Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803h.jpg" align="right" border="0" height="265" width="353">
The U.S. government's "Cash for Clunkers" program was given
credit for supporting sales of light vehicles last month. The program
gives car buyers up to $4,500 for trading in older, gas-guzzling
vehicles if they're buying more fuel efficient cars. The Treasury Dept.
was authorized to spend $1 billion and an additional $2 billion
currently is under consideration by the Senate. The House passed its
approval of the plan on Friday. One estimate is that, just last week,
the program helped spike vehicle sales to a 15-to-16 million annual
rate. Regardless of the program's impact, U.S. light vehicle
sales last month jumped 15.8% <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803i.jpg" align="right" border="0" height="265" width="353">
from June to 11.24 million
units (AR) which was the highest sales rate since last September. It
followed a 1.6% decline during June. While sales were firm last month,
they remained down by nearly one-third, year-to-date, from the first
seven months of 2008. (Benchmark revisions altered sales levels
slightly back to 2002.)
Unit sales of U.S. made light vehicles
jumped 15.8% m/m to 8.17M units during July which was their highest
since last September, according to the Autodata Corporation. (Seasonal
adjustment of the figures is provided by the U.S. Bureau of Economic
Analysis). Sales of domestically made cars jumped 25.4% m/m to 4.11M
units while light truck sales rose 7.4% m/m to 4.06M units. YTD, sales
of domestic vehicles overall are down 33.6% following last year's 35.8%
drop from December-to-December.
In similar fashion, sales of imported light vehicles<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803j.jpg" align="right" border="0" height="265" width="353">
were strong and rose 16.0% m/m during July from June. Sales of imported
autos rose 18.3% from June and were at their highest level since last
August. Sales of imported light trucks were nearly as strong m/m, up
11.3% from June, but they've really been strong all year rising to
their highest just since March. Sales of imported vehicles YTD have
increased 12.5%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803k.jpg" align="right" border="0" height="265" width="353">
Overall, import's share of the U.S. light
vehicle market held steady at 27.3% last month after reaching 26.5%
during all of last year. (Imported vehicles are those produced outside
the United States.) Imports' share of the U.S. car market totaled 33.7%
while the share of the light truck market was 19.5%, up slightly from
last year.
The U.S. vehicle sales figures can be found in Haver's
USECON database.

<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/@ED/@ED09/@ED0901/@ED0901.HTM">Light
Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">July Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>11.24</td>
<td>9.70</td>
<td>9.86</td>
<td>-11.4%</td>
<td>13.17</td>
<td>16.16</td>
<td>16.54</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>6.20</td>
<td>5.04</td>
<td>4.89</td>
<td>-10.7</td>
<td>6.71</td>
<td>7.58</td>
<td>7.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Domestic</td>
<td>4.11</td>
<td>3.28</td>
<td>3.19</td>
<td>-7.0</td>
<td>4.42</td>
<td>5.07</td>
<td>5.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imported</td>
<td>2.09</td>
<td>1.76</td>
<td>1.71</td>
<td>-17.3</td>
<td>2.29</td>
<td>2.52</td>
<td>2.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>5.04</td>
<td>4.66</td>
<td>4.37</td>
<td>-12.2</td>
<td>6.47</td>
<td>8.60</td>
<td>8.78</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Domestic</td>
<td>4.06</td>
<td>3.78</td>
<td>4.05</td>
<td>-12.6</td>
<td>5.29</td>
<td>7.10</td>
<td>7.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imported</td>
<td>0.98</td>
<td>0.88</td>
<td>0.92</td>
<td>-10.4</td>
<td>1.18</td>
<td>1.47</td>
<td>1.37</td>
</tr>
</tbody>
</table>
</body></html>

The U.S. government's "Cash for Clunkers" program was given credit for supporting sales of light vehicles last month. The program gives car buyers up to $4,500 for trading in older, gas-guzzling vehicles if they're buying more fuel [...]

