Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090717a.jpg" width="353">
Perhaps this is the convincing sign that housing activity has turned the corner from its dramatic decline. Housing starts increased to 582,000 (AR) units last month versus 562,000 starts during May which was revised up from 532,000. The latest figure greatly exceeded Consensus expectations for 528,000 starts.
Higher starts of single-family homes led the increase in the total last month. The 14.4% m/m rise was the fourth consecutive monthly increase. The gains have been off the record low for the series which dates back to 1959 and the latest level was down three-quarters from the peak in early-2006. During the last ten years, there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.
Starts of multi-family homes fell to 112,000 and reversed slightly more than half their gain during May. Starts of apartments, condominiums &amp; town houses remained down by roughly two-thirds from the 2006 peak.
By region increases in starts of single-family units last month spread across the country. Single-family starts in the Midwest rose 26.4% to their highest level since October (-18.0% y/y). In the Northeast, single-family starts also firmed after two months of decline and rose to the highest level this year (-42.4% y/y). Starts in the West rose for the fourth straight month (-22.2% y/y) and in the South single-family starts rose a lesser 8.1% m/m. It was the third straight monthly gain (-34.0% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090717b.jpg" width="353">
Overall, building permits during June remained near the record low. Though the latest gain was the second in a row and to the highest level this year, it still left permits slightly lower than at yearend. Overall, permits were down by roughly one-half from last May. As with starts, recent gains in building permits have been led by higher single-family permits. Single-family permits, a leading indicator of starts, were stronger than the total and rose for the third straight month. They were up 16.2% since December (-28.9% y/y). Permits to build multi-family units rose 18.8% but only after eleven straight months of decline (-76.6% y/y).
The housing starts figures can be found in Haver&#39;s USECON database.
Strong Medicine for an Ailing Economy from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=084C6ABC-5056-9F12-1274013344A169C9&amp;method=display_body">here</a>.
Productivity Swings and Housing Prices from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci15-3.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">Housing Starts (000s, SAAR)</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>582</td>
<td>562</td>
<td>-46.0%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>470</td>
<td>411</td>
<td>-28.2</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>112</td>
<td>151</td>
<td>-73.5</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>563</td>
<td>518</td>
<td>-52.0</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>


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Perhaps this is the convincing sign that housing activity has turned the corner from its dramatic decline. Housing starts increased to 582,000 (AR) units last month versus 562,000 starts during May which was revised up from 532,000. [...]

