Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812d.jpg" align="left" border="0">
Euro Area industrial output rose in May but is back to its
declining ways in June. The negative rates of growth are still
diminishing to a decline of 4.8% over three months from -15.1% over six
months and from -18% over twelve months. Trend progress continues
despite the months set-back. And, with this monthly drop, the region
steps back behind the line that says it has turned the corner to
growth. It has not. 
 

Nondurable output is actually increasing taking some of the
downward pressure of consumer goods output where durable goods trends
are still horrifically negative. 
 

Country level trends have flattened out or show progress to
positive output In Germany, France, Spain and in the UK. Germany,
France and Spain show positive three-month output growth rates for MFG.
But over six- and twelve-months all the large countries are still
showing output declines. 
 

Underling the erratic and slow nature of progress in EMU,
Germany&#8217;s July IFO report show some progress is still being made, but
at a snail&#8217;s pace. The IFO&#8217;s current conditions and expectations
readings edged higher, boosting the German index for business climate
in July. But the IFO&#8217;s overall and sector readings on diffusion tell us
that this progress while small is still not very widespread as
diffusion indices remain negative and made their own small progress in
the month. The biggest sector improvement in the current diffusion
index presentation was in retailing. Manufacturing made the biggest
improvement in the expectations section. But services made the turn
from a negative reading to a positive one in the expectations survey- a
significant development even if on a small two-point move. 
 

Some of the luster from retailing&#8217;s gain in the current sector
survey is lost as the expectations for retailing made a similar but
opposite large move losing ground and blunting the current message of
improvement in the sector. . 
 

Conditions in Germany and in EMU remain in flux. Trends are in
the right direction but some are still slow-moving. We still see
episodic signs of backtracking. It&#8217;s too soon to say it is recovery or
to be sure that we are going there, despite the strong readings from
the OECD leading indicators. Questions remain. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="11" scope="col">E-zone MFG IP </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Jun 09</td>
<td>May 09</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area Detail</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-2</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-0.5%</td>
<td>0.2%</td>
<td>-1.0%</td>
<td>-4.8%</td>
<td>-6.9%</td>
<td>-15.1%</td>
<td>-20.0%</td>
<td>-18.0%</td>
<td>-18.3%</td>
<td>-9.5%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>-0.5%</td>
<td>-4.9%</td>
<td>-5.5%</td>
<td>-5.8%</td>
<td>-5.1%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Durables</td>
<td>-4.2%</td>
<td>-1.8%</td>
<td>-0.7%</td>
<td>-23.7%</td>
<td>-11.5%</td>
<td>-23.8%</td>
<td>-21.5%</td>
<td>-24.4%</td>
<td>-19.9%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Nondurables</td>
<td>0.2%</td>
<td>0.6%</td>
<td>0.0%</td>
<td>3.7%</td>
<td>1.9%</td>
<td>-1.7%</td>
<td>-2.9%</td>
<td>-2.8%</td>
<td>-2.6%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-0.5%</td>
<td>0.5%</td>
<td>-1.5%</td>
<td>-6.2%</td>
<td>-10.3%</td>
<td>-13.9%</td>
<td>-23.6%</td>
<td>-22.4%</td>
<td>-22.9%</td>
<td>-12.2%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.3%</td>
<td>1.0%</td>
<td>-2.9%</td>
<td>-8.6%</td>
<td>-6.9%</td>
<td>-22.8%</td>
<td>-26.5%</td>
<td>-21.9%</td>
<td>-22.7%</td>
<td>-12.5%</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">Main E-zone Countries and
UK IP in MFG</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Jun 09</td>
<td>May 09</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Only</td>
<td>Jun 09</td>
<td>May 09</td>
<td>Apr 09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q:2 Date</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>5.0%</td>
<td>-3.1%</td>
<td>8.2%</td>
<td>10.6%</td>
<td>-16.3%</td>
<td>-24.5%</td>
<td>-19.8%</td>
<td>-19.5%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">France: IP excl Construction</td>
<td>0.3%</td>
<td>2.8%</td>
<td>-1.4%</td>
<td>7.2%</td>
<td>-1.8%</td>
<td>-10.0%</td>
<td>-13.3%</td>
<td>-12.8%</td>
<td>-13.2%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-1.2%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>-3.4%</td>
<td>-15.9%</td>
<td>-21.4%</td>
<td>-26.3%</td>
<td>-23.9%</td>
<td>-22.7%</td>
<td>-17.8%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>3.9%</td>
<td>-6.9%</td>
<td>5.9%</td>
<td>10.1%</td>
<td>-22.2%</td>
<td>-17.7%</td>
<td>-21.6%</td>
<td>-14.4%</td>
<td>-22.4%</td>
<td>-2.3%</td>
</tr>
<tr>
<td class="firstcol">UK: EU member</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>-1.8%</td>
<td>-6.4%</td>
<td>-11.2%</td>
<td>-11.7%</td>
<td>-12.8%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
</body></html>

Euro Area industrial output rose in May but is back to its declining ways in June. The negative rates of growth are still diminishing to a decline of 4.8% over three months from -15.1% over six months and from -18% over twelve months. [...]

