Tom Moeller

Though higher oil prices raised the cost of petroleum imports during March, the lift just slightly deepened the U.S. foreign trade deficit and it remained near the lowest level since 1999. The deficit of $27.6B deepened from the [...]

U.S. Trade Deficit Remains Stable and Near Its Lowest Since 1999

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511f.jpg" align="left" border="0">
On a seasonally adjusted basis, industrial production in
France declined 1.4% from February to March; and, in Italy, 4.6.%. For
the quarter industrial production in France was down 6.8% compared with
6.9% in the fourth quarter. The comparable figures for Italy were 8.4%
and 9.8%. To the extent that industrial production is a predictor of
gross domestic product, these figures suggest that the first quarter
decline in GDP in France will be about the same as in the fourth
quarter of last year, that is, 1.12% (or 4.4% at an annual rate), while
that in Italy is likely to be somewhat greater than the 1.49% (or 7.5%
at an annual rate) in the fourth quarter of last year. The first chart
shows quarterly data for industrial production and GDP for France and
the second, the similar data for Italy.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511g.jpg" align="right" border="0">
These production data indicate the depth and severity of the
recession in these countries in the first quarter, but should not
detract from the implications of more recent data such as the
purchasing managers surveys and business confidence measures that
suggest that the these economies are, at worst reaching a bottom or at
best, showing faint signs of improvement.
One can even see some light in the monthly unadjusted
production data. The year over year decline in industrial product in
France was 12.6% in March, down from 18.6% in February. The comparable
figures for Italy were 18.2% and 24.1%

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Mar 09</th>
<th scope="col">Feb &nbsp; 09</th>
<th scope="col">Jan 09</th>
<th scope="col">Mar 09</th>
<th scope="col">Feb &nbsp; 09</th>
<th scope="col">Jan 09</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> Italy</td>
<td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Index</td>
<td>Index</td>
<td>Index</td>
<td> M/M % </td>
<td>M/M %</td>
<td>M/M %</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Industrial Production
SA</td>
<td>80.8</td>
<td>84.7</td>
<td>88.8</td>
<td>-4.60</td>
<td>-4.62</td>
<td>1.22</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(2005=100)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>Y/Y %</td>
<td>Y/Y %</td>
<td>Y/Y %</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Industrial Production
NSA</td>
<td>81.6</td>
<td>85.4</td>
<td>90.6</td>
<td>-18.23</td>
<td>-24.09</td>
<td>-22.80</td>
</tr>
<tr class="even">
<td class="firstcol">France</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td> M/M % </td>
<td>M/M %</td>
<td>M/M %</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Industrial Production
SA</td>
<td>84.6</td>
<td>85.5</td>
<td>86.2</td>
<td>-1.37</td>
<td>-0.91</td>
<td>-3.92</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(2005=100)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>Y/Y %</td>
<td>Y/Y %</td>
<td>Y/Y %</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Industrial Production
NSA</td>
<td>93.0</td>
<td>85.5</td>
<td>89.0</td>
<td>-12.59</td>
<td>-18.57</td>
<td>-16.04</td>
</tr>
</tbody>
</table>
</body></html>

On a seasonally adjusted basis, industrial production in France declined 1.4% from February to March; and, in Italy, 4.6.%. For the quarter industrial production in France was down 6.8% compared with 6.9% in the fourth quarter. The [...]

March Industrial Production Data For Italy And France

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511a.jpg" align="right" border="0">

Expanding on last week's piece by Louise Curley on the Haver
Analytics website, past deflation of pricing power has eased and may be
tuning positive. By extension, U.S. economic improvement may be in the
offing. What is unknown, of course, is when the improvement sets in and
how strong it will be. To begin with, economic liquidity is on the
rise. The yield spread between the 10-year Treasury
note and the Federal funds rate has steepened dramatically since its
inverted stance at the beginning of last year. That steepening occurred
as Treasury yields first dropped sharply when the recession intensified
late last year, then rose as the economic news was digested. The Fed's
response to the recession was, of course, to first lower the Fed funds
rate to near zero and then leave it there, pumping in economic
liquidity all the while.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511b.jpg" align="right" border="0">Liquidity indeed has increased due to the Fed's
actions.
Though it decelerated recently, growth the money stock
(M2) over the last six months has roughly tripled to 15% while the
level of bank reserves has more than doubled. These increases have yet,
however, to translate into any surge in economic activity. Indeed, the
lags between liquidity provision and overall economic activity have
been up to six months in the past, and they likely will be longer this
time around. The "front-end" economic response to Fed easing comes from
the consumer &amp; housing sectors. Historically, retail spending
recovered quickly at a rate of 5% or more to end recessions. This time,
while spending has stabilized, a robust recovery is in question. A
rebuilding of consumers' balance sheets, i.e. a rise in the savings
rate, has started but may take some time to play out. Moreover, any
delay in a spending recovery may be lengthened by consumer
demographics. They soon will dampen the spending impetus with the aging
of the baby-boom population. That all will dampen any improvement in
housing activity, which has yet to materially begin.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511c.jpg" align="right" border="0">The
rise in liquidity has yet to devalue the U.S.
dollar. A lower dollar would improve the outlook for exports
with lower prices and dampen imports with higher prices. The delay
probably is the result of the developing economic weakness abroad. In
fact, the dollar's trade-weighted value rose by 20% as of early this
year and is down just moderately since its peak this March. The dollar
really is not working much as a stabilizing factor of the U.S. foreign
trade imbalance.
Commodity prices have strengthened
significantly with more liquidity. Lower oil prices last year pulled
down the measures of industrial commodity prices, but this year the
measures have risen. That not only reflects the moderate recovery in
oil which has raised the FIBER commodity price measure by more than
one-quarter, but metals prices have risen as well. Copper scrap prices
have nearly doubled from their January low while aluminum prices have
risen 15% during the last two months. Steel scrap prices have moved
sideways since January, but the level is up by nearly one half from the
December low. Lead and zinc prices have significantly strengthened as
well. In addition to higher metals prices are several indications that
activity outside of the industrial sector is recovering. Prices for
cotton are now one-third higher than this past March. Even the
housing-related prices of framing lumber and wallboard bottomed and
have risen modestly.
When these signals will translate into an end to the U.S.
recession is, of course, the overriding question. The Blue
Chip economic forecast <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511d.jpg" align="right" border="0">
indicates that recovery will begin in
the second half of this year. But while economic growth typically has
surged following past recessions, the Consensus forecast is for just
2.1% growth next year followed by moderate 2.5% to 3.0% growth in the
years following. As for prices, the recovery in economic activity,
combined with the liquidity highlighted above, is expected to halt any
decline in prices. Indeed, consumer price inflation
is expected to stabilize next year then rise to a 2.5% rate in 2011 and
thereafter.
The figures referenced above are available in Haver's USWEEKLY
database. The Blue Chip Economic forecast data is in USECON.
Lessons of the Financial Crisis for Banking
Supervision is last week's speech by Fed Chairman Ben S.
Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20090507a.htm">here.</a>



</body></html>

Expanding on last week's piece Louise Curley Curley on the Haver Analytics website, past deflation of pricing power has eased and may be tuning positive. By extension, U.S. economic improvement may be in the offing. What is unknown, of [...]

