Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625e.jpg" align="left" border="0">
Orders in the Area fell by 32.1% a new Yr/Yr record leading to
headlines about how slow the European recovery is going to be. But the
pace of decline in orders over three months has been sharply reduced to
an annual rate of decline of 8.2% compared to 30-plus percent drop over
six months and 12-months. Both foreign-sourced and domestic&#8211;sourced
orders have trimmed their respective rates of decline sharply over
three months. The strongly negative Yr/Yr growth rate is mostly due to
legacy weakness over the earlier period. 
 

Country level statistics are encouraging. Germany and France
have cut their respective three month growth rate declines to a pace
that is single digits; the annualized rate of decline is less than a 5%
pace. Italy is still shedding orders at nearly a 30% pace. In the UK a
spike in orders has boosted the three month growth rate to a +53%
annual rate. 
 

Other signs in the Area show improvement as well. Italy,
despite pronounced order weakness, has been showing improved confidence
for both businesses and households. It posted a surprise rise in IP as
well. The EMU-wide PMI indices for MFG and for Services are showing
improvement on the month. On balance their trends are nothing to be
disappointed about, taking into account the extent of the weakness in
the Area which has hit countries somewhat unevenly and where fiscal
responses have been far from uniform as well. For example The
Netherlands today confirmed that its GDP drop in Q1 was the worst in
sixty years. It takes time to come back from that kind of weakness 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col">E-Area-13 and UK Industrial Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
</tr>
<tr class="odd">
<td class="firstcol">E-Area Detail</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG Orders</td>
<td>-1.0%</td>
<td>-0.2%</td>
<td>-0.9%</td>
<td>-8.2%</td>
<td>-14.0%</td>
<td>-34.4%</td>
<td>-42.0%</td>
<td>-32.1%</td>
<td>-31.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="11">Memo:MFG</td>
</tr>
<tr>
<td class="firstcol">E-13 Domestic MFG orders</td>
<td>-0.5%</td>
<td>-1.4%</td>
<td>1.7%</td>
<td>-0.9%</td>
<td>-11.9%</td>
<td>-34.4%</td>
<td>-39.7%</td>
<td>-32.5%</td>
<td>-20.8%</td>
</tr>
<tr>
<td class="firstcol">E-13 Foreign MFG orders</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>1.5%</td>
<td>-5.1%</td>
<td>-25.8%</td>
<td>-43.5%</td>
<td>-49.2%</td>
<td>-39.5%</td>
<td>-32.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Countries:</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany (MFG):</td>
<td>-1.1%</td>
<td>3.7%</td>
<td>-3.3%</td>
<td>-3.4%</td>
<td>-27.7%</td>
<td>-39.8%</td>
<td>-47.0%</td>
<td>-35.6%</td>
<td>-34.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France (Ind):</td>
<td>0.9%</td>
<td>-7.4%</td>
<td>6.7%</td>
<td>-1.4%</td>
<td>-13.9%</td>
<td>-18.9%</td>
<td>-34.9%</td>
<td>-30.4%</td>
<td>-24.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy (Ind):</td>
<td>-3.7%</td>
<td>-2.7%</td>
<td>-2.2%</td>
<td>-29.4%</td>
<td>-30.0%</td>
<td>-36.9%</td>
<td>-40.1%</td>
<td>-31.8%</td>
<td>-29.9%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; UK (Engineering
Industy):</td>
<td>-8.3%</td>
<td>7.1%</td>
<td>13.3%</td>
<td>53.0%</td>
<td>-56.3%</td>
<td>-28.2%</td>
<td>-45.2%</td>
<td>-27.0%</td>
<td>-11.4%</td>
</tr>
</tbody>
</table>
</body></html>

Orders in the Area fell by 32.1% a new Yr/Yr record leading to headlines about how slow the European recovery is going to be. But the pace of decline in orders over three months has been sharply reduced to an annual rate of decline of [...]