Euro Area Industrial Output Steps Back In June

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812a.jpg" align="left" border="0">
As the U.S. recession continued, the foreign trade deficit
remained near its narrowest level 2001. The deficit of $27.0B was just
slightly deeper than the unrevised May level of $26.0B. Consensus
expectations had been for a deficit of $28.5B. Higher petroleum imports
have been the main source of upward pressure on the trade deficit
recently. Higher crude oil prices raised them by more than one-quarter
during June and by 12.2% so far this year. Offsetting that increase was
the U.S. recession which caused June nonpetroleum imports to fall by
1.0%. That pulled their decline so far this year to 15.7%. Higher
exports were the second factor which limited trade deficit
deterioration during June. The competitive foreign exchange value of
the dollar helped exports to rise by 2.0% after a firm 1.6% gain during
May. Nevertheless, recessions abroad have lowered exports by 5.4% since
December.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812b.jpg" align="right" border="0">
The rise in petroleum imports was driven by higher crude oil
prices. They rose to a June average of $59.17 per barrel versus the
February low of $39.22. The recession and the rise in prices prompted,
however, a decline in the volume of petroleum imports. Despite a June
gain they have fallen roughly ten-percent since December. The recession
has had the additional effect on limiting the size of the trade deficit
by dropping nonoil goods imports. They fell a hefty 1.0% during June
for the ninth sharp monthly decline in a year.
Adjusted for price inflation overall and for higher oil prices
specifically, the trade deficit in goods actually narrowed slightly
during June to $35.9B, the lowest since 1999. It was down from $45.3B
last June. Real non-auto consumer goods imports fell a hard 4.8% m/m
and are down 17.8% y/y, near their lowest level since 2005. Automotive
vehicles &amp; parts imports were down by exactly one-half versus
last year. Non-auto capital goods imports continued to reflect the
weakness in investment and fell 24.4% y/y near their lowest level since
2004.
Though services imports rose 2.3% during June that followed
ten months of decline and they were off by nearly one-third y/y. Travel
imports were down 12.8% y/y as passenger fares dropped by 9.0%.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812c.jpg" align="left" border="0">
Real exports added 0.6% to their 1.9% gain during May.
Nevertheless, recessions abroad caused them to fall by 21.4%
year-to-year to near the lowest level since late-2005. The chained
dollar value of non-auto consumer goods exports slipped m/m and were
down 13.8% y/y. Real capital goods exports jumped 1.5% but were off
20.6% y/y while exports of automobiles &amp; parts were off by
roughly one-half from last year.
Nominal exports of services rose 1.3% (-11.5% y/y) for the
first material increase since last fall. Travel exports fell 18.8% y/y
as fewer foreign citizens came to the U.S. even as passenger fares fell
22.5%.
The U.S. trade deficit in goods with China deepened again,
during June to $18.4B. Imports from China fell 14.1% y/y while U.S.
exports fell a lesser 10.3%. The trade deficit with Japan deepened
sharply to $3.7B but it remained near its shallowest since 1990. The
U.S. recession drove imports from Japan down by 36.5% year-to-year
while U.S. exports to the country fell by 30.4%.

<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/@EE/@EE01/@EE01.HTM">Foreign
Trade&nbsp;</a></th>
<th scope="col">June</th>
<th scope="col">May</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">U.S. Trade Deficit</td>
<td>$27.0B</td>
<td>$26.0B</td>
<td>$60.2B (6/08)</td>
<td>$695.9</td>
<td>$701.4</td>
<td>$760.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Exports - Goods
&amp; Services</td>
<td>2.0%</td>
<td>1.6%</td>
<td>-22.2%</td>
<td>11.2%</td>
<td>13.2%</td>
<td>13.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Imports - Goods
&amp; Services</td>
<td>2.3%</td>
<td>-0.6%</td>
<td>-31.1%</td>
<td>7.6</td>
<td>6.0%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>23.8%</td>
<td>-3.4%</td>
<td>-51.9%</td>
<td>37.0%</td>
<td>9.4%</td>
<td>20.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>-1.0%</td>
<td>0.1%</td>
<td>-29.1%</td>
<td>1.5%</td>
<td>4.8%</td>
<td>9.1%</td>
</tr>
</tbody>
</table>
</body></html>

As the U.S. recession continued, the foreign trade deficit remained near its narrowest level 2001. The deficit of $27.0B was just slightly deeper than the unrevised May level of $26.0B. Consensus expectations had been for a deficit of [...]