Liquidity, Exchange Rates & Commodity Prices Point Toward U.S. Economic Improvement

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511e.jpg" align="left" border="0" height="265" width="353">
Taken in a rather broad perspective the downturn according to
the OECD&#8217;s LEIs which are cyclically adjusted is quite severe; the
worst since 1970, at least. But the US and several counties in OECD
Europe are showing signs of doing less badly which means, potentially,
showing signs of turning the corner on recession. 
 

Readings for France and Italy are up for three months running
through March. China and UK indices are up for two months in a row. The
OECD has characterized these economies and well as the OECD regions as
being in a &#8216;strong slowdown&#8217;. It now says that in France, Italy and the
UK troughs may have been reached. 
 

Among developing countries China shows the clearest sign of
troughing while Brazil and India continue to emit signals that say that
they are still declining. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="5" scope="col">OECD
Trend-restored leading Indicators </th>
</tr>
<tr class="grey4">
<th colspan="5" scope="col"> Growth
progression-SAAR</th>
</tr>
</thead>
<tbody>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td> 3Mos</td>
<td> 6Mos</td>
<td> 12mos</td>
<td> Yr-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD</td>
<td>-5.7%</td>
<td> -10.4%</td>
<td> -9.5%</td>
<td> -0.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD7</td>
<td>-8.8%</td>
<td> -13.0%</td>
<td> -10.9%</td>
<td> -1.3%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD US</td>
<td>-11.5%</td>
<td> -15.6%</td>
<td> -12.1%</td>
<td> -1.0%</td>
</tr>
<tr class="grey4">
<td colspan="5" class="firstcol">Six
month readings at 6-Mo
Intervals:</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td> Recent six</td>
<td> 6Mo Ago</td>
<td> 12Mo Ago</td>
<td> 18MO Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD</td>
<td> -10.4%</td>
<td> -8.5%</td>
<td> -1.2%</td>
<td> -0.3%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD7</td>
<td> -13.0%</td>
<td> -8.7%</td>
<td> -1.9%</td>
<td> -0.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD US</td>
<td> -15.6%</td>
<td> -8.4%</td>
<td> -2.6%</td>
<td> 0.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD JAPAN</td>
<td> -15.6%</td>
<td> -8.4%</td>
<td> -2.6%</td>
<td> 0.7%</td>
</tr>
<tr class="grey1">
<td colspan="5" class="firstcol">Slowdowns
indicated by 
BOLD RED</td>
</tr>
</tbody>
</table>
</body></html>

Taken in a rather broad perspective the downturn according to the OECD’s LEIs which are cyclically adjusted is quite severe; the worst since 1970, at least. But the US and several counties in OECD Europe are showing signs of doing [...]

OECD LEIs The Long View

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Expanding on last week&#39;s piece by Louise Curley on the Haver Analytics website, past deflation of pricing power has eased and may be tuning positive. By extension, U.S. economic improvement may be in the offing. What is unknown, of course, is when the improvement sets in and how strong it will be. To begin with, economic liquidity is on the rise. The yield spread between the 10-year Treasury note and the Federal funds rate has steepened dramatically since its inverted stance at the beginning of last year. That steepening occurred as Treasury yields first dropped sharply when the recession intensified late last year, then rose as the economic news was digested. The Fed&#39;s response to the recession was, of course, to first lower the Fed funds rate to near zero and then leave it there, pumping in economic liquidity all the while.
Liquidity indeed has increased due to the Fed&#39;s actions. Though it decelerated recently, growth the money stock (M2) over the last six months has roughly tripled to 15% while the level of bank reserves has more than doubled. These increases have yet, however, to translate into any surge in economic activity. Indeed, the lags between liquidity provision and overall economic activity have been up to six months in the past, and they likely will be longer this time around. The &quot;front-end&quot; economic response to Fed easing comes from the consumer &amp; housing sectors. Historically, retail spending recovered quickly at a rate of 5% or more to end recessions. This time, while spending has stabilized, a robust recovery is in question. A rebuilding of consumers&#39; balance sheets, i.e. a rise in the savings rate, has started but may take some time to play out. Moreover, any delay in a spending recovery may be lengthened by consumer demographics. They soon will dampen the spending impetus with the aging of the baby-boom population. That all will dampen any improvement in housing activity, which has yet to materially begin.<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511e.jpg">
The rise in liquidity has yet to devalue the U.S. dollar. A lower dollar would improve the outlook for exports with lower prices and dampen imports with higher prices. The delay probably is the result of the developing economic weakness abroad. In fact, the dollar&#39;s trade-weighted value rose by 20% as of early this year and is down just moderately since its peak this March. The dollar really is not working much as a stabilizing factor of the U.S. foreign trade imbalance.
Commodity prices have strengthened significantly with more liquidity. Lower oil prices last year pulled down the measures of industrial commodity prices, but this year the measures have risen. That not only reflects the moderate recovery in oil which has raised the FIBER commodity price measure by more than one-quarter, but metals prices have risen as well. Copper scrap prices have nearly doubled from their January low while aluminum prices have risen 15% during the last two months. Steel scrap prices have moved sideways since January, but the level is up by nearly one half from the December low. Lead and zinc prices have significantly strengthened as well. In addition to higher metals prices are several indications that activity outside of the industrial sector is recovering. Prices for cotton are now one-third higher than this past March. Even the housing-related prices of framing lumber and wallboard bottomed and have risen modestly.
When these signals will translate into an end to the U.S. recession is, of course, the overriding question. The Blue Chip economic forecast indicates that recovery will begin in the second half of this year. But while economic growth typically has surged following past recessions, the Consensus forecast is for just 2.1% growth next year followed by moderate 2.5% to 3.0% growth in the years following. As for prices, the recovery in economic activity, combined with the liquidity highlighted above, is expected to halt any decline in prices. Indeed, consumer price inflation is expected to stabilize next year then rise to a 2.5% rate in 2011 and thereafter.
The figures referenced above are available in Haver&#39;s USWEEKLY database. The Blue Chip Economic forecast data is in USECON.
Lessons of the Financial Crisis for Banking Supervision is last week&#39;s speech by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20090507a.htm">here.</a>

German Industrial Output Halts Its Strong Of Declines      
by <a href="/comment/Brusca.html">Robert Brusca</a> May 11, 2009