Despite Headlines About New Record Drops, Europe Is Healing

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625a.jpg" align="left" border="0">
The Commerce Department indicated that the second and "final"
estimate of 1Q '09 real GDP was -5.5% (AR), little different from the
"preliminary" estimate released last month. The large drop,
however, came on the heels of the 6.3% decline during 4Q '08 and
together they were the worst since early-1958. The latest
revision compares to Consensus expectations for a 5.7% decline.
Total corporate profits also were revised little and posted a
3.8% (-17.6% y/y) increase due to the near-doubling of financial sector
earnings versus 4Q. Nevertheless, these earnings were still off by
42.1% from 1Q '08. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625b.jpg" align="right" border="0" height="265" width="353">
The decline in nonfinancial sector earnings was
lessened slightly to 6.6% (-11.5% y/y) following a 10.7% 4Q decline,
but as recessions abroad progressed, the decline in earnings in the
foreign sector was deepened to 4.2% (-4.8% y/y).
The GDP effect of the reduction of unwanted inventories, in
the face of declining demand, was revised little at -2.2 percentage
points. Regardless, the subtraction was the most since the first
quarter of 2000 and it rivals the largest negative contribution from
inventories since the early-1980s. Real U.S. final sales to domestic
purchasers fell at a little-revised 5.4% rate. Combined with the 4Q '08
decline of 5.8%, final sales to domestic purchasers fell the most since
1958.
The rise in personal consumption expenditures last quarter
again was lessened slightly to 1.4% (-1.4% y/y). This modest increase
followed sharp declines during the prior two quarters. Spending on
motor vehicles rose moderately during the quarter (-18.7% y/y) after
five consecutive down periods. As corporate profits fell along with the
prospects for overall economic growth, business fixed investment fell
at a 37.3% rate (-16.1% y/y) and residential investment dropped at an
unrevised 38.8% rate (-23.4% y/y) from 4Q.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625c.jpg" align="right" border="0" height="265" width="353">
The significant shortfall in expenditures by the government
sector still accounts for a significant portion of last quarter's
weakness in GDP. The little revised 3.1% decline was the first since
late-2005. The drop was led by a 4.4% decline (+5.5% y/y) in Federal
spending that was paced by a 6.7% decline (+5.1% y/y) in defense
expenditures. Budget cutbacks due to the decline in tax revenues with
the recession caused state &amp; local spending to fall at a 2.2%
annual rate (-0.1% y/y).
The foreign trade sector made up for some of the domestic
economy's weakness as net exports contributed a little-revised 2.4
percentage points to 1Q GDP growth. Imports fell at a 36.4% annual rate
(-17.2% y/y) while recessions abroad pulled U.S. exports down at a
lesser 30.6% rate (-11.5% y/y).
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625d.jpg" align="right" border="0" height="265" width="353">
Inflation continued to show signs of firming. The unrevised
2.8% increase in the GDP chain price index was up
from the 0.5% annual rate of increase during 4Q. The reason for the
acceleration is that import prices fell at a faster rate than export
prices. Domestic prices, however, reflected the weak economy and fell
at a 1.0% annual rate (+0.8% y/y) after a 4.3% 4Q decline.The PCE price
index fell at a 0.9% annual rate (+0.8% y/y) while the residential
investment chain price index fell at a 4.9% rate (-5.3% y/y). The
weakness in business spending caused the nonresidential investment
price index also to slip at a 1.5% rate (+2.4% y/y), the first
quarterly decline since 2007.
The U.S. National Income &amp; Product Account data is
available in Haver's USECON and the USNA
databases.
Acquisition of Merrill Lynch by Bank of America is
this morning's testimony by Fed Chairman Ben S. Bernanke and it is
available <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20090625a.htm">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained
2000$, % AR</a></th>
<th scope="col">1Q '09 (Final)</th>
<th scope="col">1Q '09&nbsp;
(Preliminary)</th>
<th scope="col">1Q '09 (Advance)</th>
<th scope="col">4Q '08</th>
<th scope="col">1Q 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">GDP</td>
<td>-5.5</td>
<td>-5.7</td>
<td>-6.1</td>
<td>-6.3</td>
<td>-2.5</td>
<td>1.1</td>
<td>2.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory
Effect</td>
<td>-2.2</td>
<td>-2.3</td>
<td>-2.8</td>
<td>-0.1</td>
<td>-0.8</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-3.3</td>
<td>-3.4</td>
<td>-3.4</td>
<td>-6.2</td>
<td>-1.7</td>
<td>1.4</td>
<td>2.4</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>2.4</td>
<td>2.2</td>
<td>2.0</td>
<td>-0.2</td>
<td>-1.4</td>
<td>1.4</td>
<td>0.6</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-5.4</td>
<td>-5.3</td>
<td>-5.1</td>
<td>-5.8</td>
<td>-3.1</td>
<td>-0.0</td>
<td>1.8</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.8</td>
<td>2.8</td>
<td>2.9</td>
<td>0.5</td>
<td>2.1</td>
<td>2.2</td>
<td>2.7</td>
<td>3.2</td>
</tr>
</tbody>
</table>
</body></html>

The Commerce Department indicated that the second and "final" estimate of 1Q '09 real GDP was -5.5% (AR), little different from the "preliminary" estimate released last month. The large drop, however, came on the heels of the 6.3% [...]

Decline in U.S. 1Q GDP Is Trimmed

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625a.jpg" align="left" border="0">
The Commerce Department indicated that the second and "final"
estimate of 1Q '09 real GDP was -5.5% (AR), little different from the
"preliminary" estimate released last month. The large drop,
however, came on the heels of the 6.3% decline during 4Q '08 and
together they were the worst since early-1958. The latest
revision compares to Consensus expectations for a 5.7% decline.
Total corporate profits also were revised little and posted a
3.8% (-17.6% y/y) increase due to the near-doubling of financial sector
earnings versus 4Q. Nevertheless, these earnings were still off by
42.1% from 1Q '08. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625b.jpg" align="right" border="0" height="265" width="353">
The decline in nonfinancial sector earnings was
lessened slightly to 6.6% (-11.5% y/y) following a 10.7% 4Q decline,
but as recessions abroad progressed, the decline in earnings in the
foreign sector was deepened to 4.2% (-4.8% y/y).
The GDP effect of the reduction of unwanted inventories, in
the face of declining demand, was revised little at -2.2 percentage
points. Regardless, the subtraction was the most since the first
quarter of 2000 and it rivals the largest negative contribution from
inventories since the early-1980s. Real U.S. final sales to domestic
purchasers fell at a little-revised 5.4% rate. Combined with the 4Q '08
decline of 5.8%, final sales to domestic purchasers fell the most since
1958.
The rise in personal consumption expenditures last quarter
again was lessened slightly to 1.4% (-1.4% y/y). This modest increase
followed sharp declines during the prior two quarters. Spending on
motor vehicles rose moderately during the quarter (-18.7% y/y) after
five consecutive down periods. As corporate profits fell along with the
prospects for overall economic growth, business fixed investment fell
at a 37.3% rate (-16.1% y/y) and residential investment dropped at an
unrevised 38.8% rate (-23.4% y/y) from 4Q.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625c.jpg" align="right" border="0" height="265" width="353">
The significant shortfall in expenditures by the government
sector still accounts for a significant portion of last quarter's
weakness in GDP. The little revised 3.1% decline was the first since
late-2005. The drop was led by a 4.4% decline (+5.5% y/y) in Federal
spending that was paced by a 6.7% decline (+5.1% y/y) in defense
expenditures. Budget cutbacks due to the decline in tax revenues with
the recession caused state &amp; local spending to fall at a 2.2%
annual rate (-0.1% y/y).
The foreign trade sector made up for some of the domestic
economy's weakness as net exports contributed a little-revised 2.4
percentage points to 1Q GDP growth. Imports fell at a 36.4% annual rate
(-17.2% y/y) while recessions abroad pulled U.S. exports down at a
lesser 30.6% rate (-11.5% y/y).
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625d.jpg" align="right" border="0" height="265" width="353">
Inflation continued to show signs of firming. The unrevised
2.8% increase in the GDP chain price index was up
from the 0.5% annual rate of increase during 4Q. The reason for the
acceleration is that import prices fell at a faster rate than export
prices. Domestic prices, however, reflected the weak economy and fell
at a 1.0% annual rate (+0.8% y/y) after a 4.3% 4Q decline.The PCE price
index fell at a 0.9% annual rate (+0.8% y/y) while the residential
investment chain price index fell at a 4.9% rate (-5.3% y/y). The
weakness in business spending caused the nonresidential investment
price index also to slip at a 1.5% rate (+2.4% y/y), the first
quarterly decline since 2007.
The U.S. National Income &amp; Product Account data is
available in Haver's USECON and the USNA
databases.
Acquisition of Merrill Lynch by Bank of America is
this morning's testimony by Fed Chairman Ben S. Bernanke and it is
available <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20090625a.htm">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained
2000$, % AR</a></th>
<th scope="col">1Q '09 (Final)</th>
<th scope="col">1Q '09&nbsp;
(Preliminary)</th>
<th scope="col">1Q '09 (Advance)</th>
<th scope="col">4Q '08</th>
<th scope="col">1Q 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">GDP</td>
<td>-5.5</td>
<td>-5.7</td>
<td>-6.1</td>
<td>-6.3</td>
<td>-2.5</td>
<td>1.1</td>
<td>2.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory
Effect</td>
<td>-2.2</td>
<td>-2.3</td>
<td>-2.8</td>
<td>-0.1</td>
<td>-0.8</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-3.3</td>
<td>-3.4</td>
<td>-3.4</td>
<td>-6.2</td>
<td>-1.7</td>
<td>1.4</td>
<td>2.4</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>2.4</td>
<td>2.2</td>
<td>2.0</td>
<td>-0.2</td>
<td>-1.4</td>
<td>1.4</td>
<td>0.6</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-5.4</td>
<td>-5.3</td>
<td>-5.1</td>
<td>-5.8</td>
<td>-3.1</td>
<td>-0.0</td>
<td>1.8</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.8</td>
<td>2.8</td>
<td>2.9</td>
<td>0.5</td>
<td>2.1</td>
<td>2.2</td>
<td>2.7</td>
<td>3.2</td>
</tr>
</tbody>
</table>
Despite Headlines About New RecordDrops, Europe Is Healing 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 25, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625e.jpg" align="left" border="0">
Orders in the Area fell by 32.1% a new Yr/Yr record leading to
headlines about how slow the European recovery is going to be. But the
pace of decline in orders over three months has been sharply reduced to
an annual rate of decline of 8.2% compared to 30-plus percent drop over
six months and 12-months. Both foreign-sourced and domestic&#8211;sourced
orders have trimmed their respective rates of decline sharply over
three months. The strongly negative Yr/Yr growth rate is mostly due to
legacy weakness over the earlier period. 
 

