Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090603g.jpg" width="353">
Improvement in service sector activity is accompanying the factory sector&#39;s recent rise. The May Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) rose to 44.0 last month from an unrevised reading of 43.7 during April. The latest was the highest level since October of last year but it was slightly lower than Consensus expectations for a May reading of 45.0. A level of the ISM index below 50 indicates declining activity. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the business activity index in the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.
That latest rise came as the employment index rose to its highest level since October. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.Also to the upside was the supplier deliveries index. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090603h.jpg" width="353">
Countering these gains were declines in the business activity sub-index after two months of improvement. The new orders series also fell but just slightly. At 44.4 it remained well up from last November&#39;s low of 35.6.
Pricing power has shown moderate improvement this year in that earlier declines have not continued. The price index has been relatively stable in a range of 36 to 48 after reaching a high of 82.1 last Spring. Since its inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
Beginning with the January 2008 Nonmanufacturing <cite>Report On Business</cite>&reg;, the composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indices for four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm.">here</a>.
ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997.

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May &#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">Composite Index</td>
<td>44.0</td>
<td>43.7</td>
<td>51.2</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Business Activity</td>
<td>42.4</td>
<td>45.2</td>
<td>52.9</td>
<td>47.4</td>
<td>56.0</td>
<td>58.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>39.0</td>
<td>37.0</td>
<td>48.3</td>
<td>43.8</td>
<td>52.0</td>
<td>53.8</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>46.9</td>
<td>40.0</td>
<td>75.6</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
</table>


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Improvement in service sector activity is accompanying the factory sector's recent rise. The May Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) rose to 44.0 last month from an unrevised [...]

U.S. ISM Nonmanufacturing Index Improves Further

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090603f.jpg" align="left" border="0" height="265" width="353">
The real story this month is not that the services PMI in EMU
continued to improve, but that in the UK the PMI reading for the
services sector leapt over the neutral zone to score a positive reading
at 51.72. 
 

The UK is now showing the strongest service sector in EU. At
48.33 and still showing decline, France is in second place. Spain&#8216;s
service sector weakened this month, dropping from 42.30 to 39.14 and is
now below Ireland&#8217;s reading. 
 

The services reading for EMU is in the bottom 26% of its
range. But that is stronger than the services reading from the EU
Commission index for services; that reading is in the bottom 3.7% of is
range. Consumer confidence for EMU is also low in the bottom 8% of its
range. 
 

