Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601g.jpg" width="353">
The manufacturing sector showed a further sign of modest improvement after its sharp decline in overall activity. The May composite index for the factory sector from the Institute for Supply Management rose to 42.8 from 40.1 in April. Though the latest figure still indicates a lower level of activity, as does any below the break-even point of 50, the rate of decline appears to be easing. The worst of the decline was at yearend &#39;08 when the index reached 32.9. Consensus expectations were for a May reading of 42.3.
Improvement in the May components of the overall ISM index was limited, but encouraging. The new orders figure broached the break-even level of 50 for the first time since late 2007 with a rise to 51.1. The improvement came as only 19% (NSA) of survey participants reported lower orders ,versus a December high of 64%, while a still-low 27% reported higher orders. The export order index also improved to 48.0 versus the December reading of 35.5. During the last ten years there has been a 53% correlation between the index and the q/q change in real exports of goods in the GDP accounts.
The production component also improved to a level of 46.0, which was its highest level since August and up off the low of 26.3 in December. During the last ten years there has been an 84% correlation between the level of the production component of the composite index and the three-month growth in factory sector industrial production. It is appropriate to correlate the ISM index level with factory sector output growth because the ISM index is a diffusion index. It measures growth by using all of the positive changes in activity added to one half of the zero change in activity measures. Another glimmer of improvement was that the speed of supplier deliveries slowed for the second month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601h.jpg" width="353">
Elsewhere, improvement in the components was limited. The employment index was unchanged at a low reading of 34.3, though that was up from the February low. During the last ten years there has been an 89% correlation between the index level and the one-month change in manufacturing payrolls. Continued destocking played a role in that weakness as suggested by a low inventory index reading of 32.9 which was near the lowest level since 1982.
The separate index of prices paid rose sharply indicating that pricing power is rebuilding with improved activity levels. The reading of 43.5 was its highest since last September. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.
The ISM data is available in Haver&#39;s USECON database.
Positive Economic Signs Are Emerging; Recovery Will Take Time from the Federal Reserve Bank of St. Louis can be found <a href="http://www.stlouisfed.org/newsroom/pdf/StackhousePresentation05-2009.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/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May &#39;08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>42.8</td>
<td>40.1</td>
<td>49.3</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>51.1</td>
<td>47.2</td>
<td>48.6</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>34.3</td>
<td>34.4</td>
<td>46.2</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>43.5</td>
<td>32.0</td>
<td>87.0</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
</body>
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The manufacturing sector showed a further sign of modest improvement after its sharp decline in overall activity. The May composite index for the factory sector from the Institute for Supply Management rose to 42.8 from 40.1 in April. [...]

