Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090506c.jpg" width="353">
For April, the outplacement firm of Challenger, Grey &amp; Christmas indicated that cut announcements eased for the third month. The announcement of 132,590 layoffs followed 150,411 during March and both of the figures were down from the cycle high of 241,749 reached in January. Challenger also reported that announced hiring plans rose to the highest level since early-2007.
Announcement of job cuts in the pharmaceutical industry dropped sharply to 1,671 after their record March surge. Announcements in the electronics industry also halved their March jump and in the retail industry job cuts showed the third month of moderation and the number of jobs fell to a modest 2,927. Finally, the computer industry shed just 1,702 jobs which was the least since August of last year and cuts in the financial business fell to 6,645.
Picking up some steam were job cut announcements in the automotive sector which rose to 24,172 after easing during March. Also there was a pickup in layoffs in the industrial goods sector where there were 18,636 announcements. Employment cutbacks in the insurance industry also rose as there were 1,330 which was up sharply from the prior two months.
During the last ten years there has been a 67% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
The Challenger figures are available in Haver&#39;s SURVEYS database.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></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>
<td class="firstcol">Announced Job Cuts</td>
<td>132,590</td>
<td>150,411</td>
<td>47.3%</td>
<td>1,223,993</td>
<td>768,264</td>
<td>839,822</td>
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</tbody>
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For April, the outplacement firm of Challenger, Grey & Christmas indicated that cut announcements eased for the third month. The announcement of 132,590 layoffs followed 150,411 during March and both of the figures were down from the [...]

Challenger Layoffs Also Show Job Market Improvement

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090506a.jpg" width="353">
Perhaps the labor market showed a sign of improvement during April. That could be the implication of the latest report from the payroll processor ADP in their latest National Employment Report. It indicated that private nonfarm payrolls fell 491,000 last month after a 708,000 decline during March which was revised shallower from the initial estimate of a 742,000 drop. The latest reading was the fifteenth consecutive monthly decline. However, the annualized rate of decline in payrolls eased somewhat to 6.5% during the last three months. 
The U.S. Bureau of Labor Statistics will report payroll employment this Friday. For comparison, March&#39;s 708,000 worker decline in ADP&#39;s measure of private nonfarm payrolls was accompanied by a 658,000 worker decline in the BLS measure of private sector payrolls. According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
ADP reported that last month medium sized payrolls fell 231,000 (-4.9% y/y) followed by a 183,000 (-3.6% y/y) worker decline in small sized payrolls. Large payrolls fell by 77,000 (-4.9% y/y). In the goods producing sector there were 262,000 fewer jobs in April (-11.0% y/y). Medium-sized payrolls fell 125,000 (-11.5% y/y) followed by a 91,000 (-10.2% y/y) shortfall in small-sized payrolls. Large payrolls fell 46,000 (-11.2% y/y). In the manufacturing sector alone, payrolls fell 159,000 (-10.9% y/y). It has fallen in almost every month since 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090506b.jpg" width="353">
Employment in the service producing industry continued to fall sharply during April. The 229,000 (-2.8% y/y) decline was the thirteenth consecutive monthly decline. Medium-sized service payrolls fell 106,000 (-3.1% y/y) and small-sized payrolls were off 92,000 (-2.4% y/y). Large service producing payrolls dropped by 31,000 (-3.0% y/y).
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical figures date back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which rose an average 11,083 during the last twelve months. 
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/pdf/FINAL_Report_April_09.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf" title="blocked::http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></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>
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</thead>
<tbody>
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<td class="firstcol">Nonfarm Private Payroll Employment (m/m Chg.)</td>
<td>-491,000</td>
<td>-708,000</td>
<td>-4.3%</td>
<td>-0.4</td>
<td>1.2%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


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Perhaps the labor market showed a sign of improvement during April. That could be the implication of the latest report from the payroll processor ADP in their latest National Employment Report. It indicated that private nonfarm [...]

