Tom Moeller

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118d.jpg">
Falling by another fifteen cents w/w to $2.07 per gallon, the retail price for a gallon of regular gasoline was at its lowest level since early 2005 according to the U.S. Department of Energy survey. Prices have now fallen $2.04 per gallon, or by more than one-half, since their peak early this past July. The latest decline was accompanied by a drop in the average price for all grades of gasoline to $2.13 per gallon.
Yesterday, the spot market price for a gallon of regular gasoline fell eight cents from last week&#39;s average to $1.24. In futures trading the November contract closed down further at $1.17 per gallon.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118e.jpg">
The U.S. Department of Energy reported that the demand for gasoline fell by 2.9% y/y. The rate of decline has bottomed out recently but the decline is still the fastest since late-1995 (the latest four weeks versus the same four weeks last year). The demand for all petroleum products also has softened, falling 6.6% y/y.
These DOE figures are available in Haver&#39;s OILWKLY database.
The price for a barrel of West Texas Intermediate crude oil fell further last week to an average $58.64 per barrel, down 60% since the peak in July of $145.66. In futures trading yesterday, the two-month price for crude oil was even lower at $54.95 per barrel.
Last week, prices for natural gas reversed the prior week&#39;s gain and ticked down to $6.65 per mmbtu (-7.4% y/y). The average price this month was nearly one-half below the high for natural gas prices in early-July of $13.19/mmbtu.
Signs of a Reprieve from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/energy/en0803.cfm">here</a>.
Monetary Policy Transparency and Private Sector Forecasts: Evidence from Survey Data from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/3q08Sellon.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">11/17/08</th>
<th scope="col">11/10/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon)</td>
<td>2.07</td>
<td>2.22</td>
<td>-33.1%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>58.64</td>
<td>64.31</td>
<td>-37.4%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
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Falling by another fifteen cents w/w to $2.07 per gallon, the retail price for a gallon of regular gasoline was at its lowest level since early 2005 according to the U.S. Department of Energy survey. Prices have now fallen $2.04 per [...]

U.S. Gasoline Prices Continued Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118a.jpg" width="353">
U.S. finished producer prices during October matched Consensus expectations and fell 2.8% following their 0.4% drop during September.
A 12.8% decline in energy prices (+5.5% y/y) was due to a 24.9% plunge in gasoline prices, but gasoline prices were still up 3.2% y/y. Additionally, home heating oil prices fell by 9.6% (+24.2% y/y). Natural gas prices fell for the third consecutive month but, again, a 5.9% gain left them still up 10.4% y/y. Residential electric power costs slipped 0.5% (+5.8% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118b.jpg" width="353">
Less food &amp; energy, prices rose 0.4% for the second consecutive month and that compared to a Consensus expectation for a 0.1% uptick. Core pricing indeed has firmed. The y/y gain in the core PPI of 4.4% was the strongest since late-1989. Prices of core finished consumer goods rose 0.3% last month and that was enough to lift the y/y gain to 4.6%, its strongest since 1989. Durable consumer goods prices rose 0.4% (3.0% y/y) on the strength of higher furniture prices which increased 5.4% y/y after a 1.3% gain last year. Additionally, appliance prices firmed and posted a 2.9% y/y rise following the 1.1% increase during 2007. Core nondurable goods prices also strengthened and rose 0.3% last month. Their 5.8% y/y gain was the fastest since early 1999. Prices for capital equipment also firmed. A 0.5% rise during October was the second in a row and it raised the y/y rise to 4.4%, the strongest since 1989.
Finished consumer food prices reversed their September gain and fell 0.2%. However, they still have been strong. Rising 6.6% y/y food prices about matched last year&#39;s gain which was up from a 0.7% uptick during 2006. Meat prices have been firm as have been bakery product prices. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118c.jpg" width="353">
Intermediate goods prices fell 3.9% as energy prices dropped. However, excluding food &amp; energy a 1.7% m/m fall still left these prices up 9.7% y/y which remained near the strongest since 1980.
The crude materials PPI crashed 18.6% (-1.4% y/y) due to a 24.9% drop in energy prices (-1.7% y/y). Crude food prices fell 11.1% and that was enough to lower the y/y gain to -1.3% y/y. Less food &amp; energy crude prices fell 17.0% and that pushed the y/y gain into negative territory for the first time since 2005.
This morning&#39;s testimony by Fed Chairman Ben S. Bernanke is available <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20081118a.htm">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/@E802/@E80201/@E80201.HTM">Producer Price Index</a> (%)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-2.8</td>
<td>-0.4</td>
<td>5.1</td>
<td>3.9</td>
<td>3.0</td>
<td>&nbsp;4.9&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4</td>
<td>0.4</td>
<td>4.4</td>
<td>1.9</td>
<td>1.5</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-3.9</td>
<td>-1.2</td>
<td>15.3</td>
<td>4.1</td>
<td>6.4</td>
<td>&nbsp;8.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-1.7</td>
<td>-0.3</td>
<td>9.7</td>
<td>2.8</td>
<td>6.0</td>
<td>&nbsp;5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-18.6</td>
<td>-7.9</td>
<td>-1.4</td>
<td>12.1</td>
<td>1.4</td>
<td>14.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-17.0</td>
<td>-9.4</td>
<td>&nbsp;-3.1</td>
<td>15.6</td>
<td>20.8</td>
<td>4.9</td>
</tr>
</tbody>
</table>
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U.S. finished producer prices during October matched Consensus expectations and fell 2.8% following their 0.4% drop during September. A 12.8% decline in energy prices (+5.5% y/y) was due to a 24.9% plunge in gasoline prices, but [...]

