Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090518a.jpg" align="left" border="0">
The pressure is diminishing in the U.S. housing market
according to the National Association of Home Builders. Their May index
of sales rose to 16, its highest level since last September and up from
an upwardly revised April level. The index is compiled from survey
questions asking builders to rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;,
&#8220;poor&#8221; or &#8220;very high&#8221; to &#8220;very low&#8221;. Numerical
results over 50 indicate a predominance of &#8220;good&#8221; readings. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090518b.jpg" align="right" border="0">
The Home Builders Association indicated that its sub-index of
present sales rose to a reading of 14 from the upwardly revised April
figure. The latest improvement lifted the index to just below last
year's average level of 16.Since 1990, the year-to-year change in this
index has had an 80% correlation with the year-to-year percentage
change in new single-family home sales.
The index of builders&#8217; expectations for home sales in six
months also rose to its highest since September. However, the
&#8220;traffic" of prospective buyers was unchanged from April but still up
from the record lows of this past Winter.
Index readings in each of the country's regions have improved
from the recent lows.
Individuals' assessment of conditions for remodeling also have
improved. The conditions for major and minor alterations rose in the
first quarter to the highest level in nearly one year and expectations
rose as well.
During the fourth quarter the Home Builders' Housing
Opportunity Index, which is the share of homes sold that could be
considered affordable to a family earning the median income, rose even
higher to its highest level since early 2002. It was up by nearly one
half from the 2006 low due to lower home prices, lower interest rates
and higher income. (There is a break in the series from 2002 to 2003.)
The NAHB has compiled the Housing Market Index
since 1985. The weights assigned to the
individual index components are .5920 for single family detached sales,
present time; .1358 for single family detached sales, next six months;
and .2722 for traffic of prospective buyers. The results, along with
other housing and remodeling indexes from NAHB Economics, are included
in Haver&#8217;s SURVEYS database.
The Role of Information in the Rise in Consumer
Bankruptcies from the Federal Reserve Bank of Richmond is
available <a href="http://http://www.richmondfed.org/publications/research/working_papers/2009/pdf/wp09-4.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">&nbsp;May '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 Housing Market Index
(All Good = 100)</td>
<td>16</td>
<td>14</td>
<td>19</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>14</td>
<td>12</td>
<td>17</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>27</td>
<td>24</td>
<td>28</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>13</td>
<td>13</td>
<td>18</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
Japan's Consumer Confidence Is
UpFor The Fourth Month In A Row 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 18, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090518c.jpg" align="left" border="0">
Japan&#8217;s consumer confidence index is up for the fourth month
running. It is now a monthly reading - that accounts for the history of
dots on the chart which represent unconnected quarterly observations
ahead of the adoption of monthly surveys. The current reading for the
index is in the bottom third to quarter of its historic range, a low
position, but well off from its worst in this cycle. Notably, over the
last three months there have been sharp improvements in the overall
livelihood assessment. Income growth, Employment, Willingness to buy
durables, and Value of assets responses, all have risen over that
period. Of these, income growth is still the lowest in its range
standing in the bottom 11th- to 15th percentile depending on the period
for that calculation. Employment and value of assets responses lie just
below the boundary for the lower range quartile. Willingness to buy
durable goods is, however, much stronger in its range and is closer to
the midpoint at the 45th range percentile. 
 

Clearly there has been improvement in the Japanese consumer&#8217;s
assessment of the economy. Just as clearly the current readings on the
consumer&#8217;s feeling about the economy are poor. For now after such a
lengthy period of deterioration what is notable is the ongoing
improvement in these measures and quite a notable step of improvement
across the various responses. However bad off things are in Japan, they
are perceived to be getting better. Importantly these assessments are
not so beleaguered for spending any more. 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Japan
Consumer Confidence
</th>
<th scope="col">Percentile</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> monthly</td>
<td colspan="3"> Change over</td>
<td colspan="2">of range*</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-mos</td>
<td>6-mos</td>
<td>12-Mos</td>
<td>Since 2004</td>
<td>Since 1988</td>
</tr>
<tr class="odd">
<td class="firstcol">Overall Livelihood</td>
<td>33.8</td>
<td>31.1</td>
<td>29.4</td>
<td>4.6</td>
<td>4.2</td>
<td>0.8</td>
<td>28.6</td>
<td>26.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Income growth</td>
<td>33.4</td>
<td>32.0</td>
<td>31.1</td>
<td>2.0</td>
<td>-1.1</td>
<td>-4.1</td>
<td>15.1</td>
<td>11.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>23.3</td>
<td>18.3</td>
<td>14.9</td>
<td>9.1</td>
<td>-1.5</td>
<td>-12.7</td>
<td>22.2</td>
<td>22.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Willing to buy Durable Goods</td>
<td>39.0</td>
<td>34.2</td>
<td>31.4</td>
<td>8.4</td>
<td>10.2</td>
<td>4.8</td>
<td>45.9</td>
<td>45.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Value of Assets</td>
<td>32.2</td>
<td>28.8</td>
<td>28.7</td>
<td>4.1</td>
<td>3.2</td>
<td>-4.1</td>
<td>22.4</td>
<td>22.4</td>
</tr>
<tr>
<td colspan="9" class="firstcol">For
two-person households; *
Percentiles since Mar 2004 when series became monthly or full period</td>
</tr>
</tbody>
</table>
News From Eastern Europe StillMainly Negative 
by <a href="/comment/Curley.html">Louise
Curley</a> May 18, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090518d.jpg" align="right" border="0">While
faint signs of recovery have begun to appear in various
parts of the world, few have appeared in Eastern Europe and this
remains the case with today's reports from Eastern Europe that include
industrial production in Russia and the Ukraine, the labor force in
Slovenia and construction in Hungary.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090518e.jpg" align="right" border="0">
Russia reported that industrial production in April declined
16.8% from April, 2008, greater than the 13.7% year to year decline of
March. This was the sixth consecutive decline and the largest recorded
since the Federal Statistical Service revised its methodology in 2003.
Production in manufacturing has shown similar trends but the declines
have been significantly bigger. In April, manufacturing production was
25.3% below April 2008.
The decline in production in Ukraine has been steeper than
that in Russia and in April was 33.5% below April of 2008, compared
with a shortfall of 30.8% in March. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090518f.jpg" align="right" border="0">
The first chart shows industrial
production in Russia and Ukraine.
The monthly decline in employment in Slovenia is slowing up.
It was 4,635 in March, compared with 5,056 in February and 9,187 in
January, but the unemployment rate continues to climb and was 8.4% in
March. Slovenia's level of employment and the unemployment rate are
shown in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">EASTERN
EUROPE</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar &nbsp; 09</th>
<th scope="col">Feb 09</th>
<th scope="col">Jan 09&nbsp;</th>
<th scope="col">Y/Y Chg</th>
<th scope="col">Y/Y&nbsp; Chg&nbsp;</th>
<th scope="col">Y/Y&nbsp; Chg</th>
<th scope="col"> Y/Y&nbsp; Chg </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>Apr 09</td>
<td>Mar &nbsp; 09</td>
<td>Feb 09</td>
<td>Jan 09&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Russia&nbsp; IP 2005=100</td>
<td>100.1</td>
<td>102.4</td>
<td>102.5</td>
<td>97.4</td>
<td>-16.8%</td>
<td>-13.7%</td>
<td>-13.2%</td>
<td>-16.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Ukraine IP2005=100</td>
<td>80.4</td>
<td>84.5</td>
<td>78.0</td>
<td>73.9</td>
<td>-33.5%</td>
<td>-30.8%</td>
<td>-31.4%</td>
<td>-31.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary Construction
Exp&nbsp; Bil of Forints</td>
<td>--</td>
<td>179.7</td>
<td>164.1</td>
<td>142.1</td>
<td>--</td>
<td>8.6%</td>
<td>-1.2%</td>
<td>-9.4%</td>
</tr>
<tr class="even">
<td class="firstcol">Slovenia Unemp Rate (%)</td>
<td>--</td>
<td>8.4</td>
<td>8.0</td>
<td>7.5</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovenia Employ Persons</td>
<td>--</td>
<td>865,459</td>
<td>870,094</td>
<td>875,150</td>
<td>--</td>
<td>-4635*</td>
<td>-5056*</td>
<td>-9187*</td>
</tr>
<tr>
<td colspan="9" class="firstcol">* month to
month change</td>
</tr>
</tbody>
</table>
</body></html>