U.S. Trade Deficit Remains Near The Narrowest Since 2001

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812a.jpg" align="left" border="0">
As the U.S. recession continued, the foreign trade deficit
remained near its narrowest level 2001. The deficit of $27.0B was just
slightly deeper than the unrevised May level of $26.0B. Consensus
expectations had been for a deficit of $28.5B. Higher petroleum imports
have been the main source of upward pressure on the trade deficit
recently. Higher crude oil prices raised them by more than one-quarter
during June and by 12.2% so far this year. Offsetting that increase was
the U.S. recession which caused June nonpetroleum imports to fall by
1.0%. That pulled their decline so far this year to 15.7%. Higher
exports were the second factor which limited trade deficit
deterioration during June. The competitive foreign exchange value of
the dollar helped exports to rise by 2.0% after a firm 1.6% gain during
May. Nevertheless, recessions abroad have lowered exports by 5.4% since
December.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812b.jpg" align="right" border="0">
The rise in petroleum imports was driven by higher crude oil
prices. They rose to a June average of $59.17 per barrel versus the
February low of $39.22. The recession and the rise in prices prompted,
however, a decline in the volume of petroleum imports. Despite a June
gain they have fallen roughly ten-percent since December. The recession
has had the additional effect on limiting the size of the trade deficit
by dropping nonoil goods imports. They fell a hefty 1.0% during June
for the ninth sharp monthly decline in a year.
Adjusted for price inflation overall and for higher oil prices
specifically, the trade deficit in goods actually narrowed slightly
during June to $35.9B, the lowest since 1999. It was down from $45.3B
last June. Real non-auto consumer goods imports fell a hard 4.8% m/m
and are down 17.8% y/y, near their lowest level since 2005. Automotive
vehicles &amp; parts imports were down by exactly one-half versus
last year. Non-auto capital goods imports continued to reflect the
weakness in investment and fell 24.4% y/y near their lowest level since
2004.
Though services imports rose 2.3% during June that followed
ten months of decline and they were off by nearly one-third y/y. Travel
imports were down 12.8% y/y as passenger fares dropped by 9.0%.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812c.jpg" align="left" border="0">
Real exports added 0.6% to their 1.9% gain during May.
Nevertheless, recessions abroad caused them to fall by 21.4%
year-to-year to near the lowest level since late-2005. The chained
dollar value of non-auto consumer goods exports slipped m/m and were
down 13.8% y/y. Real capital goods exports jumped 1.5% but were off
20.6% y/y while exports of automobiles &amp; parts were off by
roughly one-half from last year.
Nominal exports of services rose 1.3% (-11.5% y/y) for the
first material increase since last fall. Travel exports fell 18.8% y/y
as fewer foreign citizens came to the U.S. even as passenger fares fell
22.5%.
The U.S. trade deficit in goods with China deepened again,
during June to $18.4B. Imports from China fell 14.1% y/y while U.S.
exports fell a lesser 10.3%. The trade deficit with Japan deepened
sharply to $3.7B but it remained near its shallowest since 1990. The
U.S. recession drove imports from Japan down by 36.5% year-to-year
while U.S. exports to the country fell by 30.4%.

<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/@EE/@EE01/@EE01.HTM">Foreign
Trade&nbsp;</a></th>
<th scope="col">June</th>
<th scope="col">May</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">U.S. Trade Deficit</td>
<td>$27.0B</td>
<td>$26.0B</td>
<td>$60.2B (6/08)</td>
<td>$695.9</td>
<td>$701.4</td>
<td>$760.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Exports - Goods
&amp; Services</td>
<td>2.0%</td>
<td>1.6%</td>
<td>-22.2%</td>
<td>11.2%</td>
<td>13.2%</td>
<td>13.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Imports - Goods
&amp; Services</td>
<td>2.3%</td>
<td>-0.6%</td>
<td>-31.1%</td>
<td>7.6</td>
<td>6.0%</td>
<td>10.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>23.8%</td>
<td>-3.4%</td>
<td>-51.9%</td>
<td>37.0%</td>
<td>9.4%</td>
<td>20.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>-1.0%</td>
<td>0.1%</td>
<td>-29.1%</td>
<td>1.5%</td>
<td>4.8%</td>
<td>9.1%</td>
</tr>
</tbody>
</table>
Euro Area Industrial Output Steps
Back In June 
by <a href="/comment/Brusca.html">Robert
Brusca</a> August 12, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812d.jpg" align="left" border="0">
Euro Area industrial output rose in May but is back to its
declining ways in June. The negative rates of growth are still
diminishing to a decline of 4.8% over three months from -15.1% over six
months and from -18% over twelve months. Trend progress continues
despite the months set-back. And, with this monthly drop, the region
steps back behind the line that says it has turned the corner to
growth. It has not. 
 

Nondurable output is actually increasing taking some of the
downward pressure of consumer goods output where durable goods trends
are still horrifically negative. 
 

Country level trends have flattened out or show progress to
positive output In Germany, France, Spain and in the UK. Germany,
France and Spain show positive three-month output growth rates for MFG.
But over six- and twelve-months all the large countries are still
showing output declines. 
 

Underling the erratic and slow nature of progress in EMU,
Germany&#8217;s July IFO report show some progress is still being made, but
at a snail&#8217;s pace. The IFO&#8217;s current conditions and expectations
readings edged higher, boosting the German index for business climate
in July. But the IFO&#8217;s overall and sector readings on diffusion tell us
that this progress while small is still not very widespread as
diffusion indices remain negative and made their own small progress in
the month. The biggest sector improvement in the current diffusion
index presentation was in retailing. Manufacturing made the biggest
improvement in the expectations section. But services made the turn
from a negative reading to a positive one in the expectations survey- a
significant development even if on a small two-point move. 
 

