Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616d.jpg" width="353">
Though housing starts posted a gain last month, the rise was modest and it suggests that the U.S. housing sector remains under pressure. Total housing starts recovered from their April decline with a 17.2% m/m rise to 532,000 (AR) units. The May figure was firmer than Consensus expectations for 485,000 starts. However, despite the surprise starts remained down by nearly one-half from one year ago. The best that can be noted is that a further decline has not occurred and starts have been flat during 2009.
Starts of single-family homes posted their third consecutive monthly increase. Regardless, single-family starts remained near the record low for the series which dates back to 1959 and the latest level was down three-quarters since the peak in early-2006. During the last ten years, there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.
Starts of multi-family homes rose by nearly two-thirds m/m to 131,000. Nevertheless, the increase failed to make up an April decline and starts of apartments, condominiums &amp; town houses remained down by nearly half from May of last year and starts were off two-thirds from the 2006 peak.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616e.jpg" width="353">
By region, starts of single-family units last month showed broad-based gains. Single-family starts in the Midwest rose 9.4% to their highest level since November (-38.1% y/y). In the South, single-family starts made up the decline of the previous two months with a 10.6% increase off the record low (-42.4% y/y). In the West starts rose for the third straight month (-36.2% y/y). Countering these monthly increases was another decline in the Northeast which was the second in a row (-47.8% y/y).
The latest level of building permits remained near the record low last month. The 4.0% increase did not make up for declines during the prior two months and, overall, permits were down by roughly one-half from last May. Single-family home permits, a leading indicator of starts, however, ticked up 3.6% from March (-42.3% y/y).
The housing starts figures can be found in Haver&#39;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">Housing Starts (000s, SAAR)</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</td>
<td>532</td>
<td>454</td>
<td>-45.2%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>401</td>
<td>373</td>
<td>-40.9</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>131</td>
<td>81</td>
<td>-55.1</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>518</td>
<td>498</td>
<td>-47.0</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>
</body>
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Though housing starts posted a gain last month, the rise was modest and it suggests that the U.S. housing sector remains under pressure. Total housing starts recovered from their April decline with a 17.2% m/m rise to 532,000 (AR) [...]

U.S. Housing Starts Recover Modestly

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616a.jpg" align="right" border="0" height="265" width="353">Economic
recession along with lower energy prices combined last month to lower
U.S. producer price inflation to its lowest since 1949. The fact that
the May PPI for finished goods rose 0.2% after a +0.3% in April was not
the big news. These paltry gains followed a sharp 1.2% March downdraft
which helped pull to the year-to-year change to a negative 4.7% last
month, its weakest since 1949. The May rise compared with Consensus
expectations for a 0.6% increase. Weakness in the overall PPI reflected
a continued absence of core pricing power. The PPI less food &amp;
energy fell 0.1% during May and prices have been flat during the last
three months.The weakness was led by a 0.1% decline in
prices of core finished consumer goods which pulled the y/y gain down
to 3.5%, its weakest gain in a year. And more deceleration is in store
given that the three-month change in prices amounted to just 0.3% (AR).
Durable consumer goods prices were unchanged last month (2.6% y/y) and
the three-month change dropped to 1.1%. Prices of core nondurable goods
fell just slightly and that was enough to lower the three month change
to 1.3%. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616b.jpg" align="right" border="0" height="265" width="353">
Finally, capital equipment prices fell for the third straight
month. The 0.1% slip was enough to pull the three-month change to a
negative 1.5% following the roughly 5% rates of increase last fall.
Last month's weakness in overall producer prices came despite a 2.9%
increase in energy prices which nevertheless left costs down by 26.8%
y/y. Finished gasoline prices rose 13.9%&nbsp; but that still left
them nearly one-half lower than last May. Conversely, natural gas
prices dropped hard for the tenth straight month. The 4.7% m/m decline
pulled prices down by one-quarter versus last May. Finished food prices
also were weak as they reversed all of their earlier gain with a 1.6%
decline (-2.0% y/y). Indeed, versus last year the decline in food
prices compares to a 9.1% rate of increase as recently as this past
fall.Continuing weak were prices for intermediate goods and that
should foreshadow further weakness in finished goods prices.
Intermediate goods prices made up just part of the April decline with a
0.3% increase. That left prices down a record 12.3% y/y. Excluding food
&amp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090616c.jpg" align="right" border="0" height="265" width="353">
energy prices were down for the eighth straight month. The
5.6% y/y decline was by far a record. The crude materials
PPI rose for a second month led by higher energy prices, up 5.3%.
Despite this increase, however, crude energy prices remained down by
more than one-half from the year ago level. Finished food prices rose
0.4% but that gain still left them down by 18.8% from last year. Core
pricing power at the crude level bucked the trend toward weakness last
month and prices rose 6.7%. That was, however, only the second increase
since July and therefore prices remained down by more than one-third
versus last year due to significantly lower metals and natural gas
prices.The Producer Price Index data is available in Haver's USECON
database. More detailed data is in the PPI and in
the PPIR databases. Containing the
Crisis and Promoting Economic Recovery is yesterday's speech
by Fed Governor Elizabeth A. Duke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/duke20090616a.htm">
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/@E8/@E802/@E80201/@E80201.HTM">Producer
Price Index</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">Finished Goods</td>
<td>0.2</td>
<td>0.3</td>
<td>-4.7</td>
<td>6.4</td>
<td>3.9</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1</td>
<td>0.1</td>
<td>3.0</td>
<td>3.4</td>
<td>2.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.3</td>
<td>-0.5</td>
<td>-12.3</td>
<td>10.5</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.2</td>
<td>-0.9</td>
<td>-5.6</td>
<td>7.4</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>3.6</td>
<td>3.0</td>
<td>-41.3</td>
<td>21.4</td>
<td>11.9</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>6.7</td>
<td>-0.6</td>
<td>&nbsp;-36.7</td>
<td>14.8</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>
</body></html>