The pressure is diminishing in the U.S. housing market according to the National Association of Home Builders. Their May index of sales rose to 16, its highest level since last September and up from an upwardly revised April level. [...]

U.S. Home Builders' Index Increases Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515e.jpg" width="353">
Improved consumer spirits regarding the outlook raised the University of Michigan&#39;s early-May reading of consumer sentiment to the highest level since September of last year. The gain in the index to a level of 67.9 exceeded Consensus expectations for a reading of 66.0.
The expectations component of consumer sentiment, which had been improving, jumped another 9.4% 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 deteriorated moderately.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515f.jpg" width="353">
The opinion of government policy, which may eventually influence economic expectations, jumped sharply to the highest level since 2002. Thirty-three 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 23 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 fell. The drop was offset, however, by an improved read of current conditions for buying large household goods to the highest level since last August.
Inflation expectations for the next year fell to 2.9% versus 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.
Raising the credit bar, or getting clubbed by it? from the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/pubs/fedgaz/09-01/cover.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/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></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>67.9</td>
<td>65.1</td>
<td>57.3</td>
<td>13.5%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>66.2</td>
<td>68.3</td>
<td>63.3</td>
<td>-9.7</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>69.0</td>
<td>63.1</td>
<td>53.5</td>
<td>35.0</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Improved consumer spirits regarding the outlook raised the University of Michigan's early-May reading of consumer sentiment to the highest level since September of last year. The gain in the index to a level of 67.9 exceeded Consensus [...]

Michigan Consumer Sentiment Up On Improved Expectations With Heightened Hopes For Gov't Policy

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515g.jpg">
The severity of the downturn in industrial output eased last month, according to the industrial production figures published by the Federal Reserve. Output, which includes mining and utilities, declined an expected and moderate 0.5%, which was by far the smallest decline of this recession. The drop followed declines between one and four percent during the prior several months. Declines in the factory sector alone have eased as well. The 0.3% April shortfall was the smallest since February and compares to monthly declines between one and three percent during this recession.
Output of consumer goods overall was unchanged last month and the year-to-date rate of decline eased to 7.3%. Last month, production of autos actually increased, though it&#39;s down at a 44.4% rate this year. Conversely, furniture output posted a 2.8% decline last month and it&#39;s down at a 23.7% rate so far this year as consumers continue to shy away from purchases of large durable goods. Apparel output fell 1.3% and the three-month rate of -17.3% is half that of its worst. Even the pace of the decline in the production of business equipment seems to have eased with a 0.5% decline, though the three-month rate was near its worst at -23.6%. The downturn in the housing market continued to lower output of construction supplies. It fell 1.1% and the three-month rate of decline eased to a &quot;modest&quot; 23.4%. <img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515h.jpg">
Even in the high-tech sector the rate of decline in output slowed. Here, industrial production fell 0.8% last month and at a reduced 13.5% rate during the last four. Less high tech, overall industrial production fell a reduced 0.4% last month and the annual rate of change eased to -15.3%.
O.K., so the slowing pace of output declines is largely in autos and the high-tech sector. But outside of these two sectors, output moderated to a 0.5% decline last month, less than one-third the March drop. The three-month rate of decline was still near its worst at a -13.4% annual rate.
Excess capacity grew even further last month. Capacity utilization fell to 69.1%, a record low for the series which dates to 1966. Utilization in the factory sector dropped even harder to 65.7% from a peak near 80% back in 2007. The latest rate was a record low since WW II.
The industrial production data are available in Haver&#39;s USECON database.
Ties that Bind: Bilateral Trade&#39;s Role in Synchronizing Business Cycles from the Federal Reserve Bank of Dallas is available <a href="http://dallasfed.org/research/eclett/2009/el0901.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">INDUSTRIAL PRODUCTION (SA, %)</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">Total Output </td>
<td>-0.5</td>
<td>-1.7</td>
<td>-12.5</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>-0.3</td>
<td>-2.1</td>
<td>-14.5</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Consumer Goods</td>
<td>0.0</td>
<td>-0.3</td>
<td>-6.6</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Business Equipment</td>
<td>-0.5</td>
<td>-2.9</td>
<td>-13.9</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Construction Supplies</td>
<td>-1.1</td>
<td>-2.8</td>
<td>-20.0</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>0.5</td>
<td>1.8</td>
<td>-3.2</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>69.1</td>
<td>69.4</td>
<td>79.2 (April &#39;08)</td>
<td>77.6</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The severity of the downturn in industrial output eased last month, according to the industrial production figures published by the Federal Reserve. Output, which includes mining and utilities, declined an expected and moderate 0.5%, [...]

