Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090805h.jpg" width="353">
An easing rate of inventory decumulation is now playing a part in improving the level of factory sector output. During June, factory sector inventories fell 0.8%, the same as they did in May and that compares with 1.0%+ declines extending back to December. During the last three months the 10.5% annualized rate of inventory decumulation was down from 15.9% this past Winter. Much of that deceleration is due, however, to lower oil prices. Excluding oil, factory inventories fell at a 12.4% three-month rate that was just a slight moderation from earlier.
In fact, moderation in inventory decumulation rates is fairly spotty amongst various industries. Showing very modest accumulation were inventories of transportation equipment after declining at a three-month rate of 9.3% as recently as March. In addition, inventories of electrical equipment &amp; appliances have fallen at a slightly reduced 19.3% rate and machinery inventories fell at a somewhat reduced 14.8% rate. Conversely, steep production cuts lowered furniture inventories at a 28.6% rate which near its quickest. Inventories of primary metals also fell at a fairly stable 32.4% pace and computer inventory decumulation accelerated to a 15.1% rate during the last three months. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090805i.jpg" width="353">
The reason for the modest improvement in inventory destocking has been an improved shipment picture. Factory shipments actually rose 1.4% during June and that was the first monthly increase in nearly one year. Increases in the transportation area and in the machinery industries accounted for much of the gain. Most elsewhere the rates of decline in shipments moderated substantially.
Finally, new orders have improved. The 0.4% June increase was the fourth in the last five months. It reflected a sharp monthly rise both in primary metals (-46.5% y/y) and machinery (-26.0% y/y) orders as well as a slight increase in electrical equipment (-30.8% y/y) orders. Bookings of transportation equipment and furniture continued to fall.
The Manufacturers&#39; Shipments, Inventories and Orders (MSIO) data is available in Haver&#39;s USECON database.
The international dimension of productivity and demand shocks in the U.S. economy from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/papers/2009/wp09-09bk.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS, %)</th>
<th scope="col">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">Inventories</td>
<td>-0.8</td>
<td>-0.8</td>
<td>-8.5</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.0</td>
<td>-0.9</td>
<td>-11.4</td>
<td>-0.6</td>
<td>2.7</td>
<td>7.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders</td>
<td>0.4</td>
<td>11.1</td>
<td>-24.1</td>
<td>0.1</td>
<td>1.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>2.3</td>
<td>0.9</td>
<td>-22.6</td>
<td>3.1</td>
<td>1.2</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.4</td>
<td>-0.8</td>
<td>-21.4</td>
<td>1.7</td>
<td>1.2</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>1.4</td>
<td>-0.0</td>
<td>-21.6</td>
<td>3.7</td>
<td>1.5</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Unfilled Orders</td>
<td>-0.9</td>
<td>-0.3</td>
<td>-9.5</td>
<td>3.5</td>
<td>17.1</td>
<td>15.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Transportation</td>
<td>-0.1</td>
<td>-0.7</td>
<td>-14.0</td>
<td>-1.0</td>
<td>8.2</td>
<td>16.0</td>
</tr>
</tbody>
</table>
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An easing rate of inventory decumulation is now playing a part in improving the level of factory sector output. During June, factory sector inventories fell 0.8%, the same as they did in May and that compares with 1.0%+ declines [...]

U.S. Factory Inventory Decumulation Eases Somewhat

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090805g.jpg" width="353">
The outplacement firm of Challenger, Grey &amp; Christmas indicated that job cut announcements picked up last month. They rose to 97,373 versus the 74,373 jobs lost during June. Nevertheless, the figures remain well below this cycle&#39;s peak level of layoffs which occurred this past January when there were 241,749 cuts. Challenger also reported that announced hiring plans remained near the cycle low.
Announcement of job cuts in the chemical, energy, telecommunications, transportation and financial sectors remained strong. Shallower declines elsewhere were broad-based including the auto, consumer goods, computer, electronics, government, retail and services.
During the last ten years there has been a 67% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment. Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
The Challenger figures are available in Haver&#39;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">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">Announced Job Cuts</td>
<td>97,373</td>
<td>74,373</td>
<td>-9.0%</td>
<td>1,223,993</td>
<td>768,264</td>
<td>839,822</td>
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</tbody>
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The outplacement firm of Challenger, Grey & Christmas indicated that job cut announcements picked up last month. They rose to 97,373 versus the 74,373 jobs lost during June. Nevertheless, the figures remain well below this cycle's [...]