Economic recession along with lower energy prices combined last month to lower U.S. producer price inflation to its lowest since 1949. The fact that the May PPI for finished goods rose 0.2% after a +0.3% in April was not the big news. [...]

U.S. PPI Decline Yr-to-Yr Matches '49 Record; Core Pricing Power Evaporates

U.S. PPI Decline Yr-to-Yr Matches'49 Record; Core Pricing Power Evaporates

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615f.jpg" align="left" border="0">
The number of people at work in the Euro Area fell by 1.2mln
in Q1, the greatest quarterly drop since records began in 1995. Still,
that performance is dwarfed by the huge declines in the US as the
percentage calculations in the table show. 
 

Europe has been hurt badly but it is a region with far more
labor market rigidities than the US. And those rigidities help
employment during times of economic shocks. Employment in the Euro Area
is down by just 1.3% Yr/Yr and unemployment is up by 20.9%. Compare
that to the US where employment is down by 3.1% Yr/Yr and unemployment
is up by 63% Yr/Yr. But even with those figures the ratio of the
unemployed-to-employed is greater in the Euro Area than in the US. The
fact is simply that the US unemployment rate was much lower than
Europe&#8217;s before recession and now it has ticked up to the same general
region as Europe&#8217;s rate. 
 

Obviously the structure of the economy in Europe and in the US
is very different. Still this recession has hit Europe hard. By its own
metrics the labor market has been hit hard. The US is looking at one of
its most severe recessions in the Post-war period. EMU has not been
around long enough to make any such statement. 
 

Through 2009-Q1 both EMU and the US are showing signs of an
increased pace of job losses and an increased pace of unemployment.
Monthly data in the US strongly support the notion that the
unemployment mess is unwinding rapidly in Q2. At this pace of unwind
the US could have job growth by August of 2009. We have no such bright
future in hand for Europe. 
 

While there is still a debate afoot about the US and whether
it will spawn a strong or weak recovery, we can be sure that Europe&#8217;s
will be slow in part because of all the disguised unemployment its
labor force rigidities hide. Forecasts still foresee weak growth for
the rest of the year in Europe. For the US that same forecast generally
is in place but conditions in the US are shifting pretty fast and some
forecasts have simply not been recast. Europe does not shift gears fast. 
 

