Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090701d.jpg" width="353">
For the fifth consecutive month the outplacement firm of Challenger, Grey &amp; Christmas indicated that job cut announcements eased. In fact, the number of layoff announcements of 74,393 was the least since March of last year. This cycle&#39;s largest layoff total occurred this past January when there were 241,749 cuts. Challenger also reported, however, that announced hiring plans remained near the cycle low.
Announcement of job cuts in the pharmaceutical industry fell even further to 515, the lowest level since early 2007. Announcements in the financial industry also fell as did cuts in the services, apparel and (sharply) in the chemical industries. Job cuts in the computer industry fell to the lowest level since December ad layoffs in the auto industry fell as well.
Picking up some steam were job cut announcements in the chemical and in the transportation industry.
During the last ten years there has been a 67% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment. Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
The Challenger figures are available in Haver&#39;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">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>
<td class="firstcol">Announced Job Cuts</td>
<td>74,393</td>
<td>111,182</td>
<td>-9.0%</td>
<td>1,223,993</td>
<td>768,264</td>
<td>839,822</td>
</tr>
</tbody>
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For the fifth consecutive month the outplacement firm of Challenger, Grey & Christmas indicated that job cut announcements eased. In fact, the number of layoff announcements of 74,393 was the least since March of last year. This [...]

Challenger Layoffs Moderate Further

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090701a.jpg" align="right" border="0" height="265" width="353">
The National Association of Purchasing Management indicated
that the recession in factory sector continued to moderate last month.
The June composite index for the factory sector rose to 44.8 from 42.8
in May. Though the latest figure still indicates a lower level of
activity, as does any below the break-even point of 50, the rate of
decline appears to be easing. The worst of the decline was at yearend
'08 when the index touched 32.9. The latest figure about matched
Consensus expectations.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090701b.jpg" align="right" border="0" height="265" width="353">
Improvement in the components of the overall June ISM index
was broad-based. The production component pushed through the break-even
point for the first time since last summer with a rise to 52.5, up off
the low of 26.3 in December. During the last ten years there has been
an 84% correlation between the level of the production component of the
composite index and the three-month growth in factory sector industrial
production. It is appropriate to correlate the ISM index level
with factory sector output growth because the ISM
index is a diffusion index. It measures growth by using all of the
positive changes in activity added to one half of the zero change in
activity measures. The speed of supplier deliveries also
slowed for the third consecutive month.
 <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090701c.jpg" align="right" border="0" height="265" width="353">
Importantly, the employment index rose to its highest level
(40.7) since last September and it was up from the February low of
26.1. During the last ten years there has been an 89% correlation
between the index level and the one-month change in manufacturing
payrolls. The new orders figure retraced slightly its earlier
improvement with a decline to slightly below the break-even level of
50. Nevertheless, it remained near the highest level since last August
and up from the December low of 23.1. The export order index improved
further to 49.5 versus the December reading of 35.5. During the last
ten years there has been a 53% correlation between the index and the
q/q change in real exports of goods in the GDP accounts. The rate of
inventory destocking picked up as evidenced by a low reading of 30.8
which was the lowest level since 1982.
The separate index of prices paid again rose sharply with
improved activity levels. The reading at the break-even level of 50 was
its highest since last September and it's up from the December low of
18.0. During the last twenty years there has been a 79% correlation
between the price index and the three-month change in the PPI for
intermediate goods.

<table border="0" cellspacing="0" width="100%">
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<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">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 class="odd">
<td class="firstcol">Composite Index</td>
<td>44.8</td>
<td>42.8</td>
<td>49.5</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>49.2</td>
<td>51.1</td>
<td>49.3</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>40.7</td>
<td>34.3</td>
<td>44.1</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>50.0</td>
<td>43.5</td>
<td>91.5</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
</body></html>

The National Association of Purchasing Management indicated that the recession in factory sector continued to moderate last month. The June composite index for the factory sector rose to 44.8 from 42.8 in May. Though the latest figure [...]