ISM Index Suggests Downturn In Factory Sector Is Easing

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601e.jpg" align="left" border="0" height="265" width="353">
This May, the Hometrack Housing Survey, which processes
information gathered by real estate agents in England and Wales,
suggests that the decline in the property market may be reaching
bottom. Three of the indicators that Hometrack monitors continued to
improved in May and one was unchanged. The average price of a house was
unchanged from April, the first break in the steady monthly declines
that began in October 2007. The price is now 155,600 pounds, 16,600
pounds below a year ago and 29,700 pounds below the peak of 176,300
reached in June, July and August of 2007. The last time one could buy a
house near the current price was September 2002 when the average price
was 154,500 pounds.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601f.jpg" align="right" border="0" height="265" width="353">
The difference between the selling price and the asking price
has been narrowing since January and February of this year when the
sale price was 88.3% the asking price. The May percentage was 90.3%, up
from 89.6% in April. This percentage, however, is among the lower
percentages recorded over the nine-year history of the data. The
selling price was 97.7% of the selling price in January, 2002. The
first chart shows the average price of a house and sales price and a
percentage of the asking price since January 2001.
The average time it takes to sell a house has also been
falling since January of this year when it took 12.3 weeks to complete
a sale. In May it took 9.9 weeks. Again this is a relatively long time
when viewed over the past nine years. From 2001 through 2007, the
number of weeks it took to complete a sale varied from 2.8 in May and
June of 2002 to 8.3 in December, 2007.
Finally, the number of viewings per sale has been slowly
trending down since July 2008 when it reached 14.9. By May the number
of viewings was 12.2, down from 12.5 in April. The second chart shows
the average time taken to sell a house and the number of viewings per
sale.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">UK
Hometrack Housing Survey</th>
<th scope="col">May 09</th>
<th scope="col">Apr&nbsp; 09</th>
<th scope="col">May 08</th>
<th scope="col">M/M&nbsp; Chg</th>
<th scope="col">Y/Y Chg</th>
<th scope="col">2008&nbsp;</th>
<th scope="col">2007&nbsp;</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">House Price (000 GBP)&nbsp;</td>
<td>155.6</td>
<td>155.6</td>
<td>172.2</td>
<td>0.0</td>
<td>-16.6</td>
<td>168.7</td>
<td>174.4</td>
<td>165.7</td>
</tr>
<tr>
<td class="firstcol">Sale Price/ Asking Price (%)</td>
<td>90.3</td>
<td>89.6</td>
<td>92.3</td>
<td>0.7</td>
<td>-2.0</td>
<td>91.3</td>
<td>96.0</td>
<td>94.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Time Taken to Sell (No.
of Weeks)</td>
<td>9.9</td>
<td>10.4</td>
<td>9.8</td>
<td>-0.5</td>
<td>0.1</td>
<td>10.4</td>
<td>6.7</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">Average Number of Viewings per
Sale</td>
<td>12.2</td>
<td>12.5</td>
<td>14.0</td>
<td>-0.3</td>
<td>-1.8</td>
<td>13.7</td>
<td>11.0</td>
<td>10.9</td>
</tr>
</tbody>
</table>
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This May, the Hometrack Housing Survey, which processes information gathered by real estate agents in England and Wales, suggests that the decline in the property market may be reaching bottom. Three of the indicators that Hometrack [...]

Encouraging News From UK's Hometrack Housing Survey

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601c.jpg" align="right" border="0" height="265" width="353">The UK MFG
PMI is up to a level of 45.37, the second highest reading in this group
of EU/EMU reporters (Greece is the highest). The UK index also is 10%
from its cycle high and 10% above its cycle low. The EMU measure is 17%
from its high and 7% up from its low.&nbsp; 
 The UK MFG measure is up an EU best gain of 10.4 points
over the past three months. France Germany and Spain have the next best
increases up by 8.5, 7.98 and 7.44 points respectively. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601d.jpg" align="right" border="0" height="265" width="353">
Europe is
improving, but the UK seems to be making the strongest MFG rebound so
far. With the release of the US MFG PMI on Monday, the US index shows that
it continues to hold its lead on Europe, signaling that the US recovery
remains in the vanguard of the global expansion. It has about a
four-month head start on EMU but its lead in terms of the level of the
PMI index itself is small. The UK MFG rise has been ahead of the US
sector for the past few months but that sector does not carry the
global punch that the US does.&nbsp;

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> Markit MFG Indexes</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>May-09</td>
<td> Apr-09</td>
<td> Mar-09</td>
<td> 3Mo</td>
<td> 6Mo</td>
<td> 12Mo</td>
<td> Percentile</td>
</tr>
<tr class="grey3">
<td class="firstcol"> Euro-Area</td>
<td> 40.68</td>
<td> 36.83</td>
<td> 33.93</td>
<td> 37.15</td>
<td> 35.55</td>
<td> 39.92</td>
<td> 29.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany</td>
<td>39.58</td>
<td>35.40</td>
<td>32.36</td>
<td>35.78</td>
<td>34.02</td>
<td>40.26</td>
<td> 27.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>43.32</td>
<td>40.10</td>
<td>36.51</td>
<td>39.98</td>
<td>37.93</td>
<td>40.87</td>
<td> 38.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy</td>
<td>41.11</td>
<td>37.21</td>
<td> 34.59</td>
<td>37.64</td>
<td>36.58</td>
<td>39.82</td>
<td> 28.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Spain</td>
<td>39.83</td>
<td>34.61</td>
<td>32.92</td>
<td>35.79</td>
<td>33.20</td>
<td>35.31</td>
<td> 39.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Austria</td>
<td>39.30</td>
<td>38.97</td>
<td> 33.68</td>
<td>37.32</td>
<td>35.78</td>
<td>40.53</td>
<td> 24.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Greece</td>
<td>46.08</td>
<td>40.88</td>
<td> 38.17</td>
<td>41.71</td>
<td>40.83</td>
<td>45.34</td>
<td> 46.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Ireland</td>
<td>39.35</td>
<td>36.10</td>
<td>35.12</td>
<td>36.86</td>
<td>36.76</td>
<td>39.50</td>
<td> 27.8%</td>
</tr>
<tr class="grey2">
<td colspan="8"> EU</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK</td>
<td>45.37</td>
<td>43.07</td>
<td>39.51</td>
<td>42.65</td>
<td>39.17</td>
<td>40.44</td>
<td> 48.7%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">percentile is over range since March
2000</td>
</tr>
</tbody>
</table>
</body></html>

