Carol Stone, CBE

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090724d.jpg" align="left" border="0" height="265" width="353">
UK forecasters were looking for Q2 GDP to be down 0.3% from
Q1, so they were surprised today at the -0.8% preliminary estimate
published by ONS. Press reports emphasize the magnitude of the overall
decline, 5.6% year-on-year, and 5.7% from the peak in Q1 2008. The
year-on-year figure is the weakest of comparable GDP performances in
the 54-year history of these quarterly series, and the peak-to-latest
is perhaps tied with the 1979-81 recession as the largest total
contraction in any recession.
Forecasters apparently put the most store in the manufacturing
sector, which is doing better. Output there is reported down just 0.3%
in the quarter, a marked improvement from the 5.5% during Q1. Within
the monthly data, March was actually higher by 0.2% and April held
steady with that before a renewed decline in May, 0.5%, also reported
this morning. But that most cyclical sector seems to be on the verge of
turning around.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090724e.jpg" align="right" border="0" height="265" width="353">
However, some service industries and construction remain
feeble, even though they declined less that in prior recent periods.
Construction had been down 5.0% and 6.9% in Q4 and Q1, respectively, so
in one sense 2.2% in Q2 is "better". In an absolute sense, though,
that's still quite weak. Similarly, services contracted 0.6%, somewhat
less than 1.6% in Q1 and 1.0% in Q4. [All these growth rates are
period-to-period, not annualized].
Within services, business services and finance apparently had
the largest negative contribution, as they contracted 0.7%, with a
weight of more than 30% in the total. The biggest single decline in a
sector was 2.1% in transport, storage and communication, where activity
fell 2.1% in Q2, but the industry group has only a 7% weight.
In such a severe recession as there's been, it might not be
surprising that weakness has spilled more into services than we're used
to. Further, the recession's origin in the over-extended financial
sector suggests that it might well stay down longer than has been
customary.
All this said, the 0.8% decrease in Q2 GDP is still much
better than the prior two periods, and while the recession continues,
the stabilization of manufacturing may well be a sign that recovery is
developing.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="1" rowspan="2" scope="col" class="firstcol">% Changes (not
annualized), SA</th>
<th scope="col">2005 Weight</th>
<th scope="col" colspan="2">Q2 2009</th>
<th scope="col" colspan="2">Q1 2009</th>
<th scope="col" colspan="2">Q4 2008</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td></td>
<td> </td>
<td>Q/Q</td>
<td>Y/Y</td>
<td>Q/Q</td>
<td>Y/Y</td>
<td>Q/Q</td>
<td>Y/Y</td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>1000</td>
<td>-0.8</td>
<td>-5.6</td>
<td>-2.4</td>
<td>-4.9</td>
<td>-1.8</td>
<td>-1.8</td>
<td>0.7</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>133</td>
<td>-0.3</td>
<td>-12.6</td>
<td>-5.5</td>
<td>-13.8</td>
<td>-5.2</td>
<td>-8.2</td>
<td>-2.8</td>
<td>0.6</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>63</td>
<td>-2.2</td>
<td>-14.7</td>
<td>-6.9</td>
<td>-13.2</td>
<td>-5.0</td>
<td>-5.3</td>
<td>0.2</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>759</td>
<td>-0.6</td>
<td>-3.8</td>
<td>-1.6</td>
<td>-3.1</td>
<td>-1.0</td>
<td>-0.7</td>
<td>1.3</td>
<td>3.5</td>
</tr>
<tr>
<td class="firstcol">Business &amp;
Finance</td>
<td>304</td>
<td>-0.7</td>
<td>-4.4</td>
<td>-2.5</td>
<td>-3.4</td>
<td>-0.6</td>
<td>0.3</td>
<td>2.4</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">Transport, Storage
&amp;&nbsp; Communication</td>
<td>72</td>
<td>-2.1</td>
<td>-7.0</td>
<td>-3.0</td>
<td>-4.5</td>
<td>-1.4</td>
<td>0.5</td>
<td>2.0</td>
<td>3.5</td>
</tr>
</tbody>
</table>
</body></html>

UK forecasters were looking for Q2 GDP to be down 0.3% from Q1, so they were surprised today at the -0.8% preliminary estimate published by ONS. Press reports emphasize the magnitude of the overall decline, 5.6% year-on-year, and 5.7% [...]