We can&#8217;t judge the recession to be than much harsher in the US
than in Europe because of the jobs data and the greater US labor force
displacement. There are simply different economic structures at work.
But the figures are telling in terms of the impact on jobs in both EMU
and in the US. GDP has been hard hit in both regions. In the US the GDP
downturn simply dislodges more jobs. US GDP has fallen by about 6%
(SAAR) for two quarters a row. In EMU the drops have been more like 7%
and 10% at annual rates. Clearly jobs don&#8217;t tell the whole story of
dislocation. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Growth
rates by Quarter or period for various EU Nations</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar: All</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>2Qtr</td>
<td>4Qtr</td>
<td>5Yr</td>
</tr>
<tr>
<td class="firstcol">All Employed: EMU</td>
<td>-3.3%</td>
<td>-1.4%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>-2.3%</td>
<td>-1.3%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">No Unemployed</td>
<td>39.9%</td>
<td>26.6%</td>
<td>12.0%</td>
<td>7.8%</td>
<td>33.0%</td>
<td>20.9%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">EA: Industry</td>
<td>-5.3%</td>
<td>-3.9%</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>-4.6%</td>
<td>-2.9%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">EA: Agric, Forestry</td>
<td>-2.5%</td>
<td>0.8%</td>
<td>-2.2%</td>
<td>-5.5%</td>
<td>-0.8%</td>
<td>-2.4%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">EA: Construction</td>
<td>-8.6%</td>
<td>-8.7%</td>
<td>-5.8%</td>
<td>-4.6%</td>
<td>-8.6%</td>
<td>-6.9%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">EA: Wholesale Retail</td>
<td>-3.8%</td>
<td>-1.5%</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>-2.7%</td>
<td>-1.3%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">EA: Financial</td>
<td>-3.9%</td>
<td>-2.2%</td>
<td>0.3%</td>
<td>0.9%</td>
<td>-3.1%</td>
<td>-1.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">EA: Gov't Education</td>
<td>0.0%</td>
<td>2.2%</td>
<td>0.5%</td>
<td>2.5%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Memo: Industry Employment</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-3.8%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>1.0%</td>
<td>-2.0%</td>
<td>-0.7%</td>
<td>-0.2%</td>
</tr>
<tr>
<td class="firstcol">UK (MFG)*</td>
<td>#N/A</td>
<td>-6.6%</td>
<td>-6.3%</td>
<td>-2.0%</td>
<td>-6.5%</td>
<td>-4.0%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">France (MFG)</td>
<td>-5.8%</td>
<td>-3.3%</td>
<td>-1.6%</td>
<td>-1.7%</td>
<td>-4.6%</td>
<td>-3.1%</td>
<td>-2.0%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">UK
growth rates lag by one
quarter</td>
</tr>
<tr>
<td class="firstcol">US Employment</td>
<td>-6.7%</td>
<td>-3.4%</td>
<td>-1.9%</td>
<td>-0.4%</td>
<td>-5.1%</td>
<td>-3.1%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">US Unemployment</td>
<td>88.0%</td>
<td>65.2%</td>
<td>61.8%</td>
<td>41.7%</td>
<td>76.3%</td>
<td>63.4%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">US MFG Employment</td>
<td>-17.0%</td>
<td>-9.4%</td>
<td>-4.7%</td>
<td>-4.1%</td>
<td>-13.3%</td>
<td>-8.9%</td>
<td>-2.7%</td>
</tr>
</tbody>
</table>
</body></html>

The number of people at work in the Euro Area fell by 1.2mln in Q1, the greatest quarterly drop since records began in 1995. Still, that performance is dwarfed by the huge declines in the US as the percentage calculations in the table [...]