Some of the luster from retailing&#8217;s gain in the current sector
survey is lost as the expectations for retailing made a similar but
opposite large move losing ground and blunting the current message of
improvement in the sector. . 
 

Conditions in Germany and in EMU remain in flux. Trends are in
the right direction but some are still slow-moving. We still see
episodic signs of backtracking. It&#8217;s too soon to say it is recovery or
to be sure that we are going there, despite the strong readings from
the OECD leading indicators. Questions remain. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">E-zone
MFG IP </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area Detail</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Apr 
09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-2</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-0.5%</td>
<td>0.2%</td>
<td>-1.0%</td>
<td>-4.8%</td>
<td>-6.9%</td>
<td>-15.1%</td>
<td>-20.0%</td>
<td>-18.0%</td>
<td>-18.3%</td>
<td>-9.5%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>-0.5%</td>
<td>-4.9%</td>
<td>-5.5%</td>
<td>-5.8%</td>
<td>-5.1%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Durables</td>
<td>-4.2%</td>
<td>-1.8%</td>
<td>-0.7%</td>
<td>-23.7%</td>
<td>-11.5%</td>
<td>-23.8%</td>
<td>-21.5%</td>
<td>-24.4%</td>
<td>-19.9%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Nondurables</td>
<td>0.2%</td>
<td>0.6%</td>
<td>0.0%</td>
<td>3.7%</td>
<td>1.9%</td>
<td>-1.7%</td>
<td>-2.9%</td>
<td>-2.8%</td>
<td>-2.6%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-0.5%</td>
<td>0.5%</td>
<td>-1.5%</td>
<td>-6.2%</td>
<td>-10.3%</td>
<td>-13.9%</td>
<td>-23.6%</td>
<td>-22.4%</td>
<td>-22.9%</td>
<td>-12.2%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.3%</td>
<td>1.0%</td>
<td>-2.9%</td>
<td>-8.6%</td>
<td>-6.9%</td>
<td>-22.8%</td>
<td>-26.5%</td>
<td>-21.9%</td>
<td>-22.7%</td>
<td>-12.5%</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">Main
E-zone Countries and
UK IP in MFG</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Only</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Apr 
09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q:2 
Date</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>5.0%</td>
<td>-3.1%</td>
<td>8.2%</td>
<td>10.6%</td>
<td>-16.3%</td>
<td>-24.5%</td>
<td>-19.8%</td>
<td>-19.5%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">France: IP excl Construction</td>
<td>0.3%</td>
<td>2.8%</td>
<td>-1.4%</td>
<td>7.2%</td>
<td>-1.8%</td>
<td>-10.0%</td>
<td>-13.3%</td>
<td>-12.8%</td>
<td>-13.2%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-1.2%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>-3.4%</td>
<td>-15.9%</td>
<td>-21.4%</td>
<td>-26.3%</td>
<td>-23.9%</td>
<td>-22.7%</td>
<td>-17.8%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>3.9%</td>
<td>-6.9%</td>
<td>5.9%</td>
<td>10.1%</td>
<td>-22.2%</td>
<td>-17.7%</td>
<td>-21.6%</td>
<td>-14.4%</td>
<td>-22.4%</td>
<td>-2.3%</td>
</tr>
<tr>
<td class="firstcol">UK: EU member</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>-1.8%</td>
<td>-6.4%</td>
<td>-11.2%</td>
<td>-11.7%</td>
<td>-12.8%</td>
<td>-0.7%</td>
</tr>
</tbody>
</table>
FOMC Leaves Rates Unchanged; Notes
Financial Market Improvement &amp; Retail Spending
Stabilization 
by <a href="/comment/Moeller.html">Tom
Moeller</a> August 12, 2009


<a href="http://"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812e.jpg" align="left" border="0" height="265" width="353"></a>
In an anticipated and unanimous vote, the Federal Open Market
Committee today left the Federal funds rate in a "range from 0 to 1/4
percent." The discount rate also was left unchanged at 0.5%. The Fed
funds rate remained the lowest ever.
The Fed indicated that "Conditions in financial markets have
improved further in recent weeks. Household spending has continued to
show signs of stabilizing but remains constrained by ongoing job
losses, sluggish income growth, lower housing wealth, and tight credit.
Again, much of the commentary on the economy was similar to
the last two meetings and concluded that "Although economic activity is
likely to remain weak for a time, the Committee continues to anticipate
that policy actions to stabilize financial markets and institutions,
fiscal and monetary stimulus, and market forces will contribute to a
gradual resumption of sustainable economic growth in a context of price
stability."
Regarding inflation the FOMC statement acknowledged the rise
in energy &amp; other commodity prices, but concluded that
substantial economic slack will leave inflation "subdued for some time."
In its effort to promote economic liquidity, the Fed used
similar language as in June, "... to provide support to mortgage
lending and housing markets and to improve overall conditions in
private credit markets, the Federal Reserve will purchase a total of up
to $1.25 trillion of agency mortgage-backed securities and up to $200
billion of agency debt by the end of the year. In addition, the Federal
Reserve will buy up to $300 billion of Treasury securities."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090812f.jpg" align="right" border="0" height="265" width="353">
New was the indication that "the Committee has
decided to gradually slow the pace of these transactions and
anticipates that the full amount will be purchased by the end of October."
For the complete text of the Fed's latest press release please
follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090812a.htm">link</a>.
The Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.
The Shadow Banking System: Implications for Financial
Regulation from the Federal Reserve Bank of New York can be
found <a href="http://www.newyorkfed.org/research/staff_reports/sr382.pdf">here</a>.
What Do We Know (And Not Know) About Potential
Output? from the Federal Reserve Bank of St. Louis is
available <a href="http://research.stlouisfed.org/publications/review/09/07/Basu.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">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Trade Deficit Remains NearThe Narrowest Since 2001