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511f.jpg" width="353">
On a seasonally adjusted basis, industrial production in France declined 1.4% from February to March; and, in Italy, 4.6.%. For the quarter industrial production in France was down 6.8% compared with 6.9% in the fourth quarter. The comparable figures for Italy were 8.4% and 9.8%. To the extent that industrial production is a predictor of gross domestic product, these figures suggest that the first quarter decline in GDP in France will be about the same as in the fourth quarter of last year, that is, 1.12% (or 4.4% at an annual rate), while that in Italy is likely to be somewhat greater than the 1.49% (or 7.5% at an annual rate) in the fourth quarter of last year. The first chart shows quarterly data for industrial production and GDP for France and the second, the similar data for Italy.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511g.jpg" width="353">
These production data indicate the depth and severity of the recession in these countries in the first quarter, but should not detract from the implications of more recent data such as the purchasing managers surveys and business confidence measures that suggest that the these economies are, at worst reaching a bottom or at best, showing faint signs of improvement.
One can even see some light in the monthly unadjusted production data. The year over year decline in industrial product in France was 12.6% in March, down from 18.6% in February. The comparable figures for Italy were 18.2% and 24.1%

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Mar 09</th>
<th scope="col">Feb &nbsp; 09</th>
<th scope="col">Jan 09</th>
<th scope="col">Mar 09</th>
<th scope="col">Feb &nbsp; 09</th>
<th scope="col">Jan 09</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> Italy</td>
<td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Index</td>
<td>Index</td>
<td>Index</td>
<td> M/M % </td>
<td>M/M %</td>
<td>M/M %</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Industrial Production SA</td>
<td>80.8</td>
<td>84.7</td>
<td>88.8</td>
<td>-4.60</td>
<td>-4.62</td>
<td>1.22</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2005=100)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>Y/Y %</td>
<td>Y/Y %</td>
<td>Y/Y %</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Industrial Production NSA</td>
<td>81.6</td>
<td>85.4</td>
<td>90.6</td>
<td>-18.23</td>
<td>-24.09</td>
<td>-22.80</td>
</tr>
<tr class="even">
<td class="firstcol">France</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td> M/M % </td>
<td>M/M %</td>
<td>M/M %</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Industrial Production SA</td>
<td>84.6</td>
<td>85.5</td>
<td>86.2</td>
<td>-1.37</td>
<td>-0.91</td>
<td>-3.92</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2005=100)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>Y/Y %</td>
<td>Y/Y %</td>
<td>Y/Y %</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Industrial Production NSA</td>
<td>93.0</td>
<td>85.5</td>
<td>89.0</td>
<td>-12.59</td>
<td>-18.57</td>
<td>-16.04</td>
</tr>
</tbody>
</table>


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090511e.jpg" width="353">
Taken in a rather broad perspective the downturn according to the OECD&#146;s LEIs which are cyclically adjusted is quite severe; the worst since 1970, at least. But the US and several counties in OECD Europe are showing signs of doing less badly which means, potentially, showing signs of turning the corner on recession. 
Readings for France and Italy are up for three months running through March. China and UK indices are up for two months in a row. The OECD has characterized these economies and well as the OECD regions as being in a &#145;strong slowdown&#146;. It now says that in France, Italy and the UK troughs may have been reached. 
Among developing countries China shows the clearest sign of troughing while Brazil and India continue to emit signals that say that they are still declining. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
OECD Trend-restored leading Indicators
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="5"> Growth progression-SAAR</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td> 3Mos</td>
<td> 6Mos</td>
<td> 12mos</td>
<td> Yr-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD</td>
<td>-5.7%</td>
<td> -10.4%</td>
<td> -9.5%</td>
<td> -0.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD7</td>
<td>-8.8%</td>
<td> -13.0%</td>
<td> -10.9%</td>
<td> -1.3%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD US</td>
<td>-11.5%</td>
<td> -15.6%</td>
<td> -12.1%</td>
<td> -1.0%</td>
</tr>
<tr class="grey4">
<td colspan="5">Six month readings at 6-Mo Intervals:</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td> Recent six</td>
<td> 6Mo Ago</td>
<td> 12Mo Ago</td>
<td> 18MO Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD</td>
<td> -10.4%</td>
<td> -8.5%</td>
<td> -1.2%</td>
<td> -0.3%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD7</td>
<td> -13.0%</td>
<td> -8.7%</td>
<td> -1.9%</td>
<td> -0.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD US</td>
<td> -15.6%</td>
<td> -8.4%</td>
<td> -2.6%</td>
<td> 0.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">OECD JAPAN</td>
<td> -15.6%</td>
<td> -8.4%</td>
<td> -2.6%</td>
<td> 0.7%</td>
</tr>
<tr class="grey1">
<td colspan="5">Slowdowns indicated by BOLD RED</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090508d.jpg" align="left" border="0">
German industrial production halted its string of six
consecutive declines with a flat result in March. Over three months the
negative growth rate for IP has flattened but at a still horrific -33%
(saar). Ironically, the capital goods sector shows the worst results
and fasted decline in its three month rate of growth compared to other
sectors. Yet the capital goods sector is the only sector with an output
increase in March &#8211; and a strong one at that. 
 

Construction is in its second month of increasing output.
However, manufacturing output fell in March, but it did trim that drop
to -0.2% from -3.5% previously. And of course the flat IP result fits
in nicely with the surge in German orders in March. The process of
blunting the forces of the downturn and establishing an environment of
growth is now fully engaged in Germany, Europe&#8217;s largest economy.
Coupled with the fresh ECB rate cut and the ECB&#8217;s decision on to engage
in covered bond purchases, Europe has some new reason for hope. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Total German IP
</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"> Saar exept m/m</td>
<td>Mar-09</td>
<td> Feb-09</td>
<td> Jan-09</td>
<td> 3-mo</td>
<td> 6-mo</td>
<td> 12-mo</td>
<td> Quarter-to-Date</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>0.0%</td>
<td>-3.4%</td>
<td>-6.3%</td>
<td>-32.7%</td>
<td>-33.1%</td>
<td>-20.3%</td>
<td>-40.1%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-2.0%</td>
<td>-3.7%</td>
<td>-0.6%</td>
<td>-22.7%</td>
<td>-14.6%</td>
<td>-9.8%</td>
<td>-13.9%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td>2.5%</td>
<td>-5.2%</td>
<td>-13.5%</td>
<td>-50.1%</td>
<td>-41.5%</td>
<td>-24.7%</td>
<td>-55.8%</td>
</tr>
<tr>
<td class="firstcol">Intermed</td>
<td>-2.4%</td>
<td>-1.3%</td>
<td>-4.0%</td>
<td>-27.0%</td>
<td>-40.4%</td>
<td>-26.2%</td>
<td>-43.9%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">Memo</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>7.6%</td>
<td>1.9%</td>
<td>-7.5%</td>
<td>5.5%</td>
<td>14.6%</td>
<td>4.9%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">MFG IP</td>
<td>-0.2%</td>
<td>-3.5%</td>
<td>-7.7%</td>
<td>-37.8%</td>
<td>-37.1%</td>
<td>-22.9%</td>
<td>-45.7%</td>
</tr>
<tr>
<td class="firstcol">MFG Orders</td>
<td>3.3%</td>
<td>-3.1%</td>
<td>-6.7%</td>
<td>-23.9%</td>
<td>-43.3%</td>
<td>-33.1%</td>
<td>-46.5%</td>
</tr>
</tbody>
</table>
</body></html>

German industrial production halted its string of six consecutive declines with a flat result in March. Over three months the negative growth rate for IP has flattened but at a still horrific -33% (saar). Ironically, the capital goods [...]