Challenger Layoffs Pick Up Slightly Last Month But Remain Moderate

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090805e.jpg" width="353">
The recent sharp improvement in service sector activity stalled last month, but not by much. The Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) slipped to 46.4 from an unrevised reading of 47.0 during June. Though below the break-even level of 50, the latest figure still was near the highest level since September of last year. It fell short of Consensus expectations for a reading of 48.0. A level of the ISM index below 50 indicates declining activity. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the business activity index in the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.
ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997.
The July decline in the overall index was broad-based amongst the component series. The employment index slipped to 41.5 but that still was near the highest level since October. Thirteen percent of firms reported higher employment levels while 26% reported lower levels. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090805f.jpg" width="353">
The overall business activity index for the service sector also fell to 46.1, but remained near its highest level since September. And slipping just slightly to 48.1 was the new orders series, though it remained well above last November&#39;s low of 35.6. Perhaps suggesting that the level of slack in the service sector has diminished, the supplier delivery index rose to the highest level since January.
The decline in service sector activity brought with it an easing of price pressure. The sharp 12.4 point m/m decline in the price index to 41.3 returned it to the lowest level since April. It was the sharpest one-month decline since last November. A much reduced 13% of firms reported higher prices while a significantly increased 28% reported lower prices. Since its inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
Beginning with the January 2008 Nonmanufacturing <cite>Report On Business</cite>&reg;, the composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indices of four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;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>46.4</td>
<td>47.0</td>
<td>49.6</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Business Activity</td>
<td>46.1</td>
<td>49.8</td>
<td>50.1</td>
<td>47.4</td>
<td>56.0</td>
<td>58.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>41.5</td>
<td>43.4</td>
<td>46.8</td>
<td>43.8</td>
<td>52.0</td>
<td>53.8</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>41.3</td>
<td>53.7</td>
<td>78.8</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
</table>


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The recent sharp improvement in service sector activity stalled last month, but not by much. The Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) slipped to 46.4 from an unrevised reading [...]

U.S. ISM Nonmanufacturing Index Backpedals Slightly And Prices Fall Sharply

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090805d.jpg" align="left" border="0">
Sales fall -Retail sales fell in the Zone
in June. While the growth rat of sales is not decaying further, retail
sales volumes have been dropping at a pace of -2.5% to -2.2% over the
past twelve months. The year-over-year pace for retail sales seems to
have finally stopped falling, based on the trend in the chart above. 
 

The Good and Ugly of it all - Europe has
not suffered the same sort of spurt in the rate of unemployment that we
have in the US. But its level of unemployment remains high and it has
become even more elevated than it was. Consumer confidence has been hit
and consumers, even though better supported in Europe than in the US by
government programs, have cut back spending. Various programs in Europe
to spur auto sales have been successful as the auto registration data
show. So even as retail sales volumes shrink there is a bright spot in
the retail sector even if it is one aided by government actions. It is
always good to see that when given an incentive the consumer can and
does respond &#8211; that is not always the case. 
 

Underlying trends are improving - The PMI
index from Markit on the service sector shows some improvement in the
service sector but not much. Services has improved to a reading of
44.82 in may then they slipped to 44.65 in June and in July they have
risen to 45.69. German showed a rather sharp rise in July along with
Italy while France has back-slipped in July along with Spain. The UK,
an EU member not an EMU member, has just posted its third reading in a
row above 50 for services and is the only large EU country showing
service sector expansion. 
 