U.S. Housing Starts Post A Surprising Gain During June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090717a.jpg" width="353">
Perhaps this is the convincing sign that housing activity has turned the corner from its dramatic decline. Housing starts increased to 582,000 (AR) units last month versus 562,000 starts during May which was revised up from 532,000. The latest figure greatly exceeded Consensus expectations for 528,000 starts.
Higher starts of single-family homes led the increase in the total last month. The 14.4% m/m rise was the fourth consecutive monthly increase. The gains have been off the record low for the series which dates back to 1959 and the latest level was down three-quarters from the peak in early-2006. During the last ten years, there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.
Starts of multi-family homes fell to 112,000 and reversed slightly more than half their gain during May. Starts of apartments, condominiums &amp; town houses remained down by roughly two-thirds from the 2006 peak.
By region increases in starts of single-family units last month spread across the country. Single-family starts in the Midwest rose 26.4% to their highest level since October (-18.0% y/y). In the Northeast, single-family starts also firmed after two months of decline and rose to the highest level this year (-42.4% y/y). Starts in the West rose for the fourth straight month (-22.2% y/y) and in the South single-family starts rose a lesser 8.1% m/m. It was the third straight monthly gain (-34.0% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090717b.jpg" width="353">
Overall, building permits during June remained near the record low. Though the latest gain was the second in a row and to the highest level this year, it still left permits slightly lower than at yearend. Overall, permits were down by roughly one-half from last May. As with starts, recent gains in building permits have been led by higher single-family permits. Single-family permits, a leading indicator of starts, were stronger than the total and rose for the third straight month. They were up 16.2% since December (-28.9% y/y). Permits to build multi-family units rose 18.8% but only after eleven straight months of decline (-76.6% y/y).
The housing starts figures can be found in Haver&#39;s USECON database.
Strong Medicine for an Ailing Economy from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=084C6ABC-5056-9F12-1274013344A169C9&amp;method=display_body">here</a>. 
Productivity Swings and Housing Prices from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci15-3.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">Housing Starts (000s, SAAR)</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>582</td>
<td>562</td>
<td>-46.0%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>470</td>
<td>411</td>
<td>-28.2</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>112</td>
<td>151</td>
<td>-73.5</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>563</td>
<td>518</td>
<td>-52.0</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716g.jpg" width="353">
According to the National Association of Home Builders, improvement in the housing market continued during July. Their Composite Housing Market Index recovered the June slip and rose to 17, which equaled the highest level since June of last year. The index is compiled from survey questions asking builders to rate market conditions as &#147;good&#148;, &#147;fair&#148;, &#147;poor&#148; or &#147;very high&#148; to &#147;very low&#148;. Numerical results over 50 indicate a predominance of &#147;good&#148; readings.
Also showing improvement during all of the first quarter was the Home Builders&#39; Housing Opportunity Index, which is the share of homes sold that could be considered affordable to a family earning the median income. It jumped to a record high of 72.5% buoyed by lower home prices, lower interest rates and higher income. (There is a break in the series from 2002 to 2003.)
The Home Builders Association indicated that its sub-index of present sales rose this month to the highest level since June &#39;08. At a reading of 17 the figure was up significantly from the January low of 6. Since 1990, the year-to-year change in this index has had an 80% correlation with the year-to-year percentage change in new single-family home sales.
The index of builders&#146; expectations for home sales in six months held stable but remained near its highest since September. The &#147;traffic&quot; of prospective buyers also improved from June and was up from the record lows of this past Winter.
The strength in the July composite index readings was concentrated in the South. Elsewhere in the country composite indexes were flat-to-lower.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716h.jpg" width="353">
The NAHB has compiled the Housing Market Index since 1985. The weights assigned to the individual index components are .5920 for single family detached sales, present time; .1358 for single family detached sales, next six months; and .2722 for traffic of prospective buyers. The results, along with other housing and remodeling indexes from NAHB Economics, are included in Haver&#146;s SURVEYS database.
Today&#39;s House testimony by Fed Governor Elizabeth A. Duke titled Consumer Protection can be found <a href="http://www.federalreserve.gov/newsevents/testimony/duke20090716a.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/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">&nbsp;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 Housing Market Index (All Good = 100)</td>
<td>17</td>
<td>15</td>
<td>16</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>17</td>
<td>14</td>
<td>15</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales: Next Six Months</td>
<td>26</td>
<td>26</td>
<td>23</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of Prospective Buyers</td>
<td>14</td>
<td>13</td>
<td>12</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
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According to the National Association of Home Builders, improvement in the housing market continued during July. Their Composite Housing Market Index recovered the June slip and rose to 17, which equaled the highest level since June [...]

U.S. Home Builders’ Index Recovers To Its Highest Since June '08

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716e.jpg">
The Federal Reserve Bank of New York reported yesterday that its Empire State Factory Index of General Business Conditions improved to its highest level since April of last year. The latest reading of -0.55 compares to sharply negative levels this past Winter and, thus, suggests that recessionary forces have moderated. The index reached -38.23 this past March and the latest level was better than Consensus expectations for a reading of -5.0.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State. Participants from across the state in a variety of industries respond to a questionnaire and report the change in indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.
The figure is a diffusion index. Since the series&#39; inception in 2001, there has been a 75% correlation between its level and the three-month change in U.S. factory sector industrial production. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to independent survey questions; it is not a weighted combination of the components. The series dates back only to 2001.
Improvement in the new orders component paced last month&#39;s index with a gain to the highest level since December of 2007. The shipments index also improved to its highest since the middle of last year while the average workweek expanded moderately. The employment index also improved slightly to the highest level since last October. In the history of the NY employment index, there has been an 87% correlation between it and the three-month growth in overall U.S. factory sector employment as reported by the Labor Department. <img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716f.jpg">
To the downside was a sharp decline in the inventories index, to a series&#39; low, unfilled orders and delivery times.
Prices firmed as indicated by the first positive index reading since November. Nevertheless, the index level remained down sharply from last year. Since inception in 2001, there has been a 76% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months slipped during July from its highest level since mid-2007. The subseries for new orders, shipments, employment and capital expenditures each fell but still remained improved from the winter lows..
The Empire State data is available in Haver&#39;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>-0.55</td>
<td>-9.41</td>
<td>-6.16</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>5.89</td>
<td>-8.15</td>
<td>4.52</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>-20.83</td>
<td>-21.84</td>
<td>-6.32</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>10.42</td>
<td>-5.75</td>
<td>77.89</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>


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The Federal Reserve Bank of New York reported yesterday that its Empire State Factory Index of General Business Conditions improved to its highest level since April of last year. The latest reading of -0.55 compares to sharply [...]

