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

Tom Moeller

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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

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090629c.jpg" align="right" border="0" height="265" width="353">
The European Commission's Business Climate Indicator for the
Euro Area is designed to deliver a clear and early assessment of the
cyclical situation. The extent that it has done so in the past can be
seen in the first chart that shows the Indicator and the year to year
change in industrial production. With a correlation between the two
series of 90%, <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090629d.jpg" align="right" border="0" height="265" width="353">
the R-Square is 81%, indicating that the business
climate indicator accounts for about 81% of the changes in the
industrial production. The rise in the indicator for the third
successive month in June is a good sign, but it is still at an
historically low level.
The individual results of the surveys of industry, the
construction, services, and retail trade businesses are reported as a
percent balances between those expecting improving and <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090629e.jpg" align="right" border="0" height="265" width="353">
those expecting
deteriorating conditions in important aspects of business, such as
orders, production outlook, inventories, etc. Except for construction,
the other businesses have shown improvements over the last few months
as can be seen in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">European
Commission: Confidence Measures</th>
<th scope="col">Jun 09</th>
<th scope="col">May&nbsp; 09</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar 09&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Business Climate Indicator (Pts
of Std. Dev/)</td>
<td>-2.97</td>
<td>-3.11</td>
<td>-3.21</td>
<td>-3.37</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Confidence (% Balance)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industry</td>
<td>-31.9</td>
<td>-33.2</td>
<td>-35.0</td>
<td>-37.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services</td>
<td>-19.8</td>
<td>-22.5</td>
<td>-24.2</td>
<td>-25.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-33.5</td>
<td>-33.7</td>
<td>-33.6</td>
<td>-31.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail Sales</td>
<td>-16.0</td>
<td>-14.2</td>
<td>-19.8</td>
<td>-17.0</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence (% Balance</td>
<td>-25.1</td>
<td>-28.1</td>
<td>-30.5</td>
<td>-34.2</td>
</tr>
</tbody>
</table>
</body></html>

The European Commission's Business Climate Indicator for the Euro Area is designed to deliver a clear and early assessment of the cyclical situation. The extent that it has done so in the past can be seen in the first chart that shows [...]

Business and Consumer Confidence Improve in the Euro Area

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090629a.jpg" align="right" border="0" height="265" width="353">
The National Activity Index published by the Chicago Federal
Reserve Bank remained roughly unchanged during May versus April.
Nevertheless, the index level of -2.30 was near its the highest level
since October of last year. The latest figure was up from the series'
low of -3.99 reached this past January. Since 1970 there has been a 75%
correlation between the level of the index and the q/q change in real
GDP. 
The three-month moving average of the index rose
slightly versus April and stood at its highest level since November. 
An index level at or below -0.70 typically has indicated
negative U.S. economic growth. A zero value of the CFNAI indicates that
the economy is expanding at its historical trend rate of growth of
roughly 3%. The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_june2009.pdf">here</a>
and the historical figures are available in Haver's SURVEYS database.
The Bank reported that fifteen of the 85 individual indicators
made positive contributions to the index in May while 70 made a
negative contribution. The employment-related components made the
largest positive contributions to the May CFNAI. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090629b.jpg" align="right" border="0" height="265" width="353">
The CFNAI is a weighted average of 85 indicators of economic
activity. The indicators reflect activity in the following categories:
production &amp; income, the labor market, personal consumption
&amp; housing, manufacturing &amp; trade sales, and inventories
&amp; orders.
In a separate survey, the Chicago Fed indicated that its
Midwest manufacturing index fell during April to its lowest level since
1994. Indicators for the steel, machinery and the auto sectors fell to
new lows but in the resource sector the figure rose slightly.
Fuel efficiency challenges the auto industry
from the Federal Reserve Bank of Chicago can be found <a href="http://midwest.chicagofedblogs.org/archives/2009/06/fuel_efficiency.html">
here</a>.
Residential Housing and Personal Bankruptcy from
the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q2/brq209_housing-and-bankruptcy.pdf">
here</a>.