EMU Job Market Has Record Q1 Job Loss

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615d.jpg" align="left" border="0" height="265" width="353">
According to the National Association of Home Builders, the recent
improvement in the housing market took this month off. Their June index
of sales slipped to 15 from the unrevised May level of 16.
Nevertheless, the index remained near the highest level since last
September. The index is compiled from survey questions asking builders
to rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to
&#8220;very low&#8221;. Numerical results over 50 indicate a predominance of &#8220;good&#8221; readings.
During the first quarter the Home Builders' Housing Opportunity
Index, which is the share of homes sold that could be considered
affordable to a family earning the median income, jumped m/m to a
record high buoyed by lower home prices, lower interest rates and
higher income. (There is a break in the series from 2002 to 2003.)<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615e.jpg" align="right" border="0" height="265" width="353">
The Home Builders Association indicated that its sub-index of
present sales remained stable at a reading of 14 but that also was up
significantly from the low of last year. Since 1990, the year-to-year
change in this index has had an 80% correlation with the year-to-year
percentage change in new single-family home sales.
The index of builders&#8217; expectations for home sales in six months also slipped but remained near its highest since September. The &#8220;traffic" of prospective buyers was unchanged from May and still up from the record lows of this past Winter.
During June the index readings for each of the county's regions improved except in the South.
The NAHB has compiled the Housing Market Index since 1985. The
weights assigned to the individual index components are .5920 for
single family detached sales, present time; .1358 for single family
detached sales, next six months; and .2722 for traffic of prospective
buyers. The results, along with other housing and remodeling indexes
from NAHB Economics, are included in Haver&#8217;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat'l Association of Home Builders</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">&nbsp;June '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Housing Market Index (All Good = 100)</td>
<td>15</td>
<td>16</td>
<td>18</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>14</td>
<td>14</td>
<td>17</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales: Next Six Months</td>
<td>26</td>
<td>27</td>
<td>27</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of Prospective Buyers</td>
<td>13</td>
<td>13</td>
<td>16</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
</body></html>

According to the National Association of Home Builders, the recent improvement in the housing market took this month off. Their June index of sales slipped to 15 from the unrevised May level of 16. Nevertheless, the index remained [...]

U.S. Home Builders' Index Slips

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615a.jpg" align="right" border="0" height="265" width="353">This
month's Empire State Index of manufacturing sector activity, reported
by the Federal Reserve Bank of New York, fell versus May. Nevertheless,
the latest reading remained very much improved from the low of this
past Winter and, as a result, suggests that recessionary forces have
moderated. The reading of -9.41 compared with -4.55 in May. The index
reached a level of -38.23 this past March and the latest level compared
to Consensus expectations for a reading of -4.5.The Empire State
Manufacturing Survey is a monthly survey of manufacturers in New York
State. Participants from across the state in a variety of industries
respond to a questionnaire and report the change in indicators from the
previous month. Respondents also state the likely direction of these
same indicators six months ahead. For more on the Empire
State Manufacturing Survey, including methodologies and the latest
report, click <a href="http://www.newyorkfed.org/survey/empire/Empire2009/empiresurvey_20090615.html">here</a>.The figure is a diffusion index. Since the series' inception in 2001,
there has been a 75% correlation between its level and the three-month
change in U.S. factory sector industrial production. Like the
Philadelphia Fed Index of General Business Conditions, the Empire State
Business <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615b.jpg" align="right" border="0" height="265" width="353">
Conditions Index reflects answers to independent survey
questions; it is not a weighted combination of the components. The
series dates back only to 2001. Deterioration in the component of the
June survey was limited to shipments and inventories. Otherwise, the
new orders index improved modestly to -8.15 and that compares to
March's reading of -44.76. Twenty-five percent of survey participants
reported higher new orders, versus the March low of nine percent. The
employment index also improved to the highest level since last October.
Fourteen percent of respondents reported higher employment versus the
March low of 4.5%. In the history of the NY employment index, there has
been an 87% correlation between it and the three-month growth in
overall U.S. factory sector employment as reported by the Labor
Department. The length of the average workweek also grew.Price
deflation also moderated as the rate of contraction in the factory
sector slowed. The price index rose to its highest level since late
last year as the number of respondents reporting lower prices fell
sharply to 16%,<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615c.jpg" align="right" border="0" height="265" width="353">
half of the percentage of this past January. Only 10%
of respondents reported paying higher prices and that was near the
series' low. Since inception in 2001, there has been a 76% correlation
between the index of prices paid and the three-month change in the core
intermediate materials PPI. The Empire State index
of expected business conditions in six months improved during
June to the highest level since mid-2007. The subseries for shipments,
employment and capital expenditures jumped while prices paid and new
orders remained off their lows. The Empire State data is
available in Haver's SURVEYS database.
Large Banks and Small Banks in an Era of Systemic Risk
Regulation is this morning's speech by Fed Governor Daniel K.
Tarullo and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/tarullo20090615a.htm">
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/SURVEYS/@S5/@S511/@S511.HTM">Empire
State Manufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June '08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>-9.41</td>
<td>-4.55</td>
<td>-8.12</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>-8.15</td>
<td>-9.01</td>
<td>-3.73</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>-21.84</td>
<td>-23.86</td>
<td>1.16</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>-5.75</td>
<td>-11.36</td>
<td>66.28</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>
</body></html>

This month's Empire State Index of manufacturing sector activity, reported by the Federal Reserve Bank of New York, fell versus May. Nevertheless, the latest reading remained very much improved from the low of this past Winter and, as [...]