German Industrial Output Halts Its Strong Of Declines

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090508a.jpg" align="right" border="0">
Some easing
of the weakness in the U.S. labor market may be evident in the April
figures from the Bureau of Labor Statistics, but the labor market
remains soft. Nonfarm payrolls fell 539,000 last
month. It was the smallest monthly decline since October and it
compares with Consensus expectations for a 610,000 decline. Declines in
employment during the prior two months, however, were revised deeper.
During this recession so far, employment has fallen a total of 5.7
million, the record for a 16-month period. Even after accounting for
the labor force's larger size, that's a huge number. In percentage
terms, jobs are down 4.2% since the 2007 peak.The unemployment
rate very much reflects the softness in the labor market.
The rise to an expected 8.9% brought it to the highest level since
September of 1983 and that compares to the recent low of 4.4% in
October of 2006. Last months' increase reflected a&nbsp; 683,000
jump (+0.5% y/y) in the labor force juxtaposed against a moderate
rebound in household employment of 120,000 (-3.6% y/y). These household
sector figures additionally show that long-term unemployment rose
further. The average duration of unemployment rose during April to a
new record 21.4 weeks, up from 16.9 weeks during 2007. The number of
those unemployed for longer than 15 weeks more than doubled during the
last year and they accounted for nearly half of all those who are
unemployed.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090508b.jpg" align="right" border="0">A glimmer of hope for the job market may be
evident. The payroll survey showed that 28.2% of industries were hiring
last month, the highest percentage since last October. The breadth of
job loss, nonetheless, remains large. In the construction industry
110,000 jobs were lost last month, bringing the total to 1.4 million
since early 2007.&nbsp; Factory jobs were down another 149,000
April, adding to the 10-year downtrend during which over 5 million jobs
have been shed, nearly one-third of the total,. In the private service
sector, the picture remained bleak as it shed 341,000 jobs last month
and nearly 3.0 million (3.0%) since the peak in late 2007. The
government sector picked up some of the job market slack last month as
more workers were hired to take the 2010 Census. Government sector
payrolls rose 72,000 (0.7% y/y) after having been flat since the middle
of last year.The length of the average workweek remained stable at a
much-reduced level of 33.2 hours. That compares with a fairly stable
level near 34 hours through late-2007 but it's been trending lower from
the high over 38 hours in the mid-1960s.The weak labor
market has taken a further toll on average hourly earnings in private
industries. The 0.1% m/m gain last month was the weakest in five years
and it pulled the three- month annualized growth rate to 1.7%, also the
lowest since early-2004. The private service sector has felt the brunt
of that weakness. The annual growth in earnings fell to just 3.2% last
month, down from a five percent growth rate in early 2006.
Surprisingly, annual growth in earnings in the factory sector has held
up at 2.8% and construction sector earnings rose a stable
4.5%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090508c.jpg" align="right" border="0">The figures referenced above are available in Haver's USECON
database. Additional detail can be found in the LABOR and
in the EMPL databases.Trends in
consumer sentiment and spending from the Federal Reserve Bank
of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflmay2009_262.pdf">here.</a>
Public and Private Sector Compensation: What is Affordable
in This Recession and Beyond? - A Conference Summary, also
from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflmay2009_262a.pdf">here.</a>
&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Employment:
000s</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-539</td>
<td>-699</td>
<td>-681</td>
<td>-3.8%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Previous</td>
<td>--</td>
<td>-663</td>
<td>-651</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-149</td>
<td>-167</td>
<td>-172</td>
<td>-10.6%</td>
<td>-3.3%</td>
<td>-2.0%</td>
<td>-0.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-110</td>
<td>-135</td>
<td>-113</td>
<td>-13.5%</td>
<td>-5.5%</td>
<td>-0.8%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Service Producing</td>
<td>-269</td>
<td>-381</td>
<td>-386</td>
<td>-2.4%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Average Weekly Hours</td>
<td>33.2</td>
<td>33.2</td>
<td>33.3</td>
<td>33.8 (April '08)</td>
<td>33.6</td>
<td>33.8</td>
<td>33.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Hourly Earnings</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.2%</td>
<td>3.8%</td>
<td>4.0%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>8.9%</td>
<td>8.5%</td>
<td>8.1%</td>
<td>5.0% (April '08)</td>
<td>5.8%</td>
<td>4.6%</td>
<td>4.6%</td>
</tr>
</tbody>
</table>
</body></html>

Some easing of the weakness in the U.S. labor market may be evident in the April figures from the Bureau of Labor Statistics, but the labor market remains soft. Nonfarm payrolls fell 539,000 last month. It was the smallest monthly [...]

Bad News: U.S. Jobless Rate Jumps to 8.9% Good News: Speed of Job Losses Ease

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090508a.jpg" align="right" border="0">
Some easing
of the weakness in the U.S. labor market may be evident in the April
figures from the Bureau of Labor Statistics, but the labor market
remains soft. Nonfarm payrolls fell 539,000 last
month. It was the smallest monthly decline since October and it
compares with Consensus expectations for a 610,000 decline. Declines in
employment during the prior two months, however, were revised deeper.
During this recession so far, employment has fallen a total of 5.7
million, the record for a 16-month period. Even after accounting for
the labor force's larger size, that's a huge number. In percentage
terms, jobs are down 4.2% since the 2007 peak.
The unemployment
rate very much reflects the softness in the labor market.
The rise to an expected 8.9% brought it to the highest level since
September of 1983 and that compares to the recent low of 4.4% in
October of 2006. Last months' increase reflected a&nbsp; 683,000
jump (+0.5% y/y) in the labor force juxtaposed against a moderate
rebound in household employment of 120,000 (-3.6% y/y). These household
sector figures additionally show that long-term unemployment rose
further. The average duration of unemployment rose during April to a
new record 21.4 weeks, up from 16.9 weeks during 2007. The number of
those unemployed for longer than 15 weeks more than doubled during the
last year and they accounted for nearly half of all those who are
unemployed.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090508b.jpg" align="right" border="0">A glimmer of hope for the job market may be
evident. The payroll survey showed that 28.2% of industries were hiring
last month, the highest percentage since last October. The breadth of
job loss, nonetheless, remains large. In the construction industry
110,000 jobs were lost last month, bringing the total to 1.4 million
since early 2007.&nbsp; Factory jobs were down another 149,000
April, adding to the 10-year downtrend during which over 5 million jobs
have been shed, nearly one-third of the total,. In the private service
sector, the picture remained bleak as it shed 341,000 jobs last month
and nearly 3.0 million (3.0%) since the peak in late 2007. The
government sector picked up some of the job market slack last month as
more workers were hired to take the 2010 Census. Government sector
payrolls rose 72,000 (0.7% y/y) after having been flat since the middle
of last year.
The length of the average workweek remained stable at a
much-reduced level of 33.2 hours. That compares with a fairly stable
level near 34 hours through late-2007 but it's been trending lower from
the high over 38 hours in the mid-1960s.
The weak labor
market has taken a further toll on average hourly earnings in private
industries. The 0.1% m/m gain last month was the weakest in five years
and it pulled the three- month annualized growth rate to 1.7%, also the
lowest since early-2004. The private service sector has felt the brunt
of that weakness. The annual growth in earnings fell to just 3.2% last
month, down from a five percent growth rate in early 2006.
Surprisingly, annual growth in earnings in the factory sector has held
up at 2.8% and construction sector earnings rose a stable
4.5%.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090508c.jpg" align="right" border="0">The figures referenced above are available in
Haver's USECON
database. Additional detail can be found in the LABOR and
in the EMPL databases.
Trends in
consumer sentiment and spending from the Federal Reserve Bank
of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflmay2009_262.pdf">here.</a>