<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago
Fed</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-2.30</td>
<td>-2.27</td>
<td>-1.18</td>
<td>-1.77</td>
<td>-0.36</td>
<td>0.03</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Moving
Average</td>
<td>-2.67</td>
<td>-2.73</td>
<td>-1.12</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body></html>

The National Activity Index published by the Chicago Federal Reserve Bank remained roughly unchanged during May versus April. Nevertheless, the index level of -2.30 was near its the highest level since October of last year. The latest [...]

Chicago Fed Index Remains Stable in May At Highest Level Since October

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090629a.jpg" align="right" border="0" height="265" width="353">
The National Activity Index published by the Chicago Federal
Reserve Bank remained roughly unchanged during May versus April.
Nevertheless, the index level of -2.30 was near its the highest level
since October of last year. The latest figure was up from the series'
low of -3.99 reached this past January. Since 1970 there has been a 75%
correlation between the level of the index and the q/q change in real
GDP. 
The three-month moving average of the index rose
slightly versus April and stood at its highest level since November. 
An index level at or below -0.70 typically has indicated
negative U.S. economic growth. A zero value of the CFNAI indicates that
the economy is expanding at its historical trend rate of growth of
roughly 3%. The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_june2009.pdf">here</a>
and the historical figures are available in Haver's SURVEYS database.
The Bank reported that fifteen of the 85 individual indicators
made positive contributions to the index in May while 70 made a
negative contribution. The employment-related components made the
largest positive contributions to the May CFNAI. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090629b.jpg" align="right" border="0" height="265" width="353">
The CFNAI is a weighted average of 85 indicators of economic
activity. The indicators reflect activity in the following categories:
production &amp; income, the labor market, personal consumption
&amp; housing, manufacturing &amp; trade sales, and inventories
&amp; orders.
In a separate survey, the Chicago Fed indicated that its
Midwest manufacturing index fell during April to its lowest level since
1994. Indicators for the steel, machinery and the auto sectors fell to
new lows but in the resource sector the figure rose slightly.
Fuel efficiency challenges the auto industry
from the Federal Reserve Bank of Chicago can be found <a href="http://midwest.chicagofedblogs.org/archives/2009/06/fuel_efficiency.html">
here</a>.
Residential Housing and Personal Bankruptcy from
the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q2/brq209_housing-and-bankruptcy.pdf">
here</a>.




<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago
Fed</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-2.30</td>
<td>-2.27</td>
<td>-1.18</td>
<td>-1.77</td>
<td>-0.36</td>
<td>0.03</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Moving
Average</td>
<td>-2.67</td>
<td>-2.73</td>
<td>-1.12</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
Business and Consumer Confidence
Improve in the Euro Area 
by <a href="/comment/Curley.html">Louise
Curley</a> June 29, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090629c.jpg" align="right" border="0" height="265" width="353">
The European Commission's Business Climate Indicator for the
Euro Area is designed to deliver a clear and early assessment of the
cyclical situation. The extent that it has done so in the past can be
seen in the first chart that shows the Indicator and the year to year
change in industrial production. With a correlation between the two
series of 90%, <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090629d.jpg" align="right" border="0" height="265" width="353">
the R-Square is 81%, indicating that the business
climate indicator accounts for about 81% of the changes in the
industrial production. The rise in the indicator for the third
successive month in June is a good sign, but it is still at an
historically low level.
The individual results of the surveys of industry, the
construction, services, and retail trade businesses are reported as a
percent balances between those expecting improving and <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090629e.jpg" align="right" border="0" height="265" width="353">
those expecting
deteriorating conditions in important aspects of business, such as
orders, production outlook, inventories, etc. Except for construction,
the other businesses have shown improvements over the last few months
as can be seen in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">European
Commission: Confidence Measures</th>
<th scope="col">Jun 09</th>
<th scope="col">May&nbsp; 09</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar 09&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Business Climate Indicator (Pts
of Std. Dev/)</td>
<td>-2.97</td>
<td>-3.11</td>
<td>-3.21</td>
<td>-3.37</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Confidence (% Balance)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Industry</td>
<td>-31.9</td>
<td>-33.2</td>
<td>-35.0</td>
<td>-37.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services</td>
<td>-19.8</td>
<td>-22.5</td>
<td>-24.2</td>
<td>-25.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-33.5</td>
<td>-33.7</td>
<td>-33.6</td>
<td>-31.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail Sales</td>
<td>-16.0</td>
<td>-14.2</td>
<td>-19.8</td>
<td>-17.0</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence (% Balance</td>
<td>-25.1</td>
<td>-28.1</td>
<td>-30.5</td>
<td>-34.2</td>
</tr>
</tbody>
</table>
</body></html>