Empire State Factory Conditions Improved To Best In Over One Year

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716c.jpg" width="353">
The Philadelphia Federal Reserve Bank indicated that, during July, factory sector activity in the region continued to contract. The rate of decline even quickened versus June as indicated by the Index of General Activity in the manufacturing sector at -7.5 versus -2.2. However, both figures were materially improved from the lows of this past winter. Consensus expectations had been for a July reading of -5.0.
During the last ten years there has been a 77% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 70% correlation with q/q growth in real GDP. The latest survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2009/bos0709.pdf">here</a>.
Amongst the components, both the shipments and employment indexes turned lower month-to-month but remained up from the March-April lows. During the last ten years there has been a 79% correlation between the index level and the m/m change in manufacturing sector payrolls. The new orders, unfilled orders and average workweek components each improved to new highs.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716d.jpg" width="353">
The prices paid index also improved to a less-negative 3.5. During the last ten years there has been a 74% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 83% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months also slipped during July after having improved to its highest level since 2003. Most of the index components fell except that expectations for prices paid, employment and inventories rose to new cycle highs.
The figures from the Philadelphia Federal Reserve can be found in Haver&#39;s SURVEYS database.
Residential Housing and Personal Bankruptcy from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q2/brq209_housing-and-bankruptcy.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">Philadelphia Fed (%)</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>
<td class="firstcol">General Activity Index</td>
<td>-7.5</td>
<td>-2.2</td>
<td>-16.7</td>
<td>-21.3</td>
<td>5.0</td>
<td>8.0</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>-3.5</td>
<td>&nbsp;-13.0</td>
<td>&nbsp;71.3</td>
<td>36.4</td>
<td>26.3</td>
<td>36.7</td>
</tr>
</tbody>
</table>
</body>
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The Philadelphia Federal Reserve Bank indicated that, during July, factory sector activity in the region continued to contract. The rate of decline even quickened versus June as indicated by the Index of General Activity in the [...]

Philadelphia Fed Index Remains Somewhat Weak

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<img align="left" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716a.jpg" width="353">
Conditions in the labor market improved further last week as evidenced by a sharp decline in both initial and continuing claims for unemployment insurance. For the second consecutive week, the report on initial claims was surprising. A 47,000 drop to 522,000 which followed a similar decline during the prior week. The latest level was the lowest since the first week of 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, also fell to 584,000. The latest weekly level was quite a bit lower than Consensus expectations for 554,000.
The Labor Department indicated that the largest decreases in initial claims for the week ending July 4 were in New Jersey (-5,030), California (-4,293), North Carolina (-3,983), Kansas (-3,544), and Oregon (-1,454) while the largest increases were in Michigan (+12,144), New York (+8,913), Wisconsin (+5,838), Indiana (+5,430), and Ohio (+4,240).
Confirming the labor market&#39;s improvement was a 642,000 drop in continuing claims for unemployment insurance to 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. At 6,273,000 claims still were nearly double the year ago level. The four-week average of continuing claims fell back to 6,666,750 which was the lowest since mid-May. The series dates back to 1966.<img align="right" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716b.jpg" width="353">
The insured rate of unemployment dropped sharply to 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 June 27 were in Michigan (7.2 percent), Puerto Rico (6.9), Oregon (6.5), Pennsylvania (6.3), Nevada (6.1), Wisconsin (5.8), California (5.4), South Carolina (5.4), Connecticut (5.2), Illinois (5.2), New Jersey (5.2), and North Carolina (5.2). Rates were lowest in Texas (3.0), Wyoming (3.2), Colorado (3.2), Maine (3.4), Maryland (3.6), Minnesota (4.0), Florida (4.1), Georgia (4.2) and Mississippi (4.3).
The unemployment insurance claims data is available in Haver&#39;s WEEKLY database and the state data is in the REGIONW database.
The minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20090624.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
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<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">07/11/09</th>
<th scope="col">07/04/09</th>
<th scope="col">06/27/09</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>522</td>
<td>569</td>
<td>617</td>
<td>34.9%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,273</td>
<td>6,915</td>
<td>97.9%</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>5.2</td>
<td>2.4</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Conditions in the labor market improved further last week as evidenced by a sharp decline in both initial and continuing claims for unemployment insurance. For the second consecutive week, the report on initial claims was surprising. [...]