U.S. PPI Fell Again, Core Pricing Power Strong Again

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118a.jpg" align="left" border="0" height="265" width="353">
U.S. finished producer prices during October matched Consensus
expectations and fell 2.8% following their 0.4% drop during September.
A 12.8% decline in energy prices (+5.5% y/y) was due to a
24.9% plunge in gasoline prices, but gasoline prices were still up 3.2%
y/y. Additionally, home heating oil prices fell by 9.6% (+24.2% y/y).
Natural gas prices fell for the third consecutive month but, again, a
5.9% gain left them still up 10.4% y/y. Residential electric power
costs slipped 0.5% (+5.8% y/y).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118b.jpg" align="right" border="0" height="265" width="353">
Less food &amp; energy, prices rose 0.4% for the second
consecutive month and that compared to a Consensus expectation for a
0.1% uptick. Core pricing indeed has firmed. The y/y gain in the core
PPI of 4.4% was the strongest since late-1989. Prices of core finished
consumer goods rose 0.3% last month and that was enough to lift the y/y
gain to 4.6%, its strongest since 1989. Durable consumer goods prices
rose 0.4% (3.0% y/y) on the strength of higher furniture prices which
increased 5.4% y/y after a 1.3% gain last year. Additionally, appliance
prices firmed and posted a 2.9% y/y rise following the 1.1% increase
during 2007. Core nondurable goods prices also strengthened and rose
0.3% last month. Their 5.8% y/y gain was the fastest since early 1999.
Prices for capital equipment also firmed. A 0.5% rise during October
was the second in a row and it raised the y/y rise to 4.4%, the
strongest since 1989.
Finished consumer food prices reversed their September gain
and fell 0.2%. However, they still have been strong. Rising 6.6% y/y
food prices about matched last year's gain which was up from a 0.7%
uptick during 2006. Meat prices have been firm as have been bakery
product prices. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118c.jpg" align="left" border="0" height="265" width="353">
Intermediate goods prices fell 3.9% as energy prices dropped.
However, excluding food &amp; energy a 1.7% m/m fall still left
these prices up 9.7% y/y which remained near the strongest
since 1980.
The crude materials PPI crashed 18.6% (-1.4% y/y) due to a
24.9% drop in energy prices (-1.7% y/y). Crude food prices fell 11.1%
and that was enough to lower the y/y gain to -1.3% y/y. Less food
&amp; energy crude prices fell 17.0% and that pushed the y/y gain
into negative territory for the first time since 2005.
This morning's testimony by Fed Chairman Ben S. Bernanke is
available <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20081118a.htm">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/@E802/@E80201/@E80201.HTM">Producer
Price Index</a> (%)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-2.8</td>
<td>-0.4</td>
<td>5.1</td>
<td>3.9</td>
<td>3.0</td>
<td>&nbsp;4.9&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4</td>
<td>0.4</td>
<td>4.4</td>
<td>1.9</td>
<td>1.5</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-3.9</td>
<td>-1.2</td>
<td>15.3</td>
<td>4.1</td>
<td>6.4</td>
<td>&nbsp;8.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-1.7</td>
<td>-0.3</td>
<td>9.7</td>
<td>2.8</td>
<td>6.0</td>
<td>&nbsp;5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-18.6</td>
<td>-7.9</td>
<td>-1.4</td>
<td>12.1</td>
<td>1.4</td>
<td>14.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-17.0</td>
<td>-9.4</td>
<td>&nbsp;-3.1</td>
<td>15.6</td>
<td>20.8</td>
<td>4.9</td>
</tr>
</tbody>
</table>
U.S. Gasoline Prices Continued
Lower 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 18, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118d.jpg" align="left" border="0">
Falling by another fifteen cents w/w to $2.07 per gallon, the
retail price for a gallon of regular gasoline was at its
lowest level since early 2005 according to the U.S.
Department of Energy survey. Prices have now fallen $2.04 per gallon,
or by more than one-half, since their peak early this past July. The
latest decline was accompanied by a drop in the average price for all
grades of gasoline to $2.13 per gallon.
Yesterday, the spot market price for a gallon of regular
gasoline fell eight cents from last week's average to $1.24. In futures
trading the November contract closed down further at $1.17 per gallon.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118d.jpg" align="right" border="0">
Weekly gasoline prices can be found in Haver's WEEKLY
database. Daily prices are in the DAILY
database.
The U.S. Department of Energy reported that the demand
for gasoline fell by 2.9% y/y. The rate of decline has
bottomed out recently but the decline is still the fastest since
late-1995 (the latest four weeks versus the same four weeks last year).
The demand for all petroleum products also has softened, falling 6.6%
y/y.
These DOE figures are available in Haver's OILWKLY
database.
The price for a barrel of West Texas Intermediate crude oil
fell further last week to an average $58.64 per barrel, down 60% since
the peak in July of $145.66. In futures trading yesterday, the
two-month price for crude oil was even lower at $54.95 per barrel.
Last week, prices for natural gas reversed the prior week's
gain and ticked down to $6.65 per mmbtu (-7.4% y/y). The average price
this month was nearly one-half below the high for natural gas prices in
early-July of $13.19/mmbtu.
Signs of a Reprieve from the Federal
Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/energy/en0803.cfm">here</a>.
Monetary Policy Transparency and Private Sector
Forecasts: Evidence from Survey Data from the Federal
Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/3q08Sellon.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">11/17/08</th>
<th scope="col">11/10/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per
Gallon)</td>
<td>2.07</td>
<td>2.22</td>
<td>-33.1%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>58.64</td>
<td>64.31</td>
<td>-37.4%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
U.S. Chain Store Sales Fell Versus
Last Year 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 18, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118f.jpg" align="left" border="0" height="265" width="353">
According to the International Council of Shopping
Centers-Goldman Sachs Index, a 0.3% uptick in chain store sales last
week made up a piece of the prior week's 1.0% decline. Nevertheless,
sales ticked down 0.1% from the year-ago level.

The latest weekly increase left sales so far in November
down 0.6% from October. During all of October sales fell 1.0% from
September following that month's 1.9% drop. The level of sales during
the latest week remained near the lowest since December of last year.


During the last ten years there has been a 59% correlation
between the y/y change in chain store sales and the change in nonauto
retail sales less gasoline.

The ICSC-Goldman
Sachs 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.


The weekly leading indicator of chain store sales from
ICSC-Goldman Sachs ticked up 0.1% but was still down 5.7% from the
year-ago level and it was at it's lowest level since 1996.
The chain store sales figures are available in Haver's SURVEYW
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/surveyw/@S2/@S2.HTM">ICSC-UBS
(SA, 1977=100)</a></th>
<th scope="col">11/15/08</th>
<th scope="col">11/08/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain
Store Sales</td>
<td>478.5</td>
<td>477.2</td>
<td>-0.1%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
U.S. Home Builders&#8217; Survey Lower
Still 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 18, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118j.jpg" align="left" border="0" height="265" width="353">
The November Housing Market Index (HMI) from the National
Association of Home Builders plumbed a new record low. At a single
level of 9 nearly halved the old record low of 14 reached just last
month. The index is compiled from survey questions asking builders to
rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to
&#8220;very low&#8221;. Numerical equivalent results over
50 indicate a predominance of &#8220;good&#8221; readings.
Since 1990, the year-to-year change in this index has had a
correlation of 72% with the year-to-year percentage change in new
single-family home sales. As a result, the latest HMI index at best
indicates a bottoming of the housing market's troubles.
The Home Builders Association indicated that its sub-index of
present sales conditions also fell to a record low of 8. That was down
from last year's average level of 27 and 2006's average of 45.
Builders&#8217; expectations for sales six months was relatively
strong an held steady at a level of 19. The
&#8220;traffic of prospective buyers, however, fell to a new low index
reading of 7.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118k.jpg" align="right" border="0" height="265" width="353">
Each of the country's regions showed deterioration in the
index as conditions in each region fell to a new low.
Not only are builders disturbed by the market for new homes,
but the appraisal of conditions for remodeling a home also reached a
record low during the third quarter.
The current market condition for remodeling of a home also is
deemed poor.
The NAHB has compiled the Housing Market Index since 1985.
The weights assigned to the individual index components
are .5920 for single family detached sales, present time; .1358 for
single family detached sales, next six months; and .2722 for traffic of
prospective buyers. The results, along with other housing and
remodeling indexes from NAHB Economics, are included in Haver&#8217;s SURVEYS
database.
Mortgage Innovation, Mortgage Choice, and Housing
Decisions from the Federal Reserve Bank of St. Louis can be
found <a href="http://research.stlouisfed.org/publications/review/08/11/Chambers.pdf">here</a>.
Changing the Rule: State Mortgage Foreclosure
Moratoria During the Great Depression is available <a href="http://research.stlouisfed.org/publications/review/08/11/Wheelock.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">November</th>
<th scope="col">October
&nbsp;</th>
<th scope="col">November '07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>9</td>
<td>14</td>
<td>19</td>
<td>27</td>
<td>42</td>
<td>67</td>
</tr>
</tbody>
</table>
Inflation in the U.K. Declines inOctober 
by <a href="/comment/Curley.html">Louise
Curley</a> November 18, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118g.jpg" align="right" border="0" height="265" width="353">
The
United Kingdom released inflation numbers today.&nbsp; The
acceleration in inflation in the previous months came to a halt in
October.&nbsp; The official measure, the year- to- year percent
change in the consumer price index, fell to 4.5% in October from 5.2%
in September.&nbsp; &nbsp;The core index, which excludes
energy, food, alcoholic beverages and tobacco, fell to 1.9% in October
from 2.2%.&nbsp; The year- to- year change in the retail price
index, which until 2003 was the official measure of inflation, fell to
4.2% in October from 5.00% in September. The three measures of
inflation are shown in the first chart.&nbsp;
Except for
the last two months, the inflation rate as measured by the CPI has been
lower than that measured by the RPI largely because of the exclusion in
the former and inclusion in the latter of mortgage interest payments
and other housing related costs.&nbsp; Until June of this year the
exclusion of these items tended to lower the CPI inflation rate, but
since then it has added to it, as can be seen in the second
chart.
The declines in the various measures of inflation were
due largely to the declines in the prices of food and oil that affected
the indexes directly and declines in the prices of&nbsp; base
metals that affected the indexes indirectly.&nbsp; The declines are
likely to continue, if not intensify, as world demand continues to
fall.&nbsp; Longer term, however, the current fiscal and monetary
policies being pursued by the developed and developing nations should
help to avoid deflation such as engulfed the globe in the thirties. (
If, indeed, they do not lead eventually to a resurgence of
inflation.)&nbsp; As an illustration of the course of inflation and
deflation in the twenties and thirties of the last century, we use the
changes in the consumer price index for the United States, the series,
PCUN67, found in the Haver Analytics' USECON&nbsp;
data base.&nbsp; &nbsp;&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118i.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081118h.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">UNITED
KINGDOM INFLATION RATES&nbsp;</th>
<th scope="col">Oct 08</th>
<th scope="col">Sep&nbsp; 08&nbsp;</th>
<th scope="col">Oct&nbsp; 07&nbsp;</th>
<th scope="col">M/M Chg</th>
<th scope="col">Y/Y&nbsp; &nbsp;Chg</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Price Index
(Y/Y % Chg)</td>
<td>4.5</td>
<td>5.2</td>
<td>2.0</td>
<td>-0.7</td>
<td>2.5</td>
<td>2.32</td>
<td>2.33</td>
<td>2.05</td>
</tr>
<tr>
<td class="firstcol">Core CPI Index (Y/Y %
Chg)</td>
<td>1.9</td>
<td>2.2</td>
<td>1.5</td>
<td>-0.3</td>
<td>0.4</td>
<td>1.69</td>
<td>1.30</td>
<td>1.51</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Price
Index&nbsp; (Y/Y % Chg)</td>
<td>4.2</td>
<td>5.0</td>
<td>4.2</td>
<td>-0.8</td>
<td>0.0</td>
<td>4.27</td>
<td>3.19</td>
<td>2.83</td>
</tr>
</tbody>
</table>