UK GDP Surprises with 0.8% Fall in Q2

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090724a.jpg" align="left" border="0" height="265" width="353">Worries
about the prospects for the economy persisted late this month, but they
eased somewhat from earlier. The University of Michigan's full-month
reading of July consumer sentiment came in at 66.0 versus the mid-month
reading of 64.6. Despite the improvement, however, sentiment was at its
lowest level since May. Consensus expectations had been for a slightly
lower July reading of 65.0. During the last ten years, there has been a
72% correlation between the level of sentiment and the growth in real
consumer spending during the next five months.The expectations
component of the sentiment index deteriorated the most this month, but
less than the mid-month read. It posted an 8.7% m/m decline. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090724b.jpg" align="right" border="0" height="265" width="353">
That
nevertheless left the index up sharply y/y. Expectations for personal
finances fell m/m to the lowest level since March (+4.8% y/y). Expected
business conditions during the next year held steady at the June level
(+64.3% y/y) but expectations for conditions during the next five years
fell sharply (+12.3% y/y). Inflation expectations for the next year
slipped to 3.6% from 3.9% during June. That compares to a low of 1.7%
last December but remained down from a reading which was as high as
7.0% during May of last year. The highest expectations were for 5.3%
price inflation while the lowest were for 0.3%.

The
reading of current
economic conditions gave back roughly half of its improvement during
June. As at mid-month, the decline was led by a reversal of the June
rise in the index of current buying conditions for large household
goods. The reading of current personal finances rose for the second
month with higher stock market prices and reduced levels of personal
debt. It has returned to the April level.
The opinion of government
policy, which may eventually influence economic expectations, fell for
the second month to its lowest level since February. An increased 32%
of respondents thought that a poor job was being done by government
while a reduced 23% thought that a good job was being done.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090724c.jpg" align="left" border="0" height="265" width="353">The
University of Michigan survey data is not seasonally adjusted.
&nbsp;The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews.&nbsp; The summary indexes are in Haver's USECON
database with details in the proprietary UMSCA database.
Regulatory restructuring is today's House
testimony by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20090724a.htm">here</a>.
Macroeconomic Models for Monetary Policy: Conference
Summary from the Federal Reserve Bank of San Francisco is
available <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-23.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">July</th>
<th scope="col">Mid-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">Consumer Sentiment</td>
<td>66.0</td>
<td>64.6</td>
<td>70.8</td>
<td>68.7</td>
<td>5.8%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>70.5</td>
<td>70.4</td>
<td>73.2</td>
<td>67.7</td>
<td>-3.6</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>63.2</td>
<td>60.9</td>
<td>69.2</td>
<td>69.4</td>
<td>18.1</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>


</body></html>

Worries about the prospects for the economy persisted late this month, but they eased somewhat from earlier. The University of Michigan's full-month reading of July consumer sentiment came in at 66.0 versus the mid-month reading of [...]

Full-Month Michigan Consumer Sentiment Reading Eases

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090724a.jpg" align="left" border="0" height="265" width="353">Worries
about the prospects for the economy persisted late this month, but they
eased somewhat from earlier. The University of Michigan's full-month
reading of July consumer sentiment came in at 66.0 versus the mid-month
reading of 64.6. Despite the improvement, however, sentiment was at its
lowest level since May. Consensus expectations had been for a slightly
lower July reading of 65.0. During the last ten years, there has been a
72% correlation between the level of sentiment and the growth in real
consumer spending during the next five months.
The expectations
component of the sentiment index deteriorated the most this month, but
less than the mid-month read. It posted an 8.7% m/m decline. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090724b.jpg" align="right" border="0" height="265" width="353">
That
nevertheless left the index up sharply y/y. Expectations for personal
finances fell m/m to the lowest level since March (+4.8% y/y). Expected
business conditions during the next year held steady at the June level
(+64.3% y/y) but expectations for conditions during the next five years
fell sharply (+12.3% y/y). Inflation expectations for the next year
slipped to 3.6% from 3.9% during June. That compares to a low of 1.7%
last December but remained down from a reading which was as high as
7.0% during May of last year. The highest expectations were for 5.3%
price inflation while the lowest were for 0.3%.