The UK MFG PMI is up to a level of 45.37, the second highest reading in this group of EU/EMU reporters (Greece is the highest). The UK index also is 10% from its cycle high and 10% above its cycle low. The EMU measure is 17% from its [...]

UK MFG Is On The Mend... So Is Europe And The US

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601b.jpg" width="353">
The personal savings rate jumped last month to the highest level since early-1995. That rise may help explain earlier reports that confidence and sentiment are improving. Consumers are rebuilding their personal balance sheets, mending their old ways of easy spending. That is the message from the latest Commerce Department report showing that the personal savings rate jumped during April to 5.7% which was its highest level in over thirteen years.
Spending restraint was evidenced in a slight 0.1% decline in personal expenditures during April. It followed a revised 0.3% March decline which was slightly deeper than initially reported. Adjusted for inflation, April spending also fell a slight 0.1% producing a level of real spending that has been unchanged since January.
As might be expected, spending on the largest durable good, motor vehicles, took a large hit and fell 1.3% (-16.9% y/y). Real spending on furniture &amp; appliances also was cut back a slight 0.4% last month (-4.4% y/y) after the sharp 2.8% March drop. Real spending on apparel slipped just 0.1% (-6.5% y/y) after a 1.7% decline. The weakness extends to spending on services which rose all of 0.2% (1.1% y/y).
The sense of consumers&#39; caution stems from weaker income which remains under extreme pressure from the soft job market. Despite a 0.5% rise during April, personal income has been flat this year though the latest rise beat expectations for a 0.2% decline. Wages and salaries reflected higher unemployment and were unchanged (-0.8% y/y) following seven consecutive months of decline. In addition, the recent decline in interest rates took its toll on interest income which in April was off 5.5% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090601a.jpg" width="353">
In light of weak income growth, what additional factor has kicked up the savings rate other than spending restraint? Lower taxes. They are off by nearly one-quarter during the last twelve months. Disposable personal income jumped 1.1% during April and over the last year has risen 4.1%, well in excess of the gain in total personal income. Adjusted for inflation, real disposable income also rose 1.1% last month and over the last year is up 3.7%. So far this year, real disposable income is up at a 6.3% annual rate.
Finally, the PCE chain price index benefited from a 2.6% seasonally adjusted decline in gasoline prices (-37.4% y/y) and rose just 0.1%. A bit firmer were core prices which posted a 0.3% April rise to lift the YTD rate of increase to 2.5% (AR). The latest gain in the overall price deflator exceeded Consensus expectations for a 0.2% rise.
The personal income &amp; consumption figures are available in Haver&#39;s USECON and USNA databases.

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a> (%)&nbsp;</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.5</td>
<td>-0.2</td>
<td>0.7</td>
<td>3.8</td>
<td>6.1</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Disposable Personal Income</td>
<td>1.1</td>
<td>0.1</td>
<td>3.7</td>
<td>4.6</td>
<td>5.5</td>
<td>6.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption Expenditures</td>
<td>-0.1</td>
<td>-0.3</td>
<td>-1.5</td>
<td>3.6</td>
<td>5.5</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>5.7</td>
<td>4.5</td>
<td>0.0 (April &#39;08)</td>
<td>1.8</td>
<td>0.5</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1</td>
<td>0.0</td>
<td>0.4</td>
<td>3.3</td>
<td>2.6</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.3</td>
<td>0.2</td>
<td>1.9</td>
<td>2.2</td>
<td>2.2</td>
<td>2.3</td>
</tr>
</tbody>
</table>
</body>
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The personal savings rate jumped last month to the highest level since early-1995. That rise may help explain earlier reports that confidence and sentiment are improving. Consumers are rebuilding their personal balance sheets, mending [...]