ISM Factory Sector Index Rose Modestly While Prices Jump

ISM Factory Sector Index RoseModestly While Prices Jump

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630f.jpg" align="left" border="0" height="265" width="353">
According to the Conference Board, consumer confidence slipped
this month following gains during the prior three months. The slip did
not, however, alter the picture of improvement in consumer attitudes.
Confidence remained up by more than one-half from the February low and
roughly equal to the year ago level. The Conference Board data can be
found in Haver's CBDB database.
During the last ten years there has been an 86% correlation
between the level of consumer confidence and the y/y change in real
consumer spending.
The expectations component of confidence slipped the most last
month with an 8.4% decline following three strong monthly increases.
Still, the index remained near the highest level since late 2007. The
percentage of respondents expecting business conditions to improve
slipped to 21.2% but that remained near the highest level since 2004. A
much reduced 20.2% expected conditions to worsen. That improvement was
expected by 17.4 of respondents to generate more jobs, more than double
the percentage at the recent low.
Consumers' assessment of the current economic conditions also
slipped m/m and remained near its recent low. It remained off by nearly
two-thirds from a year earlier. Jobs were seen as hard to get by a
still-high 44.8% of respondents and jobs were seen as plentiful by only
4.5% of respondents. Business conditions were seen as good by just 8.0%
and that was near the 1991 low. Consumers who thought business
conditions were bad rose slightly to 45.6%, still near the highest
since 1983.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630g.jpg" align="right" border="0" height="265" width="353">
Expectations for the inflation rate in twelve months have been
roughly stable at 5.9%. That's down from last year's high of 7.7%.
Expectations about interest rates have increased sharply with 51.7% of
respondents expecting higher rates while 16.3% expect rates to fall. A
greatly increased 31.5% of respondents expected stock prices to rise.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Conference
Board &nbsp;(SA, 1985=100)</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">Consumer
Confidence Index</td>
<td>49.3</td>
<td>54.8</td>
<td>-3.3</td>
<td>57.9</td>
<td>103.4</td>
<td>105.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Present Situation</td>
<td>24.8</td>
<td>29.7</td>
<td>-62.1</td>
<td>69.9</td>
<td>128.8</td>
<td>130.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Expectations</td>
<td>65.5</td>
<td>71.5</td>
<td>58.2</td>
<td>50.0</td>
<td>86.4</td>
<td>89.7</td>
</tr>
</tbody>
</table>
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According to the Conference Board, consumer confidence slipped this month following gains during the prior three months. The slip did not, however, alter the picture of improvement in consumer attitudes. Confidence remained up by more [...]

U.S. Consumer Confidence Slips

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630e.jpg" align="left" border="0">
&#8216;Official&#8217; train wreck?? Maybe I shouldn&#8217;t
say &#8216;officially&#8217; since no one in officialdom has really declared it so.
And I don&#8217;t want those with policies at Lloyds to come running for
remuneration because they are insured against injury inflicted by a
train gone amok. Still, the sharp downward revision to UK GDP is
stunning and it gives us a new take on reality. 
 

Capital spending takes a dive &#8211; If capital
spending were a prize-fighter, the boxing officials would be streaming
in for an investigation of such a sudden dive. UK capital spending in
Q1 &#8216;did in&#8217; an already weak UK GDP showing in 2009-Q1 by falling at an
even steeper 27% annual rate. The annualized drop in UK GDP as a result
has sunk back to near double digit losses, showing a decline of at a
pace of 9.3% compared to -7.3% as last reported. And, yeah, they are
both bad numbers, but 9.3% is simply awful. 
 

Bigger than a pot-hole: The GDP hole that
the UK must dig itself out of is deeper than we thought. And in this,
the UK is not alone. Not seasonally adjusted Irish GDP was revised
lower in Q1 to an annual rate drop of 8.5% from 7.5% previously.
Excluding its key international sector, Ireland&#8217;s GDP fell 12% in Q1.
Downward revisions have been an ongoing theme&#8230; 
 

Yes we have no INFLATION!!! (for now) --
These sorts of downward revisions business activity help to explain
some of the other &#8216;news du jour&#8217; such as the lowest inflation rate in
40 years in Italy (+0.5% Yr/Yr in June); the first-time-ever drop in
the EMU CPI (-0.1% in the twelve months ended in June); and, the lowest
inflation reading in at least 38 years for the OECD area (+0.1% Yr/Yr
in May). 
 

Let&#8217;s do the twist...or let&#8217;s not -- There
has been some great twisting of inflation trends recently. As short a
time ago as July of 2008 OECD inflation had reached an 11-year high at
4.9% Yr/Yr; the plunge in the rate of inflation has a lot to do with
the global credit crisis and the deflating of the individual OECD
economies as well as the global economy. To the extent we may wish to
consider it a separate event, it also has to do with oil prices
falling. Energy prices in the OECD fell by 16.2% in the 12 months to
May obviously having a lot to do with the drop in that headline
inflation rate. That which twists can untwist&#8230; 
 

The GDP-Gap trap - These huge hits to GDP
are behind us. The legacy of those hits is something economists call
the GDP-Gap. The Gap is the difference between where GDP is currently
compared to where it could have been had the economy grown at its
&#8216;full-potential&#8217;. You get a good simple approximation of this by just
extending GDP&#8217;s growth trend before the economy slowed and fell and
looking at the resulting gap of that extrapolated line Vs actual GDP.
That gap will persist for some time into the future even if the economy
grows swiftly for several quarters. 
 