U.S. Light Vehicle Sales Benefit From "Cash For Clunkers" Program

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803g.jpg" align="left" border="0" height="265" width="353">
Cash earnings, including bonuses, for Japanese workers in all
establishments of 5 or more persons were 430,620 Yen (approximately
$4,500) in June, 8% below a year ago. The sharp decline was due to
lower bonuses and less overtime pay. The average bonus in June of this
year was 167,044 yen compared with 197,226 yen last June, a decline of
more than 15%. Overtime pay was 15,725 yen compared with 19,275 yen a
year ago, a decline of 18.42% and, although the decline was small, even
base pay declined 1.4% to 247,851 yen from 251,437 yen a year ago.
Cash earnings in the manufacturing industry in establishments
of 5 or more persons were down over 13% in June. Again, bonuses were
the major cause of the decline. Bonuses in Manufacturing were 155,298
yen in June 2009, compared with 209,309 yen in June 2008, a drop of
almost 40%. In contrast to industry as a whole, manufacturing saw an
increase in base pay of 1.5% and an increase of 5.7% in overtime from
May to June.
Total cash wages for all surveyed industries and for
manufacturing are shown in the attached chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Japan
Wages (Average monthly data in yen)</th>
<th scope="col">Jun 09</th>
<th scope="col">May&nbsp; 09</th>
<th scope="col">Jun 08</th>
<th scope="col">M/M %&nbsp;</th>
<th scope="col">Y/Y %</th>
<th scope="col">2008&nbsp;</th>
<th scope="col">2007 </th>
<th scope="col"> 2006 </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol" colspan="9">All
Industries</td>
</tr>
<tr class="odd">
<td class="firstcol">Schedule wages</td>
<td>247851</td>
<td>242451</td>
<td>251437</td>
<td>1.39</td>
<td>-1.43</td>
<td>251069</td>
<td>249749</td>
<td>252809</td>
</tr>
<tr class="odd">
<td class="firstcol">Overtime</td>
<td>15725</td>
<td>15940</td>
<td>19275</td>
<td>-1.35</td>
<td>-18.42</td>
<td>19147</td>
<td>19753</td>
<td>19805</td>
</tr>
<tr class="odd">
<td class="firstcol">Total=Contractual
Wages&nbsp;</td>
<td>263576</td>
<td>260391</td>
<td>270712</td>
<td>1.22</td>
<td>-2.64</td>
<td>270515</td>
<td>2695B02</td>
<td>272614</td>
</tr>
<tr class="odd">
<td class="firstcol">Bonuses</td>
<td>167044</td>
<td>7928</td>
<td>197226</td>
<td>n.m.</td>
<td>-15.30</td>
<td>60538</td>
<td>60396</td>
<td>62844</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Cash Wages</td>
<td>430620</td>
<td>268319</td>
<td>467938</td>
<td>n.m</td>
<td>-7.97</td>
<td>331053</td>
<td>329898</td>
<td>335438</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="9">Manufacturing</td>
</tr>
<tr class="odd">
<td class="firstcol">Schedule wages</td>
<td>267443</td>
<td>263356</td>
<td>269229</td>
<td>1.55</td>
<td>-0.66</td>
<td>267625</td>
<td>265482</td>
<td>271803</td>
</tr>
<tr class="odd">
<td class="firstcol">Overtime</td>
<td>19424</td>
<td>18351</td>
<td>31988</td>
<td>5.69</td>
<td>-39.28</td>
<td>30963</td>
<td>33025</td>
<td>34168</td>
</tr>
<tr class="odd">
<td class="firstcol">Total=Contractual
Wages&nbsp;</td>
<td>286867</td>
<td>281737</td>
<td>301217</td>
<td>1.82</td>
<td>-4.76</td>
<td>298588</td>
<td>298507</td>
<td>305972</td>
</tr>
<tr class="odd">
<td class="firstcol">Bonuses</td>
<td>155298</td>
<td>5836</td>
<td>209309</td>
<td>n.m.</td>
<td>-25.80</td>
<td>75644</td>
<td>75664</td>
<td>59515</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Cash Wages</td>
<td>442165</td>
<td>287573</td>
<td>510526</td>
<td>n.m.</td>
<td>-13.39</td>
<td>374231</td>
<td>374171</td>
<td>385487</td>
</tr>
<tr>
<td colspan="9" class="firstcol">N.M.
presented in the table
is&nbsp; because of the distortions in the monthly data due to the
distribution of Bonuses in mid and end years, the month to month data
for bonuses and total cash wages are not meaningful</td>
</tr>
</tbody>
</table>
</body></html>

