Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090612f.jpg" align="left" border="0" height="265" width="353">
Industrial output fell again in April marking the 12th
straight month of decline in Yr/Yr output; industrial output has gone
12-months without a month to month gain as well (m/m output was flat in
August of 2008). 
 

Declines spread across all major output categories in the
month. In terms of the sequential growth rates (3m compared to 6mo
compared to 12mo) there is improvement in train for intermediate and
capital goods but consumer goods output trends are getting
progressively worse. The overall trends show that after a worsening in
the growth rate at 6-months, the three-month growth rate has limited
its pace of decline to -18.9%. 
 

Obviously the picture for EMU is still poor. Output is
declining on a broad front and still falling sharply on that broad
front. There are some signs that the output declines are abating. The
signs from the EMU index are the weakest. Strongest signs of a
turnaround come from the patterns in the large EMU economies. 
 







<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="11" scope="col"> Euro Area MFG IP</th></tr></thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Apr 09</td>
<td>Mar 09</td>
<td>Apr 09</td>
<td>Mar 09</td>
<td>Apr 09</td>
<td>Mar 09</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Euro Area Detail</td>
<td>Apr 09</td>
<td>Mar 09</td>
<td>Feb 09</td>
<td>3mo</td>
<td>3mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-to- Date</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>-1.5%</td>
<td>-1.2%</td>
<td>-2.5%</td>
<td>-18.9%</td>
<td>-25.4%</td>
<td>-26.5%</td>
<td>-27.6%</td>
<td>-21.5%</td>
<td>-20.2%</td>
<td>-17.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer</td>
<td>-0.9%</td>
<td>-0.5%</td>
<td>-1.8%</td>
<td>-11.9%</td>
<td>-10.3%</td>
<td>-9.6%</td>
<td>-9.4%</td>
<td>-8.6%</td>
<td>-7.3%</td>
<td>-10.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durables</td>
<td>-0.8%</td>
<td>-1.2%</td>
<td>-3.6%</td>
<td>-20.2%</td>
<td>-24.6%</td>
<td>-25.9%</td>
<td>-26.8%</td>
<td>-22.2%</td>
<td>-20.9%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Nondurables</td>
<td>-0.7%</td>
<td>-0.3%</td>
<td>-1.5%</td>
<td>-9.9%</td>
<td>-7.8%</td>
<td>-6.7%</td>
<td>-6.6%</td>
<td>-6.2%</td>
<td>-5.1%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate</td>
<td>-1.7%</td>
<td>-1.8%</td>
<td>-2.5%</td>
<td>-21.6%</td>
<td>-22.8%</td>
<td>-32.5%</td>
<td>-34.1%</td>
<td>-26.6%</td>
<td>-25.3%</td>
<td>-20.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital</td>
<td>-2.7%</td>
<td>0.0%</td>
<td>-3.1%</td>
<td>-21.0%</td>
<td>-34.6%</td>
<td>-32.6%</td>
<td>-32.8%</td>
<td>-26.3%</td>
<td>-22.3%</td>
<td>-20.5%</td>
</tr>
<tr><td colspan="11" class="firstcol">Main Euro Area Countries
and UK IP in MFG</td></tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Apr-09</td>
<td>Mar 09</td>
<td>Apr 09</td>
<td>Mar 09</td>
<td>Apr 09</td>
<td>Mar 09</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">MFG Only</td>
<td>Apr 09</td>
<td>Mar 09</td>
<td>Feb 09</td>
<td>3mo</td>
<td>3mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-to- Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany:</td>
<td>-2.9%</td>
<td>0.8%</td>
<td>-3.5%</td>
<td>-20.5%</td>
<td>-35.2%</td>
<td>-36.8%</td>
<td>-35.8%</td>
<td>-24.2%</td>
<td>-22.1%</td>
<td>-19.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP excl Construction</td>
<td>-1.4%</td>
<td>-1.7%</td>
<td>-0.9%</td>
<td>-15.0%</td>
<td>-24.4%</td>
<td>-22.5%</td>
<td>-26.1%</td>
<td>-18.8%</td>
<td>-16.4%</td>
<td>-15.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.7%</td>
<td>-4.7%</td>
<td>-5.0%</td>
<td>-30.9%</td>
<td>-36.7%</td>
<td>-30.6%</td>
<td>-34.8%</td>
<td>-25.2%</td>
<td>-25.6%</td>
<td>-22.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>5.8%</td>
<td>-5.0%</td>
<td>1.2%</td>
<td>7.1%</td>
<td>-39.1%</td>
<td>-24.7%</td>
<td>-36.1%</td>
<td>-28.6%</td>
<td>-13.7%</td>
<td>16.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK: EU member</td>
<td>0.2%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>0.9%</td>
<td>-12.2%</td>
<td>-15.2%</td>
<td>-18.2%</td>
<td>-12.7%</td>
<td>-13.1%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
</body></html>

