Tom Moeller

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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%">
<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 &#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>
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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>

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090504c.jpg" align="left" border="0" height="265" width="353">
Europe&#8217;s PMI readings bounced sharply in April across EMU
nations. France made the second largest monthly rise at 3.59 points
just above the UK&#8217;s 3.35 point gain. From its cycle low, the UK has
made the greatest gain rising by 8 points with Spain and Austrian next
on gains of 6.1 and 5.9 points respectively from their cycle lows.
Italy has rebounded the least with a rise from its low reading of just
2.6 points. Looking at the levels of the indices in their respective
range of value they have occupied Italy is also the weakest followed by
Germany even though Italy&#8217;s raw MFG reading is higher than Germany&#8217;s. 
 

These statistics show us that Europe is stirring from its lows
across countries. The UK and France are making the largest initial
moves, while Germany, the EMU&#8217;s largest economy, is one of the worst
laggards. 
 

Just today the EU Commission has cut its outlook for growth in
EU this year, on Monday it revised lower its forecast for growth in the
European Union this year citing consumers reacting to the weakening
labor market and the slump in world trade as well as the effects of an
ongoing housing market correction. The commission, the executive arm of
the EU, presented its spring quarterly economic forecasts that
projected that gross domestic product in both the European Union and
the euro area would contract by 4 percent in 2009 and by 0.1 percent in
2010. 
 

So amid signs that the EMU economy may have begun to
decelerate at a slower rate paving the way for an eventual upturn the
EU commission has unleashed a more pessimistic outlook. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> NTC/Markit
MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-13</td>
<td>36.83</td>
<td>33.93</td>
<td>33.55</td>
<td>34.77</td>
<td>34.70</td>
<td>40.75</td>
<td>13.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>35.40</td>
<td>32.36</td>
<td>32.14</td>
<td>33.30</td>
<td>33.36</td>
<td>41.43</td>
<td>12.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>40.10</td>
<td>36.51</td>
<td>34.81</td>
<td>37.14</td>
<td>36.92</td>
<td>41.55</td>
<td>21.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>37.21</td>
<td>34.59</td>
<td>34.99</td>
<td>35.60</td>
<td>35.56</td>
<td>40.40</td>
<td>11.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>34.61</td>
<td>32.92</td>
<td>31.85</td>
<td>33.13</td>
<td>31.47</td>
<td>35.64</td>
<td>21.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Austria</td>
<td>38.97</td>
<td>33.68</td>
<td>34.58</td>
<td>35.74</td>
<td>35.60</td>
<td>41.40</td>
<td>22.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece</td>
<td>40.88</td>
<td>38.17</td>
<td>38.88</td>
<td>39.31</td>
<td>40.19</td>
<td>45.98</td>
<td>15.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ireland</td>
<td>36.10</td>
<td>35.12</td>
<td>33.20</td>
<td>34.81</td>
<td>36.39</td>
<td>39.99</td>
<td>13.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Netherlands</td>
<td>38.76</td>
<td>35.92</td>
<td>35.47</td>
<td>36.72</td>
<td>37.26</td>
<td>43.12</td>
<td>13.5%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">EU</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>42.85</td>
<td>39.50</td>
<td>34.93</td>
<td>39.09</td>
<td>37.34</td>
<td>40.69</td>
<td>37.2%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">percentile
is over range since March
2000</td>
</tr>
</tbody>
</table>
</body></html>

Europe’s PMI readings bounced sharply in April across EMU nations. France made the second largest monthly rise at 3.59 points just above the UK’s 3.35 point gain. From its cycle low, the UK has made the greatest gain rising by 8 [...]