Cash earnings, including bonuses, for Japanese workers in all establishments of 5 or more persons were 430,620 Yen (approximately $4,500) in June, 8% below a year ago. The sharp decline was due to lower bonuses and less overtime pay. [...]

Japanese Wages Continue To Decline In June

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803d.jpg" align="left" border="0" height="265" width="353">
The FACT: German ex-auto retail sales fell
sharply in June, the second sharp drop in a row after posting a strong
gain in April. 
 

THE REVERSAL: After a terrible January
German non-auto retail sales have been on a nice strong recovery path
as sales cut their decline of over 1% (m/m) in January to drop of -0.2%
in February then rose in March and rose strongly in April by 1.8%. That
was before this new episode in which they have posted back to back
large drops in May and in June. 
 

THE IMPACT: Despite the disappointing
numbers in the last two months, earlier increases will hold retail
sales ex-autos flat in real terms; the nominal numbers will rise by
1.7% at an annual rate in Q2. 
 

THE PARADOX: The retail sales report was a
bitter one for June and it comes in a day that Europe-wide and German
MFG PMI results we better-than-expected. The EMU report registered its
second highest month-to-month gain in its relatively modest history-
still an impressive jump. The German MFG reading rose to 45.7 on its
largest point gain ever, reaching a ten-month high, although still
indicating a declining state. All of that is impressive. 
 

THE UPSHOT: So the day&#8217;s reports are mixed.
In Europe and in Germany manufacturing is making a strong step toward
recovery. Still, the level of the reading tells us that the strong
month-to-month improvement leaves industry output contracting. The
retailing sector that had begun to look like it was in a state of
repair is now looking much worse. While the quarter will not end too
badly for German retail sales that is because of past strength. The
recent collapse in retail sales should be a warning to policymakers
about complacency &#8211; even in the face of a manufacturing turnaround that
is in progress. 
 

THE FUTURE: The new bout of retail weakness
puts retail sales in a deep hole from which to start off in 2009-Q3.
For example if German retail sales do not rise in July they will carry
a growth rate off the previous quarter of -6.4% at annual rate in Q3
over Q2. This is a big inherited weakness that is unlikely to spur any
increase in the output of consumer goods in Germany &#8211; setting aside the
auto sector where special incentives are having a positive impact. The
optimistic spin here is that all of consumer attention is going into
the auto incentives and that is leaving other retail behind. Things may
not be as weak as they seem by looking at non-auto retail sales alone.
That may be true, but that is only a matter of solace if attention and
spending in the non-auto sector turns up, because it is starting off Q3
in a really deep hole. The auto sales revival in Q2 will only make it
that much more difficult to get Q3 sales higher. In other words if the
auto incentives don&#8217;t stay in place and do not continue to have a
strong positive impact, German overall retail sales will become a heavy
negative weight on German GDP in Q3. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> German
Real and Nominal Retail
Sales
</th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp; Nominal</td>
<td>Jun-09</td>
<td>May-09</td>
<td>Apr-09</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Year Ago</td>
<td>Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.6%</td>
<td>-1.4%</td>
<td>1.8%</td>
<td>-4.7%</td>
<td>-3.9%</td>
<td>-2.2%</td>
<td>1.6%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="9">&nbsp;
Real</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.8%</td>
<td>-1.3%</td>
<td>1.4%</td>
<td>-6.9%</td>
<td>-5.5%</td>
<td>-1.9%</td>
<td>-1.7%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body></html>

The FACT: German ex-auto retail sales fell sharply in June, the second sharp drop in a row after posting a strong gain in April. THE REVERSAL: After a terrible January German non-auto retail sales have been on a nice strong recovery [...]