ADP Report: Rate Of Job Loss Slowed During April

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505g.jpg" align="left" border="0" height="265" width="353">
The PPI is not the ECB&#8217;s mandated inflation variable. The
central bank prefers the broader consumer-based HICP. But the drop in
the PPI excluding construction at -0.8% in March, at -10.5% over three
months (saar), at -12.3% over 6 months (saar) and at a minus three
percent over 12-months is nonetheless a compelling piece of evidence
for the ECB to confront. Capital goods inflation at +1.5% Yr/Yr is the
high inflation reading for the three main sectors. Consumer goods
prices are lower by 1.2% over 12-months and intermediate goods prices
are lower by 4.1% over 12-months. Europeans are not as worried about
deflation as policymakers in the US, yet they can&#8217;t deny these trends. 
 

Inflation, its breadth and its trends all point to the nearly
complete absence of anything that could be called inflation. Indeed
there is growing evidence for those who want to worry about that
opposite concern: deflation. On top of that, the European economy is
very weak. 
 

The controversial aspect of this is that Europe&#8217;s finance
ministers are not applying any new stimulus and the head of the
European Commission, Jean-Claude Junker, said that no policies except
those that are already approved should be implemented. That appears to
be an oblique warning from Junker to EU countries not to go off on
their own with any new programs of assistance. Even so Junker admits to
a growing unemployment crisis in Europe. Of course Europe has a more
extensive social safety network than the US. But as the EU Commission
and the OECD and the IMF have cuts forecasts the EU Commission has been
prepared to sit idle and wait for the results of its past stimulus
plans to play out. Moreover, the ECB has been content to let the Bank
of England and the Federal Reserve take the more aggressive monetary
policy actions. 
 

So if there is a risk it is that Europe is getting behind the
curve and perhaps, along with that, a growing risk of deflation. The
continuing sharp drop in inflation &#8211; indeed, persisting negative rates
of inflation- hint at an ongoing economic unraveling. However, recent
economic data have suggested in several ways that the economic tailspin
had begun to enter a more controlled phase. 
 

In Spain, programs to arrest sharply rising unemployment seem
to be having some impact. In Germany a car scrappage scheme seems to
have boosted car registrations. The EU PMI for manufacturing shows a
rise in that key sensitive cyclical index that suggests the pace of
economic unraveling its slowing and that signal is echoed across Main
EMU countries. So while Europe&#8217;s policies may tread a riskier path that
those in the US there is also some evidence of economic responsiveness
to the counter cyclical policies already implemented and of course
there is that cushier social safety net in Europe. 
 

Nonetheless, this drop in the PPI is sharp, the largest drop
in 22 years. It is putting pressure on the ECB and is expected to
result in another rate cut from Europe&#8217;s central bank at its next
meeting. Reasons to oppose such a drop are increasingly scarce. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">E-Area and UK PPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">E-Area</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total x Construct</td>
<td>-0.8%</td>
<td>-0.6%</td>
<td>-10.5%</td>
<td>-12.3%</td>
<td>-3.0%</td>
<td>5.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital Gds</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>1.5%</td>
<td>1.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer Gds</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-5.0%</td>
<td>-4.2%</td>
<td>-1.2%</td>
<td>5.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Intermediate&amp;Cap Gds</td>
<td>-0.9%</td>
<td>-1.0%</td>
<td>-14.1%</td>
<td>-13.8%</td>
<td>-4.1%</td>
<td>4.2%</td>
</tr>
<tr class="grey1">
<td colspan="7">&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG</td>
<td>-0.9%</td>
<td>-0.5%</td>
<td>-8.8%</td>
<td>-13.6%</td>
<td>-5.1%</td>
<td>5.8%</td>
</tr>
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<td class="firstcol">Germany</td>
<td>-0.7%</td>
<td>-0.7%</td>
<td>-10.2%</td>
<td>-6.4%</td>
<td>1.0%</td>
<td>3.2%</td>
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<tr class="grey2">
<td class="firstcol">Gy ExEnergy</td>
<td>-0.5%</td>
<td>-0.5%</td>
<td>-5.9%</td>
<td>-5.7%</td>
<td>-1.4%</td>
<td>2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Italy</td>
<td>-0.8%</td>
<td>-0.8%</td>
<td>-10.1%</td>
<td>-14.5%</td>
<td>-4.5%</td>
<td>6.6%</td>
</tr>
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<td class="firstcol">UK</td>
<td>-0.9%</td>
<td>0.0%</td>
<td>1.3%</td>
<td>-15.2%</td>
<td>0.2%</td>
<td>13.6%</td>
</tr>
<tr class="grey4">
<td colspan="7" class="firstcol">E-zone Harmonized PPI ex construction</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">The EA 13 countries are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia</td>
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The PPI is not the ECB’s mandated inflation variable. The central bank prefers the broader consumer-based HICP. But the drop in the PPI excluding construction at -0.8% in March, at -10.5% over three months (saar), at -12.3% over 6 [...]

