Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051116b.jpg" width="353">
The 0.2% rise in the consumer price index (CPI-U) last month was stronger than Consensus expectations for no change in prices following the huge 1.2% spurt in September.
Though energy prices declined, the fall was limited to 0.2% due to a 14.0% (45.3% y/y) surge in natural gas prices and a 0.9% (35.9% y/y) gain in fuel oil prices. These gains were offset by gasoline prices which moved lower by 4.5% (+37.0% y/y) and in November have declined roughly another 15% m/m to $2.30 per gallon in the latest week. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051116a.jpg" width="353">
Prices less food &amp; energy rose 0.2%, twice the September increase, but the increase matched Consensus expectations. Core goods prices were unchanged as 0.5% increases in prices for medical commodities (2.6% y/y) and new vehicles (0.9% y/y) were offset by m/m declines in prices for appliances (+2.5% y/y), carpets (-3.5% y/y) and other household equipment (-6.5% y/y). Apparel prices also fell for the sixth month this year (-0.4% m/m, -1.1% y/y) and tobacco prices dropped 0.1% (5.6% y/y).
Core services prices rose 0.3% as shelter prices jumped 0.5% (2.3% y/y) and medical care services prices also rose 0.5% (4.6% y/y). Public transportation prices ballooned 1.4% (7.8% y/y) while school tuition costs rose 0.2% (6.2% y/y).
The chained CPI which adjusts for shifts in the mix of consumer purchases rose 0.3% and less food &amp; energy chain prices rose 0.4%.
Understanding the Inflation Targeting Debate from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20051201/cover.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/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.2%</td>
<td>1.2%</td>
<td>4.3%</td>
<td>2.7%</td>
<td>2.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>-0.9%</td>
<td>-2.0%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.7%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>-0.2%</td>
<td>12.0%</td>
<td>29.6%</td>
<td>10.9%</td>
<td>12.2%</td>
<td>-5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>3.4%</td>
<td>2.1%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<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>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.3%</td>
<td>0.8%</td>
<td>3.3%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.4%</td>
<td>0.2%</td>
<td>1.7%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>1.9%</td>
</tr>
</tbody>
</table>
U.S. Business Inventories Higher Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051116c.jpg" width="353">
Total business inventories in September added 0.5% to the prior month&#39;s 0.4% rise. The gains marked the strongest consecutive monthly increases since February &amp; March yet they failed to reverse the decline in the ratio of inventories-to-sales which fell to a new record low. The I/S ratio fell to 1.25 as business sales increased 0.6% (7.8% y/y).
The 0.9% rise in retail inventories repeated its August increase due to a 2.1% jump in motor vehicle inventories. Excluding autos, inventories rose 0.4% as clothing inventories rose 0.5% (5.7% y/y) and general merchandise increased 0.4% (6.9% y/y). Furniture inventories fell 0.3% (+5.7% y/y) for the third consecutive down month.
Factory sector inventories fell for the second consecutive month.
Wholesale inventories increased 0.6%. During the last ten years there has been a 64% correlation between the y/y change in wholesale inventories and the change in imports of merchandise.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>7.7%</td>
<td>1.4%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.9%</td>
<td>0.9%</td>
<td>1.1%</td>
<td>5.7%</td>
<td>3.9%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.4%</td>
<td>0.6%</td>
<td>6.0%</td>
<td>5.9%</td>
<td>2.0%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.6%</td>
<td>0.5%</td>
<td>8.0%</td>
<td>10.8%</td>
<td>2.0%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>4.9%</td>
<td>7.7%</td>
<td>-1.1%</td>
<td>-5.4%</td>
</tr>
</tbody>
</table>
Mortgage Applications Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051116d.jpg" width="353">
The total number of mortgage applications fell 0.6% last week after a 2.3% gain the prior period, according to the Mortgage Bankers Association. The decline left the average level in November 4.4% below October.
Applications to refinance fell sharply for the fourth consecutive week. The 5.4% drop lowered the November average 11.1% versus October&#39;s.
Purchase applications rose 2.6% for the second consecutive weekly gain and the rise lifted applications in November 0.5% above October. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage was about stable at 6.59% but that was up versus June low of 5.81%. The effective rate on a 15-year mortgage was 6.18%. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Bubbling (or Just Frothy) House Prices? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20051101/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">11/11/05</th>
<th scope="col">11/04/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>657.6</td>
<td>661.3</td>
<td>-13.3%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>477.9</td>
<td>465.7</td>