German Retail Sales Take A Dive - Without The Swan

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803e.jpg" width="353">
It&#39;s been a long time coming, but a bottoming of the two-year decline in construction outlays arrived in 2008. During June, the value of overall construction put-in-place ticked up 0.3% after a little-revised 0.8% May slip, and the latest beat expectations for a 0.5% decline. More to the point, however, was that outlays through June versus January fell just 2.1% (AR) versus the 9.9% three-month rate of decline through January.
Private nonresidential building outlays continued to support overall construction activity. Though the monthly increases so far this year have been small, the gains versus January lead to an 8.6% annual rate of growth and that reverses the decline through the beginning of this year.Spending in virtually all sectors has turned positive, notably in the education, health care and transportation areas. The rate of decline in office construction also has moderated but still is quite negative.
The best that can be pointed out about residential building activity is that there was a 0.5% uptick in June, but that only lessened the negative growth rate this year to -25.9%, half that at its worst. Single-family home construction is down by nearly half from its January level while multi-family construction fell the same 7% it did did in May (-33.1% y/y).Spending on improvements reversed all of a 1.2% May decline and have risen at a 12.3% annual rate since January.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803f.jpg" width="353">
Public construction activity was firm again during June and the 1.0% gain lifted spending since January at quite-strong 17.9% rate since January. The increase has been led by strong gains in the heath care (24.0% y/y), educational (4.6% y/y) and transportation (+1.0% y/y) areas.
The construction put-in-place figures 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">Construction (%)</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">Total</td>
<td>0.3</td>
<td>-0.8</td>
<td>-10.2</td>
<td>-6.9</td>
<td>-1.6</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.1</td>
<td>-1.4</td>
<td>-16.3</td>
<td>-11.1</td>
<td>-5.7</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>0.5</td>
<td>-3.1</td>
<td>-30.0</td>
<td>-29.1</td>
<td>-19.7</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.5</td>
<td>-0.4</td>
<td>-4.8</td>
<td>13.2</td>
<td>23.1</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>1.0</td>
<td>0.4</td>
<td>5.1</td>
<td>5.6</td>
<td>13.1</td>
<td>9.3</td>
</tr>
</tbody>
</table>
</body>
</html>

It's been a long time coming, but a bottoming of the two-year decline in construction outlays arrived in 2008. During June, the value of overall construction put-in-place ticked up 0.3% after a little-revised 0.8% May slip, and the [...]