Sharp Decline In U.S. Claims For Jobless Insurance Suggests Labor Market Improvement

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716c.jpg" align="left" border="0" height="265" width="353">
The Philadelphia Federal Reserve Bank indicated that, during July,
factory sector activity in the region continued to contract. The rate
of decline even quickened versus June as indicated by the Index of
General Activity in the manufacturing sector at -7.5 versus -2.2.
However, both figures were materially improved from the lows of this
past winter. Consensus expectations had been for a July reading of -5.0.
During the last ten years there has been a 77% correlation between
the level of the Philadelphia Fed Business Conditions Index and the
three-month growth in factory sector industrial production. There has
been a 70% correlation with q/q growth in real GDP. The latest survey
from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2009/bos0709.pdf">here</a>.
Amongst the components, both the shipments and employment indexes
turned lower month-to-month but remained up from the March-April lows.
During the last ten years there has been a 79% correlation between the
index level and the m/m change in manufacturing sector payrolls. The
new orders, unfilled orders and average workweek components each
improved to new highs.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716d.jpg" align="right" border="0" height="265" width="353">
The prices paid index also improved to a less-negative 3.5. During
the last ten years there has been a 74% correlation between the prices
paid index and the three-month growth in the intermediate goods PPI.
There has been an 83% correlation with the change in core intermediate
goods prices.
The separate index of expected business conditions in six months
also slipped during July after having improved to its highest level
since 2003. Most of the index components fell except that expectations
for prices paid, employment and inventories rose to new cycle highs.
The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database.
Residential Housing and Personal Bankruptcy from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q2/brq209_housing-and-bankruptcy.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">Philadelphia Fed (%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-7.5</td>
<td>-2.2</td>
<td>-16.7</td>
<td>-21.3</td>
<td>5.0</td>
<td>8.0</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>-3.5</td>
<td>&nbsp;-13.0</td>
<td>&nbsp;71.3</td>
<td>36.4</td>
<td>26.3</td>
<td>36.7</td>
</tr>
</tbody>
</table>
 Empire State Factory Conditions Improved To Best In Over One Year 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716e.jpg" align="left" border="0">
The Federal Reserve Bank of New York reported yesterday that its
Empire State Factory Index of General Business Conditions improved to
its highest level since April of last year. The latest reading of -0.55
compares to sharply negative levels this past Winter and, thus,
suggests that recessionary forces have moderated. The index reached
-38.23 this past March and the latest level was better than Consensus
expectations for a reading of -5.0.
The Empire State Manufacturing Survey is a monthly survey of
manufacturers in New York State. Participants from across the state in
a variety of industries respond to a questionnaire and report the
change in indicators from the previous month. Respondents also state
the likely direction of these same indicators six months ahead. For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.
The figure is a diffusion index. Since the series' inception in
2001, there has been a 75% correlation between its level and the
three-month change in U.S. factory sector industrial production. Like
the Philadelphia Fed Index of General Business Conditions, the Empire
State Business Conditions Index reflects answers to independent survey
questions; it is not a weighted combination of the components. The
series dates back only to 2001.
Improvement in the new orders component paced last month's index
with a gain to the highest level since December of 2007. The shipments
index also improved to its highest since the middle of last year while
the average workweek expanded moderately. The employment index also
improved slightly to the highest level since last October. In the
history of the NY employment index, there has been an 87% correlation
between it and the three-month growth in overall U.S. factory sector
employment as reported by the Labor Department. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716f.jpg" align="right" border="0">
To the downside was a sharp decline in the inventories index, to a series' low, unfilled orders and delivery times.
Prices firmed as indicated by the first positive index reading since
November. Nevertheless, the index level remained down sharply from last
year. Since inception in 2001, there has been a 76% correlation between
the index of prices paid and the three-month change in the core
intermediate materials PPI.
The Empire State index of expected business conditions in six months
slipped during July from its highest level since mid-2007. The
subseries for new orders, shipments, employment and capital
expenditures each fell but still remained improved from the winter
lows..
The Empire State data is available in Haver's SURVEYS database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July '08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>-0.55</td>
<td>-9.41</td>
<td>-6.16</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>5.89</td>
<td>-8.15</td>
<td>4.52</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>-20.83</td>
<td>-21.84</td>
<td>-6.32</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>10.42</td>
<td>-5.75</td>
<td>77.89</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>