U.S. Factory Production Shortfall Eases

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515d.jpg" align="left" border="0">
The EMU region&#8217;s sharp drop in GDP has turned out to be worse
than expected for the region as well as for most countries. Germany is
showing the deepest GDP drop since 1970. The drop that The Netherlands
is experiencing is the sharpest drop in GDP since the end of WWII.
Greece is the sole county in this table with positive growth yr/yr. 
 

GDP continues to decelerate across Europe. We knew these GDP
reports would be weak after viewing the weakness in industrial output
ahead of the release of this GDP report. Germany&#8217;s Q1 decline is so
large it is not looking for much if any further decline in GDP for the
rest of the year. 
 

The Swedish Finance Minister Anders Borg has said that Europe
may be in need of some further stimulus. Of course Europe also labors
under the constraint of the Maastricht rules that restrict fiscal
deficits and cap ratios of government debt to GDP. Not only does Europe
lack a central fiscal authority comparable to its central bank, but the
fragmented nature of fiscal responsibility makes it hard for Europe to
be involved in fiscal stimulus in a coordinated way. Instead of a
central fiscal authority the Maastricht rules stand in to restrict
individual nations from going overboard with fiscal policy actions that
could create too many government liabilities that might undermine the
value of the euro. Of course recessions naturally put pressure on
Maastricht rules since growth slows or declines, pushing tax revenues
down at a time that social safety new spending rises. Countries that
have room under the Maastricht ratios can engage in fiscal stimulus in
times like theses, but often it is the high debt countries that are in
greater need of the stimulus and must risk running afoul of the rules
if they act. 
 

This down turn has exposed problems in the Euro Area. The Euro
Area is asymmetric. Its Central Bank has a mandate for price stability
only. Meanwhile there is no fiscal authority to step in when things get
tough. In this cycle the ECB actually joined in on an coordinated
international rate cut with its inflation rate well over ceiling on the
basis of a forecast that inflation would drop (of course the spot oil
price had dropped sharply and that was not a very risky forecast at the
time). Still it was an action that seemed to violate the rule if not
the spirit of having and inflation ceiling. Europe has not been able to
confront the problem that only the ECB can move fast in a crisis yet
its mandate is price stability. 
 

After seeing these GDP reports markets did not react very
strongly. The weakness in GDP was expected. The degree of weakness has
turned out to be a bit worse than expected. It sill is not clear what
steps Europe will take next and if more fiscal stimulus will be part of
the approach or not. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Euro Area and Main G-10 Country GDP Results </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Quarter over quarter-SAAR</td>
<td colspan="4">Year/Year</td>
</tr>
<tr class="grey3">
<td class="firstcol">GDP</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
</tr>
<tr class="grey2">
<td class="firstcol">EMU-15</td>
<td>-9.6%</td>
<td>-6.3%</td>
<td>-1.0%</td>
<td>-4.6%</td>
<td>-1.5%</td>
<td>0.6%</td>
<td>1.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Austria</td>
<td>-8.5%</td>
<td>-2.6%</td>
<td>-1.3%</td>
<td>-4.6%</td>
<td>0.3%</td>
<td>1.8%</td>
<td>2.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">France</td>
<td>-4.7%</td>
<td>-5.7%</td>
<td>-0.7%</td>
<td>-3.2%</td>
<td>-1.7%</td>
<td>0.1%</td>
<td>1.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Germany</td>
<td>-14.4%</td>
<td>-8.6%</td>
<td>-2.1%</td>
<td>-6.9%</td>
<td>-1.8%</td>
<td>0.8%</td>
<td>2.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Greece</td>
<td>-4.6%</td>
<td>1.2%</td>
<td>1.5%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>2.7%</td>
<td>3.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Italy</td>
<td>-9.4%</td>
<td>-8.3%</td>
<td>-3.2%</td>
<td>-5.9%</td>
<td>-3.0%</td>
<td>-1.3%</td>
<td>-0.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">The Netherlands</td>
<td>-10.7%</td>
<td>-4.7%</td>
<td>-1.8%</td>
<td>-4.5%</td>
<td>-0.8%</td>
<td>1.8%</td>
<td>3.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Portugal</td>
<td>-5.9%</td>
<td>-6.2%</td>
<td>-0.8%</td>
<td>-3.0%</td>
<td>-1.8%</td>
<td>0.4%</td>
<td>0.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Spain</td>
<td>-7.0%</td>
<td>-3.8%</td>
<td>-1.2%</td>
<td>-2.9%</td>
<td>-0.7%</td>
<td>0.9%</td>
<td>1.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">UK</td>
<td>-7.4%</td>
<td>-5.9%</td>
<td>-2.8%</td>
<td>-4.2%</td>
<td>-2.0%</td>
<td>0.4%</td>
<td>1.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">US</td>
<td>-6.1%</td>
<td>-6.3%</td>
<td>-0.5%</td>
<td>-2.6%</td>
<td>-0.8%</td>
<td>0.7%</td>
<td>2.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Japan</td>
<td>#N/A</td>
<td>-12.1%</td>
<td>-1.4%</td>
<td>#N/A</td>
<td>-4.3%</td>
<td>-0.2%</td>
<td>0.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Switzerland</td>
<td>#N/A</td>
<td>-1.2%</td>
<td>-0.3%</td>
<td>#N/A</td>
<td>-0.1%</td>
<td>1.3%</td>
<td>2.3%</td>
</tr>
</tbody>
</table>
</body></html>

The EMU region’s sharp drop in GDP has turned out to be worse than expected for the region as well as for most countries. Germany is showing the deepest GDP drop since 1970. The drop that The Netherlands is experiencing is the [...]