Industrial output fell again in April marking the 12th straight month of decline in Yr/Yr output; industrial output has gone 12-months without a month to month gain as well (m/m output was flat in August of 2008). Declines spread [...]

IP Still Falling in Euro Area: but Evidence of Slowing

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090612c.jpg" align="right" border="0" height="265" width="353">
During May, U.S. import prices moved higher again due to recent
increases in oil prices The expected 1.3% gain followed a similar 1.1%
rise during April and, since January, prices have risen by 2.9%.
Nevertheless, earlier declines in prices were severe with the start of
the global economic recession. Therefore the y/y change in import
prices remained a negative 17.6%.Higher petroleum prices have
accelerated recent import price gains. The 8.3% increase last month was
the fourth firm consecutive monthly rise and another strong gain is in
store for this month. The price for a barrel of Brent Crude oil
yesterday rose to $71.55. That's up nearly seven dollars, or ten
percent, from the end of May. Crude oil prices have returned to where
they were last October. Non-oil import prices have firmed as
well, though nowhere near as dramatically as oil. The lower value of
the dollar as well as a firming U.S. economy undoubtedly were behind
the 0.2% price uptick in May which left prices roughly flat over the
last three months. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090612d.jpg" align="right" border="0" height="265" width="353">
While not strong, by any means, the stability
compares to three-month price declines of 3.5% as recently as this past
January. (During the last ten years, there has been a negative 81%
correlation between the nominal trade-weighted exchange value of the US
dollar vs. major currencies and the y/y change in non-oil import
prices.)&nbsp;
During May, capital goods import prices were unchanged after a 0.1%
uptick during April. On a three-month basis, prices fell 0.3% after the
0.9% decline during March. Excluding computers, capital goods prices
were unchanged in May and three-month growth remained a low -0.4%.
Prices of computers, peripherals &amp; accessories rose 0.2% last
month but they were down 0.3% during the last three months. Regardless
of that firming, computer prices remained 6.4% lower than last
year.Prices for nonauto consumer goods were unchanged in
May, but here again there has been some firming versus earlier
declines. The three-month rate of change amounted to -0.2% which
compared to a -0.7% change as recently as January. Durable consumer
goods prices rose 0.4% over the last three months after a -1.7% decline
through January. Household goods and home entertainment equipment
prices have firmed considerably.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090612e.jpg" align="right" border="0" height="265" width="353">
Moving the other way, declines in
apparel prices have offset some of that strength in durables.Total
export prices have firmed and accompanied the gains in import prices.
Last month they rose 0.6% led by a 3.6% (-14.7% y/y) rise in
agricultural prices. Nonagricultural export prices also have firmed but
not to the same degree. Last month they rose 0.3% and over three months
they were up just 0.1% following a -6.0% decline as of the end of last
year.The import and export price series can be found in
Haver's USECON database. Detailed figures are
available in the USINT database.Risks
and Resolutions: The "Day After" for Financial Institutions - A
Conference Summary from the Federal Reserve Bank of Chicago
can be found <a href="http://www.chicagofed.org/publications/fedletter/cfljuly2009_264a.pdf">here</a>.&nbsp;&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/@E807/@E807.HTM">Import/Export
Prices (NSA, %)</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">Import - All Commodities</td>
<td>1.3</td>
<td>1.1</td>
<td>-17.6</td>
<td>11.5</td>
<td>4.2</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>8.3</td>
<td>9.8</td>
<td>-51.4</td>
<td>37.7</td>
<td>11.6</td>
<td>20.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonpetroleum</td>
<td>0.2</td>
<td>-0.2</td>
<td>-5.8</td>
<td>5.3</td>
<td>2.7</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Export - All Commodities</td>
<td>0.6</td>
<td>0.4</td>
<td>-6.5</td>
<td>6.0</td>
<td>4.9</td>
<td>3.6</td>
</tr>
</tbody>
</table>
</body></html>