The news here is that the service sector, as is true for the
MFG sector, finds improvement is in train. That is good news and what
we have come to expect. Different surveys show different degrees of
change &#8211; that is not too surprising. Within the Zone we have countries
moving at different speeds- not surprising either&#8211;as well as in
different directions, and that is not good at all. The UK is the
strongest EU country in terms of its service sector, Spain with 18%
unemployment is seeing its service sector being dragged down. Were
Spain the UK its currency might drop to stimulate the economy, but
since Spain is In EMU and the UK is out, that possibility is not
Spain&#8217;s and the UK does not need such stimulus. Spain is a problem for
EMU and despite rhetoric to the contrary the Zone itself owns Spain
some assistance. In a currency union, even one with separate fiscal
responsibilities like fiscal Japanese lunch box there still are joint
responsibilities to the members. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Markit Services Indices for EU/EMU </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Area</td>
<td>44.82</td>
<td>43.76</td>
<td>40.95</td>
<td>43.18</td>
<td>42.17</td>
<td>44.63</td>
<td>26.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Germany</td>
<td>45.17</td>
<td>43.76</td>
<td>42.30</td>
<td>43.74</td>
<td>44.05</td>
<td>47.05</td>
<td>19.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; France</td>
<td>48.33</td>
<td>46.52</td>
<td>43.64</td>
<td>46.16</td>
<td>43.63</td>
<td>45.94</td>
<td>36.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Italy</td>
<td>43.08</td>
<td>42.05</td>
<td>39.10</td>
<td>41.41</td>
<td>40.58</td>
<td>43.38</td>
<td>21.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Spain</td>
<td>39.14</td>
<td>42.30</td>
<td>34.11</td>
<td>38.52</td>
<td>35.20</td>
<td>35.04</td>
<td>33.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Ireland</td>
<td>39.49</td>
<td>32.16</td>
<td>35.69</td>
<td>35.78</td>
<td>34.53</td>
<td>36.65</td>
<td>22.4%</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="8">EU only</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; UK (CIPs)</td>
<td>51.72</td>
<td>48.68</td>
<td>45.47</td>
<td>48.62</td>
<td>45.30</td>
<td>45.33</td>
<td>56.9%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">EU Commission Indices for
EU and EMU</td>
</tr>
<tr class="even">
<td class="firstcol">EU Index</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; EU Services</td>
<td>-26</td>
<td>-30</td>
<td>-31</td>
<td>-32.00</td>
<td>-31.67</td>
<td>-26.17</td>
<td>8.3%</td>
</tr>
<tr class="even">
<td class="firstcol">EMU</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>-23</td>
<td>-24</td>
<td>-25</td>
<td>-24.00</td>
<td>-22.50</td>
<td>-14.04</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Cons Confidence</td>
<td>-31</td>
<td>-31</td>
<td>-34</td>
<td>-32.00</td>
<td>-31.67</td>
<td>-18.08</td>
<td>8.3%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Consumer Confidence By
Country</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany-Ccon</td>
<td>-35</td>
<td>-34</td>
<td>-31</td>
<td>-33.33</td>
<td>-29.67</td>
<td>-19.50</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France-Ccon</td>
<td>-33</td>
<td>-32</td>
<td>-36</td>
<td>-33.67</td>
<td>-34.33</td>
<td>-30.00</td>
<td>7.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ital-Ccon</td>
<td>-26</td>
<td>-25</td>
<td>-31</td>
<td>-27.33</td>
<td>-27.67</td>
<td>-25.75</td>
<td>15.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK-Ccon</td>
<td>-22</td>
<td>-22</td>
<td>-28</td>
<td>-24.00</td>
<td>-28.00</td>
<td>-26.25</td>
<td>34.2%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Percentile is over range since May
2000</td>
</tr>
</tbody>
</table>
</body></html>

The real story this month is not that the services PMI in EMU continued to improve, but that in the UK the PMI reading for the services sector leapt over the neutral zone to score a positive reading at 51.72. The UK is now showing the [...]

Markit's Service PMI Rises In EMU But Still Shows Contraction

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090603e.jpg" width="353">
The outplacement firm of Challenger, Grey &amp; Christmas indicated that job cut announcements eased for the fourth consecutive month. The announcement of 111,182 layoffs followed 132,590 during April. This cycle&#39;s largest layoff total occurred in January when there were 241,749 cuts. Challenger also reported, however, that announced hiring plans fell sharply after their jump during April.
Announcement of job cuts in the pharmaceutical industry fell even further after the sharp April decline to 698. Announcements in the retail industry also fell for the fourth consecutive month while job cuts in the real estate industry evaporated. Cuts in the retail industry fell as did cuts in the insurance and in the industrial goods sectors.
Picking up some steam were job cut announcements in the computer and in the construction sectors. The health care sector job cut announcements rose sharply.
During the last ten years there has been a 67% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment. Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
The Challenger figures are available in Haver&#39;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">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>
<td class="firstcol">Announced Job Cuts</td>
<td>111,182</td>
<td>132,590</td>
<td>7.4%</td>
<td>1,223,993</td>
<td>768,264</td>
<td>839,822</td>
</tr>
</tbody>
</table>
</body>
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The outplacement firm of Challenger, Grey & Christmas indicated that job cut announcements eased for the fourth consecutive month. The announcement of 111,182 layoffs followed 132,590 during April. This cycle's largest layoff total [...]