Sharp, Widespread, PPI Drop Puts ECB On The Spot For A Rate Cut

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505e.jpg" width="353">
Consumer spending recently has taken a firmer stance. Despite the news of weaker sales of light motor vehicle sales last month, chain store sales moved to a firmer footing. According to the International Council of Shopping Centers-Goldman Sachs Index store sales rose 0.7% last week and made up the decline of the prior period. The news for the full-month, however, is more encouraging. Added to increases early in the month, chain store sales for all of April rose 1.4% from the March average following that month&#39;s tepid 0.3% uptick.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505f.jpg" width="353">
During the last ten years there has been a 64% correlation between the year-to-year growth in chain store sales and the growth in general merchandise sales. These weekly figures are available in Haver&#39;s SURVEYW database.
The ICSC-Goldman Sachs retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Moreover, the outlook for sales continued cautiously optimistic. The leading indicator of sales has been moving sideways since early February. While still negative, the year-to-year change has improved to a negative 2.0%, up from the 6% rate of decline last Fall.
A Minsky Meltdown: Lessons for Central Bankers from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-15.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">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</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>491.3</td>
<td>488.0</td>
<td>-0.8%</td>
<td>1.4%</td>
<td>2.8%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>


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Consumer spending recently has taken a firmer stance. Despite the news of weaker sales of light motor vehicle sales last month, chain store sales moved to a firmer footing. According to the International Council of Shopping Centers- [...]

U.S. Chain Store Sales Rise Again

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505c.jpg">
The service sector recovered its earlier losses last month. The April Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) rose to 43.7 last month from an unrevised reading of 40.8 during March. The latest was the highest level since October of last year and it was higher than Consensus expectations for a reading of 42.0. A level of the ISM index below 50 indicates declining activity. Since the series&#39; inception in 1997 there has been a 48% correlation between the level of the business activity index in the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.
Improved new orders led last month&#39;s gain in the overall ISM index. The orders index rose by nearly ten points from March to the highest level since the Fall. An index which measures the speed of vendor deliveries continued to suggest slack and fell sharply to its lowest level in the series&#39; history which dates back to 1997.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505d.jpg">
The business activity sub-index also rose further last month to its highest level since last September. That rise came as the employment index made up its March decline and settled near its highest level in six months. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.
Pricing power continued under pressure. Though the price index ticked up slightly from March, it remained near its lowest level. Since its inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
Beginning with the January 2008 Nonmanufacturing <cite>Report On Business</cite>&reg;, the composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indices for four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm.">here</a>.
ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997.
Today&#39;s testimony by Fed Chairman Ben S. Bernanke titled The Economic Outlook can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20090505a.htm">here.</a>

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>43.7</td>
<td>40.8</td>
<td>51.9</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>40.0</td>
<td>39.1</td>
<td>72.2</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
</table>


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The service sector recovered its earlier losses last month. The April Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) rose to 43.7 last month from an unrevised reading of 40.8 during [...]