Bottoming Of U.S. Construction Spending Evident For A Fifth Month

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803a.jpg" align="right" border="0" height="265" width="353">Though
overall activity declined again last month, the recession in the
factory sector continued to moderate, according to The National
Association of Purchasing Management. Its July composite index rose to
48.9 from an unrevised June reading of 44.8 and reached it's highest
level since August of last year. The August figure was up from the low
of 32.9 hit last December. (Any reading below the break-even point of
50 suggests declining activity.) The July figure about matched
Consensus expectations. The ISM data is available in Haver's USECON
database. Improvement in the components of the overall
June ISM index again was broad-based. The production component surged
to 57.9, up from the low of 26.3 in December, and was at its highest
since June of 2007. During the last ten years there has been an 84%
correlation between the level of the production component of the
composite index and the three-month growth in factory sector industrial
production. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803b.jpg" align="right" border="0" height="265" width="353">
It is appropriate to correlate the ISM index level
with factory sector output growth because the ISM
index is a diffusion index. It measures growth by using all of the
positive changes in activity added to one half of the zero change in
activity measures.· The new orders figure also jumped sharply
to the highest level in nearly two years. At 55.3 it was up from the
December low of 23.1. Suggesting some stabilization in the recessions
abroad was a modest rise in the export order index to 50.5 versus the
December low of 35.5. During the last ten years there has been a 53%
correlation between the index and the q/q change in real exports of
goods in the GDP accounts. Factory sector improvement also was
indicated by a rise in the employment index. The jump to 45.6 was to
its highest level since last August and that was up from the February
low of 26.1. During the last ten years there has been a 90% correlation
between the index level and the three-month change in manufacturing
payrolls.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803c.jpg" align="right" border="0" height="265" width="353">
The rate of inventory destocking picked finally may have
stabilized as indicated by a modest rise in the inventory index to
33.5. It still was near the lowest level since 1982. That improvement
brought with it another decline in the speed of supplier deliveries. At
52.0, the vendor performance index rose for the fourth consecutive
month to its highest level in one year. The separate index of prices
paid again rose with improved factory sector activity levels. At 55.0,
the reading above the break-even level of 50 was its highest since last
August and it's up from the December low of 18.0. During the last
twenty years there has been a 79% correlation between the price index
and the three-month change in the PPI for intermediate goods. 
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>.&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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">June '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>48.9</td>
<td>44.8</td>
<td>49.5</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>55.3</td>
<td>49.2</td>
<td>44.9</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>45.6</td>
<td>40.7</td>
<td>51.0</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>55.0</td>
<td>50.0</td>
<td>88.5</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
</body></html>

Though overall activity declined again last month, the recession in the factory sector continued to moderate, according to The National Association of Purchasing Management. Its July composite index rose to 48.9 from an unrevised June [...]

ISM Factory Sector Index Reaches Its Highest Level In Nearly One Year

ISM Factory Sector Index ReachesIts Highest Level In Nearly One Year

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731e.jpg" width="353">
Employment compensation remained sluggish in Q2, although it picked up slightly. The total employment cost index rose 0.4%, following Q1&#39;s 0.3% and also a bit better than expectations for 0.3%. However, the improvement came in state and local government workers, who saw a 1.0% rise compared with 0.8% in Q1; private industry workers&#39; compensation had a second consecutive record-small 0.2% increase. On a year-to-year basis, the total slower more, with a rise of just 1.8% from 2.1% in Q1.
Wage and salary growth also ticked up from 0.3% in Q1 to 0.4% in Q2. As with total compensation, the &quot;gain&quot; occurred among state and local governments, which went from 0.7% to 1.0%. Private sector workers got a slim 0.2% raise, the same as the quarter before.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731f.jpg" width="353">
These gains for state and local governments are interesting. Both major categories had a marked acceleration in wages. Public administration went from 0.8% in Q1 to 1.2% in Q2, and education and health services from 0.5% to 0.9%. The public administration number is the strongest since Q4 2006, while education and health is marginally more than the recent trends. In light of recent budget pressures in that sector, these labor cost increases would seem to be unsustainable.
Total benefit costs for all civilian workers slowed to a 0.3% increase in Q2 from 0.5% in Q1. This produced a 1.8% year-to-year increase; it is the lowest since mid-1997, but not worse than that period. The associated non-published information on health benefit costs showed a 4.4% rise in the latest 12 months, about in line with the trends of the last two or three years.
The employment cost index figures are available in Haver&#39;s USECON database.

<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/@EB/@EB08/@EB08.HTM">ECI - Private Industry Workers</a> (%)</th>
<th scope="col">2Q &#39;09</th>
<th scope="col">1Q &#39;09</th>
<th scope="col">4Q &#39;08</th>
<th scope="col">2Q 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">Compensation</td>
<td>0.2</td>
<td>0.2</td>
<td>0.5</td>
<td>1.5</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.2</td>
<td>0.2</td>
<td>0.5</td>
<td>1.5</td>
<td>3.0</td>
<td>3.4</td>
<td>&nbsp;2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.2</td>
<td>0.2</td>
<td>0.4</td>
<td>1.3</td>
<td>2.6</td>
<td>2.4</td>
<td>2.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Employment compensation remained sluggish in Q2, although it picked up slightly. The total employment cost index rose 0.4%, following Q1's 0.3% and also a bit better than expectations for 0.3%. However, the improvement came in state [...]