During May, U.S. import prices moved higher again due to recent increases in oil prices The expected 1.3% gain followed a similar 1.1% rise during April and, since January, prices have risen by 2.9%. Nevertheless, earlier declines in [...]

U.S. Import Prices Rise With Higher Oil Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090612a.jpg" width="353">
Since the peak in 2Q 2007, the net worth of the U.S. household &amp; nonprofit sectors&#39; has fallen by $13.8 trillion, or by nearly one-quarter. The decline to its lowest level since 2004 was led by the rapid shrinkage in asset values, namely of stocks and real estate. Over just the last four quarters alone, the decline totaled $9.8 trillion. Over that period, the value of the household sector&#39;s financial assets fell by $7.9 trillion as the value of equity market shares fell by $3.3 trillion, or by 39.1% y/y, and mutual fund share values also fell by $1.3 trillion, or 28.4%. In addition, pension fund reserves were hit by $2.78 trillion during the year or by 21.2%. Tangible asset values suffered somewhat less than financial values but they still were down sharply. Over the last year, the value of tangibles overall dropped $2.2 trillion (-8.3%) as the reduction in real estate values totaled $2.3 trillion or 10.3%.
Accompanying the decline in the household sector&#39;s asset values was a reining in of liabilities. Total credit market liabilities of the household sector rose just 4.4% during the last four quarters, the weakest advance since 1954 (no typo). And all sectors pulled back their borrowing -- except the Federal government whose liabilities grew a record 28.3%. Non-government domestic liabilities retreated as the recession generated further deleveraging. These liabilities fell for the second quarter and were up a record slow 1.2% year-to-year. Credit market debt owed by the household sector dropped sharply for the second straight quarter (-0.6% y/y). After two quarters of breathtaking decline, mortgage borrowing inched up 1.6% (-1.0% y/y). Consumers also were of a mind to reduce credit liabilities which they did by a record $75.3 billion (-0.4% y/y). With the third decline in the last four quarters, the value of bank loans was up just 1.9% y/y, the least since 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090612b.jpg" width="353">
Credit market debt owed by the financial sector contracted and reversed roughly one-third of a 4Q rise. Year-to-year growth of 3.7% was down from a peak of 13.4% back in 2007. Liabilities of commercial banks rose 31.4% y/y but savings institutions liabilities fell for the fourth straight quarter (-25.3% y/y).
The liabilities of the foreign sector increased for the first quarter in the last three but year-to-year growth was a negative 9.0%.
Credit Quantity and Credit Quality: Bank Competition and Capital Accumulation from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr366.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/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a> (Y/Y % Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">1Q &#39;09</th>
<th scope="col">4Q &#39;08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Credit Market Debt Outstanding</td>
<td>--</td>
<td>4.4</td>
<td>5.2</td>
<td>5.2</td>
<td>10.1</td>
<td>9.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>11%</td>
<td>28.3</td>
<td>24.2</td>
<td>24.2</td>
<td>4.9</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>28%</td>
<td>-0.6</td>
<td>0.4</td>
<td>0.4</td>
<td>6.6</td>
<td>10.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>13%</td>
<td>4.3</td>
<td>5.3</td>
<td>5.3</td>
<td>14.1</td>
<td>8.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfarm, NonCorporate Business</td>
<td>7%</td>
<td>1.3</td>
<td>4.7</td>
<td>4.7</td>
<td>12.8</td>
<td>14.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>3.7</td>
<td>5.5</td>
<td>5.5</td>
<td>13.4</td>
<td>10.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td>--</td>
<td>$50.376</td>
<td>$51.706</td>
<td>$51.706</td>
<td>$62.191</td>
<td>$62.206</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Tangible Assets: Households</td>
<td>--</td>
<td>$24.221</td>
<td>$24.782</td>
<td>$24.782</td>
<td>$27.102</td>
<td>$28.288</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Financial Assets: Households</td>
<td>--</td>
<td>$40.295</td>
<td>$41.179</td>
<td>$41.179</td>
<td>$49.831</td>
<td>$47.356</td>
</tr>
</tbody>
</table>
</body>
</html>