U.S. ISM Nonmanufacturing Index Recovers To Highest Level Since October

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505a.jpg" width="353">
Regular gasoline prices last week moved higher to $2.08 per gallon, up 47 cents from the December low. Yesterday, prices moved higher still. The spot market price for a gallon of unleaded gasoline reached $1.52 on Monday, up from $1.38 averaged last week and it was the highest price since early November. The figures are reported by the U.S. Department of Energy and can be found in Haver&#39;s WEEKLY &amp; Daily databases.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505b.jpg" width="353">
The rise in gasoline prices has been driven, in part, by higher crude oil prices. Prices averaged $51.07 last week for a barrel of West Texas Intermediate. Though that still was down slightly from the late-March high of $53.09, prices remained up from the December low of $32.37 per barrel. Prices reached a high of $145.66 last July. Yesterday, prices strengthened even further to $54.47. The latest increases occurred despite a 4.9% rise in crude oil production versus last year. The figures on crude oil production and inventories are available in Haver&#39;s Weekly Oil Statistics database.
Higher gasoline prices and economic weakness have lowered miles-driven, though the rate of decline has eased. Gasoline demand last week fell 2.1% y/y versus the 4.8% rate of decline seen last October. The change in demand is measured using the latest four weeks versus the same four weeks in 2008. Demand for all petroleum products was down 6.8% y/y led by a 41.5% drop in demand for residual fuel oil and a 13.5% drop in distillate demand. These numbers are available in Haver&#39;s OILWKLY database.
The price of natural gas continued to move lower to $3.29 per mmbtu (-69.4% y/y), down with the end of the winter heating season. At the lowest level since 2002, the latest average price was down by three-quarters from the high reached in early-July of $13.19/mmbtu.
The April 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200905/fullreport.pdf"> here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">05/04/09</th>
<th scope="col">04/27/09</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>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon, Regular)</td>
<td>2.08</td>
<td>2.05</td>
<td>-42.5%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>51.07</td>
<td>47.83</td>
<td>-55.7%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
</html>

Regular gasoline prices last week moved higher to $2.08 per gallon, up 47 cents from the December low. Yesterday, prices moved higher still. The spot market price for a gallon of unleaded gasoline reached $1.52 on Monday, up from [...]