The plot thickens - While no one expects
declines of the past order of magnitude to continue going forward,
there is considerable debate about the speed of the individual
economies and of the global economy. The turning point location for GDP
growth rates to become positive and the pace at which growth will
proceed once that happens are critical ingredients in the outlook for
inflation. 
 

Risk source: Gap trap Vs central bankers at nap -
To Keynesian types these issues are the key; to others &#8216;the Gap&#8217; is
still an issue that matters but monetarists look for the impact on
inflation to come from all the special reserve injections by various
central banks. 
 

Market pricing, or groping - So the stage
is set. We can expect these issues to continue to be contentious as the
recession slows and recoveries re-start. Stock markets have rebounded
less on the expectation of strong GDP recovery growth rates and more on
the notion that huge drops in GDP are behind us and the companion
thought that at least some growth lies ahead. Bonds have been battered
back by those with fears of inflation from central-bank reserve growth
and the notion that the special times for distress pricing and the
flight to quality are behind us. 
 

Markets will continue to toss and turn on these issues. Some
will revel in the existence of the GDP-Gap as a protector against
inflation. Others will dismiss it or diminish it. It is the wave of the
future. 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">UK GDP </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td colspan="3">Consumption</td>
<td>Capital Formation</td>
<td>&nbsp;</td>
<td></td>
<td>Domestic</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Total</td>
<td>Housing</td>
<td>Exports</td>
<td>Imports</td>
<td>Demand</td>
</tr>
<tr class="grey2">
<td colspan="9" class="firstcol">% change Q/Q</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q1-09</td>
<td>-9.3%</td>
<td>-5.0%</td>
<td>0.9%</td>
<td>-26.9%</td>
<td>-41.5%</td>
<td>-25.0%</td>
<td>-24.1%</td>
<td>-9.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-09 Previous</td>
<td>-7.3%</td>
<td>-4.7%</td>
<td>1.2%</td>
<td>-14.2%</td>
<td>#N/A</td>
<td>-22.1%</td>
<td>-21.5%</td>
<td>-7.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q4-08</td>
<td>-7.0%</td>
<td>-4.3%</td>
<td>4.3%</td>
<td>-4.7%</td>
<td>-12.7%</td>
<td>-15.6%</td>
<td>-20.2%</td>
<td>-8.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q3-08</td>
<td>-2.9%</td>
<td>-1.5%</td>
<td>1.9%</td>
<td>-10.7%</td>
<td>-25.6%</td>
<td>-1.7%</td>
<td>-2.8%</td>
<td>-3.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q2-08</td>
<td>-0.2%</td>
<td>-1.5%</td>
<td>4.0%</td>
<td>-8.8%</td>
<td>-21.9%</td>
<td>-1.8%</td>
<td>-5.3%</td>
<td>-1.2%</td>
</tr>
<tr class="grey2">
<td colspan="9" class="firstcol">% change Yr/Yr</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q1-09</td>
<td>-4.9%</td>
<td>-3.1%</td>
<td>2.8%</td>
<td>-13.2%</td>
<td>-26.2%</td>
<td>-11.6%</td>
<td>-13.6%</td>
<td>-5.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q4-08</td>
<td>-1.8%</td>
<td>-0.8%</td>
<td>3.5%</td>
<td>-7.8%</td>
<td>-15.9%</td>
<td>-3.8%</td>
<td>-7.7%</td>
<td>-2.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q3-08</td>
<td>0.5%</td>
<td>0.7%</td>
<td>2.6%</td>
<td>-3.9%</td>
<td>-14.8%</td>
<td>0.5%</td>
<td>-1.7%</td>
<td>0.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q2-08</td>
<td>1.8%</td>
<td>1.4%</td>
<td>2.9%</td>
<td>-0.8%</td>
<td>-8.6%</td>
<td>2.8%</td>
<td>3.5%</td>
<td>2.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">5-Yrs</td>
<td>0.9%</td>
<td>1.2%</td>
<td>1.8%</td>
<td>0.7%</td>
<td>-5.1%</td>
<td>1.7%</td>
<td>1.1%</td>
<td>0.8%</td>
</tr>
</tbody>
</table>
</body></html>

‘Official’ train wreck?? Maybe I shouldn’t say ‘officially’ since no one in officialdom has really declared it so. And I don’t want those with policies at Lloyds to come running for remuneration because they are insured against injury [...]