<td>-0.5%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,702.4</td>
<td>1,798.8</td>
<td>-28.3%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Foreign Investors Increase Net Securities Purchases in US Markets Again in September 
by <a href="/comment/Stone.html">Carol Stone</a> November 16, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051116e.jpg" width="353">
Foreign investors continued to increase their participation in US securities markets in September, according to the US Treasury&#39;s monthly Treasury International Capital (&quot;TIC&quot;) data reported this morning. For the first time, net purchases of major marketable securities surpassed $100 billion, reaching $101.9 billion. As evident in the table below, just two years ago, monthly average purchases were only about half this amount.
The TIC data, carried in Haver&#39;s USINT database, constitute a sizable body of information about interest in US markets from investors in many countries around the world. Many observers look to these data as a way of gauging the ease with which foreign capital flows &quot;finance&quot; the now enormous US current account deficit. Indeed, as we have pointed out here before, there is a high correlation of these investment flows with the size of that deficit.
However, one aspect that strikes us this month is the variety contained in the transactions. While the volume in US Treasuries look fairly steady in our table, in individual months they have ranged from a net liquidation of $3.2 billion (February 2003) to net purchases in excess of $50 billion (each March and April 2004). Other securities categories show even more variability. Perhaps the only repeated pattern is a consistent liquidation of foreign stocks that trade in US markets.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051116f.jpg" width="353">
There is also great variability among the nations represented. A quick glance at a list of the countries and their purchases of various instruments shows much up and down movement in most any combination. Such wide-ranging changes highlight the fact that these transactions are generated by thousands of individual investment decisions. For example, total net purchases of US corporate stocks surged from $3.8 billion in August to $24.6 billion in September. Canadian investors bought about the same amount in each of these months: $6.6 billion in August and $5.4 billion in September. So other investors were obviously net sellers in the former month, but switched to making sizable purchases in the latter. Canadians, in the meantime, had bought $1.7 billion on net of US corporate bonds in August, but reduced their activity in these bonds to nearly zero in September. Thus, multiple investment motivations must be at work among these diverse financial market participants. Further, we&#39;d hazard a guess that any &quot;financing&quot; of the current account is more likely to be reflected in short-term financial instruments, such as flows of bank deposits, commercial paper and trade credit. Some of these data are also contained in the USINT database as &quot;banking liabilities to foreigners&quot; and &quot;nonbanking liabilities to foreigners. Those liabilities, some of which are published only quarterly and available only through Q2, have grown rapidly over the past year, as one might expect, but more examination of these relationships is needed to form firmer conclusions on the origins of these flows.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USINT/@U3/@U3.HTM">Net Foreign Purchases of Securities in US Markets</a> (Billions US$)</th>
<th scope="col">Sept 2005</th>
<th scope="col">Aug 2005 </th>
<th scope="col">July 2005 </th>
<th scope="col">Last 12 Months&#39; Average </th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004 </td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total </td>
<td>101.9</td>
<td>89.0</td>
<td>87.3</td>
<td>71.5</td>
<td>63.6</td>
<td>55.3</td>
<td>47.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Treasuries </td>
<td>21.8</td>
<td>28.2</td>
<td>28.5</td>
<td>25.7</td>
<td>29.3</td>
<td>22.0</td>
<td>10.0</td>
</tr>
<tr>
<td class="firstcol">Federal Agencies (mostly &quot;GSEs&quot;) </td>
<td>20.6</td>
<td>15.7</td>
<td>37.8</td>
<td>20.8</td>
<td>18.9</td>
<td>13.0</td>
<td>16.3</td>
</tr>
<tr class="odd">
<td class="firstcol">US Corporate Bonds </td>
<td>51.1</td>
<td>40.2</td>
<td>24.7</td>
<td>30.3</td>
<td>25.8</td>
<td>22.1</td>
<td>15.2</td>
</tr>
<tr>
<td class="firstcol">US Corporate Stocks </td>
<td>24.6</td>
<td>3.8</td>
<td>10.0</td>
<td>7.4</td>
<td>2.4</td>
<td>2.9</td>
<td>4.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Bonds </td>
<td>-9.1</td>
<td>17.1</td>
<td>-5.1</td>
<td>-2.9</td>
<td>-5.7</td>
<td>2.7</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">Foreign Stocks </td>
<td>-7.0</td>
<td>-13.5</td>
<td>-8.7</td>
<td>-9.8</td>
<td>-7.1</td>
<td>-7.4</td>
<td>-0.1</td>
</tr>
</tbody>
</table>
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The 0.2% rise in the consumer price index (CPI-U) last month was stronger than Consensus expectations for no change in prices following the huge 1.2% spurt in September. Though energy prices declined, the fall was limited to 0.2% due [...]