Public and Private Sector Compensation: What is
Affordable
in This Recession and Beyond? - A Conference Summary, also
from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflmay2009_262a.pdf">here.</a>
&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Employment:
000s</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-539</td>
<td>-699</td>
<td>-681</td>
<td>-3.8%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Previous</td>
<td>--</td>
<td>-663</td>
<td>-651</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-149</td>
<td>-167</td>
<td>-172</td>
<td>-10.6%</td>
<td>-3.3%</td>
<td>-2.0%</td>
<td>-0.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-110</td>
<td>-135</td>
<td>-113</td>
<td>-13.5%</td>
<td>-5.5%</td>
<td>-0.8%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Service Producing</td>
<td>-269</td>
<td>-381</td>
<td>-386</td>
<td>-2.4%</td>
<td>0.2%</td>
<td>1.6%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Average Weekly Hours</td>
<td>33.2</td>
<td>33.2</td>
<td>33.3</td>
<td>33.8 (April '08)</td>
<td>33.6</td>
<td>33.8</td>
<td>33.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Hourly Earnings</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.2%</td>
<td>3.8%</td>
<td>4.0%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>8.9%</td>
<td>8.5%</td>
<td>8.1%</td>
<td>5.0% (April '08)</td>
<td>5.8%</td>
<td>4.6%</td>
<td>4.6%</td>
</tr>
</tbody>
</table>

German Industrial Output Halts Its
Strong Of Declines &nbsp;&nbsp;&nbsp;&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 8, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090508d.jpg" align="left" border="0">
German industrial production halted its string of six
consecutive declines with a flat result in March. Over three months the
negative growth rate for IP has flattened but at a still horrific -33%
(saar). Ironically, the capital goods sector shows the worst results
and fasted decline in its three month rate of growth compared to other
sectors. Yet the capital goods sector is the only sector with an output
increase in March &#8211; and a strong one at that. 
 

Construction is in its second month of increasing output.
However, manufacturing output fell in March, but it did trim that drop
to -0.2% from -3.5% previously. And of course the flat IP result fits
in nicely with the surge in German orders in March. The process of
blunting the forces of the downturn and establishing an environment of
growth is now fully engaged in Germany, Europe&#8217;s largest economy.
Coupled with the fresh ECB rate cut and the ECB&#8217;s decision on to engage
in covered bond purchases, Europe has some new reason for hope. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Total
German IP
</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"> Saar exept m/m</td>
<td>Mar-09</td>
<td> Feb-09</td>
<td> Jan-09</td>
<td> 3-mo</td>
<td> 6-mo</td>
<td> 12-mo</td>
<td> Quarter-to-Date</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>0.0%</td>
<td>-3.4%</td>
<td>-6.3%</td>
<td>-32.7%</td>
<td>-33.1%</td>
<td>-20.3%</td>
<td>-40.1%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-2.0%</td>
<td>-3.7%</td>
<td>-0.6%</td>
<td>-22.7%</td>
<td>-14.6%</td>
<td>-9.8%</td>
<td>-13.9%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td>2.5%</td>
<td>-5.2%</td>
<td>-13.5%</td>
<td>-50.1%</td>
<td>-41.5%</td>
<td>-24.7%</td>
<td>-55.8%</td>
</tr>
<tr>
<td class="firstcol">Intermed</td>
<td>-2.4%</td>
<td>-1.3%</td>
<td>-4.0%</td>
<td>-27.0%</td>
<td>-40.4%</td>
<td>-26.2%</td>
<td>-43.9%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">Memo</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>7.6%</td>
<td>1.9%</td>
<td>-7.5%</td>
<td>5.5%</td>
<td>14.6%</td>
<td>4.9%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">MFG IP</td>
<td>-0.2%</td>
<td>-3.5%</td>
<td>-7.7%</td>
<td>-37.8%</td>
<td>-37.1%</td>
<td>-22.9%</td>
<td>-45.7%</td>
</tr>
<tr>
<td class="firstcol">MFG Orders</td>
<td>3.3%</td>
<td>-3.1%</td>
<td>-6.7%</td>
<td>-23.9%</td>
<td>-43.3%</td>
<td>-33.1%</td>
<td>-46.5%</td>
</tr>
</tbody>
</table>
</body></html>

Bad News: U.S. Jobless Rate Jumpsto 8.9% Good News: Speed of Job Losses Ease

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

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Winnie Tapasanun

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Industrial production (IP) rose a more-than-expected 0.4% m/m in December following a 0.4% rise in November (+0.2% initially) and a 0.3% decline in October (-0.1% previously), data from the Federal Reserve Board showed. December marked the third m/m gain in four months. A 0.1% m/m December increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate slowed to 2.0% in December, the lowest since September, from 2.5% in November; this compared with a 0.3% y/y decline in December 2024. The December IP index at 102.3 was 3.1% above a low of 99.2 in January 2024. IP rose 0.2% q/q in Q4 2025 after a 0.6% q/q gain in Q3 2025, increasing at a 0.7% annualized rate following a 2.3% Q3 annualized pace. In 2025, IP rose 1.3% after declines of 0.7% in 2024 and 0.2% in 2023.