Country level statistics are encouraging. Germany and France
have cut their respective three month growth rate declines to a pace
that is single digits; the annualized rate of decline is less than a 5%
pace. Italy is still shedding orders at nearly a 30% pace. In the UK a
spike in orders has boosted the three month growth rate to a +53%
annual rate. 
 

Other signs in the Area show improvement as well. Italy,
despite pronounced order weakness, has been showing improved confidence
for both businesses and households. It posted a surprise rise in IP as
well. The EMU-wide PMI indices for MFG and for Services are showing
improvement on the month. On balance their trends are nothing to be
disappointed about, taking into account the extent of the weakness in
the Area which has hit countries somewhat unevenly and where fiscal
responses have been far from uniform as well. For example The
Netherlands today confirmed that its GDP drop in Q1 was the worst in
sixty years. It takes time to come back from that kind of weakness 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">E-Area-13
and UK Industrial Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
</tr>
<tr class="odd">
<td class="firstcol">E-Area Detail</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">&nbsp; MFG Orders</td>
<td>-1.0%</td>
<td>-0.2%</td>
<td>-0.9%</td>
<td>-8.2%</td>
<td>-14.0%</td>
<td>-34.4%</td>
<td>-42.0%</td>
<td>-32.1%</td>
<td>-31.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="11">Memo:MFG</td>
</tr>
<tr>
<td class="firstcol">E-13 Domestic MFG orders</td>
<td>-0.5%</td>
<td>-1.4%</td>
<td>1.7%</td>
<td>-0.9%</td>
<td>-11.9%</td>
<td>-34.4%</td>
<td>-39.7%</td>
<td>-32.5%</td>
<td>-20.8%</td>
</tr>
<tr>
<td class="firstcol">E-13 Foreign MFG orders</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>1.5%</td>
<td>-5.1%</td>
<td>-25.8%</td>
<td>-43.5%</td>
<td>-49.2%</td>
<td>-39.5%</td>
<td>-32.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Countries:</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany (MFG):</td>
<td>-1.1%</td>
<td>3.7%</td>
<td>-3.3%</td>
<td>-3.4%</td>
<td>-27.7%</td>
<td>-39.8%</td>
<td>-47.0%</td>
<td>-35.6%</td>
<td>-34.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France (Ind):</td>
<td>0.9%</td>
<td>-7.4%</td>
<td>6.7%</td>
<td>-1.4%</td>
<td>-13.9%</td>
<td>-18.9%</td>
<td>-34.9%</td>
<td>-30.4%</td>
<td>-24.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy (Ind):</td>
<td>-3.7%</td>
<td>-2.7%</td>
<td>-2.2%</td>
<td>-29.4%</td>
<td>-30.0%</td>
<td>-36.9%</td>
<td>-40.1%</td>
<td>-31.8%</td>
<td>-29.9%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; UK (Engineering
Industy):</td>
<td>-8.3%</td>
<td>7.1%</td>
<td>13.3%</td>
<td>53.0%</td>
<td>-56.3%</td>
<td>-28.2%</td>
<td>-45.2%</td>
<td>-27.0%</td>
<td>-11.4%</td>
</tr>
</tbody>
</table>
U.S. Initial Jobless Insurance
Claims Edge Up To Highest in Four Weeks 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 25, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625f.jpg" align="left" height="265" width="353">
Earlier improvement in the labor market improvement stalled in
June. Initial claims for unemployment insurance edged up last week by
15,000 to 627,000, their highest level since May. The latest increase
followed a modest 7,000 rise during the prior week. Despite these
gains, however, initial claims were down from their March peak of
674,000. In addition, the four-week average of claims, which smoothes
out some of the volatility in the weekly numbers, fell slightly to
617,250 which was its lowest level since since mid-February. The latest
weekly level by far exceeded the Consensus expectation for 601,000
claims.
The Labor Department indicated that the largest increases in
initial claims for the week ending June 13 were in Florida (+8,383),
Pennsylvania (+3,191), Missouri (+2,874), Puerto Rico (+2,561), and
California (+2,540), while the largest decreases were in Michigan
(-5,414), New York (-5,299), North Carolina (-4,714), Tennessee
(-4,414), and Ohio (-3,802).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090625g.jpg" align="right" height="265" width="353">
Though continuing claims for unemployment inched up in the
latest week, modest improvement in the job market still is evident in
the figures. Claims rose a slight 29,000 following a sharp 126,000
decline from their high during the prior week. Continuing claims
provide an indication of workers' ability to find employment. At 6,738,000,
however, claims remained more than twice the year ago level. Further
suggesting that the job market's improvement is just modest was that
the four-week average of continuing claims fell just slightly from
their record high. The series dates back to 1966.
Also indicating marginal labor market improvement was the
insured unemployment rate, which held at 5.0% versus the cycle high of
5.1%. The level remained more than double that of June 2008 and the
highest since 1983. 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.
Clearly, the latest weekly figure understates labor market
distress in some states.The highest insured unemployment rates in the
week ending June 6 were in Michigan (7.0 percent), Oregon (6.8), Puerto
Rico (6.7), Nevada (6.3), Pennsylvania (6.2), Wisconsin (5.7),
California (5.4), Arkansas (5.3), Illinois (5.3), and North Carolina
(5.3).
The unemployment insurance claims data is available in Haver's
WEEKLY database and the state data is in the REGIONW
database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">06/20/09</th>
<th scope="col">06/13/09</th>
<th scope="col">06/06/09</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>
<td class="firstcol">Initial Claims</td>
<td>627</td>
<td>612</td>
<td>605</td>
<td>59.9%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,738</td>
<td>6,709</td>
<td>114.0%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body></html>