U.S. Savings Rate Still Rising As Consumers Remain Cautious

U.S. Savings Rate Still Rising AsConsumers Remain Cautious

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529f.jpg" width="353">
The University of Michigan&#39;s reading of consumer sentiment for all of May rose to the highest level since September of last year. At 68.7 the latest level was up from the mid-month figure and slightly exceeded Consensus expectations for a reading of 68.0. The increase bodes well for the consumer spending outlook because during the last ten years, there has been a 61% correlation between the level of sentiment and the growth in real spending during the next five months.
The expectations component of consumer sentiment, which had been improving, jumped another 10.0% m/m to its highest level since late-2007. The gain was fueled by improved expectations for business conditions during the next year which jumped also to the highest level since 2007. Expected conditions during the next year surged by a similar degree. Unlike last month, however, the higher stock market failed to lift the expected change in personal finances which dipped slightly m/m but were up significantly y/y.
The opinion of government policy, which may eventually influence economic expectations, jumped sharply to the highest level since 2002. Thirty percent of respondents thought that a good job was being done by government, up from the four percent low of last December, while a much reduced 22 percent of respondents thought that a poor job was being done.
The current economic conditions index stuttered, but just slightly, as the reading for current personal finances dipped. The drop was offset, however, by an improved read of current conditions for buying large household goods to the highest level since last August.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529g.jpg" width="353">
Inflation expectations for the next year rose to 3.2%. That compares to a low of 1.7% last December but remained down from a reading which was as high as 7.0% last May.
The University of Michigan survey data is not seasonally adjusted. The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database with details in the proprietary UMSCA database.

<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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">May</th>
<th scope="col">Mid-May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>68.7</td>
<td>67.9</td>
<td>65.1</td>
<td>57.3</td>
<td>14.9%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>67.7</td>
<td>66.2</td>
<td>68.3</td>
<td>63.3</td>
<td>-7.6</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>69.4</td>
<td>69.0</td>
<td>63.1</td>
<td>53.5</td>
<td>35.8</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
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The University of Michigan's reading of consumer sentiment for all of May rose to the highest level since September of last year. At 68.7 the latest level was up from the mid-month figure and slightly exceeded Consensus expectations [...]