Challenger Layoffs Continue To Indicate Job Market Improvement

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090603c.jpg" width="353">
No doubt the job market has yet to materially improve. However, the latest report from the payroll processor ADP in their National Employment Report showed an easing in the rate of contraction. It indicated that private nonfarm payrolls fell 532,000 last month after a revised 545,000 decline during April. (Recent months&#39; declines were revised deeper from the earlier estimates.) The latest reading was the sixteenth consecutive monthly decline, but the annualized rate of decline in payrolls eased somewhat to 6.3% during the last three months.
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
The U.S. Bureau of Labor Statistics will report payroll employment this Friday. For comparison, April&#39;s 545,000 worker decline in ADP&#39;s measure of private nonfarm payrolls was accompanied by 611,000 job losses in the BLS measure of private sector payrolls. According to ADP and Macro-Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090603d.jpg" width="353">
ADP reported that last month medium-sized payrolls fell 223,000 (-5.3% y/y) followed by a 209,000 (-4.0% y/y) worker decline in small sized payrolls. Large payrolls fell by 100,000 (-5.3% y/y). In the goods producing sector there were 267,000 fewer jobs in April (-12.0% y/y). Medium-sized payrolls fell 114,000 (-12.5% y/y) followed by a 98,000 (-11.4% y/y) shortfall in small-sized payrolls. Large payrolls fell 55,000 (-12.1% y/y). In the manufacturing sector alone, payrolls fell 149,000 (-11.8% y/y) and that rate of decline has been gaining steam.
Declines in employment in the service producing industry have lagged just slightly the factory sector&#39;s workforce contraction. The 265,000 (-3.1% y/y) decline last month was the fourteenth consecutive monthly decline. Medium-sized service payrolls fell 109,000 (-3.4% y/y) and small-sized payrolls were off 111,000 (-2.7% y/y). Large service producing payrolls dropped by 45,000 (-3.3% y/y).
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical figures date back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which rose an average 11,083 during the last twelve months. 
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/pdf/FINAL_Report_May_09.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf" title="blocked::http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</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>
<td class="firstcol">Nonfarm Private Payroll Employment (m/m Chg.)</td>
<td>-532,000</td>
<td>-545,000</td>
<td>-4.8%</td>
<td>-0.4</td>
<td>1.2%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


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No doubt the job market has yet to materially improve. However, the latest report from the payroll processor ADP in their National Employment Report showed an easing in the rate of contraction. It indicated that private nonfarm [...]

ADP Report: Rate Of Job Loss Moderates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090603a.jpg" width="353">
Consumers still are shying away from big-ticket expenditures. The added evidence of that trend is that unit sales of light vehicles during May increased just 6.4% m/m to make up an April decline. Year-to-date, total May vehicle sales remained down 3.8% at 9.91 million units (SAAR).
U.S. unit sales of light vehicles rebounded 7.0% to 7.26M units, still near the lowest since 1982 according to the Autodata Corporation and Ward&#39;s Automotive News. (Seasonal adjustment of the figures is provided by the U.S. Bureau of Economic Analysis). Sales of domestically made light trucks rose 9.1% to 4.01M units while auto sales rose a lesser 4.5% to 3.25M units. Sales of domestic vehicles YTD are down 5.6%.
Imported light vehicle sales also rose but they made up only about one-third of their 14.0% m/m April decline. At 2.66M units they remained near their lowest level in roughly ten years. Sales of imported light truck sales rose 9.4% to 0.91M units while sales of imported autos rose a modest 2.7% returning only to their February level. Sales of imported vehicles YTD increased 1.3%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090603b.jpg" width="353">
Overall, import&#39;s share of the U.S. light vehicle market fell again, last month to 26.8% which was their lowest level of this year. Nevertheless, the figure remained up from the 2008 average of 26.3%. (Imported vehicles are those produced outside the United States.) Imports&#39; share of the U.S. car market totaled 34.9%, up slightly from the 2008 average, while the share of the light truck market was 18.6%, roughly equal to last year.
The U.S. vehicle sales figures can be found in Haver&#39;s USECON database.
The Financial Crisis - Toward an Explanation and Policy Response from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/research/annual_report/2008/pdf/article.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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May 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>9.91</td>
<td>9.32</td>
<td>9.86</td>
<td>-30.5%</td>
<td>13.17</td>
<td>16.16</td>
<td>16.54</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>4.99</td>
<td>4.81</td>
<td>5.09</td>
<td>-36.4</td>
<td>6.71</td>
<td>7.58</td>
<td>7.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>3.25</td>
<td>3.11</td>
<td>3.23</td>
<td>-37.1</td>
<td>4.42</td>
<td>5.07</td>
<td>5.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.74</td>
<td>1.70</td>
<td>1.86</td>
<td>-35.0</td>
<td>2.29</td>
<td>2.52</td>
<td>2.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>4.92</td>
<td>4.51</td>
<td>4.78</td>
<td>-23.3</td>
<td>6.47</td>
<td>8.60</td>
<td>8.78</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>4.01</td>
<td>3.67</td>
<td>3.70</td>
<td>-22.6</td>
<td>5.29</td>
<td>7.10</td>
<td>7.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>0.91</td>
<td>0.84</td>
<td>1.08</td>
<td>-26.0</td>
<td>1.18</td>
<td>1.47</td>
<td>1.37</td>
</tr>
</tbody>
</table>