Decline in U.S. 1Q GDP IsTrimmed

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090429e.jpg" align="left" border="0" height="265" width="353">
In an anticipated move, the Federal Open Market Committee
today left the Federal funds rate in a "range from 0 to 1/4 percent."
The discount also was left unchanged at 0.50%. The Fed funds rate
remained the lowest ever. The decision was unanimous amongst FOMC
voters.
The Fed indicated that "Information received since the Federal
Open Market Committee met in April suggests that the pace of economic
contraction is slowing. Conditions in financial markets have generally
improved in recent months.
Much of the commentary on the economy was similar to the last
meeting and concluded that "Although economic activity is likely to
remain weak for a time, the Committee continues to anticipate that
policy actions to stabilize financial markets and institutions, fiscal
and monetary stimulus, and market forces will contribute to a gradual
resumption of sustainable economic growth in a context of price
stability."
Regarding inflation, the wording of the statement was slightly
altered. The statement that "the Committee expects that inflation will
remain subdued for some time" replaced the earlier statement that "the
Committee sees some risk that inflation could persist for a time below
rates that best foster economic growth and price stability in the
longer term."
In its effort to promote economic liquidity, the Fed used the
same language as in April, "... to provide support to mortgage lending
and housing markets and to improve overall conditions in private credit
markets, the Federal Reserve will purchase a total of up to $1.25
trillion of agency mortgage-backed securities and up to $200 billion of
agency debt by the end of the year. In addition, the Federal Reserve
will buy up to $300 billion of Treasury securities by autumn."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624i.jpg" align="right" border="0" height="265" width="353">
For the complete text of the Fed's latest press release please
follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090624a.htm">link</a>.The
Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.
Uncertainty About When the Fed Will Raise Interest
Rates from the Federal Reserve Bank of St. Louis is available
<a href="http://research.stlouisfed.org/publications/es/09/ES0929.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">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>
</body></html>

In an anticipated move, the Federal Open Market Committee today left the Federal funds rate in a "range from 0 to 1/4 percent." The discount also was left unchanged at 0.50%. The Fed funds rate remained the lowest ever. The decision [...]

FOMC Leaves Rates Unchanged; Cites Slower Economic Contraction & Subsiding Threat From Low Pricing Power

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624e.jpg" align="right" border="0" height="265" width="353">Sales
of new single-family homes during May continued the sideways movement
of 2009. Sales were stable with April at 342,000 units (AR) and have
shown little month-to-month change this year. That stability, however,
follows a one-third sales decline over the last year and a
three-quarters decline since the 2005 peak. May sales fell short of
Consensus expectations for sales of 360,000 units. The new home sales
figures are available in Haver's USECON database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624f.jpg" align="right" border="0" height="265" width="353">
Around the country sales patterns continued to vary. Sales in the
Northeast and in the Midwest rose last month but sales barely inched
higher out West. Sales in the South reversed their April gain and fell
back to near the record low.The modest firming of home sales
continued to strengthen prices. The median price for a new
single-family home rose 4.2% last month to $221,600 after a like gain
during April. Nevertheless, prices have fallen 3.5% over the last
twelve months as well as since yearend 2008. Since their peak early in
2007, new home prices have fallen by roughly
one-quarter.Price weakness has helped move the
inventory of unsold homes which has fallen by nearly one-half since the
peak during 2006. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624g.jpg" align="right" border="0" height="265" width="353">
In each of the country's regions, inventories are
down by roughly one-third just during the last year.&nbsp;The
month's supply of new homes for sale also has started to drop. In May
the months supply in inventory fell to its lowest level since last
July. But there's more inventory to move with lower prices if sales
remain low.A related development indicated that mortgage
applications for purchase of a home rose last week to the highest level
since early April (-15.9% y/y). These figures from the Mortgage Bankers
Association are available in Haver's SURVEYW
database.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">US
New Homes</th>
<th scope="col">May</th>
<th scope="col">April</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 Sales
(SAAR, 000s)</td>
<td>342</td>
<td>344</td>
<td>-32.8%</td>
<td>479</td>
<td>768</td>
<td>1,049</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>27</td>
<td>21</td>
<td>&nbsp;-12.9</td>
<td>35</td>
<td>64</td>
<td>64</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>51</td>
<td>43</td>
<td>-32.0</td>
<td>69</td>
<td>118</td>
<td>161</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>184</td>
<td>201</td>
<td>-35.9</td>
<td>264</td>
<td>408</td>
<td>559</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>80</td>
<td>79</td>
<td>-31.0</td>
<td>111</td>
<td>178</td>
<td>266</td>
</tr>
<tr>
<td class="firstcol">Median Price
(NSA, $)</td>
<td>221,600</td>
<td>212,600</td>
<td>-3.4</td>
<td>230,408</td>
<td>243,742</td>
<td>243,067</td>
</tr>
</tbody>
</table>
</body></html>