The
reading of current
economic conditions gave back roughly half of its improvement during
June. As at mid-month, the decline was led by a reversal of the June
rise in the index of current buying conditions for large household
goods. The reading of current personal finances rose for the second
month with higher stock market prices and reduced levels of personal
debt. It has returned to the April level.
The opinion of government
policy, which may eventually influence economic expectations, fell for
the second month to its lowest level since February. An increased 32%
of respondents thought that a poor job was being done by government
while a reduced 23% thought that a good job was being done.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090724c.jpg" align="left" border="0" height="265" width="353">The
University of Michigan survey data is not seasonally adjusted.
&nbsp;The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews.&nbsp; The summary indexes are in Haver's USECON
database with details in the proprietary UMSCA database.
Regulatory restructuring is today's House
testimony by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20090724a.htm">here</a>.
Macroeconomic Models for Monetary Policy: Conference
Summary from the Federal Reserve Bank of San Francisco is
available <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-23.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">July</th>
<th scope="col">Mid-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">Consumer Sentiment</td>
<td>66.0</td>
<td>64.6</td>
<td>70.8</td>
<td>68.7</td>
<td>5.8%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>70.5</td>
<td>70.4</td>
<td>73.2</td>
<td>67.7</td>
<td>-3.6</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>63.2</td>
<td>60.9</td>
<td>69.2</td>
<td>69.4</td>
<td>18.1</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>


UK GDP Surprises with 0.8% Fall in
Q2 
by <a href="/comment/Stone.html">Carol
Stone</a> July 24, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090724d.jpg" align="left" border="0" height="265" width="353">
UK forecasters were looking for Q2 GDP to be down 0.3% from
Q1, so they were surprised today at the -0.8% preliminary estimate
published by ONS. Press reports emphasize the magnitude of the overall
decline, 5.6% year-on-year, and 5.7% from the peak in Q1 2008. The
year-on-year figure is the weakest of comparable GDP performances in
the 54-year history of these quarterly series, and the peak-to-latest
is perhaps tied with the 1979-81 recession as the largest total
contraction in any recession.
Forecasters apparently put the most store in the manufacturing
sector, which is doing better. Output there is reported down just 0.3%
in the quarter, a marked improvement from the 5.5% during Q1. Within
the monthly data, March was actually higher by 0.2% and April held
steady with that before a renewed decline in May, 0.5%, also reported
this morning. But that most cyclical sector seems to be on the verge of
turning around.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090724e.jpg" align="right" border="0" height="265" width="353">
However, some service industries and construction remain
feeble, even though they declined less that in prior recent periods.
Construction had been down 5.0% and 6.9% in Q4 and Q1, respectively, so
in one sense 2.2% in Q2 is "better". In an absolute sense, though,
that's still quite weak. Similarly, services contracted 0.6%, somewhat
less than 1.6% in Q1 and 1.0% in Q4. [All these growth rates are
period-to-period, not annualized].
Within services, business services and finance apparently had
the largest negative contribution, as they contracted 0.7%, with a
weight of more than 30% in the total. The biggest single decline in a
sector was 2.1% in transport, storage and communication, where activity
fell 2.1% in Q2, but the industry group has only a 7% weight.
In such a severe recession as there's been, it might not be
surprising that weakness has spilled more into services than we're used
to. Further, the recession's origin in the over-extended financial
sector suggests that it might well stay down longer than has been
customary.
All this said, the 0.8% decrease in Q2 GDP is still much
better than the prior two periods, and while the recession continues,
the stabilization of manufacturing may well be a sign that recovery is
developing.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="1" rowspan="2" scope="col" class="firstcol">% Changes (not
annualized), SA</th>
<th scope="col">2005 Weight</th>
<th scope="col" colspan="2">Q2 2009</th>
<th scope="col" colspan="2">Q1 2009</th>
<th scope="col" colspan="2">Q4 2008</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td></td>
<td> 
</td>
<td>Q/Q</td>
<td>Y/Y</td>
<td>Q/Q</td>
<td>Y/Y</td>
<td>Q/Q</td>
<td>Y/Y</td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>1000</td>
<td>-0.8</td>
<td>-5.6</td>
<td>-2.4</td>
<td>-4.9</td>
<td>-1.8</td>
<td>-1.8</td>
<td>0.7</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>133</td>
<td>-0.3</td>
<td>-12.6</td>
<td>-5.5</td>
<td>-13.8</td>
<td>-5.2</td>
<td>-8.2</td>
<td>-2.8</td>
<td>0.6</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>63</td>
<td>-2.2</td>
<td>-14.7</td>
<td>-6.9</td>
<td>-13.2</td>
<td>-5.0</td>
<td>-5.3</td>
<td>0.2</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>759</td>
<td>-0.6</td>
<td>-3.8</td>
<td>-1.6</td>
<td>-3.1</td>
<td>-1.0</td>
<td>-0.7</td>
<td>1.3</td>
<td>3.5</td>
</tr>
<tr>
<td class="firstcol">Business &amp;
Finance</td>
<td>304</td>
<td>-0.7</td>
<td>-4.4</td>
<td>-2.5</td>
<td>-3.4</td>
<td>-0.6</td>
<td>0.3</td>
<td>2.4</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">Transport, Storage
&amp;&nbsp; Communication</td>
<td>72</td>
<td>-2.1</td>
<td>-7.0</td>
<td>-3.0</td>
<td>-4.5</td>
<td>-1.4</td>
<td>0.5</td>
<td>2.0</td>
<td>3.5</td>
</tr>
</tbody>
</table>
</body></html>