Europe Begins to Cut Its Losses

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090504h.jpg" align="right" border="0" height="265" width="353">
Manufacturing activity around the world appears to have
stopped contracting.Markit Economics reported today that the diffusion
indexes representing the opinions of purchasing managers in
manufacturing in a number of countries have continued to show
improvement in April. As the attached charts show, the PMI's in
countries in Eastern Europe and in the Far East reached their low
points at the end of last year. Those in Western Europe reached their
low points early this year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090504i.jpg" align="right" border="0" height="265" width="353">
The best showing has been in the Far East. The PMI for India
reached 53.27% in April, putting manufacturing in India in an expansion
phase. China with a PMI of 50.05% has just inched into the expansion
phase. Although Japan's PMI of 41.42% indicates that manufacturing in
Japan is still contracting, the degree of contraction is well below
that reached at the end of last year. The first chart shows the PMI's
for India, China and Japan.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090504j.jpg" align="right" border="0" height="265" width="353">
Like Japan the PMI's in Eastern Europe suggest that degree of
contraction in manufacturing in Russia, Poland and the Czech Republic
is slowing, but they are still below the expansion phase, as shown in
the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">
PURCHASING MANAGERS SURVEY OF MANUFACTURING</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar&nbsp;09</th>
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol" colspan="3">Diffusion Indexes 50+ =
Expansion&nbsp; (SA)</td>
</tr>
<tr class="grey4">
<td class="firstcol">China</td>
<td>50.05</td>
<td>44.83</td>
</tr>
<tr class="grey4">
<td class="firstcol">Japan</td>
<td>41.42</td>
<td>33.83</td>
</tr>
<tr class="grey4">
<td class="firstcol">India</td>
<td>53.27</td>
<td>49.46</td>
</tr>
<tr class="grey3">
<td class="firstcol" colspan="3">&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">Czech Republic</td>
<td>38.61</td>
<td>33.95</td>
</tr>
<tr class="grey2">
<td class="firstcol">Poland</td>
<td>42.14</td>
<td>41.42</td>
</tr>
<tr class="grey2">
<td class="firstcol">Russia</td>
<td>43.43</td>
<td>41.97</td>
</tr>
<tr class="grey3">
<td class="firstcol" colspan="3"></td>
</tr>
<tr class="grey1">
<td class="firstcol">Switzerland</td>
<td>34.69</td>
<td>32.62</td>
</tr>
<tr class="grey1">
<td class="firstcol">United Kingdom</td>
<td>42.85</td>
<td>39.50</td>
</tr>
<tr class="grey1">
<td class="firstcol">Euro Area</td>
<td>36.83</td>
<td>33.92</td>
</tr>
</tbody>
</table>
</body></html>

Manufacturing activity around the world appears to have stopped contracting.Markit Economics reported today that the diffusion indexes representing the opinions of purchasing managers in manufacturing in a number of countries have [...]

Most April Manufacturing PMI's Show a Lessening of Contraction: India's and China's Show Expansion

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090504f.jpg" width="353">
Regrettably, recent gains in the value of construction spending have been limited, small and tenuous. The value of construction put-in-place unexpectedly increased 0.3% during March following five consecutive months of decline in excess of 3% each month. Consensus expectations had been for a 1.5% drop.
A 2.0% jump in the value of nonresidential building activity accounted for much of the March surprise. The collapse of corporate profits, however, has dropped the y/y gain to just 1.7% after double-digit increases during the prior three years. The March increase reflected gains in the lodging (-5.1% y/y), commercial (-20.5 y/y), health care (+3.9% y/y), and educational (5.4% y/y) sectors.
Public construction also was strong during March and posted a 1.1% increase. The recession&#39;s effect on tax revenues, however, seems to be taking hold. The small 2.6% year-to-year increase in the level of activity for March left the first quarter&#39;s level just equal to the 2008 average. The value of spending on transportation facilities did rise 1.7% in March but it was down 6.0% year-to-year while spending on highways &amp; streets fell 0.8% (-2.2% y/y) and was down for the fourth straight month. The value of construction on highways &amp; streets is roughly one-third of the value of total public construction spending.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090504g.jpg" width="353">
The value of residential building activity continued down hard and it posted a 4.2% decline, off by one-third over the last year. Notably hard hit has been single-family construction activity which fell 8.6% in March and is off by one-half during the last twelve months. Building activity on multi-family units has held up relatively well and posted a March decline of just 1.1% (-13.7% y/y). Spending on improvements fell 1.0% (-13.1% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
The more detailed categories of construction represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002, and that constant-dollar data are no longer computed.
The construction put-in-place figures are available in Haver&#39;s USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E907.HTM">Construction</a> (%)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.3</td>
<td>-1.0</td>
<td>-11.1</td>
<td>-5.7</td>
<td>-2.7</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.1</td>
<td>-2.1</td>
<td>-16.3</td>
<td>-9.8</td>
<td>-6.9</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-4.2</td>
<td>-5.9</td>
<td>-34.0</td>
<td>-27.7</td>
<td>-19.8</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>2.7</td>
<td>0.7</td>
<td>1.2</td>
<td>14.9</td>
<td>19.6</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>1.1</td>
<td>1.3</td>
<td>2.6</td>
<td>6.7</td>
<td>12.3</td>
<td>9.3</td>
</tr>
</tbody>
</table>
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Regrettably, recent gains in the value of construction spending have been limited, small and tenuous. The value of construction put-in-place unexpectedly increased 0.3% during March following five consecutive months of decline in [...]