Sales of new single-family homes during May continued the sideways movement of 2009. Sales were stable with April at 342,000 units (AR) and have shown little month-to-month change this year. That stability, however, follows a one- [...]

U.S. New Home Sales Stay Low As Prices Firm

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624d.jpg" align="left" border="0" height="265" width="353">
Consumer confidence in Italy has risen firmly in June.
Confidence now has risen in five of the past seven months having fallen
in only one of those months. The trend to improvement is clear. The
overall confidence measure from ISAE is not in the 35th percentile of
its range- still quiet weak but not so disastrous. 
 

The overall situation in the past 12 months is given a rating
of -68 which sounds terrible. Actually that reading is in the 55th
percentile of its range of historic outcomes and stands above the
average response of -71. For the next 12-months the rating is in the
40th percentile of range and is only slightly below the average
response for that category. It&#8217;s a return to sub-normalcy. 
 

The ability to make major purchase right now is at the index
average, but the mid point of its range at the 43.9th range percentile.
For the future the response rate is a super strong 95th percentile
reading. 
 

Despite this improved news, fears of unemployment still rate
high in 66th percentile of their range but even higher when we look at
the ranking percentile. The latter measure tells how many responses are
below the current response: that percentage is 96.2%. In other words,
unemployment fears are worse than this only about FOUR percent of the
time. Still the range reading tells us that there have been times when
the fears were much, much, greater. The ranking percentile says yes,
that maybe so, but there have not been many of those times. We can
compare the ranking and the range percentiles for each response to get
a better fix on what the raw responses man. Cleary the raw responses
taken alone can be very misleading across categories. 
 

As you can tell by surveying these responses and looking at
the percentile ranges or rankings each category has its individual
distribution of responses. Over the past 200-some months the overall
situation reading averages a -71 reading while the &#8216;overall situation
for the next 12-months&#8217; averages a -9. Go figure. Are 12-monht periods
usually that different? I don&#8217;t think so. We use the percentile and
range readings to try to shift though these responses to get a more
accurate assessment of the consumer&#8217;s mood. 
 

For now it is apparent that there is an improvement in the
Italian consumer&#8217;s mood, and also some paradox. There is still a high
fear of unemployment but apparently the social safety network is good
enough that is not raising a lot of anxiety about the future or even
about the ability to spend on consumer items. That may seem unusual but
after all this is Europe and it&#8217;s Italy. Those are simply the facts. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Italy
ISAE Consumer Confidence</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol" colspan="5">&nbsp;</td>
<td colspan="3">Since Jan 1992 Rank</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Jun-09</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Percentile</td>
<td>Rank</td>
<td>percentile</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer Confidence</td>
<td>105.4</td>
<td>104.9</td>
<td>104.9</td>
<td>99.9</td>
<td>35.0</td>
<td>148</td>
<td>28.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="8">Last
12 months</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; OVERALL SITUATION</td>
<td>-68</td>
<td>-73</td>
<td>-74</td>
<td>-84</td>
<td>63.2</td>
<td>93</td>
<td>55.3%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; PRICE TRENDS</td>
<td>-40.5</td>
<td>-45</td>
<td>-43</td>
<td>-45</td>
<td>9.3</td>
<td>205</td>
<td>1.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="8">Next
12months</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; OVERALL SITUATION</td>
<td>-8</td>
<td>-17</td>
<td>-26</td>
<td>-35</td>
<td>49.2</td>
<td>123</td>
<td>40.9%&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; PRICE TRENDS</td>
<td>8.5</td>
<td>10</td>
<td>9.5</td>
<td>7</td>
<td>17.3</td>
<td>101</td>
<td>51.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; UNEMPLOYMENT</td>
<td>15</td>
<td>17</td>
<td>21</td>
<td>38</td>
<td>66.2</td>
<td>8</td>
<td>96.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; HOUSEHOLD BUDGET</td>
<td>0</td>
<td>5</td>
<td>1</td>
<td>5</td>
<td>15.6</td>
<td>200</td>
<td>3.8%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">HOUSEHOLD FIN SITUATION</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Last 12 months</td>
<td>-37</td>
<td>-34</td>
<td>-37</td>
<td>-39</td>
<td>38.8</td>
<td>126</td>
<td>39.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Next12 months</td>
<td>-4</td>
<td>-5</td>
<td>-11</td>
<td>-10</td>
<td>63.3</td>
<td>117</td>
<td>43.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="8">HOUSEHOLD
SAVINGS</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Current</td>
<td>60</td>
<td>59</td>
<td>60</td>
<td>69</td>
<td>72.7</td>
<td>13</td>
<td>93.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Future</td>
<td>-25</td>
<td>-29</td>
<td>-29</td>
<td>-33</td>
<td>51.1</td>
<td>145</td>
<td>30.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="8">MAJOR
Purchases</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Current</td>
<td>-39</td>
<td>-43</td>
<td>-41</td>
<td>-43</td>
<td>43.9</td>
<td>90</td>
<td>56.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Future</td>
<td>3</td>
<td>1</td>
<td>3</td>
<td>3</td>
<td>95.7</td>
<td>3</td>
<td>98.6%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">Total number
of months: 208</td>
</tr>
</tbody>
</table>
</body></html>

Consumer confidence in Italy has risen firmly in June. Confidence now has risen in five of the past seven months having fallen in only one of those months. The trend to improvement is clear. The overall confidence measure from ISAE is [...]