Since the peak in 2Q 2007, the net worth of the U.S. household & nonprofit sectors' has fallen by $13.8 trillion, or by nearly one-quarter. The decline to its lowest level since 2004 was led by the rapid shrinkage in asset values, [...]

U.S. Flow of Funds Indicate Further Shrinkage of Balance Sheets

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611e.jpg" width="353">
As worried as they are about the sales environment, businesses have taken the practice of shedding their inventories at the fastest rate in nearly thirty years. Total business inventories fell another 1.1% during April, down for the eighth straight month. These declines have given rise to a three-month decumulation rate of 14.1%. That is near the strongest in the series&#39; history which dates back to 1980. The recent cutback in inventories is in reaction to an 8.3% rate of decline in business sales, though that rate of decline has eased a bit lately.
The troubling factor behind this equation is that the strong inventory cutbacks have done little to reduce the inventory/sales ratio which, at 1.43, was near its highest level since the recession of 2001. Emphasizing the magnitude of the inventory back-up is the increase in the I/S ratio during the last year, which is the swiftest since 1982 and it&#39;s still near its high. The rise ended a twenty-eight year downtrend.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611f.jpg" width="353">
Retailers cut inventories by 1.0% in April and at an 11.9% annual rate during the last three months, nearly the fastest in the series&#39; history. Motor vehicle inventories continued to lead the decumulation and fell at a 26.6% rate during the last three months. Recent inventory cutbacks, along with some stabilization of sales, finally is working to lower the inventory-to-sales ratio for automobiles to where it was during the Spring of 2008.
Outside of autos, retailers continued to reduce the levels of unwanted products. Furniture, home furnishings &amp; electronics inventories fell just slightly during April (9.7% y/y) but the rate of decline appears to be easing. Conversely, apparel retailers haven&#39;t backed off at all from their efforts to reduce unwanted inventory. Over the last three months they&#39;re down at a 12.7% annual rate, the swiftest on record. General merchandise inventories rejoined the trend toward reducing stores of unwanted products. Inventories fell 0.6% in April after a slight March increase and they&#39;re off at a 6.3% annual rate during the last three months. The cuts in inventory accumulation have gone some distance in reducing the inventory-to-sales ratio for the nonauto retail sector, but it still remained high.
The business sales and inventory data are available in Haver&#39;s USECON database.
The Systemic Importance of Consumer Protection is today&#39;s speech by Fed Governor Elizabeth A. Duke and it is available <a href="http://www.federalreserve.gov/newsevents/speech/duke20090610a.htm">here.</a>
Inventory Accelerator In General Equilibrium from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/wp/2009/2009-010.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">Business Inventories (%)</th>
<th scope="col">April</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 class="odd">
<td class="firstcol">Total</td>
<td>-1.1</td>
<td>-1.3</td>
<td>-1.4</td>
<td>-6.6</td>
<td>0.6</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-1.0</td>
<td>-0.9</td>
<td>-1.2</td>
<td>-8.5</td>
<td>-3.1</td>
<td>2.5</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Auto</td>
<td>-0.5</td>
<td>-0.3</td>
<td>-0.5</td>
<td>-4.4</td>
<td>-1.8</td>
<td>2.7</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-1.4</td>
<td>-1.8</td>
<td>-1.7</td>
<td>-6.2</td>
<td>3.1</td>
<td>6.2</td>
<td>8.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-1.0</td>
<td>-1.2</td>
<td>-1.3</td>
<td>-5.1</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2</td>
</tr>
</tbody>
</table>
</body>
</html>

As worried as they are about the sales environment, businesses have taken the practice of shedding their inventories at the fastest rate in nearly thirty years. Total business inventories fell another 1.1% during April, down for the [...]