 Trends that matter are more favorable -
Since most of the jobs are in services and since jobs determine
spending we can be encouraged about prospects for retail sales progress
from these developments. Retail sales remain the back bone of GDP
growth. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">Euro Area Retail Sales Volume </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M</td>
<td colspan="3">Saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</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>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area Total</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-2.2%</td>
<td>-2.5%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food, Beverages, Tobacco</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>-1.8%</td>
<td>-2.1%</td>
<td>-2.1%</td>
</tr>
<tr class="even">
<td colspan="7">Registrations:</td>
</tr>
<tr class="odd">
<td class="firstcol">Motor Vehicle Registration</td>
<td>6.4%</td>
<td>2.3%</td>
<td>6.3%</td>
<td>79.6%</td>
<td>45.1%</td>
<td>10.6%</td>
</tr>
<tr class="even">
<td colspan="7" class="firstcol">Non-Food Country Detail:
Volume</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</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>
</tr>
<tr class="odd">
<td class="firstcol">UK(EU)</td>
<td>1.2%</td>
<td>-1.0%</td>
<td>0.8%</td>
<td>4.0%</td>
<td>1.3%</td>
<td>2.8%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">The EA 13 countries are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia</td>
</tr>
</tbody>
</table>
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Sales fall -Retail sales fell in the Zone in June. While the growth rat of sales is not decaying further, retail sales volumes have been dropping at a pace of -2.5% to -2.2% over the past twelve months. The year-over-year pace for [...]

EMU Retail and Auto Sales: the Good and the Ugly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090805a.jpg" align="left" border="0">
Deterioration in the U.S. labor market continued last month,
just not at the same rate as it had. The latest report from the payroll
processor ADP, in their National Employment Report, indicated that
private nonfarm payrolls fell 371,000 during July after a revised
463,000 June decline that was slightly shallower than reported
initially. The latest reading was the eighteenth consecutive monthly
decline, but the monthly change was the smallest since October of last
year and roughly half the worst this past March. The three-month
annualized rate of decline in payrolls also eased to 4.6% from its
March peak of 7.1%.
ADP compiled the estimate from its database of individual
companies' payroll information. Macroeconomic Advisers, LLC, the St.
Louis economic consulting firm, developed the methodology for
transforming the raw data into an economic indicator.



The U.S. Bureau of Labor Statistics will report July
payroll employment this Friday. For
comparison, June's 463,000 worker decline in ADP's measure of private
nonfarm payrolls was accompanied by 415,000 job losses in the BLS
measure of private sector payrolls.
According to ADP and Macro-Advisers, the correlation between the
monthly percentage change in the ADP estimate and that in the BLS data
is 0.90.

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090805b.jpg" align="right" border="0">
ADP reported that medium-sized payrolls remained in forefront
of July job loss. They fell another 159,000 (-5.8% y/y) followed by a
138,000 (-4.4% y/y) worker decline in small-sized payrolls. Large
payrolls fell by 74,000 (-5.7% y/y). In a switch from the prior
pattern, the steady decline in service producing industry employment
outpaced that in the goods sector. The 202,000 (-3.3% y/y) drop was the
sixteenth consecutive monthly decline and in percentage terms roughly
equaled the prior three months. These recent declines are, however,
roughly half the worst from December through March. Medium-sized
service payrolls fell 86,000 (-3.7% y/y) and small-sized payrolls
dropped 80,000 (-2.9% y/y). Large service producing payrolls dropped by
36,000 (-3.5% y/y).


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090805c.jpg" align="right" border="0">
In the goods producing sector there were 169,000 fewer jobs in
July (-13.1% y/y). Here, the three-month rate of change eased to a
still hefty -13.1% from -17.1% at its worst. Details show that
medium-sized payrolls fell 73,000 (-13.7% y/y) followed by a 58,000
(-12.5% y/y) shortfall in small-sized payrolls. Large payrolls fell
38,000 (-13.1% y/y). In the manufacturing sector alone, payrolls fell
99,000 (-12.8% y/y).