Consumer Confidence Recovers In Italy

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<body>
 




<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624a.jpg" align="right" border="0" height="265" width="353">The factory
sector is showing some life recently and may be emerging from the
moribund state of the last year. The May report of durable goods orders
indicated a 1.8% jump following a little-revised 1.8% April gain. The
latest increase easily outpaced&nbsp; Consensus expectations for a
0.8% decline and during the last three months orders have risen at a
5.3% annual rate.&nbsp;That follows a 5.8% decline during all of
last year. A 3.6% rise (-25.8% y/y) in transportation equipment orders
led last month's increase in total durables bookings. That followed a
6.2% rise during April. Higher orders for commercial aircraft led the
gain with a 68.1% (-47.7% y/y) surge. Conversely, orders for motor
vehicles &amp; parts fell 8.1% (-29.3% y/y) as the auto companies
continued to suffer the effects of weak sales. Machinery orders also
posted a notable 7.7% increase (-26.9% y/y) after slight uptick in
April but electrical equipment orders fell 1.1% (-27.0% y/y) after
little change during April. Orders for primary metals rose slightly for
the second month but were off by nearly one-half from the year-ago
level. Orders for computers &amp; electronic products reversed most
of their April decline as computer orders rose 9.4% (-20.2% y/y) but
orders for communications equipment slipped m/m and have moved sideways
this year. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624b.jpg" align="right" border="0" height="265" width="353">
The capital goods sector may have begun to show life.
Orders for nondefense capital goods recovered an April decline with a
4.8% gain due to the jump in aircraft orders noted above. Nondefense
orders excluding aircraft also firmed but by just enough to return to
the level of last February. During the last ten years there has been an
80% correlation between the y/y change in nondefense capital goods
orders and the change in equipment &amp; software spending in the
GDP accounts. The correlation of the GDP figure with capital goods
shipments is, as one would expect, a larger 92%. As might be
expected, the improvement in orders has yet to show up in higher
shipments. Shipments of durable goods fell 2.1% last month (-19.5% y/y)
and have fallen in each month since February of last year. That y/y
decline in shipments has been accompanied by a 21.1% y/y drop in
industrial production of durable goods. During the last ten years,
there has been an 80% correlation between the change in shipments of
durable goods and the change in durables industrial
production.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624c.jpg" align="right" border="0" height="265" width="353">
Inventories of durable goods fell for the fifth
consecutive month. The 0.8% decline followed a 1.1% April decline that
was deeper than reported initially. On a three-month basis decumulation
of durable goods inventories has been at a near-record 13.5% rate.
Quick decumulation of inventories has been notably across industries.
Backlogs in order books have fallen in each of the last eight months
and during the last year by 7.7%, a rate of decline which is the
sharpest since 2003. The durable goods figures are available in
Haver's USECON database. Taming the Credit Cycle by
Limiting High-Risk Lending from the Federal Reserve Bank of
Dallas is available <a href="http://dallasfed.org/research/eclett/2009/el0904.html">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS
Classification</a> (%)</th>
<th scope="col">May</th>
<th scope="col">April</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">Durable Goods Orders</td>
<td>1.8</td>
<td>1.8</td>
<td>-23.3</td>
<td>-5.8</td>
<td>1.4</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Excluding Transportation</td>
<td>1.1</td>
<td>0.4</td>
<td>-22.4</td>
<td>-1.2</td>
<td>-0.3</td>
<td>9.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>10.0</td>
<td>-2.9</td>
<td>-26.9</td>
<td>-6.8</td>
<td>3.5</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>4.8</td>
<td>-2.9</td>
<td>-21.8</td>
<td>-0.3</td>
<td>-2.7</td>
<td>10.7</td>
</tr>
</tbody>
</table>
</body></html>

The factory sector is showing some life recently and may be emerging from the moribund state of the last year. The May report of durable goods orders indicated a 1.8% jump following a little-revised 1.8% April gain. The latest [...]