U.S. Business Inventory Decumulation Remains Strong and Steady

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611c.jpg" width="353">
Despite the latest increase in overall retail sales, U.S. consumer spending remains constrained by weak job growth and rising gasoline prices. The restraint was evident in a modest, expected 0.5% increase in May retail sales which followed a little-revised 0.2% decline during April. Highlighting the stress on spending was the magnitude of the year-to-year drop in retail sales. They are off 9.6% in the twelve months ended in May, nearly the sharpest shortfall on record. Consumers remain disinclined to shift the dollars saved because of lower gasoline prices versus last summer. The retail sales data are available in Haver&#39;s USECON database.
Much of the gain in retail spending last month owed to a 3.6% rise (-33.8% y/y) in sales of gasoline service stations. That gain was certainly powered by the 10.6% (NSA) rise in the retail price for a gallon of gasoline. In addition, mirroring the earlier report of higher May unit sales of motor vehicle sales, retail vehicle sales rose 0.5% and made up the April decline. The slight dollar gain lagged the 6.4% rise last month in unit vehicle sales, but both indicate flat sales over the last two months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611d.jpg" width="353">
Emphasizing a persistent weakness in underlying consumer spending were retail sales excluding both autos and gasoline. They ticked up just 0.1% last month following a 0.1% dip during April. The best that can be said about consumption is that the earlier downward momentum in sales may have stabilized. These sales have risen at a 2.7% annual rate since December following last year&#39;s 2.8% decline from December-to-December last year.
Detail of the report show was just how weak discretionary spending remains. Sales at furniture, electronics &amp; appliance stores fell another 0.5% (-13.9% y/y) following the 1.0% drop during April. So far this year these sales have fallen at a 7.1% annual rate after last year&#39;s 4.5% decline. Furniture store sales alone ticked down 0.4% (-14.7% y/y) while sales of electronics &amp; appliances slipped 0.5% (-13.0% y/y). In the soft goods area, May apparel store sales rose by 0.4% (-7.0% y/y) following a 0.7% decline during April. Also restrained were sales at general merchandise stores during the last three months. Last month they fell 0.2% (-1.7% y/y) for the third consecutive monthly slip.
Not only are folks not visiting the stores, but they&#39;re not spending freely when at home. Lower internet and catalogue purchases pulled sales of non-store retailers down last month by another 0.4% (-7.1% y/y) and they have fallen slightly since December. Bucking the overall trend in spending, consumers continue to dine out. Restaurant sales rose just slightly last month but so far this year they have risen at a 5.3% annual rate (1.2% y/y).
Building materials sales increased all of 1.3% last month but they still are down by 10.3% from last May.
The Fed&#39;s latest Beige Book covering regional U.S. economic conditions can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2009/20090610/fullreport20090610.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">&nbsp;</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a> (%)</td>
<td>0.5</td>
<td>-0.2</td>
<td>-1.2</td>
<td>-9.6</td>
<td>-0.7</td>
<td>3.3</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.5</td>
<td>-0.2</td>
<td>-1.1</td>
<td>-7.3</td>
<td>2.5</td>
<td>3.9</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Less Gasoline</td>
<td>0.1</td>
<td>-0.1</td>
<td>-0.9</td>
<td>-3.1</td>
<td>1.6</td>
<td>3.6</td>
<td>5.7</td>
</tr>
</tbody>
</table>
</body>
</html>

Despite the latest increase in overall retail sales, U.S. consumer spending remains constrained by weak job growth and rising gasoline prices. The restraint was evident in a modest, expected 0.5% increase in May retail sales which [...]