Home Heating Costs Lifted CPI

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115a.jpg" width="353">
Preliminary data released today show that Germany&#39;s Real Gross Domestic Product increased 0.6% in the third quarter, compared with revised increases of 0.6% in the first quarter and 0.2% in the second quarter. The unrevised increases for the first and second quarters were 0.8% and 0.0% respectively. For the three quarters of this year, real GDP is only 0.87% above the three corresponding quarters of 2004, suggesting that growth in 2005 is unlikely to exceed 1.0%. Nominal GDP increased 0.38% in the third quarter, less than the real increase, as the deflator declined 0.24%. This was one of the few times, in the past five years, when the deflator declined, as can be seen in the first chart which shows the quarter-to-quarter growth in Real and Nominal GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115b.jpg" width="353">
Information on the composition of GDP will not be available until November 22 when the more detailed release is scheduled to appear. However, the Federal Statistical Office offered some qualitative comments in the current release. A strong increase in exports and a considerable rise in capital formation had positive impacts on the quarter-to-quarter growth. Net exports were almost the only cause of year-to-year growth; domestic activity having made little contribution.
The ZEW Center for Economic Research released the results of its survey of institutional investors and financial analysts regarding the current economic situation and the outlook six months ahead. This was one of those rare times when the respondents were less pessimistic about the current situation than they were last month but less positive about the situation six months ahead as can be seem in the second chart. The decline in optimism about the future is generally attributed to doubts that the agreed upon economic program of the Grand Coalition scheduled to take office on November 22 may do little to encourage growth. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">Germany</a></th>
<th scope="col">Q3 05&nbsp;</th>
<th scope="col">Q2 05</th>
<th scope="col">Q3 04</th>
<th scope="col">Q/Q&nbsp; %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2004&nbsp;%&nbsp;</th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP (Bil. Euros)</td>
<td>561.05</td>
<td>558.90</td>
<td>557.16</td>
<td>0.38</td>
<td>1.61</td>
<td>1.88</td>
<td>0.84</td>
<td>1.55</td>
</tr>
<tr>
<td class="firstcol">GDP (Bil 2000 Chained Euros)&nbsp;</td>
<td>535.02</td>
<td>531.73</td>
<td>527.02</td>
<td>0.62</td>
<td>1.36</td>
<td>1.09</td>
<td>-.019</td>
<td>0.09</td>
</tr>
<tr class="odd">
<td class="firstcol">Deflator (2000 =100)</td>
<td>104.84</td>
<td>105.09</td>
<td>104.59</td>
<td>-0.24</td>
<td>0.24</td>
<td>0.79</td>
<td>1.03</td>
<td>1.45</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">ZEW Survey ( Percent Balance)</td>
<td>Nov 05&nbsp;</td>
<td>Oct 05</td>
<td>Nov 04</td>
<td>M/M&nbsp; Dif</td>
<td>Y/Y Dif</td>
<td>2004&nbsp; </td>
<td>2003&nbsp;</td>
<td>2002&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td>-55.2</td>
<td>-58.0</td>
<td>-57.8</td>
<td>2.8</td>
<td>2.6</td>
<td>-67.7</td>
<td>92.6</td>
<td>83.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Situation 6 Months Ahead</td>
<td>38.7</td>
<td>39.4</td>
<td>13.9&nbsp;</td>
<td>-0.7&nbsp;</td>
<td>24.8&nbsp;</td>
<td>&nbsp; 44.6&nbsp;</td>
<td>&nbsp;38.4</td>
<td>&nbsp;45.3</td>
</tr>
</tbody>
</table>
</body>
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Preliminary data released today show that Germany's Real Gross Domestic Product increased 0.6% in the third quarter, compared with revised increases of 0.6% in the first quarter and 0.2% in the second quarter. The unrevised increases [...]