</body></html>

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117i.jpg" align="left" border="0" height="265" width="353">
The Bank of France Industry Sentiment Index is pointing much
lower. At 77.14 it has fallen in October from 86.08 the month before.
This compares to its 12-month average of 97. The index is weaker than
this level only about 2 percent of the time. The latest production and
production outlook indices are at bottom-scraping levels. Foreign
orders and new industry orders are both at their
lowest level since 1987. The hiring outlook is worse only about 20% of
the time.
It is no wonder that, armed with this survey result, French
Finance Minister Christine Lagarde warned on the outlook. All of Europe
is crumbling under the strain.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">Bank of France Monthly INDUSTRY Survey: SUMMARY </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>12 MO</td>
<td>Since Jan-87</td>
<td>Percentile</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Oct-08</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>AVERAGE</td>
<td>Average</td>
<td>rank/range</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Production-Latest Month</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-23.53</td>
<td>-20.09</td>
<td>8.2</td>
<td>-2</td>
<td>7</td>
<td>0.06</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Production Outlook</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-18</td>
<td>-9</td>
<td>0</td>
<td>4</td>
<td>15</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Demand</td>
</tr>
<tr class="grey2">
<td class="firstcol">Overall Order Books</td>
<td>-22.61</td>
<td>-6.61</td>
<td>-2.17</td>
<td>10</td>
<td>4</td>
<td>22.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Foreign Orders</td>
<td>-33.2</td>
<td>-28.65</td>
<td>-5.85</td>
<td>-3</td>
<td>8</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">New Orders</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-35.36</td>
<td>-32.17</td>
<td>-1.49</td>
<td>-3</td>
<td>8</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Stocks: Finished Goods</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>3.62</td>
<td>0.35</td>
<td>1.26</td>
<td>0</td>
<td>-2</td>
<td>80.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capacity Utilization</td>
<td>77.87</td>
<td>79.9</td>
<td>80.47</td>
<td>82</td>
<td>83</td>
<td>3.4%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Hiring</td>
</tr>
<tr class="grey2">
<td class="firstcol">Latest Month</td>
<td>-12.12</td>
<td>-6.62</td>
<td>-2.27</td>
<td>-3</td>
<td>-1</td>
<td>20.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Outlook</td>
<td>-16.19</td>
<td>-9.93</td>
<td>-4.2</td>
<td>-5</td>
<td>-4</td>
<td>22.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Industry Sentiment
Index</td>
<td>77.14</td>
<td>86.07</td>
<td>92.92</td>
<td>97</td>
<td>102</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
</body></html>

The Bank of France Industry Sentiment Index is pointing much lower. At 77.14 it has fallen in October from 86.08 the month before. This compares to its 12-month average of 97. The index is weaker than this level only about 2 percent [...]

French Prospects Drop Sharply

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117e.jpg" align="right" border="0" height="265" width="353">
The Euro Areatrade balance in September was -5,742 million
euros virtually unchanged fromthe -5,705 million euros in August. It
was, however, 8,549 million euros below the trade surplus of 2,807
million euros in September 2007. Since December 2007, the trade balance
in the Euro Area has, more often than not, been negative. The largest
deficit of 6,387 million euros was recorded in July of this year, as
can be seen in the first chart.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117f.jpg" align="right" border="0" height="265" width="353">
Both high oil prices and a rising euro led to the
deterioration in the trade balance. High oil prices accounted for much
of the increasing trade deficits with Russia and OPEC earlier this
year. With the recent decline in the price of oil, the trade balance
with OPEC has become less negative. The trade balances with Russia and
OPEC are shown in the second chart.
The rising euro has dampened exports to and encouraged imports
from trading partners, leading to smaller surpluses or larger deficits.
For example, the Euro Area's trade surplus with the United States has
fallen sharply over the last year and a half, as shown in the third
chart. 
 

The price of oil and the value of the euro declined
dramatically in recent months as the global financial crisis spread to
more countries and intensified. The daily price of oil and the daily
value of the euro are shown in the fourth chart. While the decline in
the price of oil should reduce the Euro Area's imports, the effect of
the decline in the euro is less predictable. Although it should be good
for exports, falling world demand could outweigh the positive effects
of the lower euro. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117g.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117h.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">EURO
AREA 15 &nbsp;TRADE BALANCES</th>
<th scope="col">Sep 08</th>
<th scope="col">Aug&nbsp; 08&nbsp;</th>
<th scope="col">Sep&nbsp; 07</th>
<th scope="col">M/M&nbsp; chg&nbsp;</th>
<th scope="col">Y/Y&nbsp; chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">TOTAL</td>
<td>-5742</td>
<td>-5705</td>
<td>2807</td>
<td>-36</td>
<td>-8549</td>
<td>20384</td>
<td>-13049</td>
<td>10744</td>
</tr>
<tr>
<td class="firstcol">With United States</td>
<td>4197</td>
<td>4160</td>
<td>5098</td>
<td>37</td>
<td>-901</td>
<td>63525</td>
<td>73914</td>
<td>65239</td>
</tr>
<tr class="odd">
<td class="firstcol">With Russia</td>
<td>-3729</td>
<td>-3429</td>
<td>-1891</td>
<td>-299</td>
<td>-1837</td>
<td>-30843</td>
<td>-40429</td>
<td>-32676</td>
</tr>
<tr>
<td class="firstcol">With OPEC</td>
<td>-5235</td>
<td>-6226</td>
<td>-2286</td>
<td>981</td>
<td>-2949</td>
<td>-33532</td>
<td>-48010</td>
<td>-36611</td>
</tr>
</tbody>
</table>

</body></html>

The Euro Areatrade balance in September was -5,742 million euros virtually unchanged fromthe -5,705 million euros in August. It was, however, 8,549 million euros below the trade surplus of 2,807 million euros in September 2007. Since [...]