U.S. Employment Cost Index Remains Weak, But State & Local Government Workers See Some Pickup

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731d.jpg" align="left" border="0">
Inflation remains under control in the EMU region in July.
Despite ECB concerns about inflation and German and other concerns
about the degree of stimulus money supply growth remains very tepid in
the EMU region and inflation continues to drop. In July the FLASH HICP
(a figure for which there are no details available) fell by 0.2%.
Overall inflation on this measure is a negative 0.6% over 12-months and
is running at a pace of zero over three months. 
 

HICP inflation has fallen in two of the last three months in
Germany. German inflation is down by 0.7% over 12-months. Inflation
even fell in Italy in July and prices in Italy are falling over
12-months as well. 
 

On balance the news from Europe is quite good on the inflation
front. Japan also reported out a decline in CPI prices. For Japan it
was June inflation falling by 1.7% Yr/Yr. 
 

Growth: both sides of the pond 
The US GDP report reverberated with signs that the slowdown is abating
as US exports cut the rate of descent and most US GDP components cut
their rate of descent as well. US GDP dropped at just a 1% annual rate,
making positive growth in Q3 a real possibility. The fact that nearly
all GDP components in the US cut their pace of decline is a good sign.
The fact that inflation remains under control throughout the global
economy is another good sign. The data from the EU Commission yesterday
reminded us that although &#8216;things&#8217; are improving the diffusion readings
on growth by sector show that that contraction is overwhelmingly the
name of the game across Europe. The US alone looks poised to break the
growth barrier any minute. 
 

Growth, inflation and central banks 
Today is a day when we are getting some of the news we have been
waiting on for a long time. It is still not clear how much of an
inflation threat we have when the US economy turns around. For now the
growth turnaround appears to be nearly at hand. Inflation appears to
still be well under wraps. It seems that the world&#8217;s central banks are
in a good a position to look at what they have done and to make the
needed adjustments without creating one sort of chaos or another. But
you never can tell until they have done something. The one fly in the
ointment is the still large external imbalances and the behavior of
exchange rates. Everyone seems to want a weak currency and
mathematically it just is not possible. This will be the market to keep
close watch on as things begin to improve. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="8" scope="col" class="firstcol">Trends
in EMU HICP; Flash Index</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="even">
<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="odd">
<td class="firstcol">EMU-13</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.0%</td>
<td>1.0%</td>
<td>0.9%</td>
<td>1.3%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.8%</td>
<td>1.1%</td>
<td>-1.5%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>1.2%</td>
<td>1.9%</td>
<td>2.5%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.4%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<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="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>1.0%</td>
<td>-0.5%</td>
<td>-1.0%</td>
<td>5.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Core excl FE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>#N/A</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>1.2%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.9%</td>
<td>1.6%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>3.4%</td>
</tr>
<tr>
<td colspan="4">Blue shaded area data trail by one
month</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

Inflation remains under control in the EMU region in July. Despite ECB concerns about inflation and German and other concerns about the degree of stimulus money supply growth remains very tepid in the EMU region and inflation [...]

EMU Inflation Rate Moves Lower

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

260116R23.jpg

260116S23.jpg

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

260116E.jpg

The European Monetary Union has concluded a year of weak-to-moderate growth with inflation largely toeing the line. As always, the inflation picture is more complicated than a simple statement. When we look at inflation, we look at the headline, we look at the core, to make sure that the volatile food & energy elements aren't dominating the index, and then we look across some of the main participants to see if the trend for inflation is shared broadly across the largest countries in the Monetary Union. When we apply those kinds of standards, the grading for the year is reduced. However, based on the headline alone, it was an excellent year for the ECB.