German Economic Growth Increases in the Third Quarter but ZEW Survey Raises Doubts About the Outlook

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115f.jpg" width="353">
The November Empire State Index of General Business Conditions in New York&#39;s manufacturing industries regained all of the prior month&#39;s decline and rose 10.7 points to 22.82, the highest level since August. Consensus expectations had been for less of an increase to 15.0.
Since the series&#39; inception in 2001 there has been a close 80% correlation between the index level and the three month change in factory sector production.
Shipments recovered most of the October decline and the employment index jumped to 7.7 points to the highest level in over a year. The new orders index also added a bit to the October 13 point surge while prices paid rose to a record high. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115e.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The index of expectations for business conditions in six months recovered sharply. The 14 point jump pulled the index level to its highest since August and expectations for future capital spending jumped. A nine point rise brought the index to the highest level since March.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;04 </th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>22.82</td>
<td>12.08</td>
<td>19.78</td>
<td>28.76</td>
<td>16.17</td>
<td>7.19</td>
</tr>
</tbody>
</table>
</body>
</html>

The November Empire State Index of General Business Conditions in New York's manufacturing industries regained all of the prior month's decline and rose 10.7 points to 22.82, the highest level since August. Consensus expectations had [...]

Empire State Index Back Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115h.jpg" width="353">
Chain store sales gave back last week about half of the prior period&#39;s strong gain and fell 0.6% according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, the average level of sales in November remained 1.0% above October which rose 0.1% from the prior month
The average US retail price of regular gasoline fell another 8 cents last week to $2.30 per gallon (+16.6 y/y). Yesterday, the spot market price for gasoline was down another 3 cents from the prior week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115d.jpg" width="353">
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC gained 0.3% (-2.9% y/y) during the latest week following an upwardly revised 0.2% gain the prior week.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/12/05</th>
<th scope="col">11/05/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>453.3</td>
<td>456.1</td>
<td>3.9%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Chain store sales gave back last week about half of the prior period's strong gain and fell 0.6% according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, the average level of sales in November [...]

Chain Store Sales Backpedaled, Gas Prices Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115c.jpg" width="353">
US retail sales dipped 0.1% last month as consumers shifted away from autos and spent elsewhere. The decline followed a little revised 0.3% September gain but compared favorably to Consensus expectations for a 0.6% decline because less autos, retail sales surged 0.9%. That increase was three times the Consensus expectation and the 1.4% September increase was upwardly revised.
Sales at gasoline service stations fell 0.8% after a 5.1% pop in September which was driven by a 16.8% rise in the retail price of gasoline. Gas prices reversed about half of that gain in October and have fallen another 14% so far in November.
Less gasoline, nonauto retail sales rose 1.1% (7.8% y/y) following an upwardly revised 0.8% gain in September. The increase was boosted again by strength in building material sales which jumped 2.1% (13.1% Y/Y) for the third consecutive month of strong gain.
Discretionary spending continued strong as evidenced by a 0.6% (8.2% y/y) rise in furniture &amp; electronics store sales which followed an upwardly revised 1.4% September surge. Sales of nonstore retailers (internet &amp; catalogue) jumped 1.2% (12.2% y/y) and general merchandise store sales rose 1.2% (7.1% y/y). Apparel store sales in October made up for the prior month&#39;s dip and ballooned 3.1% (6.5% y/y) even though apparel prices recently have been under pressure (-0.7% y/y thru September). 
Today&#39;s U.S. Senate Testimony of Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/testimony/2005/20051115/default.htm">here</a>.
Oil Prices and Consumer Spending from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/mehrapetersen.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.1%</td>
<td>0.3%</td>
<td>5.7%</td>
<td>7.3%</td>
<td>4.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.9%</td>
<td>1.4%</td>
<td>9.9%</td>
<td>8.3%</td>
<td>4.7%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

US retail sales dipped 0.1% last month as consumers shifted away from autos and spent elsewhere. The decline followed a little revised 0.3% September gain but compared favorably to Consensus expectations for a 0.6% decline because [...]