UK GDP Is Officially A Train Wreck Impact Of GDP-Gap To Become A More Serious Matter For Argumentation

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630c.jpg" align="left" border="0" height="265" width="353">
For all of last week, the energy markets continued to discount
weakness in the economic environment. The likelihood of an easing in
demand lowered the weekly average retail price for a gallon of regular
gasoline slipped to $2.64 per gallon, down a nickel from the prior
week. Yesterday, however, that decline stalled with heightened concerns
regarding Mideast crude oil supplies. The Monday spot market price for
a gallon of unleaded gasoline jumped roughly ten cents from last week's
average to $1.90 per gallon. That jump did not, however, recover the
price declines during prior weeks from the daily high of $2.04. The
figures are reported by the U.S. Department of Energy and can be found
in Haver's WEEKLY &amp; DAILY databases.
The energy market's volatility was notably evident in crude
oil prices. The price for a barrel of West Texas Intermediate crude oil
jumped to $71.49 yesterday which was the highest level since the first
week of the month. Prices averaged $68.76 per barrel last week. Against
this backdrop crude oil production rose 3.6% y/y during the latest four
weeks. In addition, supplies of crude oil continue plentiful as
evidenced by a 13.3% y/y rise in inventories of crude oil &amp;
petroleum products. The figures on crude oil production and inventories
are available in Haver's OILWKLY database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630d.jpg" align="right" border="0" height="265" width="353">
The gasoline demand figures continued to improve modestly but
the comparisons still are negative. Year-to-year gasoline
demand last week fell by 1.3%. That remained improved from
the roughly 5.0% y/y decline of last fall. The change in demand is
measured using the latest four weeks versus the same four weeks in
2008. Demand for all petroleum products was down
6.6% y/y in the latest week led by a 15.1% drop in distillate demand.
These numbers also are available in Haver's OILWKLY database.
Finally, natural gas prices remained weak last week and fell
to $3.86 per mmbtu (-70.0% y/y). Yesterday, natural gas prices held
steady at $3.88 per mmbtu. Current prices are down by two-thirds from
the high reached in early-July of $13.19/mmbtu.
Developing a Liquid Market for Inflation-Indexed
Government Securities: Lessons from Earlier Experiences from
the Federal Reserve Bank of St. Louis can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/09q1Shen.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/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">06/29/09</th>
<th scope="col">06/22/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per
Gallon, Regular)</td>
<td>2.64</td>
<td>2.69</td>
<td>-35.5%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>68.76</td>
<td>70.61</td>
<td>-49.9%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body></html>

For all of last week, the energy markets continued to discount weakness in the economic environment. The likelihood of an easing in demand lowered the weekly average retail price for a gallon of regular gasoline slipped to $2.64 per [...]