EMU GDP Drops Sharply

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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515a.jpg" align="left" border="0">
Weak pricing power continues to stem from a shortfall in U. S.
demand. The Bureau of Labor Statistics reported that the Consumer Price
Index was unchanged last month after a 0.1% slip during March. More
indicative of the weakness in pricing power, the year-to-year change in
consumer prices was -0.7%, the biggest since 1955. The April index was
in accord with Consensus expectations for no change in the month.
The weakness in the recent CPI readings owes mostly to lower
food and energy prices. In contrast, "core" pricing has picked up
slightly. The CPI less food &amp; energy rose 0.3% last month after
three consecutive 0.2% increases. These gains lifted the twelve-month
change to 1.9%, which was the firmest since January, and the growth
rate here in 2009 has averaged 2.4% (AR). That four-month growth is up
from a low of 0.5% as of December.
Lower energy prices again restrained overall pricing pressure
last month. The 2.4% decline in April reflected a 2.8% shortfall in
gasoline prices (-39.5% y/y) which added to a 4.0% March drop. Fuel oil
prices also continued downward with a 2.1% drop (-33.5% y/y). The
latest was the ninth consecutive monthly drop and it lowered prices by
one-third during the last twelve. Finally, prices for natural gas
&amp; electricity have fallen in all but one of the last nine
months and year-to-year they are down 1.7%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515b.jpg" align="right" border="0">
Lower food &amp; beverage prices also continue to restrain
overall inflationary pressure. Prices slipped for the third straight
month and the y/y change of 3.3% was the weakest since early 2007, down
from a peak of +6.1% last fall. Recent weakness has been led by lower
dairy product prices (-5.1% y/y). Moreover, price gains for meats,
poultry &amp; fish (2.5% y/y) as well as fruits &amp;
vegetables (0.6% y/y) have eased sharply.
Bucking the disinflationary trend have been core
goods prices which rose 0.5% during April after three
consecutive 0.4% increases. Higher tobacco prices account continue to
account for some of that acceleration with a 28.8% y/y increase. But
there has been some modest firming of prices elsewhere. Prices for
household furnishings &amp; operations have risen 1.8% y/y
following price deflation early last year. Apparel prices are up 0.9%
y/y after declines extending back to 1999. Prices of new &amp; used
motor vehicles have risen during the last four months and the y/y
change of -1.7% compares to a rate of decline of 3.5% as of yearend
2008.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515c.jpg" align="left" border="0">
Gains in core services prices continue to
moderate. The 0.2% uptick last month left the y/y change of 2.3% at its
weakest since 1983. That moderation continues to owe mostly to weakness
in the housing market which caused April shelter prices to rise just
0.2%, putting them up 1.6% y/y. That rise compares to gains above 4.0%
two years ago. Owners equivalent rent of primary residence, a measure
not equivalent to other house price measures, ticked up just 0.1% (2.1%
y/y). The cost of travel did rise 0.5% during April but prices of
lodging away from home are down 5.9% during the last year. Other
service prices rose. The increase in medical care services prices
picked up slightly to 0.4% (3.3% y/y) while education costs rose 0.4%
and the y/y gain remained a firm 5.4%. Public transportation prices
fell again. The 0.8% decline was the eighth drop in a row (-5.9% y/y).
The chained CPI, which adjusts for shifts in consumption
patterns, gained 0.3% while year -to-year prices fell 1.1%. The
increase in chained prices less food and energy eased to 0.2% in the
month.
The consumer price data is available in Haver's USECON
database while detailed figures can be found in the CPIDATA
database.
Seeking Stability: What&#8217;s Next for Banking
Regulation? from the Federal Reserve Bank of Dallas can
be found <a href="http://dallasfed.org/research/eclett/2009/el0903.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>0.0</td>
<td>-0.1</td>
<td>-0.7</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.3</td>
<td>0.2</td>
<td>1.9</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.5</td>
<td>0.4</td>
<td>0.9</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.2</td>
<td>0.1</td>
<td>2.3</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>-2.4</td>
<td>-3.0</td>
<td>-24.5</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>-0.2</td>
<td>-0.1</td>
<td>3.3</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>0.3</td>
<td>0.2</td>
<td>-1.1 </td>
<td>3.3</td>
<td>2.5</td>
<td>2.9 </td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.2</td>
<td>0.4</td>
<td>1.4</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
</table>
</body></html>

Weak pricing power continues to stem from a shortfall in U. S. demand. The Bureau of Labor Statistics reported that the Consumer Price Index was unchanged last month after a 0.1% slip during March. More indicative of the weakness in [...]