Michigan Consumer Sentiment Rose Throughout May

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529a.jpg" align="right" border="0" height="265" width="353">
Last quarter, economic weakness in the U.S. was not quite as
severe as reported initially by the Commerce Department. The latest
estimate of a 5.7% (AR) drop in real GDP compares to the advance
estimate of a 6.1% decline and the revision about matched Consensus
expectations. Nevertheless, combined with the 6.3% drop during 4Q '08
the GDP declines were still the worst since early-1958.
As the financial sector recovered from its fourth quarter
swoon, it lifted the overall measure of corporate profitability. Total
corporate profits rose 3.4% (-18.0% y/y) last quarter due to a
near-doubling (-41.5% y/y) of financial sector earnings. That recovery
followed declines in the financial sector during the prior three
quarters which had dropped them to nearly one-quarter of the level at
the start of 2008. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529b.jpg" align="right" border="0" height="265" width="353">
Earnings in the nonfinancial sector countered that
1Q rise with an 8.6% decline (-13.4% y/y) which about matched the 4Q
shortfall. Earnings in the foreign sector continued down by 2.3% (-3.0%
y/y) as recessions abroad deepened.
The cutback of unwanted levels of inventories still is
estimated to have subtracted significantly from GDP growth last
quarter, but the estimate was lessened to 2.3 percentage points from
2.8 points. Regardless, the subtraction was the most since the first
quarter of 2000 and it rivals the largest negative contribution from
inventories since the early-1980s.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529c.jpg" align="right" border="0" height="265" width="353">
Unwanted inventory levels were reduced following the drop-off
in real U.S. final sales to domestic purchasers. They fell at a 5.3%
rate which was revised slightly from the earlier estimate of a 5.1%
decline. Combined with the 4Q '08 decline, final sales to domestic
purchasers fell the most since 1958.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529d.jpg" align="right" border="0" height="265" width="353">
The rise in personal consumption expenditures last quarter was
lessened to 1.6% (-1.4% y/y) from the initial estimate of a 2.2%
increase. This modest increase followed sharp declines during the prior
two quarters. Spending on motor vehicles rose moderately during the
quarter (-18.7% y/y) after five consecutive down periods. Business
fixed investment fell at a 36.9% rate (-16.0% y/y) and residential
investment dropped at a 38.7% rate (-23.4% y/y) from 4Q. Both of these
declines were significantly deeper than reported initially.
U.S. Household Deleveraging and Future
Consumption Growth from the Federal Reserve Bank of San
Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-16.pdf">
here</a>.
The significant shortfall in expenditures by the government
sector still accounts for much of last quarter's weakness in GDP. It
was little revised at -3.5% and was the first decline since late-2005.
The drop was led by a surprising 4.3% decline (+5.5% y/y) in Federal
spending that was paced by a 6.7% decline (+5.1% y/y) in defense
expenditures. State &amp; local spending also fell at a 3.0% annual
rate (-0.3% y/y).
The foreign trade sector made up for some of the economy's
weakness as net exports contributed a little-revised 2.2 percentage
points to 1Q GDP growth. Imports fell at a 34.1% annual rate (-16.5%
y/y) while recessions abroad pulled U.S. exports down at a lesser 28.7%
rate (-10.9% y/y).
Inflation continued to show signs of firming. The little
revised 2.8% increase in the GDP chain price index
was up from the 0.5% annual rate of increase during 4Q. The reason for
the acceleration is that import prices fell at a faster rate than
export prices. Domestic prices, however, reflected the weak economy.
The PCE price index fell at a 1.0% annual rate (+0.8% y/y) while the
residential investment chain price index fell at a 4.6% rate (-5.2%
y/y). The weakness in business spending caused the nonresidential
investment price index also to slip at a 1.2% rate (+2.4% y/y), the
first quarterly decline since 2007. Overall, domestic prices fell at a
1.0% annual rate (+0.8% y/y) after a 4.3% 4Q decline.
The U.S. National Income &amp; Product Account data is
available in Haver's USECON and the USNA
databases.
The Fed's Monetary Policy Response to the
Current Crisis from the Federal Reserve Bank of San
Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-17.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained
2000$, % AR</a></th>
<th scope="col">1Q '09&nbsp;
(Preliminary)</th>
<th scope="col">1Q '09 (Advance)</th>
<th scope="col">4Q '08</th>
<th scope="col">1Q Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>-5.7</td>
<td>-6.1</td>
<td>-6.3</td>
<td>-2.5</td>
<td>1.1</td>
<td>2.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory
Effect</td>
<td>-2.3</td>
<td>-2.8</td>
<td>-0.1</td>
<td>-0.8</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-3.4</td>
<td>-3.4</td>
<td>-6.2</td>
<td>-1.7</td>
<td>1.4</td>
<td>2.4</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>2.2</td>
<td>2.0</td>
<td>-0.2</td>
<td>-1.4</td>
<td>1.4</td>
<td>0.6</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-5.3</td>
<td>-5.1</td>
<td>-5.8</td>
<td>-3.1</td>
<td>-0.0</td>
<td>1.8</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.8</td>
<td>2.9</td>
<td>0.5</td>
<td>2.1</td>
<td>2.2</td>
<td>2.7</td>
<td>3.2</td>
</tr>
</tbody>
</table>
</body></html>

Last quarter, economic weakness in the U.S. was not quite as severe as reported initially by the Commerce Department. The latest estimate of a 5.7% (AR) drop in real GDP compares to the advance estimate of a 6.1% decline and the [...]