By **industry groups**, manufacturing production grew 0.2% (2.0% y/y) in December, up for the third time in four months, following a 0.3% increase in November (0.0% initially) and a 0.6% drop in October (-0.4% previously). Durable goods production edged up 0.1% (3.1% y/y) in December, the first m/m increase since September, after a 0.1% downtick in November. Within durables, the following categories rose m/m in December, including output rises of 2.4% (3.5% y/y) in primary metals, 1.7% (1.3% y/y) in electrical equipment, appliances & components, 1.5% (17.2% y/y) in aerospace & miscellaneous transportation equipment, 0.8% (-2.2% y/y) in furniture & related products, 0.2% (4.8% y/y) in machinery, and 0.1% (7.4% y/y) in computer & electronic products. Notably, aircraft & parts production climbed 2.1% (30.0% y/y), the third m/m increase in four months, reversing a 2.1% November drop. To the downside, the following durable goods categories fell m/m in December, including drops of 2.3% (-5.5% y/y) in wood products, 1.1% (-2.8% y/y) in motor vehicles & parts, 1.1% (-1.0% y/y) in nonmetallic mineral products, 0.1% (+2.6% y/y) in fabricated metal products, and 0.1% (-3.7% y/y) in miscellaneous durables goods.

Nondurable goods production increased 0.3% (1.0% y/y) in December, the third m/m gain in four months, after a 0.8% rebound in November. The December increase reflected m/m output rises of 1.8% (2.1% y/y) in petroleum & coal products, 0.5% (1.9% y/y) in food, beverages & tobacco, and 0.3% (-0.2% y/y) in plastics & rubber products. In contrast, the following nondurable goods categories declined m/m in December, including output drops of 1.3% (-0.8% y/y) in textiles & product mills, 1.1% (-0.5% y/y) in apparel & leather goods, 0.3% (-3.1% y/y) in paper, 0.3% (-3.4% y/y) in printing & related support activities, and 0.1% (+1.6% y/y) in chemicals.

Utilities output recovered 2.6% (2.3% y/y) in December, the third m/m rise in four months, following a 0.3% decline in November (-0.4% initially), reflecting a 1.2% rebound (1.3% y/y) in electric utilities output and a 12.0% jump (8.7% y/y) in natural gas utilities output. Mining activity, however, fell 0.7% (+1.7% y/y), the third m/m slide in four months, after an unrevised 1.7% November gain.

By **market groups**, business equipment output advanced 0.8% (10.1% y/y) in December, up for the third time in four months, after a 0.3% increase in November. Consumer goods output rose 0.7% (0.7% y/y) after a 0.7% November rebound, reflecting a 0.7% decline (-3.5% y/y) in durable consumer goods and a 1.1% gain (1.8% y/y) in nondurable consumer goods. Materials production grew 0.2% (1.7% y/y), the third m/m increase in four months, after a 0.5% November rise. In contrast, construction supplies production fell 0.3% (+1.3% y/y) in December, the second m/m fall in three months, reversing a 0.3% increase in November.

In **special classifications**, factory output of selected high-tech industries increased 0.7% (10.9% y/y) in December, the third successive m/m gain, following a downwardly revised 0.5% rise in November (+1.1% initially). Manufacturing production excluding selected high-tech industries rose 0.2% (1.7% y/y) in December after a 0.3% gain in November, and manufacturing production excluding selected high-tech and motor vehicles & parts rose 0.3% (2.1% y/y) after a 0.4% increase; both measures posted their third m/m gain in four months.

Capacity utilization rose to 76.3% in December, the highest since July, from 76.1% in November (76.0% initially). The Action Economics Forecast Survey forecasted 76.0%. The December reading was 3.2 percentage points below its long-run (1972–2024) average. Manufacturing capacity utilization held at 75.6% in December and November (75.4% previously); the December rate was 2.6 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- December IP +0.4% (+2.0% y/y), third m/m rise in four months, led by a 2.6% gain in utilities.
- Manufacturing +0.2% (+2.0% y/y), w/ durables +0.1% and nondurables +0.3%.
- Selected high-tech +0.7%, third consecutive m/m rise; motor vehicles -1.1%, fourth straight m/m fall.
- Mining -0.7%, third m/m decline in four months.
- Key categories in market groups mostly increase.
- Capacity utilization at a five-month-high 76.3%; mfg. capacity utilization steady at 75.6%.

U.S. Industrial Production Increases in December on Utilities Rebound

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The European Monetary Union has concluded a year of weak-to-moderate growth with inflation largely toeing the line. As always, the inflation picture is more complicated than a simple statement. When we look at inflation, we look at the headline, we look at the core, to make sure that the volatile food & energy elements aren't dominating the index, and then we look across some of the main participants to see if the trend for inflation is shared broadly across the largest countries in the Monetary Union. When we apply those kinds of standards, the grading for the year is reduced. However, based on the headline alone, it was an excellent year for the ECB.

**Headline Inflation in 2025**
Headline inflation in 2025 rose by 2%, exactly on the target of the European Central Bank. It rose over six months at a 2% annual rate and then concluded the year over the last three months, rising at a 1.6% annual rate with some margin below the target set by the central bank itself.

**Country Headline Inflation Trends**
On a country basis, the performance is not nearly as good. While year-on-year results look pretty good, with Germany at 2%, France at 0.7% and Italy at 1.3%, Spain comes in at 3.1%. So the three largest monetary union economies come in at or below 2% with Spain as a rogue observation. When we look further at the sequence of inflation within the year, we see Germany at 2% over 12 months, rising to 3.1% over 6 months, rising further to 4% over 3 months. Inflation is accelerating at the end of the year even as Germany hits the target! This is something to keep an eye on. For France, the inflation rate also accelerates slightly but stays below the bar of 2% over three months, six months, and 12 months. For Italy, inflation is decelerating from 1.3% over 12 months to -0.3% over six months, and then inflation in Italy is contracting at a 1.9% annual rate over three months. Spanish inflation shows clear trouble with a 3.1% 12-month pace, rising to 4.6% at an annual rate over six months, and rising further to 5.9% at an annual rate over three months.

**Core Inflation**
For core inflation, the Monetary Union’s consolidated numbers are not yet compiled. However, for the four largest economies, we do have core or ex-energy inflation. For Germany, it's inflation excluding energy. On that basis, German inflation is 2.2% over 12 months, it rises to 2.7% over six months, then falls back to a 2% annual pace over three months All-in-all not a bad performance. For France, core inflation is below 2% over 12 months, six months, and three months. In Italy, once again, we see inflation decelerating: Italian inflation is 2% over 12 months - right on the ECB target. It falls to a 1.3% annual rate over six months and then falls further to a 0.3% annual rate over three months. For Spain, the core has another very difficult story for the Monetary Union. Inflation is 2.7% over 12 months, it rises to 3.1% over six months and stays at an annual rate of about 3% over three months. This is too high and it looks stubborn, particularly because it is the core.