U.S. CPI Unchanged in April; Year-to-Year Drop of 0.7% Is Largest Since 1955

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515a.jpg" align="left" border="0">
Weak pricing power continues to stem from a shortfall in U. S.
demand. The Bureau of Labor Statistics reported that the Consumer Price
Index was unchanged last month after a 0.1% slip during March. More
indicative of the weakness in pricing power, the year-to-year change in
consumer prices was -0.7%, the biggest since 1955. The April index was
in accord with Consensus expectations for no change in the month.
The weakness in the recent CPI readings owes mostly to lower
food and energy prices. In contrast, "core" pricing has picked up
slightly. The CPI less food &amp; energy rose 0.3% last month after
three consecutive 0.2% increases. These gains lifted the twelve-month
change to 1.9%, which was the firmest since January, and the growth
rate here in 2009 has averaged 2.4% (AR). That four-month growth is up
from a low of 0.5% as of December.
Lower energy prices again restrained overall pricing pressure
last month. The 2.4% decline in April reflected a 2.8% shortfall in
gasoline prices (-39.5% y/y) which added to a 4.0% March drop. Fuel oil
prices also continued downward with a 2.1% drop (-33.5% y/y). The
latest was the ninth consecutive monthly drop and it lowered prices by
one-third during the last twelve. Finally, prices for natural gas
&amp; electricity have fallen in all but one of the last nine
months and year-to-year they are down 1.7%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515b.jpg" align="right" border="0">
Lower food &amp; beverage prices also continue to restrain
overall inflationary pressure. Prices slipped for the third straight
month and the y/y change of 3.3% was the weakest since early 2007, down
from a peak of +6.1% last fall. Recent weakness has been led by lower
dairy product prices (-5.1% y/y). Moreover, price gains for meats,
poultry &amp; fish (2.5% y/y) as well as fruits &amp;
vegetables (0.6% y/y) have eased sharply.
Bucking the disinflationary trend have been core
goods prices which rose 0.5% during April after three
consecutive 0.4% increases. Higher tobacco prices account continue to
account for some of that acceleration with a 28.8% y/y increase. But
there has been some modest firming of prices elsewhere. Prices for
household furnishings &amp; operations have risen 1.8% y/y
following price deflation early last year. Apparel prices are up 0.9%
y/y after declines extending back to 1999. Prices of new &amp; used
motor vehicles have risen during the last four months and the y/y
change of -1.7% compares to a rate of decline of 3.5% as of yearend
2008.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515c.jpg" align="left" border="0">
Gains in core services prices continue to
moderate. The 0.2% uptick last month left the y/y change of 2.3% at its
weakest since 1983. That moderation continues to owe mostly to weakness
in the housing market which caused April shelter prices to rise just
0.2%, putting them up 1.6% y/y. That rise compares to gains above 4.0%
two years ago. Owners equivalent rent of primary residence, a measure
not equivalent to other house price measures, ticked up just 0.1% (2.1%
y/y). The cost of travel did rise 0.5% during April but prices of
lodging away from home are down 5.9% during the last year. Other
service prices rose. The increase in medical care services prices
picked up slightly to 0.4% (3.3% y/y) while education costs rose 0.4%
and the y/y gain remained a firm 5.4%. Public transportation prices
fell again. The 0.8% decline was the eighth drop in a row (-5.9% y/y).
The chained CPI, which adjusts for shifts in consumption
patterns, gained 0.3% while year -to-year prices fell 1.1%. The
increase in chained prices less food and energy eased to 0.2% in the
month.
The consumer price data is available in Haver's USECON
database while detailed figures can be found in the CPIDATA
database.
Seeking Stability: What’s Next for Banking
Regulation? from the Federal Reserve Bank of Dallas can
be found <a 
 href="http://dallasfed.org/research/eclett/2009/el0903.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
 <colgroup><col><col><col><col><col><col></colgroup>
 <thead><tr>
 <th scope="col" class="firstcol"><a 
 href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
 <th scope="col">April</th>
 <th scope="col">March</th>
 <th scope="col">Y/Y&nbsp;</th>
 <th scope="col">2008</th>
 <th scope="col">2007</th>
 <th scope="col">2006</th>
 </tr>
 </thead>
 <tbody>
 <tr class="even">
 <td class="firstcol">Total&nbsp;</td>
 <td>0.0</td>
 <td>-0.1</td>
 <td>-0.7</td>
 <td>3.8</td>
 <td>2.9</td>
 <td>3.2</td>
 </tr>
 <tr class="even">
 <td class="firstcol">Total less Food &amp; Energy</td>
 <td>0.3</td>
 <td>0.2</td>
 <td>1.9</td>
 <td>2.3</td>
 <td>2.3</td>
 <td>2.5</td>
 </tr>
 <tr class="even">
 <td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
 <td>0.5</td>
 <td>0.4</td>
 <td>0.9</td>
 <td>0.1</td>
 <td>-0.4</td>
 <td>0.2</td>
 </tr>
 <tr class="even">
 <td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
 <td>0.2</td>
 <td>0.1</td>
 <td>2.3</td>
 <td>3.1</td>
 <td>3.4</td>
 <td>3.4</td>
 </tr>
 <tr class="even">
 <td class="firstcol">&nbsp; Energy</td>
 <td>-2.4</td>
 <td>-3.0</td>
 <td>-24.5</td>
 <td>13.5</td>
 <td>5.7</td>
 <td>11.0</td>
 </tr>
 <tr class="even">
 <td class="firstcol">&nbsp; Food &amp;
Beverages</td>
 <td>-0.2</td>
 <td>-0.1</td>
 <td>3.3</td>
 <td>5.4</td>
 <td>3.9</td>
 <td>2.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">&nbsp;</td>
 <td>&nbsp;</td>
 <td>&nbsp;</td>
 <td>&nbsp;&nbsp;</td>
 <td>&nbsp;</td>
 <td>&nbsp;</td>
 <td>&nbsp;</td>
 </tr>
 <tr>
 <td class="firstcol"><a 
 href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
 <td>0.3</td>
 <td>0.2</td>
 <td>-1.1 </td>
 <td>3.3</td>
 <td>2.5</td>
 <td>2.9 </td>
 </tr>
 <tr class="even">
 <td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
 <td>0.2</td>
 <td>0.4</td>
 <td>1.4</td>
 <td>2.0</td>
 <td>2.0</td>
 <td>2.2</td>
 </tr>
 </tbody>
</table>
EMU GDP Drops Sharply 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 15, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515d.jpg" align="left" border="0">
The EMU region’s sharp drop in GDP has turned out to be worse
than expected for the region as well as for most countries. Germany is
showing the deepest GDP drop since 1970. The drop that The Netherlands
is experiencing is the sharpest drop in GDP since the end of WWII.
Greece is the sole county in this table with positive growth yr/yr. 
 

GDP continues to decelerate across Europe. We knew these GDP
reports would be weak after viewing the weakness in industrial output
ahead of the release of this GDP report. Germany’s Q1 decline is so
large it is not looking for much if any further decline in GDP for the
rest of the year. 
 

The Swedish Finance Minister Anders Borg has said that Europe
may be in need of some further stimulus. Of course Europe also labors
under the constraint of the Maastricht rules that restrict fiscal
deficits and cap ratios of government debt to GDP. Not only does Europe
lack a central fiscal authority comparable to its central bank, but the
fragmented nature of fiscal responsibility makes it hard for Europe to
be involved in fiscal stimulus in a coordinated way. Instead of a
central fiscal authority the Maastricht rules stand in to restrict
individual nations from going overboard with fiscal policy actions that
could create too many government liabilities that might undermine the
value of the euro. Of course recessions naturally put pressure on
Maastricht rules since growth slows or declines, pushing tax revenues
down at a time that social safety new spending rises. Countries that
have room under the Maastricht ratios can engage in fiscal stimulus in
times like theses, but often it is the high debt countries that are in
greater need of the stimulus and must risk running afoul of the rules
if they act. 
 

This down turn has exposed problems in the Euro Area. The Euro
Area is asymmetric. Its Central Bank has a mandate for price stability
only. Meanwhile there is no fiscal authority to step in when things get
tough. In this cycle the ECB actually joined in on an coordinated
international rate cut with its inflation rate well over ceiling on the
basis of a forecast that inflation would drop (of course the spot oil
price had dropped sharply and that was not a very risky forecast at the
time). Still it was an action that seemed to violate the rule if not
the spirit of having and inflation ceiling. Europe has not been able to
confront the problem that only the ECB can move fast in a crisis yet
its mandate is price stability. 
 

After seeing these GDP reports markets did not react very
strongly. The weakness in GDP was expected. The degree of weakness has
turned out to be a bit worse than expected. It sill is not clear what
steps Europe will take next and if more fiscal stimulus will be part of
the approach or not. 