U.S. 1Q GDP Decline Lessened, Yet Two-Quarter Drop Rivals 1958 Stats; Profits Recovered Modestly

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<body>
 



 

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529a.jpg" align="right" border="0" height="265" width="353">
Last quarter, economic weakness in the U.S. was not quite as
severe as reported initially by the Commerce Department. The latest
estimate of a 5.7% (AR) drop in real GDP compares to the advance
estimate of a 6.1% decline and the revision about matched Consensus
expectations. Nevertheless, combined with the 6.3% drop during 4Q '08
the GDP declines were still the worst since early-1958.
As the financial sector recovered from its fourth quarter
swoon, it lifted the overall measure of corporate profitability. Total
corporate profits rose 3.4% (-18.0% y/y) last quarter due to a
near-doubling (-41.5% y/y) of financial sector earnings. That recovery
followed declines in the financial sector during the prior three
quarters which had dropped them to nearly one-quarter of the level at
the start of 2008. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529b.jpg" align="right" border="0" height="265" width="353">
Earnings in the nonfinancial sector countered that
1Q rise with an 8.6% decline (-13.4% y/y) which about matched the 4Q
shortfall. Earnings in the foreign sector continued down by 2.3% (-3.0%
y/y) as recessions abroad deepened.
The cutback of unwanted levels of inventories still is
estimated to have subtracted significantly from GDP growth last
quarter, but the estimate was lessened to 2.3 percentage points from
2.8 points. Regardless, the subtraction was the most since the first
quarter of 2000 and it rivals the largest negative contribution from
inventories since the early-1980s.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529c.jpg" align="right" border="0" height="265" width="353">
Unwanted inventory levels were reduced following the drop-off
in real U.S. final sales to domestic purchasers. They fell at a 5.3%
rate which was revised slightly from the earlier estimate of a 5.1%
decline. Combined with the 4Q '08 decline, final sales to domestic
purchasers fell the most since 1958.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529d.jpg" align="right" border="0" height="265" width="353">
The rise in personal consumption expenditures last quarter was
lessened to 1.6% (-1.4% y/y) from the initial estimate of a 2.2%
increase. This modest increase followed sharp declines during the prior
two quarters. Spending on motor vehicles rose moderately during the
quarter (-18.7% y/y) after five consecutive down periods. Business
fixed investment fell at a 36.9% rate (-16.0% y/y) and residential
investment dropped at a 38.7% rate (-23.4% y/y) from 4Q. Both of these
declines were significantly deeper than reported initially.
U.S. Household Deleveraging and Future
Consumption Growth from the Federal Reserve Bank of San
Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-16.pdf">
here</a>.
The significant shortfall in expenditures by the government
sector still accounts for much of last quarter's weakness in GDP. It
was little revised at -3.5% and was the first decline since late-2005.
The drop was led by a surprising 4.3% decline (+5.5% y/y) in Federal
spending that was paced by a 6.7% decline (+5.1% y/y) in defense
expenditures. State &amp; local spending also fell at a 3.0% annual
rate (-0.3% y/y).
The foreign trade sector made up for some of the economy's
weakness as net exports contributed a little-revised 2.2 percentage
points to 1Q GDP growth. Imports fell at a 34.1% annual rate (-16.5%
y/y) while recessions abroad pulled U.S. exports down at a lesser 28.7%
rate (-10.9% y/y).
Inflation continued to show signs of firming. The little
revised 2.8% increase in the GDP chain price index
was up from the 0.5% annual rate of increase during 4Q. The reason for
the acceleration is that import prices fell at a faster rate than
export prices. Domestic prices, however, reflected the weak economy.
The PCE price index fell at a 1.0% annual rate (+0.8% y/y) while the
residential investment chain price index fell at a 4.6% rate (-5.2%
y/y). The weakness in business spending caused the nonresidential
investment price index also to slip at a 1.2% rate (+2.4% y/y), the
first quarterly decline since 2007. Overall, domestic prices fell at a
1.0% annual rate (+0.8% y/y) after a 4.3% 4Q decline.
The U.S. National Income &amp; Product Account data is
available in Haver's USECON and the USNA
databases.
The Fed's Monetary Policy Response to the
Current Crisis from the Federal Reserve Bank of San
Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-17.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained
2000$, % AR</a></th>
<th scope="col">1Q '09&nbsp;
(Preliminary)</th>
<th scope="col">1Q '09 (Advance)</th>
<th scope="col">4Q '08</th>
<th scope="col">1Q Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>-5.7</td>
<td>-6.1</td>
<td>-6.3</td>
<td>-2.5</td>
<td>1.1</td>
<td>2.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory
Effect</td>
<td>-2.3</td>
<td>-2.8</td>
<td>-0.1</td>
<td>-0.8</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-3.4</td>
<td>-3.4</td>
<td>-6.2</td>
<td>-1.7</td>
<td>1.4</td>
<td>2.4</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>2.2</td>
<td>2.0</td>
<td>-0.2</td>
<td>-1.4</td>
<td>1.4</td>
<td>0.6</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-5.3</td>
<td>-5.1</td>
<td>-5.8</td>
<td>-3.1</td>
<td>-0.0</td>
<td>1.8</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.8</td>
<td>2.9</td>
<td>0.5</td>
<td>2.1</td>
<td>2.2</td>
<td>2.7</td>
<td>3.2</td>
</tr>
</tbody>
</table>
German Retail Sales Lose Some
Weakness 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 28, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529e.jpg" align="left" border="0" height="265" width="353">
Retail sales are falling on a Yr/Yr basis but, in recent
months, spending has been higher; over three months spending (ex-autos)
is actually rising. As we saw in the first quarter German GDP report,
consumers have been mildly affected by the German downturn but the real
weakness has been in the industrial measures such as business
investment, exports plus in housing. Find that retail sales are holding
up is a good sign that the German recession is not spreading and that
its social welfare support system is holding together the ability of
consumers to participate in the economy. 
 