 Sharp Decline In U.S. Claims For Jobless Insurance Suggests Labor Market Improvement 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716a.jpg" align="left" height="265" width="353">
Conditions in the labor market improved further last week as
evidenced by a sharp decline in both initial and continuing claims for
unemployment insurance. For the second consecutive week, the report on
initial claims was surprising. A 47,000 drop to 522,000 which followed
a similar decline during the prior week. The latest level was the
lowest since the first week of 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, also fell to 584,000. The
latest weekly level was quite a bit lower than Consensus expectations
for 554,000.
The Labor Department indicated that the largest decreases in initial
claims for the week ending July 4 were in New Jersey (-5,030),
California (-4,293), North Carolina (-3,983), Kansas (-3,544), and
Oregon (-1,454) while the largest increases were in Michigan (+12,144),
New York (+8,913), Wisconsin (+5,838), Indiana (+5,430), and Ohio
(+4,240).
Confirming the labor market's improvement was a 642,000 drop in
continuing claims for unemployment insurance to 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. At 6,273,000 claims still were nearly double the year ago level. The
four-week average of continuing claims fell back to 6,666,750 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/090716b.jpg" align="right" height="265" width="353">
The insured rate of unemployment dropped sharply to 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 June 27
were in Michigan (7.2 percent), Puerto Rico (6.9), Oregon (6.5),
Pennsylvania (6.3), Nevada (6.1), Wisconsin (5.8), California (5.4),
South Carolina (5.4), Connecticut (5.2), Illinois (5.2), New Jersey
(5.2), and North Carolina (5.2). Rates were lowest in Texas (3.0),
Wyoming (3.2), Colorado (3.2), Maine (3.4), Maryland (3.6), Minnesota
(4.0), Florida (4.1), Georgia (4.2) and Mississippi (4.3).
The unemployment insurance claims data is available in Haver's WEEKLY database and the state data is in the REGIONW database.
The minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20090624.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">07/11/09</th>
<th scope="col">07/04/09</th>
<th scope="col">06/27/09</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>522</td>
<td>569</td>
<td>617</td>
<td>34.9%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,273</td>
<td>6,915</td>
<td>97.9%</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>5.2</td>
<td>2.4</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
 U.S. Home Builders&#8217; Index Recovers To Its Highest Since June '08 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716g.jpg" align="left" border="0" height="265" width="353">
According to the National Association of Home Builders, improvement
in the housing market continued during July. Their Composite Housing
Market Index recovered the June slip and rose to 17, which equaled the
highest level since June of last year. The index is compiled from
survey questions asking builders to rate market conditions as &#8220;good&#8221;,
&#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to &#8220;very low&#8221;. Numerical results over 50 indicate a predominance of &#8220;good&#8221; readings.
Also showing improvement during all of the first quarter was the
Home Builders' Housing Opportunity Index, which is the share of homes
sold that could be considered affordable to a family earning the median
income. It jumped to a record high of 72.5% buoyed by lower home
prices, lower interest rates and higher income. (There is a break in
the series from 2002 to 2003.)
The Home Builders Association indicated that its sub-index of
present sales rose this month to the highest level since June '08. At a
reading of 17 the figure was up significantly from the January low of
6. Since 1990, the year-to-year change in this index has had an 80%
correlation with the year-to-year percentage change in new
single-family home sales.
The index of builders&#8217; expectations for home sales in six months held stable but remained near its highest since September. The &#8220;traffic" of prospective buyers also improved from June and was up from the record lows of this past Winter.
The strength in the July composite index readings was concentrated
in the South. Elsewhere in the country composite indexes were
flat-to-lower.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090716h.jpg" align="right" border="0" height="265" width="353">
The NAHB has compiled the Housing Market Index since 1985. The
weights assigned to the individual index components are .5920 for
single family detached sales, present time; .1358 for single family
detached sales, next six months; and .2722 for traffic of prospective
buyers. The results, along with other housing and remodeling indexes
from NAHB Economics, are included in Haver&#8217;s SURVEYS database.
Today's House testimony by Fed Governor Elizabeth A. Duke titled Consumer Protection can be found <a href="http://www.federalreserve.gov/newsevents/testimony/duke20090716a.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/@S4/@S4.HTM">Nat'l Association of Home Builders</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">&nbsp;July '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Housing Market Index (All Good = 100)</td>
<td>17</td>
<td>15</td>
<td>16</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>17</td>
<td>14</td>
<td>15</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales: Next Six Months</td>
<td>26</td>
<td>26</td>
<td>23</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of Prospective Buyers</td>
<td>14</td>
<td>13</td>
<td>12</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
</body></html>