Energy Prices Are Volatile With Weak Demand & Short Supply Prospects

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630a.jpg" align="right" border="0" height="265" width="353"><The ="">S&amp;P/Case-Shiller
Home Price Composite Index of twenty metro-markets slipped just 0.9%
during April versus March. The latest monthly decline was the smallest
since late 2007; however, it still left prices 18.1% lower
during the last twelve months and down by nearly one-third since their
peak in May 2006. The April decline in prices was less than
the expected 18.9% y/y drop.</The>The series dates back only to 2001. The
S&amp;P/Case-Shiller home price series can be found in Haver's USECON
database and the city data highlighted below is in the REGIONAL
database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630b.jpg" align="right" border="0" height="265" width="353">
The Case-Shiller index of 20 U.S. cities and their
surrounding areas is weighted to reflect price changes due to extensive
remodeling, home additions or extreme neglect.&nbsp; For example,
smaller weights are assigned to sales of homes that have undergone
extensive remodeling.The Case-Shiller composite index of homes in 10
metropolitan areas, which has a longer history and dates back to 1987,
also fell a lessened 1.0% and was down 18.0% year-to-year. The measure
also was down by nearly one-third since the 2006 peak.· Less
Weak Regions:&nbsp; In Cleveland, Ohio prices ticked up
slightly m/m (-10.5% y/y) and in Dallas prices rose slightly as well
(5.0% y/y). Prices also rose 0.7% in Denver (-4.9% y/y). In addition,
in Boston the monthly decline in prices moderated substantially (-7.7%
y/y) and in Chicago home prices were roughly unchanged m/m (-18.7%
y/y).&nbsp; In New York, the price decline showed little moderation
(12.5% y/y), off roughly 20% from their 2006 peak. In Charlotte, North
Carolina prices also continued down moderately (10.0% y/y.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630h.jpg" align="right" border="0" height="265" width="353">
Weakest
Regions: Home prices in Phoenix, Nevada were quite weak and
fell 35.3% y/y and in San Francisco prices fell a lessened 28.0% y/y.
However, they still were off by nearly one-half from their early-2006
peak. Home prices in Las Vegas, Nevada continued their rapid rate of
decline, 32.1% y/y, and also were down by roughly one half from their
peak. The rate of price decline in Miami eased slightly (27.3% y/y
while home prices in Los Angeles continued to fall sharply 21.2% y/y.
In Tampa, the rate of monthly price decline slowed slightly (-21.3%
y/y). In Detroit, the monthly rate of price decline also eased
considerably (-25.4% y/y) but was off by early one-half from the
peak.Here is a <a href="http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_063055.pdf">link</a>
to the latest press release from Standard &amp; Poor's. An overview
of the S&amp;P/Case-Shiller home price series can be found <a href="http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html">here</a>.
The history of the Case-Shiller data is available in Haver's USECON
database.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">S&amp;P/Case-Shiller
Home Price Index (SA, Jan 00 = 100)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">20 City Composite
Index</td>
<td>140.10</td>
<td>141.36</td>
<td>-18.1%</td>
<td>-15.8%</td>
<td>-3.8%</td>
<td>7.6%</td>
</tr>
</tbody>
</table>
</body></html>

S&P/Case-Shiller Home Price Composite Index of twenty metro-markets slipped just 0.9% during April versus March. The latest monthly decline was the smallest since late 2007; however, it still left prices 18.1% lower during the last [...]