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811j.jpg" align="right" border="0" height="265" width="353">The Baltic States, Latvia,
Lithuania and Estonia have begun to
repair their current accounts deficits which had reached as high as
18-28% of GDP . The first chart shows the current accounts as a percent
of GDP for the three countries.
Today Latvia and Lithuania released balance of payments data
for June. Both countries show a continuation of the current account
surplus that started in February of this year, as shown in the second
chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811k.jpg" align="right" border="0" height="265" width="353">
In Latvia, it has been the surplus on income that has accounted
for much of the current account surplus. However, there has also been a
declining deficit on goods and services and finally a surplus in June.
The balance on current transfers has been small and has had little
effect on the overall current balance. The third chart shows the trends
in the income and goods and services balances for Latvia.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811l.jpg" align="right" border="0" height="265" width="353">

In Lithuania, the trends are less clear. The income balance
only turned positive in June and the balance on goods and services
remains in deficit. However, in contrast to Latvia, current transfers
have been the major factor accounting for the surplus on current
account, as can be seen in the fourth chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811m.jpg" align="right" border="0" height="265" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Jun 09</th>
<th scope="col">May&nbsp; 09</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar09&nbsp;</th>
<th scope="col">Feb 09</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol" colspan="6">Latvia
(Thousand Lats)</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>237.73</td>
<td>139.18</td>
<td>73.97</td>
<td>27.04</td>
<td>8.89</td>
</tr>
<tr>
<td class="firstcol">Goods and Service Balance</td>
<td>23698</td>
<td>-2584</td>
<td>-23448</td>
<td>-58220</td>
<td>-33661</td>
</tr>
<tr class="odd">
<td class="firstcol">Income Balance</td>
<td>201894</td>
<td>63640</td>
<td>53676</td>
<td>58454</td>
<td>42749</td>
</tr>
<tr class="even">
<td class="firstcol">Lithuania (Mil Litai)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>424.86</td>
<td>47.06</td>
<td>10.79</td>
<td>62.05</td>
<td>124.66</td>
</tr>
<tr>
<td class="firstcol">Goods and Service Balance</td>
<td>-32.41</td>
<td>-210.29</td>
<td>-192.79</td>
<td>-228.63</td>
<td>-19.09</td>
</tr>
<tr class="odd">
<td class="firstcol">Income Balance</td>
<td>150.83</td>
<td>-158.45</td>
<td>-138.59</td>
<td>-146.09</td>
<td>-163.31</td>
</tr>
<tr>
<td class="firstcol">Current Transfers306.07</td>
<td>306.07</td>
<td>415.80</td>
<td>337.17</td>
<td>436.77</td>
<td>307.06</td>
</tr>
</tbody>
</table>
</body></html>

The Baltic States, Latvia, Lithuania and Estonia have begun to repair their current accounts deficits which had reached as high as 18-28% of GDP . The first chart shows the current accounts as a percent of GDP for the three countries. [...]

Latvia And Lithuania Report Improvement In Their Current Accounts

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811i.jpg" align="left" border="0" height="265" width="353">
Japan paradox - The paradox of Japan&#8217;s consumer confidence is
that the index is over the 50 percent mark of its range. It also stands
right at its average level of readings going back to 1988. Even so this
is a diffusion index with 50 as the theoretical point of neutrality. At
a level of 39.4 we are instead at the average reading and at the
mid-point of the range of values of consumer confidence readings going
back about 20 years. 
 

An unexpected standard - Since the economy usually is
expanding, we would expect the average of a figure like consumer
confidence to be above 50. But Japan has had some hard times during
this period including its so-called lost decade. As for the index range
we can&#8217;t be a so sure of its values or middle but a value near 50 also
seems likely. The readings on Japan confidence do not conform to
reasonable expectations. So instead so looking at this a diffusion
index with 50 as neutral we should look at it with its man value set as
neutral. In July 2009 the index stands at its mean reading &#8211;a mean
reading based on about 20-years of observations. Adjusted for its own
mean, therefore Japan&#8217;s confidence level has gotten to zero. 
 