Euro Area's September Trade Deficit of 5.7 Billion Euros Shows Little Change from August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117c.jpg" width="353">
The November Empire State Index of manufacturing actor activity as reported by the Federal Reserve Bank of New York fell to -25.43 which, for the series&#39; short eight year history, was a record low. The decline was just modest versus the October level but it was down sharply from an average of -3.19 during the third quarter. A November reading of -26.1 for had been the Consensus expectation.
The figure is a diffusion index. Since the series&#39; inception in 2001 there has been a 58% correlation between its&#39; level and the three-month change in U.S. factory sector industrial production.
The index of pricing pressure also fell fell sharply to 20.48. The ten point decline from October was to the lowest level since December of 2003. Since inception in 2001 there has been an 81% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117d.jpg" width="353">
The indexes for new orders, shipments and unfilled orders each fell but the delivery times component ticked higher.
The employment index also fell during November dropping sharply to its lowest level since late 2001, negative for the fifth consecutive month. In the history of the NY employment index, there has been an 86% correlation between it and the three-month growth in overall factory sector employment.
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 Empire State index of expected business conditions in six months fell to 13.02 which was its lowest since 2001. The subseries for shipments and employment jumped and the pricing series fell to its lowest level in twelve months.
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.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November &#39;07&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>-25.43</td>
<td>-24.62</td>
<td>24.05</td>
<td>17.23</td>
<td>20.24</td>
<td>15.53</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>20.48</td>
<td>31.71</td>
<td>47.37</td>
<td>35.64</td>
<td>41.88</td>
<td>44.74</td>
</tr>
</tbody>
</table>


</html>

The November Empire State Index of manufacturing actor activity as reported by the Federal Reserve Bank of New York fell to -25.43 which, for the series' short eight year history, was a record low. The decline was just modest versus [...]

U.S. Empire State Index Negative Again; Prices Paid The Weakest Since 2003

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117a.jpg" width="353">
Industrial production recovered 1.3% last month after its 3.8% plummet during September when production was depressed by Hurricanes Gustav &amp; Ike. September output was also held down by a strike at Boeing. Consensus expectations had been for no change in output last month.
During each of the last two months, the Fed indicated that industrial output fell 0.7%, excluding the hurricanes (which reduced mining output by 6.1%) and the strike.
Factory output recovered a modest 0.6% after falling 3.7% during September. Output of consumer goods recovered all of its 1.2% September drop but it was still off 2.8% y/y. Production of motor vehicles &amp; parts dropped 3.5% (-18.4% y/y) but, excluding autos, output was still depressed. It recovered a modest 0.8% following the 4.0% plunge during September. Nonetheless, a 4.3% decline in factory output year-to-year compares to 2.0% growth during all of last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117b.jpg" width="353">
Industrial production in the high-tech sector is in a retrenchment mode. Output there fell 0.9% during October and that was the third consecutive monthly decline. And production was up just 9.9% y/y, the weakest gain since early 2005. Less both autos and high-tech, output inched up 0.2% last month following the 3.7% September plunge (-5.6% y/y).
The industry detail further reflected recession in the factory sector. Output of furniture &amp; related products fell 2.9% last month for a 16.3% y/y decline. That was the largest y/y drop since the recession of 1975. Machinery production also reflected recession and it was down 1.7% (-6.9% y/y). A somewhat brighter spot was the 0.6% increase in electrical equipment production which left it down just 0.9% year-to-year. Apparel output, in the &quot;recession-resistant&quot; nondurables sector fell just 1.8% (-2.5% y/y. Production of chemicals recovered 5.1% after the 8.3% plunge due to the hurricanes. Reflecting the aftermath of the hurricanes was a 9.9% jump in output of petroleum &amp; coal which recovered an 8.5% plummet.
Capacity utilization recovered to 76.4% which was still near its lowest level since 2003. Utilization in the factory sector of 73.8% also was near the lowest since 2003.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDUSTRIAL PRODUCTION (SA, %)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>1.3</td>
<td>-3.8</td>
<td>1.3</td>
<td>1.7</td>
<td>2.2</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.6</td>
<td>-3.7</td>
<td>0.6</td>
<td>1.7</td>
<td>2.4</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Consumer Goods</td>
<td>1.4</td>
<td>-1.2</td>
<td>-2.8</td>
<td>1.7</td>
<td>0.3</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Business Equipment</td>
<td>-2.2</td>
<td>-7.1</td>
<td>-8.8</td>
<td>3.3</td>
<td>10.4</td>
<td>7.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Construction Supplies</td>
<td>-1.1</td>
<td>-1.9</td>
<td>-6.9</td>
<td>-2.5</td>
<td>2.2</td>
<td>4.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>0.4</td>
<td>2.5</td>
<td>-0.6</td>
<td>3.3</td>
<td>-0.6</td>
<td>2.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>76.4</td>
<td>75.5</td>
<td>80.8</td>
<td>81.0</td>
<td>80.9</td>
<td>80.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production recovered 1.3% last month after its 3.8% plummet during September when production was depressed by Hurricanes Gustav & Ike. September output was also held down by a strike at Boeing. Consensus expectations had [...]