Empire State Factory Conditions Deteriorated M/M But Remain Improved From Earlier Low

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615a.jpg" align="right" border="0" height="265" width="353">This
month's Empire State Index of manufacturing sector activity, reported
by the Federal Reserve Bank of New York, fell versus May. Nevertheless,
the latest reading remained very much improved from the low of this
past Winter and, as a result, suggests that recessionary forces have
moderated. The reading of -9.41 compared with -4.55 in May. The index
reached a level of -38.23 this past March and the latest level compared
to Consensus expectations for a reading of -4.5.
The Empire State
Manufacturing Survey is a monthly survey of manufacturers in New York
State. Participants from across the state in a variety of industries
respond to a questionnaire and report the change in indicators from the
previous month. Respondents also state the likely direction of these
same indicators six months ahead. For more on the Empire
State Manufacturing Survey, including methodologies and the latest
report, click <a href="http://www.newyorkfed.org/survey/empire/Empire2009/empiresurvey_20090615.html">here</a>.
The figure is a diffusion index. Since the series' inception
in 2001,
there has been a 75% correlation between its level and the three-month
change in U.S. factory sector industrial production. Like the
Philadelphia Fed Index of General Business Conditions, the Empire State
Business <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615b.jpg" align="right" border="0" height="265" width="353">
Conditions Index reflects answers to independent survey
questions; it is not a weighted combination of the components. The
series dates back only to 2001.
 Deterioration in the component of the
June survey was limited to shipments and inventories. Otherwise, the
new orders index improved modestly to -8.15 and that compares to
March's reading of -44.76. Twenty-five percent of survey participants
reported higher new orders, versus the March low of nine percent. The
employment index also improved to the highest level since last October.
Fourteen percent of respondents reported higher employment versus the
March low of 4.5%. In the history of the NY employment index, there has
been an 87% correlation between it and the three-month growth in
overall U.S. factory sector employment as reported by the Labor
Department. The length of the average workweek also grew.
Price
deflation also moderated as the rate of contraction in the factory
sector slowed. The price index rose to its highest level since late
last year as the number of respondents reporting lower prices fell
sharply to 16%,<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615c.jpg" align="right" border="0" height="265" width="353">
half of the percentage of this past January. Only 10%
of respondents reported paying higher prices and that was near the
series' low. Since inception in 2001, there has been a 76% correlation
between the index of prices paid and the three-month change in the core
intermediate materials PPI.
 The Empire State index
of expected business conditions in six months improved during
June to the highest level since mid-2007. The subseries for shipments,
employment and capital expenditures jumped while prices paid and new
orders remained off their lows.
 The Empire State data is
available in Haver's SURVEYS database.