A better interpretation - Based on the plot of past values it
looks like Japan&#8217;s consumers are a relatively content when the index
resides between values of 50 and 45 on this index. So while the index
reading is back to its long term average that is not yet a good enough
spot. For now with some rise in machinery orders in hand it looks like
Japan&#8217;s economy is getting back on something more like an even keel.
Consumer prices are still falling so it&#8217;s too soon to say that Japan is
out of the woods. In last month&#8217;s report Japan was the last large OECD
economy still giving off negative readings on the OECD leading
indicators series. But seeing some firmness in consumer confidence does
give us some reason to take heart. Japan may be on the verge of turning
the corner to better times. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Japan Consumer Confidence
</th>
<th scope="col">Percentile</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Monthly</td>
<td colspan="3">Change over</td>
<td colspan="2">Of Range*</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>May-09</td>
<td>3-mos</td>
<td>6-mos</td>
<td>12-Mos</td>
<td>Since 2004</td>
<td>Since 1988</td>
</tr>
<tr class="odd">
<td class="firstcol">Overall Livelihood</td>
<td>39.4</td>
<td>37.4</td>
<td>36.3</td>
<td>5.6</td>
<td>10.2</td>
<td>10.1</td>
<td>58.9</td>
<td>53.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Income growth</td>
<td>37.0</td>
<td>35.8</td>
<td>35.3</td>
<td>3.6</td>
<td>5.6</td>
<td>0.7</td>
<td>38.8</td>
<td>28.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>34.0</td>
<td>31.7</td>
<td>28.0</td>
<td>10.7</td>
<td>19.8</td>
<td>3.3</td>
<td>48.3</td>
<td>48.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Willing to buy Durable Goods</td>
<td>47.3</td>
<td>45.5</td>
<td>43.1</td>
<td>8.3</td>
<td>16.7</td>
<td>18.1</td>
<td>81.5</td>
<td>80.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Value of Assets</td>
<td>37.8</td>
<td>37.6</td>
<td>35.9</td>
<td>5.6</td>
<td>9.7</td>
<td>2.9</td>
<td>46.6</td>
<td>46.6</td>
</tr>
<tr>
<td colspan="9" class="firstcol">For two-person households; *
Percentiles since Mar 2004 when series became monthly or full period</td>
</tr>
</tbody>
</table>
</body></html>

Japan paradox - The paradox of Japan’s consumer confidence is that the index is over the 50 percent mark of its range. It also stands right at its average level of readings going back to 1988. Even so this is a diffusion index with 50 [...]

Japan Consumer Confidence Rises But Remains Short Of Being Even Neutral

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811g.jpg" width="353">
The economy must be improving if gasoline prices are rising. Or is it seasonal strength? The pump price for regular gasoline increased last week to an average $2.56 per gallon, though that still was down a nickel from last month&#39;s high. The increase added to the nearly one dollar (59%) rise from the December low. Yesterday, however, the pricing strength was even more evident with the twenty cent jump to $2.03 per gallon in the cash market price. Gasoline prices were up off the early-July low of $1.60. The figures are reported by the U.S. Department of Energy and can be found in Haver&#39;s WEEKLY &amp; DAILY databases.
Crude oil prices also have strengthened. Light sweet crude oil prices (WTI) increased to $67.23 per barrel and they&#39;ve roughly doubled this year. Yesterday the spot market price for light sweet crude oil rose further to $71.58 per barrel. Prices had reached a daily high of $72.68 earlier in July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811h.jpg" width="353">
The pickup in energy prices is against the backdrop of a firming demand picture. It probably is seasonal, but during the last four weeks the demand for gasoline is up sharply. Year-to year, demand still is down by 1.8%, but that compares to a nearly 5% rate of decline last fall. Demand for distillate also is off sharply though residual fuel oil demand has moved higher. Finally, oil remains plentiful as evidenced by a 13.0% y/y rise in inventories of crude oil &amp; petroleum products. Inventories of gasoline are flat y/y but crude oil inventories less the SPR are up by 17.8%. The figures on crude oil production and inventories are available in Haver&#39;s OILWKLY database.
Natural gas prices continued their move sideways last week. At an average of $3.44 per mmbtu (-62.8% y/y), the price was down by three-quarters from the high reached in early-July of last year of $13.19/mmbtu.

<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/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">08/10/09</th>
<th scope="col">08/03/09</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">Retail Regular Gasoline ($ per Gallon, Regular)</td>
<td>2.65</td>
<td>2.56</td>
<td>-30.5%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>71.57</td>
<td>67.07</td>
<td>-39.8%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
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The economy must be improving if gasoline prices are rising. Or is it seasonal strength? The pump price for regular gasoline increased last week to an average $2.56 per gallon, though that still was down a nickel from last month's [...]