Petroleum Prices Move Higher

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505a.jpg" align="left" border="0" height="265" width="353">
Regular gasoline prices last week moved
higher to $2.08 per gallon, up 47 cents from the December low.
Yesterday, prices moved higher still. The spot market price for a
gallon of unleaded gasoline reached $1.52 on Monday, up from $1.38
averaged last week and it was the highest price since early November.
The figures are reported by the U.S. Department of Energy and can be
found in Haver's WEEKLY &amp; Daily databases.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505b.jpg" align="right" border="0" height="265" width="353">
The rise in gasoline prices has been driven, in part, by higher
crude oil prices. Prices averaged $51.07 last week for a
barrel of West Texas Intermediate. Though that still was down slightly
from the late-March high of $53.09, prices remained up from the
December low of $32.37 per barrel. Prices reached a high of $145.66
last July. Yesterday, prices strengthened even further to $54.47. The
latest increases occurred despite a 4.9% rise in crude oil production
versus last year. The figures on crude oil production and inventories
are available in Haver's Weekly Oil Statistics
database.
Higher gasoline prices and economic weakness have lowered
miles-driven, though the rate of decline has eased. Gasoline
demand last week fell 2.1% y/y versus the 4.8% rate of
decline seen last October. The change in demand is measured using the
latest four weeks versus the same four weeks in 2008. Demand for
all petroleum products was down 6.8% y/y led by a 41.5% drop
in demand for residual fuel oil and a 13.5% drop in distillate demand.
These numbers are available in Haver's OILWKLY database.
The price of natural gas continued to move lower to $3.29 per
mmbtu (-69.4% y/y), down with the end of the winter heating season. At
the lowest level since 2002, the latest average price was down by
three-quarters from the high reached in early-July of $13.19/mmbtu.
The April 2009 Senior Loan Officer Opinion
Survey on Bank Lending Practices from the Federal
Reserve Board is available <a href="http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200905/fullreport.pdf">
here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">05/04/09</th>
<th scope="col">04/27/09</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>
<td class="firstcol">Retail Regular Gasoline ($ per
Gallon, Regular)</td>
<td>2.08</td>
<td>2.05</td>
<td>-42.5%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>51.07</td>
<td>47.83</td>
<td>-55.7%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
U.S. ISM Nonmanufacturing Index
Recovers To Highest Level Since October 
by <a href="/comment/Moeller.html">Tom
Moeller</a> May 5, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505c.jpg" align="left" border="0">
The service sector recovered its earlier losses last month.
The April Composite Index for the nonmanufacturing sector from the
Institute for Supply Management (ISM) rose to 43.7 last month from an
unrevised reading of 40.8 during March. The latest was the highest
level since October of last year and it was higher than Consensus
expectations for a reading of 42.0. A level of the ISM index below 50
indicates declining activity. Since the series' inception in 1997 there
has been a 48% correlation between the level of the business activity
index in the nonmanufacturing sector and the Q/Q change in real GDP for
the services and the construction sectors.
Improved new orders led last month's gain in the overall ISM
index. The orders index rose by nearly ten points from March to the
highest level since the Fall. An index which measures the speed of
vendor deliveries continued to suggest slack and fell sharply to its
lowest level in the series' history which dates back to 1997.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505d.jpg" align="right" border="0">
The business activity sub-index also rose further last month
to its highest level since last September. That rise came as the
employment index made up its March decline and settled near its highest
level in six months. Since the series' inception in 1997 there has been
a 56% correlation between the level of the ISM nonmanufacturing
employment index and the m/m change in payroll employment in the
service-producing plus the construction industries.
Pricing power continued under pressure. Though the price index
ticked up slightly from March, it remained near its lowest level. Since
its inception ten years ago, there has been a 60% correlation between
the price index and the q/q change in the GDP services chain price
index.
Beginning with the January 2008 Nonmanufacturing <cite>Report
On Business</cite>®, the composite index is calculated as an
indicator of the overall economic condition for the non-manufacturing
sector. It is a composite index based on the diffusion indices for four
of the indicators (business activity, new orders, employment and
supplier deliveries) with equal weights. The latest report from the ISM
can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm.">here</a>.
ISM surveys more than 370 purchasing managers in more than 62
industries including law firms, hospitals, government and retailers.
The nonmanufacturing survey dates back to July 1997.
Today's testimony by Fed Chairman Ben S. Bernanke titled The
Economic Outlook can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20090505a.htm">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM
Nonmanufacturing Survey</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>43.7</td>
<td>40.8</td>
<td>51.9</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>40.0</td>
<td>39.1</td>
<td>72.2</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
</table>
U.S. Chain Store Sales Rise Again 
by <a href="/comment/Moeller.html">Tom
Moeller</a> May 5, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505e.jpg" align="left" border="0" height="265" width="353">
Consumer spending recently has taken a firmer stance. Despite
the news of weaker sales of light motor vehicle sales last month, chain
store sales moved to a firmer footing. According to the International
Council of Shopping Centers-Goldman Sachs Index store sales rose 0.7%
last week and made up the decline of the prior period. The news for the
full-month, however, is more encouraging. Added to increases early in
the month, chain store sales for all of April rose 1.4% from the March
average following that month's tepid 0.3% uptick.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505f.jpg" align="right" border="0" height="265" width="353">
During the last ten years there has been a 64% correlation
between the year-to-year growth in chain store sales and the growth in
general merchandise sales. These weekly figures are
available in Haver's SURVEYW database.
The ICSC-Goldman
Sachs retail chain-store sales index is constructed using the
same-store sales (stores open for one year) reported by 78 stores of
seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney,
Sears and Wal-Mart.


