four other activities are shown in the first chart.
In spite of government's stimulus programs, the rise in
private consumption has not been large enough to offset the declines in
business investment. As a result, domestic demand, especially private
domestic demand, is still declining, casting doubts concerning the
sustainability of the upturn. Private and public contributions to
growth in domestic demand are shown in the second chart. Perhaps
another concern is the GDP deflator. Although the year over year change
is still positive, it was smaller than those of the previous two
quarters. The specter of deflation still hovers over the outlook.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1&nbsp; 09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08&nbsp;</th>
<th scope="col">Q2 08</th>
<th scope="col">Q1 08&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Contribution to Quarterly
Changes in GDP (Percent Points)</td>
<td>0.9</td>
<td>-3.1</td>
<td>-3.5</td>
<td>-1.0</td>
<td>-1.1</td>
<td>1.0</td>
</tr>
<tr class="grey3">
<td class="firstcol">Net Exports</td>
<td>1.6</td>
<td>-0.9</td>
<td>-2.9</td>
<td>-0.2</td>
<td>-0.3</td>
<td>0.6</td>
</tr>
<tr class="grey2">
<td class="firstcol">Fixed Capital Formation</td>
<td>-0.6</td>
<td>-1.4</td>
<td>-0.9</td>
<td>-0.6</td>
<td>-0.5</td>
<td>0.2</td>
</tr>
<tr class="grey4">
<td class="firstcol">Change in Inventories</td>
<td>-0.5</td>
<td>-0.2</td>
<td>0.5</td>
<td>-0.2</td>
<td>0.3</td>
<td>-0.5</td>
</tr>
<tr class="grey3">
<td class="firstcol">Private Consumption</td>
<td>0.5</td>
<td>-0.7</td>
<td>-0.4</td>
<td>-0.1</td>
<td>-0.5</td>
<td>0.7</td>
</tr>
<tr class="grey2">
<td class="firstcol">Government Consumption</td>
<td>-0.1</td>
<td>0.0</td>
<td>0.3</td>
<td>0.0</td>
<td>-0.1</td>
<td>-0.1</td>
</tr>
<tr class="grey4">
<td class="firstcol">Contribution to Domestic Demand</td>
<td>-0.7</td>
<td>-2.2</td>
<td>-0.6</td>
<td>-0.8</td>
<td>-0.8</td>
<td>0.4</td>
</tr>
<tr class="grey3">
<td class="firstcol">Private Demand&nbsp;</td>
<td>-1.0</td>
<td>-2.3</td>
<td>-0.9</td>
<td>-0.8</td>
<td>-0.5</td>
<td>0.6</td>
</tr>
<tr class="grey2">
<td class="firstcol">Public Demand</td>
<td>0.3</td>
<td>0.1</td>
<td>0.3</td>
<td>0.0</td>
<td>-0.3</td>
<td>-0.2</td>
</tr>
<tr class="grey1">
<td class="firstcol">Year over Year&nbsp; Change
in GDP Deflator (%)</td>
<td>0.54</td>
<td>0.89</td>
<td>0.75</td>
<td>-1.55</td>
<td>-1.39</td>
<td>-1.32</td>
</tr>
</tbody>
</table>
</body></html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090814g.jpg" align="right" border="0" height="265" width="353">Worries
about personal finances and the shape of the U.S. economy persisted
this month. The University of Michigan's early-August reading of
consumer sentiment fell to 63.2 from 66.0 during July and was down for
the third consecutive month. Moreover, sentiment was at its lowest
level since March. Consensus expectations had been for a firmer August
reading of 69.0. During the last ten years, there has been a 69%
correlation between the level of sentiment and the growth in real
consumer spending during the next five months.
The reading of current
economic conditions fell the hardest this month with a 7.9% drop which
was double the July decline. The reading of current personal finances
fell quite hard m/m as employment &amp; income weakness lagged the
stock market's improvement. In fact, the level of the reading
was at a record low. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090814h.jpg" align="right" border="0" height="265" width="353">
Also within the current conditions index
was a decline in buying conditions for large household goods to the
lowest level since April.
The expectations component of the
sentiment index also fell this month. It posted a moderate 1.7% decline
after the 8.7% July drop. But still the index up y/y. Expectations for
personal finances fell, down for the third month in four (+1.9% y/y).
Expected business conditions during the next year also fell for the
second month in three but expectations for conditions during the next
five years ticked higher (+6.9% y/y). Inflation expectations for the
next year fell sharply to 2.9% which was the lowest level since March.
That compares to a low of 1.7% last December but remained down from a
reading which was as high as 7.0% during May of last year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090814i.jpg" align="right" border="0" height="265" width="353">
The opinion
of government policy, which may eventually influence economic
expectations, fell for the third straight month to its lowest level
since February. An increased 36% of respondents thought that a poor job
was being done by government while a reduced 17% thought that a good
job was being done.
 The University of Michigan survey data is not
seasonally adjusted. &nbsp;The reading is based on telephone
interviews with about 500 households at month-end; the mid-month
results are based on about 300 interviews.&nbsp; The summary
indexes are in Haver's USECON database with
details in the proprietary UMSCA database.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Mid-August</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Aug y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>63.2</td>
<td>66.0</td>
<td>70.8</td>
<td>0.3%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>64.9</td>
<td>70.5</td>
<td>73.2</td>
<td>-8.6</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>62.1</td>
<td>63.2</td>
<td>69.2</td>
<td>7.3</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>