Full-Month Michigan ConsumerSentiment Reading Eases

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090723a.jpg" width="353">
Positive growth in jobs may not have yet begun, but the rate of job loss has slowed. The Labor Department&#39;s report on employment insurance claims indicated a moderate, and expected, 30,000 increase in initial claims. The gain to 554,000 only reversed, however, a piece of the cumulative 106,000 drop during the prior three weeks. As a result, the latest level remained near the lowest since early January and it was off from the March peak of 674,000. The four-week average of claims, which smoothes out some of the volatility in the weekly numbers, fell to 566,000 which was its lowest level since late-January.
The latest initial claims figure covers the survey week for July nonfarm payrolls. There was a 58,000 (9.5%) drop from the June survey period. During the last ten years there has been and 86% correlation between the level of initial claims and the m/m change in nonfarm payrolls.
The Labor Department indicated that the largest increases in initial claims for the week ending July 11 were in New York (+12,504), North Carolina (+10,382), Florida (+10,043), Missouri (+8,293), and Tennessee (+6,943), while the largest decreases were in Michigan (-6,648), Massachusetts (-2,910), New Jersey (-2,888), Indiana (-2,497), and California (-1,755).
Confirming the labor market&#39;s improvement was an 88,000 drop in continuing claims for unemployment insurance which added to a revised 591,000 decline during the prior week. The latest figure was the lowest level since mid-April. The continuing claims figures lag initial claims by one week and provide an indication of workers&#39; ability to find employment. Despite the latest decline, however, the level of 6,225,000 claims was nearly double the year ago level. The four-week average of continuing claims fell back to 6,541,500 which was the lowest since mid-May. The series dates back to 1966.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090723b.jpg" width="353">
The insured rate of unemployment remained at 4.7% which was the lowest level since mid-April. During the last ten years, there has been a 93% correlation between the level of the insured unemployment rate and the overall rate of unemployment published by the Bureau of Labor Statistics.
The highest insured unemployment rates in the week ending July 4 were in Puerto Rico (6.9 percent), Michigan (6.8), Oregon (6.8), Pennsylvania (6.4), Nevada (6.2), Wisconsin (6.1), South Carolina (5.7), New Jersey (5.6), North Carolina (5.5), and Connecticut (5.4). The lowest rates were in Texas (3.0), Wyoming (3.0), Colorado (3.3), Maine (3.3), Maryland (3.7), Minnesota (4.1), Florida (4.2), Georgia (4.6) and Mississippi (4.5).
The unemployment insurance claims data is available in Haver&#39;s WEEKLY database and the state data is in the REGIONW database.
Trends in the Aggregate Labor Force from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/09/07/Matheny.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">07/18/09</th>
<th scope="col">07/11/09</th>
<th scope="col">07/04/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>554</td>
<td>524</td>
<td>569</td>
<td>34.1%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,225</td>
<td>6,313</td>
<td>96.7%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td></td>
<td>4.7</td>
<td>4.7</td>
<td>2.4</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Positive growth in jobs may not have yet begun, but the rate of job loss has slowed. The Labor Department's report on employment insurance claims indicated a moderate, and expected, 30,000 increase in initial claims. The gain to [...]