Moreover, the outlook for sales continued cautiously
optimistic. The leading indicator of sales has been moving sideways
since early February. While still negative, the year-to-year change has
improved to a negative 2.0%, up from the 6% rate of decline last Fall.
A Minsky Meltdown: Lessons for Central Bankers
from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-15.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/surveyw/@S2/@S2.HTM">ICSC-UBS
(SA, 1977=100)</a></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</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain
Store Sales</td>
<td>491.3</td>
<td>488.0</td>
<td>-0.8%</td>
<td>1.4%</td>
<td>2.8%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
Sharp, Widespread, PPI Drop Puts
ECB On The Spot For A Rate Cut 
by <a href="/comment/Brusca.html">Robert
Brusca</a> May 5, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090505g.jpg" align="left" border="0" height="265" width="353">
The PPI is not the ECB&#8217;s mandated inflation variable. The
central bank prefers the broader consumer-based HICP. But the drop in
the PPI excluding construction at -0.8% in March, at -10.5% over three
months (saar), at -12.3% over 6 months (saar) and at a minus three
percent over 12-months is nonetheless a compelling piece of evidence
for the ECB to confront. Capital goods inflation at +1.5% Yr/Yr is the
high inflation reading for the three main sectors. Consumer goods
prices are lower by 1.2% over 12-months and intermediate goods prices
are lower by 4.1% over 12-months. Europeans are not as worried about
deflation as policymakers in the US, yet they can&#8217;t deny these trends. 
 

Inflation, its breadth and its trends all point to the nearly
complete absence of anything that could be called inflation. Indeed
there is growing evidence for those who want to worry about that
opposite concern: deflation. On top of that, the European economy is
very weak. 
 

The controversial aspect of this is that Europe&#8217;s finance
ministers are not applying any new stimulus and the head of the
European Commission, Jean-Claude Junker, said that no policies except
those that are already approved should be implemented. That appears to
be an oblique warning from Junker to EU countries not to go off on
their own with any new programs of assistance. Even so Junker admits to
a growing unemployment crisis in Europe. Of course Europe has a more
extensive social safety network than the US. But as the EU Commission
and the OECD and the IMF have cuts forecasts the EU Commission has been
prepared to sit idle and wait for the results of its past stimulus
plans to play out. Moreover, the ECB has been content to let the Bank
of England and the Federal Reserve take the more aggressive monetary
policy actions. 
 

So if there is a risk it is that Europe is getting behind the
curve and perhaps, along with that, a growing risk of deflation. The
continuing sharp drop in inflation &#8211; indeed, persisting negative rates
of inflation- hint at an ongoing economic unraveling. However, recent
economic data have suggested in several ways that the economic tailspin
had begun to enter a more controlled phase. 
 

In Spain, programs to arrest sharply rising unemployment seem
to be having some impact. In Germany a car scrappage scheme seems to
have boosted car registrations. The EU PMI for manufacturing shows a
rise in that key sensitive cyclical index that suggests the pace of
economic unraveling its slowing and that signal is echoed across Main
EMU countries. So while Europe&#8217;s policies may tread a riskier path that
those in the US there is also some evidence of economic responsiveness
to the counter cyclical policies already implemented and of course
there is that cushier social safety net in Europe. 
 