</body></html>

Worries about personal finances and the shape of the U.S. economy persisted this month. The University of Michigan's early-August reading of consumer sentiment fell to 63.2 from 66.0 during July and was down for the third consecutive [...]

Michigan Consumer Sentiment Declines As The Reading of Personal Finances Falls To A Record Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090814e.jpg" width="353">
A consistent indicator of turning points in the U.S. economy has been industrial output. And last month it signaled growth. Industrial output, which includes mining and utilities, rose a greater-than-expected 0.5% during July after an unrevised 0.4% June decline. More important for recession timing, perhaps, was that factory output increased for the first month since December of 2006. This call still is not a sure thing, however, because of the industry composition of the gain.
Output of consumer goods overall jumped 0.7% during July led by a 17.3% surge in auto production (-22.2% y/y). But that&#39;s only a partial indication of a change from the widespread downward momentum in industry output. Furniture &amp; appliance output slipped 0.1% (-22.3% y/y) as consumers continued to defer purchases of large durable goods. Consumer nondurables output fell 0.9% with a decline in chemical products products production but output of business equipment rose 0.5% (-17.3% y/y. The output of construction supplies slipped 0.1% (-20.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090814f.jpg" width="353">
In the the high-tech sector the rate of decline in output also has slowed. Industrial production of high tech equipment slipped 0.1% last month. Less high tech, manufacturing industrial production jumped 1.0% last month and the annual rate of change eased to -9.8% over the last seven months. Outside of the auto and high-tech sectors together, output rose 0.1% for the first increase since last October.
Excess capacity diminshed slightly with the rise in production. Capacity utilization rose from its record low to 68.5%. The series dates back to 1966. Utilization in the factory sector also improved to 65.4%, still down from a peak near 80% back in 2007.
The industrial production data are available in Haver&#39;s USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDUSTRIAL PRODUCTION (SA, %)</th>
<th scope="col">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">Total Output </td>
<td>0.5</td>
<td>-0.4</td>
<td>-13.0</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>1.0</td>
<td>-0.5</td>
<td>-14.4</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Consumer Goods</td>
<td>0.7</td>
<td>-0.6</td>
<td>-7.2</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Business Equipment</td>
<td>0.5</td>
<td>-0.7</td>
<td>-17.3</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Construction Supplies</td>
<td>-0.1</td>
<td>-0.4</td>
<td>-20.9</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-2.5</td>
<td>0.9</td>
<td>-4.9</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>68.5</td>
<td>68.1</td>
<td>78.6 (July &#39;08)</td>
<td>77.6</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>


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A consistent indicator of turning points in the U.S. economy has been industrial output. And last month it signaled growth. Industrial output, which includes mining and utilities, rose a greater-than-expected 0.5% during July after an [...]