U.S. Retail Sales Dip

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115g.jpg" width="353">
The overall Producer Price Index rose another 0.7% last month on top of the 1.9% September spike. The latest by far exceeded Consensus expectations for no change in prices.
The strength last month was led by a 12.3% (50.4% y/y) rise in home heating oil prices and a 12.7% (38.9% y/y) jump in natural gas which more than offset the 3.3% (+40.3% y/y) decline in gasoline.
Price inflation at the so called &quot;core&quot; level nevertheless eased a bit last month as a 0.3% decline in prices less food &amp; energy reversed all of the prior month&#39;s gain. Consensus expectations for a 0.2% increase.
Core finished consumer goods prices fell 0.2% (+2.0% y/y). Durable goods prices dropped 0.9% (+0.2% y/y) led by a 3.0% (-2.1% y/y) decline in passenger car prices as well as weakness in prices for home electronics (-2.0% y/y), carpets (+6.1% y/y) and home appliances (+1.7% y/y). Core consumer nondurable goods prices rose 0.2% (3.5% y/y) for the second consecutive month.
&quot;Spillover&quot; effects from the past strength in oil prices continued to be evident at the earlier stages of processing. Intermediate goods prices jumped 3.0% on top of the 2.5% September surge while core intermediate goods prices repeated their 1.2% spike of the prior month.
Crude energy prices gained 12.4% (69.4% y/y) as natural gas prices soared an unadjusted 20.3% (120.4% y/y). The gain lifted overall crude prices 6.7% though core crude prices reversed some of their September strength with a 1.2% decline. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.7%</td>
<td>1.9%</td>
<td>5.9%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>3.0%</td>
<td>2.5%</td>
<td>10.5%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.2%</td>
<td>1.2%</td>
<td>4.3%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>6.7%</td>
<td>10.2%</td>
<td>31.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-1.2%</td>
<td>5.3%</td>
<td>0.9%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

The overall Producer Price Index rose another 0.7% last month on top of the 1.9% September spike. The latest by far exceeded Consensus expectations for no change in prices. The strength last month was led by a 12.3% (50.4% y/y) rise [...]