U.S. Industrial Production Rebounds Modestly After Hurricanes

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117a.jpg" align="left" border="0" height="265" width="353">
Industrial production recovered 1.3% last month after its 3.8%
plummet during September when production was depressed by Hurricanes
Gustav &amp; Ike. September output was also held down by a strike
at Boeing. Consensus expectations had been for no change in output last
month.
During each of the last two months, the Fed indicated that
industrial output fell 0.7%, excluding the hurricanes (which reduced
mining output by 6.1%) and the strike.
Factory output recovered a modest 0.6% after falling 3.7%
during September. Output of consumer goods recovered all of its 1.2%
September drop but it was still off 2.8% y/y. Production of motor
vehicles &amp; parts dropped 3.5% (-18.4% y/y) but, excluding
autos, output was still depressed. It recovered a modest 0.8% following
the 4.0% plunge during September. Nonetheless, a 4.3% decline in
factory output year-to-year compares to 2.0% growth during all of last
year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117b.jpg" align="right" border="0" height="265" width="353">
Industrial production in the high-tech sector is in a
retrenchment mode. Output there fell 0.9% during October and that was
the third consecutive monthly decline. And production was up just 9.9%
y/y, the weakest gain since early 2005. Less both autos and high-tech,
output inched up 0.2% last month following the 3.7% September plunge
(-5.6% y/y).
The industry detail further reflected recession in the factory
sector. Output of furniture &amp; related products fell 2.9% last
month for a 16.3% y/y decline. That was the largest y/y drop since the
recession of 1975. Machinery production also reflected recession and it
was down 1.7% (-6.9% y/y). A somewhat brighter spot was the 0.6%
increase in electrical equipment production which left it down just
0.9% year-to-year. Apparel output, in the "recession-resistant"
nondurables sector fell just 1.8% (-2.5% y/y. Production of chemicals
recovered 5.1% after the 8.3% plunge due to the hurricanes. Reflecting
the aftermath of the hurricanes was a 9.9% jump in output of petroleum
&amp; coal which recovered an 8.5% plummet.
Capacity utilization recovered to 76.4% which was still near
its lowest level since 2003. Utilization in the factory sector of 73.8%
also was near the lowest since 2003.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>1.3</td>
<td>-3.8</td>
<td>1.3</td>
<td>1.7</td>
<td>2.2</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.6</td>
<td>-3.7</td>
<td>0.6</td>
<td>1.7</td>
<td>2.4</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>1.4</td>
<td>-1.2</td>
<td>-2.8</td>
<td>1.7</td>
<td>0.3</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>-2.2</td>
<td>-7.1</td>
<td>-8.8</td>
<td>3.3</td>
<td>10.4</td>
<td>7.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-1.1</td>
<td>-1.9</td>
<td>-6.9</td>
<td>-2.5</td>
<td>2.2</td>
<td>4.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>0.4</td>
<td>2.5</td>
<td>-0.6</td>
<td>3.3</td>
<td>-0.6</td>
<td>2.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>76.4</td>
<td>75.5</td>
<td>80.8</td>
<td>81.0</td>
<td>80.9</td>
<td>80.2</td>
</tr>
</tbody>
</table>
U.S. Empire State Index Negative
Again; Prices Paid The Weakest Since 2003 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117c.jpg" align="left" border="0" height="265" width="353">
The November Empire State Index of manufacturing actor
activity as reported by the Federal Reserve Bank of New York fell to
-25.43 which, for the series' short eight year history, was a record
low. The decline was just modest versus the October level but it was
down sharply from an average of -3.19 during the third quarter. A
November reading of -26.1 for had been the Consensus expectation.
The figure is a diffusion index. Since the series' inception
in 2001 there has been a 58% correlation between its' level and the
three-month change in U.S. factory sector industrial production.
The index of pricing pressure also fell fell sharply to 20.48.
The ten point decline from October was to the lowest level since
December of 2003. Since inception in 2001 there has been an 81%
correlation between the index of prices paid and the three-month change
in the core intermediate materials PPI.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117d.jpg" align="right" border="0" height="265" width="353">
The indexes for new orders, shipments and unfilled orders each
fell but the delivery times component ticked higher.
The employment index also fell during November dropping
sharply to its lowest level since late 2001, negative for the fifth
consecutive month. In the history of the NY employment index, there has
been an 86% correlation between it and the three-month growth in
overall factory sector employment.
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 Empire State index of expected business
conditions in six months fell to 13.02 which was its lowest
since 2001. The subseries for shipments and employment jumped and the
pricing series fell to its lowest level in twelve months.
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.
For more on the Empire State Manufacturing Survey, including
methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire
State Manufacturing Survey</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November '07&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>-25.43</td>
<td>-24.62</td>
<td>24.05</td>
<td>17.23</td>
<td>20.24</td>
<td>15.53</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>20.48</td>
<td>31.71</td>
<td>47.37</td>
<td>35.64</td>
<td>41.88</td>
<td>44.74</td>
</tr>
</tbody>
</table>
Euro Area's September TradeDeficit
of 5.7 Billion Euros Shows Little Change from August 
by <a href="/comment/Curley.html">Louise
Curley</a> November 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117e.jpg" align="right" border="0" height="265" width="353">
The Euro Areatrade balance in September was -5,742 million
euros virtually unchanged fromthe -5,705 million euros in August. It
was, however, 8,549 million euros below the trade surplus of 2,807
million euros in September 2007. Since December 2007, the trade balance
in the Euro Area has, more often than not, been negative. The largest
deficit of 6,387 million euros was recorded in July of this year, as
can be seen in the first chart.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117f.jpg" align="right" border="0" height="265" width="353">
Both high oil prices and a rising euro led to the
deterioration in the trade balance. High oil prices accounted for much
of the increasing trade deficits with Russia and OPEC earlier this
year. With the recent decline in the price of oil, the trade balance
with OPEC has become less negative. The trade balances with Russia and
OPEC are shown in the second chart.
The rising euro has dampened exports to and encouraged imports
from trading partners, leading to smaller surpluses or larger deficits.
For example, the Euro Area's trade surplus with the United States has
fallen sharply over the last year and a half, as shown in the third
chart. 
 

The price of oil and the value of the euro declined
dramatically in recent months as the global financial crisis spread to
more countries and intensified. The daily price of oil and the daily
value of the euro are shown in the fourth chart. While the decline in
the price of oil should reduce the Euro Area's imports, the effect of
the decline in the euro is less predictable. Although it should be good
for exports, falling world demand could outweigh the positive effects
of the lower euro. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117g.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117h.jpg" border="0" height="265" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">EURO
AREA 15 &nbsp;TRADE BALANCES</th>
<th scope="col">Sep 08</th>
<th scope="col">Aug&nbsp; 08&nbsp;</th>
<th scope="col">Sep&nbsp; 07</th>
<th scope="col">M/M&nbsp; chg&nbsp;</th>
<th scope="col">Y/Y&nbsp; chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">TOTAL</td>
<td>-5742</td>
<td>-5705</td>
<td>2807</td>
<td>-36</td>
<td>-8549</td>
<td>20384</td>
<td>-13049</td>
<td>10744</td>
</tr>
<tr>
<td class="firstcol">With United States</td>
<td>4197</td>
<td>4160</td>
<td>5098</td>
<td>37</td>
<td>-901</td>
<td>63525</td>
<td>73914</td>
<td>65239</td>
</tr>
<tr class="odd">
<td class="firstcol">With Russia</td>
<td>-3729</td>
<td>-3429</td>
<td>-1891</td>
<td>-299</td>
<td>-1837</td>
<td>-30843</td>
<td>-40429</td>
<td>-32676</td>
</tr>
<tr>
<td class="firstcol">With OPEC</td>
<td>-5235</td>
<td>-6226</td>
<td>-2286</td>
<td>981</td>
<td>-2949</td>
<td>-33532</td>
<td>-48010</td>
<td>-36611</td>
</tr>
</tbody>
</table>

French Prospects Drop Sharply 
by <a href="/comment/Brusca.html">Robert
Brusca</a> November 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081117i.jpg" align="left" border="0" height="265" width="353">
The Bank of France Industry Sentiment Index is pointing much
lower. At 77.14 it has fallen in October from 86.08 the month before.
This compares to its 12-month average of 97. The index is weaker than
this level only about 2 percent of the time. The latest production and
production outlook indices are at bottom-scraping levels. Foreign
orders and new industry orders are both at their
lowest level since 1987. The hiring outlook is worse only about 20% of
the time.
It is no wonder that, armed with this survey result, French
Finance Minister Christine Lagarde warned on the outlook. All of Europe
is crumbling under the strain.

<table border="0" cellspacing="0" width="100%"> <colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Bank of
France Monthly INDUSTRY Survey: SUMMARY </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>12 MO</td>
<td>Since Jan-87</td>
<td>Percentile</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Oct-08</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>AVERAGE</td>
<td>Average</td>
<td>rank/range</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Production-Latest
Month</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-23.53</td>
<td>-20.09</td>
<td>8.2</td>
<td>-2</td>
<td>7</td>
<td>0.06</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Production
Outlook</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-18</td>
<td>-9</td>
<td>0</td>
<td>4</td>
<td>15</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Demand</td>
</tr>
<tr class="grey2">
<td class="firstcol">Overall Order Books</td>
<td>-22.61</td>
<td>-6.61</td>
<td>-2.17</td>
<td>10</td>
<td>4</td>
<td>22.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Foreign Orders</td>
<td>-33.2</td>
<td>-28.65</td>
<td>-5.85</td>
<td>-3</td>
<td>8</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">New
Orders</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>-35.36</td>
<td>-32.17</td>
<td>-1.49</td>
<td>-3</td>
<td>8</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Stocks:
Finished Goods</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Industry</td>
<td>3.62</td>
<td>0.35</td>
<td>1.26</td>
<td>0</td>
<td>-2</td>
<td>80.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capacity Utilization</td>
<td>77.87</td>
<td>79.9</td>
<td>80.47</td>
<td>82</td>
<td>83</td>
<td>3.4%</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">Hiring</td>
</tr>
<tr class="grey2">
<td class="firstcol">Latest Month</td>
<td>-12.12</td>
<td>-6.62</td>
<td>-2.27</td>
<td>-3</td>
<td>-1</td>
<td>20.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Outlook</td>
<td>-16.19</td>
<td>-9.93</td>
<td>-4.2</td>
<td>-5</td>
<td>-4</td>
<td>22.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Industry Sentiment
Index</td>
<td>77.14</td>
<td>86.07</td>
<td>92.92</td>
<td>97</td>
<td>102</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
</body></html>

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

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250513L4.jpg

250513M4.jpg

The Consumer Price Index rose 0.2% in April after easing 0.1% in March and rising 0.2% in February. A 0.3% rise had been expected in the Action Economics Forecast Survey. The y/y increase in the headline CPI dropped to 2.3% from 2.4% in March, the weakest y/y gain since February 2021. It stood below the 9.1% peak in June 2022. The CPI excluding food & energy rose 0.2% in April following increases of 0.1% in March and 0.2% in February. A 0.3% rise had been expected. The 2.8% y/y gain remained the weakest rise in core prices in four years and below the 6.6% peak in September 2022.