Nonetheless, this drop in the PPI is sharp, the largest drop
in 22 years. It is putting pressure on the ECB and is expected to
result in another rate cut from Europe&#8217;s central bank at its next
meeting. Reasons to oppose such a drop are increasingly scarce. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">E-Area and UK PPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">E-Area</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total x Construct</td>
<td>-0.8%</td>
<td>-0.6%</td>
<td>-10.5%</td>
<td>-12.3%</td>
<td>-3.0%</td>
<td>5.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital Gds</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>1.5%</td>
<td>1.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer Gds</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-5.0%</td>
<td>-4.2%</td>
<td>-1.2%</td>
<td>5.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Intermediate&amp;Cap Gds</td>
<td>-0.9%</td>
<td>-1.0%</td>
<td>-14.1%</td>
<td>-13.8%</td>
<td>-4.1%</td>
<td>4.2%</td>
</tr>
<tr class="grey1">
<td colspan="7">&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG</td>
<td>-0.9%</td>
<td>-0.5%</td>
<td>-8.8%</td>
<td>-13.6%</td>
<td>-5.1%</td>
<td>5.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Germany</td>
<td>-0.7%</td>
<td>-0.7%</td>
<td>-10.2%</td>
<td>-6.4%</td>
<td>1.0%</td>
<td>3.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Gy ExEnergy</td>
<td>-0.5%</td>
<td>-0.5%</td>
<td>-5.9%</td>
<td>-5.7%</td>
<td>-1.4%</td>
<td>2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Italy</td>
<td>-0.8%</td>
<td>-0.8%</td>
<td>-10.1%</td>
<td>-14.5%</td>
<td>-4.5%</td>
<td>6.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">UK</td>
<td>-0.9%</td>
<td>0.0%</td>
<td>1.3%</td>
<td>-15.2%</td>
<td>0.2%</td>
<td>13.6%</td>
</tr>
<tr class="grey4">
<td colspan="7" class="firstcol">E-zone Harmonized PPI ex construction</td>
</tr>
<tr class="grey3">
<td colspan="7" class="firstcol">The EA 13 countries are Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Slovenia</td>
</tr>
</tbody>
</table>
</body></html>

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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Tian Yong Woon

This week, we dive into several key developments across Asia. China’s Q4 GDP marked a further extension of its recent growth slowdown, yet full-year growth still came in exactly at the government’s 5% target for 2025 (chart 1). That said, the road ahead remains challenging, as December’s data delivered a mixed set of outcomes. Encouragingly, new external inroads, starting with Canada’s opening up of EV trade with China, could pave the way for additional opportunities (chart 2). In semiconductors, the latest US tariff measures proved far more limited in scope than initially feared, helping to explain the muted market reaction to the announcement (chart 3). Relatedly, commitments by major Taiwanese chipmakers to expand investment in the US have brought Washington and its largest chip supplier closer together, culminating in a US–Taiwan trade deal (chart 4).

In Japan, attention has turned to the possibility of a snap Lower House election in February. The interim political uncertainty, alongside expectations around future policy, has weighed on the yen and pushed Japanese yields higher (chart 5), with some observers increasingly concerned about the narrowing window to pass the FY2026 budget by April, given the likely dissolution of the Lower House. In South Korea, President Lee’s recent visits to China and Japan point to improving bilateral ties, although he continues to navigate a delicate balancing act amid still-elevated China–Japan tensions. Domestically, elevated house prices and high household debt continue to limit the scope for further monetary policy easing (chart 6).

**China**
Alongside its regular slate of monthly economic releases, China unveiled its Q4 GDP figures earlier today, with the economy expanding by 4.5% y/y during the quarter. While Q4 growth continues the recent trend of deceleration seen over the past few quarters, the outcome brings China’s full-year growth for 2025 right in line with the government’s 5% target (chart 1). This defied expectations among some investors that the economy would fall short. This outcome aligns with earlier discussions that China remained within reach of its growth target despite slowing momentum. That said, the outlook ahead remains challenging. December’s monthly data painted a mixed picture, with declines in fixed asset investment accelerating and retail sales growth cooling further, even as industrial production growth remained relatively resilient.

260119T1.jpg

On China’s external developments, another high-profile outcome followed Canadian Prime Minister Carney’s visit to Beijing. Canada and China unveiled a trade deal lowering tariffs on Canada’s imports of 49,000 Chinese EVs to 6.1% from 100%, in exchange for China easing tariffs on Canadian agricultural products. Carney remarked that China is now a “more predictable” trading partner than the US and that “a new world order” is taking hold. These comments likely reflect longstanding trade frictions between the US and Canada, as US President Trump has sought to renegotiate what he views as unfair trade arrangements. The new Canada–China agreement is also expected to catalyse significant Chinese joint-venture investment in Canada over the coming years. The move marks a notable shift for Canada, which has traditionally been an exceptionally close partner of the US, not only economically (chart 2). That Ottawa has inked a trade deal with Beijing while US–China tensions remain elevated represents a clear break from its previous stance and has, unsurprisingly, drawn criticism from Washington.