U.S. Construction Spending Improvement Due to Nonresidential & Public Sector Gains

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090504d.jpg" width="353">
For March, the National Association of Realtors reported that pending sales of existing homes rose another 3.2% following their little revised 2.0% gain during February. While surprising, the gains failed to recoup a sharp 7.7% decline during January. Therefore, for the first quarter as a whole, sales fell 3.8% to a new series low. Consensus expectations had been for no change in March sales versus February.
Last month&#39;s gain in home sales was contained to just South (+7.7% y/y) and the West (+1.6%). Elsewhere, sales in the Northeast remained quite weak and fell month-to-month (-24.2%) while sales in the Midwest slipped 1.0%. Year-to-year, however, sales in the Midwest have rebounded 8.3%.
The home sales figures are analogous to the new home sales data from the Commerce Department in that they measure existing home sales when the sales contract is signed, not at the time the sale is closed. The series dates back to 2001.
The latest monthly gains in home sales have been accompanied by a rise in home prices. The median sales price of an existing home rose 4.2% in March (-12.4% y/y). The increase was the second consecutive gain but it followed seven straight months of decline. Prices were down by one quarter from their peak during June 2007. The latest gains in home prices did lower housing affordability slightly but the decline has been small. Therefore, combined with lower interest rates, the affordability index of a home remained up by 22.7% year-to-year and by three quarters from the 2006 low. The latest level was a record high for the series which extends back to 1970.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090504e.jpg" width="353">
Weak home sales are encouraging potential sellers to keep their homes off the market. The Realtors Association indicated in an earlier report that the number of homes on the market and available for sale fell 9.3% during March versus one year earlier.
At the current sales rate there was a 9.8 months&#39; supply of homes on the market and there was a 10.4 months&#39; supply during all of last year, up from the 8.9 months supply during 2007 and 6.5 months during 2006. For single family homes, there was a 9.3 months&#39; supply in February versus a full-year figure of 10.0 months during 2008.
The pending home sales data are available in Haver&#39;s PREALTOR database. The number of homes on the market and prices are in the REALTOR database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Pending Home Sales (2001=100)&nbsp;</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>84.6</td>
<td>82.0</td>
<td>&nbsp;&nbsp; 1.1%</td>
<td>86.8</td>
<td>95.8</td>
<td>112.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>59.5</td>
<td>63.1</td>
<td>-24.1</td>
<td>72.6</td>
<td>85.6</td>
<td>98.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Midwest</td>
<td>82.3</td>
<td>83.1</td>
<td>8.3</td>
<td>80.6</td>
<td>89.5</td>
<td>102.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>93.2</td>
<td>85.9</td>
<td>7.7</td>
<td>89.8</td>
<td>107.3</td>
<td>127.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; West</td>
<td>93.1</td>
<td>89.6</td>
<td>1.6</td>
<td>99.3</td>
<td>92.1</td>
<td>109.5</td>
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For March, the National Association of Realtors reported that pending sales of existing homes rose another 3.2% following their little revised 2.0% gain during February. While surprising, the gains failed to recoup a sharp 7.7% [...]