The ADP National Employment Report data is maintained in
Haver's 
USECON database;
historical figures date back to December 2000. The figures in this
report cover only private sector jobs and exclude employment in the
public sector, which rose an average 11,083 during the last twelve
months.
<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/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</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 class="odd">
<td class="firstcol">Total Nonfarm Private Payroll
Employment (m/m Chg., 000s)</td>
<td>-371</td>
<td>-463</td>
<td>-5.2%</td>
<td>-0.5%</td>
<td>1.2%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Small
Payroll (1-49)</td>
<td>-138</td>
<td>-169</td>
<td>-4.4</td>
<td>-0.0</td>
<td>1.6</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Medium
Payroll (50-499)</td>
<td>-159</td>
<td>-203</td>
<td>-5.8</td>
<td>-0.5</td>
<td>1.2</td>
<td>1.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Large
Payroll (&gt;500)</td>
<td>-74</td>
<td>-91</td>
<td>-5.7</td>
<td>-1.6</td>
<td>-0.1</td>
<td>0.4</td>
</tr>
</tbody>
</table>
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Deterioration in the U.S. labor market continued last month, just not at the same rate as it had. The latest report from the payroll processor ADP, in their National Employment Report, indicated that private nonfarm payrolls fell [...]

ADP Report: Rate Of Job Loss Smallest Since October

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090804i.jpg" align="right" border="0" height="265" width="353">
The official policy interest rates in both Australia and New
Zealand have been unchanged since May of this year--Australia at 3% and
New Zealand at 2.5%, as can be seen in the first chart. In recent news
releases, Glenn Stevens, the Governor of the Bank of Australia, hinted
that the next move might be an increase while Alan Bollard,<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090804j.jpg" align="right" border="0" height="265" width="353">
Governor of
the Bank of New Zealand would not rule out further reductions.
Typical of the cross currents affecting these economies are
today's updates of the Haver data bases for the two countries. In
Australia, retail sales were down slightly in June, but on a quarterly
basis, the second quarter was 2% above the first quarter and almost 8%
above the second quarter of 2008. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090804k.jpg" align="right" border="0" height="265" width="353">
An index of house prices of
established homes in eight capital cities increased 4.2% in the second
quarter from the first quarter of this year and was only 1.4% below the
value of the index in the second quarter of 2008. The quarter to
quarter changes in retail sales and house prices are shown in the
second chart.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090804l.jpg" align="right" border="0" height="265" width="353">
In New Zealand wages and salaries are still rising, both for
ordinary hours and for overtime, but the rate of increase has declined
in the past few quarters, as shown in the third chart. Employment
continues to decline and was 0.75% lower in the second quarter than in
the first quarter and more than 3% lower than the second quarter of
2008. Part Time and Full Time employment trends are shown in the fourth
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">&nbsp;</th>
<th scope="col">Q2 09</th>
<th scope="col">Q1&nbsp; 09</th>
<th scope="col">Q2 08</th>
<th scope="col">Q/Q %&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 colspan="9" class="firstcol"> AUSTRALIA</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales (Millions A$)</td>
<td>58,615</td>
<td>57,426</td>
<td>54,406</td>
<td>2.07</td>
<td>7.67</td>
<td>219,968</td>
<td>211,255</td>
<td>195.254</td>
</tr>
<tr class="odd">
<td class="firstcol">House Price Index
(Q2,2003-Q2,2004=100)</td>
<td>128.1</td>
<td>122.9</td>
<td>129.4</td>
<td>4.23</td>
<td>-1.39</td>
<td>128.0</td>
<td>122.7</td>
<td>110.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td colspan="9" class="firstcol">NEW ZEALAND</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (000)</td>
<td>1355</td>
<td>1365</td>
<td>1400</td>
<td>-0.75</td>
<td>-3.19</td>
<td>1392</td>
<td>1370</td>
<td>1338</td>
</tr>
<tr class="odd">
<td class="firstcol">Wages Ordinary Time (Q2
2001=1000)</td>
<td>1244</td>
<td>1240</td>
<td>1209</td>
<td>0.32</td>
<td>2.89</td>
<td>1216</td>
<td>1174</td>
<td>1138</td>
</tr>
<tr class="odd">
<td class="firstcol">Wages Over Time (Q2 2001=1000)</td>
<td>1268</td>
<td>1262</td>
<td>1225</td>
<td>0.48</td>
<td>3.51</td>
<td>1233</td>
<td>1192</td>
<td>1150</td>
</tr>
</tbody>
</table>
</body></html>