**Headline Inflation in 2025**
Headline inflation in 2025 rose by 2%, exactly on the target of the European Central Bank. It rose over six months at a 2% annual rate and then concluded the year over the last three months, rising at a 1.6% annual rate with some margin below the target set by the central bank itself.

**Country Headline Inflation Trends**
On a country basis, the performance is not nearly as good. While year-on-year results look pretty good, with Germany at 2%, France at 0.7% and Italy at 1.3%, Spain comes in at 3.1%. So the three largest monetary union economies come in at or below 2% with Spain as a rogue observation. When we look further at the sequence of inflation within the year, we see Germany at 2% over 12 months, rising to 3.1% over 6 months, rising further to 4% over 3 months. Inflation is accelerating at the end of the year even as Germany hits the target! This is something to keep an eye on. For France, the inflation rate also accelerates slightly but stays below the bar of 2% over three months, six months, and 12 months. For Italy, inflation is decelerating from 1.3% over 12 months to -0.3% over six months, and then inflation in Italy is contracting at a 1.9% annual rate over three months. Spanish inflation shows clear trouble with a 3.1% 12-month pace, rising to 4.6% at an annual rate over six months, and rising further to 5.9% at an annual rate over three months.

**Core Inflation**
For core inflation, the Monetary Union’s consolidated numbers are not yet compiled. However, for the four largest economies, we do have core or ex-energy inflation. For Germany, it's inflation excluding energy. On that basis, German inflation is 2.2% over 12 months, it rises to 2.7% over six months, then falls back to a 2% annual pace over three months All-in-all not a bad performance. For France, core inflation is below 2% over 12 months, six months, and three months. In Italy, once again, we see inflation decelerating: Italian inflation is 2% over 12 months - right on the ECB target. It falls to a 1.3% annual rate over six months and then falls further to a 0.3% annual rate over three months. For Spain, the core has another very difficult story for the Monetary Union. Inflation is 2.7% over 12 months, it rises to 3.1% over six months and stays at an annual rate of about 3% over three months. This is too high and it looks stubborn, particularly because it is the core.

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**Across the Big Four**
On balance, what we see is that the ECB grades-out well, based on headline inflation and based on its sequential performance for the European economic union as a whole. But large countries, show headline inflation building some steam particularly in the largest economy, Germany, and in Spain, the smallest of the BIG-4 economies. Inflation is once again mixed in the Monetary Union with German and Spanish inflation too high and with French and Italian inflation running either at or below the 2% mark and with Italy showing a tendency towards weaker prices for both the headline and the core. The change in prices over these various periods shows inflation gets the most help from oil prices over 12 months where Brent, measured in euros, falls by 22.6%; over six months Brent prices fall by 37% at an annual rate; and over three months Brent oil prices are unchanged, so that the headline isn't getting help at all from oil prices except through lagged effects.

**Summing Up**
Meanwhile, there are some signs of stronger growth taking root in Europe, especially in Germany with better industrial production being logged and with German industrial production looking significantly stronger than the PMI data, suggesting that perhaps PMI data are missing something about the rebound that is developing. Nonetheless, it was a good year for inflation and the ECB; however, it doesn't exactly end the year in the catbird’s seat. On the other hand, it does not end the year behind the curve. There are scattered pressures and needs among member countries which always makes monetary policy difficult. When some countries need higher interest rates and others need lower interest rates, the ECB is in a difficult spot. Clearly, Spain and Germany are experiencing different phenomenon than France and Italy. That could be the policy challenge for the year ahead.

Europe

Big Four Inflation in EMU 2025-Final

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Between Optimism and Uncertainty

Michael J. Moran

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

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

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

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

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

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

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

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

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

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

Import & Export Prices: Generally Modest Changes

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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.