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Consumers still are shying away from big-ticket expenditures. The added evidence of that trend is that unit sales of light vehicles during May increased just 6.4% m/m to make up an April decline. Year-to-date, total May vehicle sales [...]

U.S. May Light Vehicle Sales Recover Only To Low March Level

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602f.jpg" align="left" border="0" height="265" width="353">
Unemployment rates are on the rise around the world. In EMU
the new rate jumped up to 9.2%; the highest rate for the Area in 9-1/2
years (Sept 1999). There have been 3.1million jobs losses since the
recession began. The US has seen a sharp rise in its rate of
unemployment over the past year, a gain of 3.9%. This surpasses the
1.9% point rise in EMU and the 1% point rise in Japan. However, the
rise in Spain as been of a whopping 8.1 percentage points, bringing in
its overall rate to 18.1%. And that spells e-Zone trouble. 
 

Since the start of the US recession in December of 2007 the
German rate of unemployment has dropped &#8211; dropped - by 0.2% points. The
French rate has risen by 0.2% points. Spain&#8217;s U-rate is up by 9.2%
points. The US unemployment rate is higher by 4% points. In Japan the
U-rate is up by 1.3% points. 
 

Spain&#8217;s rate has jumped as the property market has collapsed.
The rise there appears to have a very large structural element. In the
US the rise seems to be mostly cyclical but it is a substantial rise: a
gain of four percentage points compared to a level of 4.9% in December
of 2007. 
 

Europe seems to have forestalled much of the rise in the rate
of unemployment &#8211; Spain excepted, of course. That leads to the
conclusion that despite a substantial social safety net in Europe, the
rise in unemployment is still in progress and will hit Europe later.
Moreover, Europe has different sorts of stresses as the social safety
net is uneven and spreads stress unevenly, across the Area. EMU is only
a common currency area with some economic harmonization rules; fiscal
policy is left to local custom and practice with two overall metrics in
place to constrain aggregate usage. That lack of commonality is now a
problem for the Area. 
 

For the moment the e-Area&#8217;s MFG PMI indices are rising on only
a slight lag with the index in the US. This is with a relatively small
hike in the rate of unemployment in Europe (much of that in Spain) and
a substantial jump in the US. If the unemployment problem in Europe
grows worse, the European recovery that now seems to be on the heels of
the US could suffer substantial erosion. There is also a possibility of
political tensions in Europe as the recessions hit the various EMU
nations unevenly. 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> Unemployment rate and changes</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> Level</td>
<td colspan="3"> Simple Changes</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">EU-Urate</td>
<td>8.6</td>
<td>8.4</td>
<td>8.1</td>
<td>0.7</td>
<td>1.3</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">EMU-Urate</td>
<td>9.2</td>
<td>8.9</td>
<td>8.7</td>
<td>0.8</td>
<td>1.4</td>
<td>1.9</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> m/m%</td>
<td colspan="3"> % changes (ar)</td>
</tr>
<tr>
<td class="firstcol">EU-U 000s</td>
<td>2.7%</td>
<td>3.2%</td>
<td>3.5%</td>
<td>9.7%</td>
<td>19.0%</td>
<td>28.8%</td>
</tr>
<tr>
<td class="firstcol">EMU-U 000s</td>
<td>2.8%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>9.1%</td>
<td>17.7%</td>
<td>27.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">U-Rates</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>7.7</td>
<td>7.6</td>
<td>7.4</td>
<td>0.4</td>
<td>0.6</td>
<td>0.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>8.9</td>
<td>8.8</td>
<td>8.6</td>
<td>0.4</td>
<td>0.9</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Spain</td>
<td>18.1</td>
<td>17.3</td>
<td>16.5</td>
<td>2.5</td>
<td>4.9</td>
<td>8.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; USA</td>
<td>8.9</td>
<td>8.5</td>
<td>8.1</td>
<td>1.3</td>
<td>2.3</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Japan</td>
<td>5</td>
<td>4.8</td>
<td>4.4</td>
<td>0.9</td>
<td>1.2</td>
<td>1</td>
</tr>
</tbody>
</table>
</body></html>