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**Across the Big Four**
On balance, what we see is that the ECB grades-out well, based on headline inflation and based on its sequential performance for the European economic union as a whole. But large countries, show headline inflation building some steam particularly in the largest economy, Germany, and in Spain, the smallest of the BIG-4 economies. Inflation is once again mixed in the Monetary Union with German and Spanish inflation too high and with French and Italian inflation running either at or below the 2% mark and with Italy showing a tendency towards weaker prices for both the headline and the core. The change in prices over these various periods shows inflation gets the most help from oil prices over 12 months where Brent, measured in euros, falls by 22.6%; over six months Brent prices fall by 37% at an annual rate; and over three months Brent oil prices are unchanged, so that the headline isn't getting help at all from oil prices except through lagged effects.

**Summing Up**
Meanwhile, there are some signs of stronger growth taking root in Europe, especially in Germany with better industrial production being logged and with German industrial production looking significantly stronger than the PMI data, suggesting that perhaps PMI data are missing something about the rebound that is developing. Nonetheless, it was a good year for inflation and the ECB; however, it doesn't exactly end the year in the catbird’s seat. On the other hand, it does not end the year behind the curve. There are scattered pressures and needs among member countries which always makes monetary policy difficult. When some countries need higher interest rates and others need lower interest rates, the ECB is in a difficult spot. Clearly, Spain and Germany are experiencing different phenomenon than France and Italy. That could be the policy challenge for the year ahead.

Europe

Big Four Inflation in EMU 2025-Final

Andrew Cates

**The growth consensus for 2026** 
Consensus growth forecasts for 2026 have continued to firm over the past six months, with upward revisions most pronounced in economies that are more directly exposed to the global AI investment cycle. Taiwan stands out, reflecting its central role in advanced semiconductor manufacturing and the spillovers from sustained AI-related capex across the global tech supply chain. The US has also seen a sizeable upgrade, consistent with strong domestic investment in AI infrastructure and data-centre capacity, alongside resilient demand for high-value tech services. Elsewhere in Asia, upgrades to South Korea and, to a lesser extent, China and India point to a broader regional benefit from the AI-driven electronics and capital-goods cycle, even as underlying macro conditions remain mixed. Canada has also seen modest upward revisions, likely reflecting its close integration with US investment trends. By contrast, revisions across much of Europe and Japan have been more muted, while forecasts for Russia remain under downward pressure.

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**The next steps for central bank policy** 
Based on responses to the special questions in the latest Blue Chip survey, the chart highlights how uncertain panelists remain about the precise timing of the next policy move, even where there is broad agreement on direction. Expectations for both the Fed and the Bank of England are now loosely centred on March 2026 as the most likely window for the next easing step, but the spread of responses points to limited conviction and a high sensitivity to incoming data. By contrast, panelists continue to see the ECB as largely through its easing cycle, with a clear majority expecting any further move only later, if at all. The Bank of Japan remains the clear outlier: while further tightening is still the central expectation, views are split on timing, with panelists divided between a March move and a hike pushed beyond April 2026—highlighting ongoing uncertainty over the durability of domestic inflation and wage dynamics.

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**The UK economy and BoE policy** 
While Blue Chip panelists remain divided on the precise timing of the Bank of England’s next policy cut, the latest run of UK data is tilting market expectations toward an earlier move. Economic releases have increasingly fallen short of expectations, a pattern that has coincided with a steady decline in short-dated gilt yields. The negative surprise profile reflects a combination of weak household demand and softer labour-market indicators. This has generated downside momentum in the data, reinforcing the case—at least from a market perspective—for earlier or deeper policy easing.

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**The impact of Artificial Intelligence**
Responses to the special questions in the latest Blue Chip survey also suggest that panelists are divided over the timing of AI’s macroeconomic impact in the US. A sizeable share already reports seeing noticeable effects, consistent with the rapid pace of AI-related investment and adoption over the past year. At the same time, a similarly large group expects AI’s impact to become more evident only over the next one to three years, implying a belief that productivity and growth effects will materialise with a lag. These views are notable given that a majority of panelists continue to judge anticipated AI-related gains as being overstated in financial markets, underscoring the risk of disappointment—and potential equity market volatility—if realised outcomes fail to match elevated expectations.

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**US business formation and productivity growth**
The chart points to a renewed pick-up in US productivity growth alongside a marked step-up in business applications, a combination that has naturally fuelled interest in the role of AI. The acceleration in output per hour over the past year coincides with a surge in corporate formations, potentially reflecting both heightened investment in new technologies and the emergence of new, AI-enabled business models. That said, productivity growth has historically been highly cyclical, often strengthening late in the cycle or during periods of labour hoarding and cost discipline, before fading again. As such, while AI may be contributing at the margin, it remains too early to conclude that the recent improvement marks a durable, technology-driven shift rather than another cyclical upswing.

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**China’s export growth**
This week’s China trade data revealed that its export growth has continued to rotate away from the US and toward Europe and ASEAN, a pattern that has become more pronounced over the past year. While exports to the US have fallen sharply on a year-on-year basis, shipments to both Europe and ASEAN have held up markedly better, and in recent months have returned to positive growth. This divergence is consistent with the tightening of US trade policy toward China, including higher tariffs, expanded export controls and broader efforts to “de-risk” supply chains. By contrast, trade with Europe and ASEAN appears to be benefiting from trade diversion and re-routing, as Chinese firms redirect exports toward markets where barriers remain lower and supply-chain integration is deeper.

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The global backdrop remains unsettled, reflected in rising gold prices amid geopolitical tensions—most recently around Venezuela—and renewed political noise, including questions over Federal Reserve independence. At the same time, however, many major equity indices remain at or close to all-time highs, buoyed by optimism around AI and reinforced by a run of relatively benign US inflation readings. Against this mixed backdrop, the charts this week point to a global outlook that is becoming more differentiated rather than uniformly weaker. Blue Chip forecasts for 2026 growth have edged higher over the past six months, with upgrades concentrated in economies most exposed to the AI investment cycle, notably the US and parts of Asia (chart 1). Central bank expectations remain fluid: while panelists broadly anticipate easing by the Fed and Bank of England, conviction around timing is limited, and the Bank of Japan remains an outlier with further tightening still expected (chart 2). In the UK, that uncertainty sits alongside a deteriorating data flow, with negative economic surprises increasingly tilting market expectations toward an earlier BoE rate cut (chart 3). Turning to the US, special questions highlight a divide over whether AI is already having a noticeable macro impact or whether its effects will emerge more gradually, a tension that mirrors concerns about over-optimism in financial markets (chart4). That debate is echoed in the recent pick-up in US productivity growth and the step-change in business formation—developments that may reflect AI-related dynamics but which also warrant caution given the historically cyclical nature of productivity (chart 5). Finally, China’s trade data point to a continued re-orientation of export growth away from the US and toward Europe and ASEAN, consistent with evolving US trade policy and broader supply-chain realignment (chart 6).

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Charts of the Week: Between Optimism and Uncertainty

Michael J. Moran

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The Bureau of Labor Statistics did not publish a report on export and import prices for October because of the government shutdown, and BLS was unable to construct statistics for October to include with the November report. The charts above have a gap in October, and the November figures are represented by a small dot.