PPI Up Another 0.7%, Core Prices Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115g.jpg" width="353">
The overall Producer Price Index rose another 0.7% last month on top of the 1.9% September spike. The latest by far exceeded Consensus expectations for no change in prices.
The strength last month was led by a 12.3% (50.4% y/y) rise in home heating oil prices and a 12.7% (38.9% y/y) jump in natural gas which more than offset the 3.3% (+40.3% y/y) decline in gasoline.
Price inflation at the so called &quot;core&quot; level nevertheless eased a bit last month as a 0.3% decline in prices less food &amp; energy reversed all of the prior month&#39;s gain. Consensus expectations for a 0.2% increase.
Core finished consumer goods prices fell 0.2% (+2.0% y/y). Durable goods prices dropped 0.9% (+0.2% y/y) led by a 3.0% (-2.1% y/y) decline in passenger car prices as well as weakness in prices for home electronics (-2.0% y/y), carpets (+6.1% y/y) and home appliances (+1.7% y/y). Core consumer nondurable goods prices rose 0.2% (3.5% y/y) for the second consecutive month.
&quot;Spillover&quot; effects from the past strength in oil prices continued to be evident at the earlier stages of processing. Intermediate goods prices jumped 3.0% on top of the 2.5% September surge while core intermediate goods prices repeated their 1.2% spike of the prior month.
Crude energy prices gained 12.4% (69.4% y/y) as natural gas prices soared an unadjusted 20.3% (120.4% y/y). The gain lifted overall crude prices 6.7% though core crude prices reversed some of their September strength with a 1.2% decline. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.7%</td>
<td>1.9%</td>
<td>5.9%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>3.0%</td>
<td>2.5%</td>
<td>10.5%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.2%</td>
<td>1.2%</td>
<td>4.3%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>6.7%</td>
<td>10.2%</td>
<td>31.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-1.2%</td>
<td>5.3%</td>
<td>0.9%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
U.S. Retail Sales Dip 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115c.jpg" width="353">
US retail sales dipped 0.1% last month as consumers shifted away from autos and spent elsewhere. The decline followed a little revised 0.3% September gain but compared favorably to Consensus expectations for a 0.6% decline because less autos, retail sales surged 0.9%. That increase was three times the Consensus expectation and the 1.4% September increase was upwardly revised.
Sales at gasoline service stations fell 0.8% after a 5.1% pop in September which was driven by a 16.8% rise in the retail price of gasoline. Gas prices reversed about half of that gain in October and have fallen another 14% so far in November.
Less gasoline, nonauto retail sales rose 1.1% (7.8% y/y) following an upwardly revised 0.8% gain in September. The increase was boosted again by strength in building material sales which jumped 2.1% (13.1% Y/Y) for the third consecutive month of strong gain.
Discretionary spending continued strong as evidenced by a 0.6% (8.2% y/y) rise in furniture &amp; electronics store sales which followed an upwardly revised 1.4% September surge. Sales of nonstore retailers (internet &amp; catalogue) jumped 1.2% (12.2% y/y) and general merchandise store sales rose 1.2% (7.1% y/y). Apparel store sales in October made up for the prior month&#39;s dip and ballooned 3.1% (6.5% y/y) even though apparel prices recently have been under pressure (-0.7% y/y thru September). 
Today&#39;s U.S. Senate Testimony of Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/testimony/2005/20051115/default.htm">here</a>.
Oil Prices and Consumer Spending from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/mehrapetersen.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.1%</td>
<td>0.3%</td>
<td>5.7%</td>
<td>7.3%</td>
<td>4.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.9%</td>
<td>1.4%</td>
<td>9.9%</td>
<td>8.3%</td>
<td>4.7%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
Chain Store Sales Backpedaled, Gas Prices Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115h.jpg" width="353">
Chain store sales gave back last week about half of the prior period&#39;s strong gain and fell 0.6% according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, the average level of sales in November remained 1.0% above October which rose 0.1% from the prior month
The average US retail price of regular gasoline fell another 8 cents last week to $2.30 per gallon (+16.6 y/y). Yesterday, the spot market price for gasoline was down another 3 cents from the prior week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115d.jpg" width="353">
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC gained 0.3% (-2.9% y/y) during the latest week following an upwardly revised 0.2% gain the prior week.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/12/05</th>
<th scope="col">11/05/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>453.3</td>
<td>456.1</td>
<td>3.9%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Empire State Index Back Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115f.jpg" width="353">
The November Empire State Index of General Business Conditions in New York&#39;s manufacturing industries regained all of the prior month&#39;s decline and rose 10.7 points to 22.82, the highest level since August. Consensus expectations had been for less of an increase to 15.0.
Since the series&#39; inception in 2001 there has been a close 80% correlation between the index level and the three month change in factory sector production.
Shipments recovered most of the October decline and the employment index jumped to 7.7 points to the highest level in over a year. The new orders index also added a bit to the October 13 point surge while prices paid rose to a record high. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115e.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The index of expectations for business conditions in six months recovered sharply. The 14 point jump pulled the index level to its highest since August and expectations for future capital spending jumped. A nine point rise brought the index to the highest level since March.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a> </th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;04 </th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>22.82</td>