<table border="0" cellspacing="0" width="100%">
 <colgroup></colgroup>
 <thead><tr>
 <th colspan="8" scope="col">Euro Area
and Main G-10 Country GDP Results </th>
 </tr>
 </thead>
 <tbody>
 <tr class="grey4">
 <td class="firstcol">&nbsp;</td>
 <td colspan="3">Quarter over quarter-SAAR</td>
 <td colspan="4">Year/Year</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol">GDP</td>
 <td>Q1-09</td>
 <td>Q4-08</td>
 <td>Q3-08</td>
 <td>Q1-09</td>
 <td>Q4-08</td>
 <td>Q3-08</td>
 <td>Q2-08</td>
 </tr>
 <tr class="grey2">
 <td class="firstcol">EMU-15</td>
 <td>-9.6%</td>
 <td>-6.3%</td>
 <td>-1.0%</td>
 <td>-4.6%</td>
 <td>-1.5%</td>
 <td>0.6%</td>
 <td>1.4%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">Austria</td>
 <td>-8.5%</td>
 <td>-2.6%</td>
 <td>-1.3%</td>
 <td>-4.6%</td>
 <td>0.3%</td>
 <td>1.8%</td>
 <td>2.3%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">France</td>
 <td>-4.7%</td>
 <td>-5.7%</td>
 <td>-0.7%</td>
 <td>-3.2%</td>
 <td>-1.7%</td>
 <td>0.1%</td>
 <td>1.0%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">Germany</td>
 <td>-14.4%</td>
 <td>-8.6%</td>
 <td>-2.1%</td>
 <td>-6.9%</td>
 <td>-1.8%</td>
 <td>0.8%</td>
 <td>2.0%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">Greece</td>
 <td>-4.6%</td>
 <td>1.2%</td>
 <td>1.5%</td>
 <td>0.3%</td>
 <td>2.4%</td>
 <td>2.7%</td>
 <td>3.4%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">Italy</td>
 <td>-9.4%</td>
 <td>-8.3%</td>
 <td>-3.2%</td>
 <td>-5.9%</td>
 <td>-3.0%</td>
 <td>-1.3%</td>
 <td>-0.3%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">The Netherlands</td>
 <td>-10.7%</td>
 <td>-4.7%</td>
 <td>-1.8%</td>
 <td>-4.5%</td>
 <td>-0.8%</td>
 <td>1.8%</td>
 <td>3.4%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">Portugal</td>
 <td>-5.9%</td>
 <td>-6.2%</td>
 <td>-0.8%</td>
 <td>-3.0%</td>
 <td>-1.8%</td>
 <td>0.4%</td>
 <td>0.6%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">Spain</td>
 <td>-7.0%</td>
 <td>-3.8%</td>
 <td>-1.2%</td>
 <td>-2.9%</td>
 <td>-0.7%</td>
 <td>0.9%</td>
 <td>1.8%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">UK</td>
 <td>-7.4%</td>
 <td>-5.9%</td>
 <td>-2.8%</td>
 <td>-4.2%</td>
 <td>-2.0%</td>
 <td>0.4%</td>
 <td>1.8%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">US</td>
 <td>-6.1%</td>
 <td>-6.3%</td>
 <td>-0.5%</td>
 <td>-2.6%</td>
 <td>-0.8%</td>
 <td>0.7%</td>
 <td>2.1%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">Japan</td>
 <td>#N/A</td>
 <td>-12.1%</td>
 <td>-1.4%</td>
 <td>#N/A</td>
 <td>-4.3%</td>
 <td>-0.2%</td>
 <td>0.5%</td>
 </tr>
 <tr class="grey1">
 <td class="firstcol">Switzerland</td>
 <td>#N/A</td>
 <td>-1.2%</td>
 <td>-0.3%</td>
 <td>#N/A</td>
 <td>-0.1%</td>
 <td>1.3%</td>
 <td>2.3%</td>
 </tr>
 </tbody>
</table>
U.S. Factory Production Shortfall
Eases 
by <a href="/comment/Moeller.html">Tom
Moeller</a> May 15, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515g.jpg" align="left" border="0">
The severity of the downturn in industrial output eased last
month, according to the industrial production figures published by the
Federal Reserve. Output, which includes mining and utilities, declined
an expected and moderate 0.5%, which was by far the smallest decline of
this recession. The drop followed declines between one and four percent
during the prior several months. Declines in the factory sector alone
have eased as well. The 0.3% April shortfall was the smallest since
February and compares to monthly declines between one and three percent
during this recession.
Output of consumer goods overall was unchanged last month and
the year-to-date rate of decline eased to 7.3%. Last month, production
of autos actually increased, though it's down at a 44.4% rate this
year. Conversely, furniture output posted a 2.8% decline last month and
it's down at a 23.7% rate so far this year as consumers continue to shy
away from purchases of large durable goods. Apparel output fell 1.3%
and the three-month rate of -17.3% is half that of its worst. Even the
pace of the decline in the production of business equipment seems to
have eased with a 0.5% decline, though the three-month rate was near
its worst at -23.6%. The downturn in the housing market continued to
lower output of construction supplies. It fell 1.1% and the three-month
rate of decline eased to a "modest" 23.4%. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090515h.jpg" align="right" border="0">
Even in the high-tech sector the rate of decline in output
slowed. Here, industrial production fell 0.8% last month and at a
reduced 13.5% rate during the last four. Less high tech, overall
industrial production fell a reduced 0.4% last month and the annual
rate of change eased to -15.3%.
O.K., so the slowing pace of output declines is largely in
autos and the high-tech sector. But outside of these two sectors,
output moderated to a 0.5% decline last month, less than one-third the
March drop. The three-month rate of decline was still near its worst at
a -13.4% annual rate.
Excess capacity grew even further last month. Capacity
utilization fell to 69.1%, a record low for the series which dates to
1966. Utilization in the factory sector dropped even harder
to 65.7% from a peak near 80% back in 2007. The latest rate was a
record low since WW II.
The industrial production data are available in Haver's USECON
database.
Ties that Bind: Bilateral Trade's Role in
Synchronizing Business Cycles from the Federal Reserve
Bank of Dallas is available <a 
 href="http://dallasfed.org/research/eclett/2009/el0901.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">INDUSTRIAL
PRODUCTION (SA, %)</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">Total Output </td>
 <td>-0.5</td>
 <td>-1.7</td>
 <td>-12.5</td>
 <td>-2.2</td>
 <td>1.5</td>
 <td>2.3</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
 <td>-0.3</td>
 <td>-2.1</td>
 <td>-14.5</td>
 <td>-3.2</td>
 <td>1.4</td>
 <td>2.5</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
 <td>0.0</td>
 <td>-0.3</td>
 <td>-6.6</td>
 <td>-2.6</td>
 <td>0.9</td>
 <td>0.4</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
 <td>-0.5</td>
 <td>-2.9</td>
 <td>-13.9</td>
 <td>-1.1</td>
 <td>2.7</td>
 <td>9.4</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
 <td>-1.1</td>
 <td>-2.8</td>
 <td>-20.0</td>
 <td>-6.3</td>
 <td>-2.0</td>
 <td>2.3</td>
 </tr>
 <tr>
 <td class="firstcol">&nbsp; Utilities</td>
 <td>0.5</td>
 <td>1.8</td>
 <td>-3.2</td>
 <td>0.3</td>
 <td>3.4</td>
 <td>-0.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Capacity Utilization</td>
 <td>69.1</td>
 <td>69.4</td>
 <td>79.2 (April '08)</td>
 <td>77.6</td>
 <td>80.6</td>
 <td>80.9</td>
 </tr>
 </tbody>
</table>