U.S. Factory Production Improves Sharply With Higher Auto Output

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090814d.jpg" align="left" border="0" height="265" width="353">
The EMU HICP fell by a larger than expected 0.7% Yr/Yr. But
with France and Germany emerging from recession in yesterday&#8217;s GDP
reports, markets are not focused on inflation being under control or
worried about deflation with the Yr/Yr drop, but instead worried that
inflation is going to be a problem sooner rather than later. Isn&#8217;t that
just like markets? Nothing is what is seems.
Forecasts made up to this point have been assuming that Europe
was going to remain weak for some time. Now with the early exit from
recession by Germany and France and the small drop in EMU GDP in
2009-Q2, inflation forecasts are beginning to get a re-think.
Ex food and energy inflation in EMU is at +0.6%. The core
measure of inflation was flat in July, up by 0.1% in June and flat in
May. There isn&#8217;t exactly any news saying inflation is building momentum
here.
Moreover, although Germany and France have &#8216;existed recession&#8217;
they have done so in a most peculiar way. And before calling it the
&#8216;end of recession&#8217; perhaps we should wait and see what has been cooked
into its GDP stew. As we pointed out in the write&#8211;up of European GDP
yesterday, the diffusion indicators that track the various sectors
across European nations and in EMU are still at very depressed levels.
This has to conjure up concerns of what ether GDP rose upon in Q2 and
if those fumes will still have lifting force in 2009-Q3.
In short, it seems a bad time to start to raise inflation
forecasts and fears. The EMU-wide HICP is in a strong drop; it is not
covering for any inflation under the surface and the surprising growth
served up by several European economies is equally surprising after the
fact as we try to understand it. Is that real and is it really a basis
for concerns about STRONG growth? 
The bottom line is that inflation is under control in Europe
and barring something exceptional - that we have not yet seen -- it
should stay that way.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> Trends in HICP </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% Mo/Mo</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</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>
</tr>
<tr class="even">
<td class="firstcol">EMU</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-0.2%</td>
<td> 0.2%</td>
<td>-0.7%</td>
<td>4.0%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Core</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.6%</td>
<td> 1.3%</td>
<td>1.2%</td>
<td>2.5%</td>
</tr>
<tr class="even">
<td class="firstcol">Goods</td>
<td>-1.7%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>-5.5%</td>
<td> -0.1%</td>
<td>-2.4%</td>
<td>5.1%</td>
</tr>
<tr class="even">
<td class="firstcol">Services</td>
<td>0.8%</td>
<td>0.1%</td>
<td>0.1%</td>
<td> 4.1%</td>
<td> 3.7%</td>
<td>1.9%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">&nbsp;</td>
</tr>
<tr>
<td class="firstcol" colspan="8">HICP</td>
</tr>
<tr class="even">
<td class="firstcol">Germany</td>
<td>-0.5%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>-0.7%</td>
<td> -0.2%</td>
<td>-0.7%</td>
<td>3.5%</td>
</tr>
<tr class="even">
<td class="firstcol">France</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.0%</td>
<td> 0.3%</td>
<td> 0.3%</td>
<td>-0.8%</td>
<td>4.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Italy</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-1.1%</td>
<td> 0.7%</td>
<td>-0.1%</td>
<td>4.1%</td>
</tr>
<tr class="even">
<td class="firstcol">Spain</td>
<td>0.1%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td> 1.7%</td>
<td> 0.3%</td>
<td>-1.4%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol" colspan="8">Core:xFE&amp;A</td>
</tr>
<tr class="even">
<td class="firstcol">Germany</td>
<td>0.1%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>0.8%</td>
<td> 1.7%</td>
<td>1.1%</td>
<td>1.8%</td>
</tr>
<tr class="even">
<td class="firstcol">Italy</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>1.3%</td>
<td>1.3%</td>
<td>2.8%</td>
</tr>
<tr class="even">
<td class="firstcol">Spain</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.0%</td>
<td> 1.3%</td>
<td>0.5%</td>
<td>0.7%</td>
<td>3.5%</td>
</tr>
</tbody>
</table>
</body></html>

The EMU HICP fell by a larger than expected 0.7% Yr/Yr. But with France and Germany emerging from recession in yesterday’s GDP reports, markets are not focused on inflation being under control or worried about deflation with the Yr/Yr [...]