Decline In Case-Shiller Home Price Index Eases

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630a.jpg" align="right" border="0" height="265" width="353"><The ="">S&amp;P/Case-Shiller
Home Price Composite Index of twenty metro-markets slipped just 0.9%
during April versus March. The latest monthly decline was the smallest
since late 2007; however, it still left prices 18.1% lower
during the last twelve months and down by nearly one-third since their
peak in May 2006. The April decline in prices was less than
the expected 18.9% y/y drop.</The>
The series dates back only to 2001. The
S&amp;P/Case-Shiller home price series can be found in Haver's USECON
database and the city data highlighted below is in the REGIONAL
database.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630b.jpg" align="right" border="0" height="265" width="353">The
Case-Shiller index of 20 U.S. cities and their
surrounding areas is weighted to reflect price changes due to extensive
remodeling, home additions or extreme neglect.&nbsp; For example,
smaller weights are assigned to sales of homes that have undergone
extensive remodeling.
The Case-Shiller composite index of homes in 10
metropolitan areas, which has a longer history and dates back to 1987,
also fell a lessened 1.0% and was down 18.0% year-to-year. The measure
also was down by nearly one-third since the 2006 peak.· Less
Weak Regions:&nbsp; In Cleveland, Ohio prices ticked up
slightly m/m (-10.5% y/y) and in Dallas prices rose slightly as well
(5.0% y/y). Prices also rose 0.7% in Denver (-4.9% y/y). In addition,
in Boston the monthly decline in prices moderated substantially (-7.7%
y/y) and in Chicago home prices were roughly unchanged m/m (-18.7%
y/y).&nbsp; In New York, the price decline showed little moderation
(12.5% y/y), off roughly 20% from their 2006 peak. In Charlotte, North
Carolina prices also continued down moderately (10.0% y/y.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630h.jpg" align="right" border="0" height="265" width="353">Weakest
Regions: Home prices in Phoenix, Nevada were quite weak and
fell 35.3% y/y and in San Francisco prices fell a lessened 28.0% y/y.
However, they still were off by nearly one-half from their early-2006
peak. Home prices in Las Vegas, Nevada continued their rapid rate of
decline, 32.1% y/y, and also were down by roughly one half from their
peak. The rate of price decline in Miami eased slightly (27.3% y/y
while home prices in Los Angeles continued to fall sharply 21.2% y/y.
In Tampa, the rate of monthly price decline slowed slightly (-21.3%
y/y). In Detroit, the monthly rate of price decline also eased
considerably (-25.4% y/y) but was off by early one-half from the
peak.
Here is a <a href="http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_063055.pdf">link</a>
to the latest press release from Standard &amp; Poor's. An overview
of the S&amp;P/Case-Shiller home price series can be found <a href="http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html">here</a>.
The history of the Case-Shiller data is available in Haver's USECON
database.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">S&amp;P/Case-Shiller
Home Price Index (SA, Jan 00 = 100)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">20 City Composite
Index</td>
<td>140.10</td>
<td>141.36</td>
<td>-18.1%</td>
<td>-15.8%</td>
<td>-3.8%</td>
<td>7.6%</td>
</tr>
</tbody>
</table>
Energy Prices Are Volatile With
Weak Demand &amp; Short Supply Prospects 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 30, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630c.jpg" align="left" border="0" height="265" width="353">
For all of last week, the energy markets continued to discount
weakness in the economic environment. The likelihood of an easing in
demand lowered the weekly average retail price for a gallon of regular
gasoline slipped to $2.64 per gallon, down a nickel from the prior
week. Yesterday, however, that decline stalled with heightened concerns
regarding Mideast crude oil supplies. The Monday spot market price for
a gallon of unleaded gasoline jumped roughly ten cents from last week's
average to $1.90 per gallon. That jump did not, however, recover the
price declines during prior weeks from the daily high of $2.04. The
figures are reported by the U.S. Department of Energy and can be found
in Haver's WEEKLY &amp; DAILY databases.
The energy market's volatility was notably evident in crude
oil prices. The price for a barrel of West Texas Intermediate crude oil
jumped to $71.49 yesterday which was the highest level since the first
week of the month. Prices averaged $68.76 per barrel last week. Against
this backdrop crude oil production rose 3.6% y/y during the latest four
weeks. In addition, supplies of crude oil continue plentiful as
evidenced by a 13.3% y/y rise in inventories of crude oil &amp;
petroleum products. The figures on crude oil production and inventories
are available in Haver's OILWKLY database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630d.jpg" align="right" border="0" height="265" width="353">
The gasoline demand figures continued to improve modestly but
the comparisons still are negative. Year-to-year gasoline
demand last week fell by 1.3%. That remained improved from
the roughly 5.0% y/y decline of last fall. The change in demand is
measured using the latest four weeks versus the same four weeks in
2008. Demand for all petroleum products was down
6.6% y/y in the latest week led by a 15.1% drop in distillate demand.
These numbers also are available in Haver's OILWKLY database.
Finally, natural gas prices remained weak last week and fell
to $3.86 per mmbtu (-70.0% y/y). Yesterday, natural gas prices held
steady at $3.88 per mmbtu. Current prices are down by two-thirds from
the high reached in early-July of $13.19/mmbtu.
Developing a Liquid Market for Inflation-Indexed
Government Securities: Lessons from Earlier Experiences from
the Federal Reserve Bank of St. Louis can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/09q1Shen.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/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">06/29/09</th>
<th scope="col">06/22/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per
Gallon, Regular)</td>
<td>2.64</td>
<td>2.69</td>
<td>-35.5%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>68.76</td>
<td>70.61</td>
<td>-49.9%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>

UK GDP Is Officially A Train Wreck
Impact Of GDP-Gap To Become A More Serious Matter For Argumentation 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 30, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630e.jpg" align="left" border="0">
&#8216;Official&#8217; train wreck?? Maybe I shouldn&#8217;t
say &#8216;officially&#8217; since no one in officialdom has really declared it so.
And I don&#8217;t want those with policies at Lloyds to come running for
remuneration because they are insured against injury inflicted by a
train gone amok. Still, the sharp downward revision to UK GDP is
stunning and it gives us a new take on reality. 
 

Capital spending takes a dive &#8211; If capital
spending were a prize-fighter, the boxing officials would be streaming
in for an investigation of such a sudden dive. UK capital spending in
Q1 &#8216;did in&#8217; an already weak UK GDP showing in 2009-Q1 by falling at an
even steeper 27% annual rate. The annualized drop in UK GDP as a result
has sunk back to near double digit losses, showing a decline of at a
pace of 9.3% compared to -7.3% as last reported. And, yeah, they are
both bad numbers, but 9.3% is simply awful. 
 