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090514a.jpg">
A stutter-step was taken by the U.S. job market last week. Initial claims for unemployment insurance increased 32,000 to 637,000 and that recovered all of the prior week&#39;s decline. Nevertheless, claims remained down sharply from their March high of 674,000. The four-week average of claims, which smoothes out some of the volatility in the weekly numbers, ticked up to 630,500, still near the lowest level since mid-February. Initial claims of 610,000 was the Consensus expectation for claims last week.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090514b.jpg">
The Labor Department indicated that the largest increases in initial claims for the week ending May 2 were in Illinois (+2,052), Kansas (+2,025), Puerto Rico (+1,781), Indiana (+1,051), and Ohio (+1,013), while the largest decreases were in New York (-13,386), Michigan (-10,952), North Carolina (-8,988), Massachusetts (-3,705), and Connecticut (-2,802).
Layoffs may have eased, but the pace of rehiring of unemployed workers remains depressed. Continuing claims for unemployment insurance increased again to another record high of 6,560,000 and they remain twice the year ago level. The series dates back to 1966. The four-week average of continuing claims also rose to another record of 6,337,250. Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.
The lack of hiring continued to push the insured unemployment rate higher to 4.9%. That level was more than double last April and the highest level since 1983. During the last ten years there has been a 93% correlation between the level of the insured unemployment rate and the overall rate of unemployment published by the Bureau of Labor Statistics.Clearly, the latest weekly figure understates labor market distress in some states. The highest insured unemployment rates in the week ending April 25 were in Michigan (7.8 percent), Oregon (7.5), Pennsylvania (6.5), Wisconsin (6.4), Nevada (6.3), Idaho (6.1), Puerto Rico (5.9), Vermont (5.8), Alaska (5.7), and Rhode Island (5.7).
The unemployment insurance claim data is available in Haver&#39;s WEEKLY database.
Comparing patterns of default among prime and subprime mortgages from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_2qtr2009_part2_amromin_paulson.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">05/09/09</th>
<th scope="col">05/02/09</th>
<th scope="col">04/25/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>637</td>
<td>635</td>
<td>635</td>
<td>69.9%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,560</td>
<td>6,358</td>
<td>114.2%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body>
</html>

A stutter-step was taken by the U.S. job market last week. Initial claims for unemployment insurance increased 32,000 to 637,000 and that recovered all of the prior week's decline. Nevertheless, claims remained down sharply from their [...]

U.S. Initial Weekly Claims For Jobless Insurance Rebound But Still Trending Lower

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090514f.jpg" align="left" border="0">
GDP: more reports coming - The bulk of the euro-countries&#8217; GDP
reports will begin to be released on Friday. For now we have the Q/Q
number for Spain and a release for the UK (an EU member country) and a
comparison available to the US. France&#8217;s Finance Minister, Christine
Lagarde, is on record saying that the French GDP result will be &#8216;bad.&#8217;
She has not put a figure to that. Germany has been releasing results
and projections for tax revenues that increasingly are falling behind
what was anticipated, tipping off the weakness in German GDP. France is
headed to bust the Maastricht rules for fiscal deficits. Spain&#8217;s GDP
has made the largest quarterly drop and Yr/Yr drop in four decades as
its property boom gone-bust is taking its toll on the economy. Spain&#8217;s
4 million people out of work account for about 70% of the increase in
all of the euro area. And&#8230;Spain&#8217;s adjustment is still in progress. 
 

Europe&#8217;s IP has been horrifically weak -- The large EMU
economies have already posted weak results for industrial output with
that sector showing declines at horrifically negative growth rates in
the first quarter, clustering around -30% annualized and ranging from
-25% to -45% <a href="http://haver.com/COMMENT/090513B.HTM">here.</a> 
 
 

Euro FX rate is resilient - For all of that weakness the euro
exchange rate has held up pretty well and even advanced, reversing its
recent down cycle. The chart (above) shows the level of the EMU area&#8217;s
real effective exchanger rate up 25.5% from its year 2000 level. This
rate compares the euro&#8217;s many bilateral values compressing them to a
single number using trade-weights, (hence it is &#8216;effective&#8217;, or
&#8216;multilateral&#8217;). It also accounts for inflation differences in doing so
(hence it is &#8216;real&#8217;). The euro is off peak but it is still strong. 
 

Euro is still &#8216;strong&#8217; -- Counting from all its monthly values
since 1973, the synthetic euro stands at about the 79Th percentile of
its range of values. The synthetic euro uses actual euro weighting
against non euro currencies and hypothetically calculates what the euro
exchange rate would have been had the EMU currency value arrangement
been in existence since 1973. On this basis the value of the euro is in
the top 20th percentile of its range. That is a relatively strong
showing, despite its recent backtracking. 
 