German consumption figures are somewhat encouraging. Still the
German consumer is not likely to be an engine of growth. Consumption is
a core part of GDP that is stabilizing and that is an important
contribution. The industrial weakness is still present and remains a
threat, But that depends on demand elsewhere since the threatening
weakness is to German investment goods output and exports. Exports
remain weak. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">German
Real and Nominal Retail Sales
</th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td>Saar</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail Ex auto</td>
<td>0.9%</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>-2.7%</td>
<td>-0.4%</td>
<td>-1.6%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>&nbsp;</td>
<td>&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">&nbsp; Retail Ex auto</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>0.4%</td>
<td>-1.5%</td>
<td>-0.3%</td>
<td>-4.5%</td>
<td>1.5%</td>
</tr>
</tbody>
</table>
Michigan Consumer Sentiment Rose
Throughout May 
by <a href="/comment/Moeller.html">Tom
Moeller</a> May 29, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529f.jpg" align="left" border="0" height="265" width="353">
The University of Michigan's reading of consumer sentiment for
all of May rose to the highest level since September of last year. At
68.7 the latest level was up from the mid-month figure and slightly
exceeded Consensus expectations for a reading of 68.0. The increase
bodes well for the consumer spending outlook because during the last
ten years, there has been a 61% correlation between the level of
sentiment and the growth in real spending during the next five months.
The expectations component of consumer sentiment, which had
been improving, jumped another 10.0% m/m to its highest level since
late-2007. The gain was fueled by improved expectations for business
conditions during the next year which jumped also to the highest level
since 2007. Expected conditions during the next year surged by a
similar degree. Unlike last month, however, the higher stock market
failed to lift the expected change in personal finances which dipped
slightly m/m but were up significantly y/y.
The opinion of government policy, which may eventually
influence economic expectations, jumped sharply to the highest level
since 2002. Thirty percent of respondents thought that a good job was
being done by government, up from the four percent low of last
December, while a much reduced 22 percent of respondents thought that a
poor job was being done.
The current economic conditions index stuttered, but just
slightly, as the reading for current personal finances dipped. The drop
was offset, however, by an improved read of current conditions for
buying large household goods to the highest level since last August.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090529g.jpg" align="right" border="0" height="265" width="353">
Inflation expectations for the next year rose to 3.2%. That
compares to a low of 1.7% last December but remained down from a
reading which was as high as 7.0% last May.
The University of Michigan survey data is not seasonally
adjusted. The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.

<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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">May</th>
<th scope="col">Mid-May</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">May y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>68.7</td>
<td>67.9</td>
<td>65.1</td>
<td>57.3</td>
<td>14.9%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>67.7</td>
<td>66.2</td>
<td>68.3</td>
<td>63.3</td>
<td>-7.6</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>69.4</td>
<td>69.0</td>
<td>63.1</td>
<td>53.5</td>
<td>35.8</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
</body></html>

U.S. 1Q GDP Decline Lessened, YetTwo-Quarter Drop Rivals 1958 Stats; Profits Recovered Modestly

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.

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**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.

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**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.

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**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.

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**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.

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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

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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.

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**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

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**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.