Unemployment rates are on the rise around the world. In EMU the new rate jumped up to 9.2%; the highest rate for the Area in 9-1/2 years (Sept 1999). There have been 3.1million jobs losses since the recession began. The US has seen a [...]

U-Rates On The Rise

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602d.jpg" width="353">
The National Association of Realtors reported that pending sales of existing homes during April rose for the third consecutive month. The 6.7% m/m rise was to the highest level since last September and doubled the unrevised 3.2% March gain. Consensus expectations had been for a slight 0.5% increase in April sales.
Last month&#39;s gain in home sales was spread across the country except in the South where they fell slightly from March (+3.6% y/y). In the West (-3.0%y/y) sales recovered a piece of March&#39;s decline but remained down sharply from the highs of last summer. Elsewhere, sales in the Northeast jumped by nearly one-third from the March level but they were roughly unchanged from one year earlier. Sales in the Midwest jumped 9.8% from March and have rebounded 11.1% versus 2008.
The home sales figures are analogous to the new home sales data from the Commerce Department in that they measure existing home sales when the sales contract is signed, not at the time the sale is closed. The series dates back to 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090602e.jpg" width="353">
The latest monthly gains in home sales have been accompanied by a rise in home prices. The median sales price of an existing home increased a slight 0.2% in April (-15.4% y/y). The rise followed firm increases during the prior two months. The latest gains in home prices did lower housing affordability slightly but just slightly. Therefore, combined with lower interest rates, the affordability index of a home remained up by 29.2% year-to-year and by three quarters from the 2006 low. The latest level was a record high for the series which extends back to 1970.
As the Spring selling season began, the Realtors Association indicated in an earlier report that the number of homes on the market and available for sale rose 8.8% during April but were down 12.8% versus one year earlier. At the current sales rate there was a 10.2 months&#39; supply of homes on the market and there was a 10.4 months&#39; supply during all of last year, up from the 8.9 months supply during 2007 and 6.5 months during 2006. For single family homes, there was a 9.6 months&#39; supply in April versus a full-year figure of 10.0 months during 2008.
The pending home sales data are available in Haver&#39;s PREALTOR database. The number of homes on the market and prices are in the REALTOR 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/WEEKLY/@W5/@W507/@W507.HTM">Pending Home Sales (2001=100)&nbsp;</a></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&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>90.3</td>
<td>84.6</td>
<td>&nbsp;&nbsp; 3.2%</td>
<td>86.8</td>
<td>95.8</td>
<td>112.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>78.9</td>
<td>59.5</td>
<td>0.8</td>
<td>72.6</td>
<td>85.6</td>
<td>98.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Midwest</td>
<td>90.4</td>
<td>82.3</td>
<td>11.1</td>
<td>80.6</td>
<td>89.5</td>
<td>102.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>93.0</td>
<td>93.2</td>
<td>3.6</td>
<td>89.8</td>
<td>107.3</td>
<td>127.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; West</td>
<td>94.8</td>
<td>93.1</td>
<td>-3.0</td>
<td>99.3</td>
<td>92.1</td>
<td>109.5</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Realtors reported that pending sales of existing homes during April rose for the third consecutive month. The 6.7% m/m rise was to the highest level since last September and doubled the unrevised 3.2% March [...]

U.S. Pending Home Sales Rise To Their Highest Level Since September

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

260116R23.jpg

260116S23.jpg

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.

260116T23.jpg

260116U23.jpg

- 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

260116E.jpg

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.

260116.jpg

**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.

260115Z1.jpg

**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.

260115Z2.jpg

**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.

260115Z3.jpg

**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.

260115Z4.jpg

**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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