Import prices have been remarkably stable in the past three years, as shown by the sideways movement in the level of the import price index (left chart). Focusing on percent changes (i.e. inflation rates) rather than the level of the index shows deflation in 2023 and early 2024 followed by higher prices more recently (right chart). Still, the net change in the past 12 months has totaled only 0.1% and the cumulative change in the past three years amounted to a decline of 0.4%.

A calm environment in the energy sector has helped to restrain import prices, as the price of crude oil showed little change in 2023 and 2024 and declined in 2025. Import prices excluding petroleum products have increased in recent years, but the changes have been modest: 0.9 in the past 12 months and 1.3% in the past three years.

The non-oil components of import prices have traced various patterns in recent years, but shifts have been largely offsetting. Prices of food and autos increased noticeably in 2023 and 2024, but they gave back much of those increases in 2025. Prices of capital goods were stable in 2023 and 2024, but they started to increase in 2025. Prices of consumer goods have been volatile, showing bursts of higher prices followed by discounting, leaving a modest net increase in the past three years.

The calm energy environment also seemed to play a role on the export side, as the industrial supply category showed little net change in prices over 2023 and 2024 before jumping in early 2025. Food prices followed a similar pattern, showing two years of restraint before moving higher in 2025. These two categories account for much of the upward movement in overall export prices in 2025. Prices of consumer goods also started to move higher in 2025 after little net change in the prior two years. Prices of capital goods and automobiles have traced reasonably steady upward paths.

Many observers might try to use the import component of this report to gain insight into the effect of tariffs on prices. That will be difficult because the figures from this report are pre-tariff; there will be no independent upward pressure on prices in this report because of tariffs. In fact, one should look for lower import prices in searching for a tariff effect. That is, if a foreign exporter were to absorb the tariff burden, that would be accomplished by reducing the pre-tariff price in order to keep the after-tariff price steady.

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Some exporters to the US may have made such efforts. The nearby chart shows the month-to-month change in import prices in 2025, and May and June both showed lower prices. These months were especially important because they followed the announcement by President Trump of marked increases in tariffs in April. Also, some of the downward pressure occurred in components that would be sensitive to price (autos and consumer goods). Of course, May and June might be too soon after the announcement of draconian tariffs for foreign exporters to assess and change their pricing strategy.

The chart on monthly changes ends in September because the absence of an October reading prevents the calculation of the month-to-month changes for October and November. However, the two-month change from September to November is easily calculated, and the increase of 0.4% suggests little or no effort to absorb the burden of tariffs.

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

- Import prices have changed little in the past three years.
- Export prices were stable in 2023-24, but moved higher in 2025.

Import & Export Prices: Generally Modest Changes

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The Empire State Manufacturing Index of General Business Conditions rose to a higher-than-expected 7.7 in January following a 17.2-drop to -3.7 in December, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of 1.0 for January had been expected in the Action Economics Forecast Survey. The positive January figure indicated that the business activity in New York State expanded for the third time in four months; it was an improvement from -7.4 in January 2025 and a low of -29.7 in January 2024, though still below a high of 16.8 in November 2024. The percentage of respondents reporting an increase in general business conditions was 34.2% in January, up from 31.7% in December; the percentage reporting a decrease was 26.5%, down from December’s 35.4%. The latest survey was conducted between January 2 and January 9.

The headline index reflects the answer to a single question concerning the state of economic activity and is not calculated from the components. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index increased to 51.2 in January following a 4.2-point decline to the neutral-level 50.0 in December (the lowest level since September); it was slightly up from 50.7 in January 2025 and well above a low of 43.0 in January 2024. The index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

In the latest survey, the new orders index rose to 6.6 in January after a 10.6-point drop to -1.0 in December, marking the third m/m gain in orders in four months and a sharp improvement from a low of -30.7 in January 2024. The shipments index jumped to 16.3 in January, the highest level since November 2024, following a 16.5-point fall to -5.0 in December; it was well above a low of -21.7 in April 2024. The unfilled orders index improved to -8.2 in January after a 9.1-point decrease to -14.9 in December, indicating that unfilled orders contracted for the eighth straight month but at a less severe pace; the index reached a low of -24.2 in January 2024. The inventories index fell to -2.1 in January, the lowest level since September, after a 2.7-point decline to 4.0 in December, signaling the first inventory contraction since October. Meanwhile, the delivery times index increased to 0.0 in January from -5.9 in December, with 12.4% of respondents reporting longer delivery times and an identical 12.4% reporting shorter times, indicating that delivery times were unchanged.

On the labor front, the number of employees index fell to -9.0 in January after a 1.0-point increase to 7.5 in December, indicating that employment contracted for the first time since September and reached its lowest level since January 2024. The index remained well below a peak of 24.9 in February 2022. In January, only 7.9% of respondents reported an increase in employment while a higher 16.8% reported a decline. The average workweek index dropped to -5.4 in January from 2.5 in December, turning negative for the first time since October and hitting the lowest level since April 2025.

Inflation pressures eased in January but remained high. The prices paid index fell to 42.8 in January, the lowest level since March 2025, after a 5.9-point decrease to 44.2 in December. Although still well below a peak of 84.9 in April 2022, the index remained above a low of 25.9 in December 2024 and a low of 20.8 in December 2023. In January, 44.5% of respondents reported higher prices paid while only 1.7% reported lower prices paid. The prices received index fell to 14.4 in January, the lowest reading since January 2025, from 25.4 in December. The index was up from a low of 7.5 in December 2024 and a low of 7.7 in July 2023 but far below a high of 51.9 in March 2022. In January, 18.9% of respondents reported higher prices received while 4.4% reported lower prices received.

Firms remained fairly optimistic about the future business outlook in the latest survey. The index for future business conditions eased to 30.3 in January after rising to 33.5 in December, with 50.6% of respondents expecting business conditions to improve over the next six months. Future new orders edged down to 33.3 in January from 34.5 in December, while future shipments rose to 34.9—the highest level since March 2022—from December’s 30.7. Growth in future employment strengthened to 14.9, the highest reading since November 2024, from December’s 7.8. Capital spending plans remained positive for the third consecutive month in January, with the future capital expenditures index rising to 10.3 from December’s 6.9. Expected prices paid fell to 52.6 in January from 55.4 in December and expected prices received fell to 36.5 from 41.6, with both measures at their lowest levels since December 2024.

The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- General Business Conditions Index up 11.4 pts. to 7.7 in January.
- Positive: Shipments (16.3, highest since Nov. ’24) and new orders (6.6).
- Negative: Employment (-9.0, lowest since Jan. ’24), unfilled orders (-8.2), and inventories (-2.1, a four-month low).
- Prices paid at a 10-month-low 42.8 and prices received at a one-year-low 14.4.
- Firms fairly optimistic: Future Business Conditions Index down to a still-positive 30.3; future prices paid at a one-year-low 52.6.

Economy in Brief

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