Bigger than a pot-hole: The GDP hole that
the UK must dig itself out of is deeper than we thought. And in this,
the UK is not alone. Not seasonally adjusted Irish GDP was revised
lower in Q1 to an annual rate drop of 8.5% from 7.5% previously.
Excluding its key international sector, Ireland&#8217;s GDP fell 12% in Q1.
Downward revisions have been an ongoing theme&#8230; 
 

Yes we have no INFLATION!!! (for now) --
These sorts of downward revisions business activity help to explain
some of the other &#8216;news du jour&#8217; such as the lowest inflation rate in
40 years in Italy (+0.5% Yr/Yr in June); the first-time-ever drop in
the EMU CPI (-0.1% in the twelve months ended in June); and, the lowest
inflation reading in at least 38 years for the OECD area (+0.1% Yr/Yr
in May). 
 

Let&#8217;s do the twist...or let&#8217;s not -- There
has been some great twisting of inflation trends recently. As short a
time ago as July of 2008 OECD inflation had reached an 11-year high at
4.9% Yr/Yr; the plunge in the rate of inflation has a lot to do with
the global credit crisis and the deflating of the individual OECD
economies as well as the global economy. To the extent we may wish to
consider it a separate event, it also has to do with oil prices
falling. Energy prices in the OECD fell by 16.2% in the 12 months to
May obviously having a lot to do with the drop in that headline
inflation rate. That which twists can untwist&#8230; 
 

The GDP-Gap trap - These huge hits to GDP
are behind us. The legacy of those hits is something economists call
the GDP-Gap. The Gap is the difference between where GDP is currently
compared to where it could have been had the economy grown at its
&#8216;full-potential&#8217;. You get a good simple approximation of this by just
extending GDP&#8217;s growth trend before the economy slowed and fell and
looking at the resulting gap of that extrapolated line Vs actual GDP.
That gap will persist for some time into the future even if the economy
grows swiftly for several quarters. 
 

The plot thickens - While no one expects
declines of the past order of magnitude to continue going forward,
there is considerable debate about the speed of the individual
economies and of the global economy. The turning point location for GDP
growth rates to become positive and the pace at which growth will
proceed once that happens are critical ingredients in the outlook for
inflation. 
 

Risk source: Gap trap Vs central bankers at nap -
To Keynesian types these issues are the key; to others &#8216;the Gap&#8217; is
still an issue that matters but monetarists look for the impact on
inflation to come from all the special reserve injections by various
central banks. 
 

Market pricing, or groping - So the stage
is set. We can expect these issues to continue to be contentious as the
recession slows and recoveries re-start. Stock markets have rebounded
less on the expectation of strong GDP recovery growth rates and more on
the notion that huge drops in GDP are behind us and the companion
thought that at least some growth lies ahead. Bonds have been battered
back by those with fears of inflation from central-bank reserve growth
and the notion that the special times for distress pricing and the
flight to quality are behind us. 
 