Gasoline Prices Again Move Higher

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811d.jpg" align="right" border="0" height="265" width="353">Businesses
have managed their businesses well for the weakened economic
environment. That's evident in the labor productivity gains during the
last three quarters which stand in sharp contrast to the material
declines during the economic downturns of the 1950s through the 1980s.
Last quarter, improved management of labor costs was evident in a 6.4%
(AR) surge in labor productivity in the nonfarm sector. It was the
strongest increase since the third quarter of 2003 and the gain beat
Consensus expectations for a 5.3% increase. (Revisions to past data incorporate
the comprehensive revisions to the National Income &amp; Product
Accounts (NIPA) data that were reported on July 31st.
)<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811f.jpg" align="right" border="0" height="265" width="353">
Cuts to employment &amp; hours-worked
came in the face of a sharp output decline which totaled a record 5.6%
y/y. As evident in the recent GDP report, last quarter the quarterly
rate of business sector output decline slowed to 1.7% from 8.8% during
1Q. Nevertheless, businesses continued to cut employment &amp;
hours worked sharply; at a 7.6% annual rate after a 9.0% drop during
1Q.· Compensation costs weakened substantially with the recession. They
barely rose at a 0.2% rate after the 2.4% 1Q decline. These weak
figures combined with downward revisions to earlier data leave the y/y
increase at just 1.3% 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 5.8% q/q decline was the second in a row and lowered the y/y
change to -0.6%, the first negative reading since early-2004. Nowhere
was the productivity improvement more evident last quarter than in the
factory sector. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811e.jpg" align="right" border="0" height="265" width="353">
Worker productivity rose 5.3% which was the first
quarterly increase in over one year. Output fell at a 9.9% rate
(-15.0%) while hours worked dropped at a 14.4% rate (-13.9%). The
benefit to workers was seen in a 5.8% rise in 2Q compensation. That
rise lifted to y/y growth to 6.0% which was its strongest since 2003.
The combination of strong productivity and strong compensation kept the
quarterly increase in unit labor cost at just 0.5%. However,
year-to-year, growth of 7.4% y/y is a multiple of last year's 2.2%
growth. The productivity &amp; cost figures are available in
Haver's USECON database. Investing over
the life cycle with the long-run labor income risk from the
Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/economicperspectives/ep_3qtr2009_part2_benzoni_chyruk.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/@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>6.4</td>
<td>0.3</td>
<td>1.8</td>
<td>1.8</td>
<td>1.9</td>
<td>0.9</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>1.2</td>
<td>-2.4</td>
<td>1.3</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>-5.8</td>
<td>-2.7</td>
<td>-0.6</td>
<td>1.0</td>
<td>2.3</td>
<td>2.8</td>
</tr>
</tbody>
</table>
</body></html>

Businesses have managed their businesses well for the weakened economic environment. That's evident in the labor productivity gains during the last three quarters which stand in sharp contrast to the material declines during the [...]

U.S. Worker Productivity Jumps During 2Q As Trend Improves

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811a.jpg" align="right" border="0" height="265" width="353">Times
may be improving, but small business' sense of that has sagged of late.
The National Federation of Independent Business (NFIB) indicated that
for the second consecutive month small business optimism slipped. The
July decline from June to an index level of 86.5 was to the lowest
level since March. Moreover, the latest figure was down slightly from
last year though it remained well improved from the lows of this past
winter.
During the last ten years, there has been a
49% correlation between the level of the NFIB index and the two-quarter
change in real GDP.
The percentage planning to raise employment
remained slightly negative and the percentage with one or more job
openings slipped to just 9%, nearly the lowest since 1982. During the
last ten years there has been a 71% correlation between the NFIB
employment percentage and the y/y change in nonfarm payrolls.
 <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811b.jpg" align="right" border="0" height="265" width="353">Driving
the cautious hiring was the falling percentage of small businesses
expecting the economy to improve, back to its lowest level since March.
The percentage expecting credit conditions to ease also remained in its
recent range while the percentage reporting that now is a good time to
expand business held in its modestly positive range of recent months.
During the next 3-6 months, plans for capital spending also
remained
range-bound but modestly positive. This weakness in investment reflects
not only diminished optimism about the economic outlook but poor
profits. Forty-five percent of firms are reporting lower earnings this
quarter versus last.
The largest, single most important problems seen
by business were poor sales (32%), taxes (22%), government requirements
(12%), insurance cost &amp; availability (9%), competition from
large businesses (5%) and inflation (3%).
The
percentage of firms planning to raise prices held
at 5% and that was near the record low. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090811c.jpg" align="right" border="0" height="265" width="353">
The
percentage of firms actually raising prices slipped
and remained in negative territory, near the record low.
During the last ten years there has been a 69% correlation between the
y/y change in the producer price index and the level of the NFIB price
index.
About 24 million small businesses exist in
the United States. Small business creates 80% of all new jobs in
America and the NFIB figures can be found in Haver's SURVEYS
database.
Why Are Banks Holding So Many Excess
Reserves? from the Federal Reserve Bank of New York can be
found <a href="http://www.newyorkfed.org/research/staff_reports/sr380.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/@S7/@S7.HTM">Nat'l
Federation of Independent Business</a></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>
<td class="firstcol">Small Business Optimism Index
(SA, 1986=100)</td>
<td>86.5</td>
<td>87.8</td>
<td>-1.9%</td>
<td>89.8</td>
<td>96.7</td>
<td>98.9</td>
</tr>
</tbody>
</table>
</body></html>

Times may be improving, but small business' sense of that has sagged of late. The National Federation of Independent Business (NFIB) indicated that for the second consecutive month small business optimism slipped. The July decline [...]