<td>12.08</td>
<td>19.78</td>
<td>28.76</td>
<td>16.17</td>
<td>7.19</td>
</tr>
</tbody>
</table>
German Economic Growth Increases in the Third Quarter but ZEW Survey Raises Doubts About the Outlook 
by <a href="/comment/Curley.html">Louise Curley</a> November 15, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115a.jpg" width="353">
Preliminary data released today show that Germany&#39;s Real Gross Domestic Product increased 0.6% in the third quarter, compared with revised increases of 0.6% in the first quarter and 0.2% in the second quarter. The unrevised increases for the first and second quarters were 0.8% and 0.0% respectively. For the three quarters of this year, real GDP is only 0.87% above the three corresponding quarters of 2004, suggesting that growth in 2005 is unlikely to exceed 1.0%. Nominal GDP increased 0.38% in the third quarter, less than the real increase, as the deflator declined 0.24%. This was one of the few times, in the past five years, when the deflator declined, as can be seen in the first chart which shows the quarter-to-quarter growth in Real and Nominal GDP. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051115b.jpg" width="353">
Information on the composition of GDP will not be available until November 22 when the more detailed release is scheduled to appear. However, the Federal Statistical Office offered some qualitative comments in the current release. A strong increase in exports and a considerable rise in capital formation had positive impacts on the quarter-to-quarter growth. Net exports were almost the only cause of year-to-year growth; domestic activity having made little contribution.
The ZEW Center for Economic Research released the results of its survey of institutional investors and financial analysts regarding the current economic situation and the outlook six months ahead. This was one of those rare times when the respondents were less pessimistic about the current situation than they were last month but less positive about the situation six months ahead as can be seem in the second chart. The decline in optimism about the future is generally attributed to doubts that the agreed upon economic program of the Grand Coalition scheduled to take office on November 22 may do little to encourage growth. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">Germany</a></th>
<th scope="col">Q3 05&nbsp;</th>
<th scope="col">Q2 05</th>
<th scope="col">Q3 04</th>
<th scope="col">Q/Q&nbsp; %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2004&nbsp;%&nbsp; </th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP (Bil. Euros)</td>
<td>561.05</td>
<td>558.90</td>
<td>557.16</td>
<td>0.38</td>
<td>1.61</td>
<td>1.88</td>
<td>0.84</td>
<td>1.55</td>
</tr>
<tr>
<td class="firstcol">GDP (Bil 2000 Chained Euros)&nbsp;</td>
<td>535.02</td>
<td>531.73</td>
<td>527.02</td>
<td>0.62</td>
<td>1.36</td>
<td>1.09</td>
<td>-.019</td>
<td>0.09</td>
</tr>
<tr class="odd">
<td class="firstcol">Deflator (2000 =100)</td>
<td>104.84</td>
<td>105.09</td>
<td>104.59</td>
<td>-0.24</td>
<td>0.24</td>
<td>0.79</td>
<td>1.03</td>
<td>1.45</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">ZEW Survey ( Percent Balance)</td>
<td>Nov 05&nbsp;</td>
<td>Oct 05</td>
<td>Nov 04</td>
<td>M/M&nbsp; Dif</td>
<td>Y/Y Dif</td>
<td>2004&nbsp; </td>
<td>2003&nbsp;</td>
<td>2002&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td>-55.2</td>
<td>-58.0</td>
<td>-57.8</td>
<td>2.8</td>
<td>2.6</td>
<td>-67.7</td>
<td>92.6</td>
<td>83.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Situation 6 Months Ahead</td>
<td>38.7</td>
<td>39.4</td>
<td>13.9&nbsp;</td>
<td>-0.7&nbsp;</td>
<td>24.8&nbsp;</td>
<td>&nbsp; 44.6&nbsp;</td>
<td>&nbsp;38.4</td>
<td>&nbsp;45.3</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114b.jpg" width="353">
Preliminary data on Japan&#39;s Gross Domestic Product was released late last week. Total GDP rose at an annual rate of 1.7% in the third quarter, above the consensus estimate of 1.1%. Although the growth had slowed from 3.25% of the second quarter and the 6.29% of the first quarter, the report was well received by financial analysts and the stock market. The Nikkei 225 Average rose 0.5% or 74 points to 14,155.06 on last Friday, its highest close since May 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051114c.jpg" width="353">
On Monday, the stock market gave back more than half of Friday&#39;s gains. While the Monday decline has been attributed to a falling off of demand for Japanese stocks by foreign investors, some of the decline may have been the result of different views on deflation expressed by the Governor of the Bank of Japan and the Prime Minister following the release of the GDP data. Toshihiko Fukui, governor of the Bank of Japan, hinted at a possible change in monetary policy. &quot;A shift in policy, conceptually, would be a cut in current account deposits (the liquidity target) followed by very low short-term interest rates and then an adjustment to rates to a level in line with economic conditions.&quot; Prime Minister Junichiro Koizumi warned the Bank that it was too early to change its easy monetary policy of fighting deflation. In the first chart the gap between real and nominal GDP, a measure of deflation, has yet to show meaningful signs of decline.
The deceleration in growth was due in part to a decline in net exports as imports, fueled by high oil prices, rose faster than exports. However, both private consumption and gross fixed investment also played a part in the deceleration of growth. The second chart shows the seasonally adjusted annual rate of change in private final consumption and in gross fixed investment. The one sector that showed higher growth was inventories as both public and private inventories rose. 