U.S. Retail Sales Rise With Higher Gas Prices; Underlying Trend Is Flat

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<img align="left" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611a.jpg">
At the margin, the labor market continues to show signs of firming ... but just a bit. The latest indication is that last week, initial claims for unemployment insurance fell a sharp 24,000 to 601,000 from a little revised 625,000 during the prior two weeks. Initial claims are down from their March peak of 674,000. Moreover, the four-week average of claims, which smoothes out some of the volatility in the weekly numbers, fell to 621,750 which was its lowest level since since mid-February. Still, the level remained up by two-thirds from the year ago level. The Consensus expectation was for 615,000 claims last week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611b.jpg" width="353">
The Labor Department indicated that the largest increases in initial claims for the week ending May 30 were in Connecticut (+816), Louisiana (+809), Tennessee (+672), Arizona (+618), and Nebraska (+576), while the largest decreases were in Florida (-6,655), Illinois (-4,496), Michigan (-4,385), California (-3,551), and Texas (-2,886).
Despite the indication of fewer jobs lost, new job creation remains under pressure. Continuing claims for unemployment insurance, which provide an indication of workers&#39; ability to find employment, rose to another record high of 6,816,000, more than twice the year ago level. Further indicating that the job market remains weak, the four-week average of continuing claims also rose to another record of 6,750,500. The series dates back to 1966.
Further indicating the labor market&#39;s softness was that the insured unemployment rate held at 5.1% for the second consecutive week. That level was more than double last May and the highest level since 1983. During the last ten years there has been a 93% correlation between the level of the insured unemployment rate and the overall rate of unemployment published by the Bureau of Labor Statistics.Clearly, the latest weekly figure understates labor market distress in some states.
The highest insured unemployment rates in the week ending May 23 were in Michigan (7.2 percent), Oregon (6.9), Puerto Rico (6.4), Nevada (6.3), Pennsylvania (6.2), Wisconsin (5.8), Arkansas (5.4), North Carolina (5.4), Illinois (5.3), and South Carolina (5.3).
The unemployment insurance claims data is available in Haver&#39;s WEEKLY database and the state data is in the REGIONW database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">06/06/09</th>
<th scope="col">05/30/09</th>
<th scope="col">05/23/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>601</td>
<td>625</td>
<td>625</td>
<td>54.9%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,816</td>
<td>6,757</td>
<td>117.6%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body>
</html>

At the margin, the labor market continues to show signs of firming ... but just a bit. The latest indication is that last week, initial claims for unemployment insurance fell a sharp 24,000 to 601,000 from a little revised 625,000 [...]