Chicago Fed Index Remains Stablein May At Highest Level Since October

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<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090626e.jpg" width="353">
Though the overall economy has yet to make a convincing turn towards the better, the University of Michigan&#39;s June reading of consumer sentiment suggests a coming improvement in retail spending. The full-month index level rose slightly to 70.8, an improvement from the mid-month reading and up sharply from the November low. The figure was better than Consensus expectations for a reading of 69.0. Indeed, spending improvement is suggested since during the last ten years, there has been a 61% correlation between the level of sentiment and the growth in real spending during the next five months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090626f.jpg" width="353">
The current economic conditions jumped ten percent from May to its highest level since last September. The reading for current personal finances just about made up the May decline. however, it was the jump in the reading of current conditions for buying large household goods to the highest level since March of last year that powered the increase. Showing a huge increase was the reading of current conditions for buying a motor vehicle. Though conditions for buying a house slipped, the level remained up sharply from last year.
The expectations component of the index improved from the mid-month reading and was up by nearly half versus a year earlier. Expectations for personal finances jumped with higher stock prices. Though expected business conditions during the next year slipped, they remained up sharply from last year. Expected conditions during the next five years also slipped versus May but they were up sharply from one year ago.
The read of current conditions, conversely, deteriorated from mid-month but remained off its winter low. Buying conditions for large household goods were at their highest level since early last year but personal finances were viewed as flat.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090626g.jpg" width="353">
The opinion of government policy, which may eventually influence economic expectations, fell this month after having jumped through May. It remained near the highest level since 2002. A reduced 24% of respondents thought that a good job was being done by government while 28% thought that a poor job was being done. Nevertheless, despite these monthly changes, the trend is still very much toward a favorable reading of policy actions.
Inflation expectations for the next year rose further to 3.9%. That compares to a low of 1.7% last December but remained down from a reading which was as high as 7.0% last May.
The University of Michigan survey data is not seasonally adjusted. The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database with details in the proprietary UMSCA database.
Inflation and Monetary Policy from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/research/our_research_focus/in_depth/index.cfm">here.</a>
The State of our Interstates from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cfljuly2009_264.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">June (Final)</th>
<th scope="col">Mid-June</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">June y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>70.8</td>
<td>69.0</td>
<td>68.7</td>
<td>65.1</td>
<td>25.5%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>73.2</td>
<td>74.5</td>
<td>67.7</td>
<td>68.3</td>
<td>8.3</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>69.2</td>
<td>65.4</td>
<td>69.4</td>
<td>63.1</td>
<td>40.7</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Though the overall economy has yet to make a convincing turn towards the better, the University of Michigan's June reading of consumer sentiment suggests a coming improvement in retail spending. The full-month index level rose [...]

Michigan Consumer Sentiment Improves With Higher Expectations

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

260205Z1.jpg

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

260205Z2.jpg

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

260205Z3.jpg

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

260205Z4.jpg

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

260205Z5.jpg

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

260205Z6.jpg

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

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

260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

260205X15.jpg

260205Y15.jpg

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

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

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

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

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

260205C15.jpg

260205D15.jpg

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

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

Sandy Batten

260205A2.jpg

260205B2.jpg

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

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

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

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

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

U.S. Initial Unemployment Claims Surged in Latest Week

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

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

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

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

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

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

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