Energy prices rose 0.7% (-3.7% y/y) last month after falling 2.4% in March. Gasoline prices slipped 0.1% (-11.7% y/y) after falling 6.3% in March. Fuel oil prices weakened 1.3% (-9.6% y/y) after falling 4.2% in March. Natural gas prices jumped 3.7% (15.7% y/y) following a 3.6% gain, and electricity prices gained 0.8% (3.6% y/y) after rising 0.9% in March.

Food prices eased 0.1% (+2.8% y/y) in April after a 0.4% March increase as egg prices fell 12.7% (+49.3% y/y) following a 5.9% gain. Meat, poultry & fish prices held steady (+3.4% y/y) after a 0.6% rise, while dairy product prices slipped 0.2% (+1.6% y/y) after a 1.0% March strengthening. Cereal & bakery product costs weakened 0.5% (unchanged y/y) after a 0.1% easing while fruit & vegetable prices dropped 0.4% (-0.9% y/y), the fifth decline in six months. Nonalcoholic beverage prices rose 0.7% (3.2% y/y) in April after rising 0.6% in March.

Goods prices less food and energy rose 0.1% both m/m and y/y in April after easing 0.1% in March. Prices of used cars and trucks fell 0.5% (+1.5% y/y) last month after falling 0.7% in March while new vehicle costs held steady (0.3% y/y) after edging up 0.1% in March. Apparel prices eased 0.2% (-0.7% y/y) following a 0.4% gain. Appliance prices increased 0.8% (-1.2% y/y) after a 0.1% easing. Home furnishings prices increased 0.2% (0.3% y/y) after holding steady in March. Recreation product costs rose 0.4% (-1.8% y/y) in April after falling 0.3%. Education & communication product costs rose 0.3% last month (-5.3% y/y) after rising 0.5% in March.

Services prices less energy moved up 0.3% (3.6% y/y) last month following a 0.1% March gain. Shelter prices rose 0.3% (4.0% y/y) last month after a 0.2% rise as owners’ equivalent rent of primary residences increased 0.4% (4.3% y/y), the same as in March. The cost of lodging away from home eased 0.1% (-1.4% y/y) after falling 3.5% in March. Rents of primary residences gained 0.3% (4.0% y/y) for the fifth consecutive month. Transportation service prices edged 0.1% higher (2.5% y/y) after falling 1.4% in March reflecting a 0.6% rise (6.4% y/y) in the cost of motor vehicle insurance. Public transportation costs declined 1.8% (-5.6% y/y) after falling 4.2% during March. The cost of medical services increased 0.5% (3.1% y/y), the same as in March, but the cost of recreation services fell 0.3% (3.6% y/y) after increasing 0.1% in March. Education & communication services prices fell 0.2% (+1.2% y/y) after rising 0.2%.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

250513N4.jpg

250513O4.jpg

- Annual total & core gains are the weakest in four-years.
- Energy costs move up but food prices slip.
- Core goods prices edge higher & service price gain picks up.

U.S. Consumer Price Index & Core Prices Rise Modestly in April

Winnie Tapasanun

250513T23.jpg

250513U23.jpg

The NFIB Small Business Optimism Index fell to 95.8 in April, the lowest level since October, after a 3.3-point decline to 97.4 in March, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the second successive month that the index was below the 51-year average of 98. The index was down from its recent peak of 105.1 in December but up from 89.7 in April 2024 and a low of 88.5 in March 2024. Six of the 10 index components fell, three rose, and one was unchanged. The NFIB Small Business Uncertainty Index declined to 92 in April, the lowest level since December, after an eight-point drop to 96 in March. The index, while down from its record high of 110 in October, was well above a low of 65 in November 2023 and its historical average of 68.

The outlook for business conditions in the next six months remained positive for the sixth consecutive month in the latest survey. The net balance of respondents expecting the economy to improve decreased to 15% in April, the lowest level since October, on top of a 16-point plunge to 21% in March; however, having remained significantly above a record low of -61% in June 2022. Expected real sales dropped to a net -1% in April after an 11-point slide to 3% in March, posting the first negative reading and the lowest since October. The latest figure was up from its recent low of -18% in August. A net -8% of respondents reported higher nominal sales in the past three months, up from -11% in March and registering the highest reading since September 2023. The latest result, however, was below the most recent positive reading of 1% in May 2022 and a peak of 9% in June 2021.

Plans to make capital outlays slid to 18% in April, the lowest level since April 2020, following a two-point increase to 21% in March. These numbers were down from their recent high of 28% in November and a high of 31% in October 2021. Plans to expand the business registered at 9% in April and March, the lowest reading since October, following 12% in February; the latest figure was down from its most recent high of 20% in December but up from a low of 2% in March 2023. Meanwhile, expected credit conditions declined to -7% in April, the lowest reading since September, from -4% in March; these readings were above a low of -11% in November 2023.

On the labor front, forty-seven percent of respondents reported that qualified workers to fill job openings were hard to find in April, unchanged from 47% in March. These numbers were below their recent high of 56% in August, a high of 57% in September 2023, and a peak of 62% in September 2021. A net 13% planned to increase employment in April, slightly up from 12% in March; it was below a high of 26% in May 2022 and a peak of 32% in August 2021. Notably, 34% reported positions not able to be filled in April, down from 40% in March and the lowest reading since September; these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The figure improved to -21% in April, still a poor reading, following a four-point drop to -28% in March. These readings were up from a low of -37% in August; nevertheless, having remained below a high of -18% in March 2023 and a high of -5% in June 2021.

On the pricing front, inflation pressures, while trending down, remained at an inflationary level. The net percent of firms raising their average selling prices slipped to 25% in April, the lowest reading since January, after a six-point decline to 26% in March. These numbers were virtually unchanged from 25% in April 2024 but well below a high of 66% in March 2022. The percentage planning to raise prices eased to a three-month-low 28% in April following a one-point increase to 30% in March; these figures were above 26% in April 2024 but below a high of 33% in March 2024 and a high of 52% in March 2022.

Wage inflation, while relatively high, eased somewhat in the April survey. A net 33% of respondents raised compensation during the last three months, down from 38% reported in the March survey and the same reading as in February and January. It was down from a high of 46% in February 2023 and a peak of 50% in January 2022. A net 17% of firms planned to raise worker compensation in the next three months, down from 19% reported in March and the lowest reading since March 2021; these numbers were below a high of 28% in November, a high of 30% in November 2023, and a high of 32% in October 2022.

The quality of labor was reported as the single most important problem facing small businesses, as reported by 19% of NFIB members in April, March, and February. Taxes were reported as the next most important problem, with 16% reported in April vs. 18% in March. Inflation continued to be a problem facing small businesses, as reported by 14% in April; the figure was down from 16% in March and a peak of 37% in July 2022. Other concerns (in April vs. March) included insurance cost/availability (10% vs. 8%), poor sales (9% vs. 9%), government requirements (9% vs. 8%), the cost of labor (8% vs. 11%), and competition from large businesses (7% vs. 6%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

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- Apr. NFIB Small Business Optimism Index down 1.6 pts. to 95.8; the fourth straight m/m fall.
- Uncertainty Index down 4 pts. to 92, the lowest since Dec.
- Expectations for economy down 6 pts. to 15%, the lowest since Oct.
- Expected real sales down 4 pts. to -1%, the first negative reading since Oct.
- Net percent of firms raising avg. selling prices down 1 pt. to a 3-month-low 25%.
- Quality of labor (19%), taxes (16%), and inflation (14%) are the top three business concerns.