The official policy interest rates in both Australia and New Zealand have been unchanged since May of this year--Australia at 3% and New Zealand at 2.5%, as can be seen in the first chart. In recent news releases, Glenn Stevens, the [...]

Mixed Signals From Down Under

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<html><head>
<style>
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background-color:#edf5ff;
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.even{
background-color:#dde5ef;
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background-color:#f0f0f0;
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background-color:#e2e2e2;
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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090804h.jpg" align="left" border="0" height="265" width="353">
EMU producer prices (x-construction) ticked up in June but are
still falling at an accelerating pace Year-over-year. Sector prices are
weak and falling across the board on all horizons but the rate of
descent is not gathering momentum overall or by sector. In the end that
is the really good news. 
 

Germany shows prices falling over three-months at about the
same pace they are falling over six months, both of which are at a
faster pace of decline than year-over-year. But core German prices,
Italian prices and UK prices, in particular, are not showing any
continuing deceleration: declines yes, but decelerations, no. In the UK
PPI prices have started to rise. In Italy the down turn has abated and
there is one month in which the PPI headline rate has risen (June).
German trends are marked by still declining headline and core rates
even monthly, but the move down is not accelerating. 
 

In short inflation appears to be contained and deflation does
not seem to be in the cards on a sampling of big picture EMU sector
news and smattering of country-level reports. Lingering economic
weakness is probably having this extended impact in depressing prices. 
 
 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">Euro Area and UK PPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">Euro Area</td>
<td>Jun-09</td>
<td>May-09</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total excl Constructions</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-4.5%</td>
<td>-7.8%</td>
<td>-6.7%</td>
<td>7.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital Goods</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>-1.2%</td>
<td>-1.2%</td>
<td>0.3%</td>
<td>2.3%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer Goods</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>-3.6%</td>
<td>-2.3%</td>
<td>4.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Intermediate &amp; Capital
Goods</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>-5.2%</td>
<td>-9.4%</td>
<td>-6.4%</td>
<td>4.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>-5.0%</td>
<td>-7.4%</td>
<td>7.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Germany</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-9.4%</td>
<td>-9.8%</td>
<td>-3.3%</td>
<td>5.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Germany excl Energy</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td>-2.3%</td>
<td>-4.1%</td>
<td>-2.8%</td>
<td>2.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Italy</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>-2.9%</td>
<td>-6.6%</td>
<td>-7.2%</td>
<td>8.1%</td>
</tr>
<tr class="grey2">
<td class="firstcol">UK</td>
<td>1.1%</td>
<td>0.5%</td>
<td>1.5%</td>
<td>2.1%</td>
<td>-8.6%</td>
<td>24.1%</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">E-zone Harmonized PPI ex construction</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">The EA 13 countries are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia</td>
</tr>
</tbody>
</table>
</body></html>

EMU producer prices (x-construction) ticked up in June but are still falling at an accelerating pace Year-over-year. Sector prices are weak and falling across the board on all horizons but the rate of descent is not gathering momentum [...]

All Producer Prices in EMU Still Under Downward Pressure

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

260205Z1.jpg

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

260205Z2.jpg

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

260205Z3.jpg

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

260205Z4.jpg

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

260205Z5.jpg

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

260205Z6.jpg

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

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

260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

260205X15.jpg

260205Y15.jpg

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

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

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

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

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

260205C15.jpg

260205D15.jpg

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

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

Sandy Batten

260205A2.jpg

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

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

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

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

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

U.S. Initial Unemployment Claims Surged in Latest Week

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

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

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

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

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

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

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

Economy in Brief

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