U.S. Initial Jobless Insurance Claims Fall To Their Lowest Since January

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611a.jpg" align="left">
At the margin, the labor market continues to show signs of
firming ... but just a bit. The latest indication is that last week,
initial claims for unemployment insurance fell a sharp 24,000 to
601,000 from a little revised 625,000 during the prior two weeks.
Initial claims are down from their March peak of 674,000. Moreover, the
four-week average of claims, which smoothes out some of the volatility
in the weekly numbers, fell to 621,750 which was its lowest level since
since mid-February. Still, the level remained up by two-thirds from the
year ago level. The Consensus expectation was for 615,000 claims last
week.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611b.jpg" align="right" border="0" height="265" width="353">
The Labor Department indicated that the largest increases in
initial claims for the week ending May 30 were in Connecticut (+816),
Louisiana (+809), Tennessee (+672), Arizona (+618), and Nebraska
(+576), while the largest decreases were in Florida (-6,655), Illinois
(-4,496), Michigan (-4,385), California (-3,551), and Texas (-2,886).
Despite the indication of fewer jobs lost, new job creation
remains under pressure. Continuing claims for unemployment insurance,
which provide an indication of workers' ability to find employment,
rose to another record high of 6,816,000, more than twice the
year ago level. Further indicating that the job market
remains weak, the four-week average of continuing claims also rose to
another record of 6,750,500. The series dates back to 1966.
Further indicating the labor market's softness was that the
insured unemployment rate held at 5.1% for the second consecutive week.
That level was more than double last May and the highest level since
1983. During the last ten years there has been a 93% correlation
between the level of the insured unemployment rate and the overall rate
of unemployment published by the Bureau of Labor Statistics.Clearly,
the latest weekly figure understates labor market distress in some
states.
The highest insured unemployment rates in the week ending May
23 were in Michigan (7.2 percent), Oregon (6.9), Puerto Rico (6.4),
Nevada (6.3), Pennsylvania (6.2), Wisconsin (5.8), Arkansas (5.4),
North Carolina (5.4), Illinois (5.3), and South Carolina (5.3).
The unemployment insurance claims data is available in Haver's
WEEKLY database and the state data is in the REGIONW
database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">06/06/09</th>
<th scope="col">05/30/09</th>
<th scope="col">05/23/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>601</td>
<td>625</td>
<td>625</td>
<td>54.9%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,816</td>
<td>6,757</td>
<td>117.6%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
U.S. Retail Sales Rise With Higher
Gas Prices; Underlying Trend Is Flat 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 11, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611c.jpg" align="left" border="0" height="265" width="353">
Despite the latest increase in overall retail sales, U.S.
consumer spending remains constrained by weak job growth and rising
gasoline prices. The restraint was evident in a modest, expected 0.5%
increase in May retail sales which followed a little-revised 0.2%
decline during April. Highlighting the stress on spending was the
magnitude of the year-to-year drop in retail sales. They are off 9.6%
in the twelve months ended in May, nearly the sharpest shortfall on
record. Consumers remain disinclined to shift the dollars saved because
of lower gasoline prices versus last summer. The retail sales data are
available in Haver's USECON database.
Much of the gain in retail spending last month owed to a 3.6%
rise (-33.8% y/y) in sales of gasoline service stations. That gain was
certainly powered by the 10.6% (NSA) rise in the retail price for a
gallon of gasoline. In addition, mirroring the earlier report of higher
May unit sales of motor vehicle sales, retail vehicle sales rose 0.5%
and made up the April decline. The slight dollar gain lagged the 6.4%
rise last month in unit vehicle sales, but both indicate flat sales
over the last two months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611d.jpg" align="right" border="0" height="265" width="353">
Emphasizing a persistent weakness in underlying consumer
spending were retail sales excluding both autos and gasoline. They
ticked up just 0.1% last month following a 0.1% dip during April. The
best that can be said about consumption is that the earlier downward
momentum in sales may have stabilized. These sales have risen at a 2.7%
annual rate since December following last year's 2.8% decline from
December-to-December last year.
Detail of the report show was just how weak discretionary
spending remains. Sales at furniture, electronics &amp; appliance
stores fell another 0.5% (-13.9% y/y) following the 1.0% drop during
April. So far this year these sales have fallen at a 7.1% annual rate
after last year's 4.5% decline. Furniture store sales alone ticked down
0.4% (-14.7% y/y) while sales of electronics &amp; appliances
slipped 0.5% (-13.0% y/y). In the soft goods area, May apparel store
sales rose by 0.4% (-7.0% y/y) following a 0.7% decline during April.
Also restrained were sales at general merchandise stores during the
last three months. Last month they fell 0.2% (-1.7% y/y) for the third
consecutive monthly slip.
Not only are folks not visiting the stores, but they're not
spending freely when at home. Lower internet and catalogue purchases