U.S. Small Business OptimismWeakens Again As Hiring Intentions Remain Depressed

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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Winnie Tapasanun

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Industrial production (IP) rose a more-than-expected 0.4% m/m in December following a 0.4% rise in November (+0.2% initially) and a 0.3% decline in October (-0.1% previously), data from the Federal Reserve Board showed. December marked the third m/m gain in four months. A 0.1% m/m December increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate slowed to 2.0% in December, the lowest since September, from 2.5% in November; this compared with a 0.3% y/y decline in December 2024. The December IP index at 102.3 was 3.1% above a low of 99.2 in January 2024. IP rose 0.2% q/q in Q4 2025 after a 0.6% q/q gain in Q3 2025, increasing at a 0.7% annualized rate following a 2.3% Q3 annualized pace. In 2025, IP rose 1.3% after declines of 0.7% in 2024 and 0.2% in 2023.

By **industry groups**, manufacturing production grew 0.2% (2.0% y/y) in December, up for the third time in four months, following a 0.3% increase in November (0.0% initially) and a 0.6% drop in October (-0.4% previously). Durable goods production edged up 0.1% (3.1% y/y) in December, the first m/m increase since September, after a 0.1% downtick in November. Within durables, the following categories rose m/m in December, including output rises of 2.4% (3.5% y/y) in primary metals, 1.7% (1.3% y/y) in electrical equipment, appliances & components, 1.5% (17.2% y/y) in aerospace & miscellaneous transportation equipment, 0.8% (-2.2% y/y) in furniture & related products, 0.2% (4.8% y/y) in machinery, and 0.1% (7.4% y/y) in computer & electronic products. Notably, aircraft & parts production climbed 2.1% (30.0% y/y), the third m/m increase in four months, reversing a 2.1% November drop. To the downside, the following durable goods categories fell m/m in December, including drops of 2.3% (-5.5% y/y) in wood products, 1.1% (-2.8% y/y) in motor vehicles & parts, 1.1% (-1.0% y/y) in nonmetallic mineral products, 0.1% (+2.6% y/y) in fabricated metal products, and 0.1% (-3.7% y/y) in miscellaneous durables goods.

Nondurable goods production increased 0.3% (1.0% y/y) in December, the third m/m gain in four months, after a 0.8% rebound in November. The December increase reflected m/m output rises of 1.8% (2.1% y/y) in petroleum & coal products, 0.5% (1.9% y/y) in food, beverages & tobacco, and 0.3% (-0.2% y/y) in plastics & rubber products. In contrast, the following nondurable goods categories declined m/m in December, including output drops of 1.3% (-0.8% y/y) in textiles & product mills, 1.1% (-0.5% y/y) in apparel & leather goods, 0.3% (-3.1% y/y) in paper, 0.3% (-3.4% y/y) in printing & related support activities, and 0.1% (+1.6% y/y) in chemicals.

Utilities output recovered 2.6% (2.3% y/y) in December, the third m/m rise in four months, following a 0.3% decline in November (-0.4% initially), reflecting a 1.2% rebound (1.3% y/y) in electric utilities output and a 12.0% jump (8.7% y/y) in natural gas utilities output. Mining activity, however, fell 0.7% (+1.7% y/y), the third m/m slide in four months, after an unrevised 1.7% November gain.

By **market groups**, business equipment output advanced 0.8% (10.1% y/y) in December, up for the third time in four months, after a 0.3% increase in November. Consumer goods output rose 0.7% (0.7% y/y) after a 0.7% November rebound, reflecting a 0.7% decline (-3.5% y/y) in durable consumer goods and a 1.1% gain (1.8% y/y) in nondurable consumer goods. Materials production grew 0.2% (1.7% y/y), the third m/m increase in four months, after a 0.5% November rise. In contrast, construction supplies production fell 0.3% (+1.3% y/y) in December, the second m/m fall in three months, reversing a 0.3% increase in November.

In **special classifications**, factory output of selected high-tech industries rose 0.7% (10.9% y/y) in December, the third successive m/m rise, following a downwardly revised 0.5% gain in November (+1.1% initially). Manufacturing production excluding selected high-tech industries grew 0.2% (1.7% y/y) in December, the third m/m gain in four months, after a 0.3% increase in November. Meanwhile, manufacturing production excluding selected high-tech and motor vehicles & parts rose 0.3% (2.1% y/y), also up for the third time in four months, after a 0.4% November increase.

Capacity utilization rose to 76.3% in December, the highest since July, from 76.1% in November (76.0% initially). The Action Economics Forecast Survey forecasted 76.0%. The December reading was 3.2 percentage points below its long-run (1972–2024) average. Manufacturing capacity utilization held at 75.6% in December and November (75.4% previously); the December rate was 2.6 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

260116T23.jpg

260116U23.jpg

- December IP +0.4% (+2.0% y/y), third m/m rise in four months, led by a 2.6% gain in utilities.
- Manufacturing +0.2% (+2.0% y/y), w/ durables +0.1% and nondurables +0.3%.
- Selected high-tech +0.7%, third consecutive m/m rise; motor vehicles -1.1%, fourth straight m/m fall.
- Mining -0.7%, third m/m decline in four months.
- Key categories in market groups mostly increase.
- Capacity utilization at a five-month-high 76.3%; mfg. capacity utilization steady at 75.6%.

U.S. Industrial Production Increases in December on Utilities Rebound

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).

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/2mhM227WWeJJ6kRv7sJMiE?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Between Optimism and Uncertainty

Michael J. Moran

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

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

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

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