U.S. Claims For Jobless Insurance Tick Higher Last Week Yet Remain Off Peak

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090723a.jpg" align="left" border="0" height="265" width="353">
Positive growth in jobs may not have yet begun, but the rate
of job loss has slowed. The Labor Department's report on employment
insurance claims indicated a moderate, and expected, 30,000 increase in
initial claims. The gain to 554,000 only reversed, however, a piece of
the cumulative 106,000 drop during the prior three weeks. As a result,
the latest level remained near the lowest since early January and it
was off from the March peak of 674,000. The four-week average of
claims, which smoothes out some of the volatility in the weekly
numbers, fell to 566,000 which was its lowest level since late-January.
The latest initial claims figure covers the survey week for
July nonfarm payrolls. There was a 58,000 (9.5%) drop from the June
survey period. During the last ten years there has been and 86%
correlation between the level of initial claims and the m/m change in
nonfarm payrolls.
The Labor Department indicated that the largest increases in
initial claims for the week ending July 11 were in New York (+12,504),
North Carolina (+10,382), Florida (+10,043), Missouri (+8,293), and
Tennessee (+6,943), while the largest decreases were in Michigan
(-6,648), Massachusetts (-2,910), New Jersey (-2,888), Indiana
(-2,497), and California (-1,755).
Confirming the labor market's improvement was an 88,000 drop
in continuing claims for unemployment insurance which added to a
revised 591,000 decline during the prior week. The latest figure was
the lowest level since mid-April. The continuing claims figures lag
initial claims by one week and provide an indication of workers'
ability to find employment. Despite the latest decline, however, the
level of 6,225,000 claims was nearly double the year ago
level. The four-week average of continuing claims fell back
to 6,541,500 which was the lowest since mid-May. The series dates back
to 1966.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090723b.jpg" align="right" border="0" height="265" width="353">
The insured rate of unemployment remained at 4.7% which was
the lowest level since mid-April. During the last ten years, there has
been a 93% correlation between the level of the insured unemployment
rate and the overall rate of unemployment published by the Bureau of
Labor Statistics.
The highest insured unemployment rates in the week ending July
4 were in Puerto Rico (6.9 percent), Michigan (6.8), Oregon (6.8),
Pennsylvania (6.4), Nevada (6.2), Wisconsin (6.1), South Carolina
(5.7), New Jersey (5.6), North Carolina (5.5), and Connecticut (5.4).
The lowest rates were in Texas (3.0), Wyoming (3.0), Colorado (3.3),
Maine (3.3), Maryland (3.7), Minnesota (4.1), Florida (4.2), Georgia
(4.6) and Mississippi (4.5).
The unemployment insurance claims data is available in Haver's
WEEKLY database and the state data is in the REGIONW
database.
Trends in the Aggregate Labor Force from
the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/09/07/Matheny.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">07/18/09</th>
<th scope="col">07/11/09</th>
<th scope="col">07/04/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>554</td>
<td>524</td>
<td>569</td>
<td>34.1%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,225</td>
<td>6,313</td>
<td>96.7%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td></td>
<td>4.7</td>
<td>4.7</td>
<td>2.4</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
U.S. Existing Home Sales And
Prices Rise 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 23, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090723c.jpg" align="left" border="0" height="265" width="353">
The National Association of Realtors reported that sales of
existing homes rose 3.6% from May to the highest level since
last October. Recent sales have been helped by a tax credit for
first-time home buyers. The latest increase to 4.89M (AR) units beat
Consensus expectations for sales of 4.85M homes. Total sales include
sales of condos and co-ops. Sales of existing single-family homes alone
increased 2.4% last month and they were up 6.7% from the January low.
Despite the recent gains, however, sales remained near the lowest level
since July 1997. (These data have a longer history than the total sales
series).
The recently enacted tax credit is for first-time home buyers
of either a new or a pre-owned home. The credit of up to $8,000 extends
through the rest of this year. The full details of the home-buyer tax
credit can be found <a href="http://www.federalhousingtaxcredit.com/2009/faq.php">here</a>
<blockquote>