Markets will continue to toss and turn on these issues. Some
will revel in the existence of the GDP-Gap as a protector against
inflation. Others will dismiss it or diminish it. It is the wave of the
future. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">UK GDP
</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td colspan="3">Consumption</td>
<td>Capital Formation</td>
<td>&nbsp;</td>
<td></td>
<td>Domestic</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Total</td>
<td>Housing</td>
<td>Exports</td>
<td>Imports</td>
<td>Demand</td>
</tr>
<tr class="grey2">
<td colspan="9" class="firstcol">%
change Q/Q</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q1-09</td>
<td>-9.3%</td>
<td>-5.0%</td>
<td>0.9%</td>
<td>-26.9%</td>
<td>-41.5%</td>
<td>-25.0%</td>
<td>-24.1%</td>
<td>-9.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-09 Previous</td>
<td>-7.3%</td>
<td>-4.7%</td>
<td>1.2%</td>
<td>-14.2%</td>
<td>#N/A</td>
<td>-22.1%</td>
<td>-21.5%</td>
<td>-7.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q4-08</td>
<td>-7.0%</td>
<td>-4.3%</td>
<td>4.3%</td>
<td>-4.7%</td>
<td>-12.7%</td>
<td>-15.6%</td>
<td>-20.2%</td>
<td>-8.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q3-08</td>
<td>-2.9%</td>
<td>-1.5%</td>
<td>1.9%</td>
<td>-10.7%</td>
<td>-25.6%</td>
<td>-1.7%</td>
<td>-2.8%</td>
<td>-3.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q2-08</td>
<td>-0.2%</td>
<td>-1.5%</td>
<td>4.0%</td>
<td>-8.8%</td>
<td>-21.9%</td>
<td>-1.8%</td>
<td>-5.3%</td>
<td>-1.2%</td>
</tr>
<tr class="grey2">
<td colspan="9" class="firstcol">%
change Yr/Yr</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q1-09</td>
<td>-4.9%</td>
<td>-3.1%</td>
<td>2.8%</td>
<td>-13.2%</td>
<td>-26.2%</td>
<td>-11.6%</td>
<td>-13.6%</td>
<td>-5.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q4-08</td>
<td>-1.8%</td>
<td>-0.8%</td>
<td>3.5%</td>
<td>-7.8%</td>
<td>-15.9%</td>
<td>-3.8%</td>
<td>-7.7%</td>
<td>-2.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q3-08</td>
<td>0.5%</td>
<td>0.7%</td>
<td>2.6%</td>
<td>-3.9%</td>
<td>-14.8%</td>
<td>0.5%</td>
<td>-1.7%</td>
<td>0.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Q2-08</td>
<td>1.8%</td>
<td>1.4%</td>
<td>2.9%</td>
<td>-0.8%</td>
<td>-8.6%</td>
<td>2.8%</td>
<td>3.5%</td>
<td>2.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">5-Yrs</td>
<td>0.9%</td>
<td>1.2%</td>
<td>1.8%</td>
<td>0.7%</td>
<td>-5.1%</td>
<td>1.7%</td>
<td>1.1%</td>
<td>0.8%</td>
</tr>
</tbody>
</table>
U.S. Consumer Confidence Slips 
by <a href="/comment/Moeller.html">Tom
Moeller;</a> June 30, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630f.jpg" align="left" border="0" height="265" width="353">
According to the Conference Board, consumer confidence slipped
this month following gains during the prior three months. The slip did
not, however, alter the picture of improvement in consumer attitudes.
Confidence remained up by more than one-half from the February low and
roughly equal to the year ago level. The Conference Board data can be
found in Haver's CBDB database.
During the last ten years there has been an 86% correlation
between the level of consumer confidence and the y/y change in real
consumer spending.
The expectations component of confidence slipped the most last
month with an 8.4% decline following three strong monthly increases.
Still, the index remained near the highest level since late 2007. The
percentage of respondents expecting business conditions to improve
slipped to 21.2% but that remained near the highest level since 2004. A
much reduced 20.2% expected conditions to worsen. That improvement was
expected by 17.4 of respondents to generate more jobs, more than double
the percentage at the recent low.
Consumers' assessment of the current economic conditions also
slipped m/m and remained near its recent low. It remained off by nearly
two-thirds from a year earlier. Jobs were seen as hard to get by a
still-high 44.8% of respondents and jobs were seen as plentiful by only
4.5% of respondents. Business conditions were seen as good by just 8.0%
and that was near the 1991 low. Consumers who thought business
conditions were bad rose slightly to 45.6%, still near the highest
since 1983.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090630g.jpg" align="right" border="0" height="265" width="353">
Expectations for the inflation rate in twelve months have been
roughly stable at 5.9%. That's down from last year's high of 7.7%.
Expectations about interest rates have increased sharply with 51.7% of
respondents expecting higher rates while 16.3% expect rates to fall. A
greatly increased 31.5% of respondents expected stock prices to rise.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Conference
Board &nbsp;(SA, 1985=100)</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">Consumer
Confidence Index</td>
<td>49.3</td>
<td>54.8</td>
<td>-3.3</td>
<td>57.9</td>
<td>103.4</td>
<td>105.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Present Situation</td>
<td>24.8</td>
<td>29.7</td>
<td>-62.1</td>
<td>69.9</td>
<td>128.8</td>
<td>130.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Expectations</td>
<td>65.5</td>
<td>71.5</td>
<td>58.2</td>
<td>50.0</td>
<td>86.4</td>
<td>89.7</td>
</tr>
</tbody>
</table>
</body></html>

Decline In Case-Shiller Home PriceIndex Eases

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 increased 0.7% (10.9% y/y) in December, the third successive m/m gain, following a downwardly revised 0.5% rise in November (+1.1% initially). Manufacturing production excluding selected high-tech industries rose 0.2% (1.7% y/y) in December after a 0.3% gain in November, and manufacturing production excluding selected high-tech and motor vehicles & parts rose 0.3% (2.1% y/y) after a 0.4% increase; both measures posted their third m/m gain in four months.

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.