pulled sales of non-store retailers down last month by another 0.4%
(-7.1% y/y) and they have fallen slightly since December. Bucking the
overall trend in spending, consumers continue to dine out. Restaurant
sales rose just slightly last month but so far this year they have
risen at a 5.3% annual rate (1.2% y/y).
Building materials sales increased all of 1.3% last month but
they still are down by 10.3% from last May.
The Fed's latest Beige Book covering
regional U.S. economic conditions can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2009/20090610/fullreport20090610.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">&nbsp;</th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail
Sales &amp; Food Services</a> (%)</td>
<td>0.5</td>
<td>-0.2</td>
<td>-1.2</td>
<td>-9.6</td>
<td>-0.7</td>
<td>3.3</td>
<td>5.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Autos</td>
<td>0.5</td>
<td>-0.2</td>
<td>-1.1</td>
<td>-7.3</td>
<td>2.5</td>
<td>3.9</td>
<td>6.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Less Gasoline</td>
<td>0.1</td>
<td>-0.1</td>
<td>-0.9</td>
<td>-3.1</td>
<td>1.6</td>
<td>3.6</td>
<td>5.7</td>
</tr>
</tbody>
</table>
U.S. Business Inventory
Decumulation Remains Strong and Steady 
by <a href="/comment/Moeller.html">Tom
Moeller</a> June 11, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611e.jpg" align="left" border="0" height="265" width="353">
As worried as they are about the sales environment, businesses
have taken the practice of shedding their inventories at the fastest
rate in nearly thirty years. Total business inventories fell another
1.1% during April, down for the eighth straight month. These declines
have given rise to a three-month decumulation rate of 14.1%. That is
near the strongest in the series' history which dates back to 1980. The
recent cutback in inventories is in reaction to an 8.3% rate of decline
in business sales, though that rate of decline has eased a bit lately.
The troubling factor behind this equation is that the strong
inventory cutbacks have done little to reduce the inventory/sales ratio
which, at 1.43, was near its highest level since the recession of 2001.
Emphasizing the magnitude of the inventory back-up is the increase in
the I/S ratio during the last year, which is the swiftest since 1982
and it's still near its high. The rise ended a twenty-eight year
downtrend.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090611f.jpg" align="right" border="0" height="265" width="353">
Retailers cut inventories by 1.0% in April and at an 11.9%
annual rate during the last three months, nearly the fastest in the
series' history. Motor vehicle inventories continued to lead the
decumulation and fell at a 26.6% rate during the last three months.
Recent inventory cutbacks, along with some stabilization of sales,
finally is working to lower the inventory-to-sales ratio for
automobiles to where it was during the Spring of 2008.
Outside of autos, retailers continued to reduce the levels of
unwanted products. Furniture, home furnishings &amp; electronics
inventories fell just slightly during April (9.7% y/y) but the rate of
decline appears to be easing. Conversely, apparel retailers haven't
backed off at all from their efforts to reduce unwanted inventory. Over
the last three months they're down at a 12.7% annual rate, the swiftest
on record. General merchandise inventories rejoined the trend toward
reducing stores of unwanted products. Inventories fell 0.6% in April
after a slight March increase and they're off at a 6.3% annual rate
during the last three months. The cuts in inventory accumulation have
gone some distance in reducing the inventory-to-sales ratio for the
nonauto retail sector, but it still remained high.
The business sales and inventory data are available in Haver's
USECON database.
The Systemic Importance of Consumer Protection
is today's speech by Fed Governor Elizabeth A. Duke and it is available
<a href="http://www.federalreserve.gov/newsevents/speech/duke20090610a.htm">here.</a>
Inventory Accelerator In General Equilibrium
from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/wp/2009/2009-010.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">Business
Inventories (%)</th>
<th scope="col">April</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 class="odd">
<td class="firstcol">Total</td>
<td>-1.1</td>
<td>-1.3</td>
<td>-1.4</td>
<td>-6.6</td>
<td>0.6</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-1.0</td>
<td>-0.9</td>
<td>-1.2</td>
<td>-8.5</td>
<td>-3.1</td>
<td>2.5</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>-0.5</td>
<td>-0.3</td>
<td>-0.5</td>
<td>-4.4</td>
<td>-1.8</td>
<td>2.7</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-1.4</td>
<td>-1.8</td>
<td>-1.7</td>
<td>-6.2</td>
<td>3.1</td>
<td>6.2</td>
<td>8.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-1.0</td>
<td>-1.2</td>
<td>-1.3</td>
<td>-5.1</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2</td>
</tr>
</tbody>
</table>
</body></html>

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.

Economy in Brief

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IP Still Falling in Euro Area: but Evidence of Slowing

U.S. Import Prices Rise With Higher Oil Prices

U.S. Flow of Funds Indicate Further Shrinkage of Balance Sheets

U.S. Flow of Funds Indicate Further Shrinkage of Balance Sheets

U.S. Business Inventory Decumulation Remains Strong and Steady

U.S. Retail Sales Rise With Higher Gas Prices; Underlying Trend Is Flat

U.S. Initial Jobless Insurance Claims Fall To Their Lowest Since January

U.S. Initial Jobless Insurance Claims Fall To Their Lowest Since January