Large Banks and Small Banks in an Era of Systemic
Risk
Regulation is this morning's speech by Fed Governor Daniel K.
Tarullo and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/tarullo20090615a.htm">
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/SURVEYS/@S5/@S511/@S511.HTM">Empire
State Manufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June '08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>-9.41</td>
<td>-4.55</td>
<td>-8.12</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>-8.15</td>
<td>-9.01</td>
<td>-3.73</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>-21.84</td>
<td>-23.86</td>
<td>1.16</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>-5.75</td>
<td>-11.36</td>
<td>66.28</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>
U.S. Home Builders' Index Slips 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 15, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615d.jpg" align="left" border="0" height="265" width="353">
According to the National Association of Home Builders, the
recent improvement in the housing market took this month off. Their
June index of sales slipped to 15 from the unrevised May level of 16.
Nevertheless, the index remained near the highest level since last
September. The index is compiled from survey questions asking builders
to rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to
&#8220;very low&#8221;. Numerical results over 50
indicate a predominance of &#8220;good&#8221; readings.
During the first quarter the Home Builders' Housing
Opportunity Index, which is the share of homes sold that could be
considered affordable to a family earning the median income, jumped m/m
to a record high buoyed by lower home prices, lower interest rates and
higher income. (There is a break in the series from 2002 to 2003.)<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615e.jpg" align="right" border="0" height="265" width="353">
The Home Builders Association indicated that its sub-index of
present sales remained stable at a reading of 14 but that also was up
significantly from the low of last year. Since 1990, the year-to-year
change in this index has had an 80% correlation with the year-to-year
percentage change in new single-family home sales.
The index of builders&#8217; expectations for home sales in six
months also slipped but remained near its highest since September.
The &#8220;traffic" of prospective buyers was unchanged from May
and still up from the record lows of this past Winter.
During June the index readings for each of the county's
regions improved except in the South.
The NAHB has compiled the Housing Market Index
since 1985. The weights assigned to the
individual index components are .5920 for single family detached sales,
present time; .1358 for single family detached sales, next six months;
and .2722 for traffic of prospective buyers. The results, along with
other housing and remodeling indexes from NAHB Economics, are included
in Haver&#8217;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">&nbsp;June '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Housing Market Index
(All Good = 100)</td>
<td>15</td>
<td>16</td>
<td>18</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>14</td>
<td>14</td>
<td>17</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>26</td>
<td>27</td>
<td>27</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>13</td>
<td>13</td>
<td>16</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
EMU Job Market Has Record Q1 Job
Loss 
by <a href="/comment/Brusca.html">Robert
Brusca</a> June 15, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090615f.jpg" align="left" border="0">
The number of people at work in the Euro Area fell by 1.2mln
in Q1, the greatest quarterly drop since records began in 1995. Still,
that performance is dwarfed by the huge declines in the US as the
percentage calculations in the table show. 
 

Europe has been hurt badly but it is a region with far more
labor market rigidities than the US. And those rigidities help
employment during times of economic shocks. Employment in the Euro Area
is down by just 1.3% Yr/Yr and unemployment is up by 20.9%. Compare
that to the US where employment is down by 3.1% Yr/Yr and unemployment
is up by 63% Yr/Yr. But even with those figures the ratio of the
unemployed-to-employed is greater in the Euro Area than in the US. The
fact is simply that the US unemployment rate was much lower than
Europe&#8217;s before recession and now it has ticked up to the same general
region as Europe&#8217;s rate. 
 

Obviously the structure of the economy in Europe and in the US
is very different. Still this recession has hit Europe hard. By its own
metrics the labor market has been hit hard. The US is looking at one of
its most severe recessions in the Post-war period. EMU has not been
around long enough to make any such statement. 
 

Through 2009-Q1 both EMU and the US are showing signs of an
increased pace of job losses and an increased pace of unemployment.
Monthly data in the US strongly support the notion that the
unemployment mess is unwinding rapidly in Q2. At this pace of unwind
the US could have job growth by August of 2009. We have no such bright
future in hand for Europe. 
 

While there is still a debate afoot about the US and whether
it will spawn a strong or weak recovery, we can be sure that Europe&#8217;s
will be slow in part because of all the disguised unemployment its
labor force rigidities hide. Forecasts still foresee weak growth for
the rest of the year in Europe. For the US that same forecast generally
is in place but conditions in the US are shifting pretty fast and some
forecasts have simply not been recast. Europe does not shift gears fast. 
 