260119T2.jpg

**US semiconductor tariffs**
Turning to US-originated developments, President Trump signed a proclamation last week imposing a 25% tariff on certain advanced computing chips, including Nvidia’s H200 and AMD’s MI325X. The tariff will not apply to chips imported to support the buildout of the US tech supply chain or to strengthen domestic manufacturing capacity for semiconductor derivatives. The move stops short of a blanket tariff on all AI chips and semiconductor imports, easing—at least for now—initial investor concerns and likely explaining the market’s relatively muted reaction to the announcement (chart 3). A broader tariff would have had far more severe implications, given the  US economy’s substantial imports of semiconductor goods. In the case of Nvidia’s H200—designed to comply with US export restrictions and primarily targeted at the Chinese market—the tariff appears intended to capture a 25% levy before the chips are shipped onward to China. That said, China’s demand response remains uncertain, particularly as the H200 is reportedly banned in China.

260119T3.jpg

Not long after the tariff announcement, the US and Taiwan — the largest source of US semiconductor imports, as shown in chart 4 — were reported to have reached a trade deal. Under the agreement, Taiwanese chipmakers such as TSMC that expand production in the US will face lower tariffs on semiconductors and related manufacturing equipment, with duty-free treatment applying to some imports. In addition, tariffs on most other Taiwanese exports to the US will be reduced to 15% from 20%. In return, Taiwanese companies will invest $250 billion in the US, including an expanded manufacturing footprint by TSMC in Arizona, aimed at boosting domestic production of semiconductors, energy, and AI. As illustrated in chart 4, Taiwan already dominates US semiconductor imports, with its share having risen sharply in recent years and far outstripping contributions from other major suppliers such as Southeast Asian economies and South Korea.

260119T4.gif

**Japan snap elections**
Turning to Japan, the country is drumming up for an anticipated February Lower House snap election as Prime Minister Takaichi looks poised to capitalize on her strong approval ratings to secure a firmer parliamentary footing. In reaction, opposition parties have already started galvanizing for the expected upcoming electoral fight, with the opposition Constitutional Democratic Party (CDP) and the ruling party’s former coalition partner, Komeito, having announced a plan to form a new Centrist Reform Alliance (CRA) to fight the current ruling bloc. Given this interim bout of uncertainty, there is now some doubt cast on whether Japan’s budget this year can be debated robustly and passed in time by April 2026 (when the new fiscal year starts), especially if the Lower House gets dissolved soon, meaning less parliamentary time will be available for the purpose. Tracking such developments, the yen had extended its recent slide, whilst Japanese yields have firmed further (chart 5).

260119T5.jpg

**South Korea**
Lastly, we turn to South Korea, where President Lee has embarked on visits to China and Japan that point to a warming of regional ties. In China, Lee’s meeting with President Xi yielded agreements to restore strategic dialogue channels and deepen cooperation in areas such as critical minerals, with Lee calling for a “full restoration” of bilateral relations. In Japan, his visit similarly signalled a thaw in ties following previous periods of tension. Overall, South Korea appears to be seeking closer relations with its two major Asian neighbours even as China–Japan tensions remain elevated. Domestically, however, while the semiconductor sector has benefited from the AI-driven upswing, South Korea continues to face challenges such as elevated house prices and high household debt. These factors have constrained the scope for further monetary policy easing (chart 6).

260119T6.jpg

Asia

Economic Letter from Asia: Shifting Gears

Winnie Tapasanun

260116R23.jpg

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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.

Economy in Brief

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