Relativity has helped to stabilize the euro -- In April of
2008 the synthetic euro reached its &#8216;all time&#8217; high for this same
period. It since has dropped and regained some momentum. While the euro
area remains quite weak with output still declining with vigor,
currency values are a relative thing. The rest of the world is
experiencing output declines as well. But the declines in US output,
plus the well-publicized banking problems and investment losses in
certain classes of dollar assets, have harmed the aura of security
surrounding the dollar and the US. In truth &#8216;the US&#8217; has been more of
an issue than &#8216;the dollar.&#8217; 
 

Relativity and perception - In fact, European banks are
troubled as well. I will not try and make any comparative statement on
their health. But international agencies are urging European
authorities to do more to help them. Germany has just taken steps to
bolster the Landesbanks and to set up a German &#8216;bad bank.&#8217; In France
authorities have promised to back stop French banks. After the failure
of the US investment bank Lehman Brothers, the US has taken steps to
prop up banks as well although small- to moderate-sized banks have been
allowed to go out of business. Those are not usually the sorts of banks
that would affect overseas investors. A big issue for investors has
been the threat to Fannie Mae and Freddie Mac which they once saw as a
gold standard and from losses on various mortgage backed securities in
the US as well as to losses in equities and directly in real estate,
each of which has a more global dimension. 
 

The Fed and monetary policy prospects: While the US dollar
remains backed by a careful and watchful US monetary policy the Fed&#8217;s
balance sheet has expanded greatly. US inflation is still tempered but
some harbor concerns about the future. The most recent rumblings come
from a Fed conference in Sea Island Georgia where John Taylor, inventor
of &#8216;The Taylor Rule,&#8217; has suggested that, according to that rule, the
Fed is close to needing to hike rates. 
 

Underpinning the dollar: Currencies are underpinned by their
central banks and the policies they follow, particularly when it comes
to inflation. The US central bank has undertaken to stock pile a hoard
of private sector assets as collateral as it has provided financial
assistance to the beleaguered US financial sector. In Europe the ECB
has just agreed to do the same to a much more modest extent overriding
German opposition within the ECB. Certainly the asset quality at the
central bank is an issue for the credit worthiness of the bank itself.
But the real issue is it what a bank&#8217;s policies mean for the evolution
of inflation. There, some see a link between this asset quality and
future inflation. Given the odd sort of business cycle we have had in
the US that point is much more debatable. For the moment that asset
quality issue favors the ECB and the euro. But does it really matter? 
 

Private asset values matter too -- The asset price declines in
the US have been varied and, because more foreign money has been
invested in the US, more foreign investors have been burned on their
&#8216;dollar&#8217; exposures. While that is not a foreign exchange issue per se,
it is when viewed in a broader sense. Foreign money will not flow in
unless it has a place to be invested. Up to this point there has been
no other place to go other than to the US. More money has been lost in
US based investments than in dollar exposures- indeed the dollar has
risen since the crisis began. What is interesting is that there are
concerns about the dollar - even though we have not yet had dollar
problems attached to this crisis. The real concerns are about recycling
savings surpluses and those are not dollar issues per se. 
 

Earlier experiences with &#8216;recycling of savings surpluses&#8217; --
In the early 1970s surplus funds from OPECs price hikes went to banks
for recycling. They proved to be poor custodians as a binge of
international lending, much of it to Latin America, went bust. Next,
Japan&#8217;s surpluses helped to fuel a rise in US indebtedness and a global
stock market boom until the turn off the century. The fallout from that
was a rise in the yen that eviscerated Japan&#8217;s competitiveness that
thrust it into a lost decade of growth while Japan outsourced to regain
its industrial standing. The recent recycling was funneled more
directly though various securities markets (not just equity markets) as
China&#8217;s surpluses grew then as oil prices jolted savings in OEPC and
other oil-producing countries. The consequences again have been
devastating. Perhaps the lesson here is more about sudden international
shifts in savings imbalances than about currencies and the dollar in
particular. So far the dollar has weathered the storm well and has even
risen in value. The real problem for the global financial system and
its financial intermediaries has been the inability to weather sudden
shifts in various national savings rates be they in OPEC nations,
China, Japan or elsewhere. (In the case of Japan is was more a case of
a shift of funds on the margin to a country with an already high saving
rate.) 
 

Europe: better or just less exposed? Had relatively more
international funds been invested in Germany or in France in this cycle
similar losses would have been experienced there since real estate and
asset prices have declines there more or less in step with the losses
in the US. But since the US was amore advanced in securitization, that
market lent itself more readily to an influx of foreign investors who
now must deal with the consequences. 
 

Outlook: Looking ahead the issue for the euro&#8217;s value is going
to be much more about growth, inflation and rate-of-return issues than
about safety and soundness. Stock markets already are being led higher
by their cyclical components as the &#8216;low beta&#8217; or &#8216;safe&#8217; stock market
sectors languish. Investors who were &#8216;once bit, twice shy&#8217; with their
dollar assets are going to have to decide if the US has become a safe
place to invest again or they will have to look elsewhere. It they look
elsewhere, will that place be any safer than the US, if global saving
imbalances are allowed to grow again? These decisions carry with them
exchange rate implications. If the &#8216;Chinas&#8217; of the world want to (and
are allowed to) preserve their competitiveness positions Vs the dollar
they need to continue to push funds into the US to support current
dollar levels. Otherwise, switching funds to other countries will drop
the dollar&#8217;s value and hike the exchange rate of the yuan undercutting
their competitiveness. There is no de-linking these issues. Decisions
have consequences and consequences breed new decisions. There is no
doubt that the lessons of this cycle have important implications for
the period ahead and for the evolution of asset values. The question is
if those implications make the US and other places a safer place for
foreign monies or if foreign monies will now begin to deploy elsewhere.
And if they deploy elsewhere will that be to a destination of greater
safety or just to make a &#8216;new&#8217; mistake in the future? 
 

The currency values should tell much of the story of the
shifts in these flows of funds in the times ahead. 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">E-Zone and main G-10 country GDP Results </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Quarter over quarter-Saar</td>
<td colspan="4">Year/Year</td>
</tr>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-7.0%</td>
<td>-3.8%</td>
<td>-1.2%</td>
<td>-2.9%</td>
<td>-0.7%</td>
<td>0.9%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>-7.4%</td>
<td>-5.9%</td>
<td>-2.8%</td>
<td>-4.2%</td>
<td>-2.0%</td>
<td>0.4%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">US</td>
<td>-6.1%</td>
<td>-6.3%</td>
<td>-0.5%</td>
<td>-2.6%</td>
<td>-0.8%</td>
<td>0.7%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
</body></html>

GDP: more reports coming - The bulk of the euro-countries’ GDP reports will begin to be released on Friday. For now we have the Q/Q number for Spain and a release for the UK (an EU member country) and a comparison available to the US. [...]

Real Euro Digs In Its Heels Despite Weak Growth

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.

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**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.

Economy in Brief

Jump to:

U.S. Home Builders' Index Increases Again

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Real Euro Digs In Its Heels Despite Weak Growth