Home affordability fell somewhat from its record high to the
lowest level this year. The decline was the result of the second
consecutive, 4%+ m/m increase in home prices to a median $181,800.
Nevertheless, affordability remained up by one-third from the year ago
level as home prices remained down 20% from the 2007 peak. The series
dates back to 1971.
</blockquote>

The number of unsold homes (condos &amp; single-family) on
the market fell again, posting a 0.7% decline during June. Year-to-year
inventories are down 14.9%. At the current sales rate there was a 9.4
months' supply on the market which was near the lowest since late-2007.
For single-family homes the inventory was unchanged m/m (-17.9% y/y).
At the current sales rate there was an 8.9 month's supply of homes on
the market, near the lowest since 2007.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090723d.jpg" align="right" border="0" height="265" width="353">
The data on existing home sales, prices and affordability can
be found in Haver's USECON database. The regional
price, affordability and inventory data is available in the REALTOR
database.
What Do We Know (And Not Know) About Potential Output
from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/09/07/Basu.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Existing
Home Sales (Thous)</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>4,890</td>
<td>4,720</td>
<td>-0.2%</td>
<td>4,893</td>
<td>5,674</td>
<td>6,516</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>820</td>
<td>800</td>
<td>-4.7</td>
<td>845</td>
<td>1,010</td>
<td>1,093</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>1,100</td>
<td>1,090</td>
<td>-1.8</td>
<td>1,130</td>
<td>1,331</td>
<td>1,494</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>1,810</td>
<td>1,740</td>
<td>-3.7</td>
<td>1,860</td>
<td>2,243</td>
<td>2,577</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>1,160</td>
<td>1,090</td>
<td>11.5</td>
<td>1,064</td>
<td>1,095</td>
<td>1,357</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>4,320</td>
<td>4,220</td>
<td>0.2</td>
<td>4,341</td>
<td>4,960</td>
<td>5,712</td>
</tr>
<tr>
<td class="firstcol">Median Price, Total, $</td>
<td>181,800</td>
<td>174,700</td>
<td>-15.4</td>
<td>197,250</td>
<td>216,633</td>
<td>222,042</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Claims For Jobless InsuranceTick Higher Last Week Yet Remain Off Peak