EMU HICP In Large Yr/Yr Drop

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090814a.jpg" align="right" border="0" height="265" width="353">Deflation is
much too strong a word to describe all of the pieces of the current
pricing environment, but it appropriately denotes the CPI total and
some of its components. Last month, the CPI matched Consensus
expectations and was unchanged from June. More to the point, versus
June of last year, the 1.9% decline again was the largest since
early-1950. Stripping out food &amp; energy, prices rose an
expected 0.1% which lessened the y/y gain to 1.6%, its least since
early 2004. The 0.4% decline in energy prices reversed a
small piece of the June jump and left them down by more than
one-quarter from the year-ago level. Gasoline prices slipped 0.8%
(-37.3% y/y) after a 17.3% jump during June. Fuel oil prices also
reversed roughly half of their June rise with a 1.1% (-41.8% y/y) drop.
Finally, prices for natural gas &amp; electricity slipped 0.3%
(-11.7% y/y).Food &amp; beverage prices also provided some price
relief with a 0.2% decline which was the fifth this year. That lowered
the y/y increase to 1.0% which was the lowest since late-2002 and down
from the peak 6.1% rate of increase last fall. Recent weakness has been
led by lower dairy prices (-9.7% y/y) and lower fruit &amp;
vegetable (-3.4% y/y) prices. Prices for meats, poultry &amp; fish
also fell by 1.7% y/y while cereals &amp; bakery product prices
rose just 1.2%. The CPI less food &amp; energy also has been well
behaved. The expected 0.1% July increase slowed the y/y gain to 1.6%
which was its least since early-2004. Of some note, however, is that
prices increased at an accelerated 2.1% rate since December of last
year. That's only slightly below the 2.3% rates of increase during the
last two years.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090814b.jpg" align="right" border="0" height="265" width="353">
This year, core goods prices indeed
have firmed some. They rose 0.2% last month and at a 3.8% annualized
rate so far this year. That compares with little price change during
the prior three years. Again, higher tobacco prices account for much of
that acceleration. As taxes have been raised, prices jumped 2.2% last
month and so far this year at a 49.8% annual rate. There also has been
modest firming of prices elsewhere. Apparel prices posted a 0.6%
increase and are up at a 3.9% rate this year after price declines which
extend back to 1994 (no typo). Prices for new &amp; used motor
vehicles also seemed to strengthen despite an aggressive marketing
campaign. They rose 0.3% last month and at a 4.1% rate this year. That
compares with price deflation during the last two years. Continuing
weak were prices for household furnishings &amp; operation. They
slipped 0.1% during July and the 0.5% YTD rate of increase about
matches the gain during 2008. The U.S. recession continued to lower
the strength of core services prices. They were
unchanged last month and have risen at just a 1.5% annual rate so far
this year, half that in 2008 and nearly the&nbsp; weakest since
1983. Weakness in the housing market accounts for much of that
moderation. Last month, shelter prices fell 0.2% and they've risen at a
just a 0.6% annual rate so far in 2009. Owners equivalent rent of
primary residences, a measure not equivalent to other house price
measures, dipped slightly during July and have risen at a 1.6% rate so
far this year versus a 2.5% 2008 increase.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090814c.jpg" align="right" border="0" height="265" width="353">
Elsewhere, public
transportation prices posted a 1.9% rebound last month after earlier
declines but they're down at an 8.3% rate this year.&nbsp;Also
firming last month were medical care services prices with a 0.3%
increase and 3.6% YTD gain. Education costs have been firm. They are up
at a 5.5% annual rate this year.The chained CPI, which adjusts for
shifts in consumption patterns, fell 0.2% during July while
year-to-year prices fell 1.9%. Chained prices less food and energy were
roughly unchanged last month for the third month in a row but the YTD
change of 2.2% is up sharply from no change as of the end of last year.
The consumer price data is available in Haver's USECON
database while detailed figures can be found in the CPIDATA
database. &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/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>0.0</td>
<td>0.7</td>
<td>-1.9</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.1</td>
<td>0.2</td>
<td>1.6</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.2</td>
<td>0.3</td>
<td>1.4</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.0</td>
<td>0.1</td>
<td>1.6</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>-0.4</td>
<td>7.4</td>
<td>-28.0</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>-0.2</td>
<td>0.1</td>
<td>1.0</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>&nbsp;</td>
<td>0.9</td>
<td>-1.3 </td>
<td>3.3</td>
<td>2.5</td>
<td>2.9 </td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td></td>
<td>0.0</td>
<td>1.3</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
</table>
</body></html>

Deflation is much too strong a word to describe all of the pieces of the current pricing environment, but it appropriately denotes the CPI total and some of its components. Last month, the CPI matched Consensus expectations and was [...]

CPI Decline Revisits 1950 As Core Price Gain Slows To Smallest Since 2004

CPI Decline Revisits 1950 As CorePrice Gain Slows To Smallest Since 2004

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

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

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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.

260115Z1.jpg

**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.

260115Z2.jpg

**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.

260115Z3.jpg

**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.

260115Z4.jpg

**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.

260115Z5.jpg

**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.

260115Z6.jpg

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

260115J.jpg

260115K.jpg

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.

260115L.jpg

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

260115J39.jpg

260115JK9.jpg

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.

260115L39.jpg

260115M39.jpg

- 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

260115N2.jpg

260115O2.jpg

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**.

260115P2.jpg

260115Q2.jpg

- 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

260115A5.jpg

260115B5.jpg

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.

260115C5.jpg

260115D5.jpg

- Initial claims declined from the prior week.
- Continuing claims declined from the prior week.
- The insured unemployment rate was unchanged.

Economy in Brief

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U.S. Home Builders' Index Seems To Be Crawling Out of the Cellar

Empire State Factory Conditions Improve To Highest Level in Two Years

Empire State Factory Conditions Improve To Highest Level in Two Years

Michigan Consumer Sentiment Declines As The Reading of Personal Finances Falls To A Record Low

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EMU HICP In Large Yr/Yr Drop

CPI Decline Revisits 1950 As Core Price Gain Slows To Smallest Since 2004

CPI Decline Revisits 1950 As CorePrice Gain Slows To Smallest Since 2004