U.S. NFIB Small Business Optimism Falls to a Six-month Low in April Amid Continued Uncertainty

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Retail gasoline prices for all grades fell to an average $3.25 per gallon (-12.9% y/y) in the week ended May 12 after rising to $3.27 in the previous week, but	 remained above their low of $3.13 in the week of December 9. An earlier high was $3.79 in the week ending April 22, 2024. The all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel declined to $3.48 per gallon (-9.7% y/y) in the week of May 12 from $3.50 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil at $59.04 per barrel (-25.9% y/y) in the week ended May 9 compared to $59.64 per barrel in the prior week. Prices remained below a high of $91.45 in the week of September 29, 2023. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $61.95 per barrel. The price of European Brent crude oil declined to $62.29 per barrel (-24.9% y/y) in the week of May 9 from $63.50 in the previous week. Prices remained well below a recent high of $95.61 in the week of September 29, 2023 and compared to a peak of $127.40 in the week of June 10, 2022. Yesterday the price was $65.28 per barrel.

Natural gas prices edged up to an average $3.19 per mmbtu (59.5% y/y) in the week ended May 9, after improving to $3.09/mmbtu in the prior week. Prices have been well below earlier highs for four weeks but were well above a low of $1.40/mmbtu in the week of March 15, 2024. Prices peaked at $9.56/mmbtu in the week of August 26, 2022. Yesterday’s price was $3.19/mmbtu.

Gasoline demand rose 3.5% y/y in the four weeks ending May 2 following a 3.2% y/y rise in the prior four weeks. Demand for all petroleum products eased 0.6% y/y in the four weeks ending May 2 after a 0.3% y/y rise in the previous four-week period. Crude oil input to refineries rose 0.4% y/y in the four weeks ending May 2 after a 0.1% y/y slip in the prior four weeks.

Gasoline inventories fell 1.0% y/y in the week ending May 2 after a 0.7% y/y fall in the week ending April 25. Residual fuel oil inventories fell 10.9% y/y in the week of May 2, after an 18.7% y/y fall in the prior week. Crude oil inventories rose 1.3% y/y in the week of May 2 after a 1.4% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories fell w/w to 25.3 days in the week of May 2 from 25.5 days in the prior. The recent low was 22.9 days in the week of November 8. The supply of crude oil eased w/w to 27.6 days in the week of May 2 from 27.9 days in the prior week, and remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices decline.
- Crude oil prices ease.
- Natural gas costs rise.

U.S. Energy Prices Are Mixed in Latest Week

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Forecasting is an ordinary part of economic analysis. And to a large extent, it gets taken for granted as we realize different people are making different forecasts and that there always are differences. We come to accept that, and we realize that there may be some economists who are more optimistic and some who are more pessimistic, some who favor growth more, some who fear inflation more. There are almost always some sorts of biases involved when people make forecasts simply because it's very hard to eliminate bias completely no matter how hard an economist tries to be objective. At the very least, economists usually feel somewhat bound by the previous forecast that they made in order to provide some stability in the guidance that they present.

**The ZEW Forecasts**
In this month’s ZEW survey, there is an example of this with what I consider to be somewhat quizzical forecasts being offered by the ZEW financial experts, who are largely European experts, at a time that the United States is threatening tariffs. Now this, of course, makes the U.S. the aggressor in this campaign and according to the ZEW experts the U.S. is going to suffer from this more than European economies. However, the U.S. is much less trade-dependent than Europe and certainly far less dependent than Germany which is one of the most trade-dependent large, advanced economies in the world. We measure trade dependency by looking at exports plus imports as a percentage of GDP. By this measure, trade-dependency is around 90% to 95% of for Germany; U.S. dependency is around 30% to 35%. The ZEW experts see the tariff situation making the U.S. economy much worse off than the European or the German economy- why?

**Tariff impact**
To put this in perspective, in the U.S., high tariffs, if they are binding, will cause imported goods to be more expensive. U.S. firms and consumers will have the choice of deciding whether they want to pay the higher costs to consume those items or to replace them in consumption or their production process. In the case of consumers, it's probably easier because a consumer can switch from an expensive French champagne to a less expensive but still quite good California sparkling wine or Chardonnay- or pay the higher price and enjoy French champaign! However, if U.S. consumers shift, that is going to leave France with a lot of unsold champagne and they need to sell it someplace else and that's a problem since the U.S. is a huge high-income market; that’s the reason that it's sought after by so many countries who export to the United States. U.S. consumers may choose to be satisfied with a different product. In this example the French, or it could be the Germans, or anyone whose exports are distained because of higher prices, might find that they have goods piling up in the shelves that they are not selling. This could cause an unemployment problem that could really snowball- a more severe problem than drinking Chardonnay instead of French champaign! 

**The U.S. side**
On the U.S. side, if people continue to buy these goods, the U.S. will have more inflation that may cause the Fed to stop cutting rates. The Fed might even raise rates, and this could slow the economy down. However, as we know, tariffs are one-time increase in the price level and it's only if the Fed runs ‘bad monetary policy’ that the price bump caused by the tariffs would become inflation… inflation is a persisting increase in prices.

**The new ZEW in May**
In this new survey, we see the economic situation in May improving relatively substantially in the euro area, as well as worsening slightly in the U.S. and in Germany. We see macroeconomic expectations sharply higher in Germany in May and while they also improve substantially in the U.S., the U.S. is left with economic expectations that are weaker less than 5% of the time, while German macroeconomic expectations are above their historic median (above a ranking of 50%).

**Got inflation?**
Inflation expectations are falling in the euro area in May and in Germany and, while they edged slightly lower in the U.S., they rank very high - higher only 8% of the time in the U.S. Whereas inflation expectations are lower only about 20% of the time in the euro area and in Germany. What's interesting, is that we see a big decline in inflation expectations in the euro area and in Germany despite the fact that growth conditions either improve or hardly unchanged and macro-expectations for Germany get sharply higher and yet inflation is improving. This has to be viewed as a curiosity.

**Interest rates**
Short-term rate expectations in the euro area are more negative than they are in the U.S. with both the euro area and the U.S. having low rank standings for short-term interest rate expectations. Long-term rate expectations in Germany and the U.S. show a decline both in Germany and in the U.S., but the German rank-standing is at its 15th percentile and the U.S. standings in its 36th percentile. That, at least, matches with the inflation expectations outlook.

Through all this, stock markets are improving in May compared to April. The European stock market and the German market are doing better than they are than the U.S. on a queue standing basis. And the dollar is expected to get weaker.

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**Forecasts and contradictions**
It seems to me there are a lot of contradictions in these scenarios or forecasts and the Europeans are somewhat angry at the U.S. for having done what it did, and they are projecting that the U.S. will suffer a worse consequence basically because they don't like what the U.S. is doing. However, based on trade dependency, it would seem to me that Europe is far more at risk of an ugly outcome: its exports are at greater risk compared to U.S. imports being at greater risk. One mitigating factor, of course, is that many things have changed as the U.S. has made alterations on the geopolitical front by forcing Europe to accept a larger role in NATO, defending itself. This will increase military expenditure and will help to sustain economic growth in Europe in the face of whatever shock may come on the tariff side. However, at this time, there isn't that much of a defense industry in Europe to serve the build-up that they need, if they source goods out of the U.S. that's not going to stimulate European growth very much. However, it's likely that Europe will try to develop more of a domestic arms industry although it’s going to have to weigh that against the need to beef up armaments in the short-run.