<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/JAPAN/@J2/@J2.HTM">Japan:&nbsp;</a> Gross Domestic Product</th>
<th scope="col">Q3 2005 &nbsp;%</th>
<th scope="col">Q2 2005 %</th>
<th scope="col">Q1 2005 %</th>
<th scope="col">Q4 2004 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP Current Yen</td>
<td>0.69</td>
<td>2.05</td>
<td>3.15</td>
<td>0.89</td>
<td>1.40</td>
<td>-0.05</td>
<td>-1.56</td>
</tr>
<tr>
<td class="firstcol">GDP 2000 Chn Yen</td>
<td>1.70</td>
<td>3.25</td>
<td>6.29</td>
<td>0.72</td>
<td>2.61</td>
<td>1.41</td>
<td>-0.29</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Final Consumption&nbsp;</td>
<td>1.36</td>
<td>2.67</td>
<td>5.04</td>
<td>-1.09</td>
<td>1.47</td>
<td>0.24</td>
<td>0.53</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Gross Domestic Fixed Investment</td>
<td>3.66</td>
<td>6.42</td>
<td>7.10</td>
<td>0.62</td>
<td>1.34</td>
<td>1.05</td>
<td>-5.67</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports of Goods &amp; Services</td>
<td>11.43</td>
<td>13.03</td>
<td>-0.05</td>
<td>6.62</td>
<td>14.47</td>
<td>9.09</td>
<td>4.15</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports of Goods &amp; Services</td>
<td>16.66</td>
<td>9.40</td>
<td>0.30</td>
<td>10.33</td>
<td>8.92</td>
<td>3.82</td>
<td>1.25</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Q3 05 Bil. 2000.Chn Yen</td>
<td>Q2 05 Bil. 2000.Chn Yen</td>
<td>Q1 05 Bil.2000.Chn Yen</td>
<td>Q4 04 Bil. 2000.Chn Yen</td>
<td>2004 Bil. 2000.Chn Yen</td>
<td>2003 Bil. 2000.Chn Yen&nbsp;</td>
<td>2002 Bil. 2000.Chn Yen</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private Inventory Change</td>
<td>2261.1</td>
<td>2046.3</td>
<td>2848.9</td>
<td>1128.9</td>
<td>839.6</td>
<td>-108.5</td>
<td>-983.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Public Inventory Change</td>
<td>&nbsp;163.5</td>
<td>124.0&nbsp;</td>
<td>141.5&nbsp;</td>
<td>167.6&nbsp;</td>
<td>&nbsp;41.4</td>
<td>2.5&nbsp;</td>
<td>-6.6&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

Preliminary data on Japan's Gross Domestic Product was released late last week. Total GDP rose at an annual rate of 1.7% in the third quarter, above the consensus estimate of 1.1%. Although the growth had slowed from 3.25% of the [...]

Japanese Gross Domestic Product Slows, but Exceeds Consensus Estimates

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

260205Z1.jpg

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

260205Z2.jpg

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

260205Z3.jpg

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

260205Z4.jpg

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

260205Z5.jpg

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

260205Z6.jpg

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

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

Robert Brusca

260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

260205X15.jpg

260205Y15.jpg

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

U.S. Initial Unemployment Claims Surged in Latest Week

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

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

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

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

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

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

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

Economy in Brief: 2005

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