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090715f.jpg" width="353">
EMU inflation remained tempered in June; the Yr/Yr rate even turned negative! Headline inflation&#146;s trend, however, is actually doing a slow up-creep as energy prices dived and have since begun to rise. But that was through June. Recent energy market events suggest some of that rebound may be giving way. But with oil you can&#146;t be sure. The ECB practice of &#145;targeting&#146; headline inflations surely suffers a lot in times like this. The Fed&#146;s preference to look at core inflation certainly looks superior and was a much better, more consistent, guide to policy in the recession and before when energy prices soared. Energy prices never did affect the Fed&#146;s preferred core measure of inflation much, while the ECB needed the &#145;cover&#146; of an international rate cut to allow it to cut rates with inflation still screaming over the top of its target and the financial sector in dire need of a rate cut. Maybe someday the ECB will see the error in its ways. 
Core inflation technically has perked up slightly in June but it&#146;s really hovering around the 1% mark. While there is tendency to look at such a mild acceleration as a non-event, the data across key EMU countries (where available) show that both core and headline inflation are engaged in an acceleration from 6-months to three-months. Germany&#146;s core rate has accelerated from 12-months to six months as well. 
With central banks having pumped a lot of liquidity into markets there are investors on edge and on an inflation watch despite the fact that some bankers still warn of a deflation threat. This report embodies all those oddities by having such low inflation &#150; indeed a rate that drops year-over-year- but at the same time emits signs of inflation acceleration. The IMF has been cautioning countries not to wind their easing yet. But, if these inflation trends press ahead, there will be a moment of conflict not too far down the road. 
The Fed has all-but-pledged to keep the stimulus on &#145;longer&#146; noting that the BIG MISTAKE in past financial episodes has been for the central bank to let up too soon. The subtext of that message is that the Fed will not have a hair-trigger response to rising inflation despite concerns about its bloated bank reserve base. US core inflation and core is above the pace in EMU and even above the pace in Germany. While 1.5% to 1.8% to 2.0% core pace (core ex tobacco) step up in the US over, respectively, 12-mos to 6-mos, to 3-mos, is not severe, it is above Europe&#146;s profile. With huge increases in the bank reserves in the US one wonders how long until some sort of inflation concern grips markets? 
For now the recent flirtation with renewed economic weakness has trumped any concerns about inflation. It is also true that even core inflation often shows pressure when energy prices rise and the rise from energy this month was severe. This pressure too may pass. Still, there is a risk that policymaking is about to get more interesting. Perhaps the US and Europe are getting closer to a period when their policy directions will even diverge. That would have an interesting impact on currency markets. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Trends in HICP
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jun-09</td>
<td>May-09</td>
<td>Apr-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.9%</td>
<td>0.4%</td>
<td>-0.2%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>0.9%</td>
<td>1.3%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>2.8%</td>
<td>1.1%</td>
<td>-1.5%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>2.2%</td>
<td>1.2%</td>
<td>1.9%</td>
<td>2.5%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>0.0%</td>
<td>1.1%</td>
<td>0.7%</td>
<td>0.0%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.2%</td>
<td>1.9%</td>
<td>0.7%</td>
<td>0.5%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.9%</td>
<td>-1.4%</td>
<td>-1.5%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Core excl FE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>1.2%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.9%</td>
<td>1.6%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

EMU inflation remained tempered in June; the Yr/Yr rate even turned negative! Headline inflations trend, however, is actually doing a slow up-creep as energy prices dived and have since begun to rise. But that was through June. [...]

EMU Inflation Really Does Turn Lower and Higher, Too

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

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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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U.S. Housing Starts Post A Surprising Gain During June

U.S. Housing Starts Post A Surprising Gain During June

U.S. Home Builders’ Index Recovers To Its Highest Since June '08

Empire State Factory Conditions Improved To Best In Over One Year

Philadelphia Fed Index Remains Somewhat Weak

Sharp Decline In U.S. Claims For Jobless Insurance Suggests Labor Market Improvement

Philadelphia Fed Index Remains Somewhat Weak

EMU Inflation Really Does Turn Lower and Higher, Too