**Lots of change afoot**
There's a lot of change afoot, and we see a lot of forecasts being made both by Europeans and by people in the U.S. that reflect the heavy dose of what they want to see rather than what they're probably going to see. A lot of that analysis swirls around the belief that free trade is something sacred that's being violated by tariffs and therefore these violations are going to create a lot of bad events. That viewpoint, of course, ignores the many ways in which free trade is already violated. And, of course, another set of pre-existing beliefs simply sees everything that Donald Trump does as wrong. Wishing or even hating is no way to run a forecasting exercise and so I've cautioned that people beware about the conclusions they draw especially in the wake of the tariff news which now has the U.S.-China animosity set aside and has some temporary abeyance of other tariffs in progress. The problem with being an economist is that you have to have a forecast, and you have to explain it, and make it public, and, of course, once you do that, if the facts suddenly change, you are left either having to keep your forecast (and hoping…) or having to embarrass yourself by shifting your forecast back to where it was before things changed. And this reflects where we are right now. There were a number of analyses that emerged about how we would have inflation, or we would have recession because these tariffs were huge and terrible and now it's the tariffs get peeled back and we see there's going to be a more reasoned approach. But there is still no permanence. Yet, economists with forecasts out there are gradually looking for a diplomatic way to soften some of the forecasts they have made without looking like a bobble-head doll on a cars dashboard as it encounters a bumping road. This also goes for some of the analysis of reports that we see as the Wall Street Journal's first take on today's CPI report in the U.S. was that there was evidence of tariff inflation although if you read the report the WSJ talks about how it was the best year-over-year inflation rate that we had seen in quite some time and up by only 0.2% month-to-month. So, which is it? When it's hard to make the headline of a report match the content of the story that it represents, you know there's something else going on. So be careful what you read and be more careful what you believe. There is a lot of bias and ideology out there. It is a lot just because we are human- but not all of it.

ZEW Experts Shift Forecasts Less Pessimistic on Europe

Tian Yong Woon

This week, we focus on US-China trade developments in light of the economies’ joint 90-day tariff pause announcement. The extent of the interim tariff cuts has surpassed investors’ expectations. As such, the cuts have understandably boosted sentiment in Chinese equity markets (chart 1), though sentiment had already been buoyed by the increasingly conciliatory tone in US-China communications leading up to the announcement. The tariff cuts are a significant reprieve for both economies. The US is likely to see reduced price pressures on producers and consumers in the near term, while China stands to gain from a temporary easing of growth drags amid ongoing domestic challenges (chart 2).

Turning to the hard numbers, China’s April trade readings were relatively resilient, partly due to significant front-loading ahead of the prior US-imposed 145% tariffs taking effect (chart 3). As shown in chart 4, sharp declines in shipments to the US were more than offset by rising exports to Asian partners, including ASEAN, India, and Taiwan. Looking ahead, with the tariff pause beginning around mid-May, we may not see a full month’s data capturing trade responses to the earlier steep tariffs.

Next, we turn to how investors and analysts are responding. In the May survey, our Blue Chip panellists continued to mark down growth forecasts across several economies relative to end-2024 expectations (chart 5). At the same time, they raised US inflation forecasts and lowered China inflation forecasts (chart 6). However, these forecasts are likely to see favourable revisions in future surveys—barring new adverse developments—especially in light of this week’s positive news.

**Latest US-China trade developments**
Financial market sentiment has remained fairly buoyant despite the flare-up in US-China trade tensions in April. Recent messaging from both sides has moved away from the fiery rhetoric of previous months, adopting a more conciliatory tone aimed at de-escalating rather than intensifying frictions. Encouragingly, developments earlier this week reinforced this shift: the US and China issued a joint statement agreeing to a 90-day cooling-off period as they pursue trade talks following a relationship “reset.” During this time, the US will reportedly reduce its 145% tariffs on Chinese imports to 30% by May 14, while China will lower its 125% tariffs on US imports to 10%. Markets have understandably reacted positively, as seen in chart 1, with this move representing a significant rollback of mutual tariffs and bringing rates much closer to their pre–“Liberation Day” baseline. As a result, the growth-dampening effects from elevated tariffs are now considerably more muted—though it is worth noting that these measures remain temporary.

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The latest developments are indeed cause for optimism, as neither the US nor China stood to benefit from maintaining steep, mutually applied tariffs. For China, this short-term reprieve will help ease what would have been another significant growth headwind, compounding an already challenging set of domestic issues. Among these, China continues to struggle with persistently low inflation—likely stemming from weak demand and a long-standing problem of excess supply, both of which have contributed to downward pressure on prices. This is particularly evident in producer prices, which have been falling for years now, as shown in chart 2. These underlying drivers likely explain why our Blue Chip survey panellists continue to expect weak price pressures in China this year—a topic discussed in more detail later. Also, the sustained price decline not only highlights China's oversupply problem but has also provoked frustration among trading partners who had to absorb the effects.

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**First round effects of US tariffs on China**
Moving next to initial hard numbers reflecting the effects of the US' 145% tariffs before the announced pause, China’s April trade data were released last week. Exports rose a strong 8.1% y/y, as shown in chart 3—well above expectations. This eased initial concerns that the US-imposed tariffs would severely hit trade. While the April export print beat forecasts, it was driven by several underlying factors. A key contributor was significant front-loading by importers ahead of the tariff implementation in mid-April, which likely offset the drop in shipments that followed. As a result, though April’s data capture the early impact of the steep US tariffs, they also reflect a surge in pre-tariff activity, making the figures somewhat noisy. On the import side, shipments to China declined modestly, extending the recent trend of weak import growth. Although the drop was less severe than expected, continued weakness in imports may reflect subdued domestic demand—a concerning signal.

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A closer look at the April data (chart 4) shows that China’s stronger-than-expected export performance was largely driven by shipments to ASEAN economies, India, and Taiwan, where exports posted double-digit y/y growth. This surge reflects several dynamics. First, it underscores the deep integration of regional supply chains and the critical role of Chinese inputs in broader manufacturing processes. Second, it points to these economies’ capacity to absorb some of China’s excess capacity—diverted from the US, which has become a less viable destination due to steep tariffs. However, it remains uncertain whether these markets can sustainably absorb such redirected trade flows. Exports to the EU and Japan also grew in April, though at a more modest pace. Overall, the surge in shipments to regional and European partners more than offset the sharp 21% y/y drop in exports to the US.

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**May Blue Chip survey outlook**
Next, we turn to investor and analyst expectations for global growth amid the seemingly unrelenting stream of trade developments between the US and its trading partners. The latest Blue Chip survey results continue to paint a bleak picture for global growth, with panellists having sharply downgraded their forecasts in the May survey compared to those expressed in December last year, as shown in chart 5. However, given the recent and substantial de-escalation in US-China trade tensions—and barring any new growth-negative developments—panellists may soon be compelled to revise their outlooks upward. Notably, the May survey did not capture this week’s positive trade breakthrough, and a significant portion of the tariff burden has now been temporarily lifted from both economies.

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Lastly, we examine investor and analyst expectations for inflation in light of US-China trade developments prior to this week’s positive news. Understandably, our Blue Chip panellists had significantly revised upward their inflation outlook for the US, given the potentially inflationary effects of the previously announced tariffs. In contrast, the inflation outlook for China has become increasingly pessimistic, largely due to the structural factors discussed in earlier sections. However, with the latest de-escalation in US-China trade tensions, expectations for US inflation—and even those for some other economies—now stand to be revised downward. Whether expectations for Chinese inflation can be meaningfully adjusted upward remains uncertain. Looking further ahead, attention will also turn to US President Trump’s other 90-day pause, specifically concerning his “reciprocal” tariffs on economies other than China. The outcome of these trade discussions will be critical in determining the trajectory of future inflation expectations.

Economy in Brief: 2008

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