U.S. Pending Home Sales Rise For A Second Month

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090504a.jpg" width="353">
What lift may have been evident in sales of light vehicles dissolved with the report that sales in April fell, despite a new round of price discounts. U.S. unit sales of light vehicles reversed most of a March gain with a 5.5% m/m decline to 9.32M units (SAAR). The best that can be observed about sales is that the earlier decline has flattened out here in 2009 but they do remain near the lowest since 1982 according to the Autodata Corporation and Ward&#39;s Automotive News. (Seasonal adjustment of the figures is provided by the U.S. Bureau of Economic Analysis).
Imported light vehicle sales fell a hard 14.0% m/m last month to their lowest level in more than ten years. A 22.7% decline in light truck sales to 0.84M led that decline while sales of imported autos fell a lesser 8.9%. That drop reversed nearly all of a March increase and left sales at their lowest level of this year. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090504b.jpg" width="353">
Sales of domestically-made light vehicles reversed a piece of the prior month&#39;s 10.1% increase with a m/m decline of 2.0% from March to 6.78M units. Sales of domestically made light trucks slipped 0.6% to 3.67M units after their impressive 8.7% March gain. Auto sales, however, fell larger 3.6% to 3.10M units.
Overall, import&#39;s share of the U.S. light vehicle market fell sharply to 27.2% which was their lowest level of this year. Nevertheless, the figure remained up the 2008 average of 26.3%. (Imported vehicles are those produced outside the United States.) Imports&#39; share of the U.S. car market totaled 35.3%, up slightly from the 2008 average, while the share of the light truck market was 18.5%, roughly equal to last year.
The U.S. vehicle sales figures can be found in Haver&#39;s USECON database.
New vehicle characteristics and the cost of the corporate average fuel economy standard from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/workingpapers/wp2008_13.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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">April 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</td>
<td>9.32</td>
<td>9.83</td>
<td>9.12</td>
<td>-35.8%</td>
<td>13.17</td>
<td>16.16</td>
<td>16.54</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>4.81</td>
<td>5.05</td>
<td>4.63</td>
<td>-35.5</td>
<td>6.71</td>
<td>7.58</td>
<td>7.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>3.11</td>
<td>3.23</td>
<td>2.89</td>
<td>-36.0</td>
<td>4.42</td>
<td>5.07</td>
<td>5.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.70</td>
<td>1.83</td>
<td>1.74</td>
<td>-34.7</td>
<td>2.29</td>
<td>2.52</td>
<td>2.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>4.51</td>
<td>4.78</td>
<td>4.50</td>
<td>-36.2</td>
<td>6.47</td>
<td>8.60</td>
<td>8.78</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>3.67</td>
<td>3.70</td>
<td>3.40</td>
<td>-35.8</td>
<td>5.29</td>
<td>7.10</td>
<td>7.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>0.84</td>
<td>1.08</td>
<td>1.10</td>
<td>-38.9</td>
<td>1.18</td>
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What lift may have been evident in sales of light vehicles dissolved with the report that sales in April fell, despite a new round of price discounts. U.S. unit sales of light vehicles reversed most of a March gain with a 5.5% m/m [...]

U.S. Light Vehicle Sales Remain Depressed As Import Sales Lowest Since 1999

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.

260206.jpg

**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:

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Most April Manufacturing PMI's Show a Lessening of Contraction: India's and China's Show Expansion

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U.S. Pending Home Sales Rise For A Second Month

U.S. Light Vehicle Sales Remain Depressed As Import Sales Lowest Since 1999