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090722a.jpg">
In its latest report, the Mortgage Bankers Association indicated that mortgage applications overall increased 2.8% but that was the weakest increase in the last three weeks. As a result, applications remained near the lowest level since last November.
Earlier indications of improved home buying activity faded this month. Purchase applications rose just 1.3% last week after the 9.4% decline during the prior period. For the month so far applications are down slightly after the 3.2% increase during June. Nevertheless, since the early-February low purchase applications have risen 14% as new and existing home sales have recovered.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage. Moreover, during the last ten years there has been a 61% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Though it ticked up in the latest week or two, the interest in refinancing an existing mortgage remained quite low. Applications to refinance rose 4.0% after even stronger increases during the prior two weeks. Despite these gains, however, refinancings for July so far are down 5.6% from June and near the lowest level since November. Since their peak in January, refinance applications have fallen by three-quarters.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090722b.jpg">
Since the beginning of this year, fixed-rate mortgage applications have fallen by slightly more than one-half while adjustable-rate mortgages have doubled. The number of conventional loans has fallen roughly two-thirds while gov&#39;t backed loans have fallen nearly 40%.
The end of the mortgage financing boom can be traced, in part, to the rise in interest rates. The effective interest rate on a conventional 15-year mortgage rose last week to 5.06% and for the month has averaged 5.00%, up from the April low of 4.69%. For a 30-year mortgage, the rate also rose last week to 5.55%. Though down slightly from June, rates were up from the 4.81% March low. Interest rates on 15- and 30-year mortgages are closely correlated (&gt;90%) with the rate on 10-year Treasury securities. Rates on adjustable 1-Year mortgages averaged 6.55% this month versus the low near 6.0% during January. Nevertheless, the rate remained down from the 7.07% peak reached last fall.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.The figures for weekly mortgage applications are available in Haver&#39;s SURVEYW database.
Has Greater Globalization Made Forecasting Inflation More Difficult? from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2009/el0905.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">07/17/09</th>
<th scope="col">07/10/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>528.9</td>
<td>514.4</td>
<td>8.0%</td>
<td>642.9</td>
<td>652.6</td>
<td>584.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>262.1</td>
<td>258.8</td>
<td>-21.9%</td>
<td>345.4</td>
<td>424.9</td>
<td>406.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,089.7</td>
<td>2,009.4</td>
<td>50.0%</td>
<td>2,394.1</td>
<td>1,997.9</td>
<td>1,634.0</td>
</tr>
</tbody>
</table>
</body>
</html>

In its latest report, the Mortgage Bankers Association indicated that mortgage applications overall increased 2.8% but that was the weakest increase in the last three weeks. As a result, applications remained near the lowest level [...]

U.S. Weekly Mortgage Applications Rise But Trend Is Weak

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090721a.jpg" align="right" border="0" height="265" width="353">
The Chicago Federal Reserve Bank reported that its June
National Activity Index rose further to the highest level since July of
last year. The reading of -1.80 was up from May and both figures were
higher than the series' low of -3.99 reached this past January. Since
1970 there has been a 74% correlation between the level of the index
and the q/q change in real GDP.
The three-month moving average of the index also
improved to its highest level since August.
An index level at or below -0.70 typically has indicated
negative U.S. economic growth. A zero value of the CFNAI indicates that
the economy is expanding at its historical trend rate of growth of
roughly 3%. The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_july2009.pdf">here.</a><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090721b.jpg" align="right" border="0" height="265" width="353">
The production and income components made the largest positive
contributions to the JUnel CFNAI. Twenty-two of the index components
had a positive influence while 63 made a negative contribution.
The CFNAI is a weighted average of 85 indicators of economic
activity. The indicators reflect activity in the following categories:
production &amp; income, the labor market, personal consumption
&amp; housing, manufacturing &amp; trade sales, and inventories
&amp; orders.
In a separate survey, the Chicago Fed indicated that its
Midwest manufacturing index fell during May to its lowest level since
1994. Indicators for the auto, steel, and machinery each fell. The
Chicago Federal Reserve figures are available in Haver's SURVEYS
database.
Today's testimony by Fed Chairman Ben S. Bernanke is available
<a href="http://www.federalreserve.gov/newsevents/testimony/DBBB5C9F26B6440AA4A21E104A61577A.htm">here.</a>




<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago
Fed</a></th>
<th scope="col">June</th>
<th scope="col">May</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>
<td class="firstcol">CFNAI</td>
<td>-1.80</td>
<td>-2.30</td>
<td>-0.98</td>
<td>-1.76</td>
<td>-0.35</td>
<td>0.05</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Moving
Average</td>
<td>-2.12</td>
<td>-2.65</td>
<td>-1.07</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body></html>

The Chicago Federal Reserve Bank reported that its June National Activity Index rose further to the highest level since July of last year. The reading of -1.80 was up from May and both figures were higher than the series' low of -3.99 [...]

Chicago Fed Index Indicates That Economic Activity Improved Further

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

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Winnie Tapasanun

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

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

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

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

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

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

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

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

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- 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

Robert Brusca

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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.

Economy in Brief

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