We can&#8217;t judge the recession to be than much harsher in the US
than in Europe because of the jobs data and the greater US labor force
displacement. There are simply different economic structures at work.
But the figures are telling in terms of the impact on jobs in both EMU
and in the US. GDP has been hard hit in both regions. In the US the GDP
downturn simply dislodges more jobs. US GDP has fallen by about 6%
(SAAR) for two quarters a row. In EMU the drops have been more like 7%
and 10% at annual rates. Clearly jobs don&#8217;t tell the whole story of
dislocation. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Growth
rates by Quarter or period for various EU Nations</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar: All</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>2Qtr</td>
<td>4Qtr</td>
<td>5Yr</td>
</tr>
<tr>
<td class="firstcol">All Employed: EMU</td>
<td>-3.3%</td>
<td>-1.4%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>-2.3%</td>
<td>-1.3%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">No Unemployed</td>
<td>39.9%</td>
<td>26.6%</td>
<td>12.0%</td>
<td>7.8%</td>
<td>33.0%</td>
<td>20.9%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">EA: Industry</td>
<td>-5.3%</td>
<td>-3.9%</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>-4.6%</td>
<td>-2.9%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">EA: Agric, Forestry</td>
<td>-2.5%</td>
<td>0.8%</td>
<td>-2.2%</td>
<td>-5.5%</td>
<td>-0.8%</td>
<td>-2.4%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">EA: Construction</td>
<td>-8.6%</td>
<td>-8.7%</td>
<td>-5.8%</td>
<td>-4.6%</td>
<td>-8.6%</td>
<td>-6.9%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">EA: Wholesale Retail</td>
<td>-3.8%</td>
<td>-1.5%</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>-2.7%</td>
<td>-1.3%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">EA: Financial</td>
<td>-3.9%</td>
<td>-2.2%</td>
<td>0.3%</td>
<td>0.9%</td>
<td>-3.1%</td>
<td>-1.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">EA: Gov't Education</td>
<td>0.0%</td>
<td>2.2%</td>
<td>0.5%</td>
<td>2.5%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Memo:
Industry Employment</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-3.8%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>1.0%</td>
<td>-2.0%</td>
<td>-0.7%</td>
<td>-0.2%</td>
</tr>
<tr>
<td class="firstcol">UK (MFG)*</td>
<td>#N/A</td>
<td>-6.6%</td>
<td>-6.3%</td>
<td>-2.0%</td>
<td>-6.5%</td>
<td>-4.0%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">France (MFG)</td>
<td>-5.8%</td>
<td>-3.3%</td>
<td>-1.6%</td>
<td>-1.7%</td>
<td>-4.6%</td>
<td>-3.1%</td>
<td>-2.0%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">UK
growth rates lag by one
quarter</td>
</tr>
<tr>
<td class="firstcol">US Employment</td>
<td>-6.7%</td>
<td>-3.4%</td>
<td>-1.9%</td>
<td>-0.4%</td>
<td>-5.1%</td>
<td>-3.1%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">US Unemployment</td>
<td>88.0%</td>
<td>65.2%</td>
<td>61.8%</td>
<td>41.7%</td>
<td>76.3%</td>
<td>63.4%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">US MFG Employment</td>
<td>-17.0%</td>
<td>-9.4%</td>
<td>-4.7%</td>
<td>-4.1%</td>
<td>-13.3%</td>
<td>-8.9%</td>
<td>-2.7%</td>
</tr>
</tbody>
</table>
</body></html>

Empire State Factory ConditionsDeteriorated M/M But Remain Improved From Earlier Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090612g.jpg" width="353">
Good news seems better than bad news. That&#39;s an obvious statement, but it&#39;s behind the recent rise in the University of Michigan&#39;s early-June reading of consumer sentiment. At 69.0 the latest index level was roughly unchanged from May and it about matched Consensus expectations. The increase bodes well for the consumer spending outlook because 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.
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 consumer sentiment slipped this month from May but it remained near the highest level since early last year. Expectations for personal finances rose with higher stock prices but expected business conditions during the next year slipped. Expected conditions during the next five years similarly slipped. Both of these readings remained, however, from their lows of earlier this year. Though unemployment was expected to decline over the next twelve months, price inflation was expected to heat up. Interest rates were expected to fall<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090612h.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 22% of respondents thought that a good job was being done by government while an increased 29% 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 3.8%. 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.
Jobless Recovery Redux? from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-18.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></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>69.0</td>
<td>68.7</td>
<td>65.1</td>
<td>22.3%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>74.5</td>
<td>67.7</td>
<td>68.3</td>
<td>10.2</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>65.4</td>
<td>69.4</td>
<td>63.1</td>
<td>32.9</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Good news seems better than bad news. That's an obvious statement, but it's behind the recent rise in the University of Michigan's early-June reading of consumer sentiment. At 69.0 the latest index level was roughly unchanged from May [...]

Michigan Consumer Sentiment Stable But The Current View of Economic Conditions Jumps

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.