U.S. Durable Goods Orders Surprisingly Strong For A Second Month

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624a.jpg" align="right" border="0" height="265" width="353">The factory
sector is showing some life recently and may be emerging from the
moribund state of the last year. The May report of durable goods orders
indicated a 1.8% jump following a little-revised 1.8% April gain. The
latest increase easily outpaced&nbsp; Consensus expectations for a
0.8% decline and during the last three months orders have risen at a
5.3% annual rate.&nbsp;That follows a 5.8% decline during all of
last year.
 A 3.6% rise (-25.8% y/y) in transportation equipment orders
led last month's increase in total durables bookings. That followed a
6.2% rise during April. Higher orders for commercial aircraft led the
gain with a 68.1% (-47.7% y/y) surge. Conversely, orders for motor
vehicles &amp; parts fell 8.1% (-29.3% y/y) as the auto companies
continued to suffer the effects of weak sales. Machinery orders also
posted a notable 7.7% increase (-26.9% y/y) after slight uptick in
April but electrical equipment orders fell 1.1% (-27.0% y/y) after
little change during April. Orders for primary metals rose slightly for
the second month but were off by nearly one-half from the year-ago
level. Orders for computers &amp; electronic products reversed most
of their April decline as computer orders rose 9.4% (-20.2% y/y) but
orders for communications equipment slipped m/m and have moved sideways
this year.
 <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624b.jpg" align="right" border="0" height="265" width="353">The
capital goods sector may have begun to show life.
Orders for nondefense capital goods recovered an April decline with a
4.8% gain due to the jump in aircraft orders noted above. Nondefense
orders excluding aircraft also firmed but by just enough to return to
the level of last February. During the last ten years there has been an
80% correlation between the y/y change in nondefense capital goods
orders and the change in equipment &amp; software spending in the
GDP accounts. The correlation of the GDP figure with capital goods
shipments is, as one would expect, a larger 92%.
 As might be
expected, the improvement in orders has yet to show up in higher
shipments. Shipments of durable goods fell 2.1% last month (-19.5% y/y)
and have fallen in each month since February of last year. That y/y
decline in shipments has been accompanied by a 21.1% y/y drop in
industrial production of durable goods. During the last ten years,
there has been an 80% correlation between the change in shipments of
durable goods and the change in durables industrial
production.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624c.jpg" align="right" border="0" height="265" width="353">Inventories
of durable goods fell for the fifth
consecutive month. The 0.8% decline followed a 1.1% April decline that
was deeper than reported initially. On a three-month basis decumulation
of durable goods inventories has been at a near-record 13.5% rate.
Quick decumulation of inventories has been notably across industries.
Backlogs in order books have fallen in each of the last eight months
and during the last year by 7.7%, a rate of decline which is the
sharpest since 2003.
 The durable goods figures are available in
Haver's USECON database.
 Taming the
Credit Cycle by
Limiting High-Risk Lending from the Federal Reserve Bank of
Dallas is available <a href="http://dallasfed.org/research/eclett/2009/el0904.html">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS
Classification</a> (%)</th>
<th scope="col">May</th>
<th scope="col">April</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">Durable Goods Orders</td>
<td>1.8</td>
<td>1.8</td>
<td>-23.3</td>
<td>-5.8</td>
<td>1.4</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Excluding Transportation</td>
<td>1.1</td>
<td>0.4</td>
<td>-22.4</td>
<td>-1.2</td>
<td>-0.3</td>
<td>9.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>10.0</td>
<td>-2.9</td>
<td>-26.9</td>
<td>-6.8</td>
<td>3.5</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>4.8</td>
<td>-2.9</td>
<td>-21.8</td>
<td>-0.3</td>
<td>-2.7</td>
<td>10.7</td>
</tr>
</tbody>
</table>

Consumer Confidence Recovers In
Italy 
by <a href="/comment/Brusca.html">Robert
Brusca&nbsp;</a> June 24, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624d.jpg" align="left" border="0" height="265" width="353">
Consumer confidence in Italy has risen firmly in June.
Confidence now has risen in five of the past seven months having fallen
in only one of those months. The trend to improvement is clear. The
overall confidence measure from ISAE is not in the 35th percentile of
its range- still quiet weak but not so disastrous. 
 

The overall situation in the past 12 months is given a rating
of -68 which sounds terrible. Actually that reading is in the 55th
percentile of its range of historic outcomes and stands above the
average response of -71. For the next 12-months the rating is in the
40th percentile of range and is only slightly below the average
response for that category. It&#8217;s a return to sub-normalcy. 
 

The ability to make major purchase right now is at the index
average, but the mid point of its range at the 43.9th range percentile.
For the future the response rate is a super strong 95th percentile
reading. 
 

Despite this improved news, fears of unemployment still rate
high in 66th percentile of their range but even higher when we look at
the ranking percentile. The latter measure tells how many responses are
below the current response: that percentage is 96.2%. In other words,
unemployment fears are worse than this only about FOUR percent of the
time. Still the range reading tells us that there have been times when
the fears were much, much, greater. The ranking percentile says yes,
that maybe so, but there have not been many of those times. We can
compare the ranking and the range percentiles for each response to get
a better fix on what the raw responses man. Cleary the raw responses
taken alone can be very misleading across categories. 
 

As you can tell by surveying these responses and looking at
the percentile ranges or rankings each category has its individual
distribution of responses. Over the past 200-some months the overall
situation reading averages a -71 reading while the &#8216;overall situation
for the next 12-months&#8217; averages a -9. Go figure. Are 12-monht periods
usually that different? I don&#8217;t think so. We use the percentile and
range readings to try to shift though these responses to get a more
accurate assessment of the consumer&#8217;s mood. 
 

For now it is apparent that there is an improvement in the
Italian consumer&#8217;s mood, and also some paradox. There is still a high
fear of unemployment but apparently the social safety network is good
enough that is not raising a lot of anxiety about the future or even
about the ability to spend on consumer items. That may seem unusual but
after all this is Europe and it&#8217;s Italy. Those are simply the facts. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Italy
ISAE Consumer Confidence</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol" colspan="5">&nbsp;</td>
<td colspan="3">Since Jan 1992 Rank</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Jun-09</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Percentile</td>
<td>Rank</td>
<td>percentile</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer Confidence</td>
<td>105.4</td>
<td>104.9</td>
<td>104.9</td>
<td>99.9</td>
<td>35.0</td>
<td>148</td>
<td>28.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="8">Last
12 months</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; OVERALL SITUATION</td>
<td>-68</td>
<td>-73</td>
<td>-74</td>
<td>-84</td>
<td>63.2</td>
<td>93</td>
<td>55.3%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; PRICE TRENDS</td>
<td>-40.5</td>
<td>-45</td>
<td>-43</td>
<td>-45</td>
<td>9.3</td>
<td>205</td>
<td>1.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="8">Next
12months</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; OVERALL SITUATION</td>
<td>-8</td>
<td>-17</td>
<td>-26</td>
<td>-35</td>
<td>49.2</td>
<td>123</td>
<td>40.9%&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; PRICE TRENDS</td>
<td>8.5</td>
<td>10</td>
<td>9.5</td>
<td>7</td>
<td>17.3</td>
<td>101</td>
<td>51.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; UNEMPLOYMENT</td>
<td>15</td>
<td>17</td>
<td>21</td>
<td>38</td>
<td>66.2</td>
<td>8</td>
<td>96.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; HOUSEHOLD BUDGET</td>
<td>0</td>
<td>5</td>
<td>1</td>
<td>5</td>
<td>15.6</td>
<td>200</td>
<td>3.8%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">HOUSEHOLD
FIN SITUATION</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Last 12 months</td>
<td>-37</td>
<td>-34</td>
<td>-37</td>
<td>-39</td>
<td>38.8</td>
<td>126</td>
<td>39.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Next12 months</td>
<td>-4</td>
<td>-5</td>
<td>-11</td>
<td>-10</td>
<td>63.3</td>
<td>117</td>
<td>43.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="8">HOUSEHOLD
SAVINGS</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Current</td>
<td>60</td>
<td>59</td>
<td>60</td>
<td>69</td>
<td>72.7</td>
<td>13</td>
<td>93.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Future</td>
<td>-25</td>
<td>-29</td>
<td>-29</td>
<td>-33</td>
<td>51.1</td>
<td>145</td>
<td>30.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan="8">MAJOR
Purchases</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Current</td>
<td>-39</td>
<td>-43</td>
<td>-41</td>
<td>-43</td>
<td>43.9</td>
<td>90</td>
<td>56.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Future</td>
<td>3</td>
<td>1</td>
<td>3</td>
<td>3</td>
<td>95.7</td>
<td>3</td>
<td>98.6%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">Total number
of months: 208</td>
</tr>
</tbody>
</table>
U.S. New Home Sales Stay Low As
Prices Firm 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 24, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624e.jpg" align="right" border="0" height="265" width="353">Sales
of new single-family homes during May continued the sideways movement
of 2009. Sales were stable with April at 342,000 units (AR) and have
shown little month-to-month change this year. That stability, however,
follows a one-third sales decline over the last year and a
three-quarters decline since the 2005 peak. May sales fell short of
Consensus expectations for sales of 360,000 units. The new home sales
figures are available in Haver's USECON database.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624f.jpg" align="right" border="0" height="265" width="353">Around the
country sales patterns continued to vary. Sales in the
Northeast and in the Midwest rose last month but sales barely inched
higher out West. Sales in the South reversed their April gain and fell
back to near the record low.
The modest firming of home sales
continued to strengthen prices. The median price for a new
single-family home rose 4.2% last month to $221,600 after a like gain
during April. Nevertheless, prices have fallen 3.5% over the last
twelve months as well as since yearend 2008. Since their peak early in
2007, new home prices have fallen by roughly
one-quarter.
Price weakness has helped move the
inventory of unsold homes which has fallen by nearly one-half since the
peak during 2006. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624g.jpg" align="right" border="0" height="265" width="353">
In each of the country's regions, inventories are
down by roughly one-third just during the last year.&nbsp;The
month's supply of new homes for sale also has started to drop. In May
the months supply in inventory fell to its lowest level since last
July. But there's more inventory to move with lower prices if sales
remain low.
A related development indicated that mortgage
applications for purchase of a home rose last week to the highest level
since early April (-15.9% y/y). These figures from the Mortgage Bankers
Association are available in Haver's SURVEYW
database.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">US
New Homes</th>
<th scope="col">May</th>
<th scope="col">April</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 Sales
(SAAR, 000s)</td>
<td>342</td>
<td>344</td>
<td>-32.8%</td>
<td>479</td>
<td>768</td>
<td>1,049</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>27</td>
<td>21</td>
<td>&nbsp;-12.9</td>
<td>35</td>
<td>64</td>
<td>64</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>51</td>
<td>43</td>
<td>-32.0</td>
<td>69</td>
<td>118</td>
<td>161</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>184</td>
<td>201</td>
<td>-35.9</td>
<td>264</td>
<td>408</td>
<td>559</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>80</td>
<td>79</td>
<td>-31.0</td>
<td>111</td>
<td>178</td>
<td>266</td>
</tr>
<tr>
<td class="firstcol">Median Price
(NSA, $)</td>
<td>221,600</td>
<td>212,600</td>
<td>-3.4</td>
<td>230,408</td>
<td>243,742</td>
<td>243,067</td>
</tr>
</tbody>
</table>

FOMC Leaves Rates Unchanged; Cites
Slower Economic Contraction &amp; Subsiding Threat From Low Pricing
Power 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 24, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090429e.jpg" align="left" border="0" height="265" width="353">
In an anticipated move, the Federal Open Market Committee
today left the Federal funds rate in a "range from 0 to 1/4 percent."
The discount also was left unchanged at 0.50%. The Fed funds rate
remained the lowest ever. The decision was unanimous amongst FOMC
voters.
The Fed indicated that "Information received since the Federal
Open Market Committee met in April suggests that the pace of economic
contraction is slowing. Conditions in financial markets have generally
improved in recent months.
Much of the commentary on the economy was similar to the last
meeting and concluded that "Although economic activity is likely to
remain weak for a time, the Committee continues to anticipate that
policy actions to stabilize financial markets and institutions, fiscal
and monetary stimulus, and market forces will contribute to a gradual
resumption of sustainable economic growth in a context of price
stability."
Regarding inflation, the wording of the statement was slightly
altered. The statement that "the Committee expects that inflation will
remain subdued for some time" replaced the earlier statement that "the
Committee sees some risk that inflation could persist for a time below
rates that best foster economic growth and price stability in the
longer term."
In its effort to promote economic liquidity, the Fed used the
same language as in April, "... to provide support to mortgage lending
and housing markets and to improve overall conditions in private credit
markets, the Federal Reserve will purchase a total of up to $1.25
trillion of agency mortgage-backed securities and up to $200 billion of
agency debt by the end of the year. In addition, the Federal Reserve
will buy up to $300 billion of Treasury securities by autumn."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090624i.jpg" align="right" border="0" height="265" width="353">
For the complete text of the Fed's latest press release please
follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090624a.htm">link</a>.The
Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.
Uncertainty About When the Fed Will Raise Interest
Rates from the Federal Reserve Bank of St. Louis is available
<a href="http://research.stlouisfed.org/publications/es/09/ES0929.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">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Durable Goods OrdersSurprisingly Strong For A Second Month

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.