Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090422a.jpg" align="left" border="0">
The UK claimant count and the unemployment rate continue to
spurt higher. The count is the highest since the late 1990s (August
1998, for the percentage rate). Unemployment is skyrocketing. The
number of unemployed persons rose m/m by 6.6% in January, by an
outsized 10.9% in February, and by a slower but still bruising 5.3% in
March. Employment levels (available only through January) show
continuing accelerating declines. 
 

The progressive growth rates (from 3Mo to 6Mo to 12Mo) show
accelerating rates of unemployment rising at an annualized rate of 140%
over the most recent 3-Mo period. Employment levels are dropping at an
accelerating pace which has risen to an annual rate of -1.7%. The
larger impact on unemployment growth comes about since employment
levels are high as a percentage of the labor force while unemployment
levels are low. When &#8216;small amounts&#8217; are pared from the roles of the
employed they can quickly become a huge proportion of the unemployed.
Of course in historic context unemployment is hardly &#8216;small&#8217; I simple
refer to &#8216;size&#8217; as a proportion of the labor market and relative to the
&#8216;employment rate&#8217; which at over 95% is quite large compared to
unemployment at 4.5%. In that context the unemployment rate is &#8216;small&#8217;.
It is this size mismatch that results in most of the extreme difference
in growth rates for the employed Vs the jobless in addition to some
less mechanical labor behavior. (like labor force participation) . 
 

In response to these worsening trends Alistair Darling
Chancellor of the exchequer has switched his budget forecast. He now
sees that the UK economy will shrink by 3.5% - the worst contraction in
modern times. The Darling also projects a deepening deflation with the
RPI gauge falling to minus 3% by September. But the forecast still
provides that the economy will begin to pick up by the end of the year,
with a moderate positive growth rate of 1.25% restored in 2010. 
 

Darling has also announced help for jobless young people and a
car scrap-for cash scheme. A £2,000 stipend is to be paid to car owners
who trade in autos over 10 years in age for new ones. It is not clear
how much of this payment will be diverted to dealers who might offer
poorer trade-in prices and how much will actually get to the pocketbook
of those buying the new car and stimulate new purchases. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">UK job
market trends</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Level</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>3-mo Avg</td>
<td>6-Mo</td>
<td>12-Mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">Claimant count U-rate</td>
<td>4.5</td>
<td>4.3</td>
<td>3.9</td>
<td>4.2</td>
<td>3.8</td>
<td>3.2</td>
</tr>
<tr class="grey2">
<td class="firstcol">U-Rate (Harmonized)</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>6.3</td>
<td>6.0</td>
<td>5.6</td>
</tr>
<tr class="grey3">
<td class="firstcol">% Period/Period</td>
<td>m/m</td>
<td>m/m</td>
<td>m/m</td>
<td>3-Mo% AR</td>
<td>6-Mo% AR</td>
<td>12-Mo% AR</td>
</tr>
<tr class="grey3">
<td class="firstcol">Unemployed (000)*</td>
<td>5.3%</td>
<td>10.9%</td>
<td>6.6%</td>
<td>140.4%</td>
<td>134.2%</td>
<td>84.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Employment (000)**</td>
<td>#N/A</td>
<td>#N/A</td>
<td>-0.4%</td>
<td>-1.7%</td>
<td>-1.0%</td>
<td>-0.8%</td>
</tr>
<tr class="grey3">
<td colspan="7">Note: Multi-Mo calculations
are * lagged by three months; lagged by two-months</td>
</tr>
</tbody>
</table>
</body></html>

The UK claimant count and the unemployment rate continue to spurt higher. The count is the highest since the late 1990s (August 1998, for the percentage rate). Unemployment is skyrocketing. The number of unemployed persons rose m/m by [...]

UK Unemployment Continues To Soar (Sour)

Louise Curley

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<body>
 




<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090421c.jpg" align="right" border="0" height="265" width="353">For the first time since
July 2007 when wind of the sub prime mortgage
crisis in the United States began to surface, there were more optimists
than pessimists among German analysts and institutional investors
regarding the outlook six months ahead.&nbsp; The ZEW Center for
European Economic Research at Mannheim reported today that its measure
of investor expectations (the percent balance between positive and
negative opinions) rose from -3.5% to +13%.&nbsp; The excess of
optimists is, however, well below the 71.0% reached in January, 2006
and also the&nbsp; historical average of 26.1%.&nbsp; It is
however, encouraging.&nbsp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090421d.jpg" align="right" border="0" height="265" width="353">
The ZEW expectation indicator has
performed reasonably well in heralding changes in German GDP and their
magnitudes, as can be seen in the first chart.
While there was an improvement in expectations among the
participants
in the survey, there was a worsening in their appraisal of the current
conditions.&nbsp; The excess of pessimists over optimists rose to
91.6% from 89.4%.&nbsp; An excess of pessimists this large was last
seen in September, 2003.&nbsp; The second chart shows the balances
of opinion on expectations and current conditions.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090421e.jpg" align="right" border="0" height="265" width="353">The ZEW
survey also includes the participants' expectations for profits in a
number of industries.&nbsp; In general the balances of opinion on
profit expectations also turned negative around August, 2007 and became
more and more negative until the last few months.&nbsp; Since then,
most balances of opinion have become less negative.&nbsp; The
exception is the expectation for profits in the banking industry where
the optimists exceed the pessimists by 2% for the first time since July
2007.&nbsp; The third chart shows the profit expectations for the
banking industry and a few other industries.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"> ZEW
INDICATORS (% balance)&nbsp;</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar&nbsp;&nbsp;
09</th>
<th scope="col">Previous Low</th>
<th scope="col">Date</th>
<th scope="col">Previous High</th>
<th scope="col">Date&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Expectations</td>
<td>13.0</td>
<td>-3.5</td>
<td>-63.9</td>
<td>&nbsp;&nbsp;&nbsp; Jul 08</td>
<td>&nbsp;71.0</td>
<td>Jan 06</td>
</tr>
<tr class="grey3">
<td class="firstcol">Current Conditions</td>
<td>-91.6</td>
<td>&nbsp;&nbsp;&nbsp; -89.4</td>
<td>&nbsp;&nbsp;&nbsp;&nbsp; -91.7</td>
<td>Sep 03</td>
<td>88.7</td>
<td>Jun 07</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey4">
<td class="firstcol">Profit Expectations</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">Banking</td>
<td>2.0</td>
<td>&nbsp;-31.6</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">Telecommunications</td>
<td>-13.0</td>
<td>-16.1</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey4">
<td class="firstcol">Vehicles/Automotive</td>
<td>-56.1</td>
<td>-70.2</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">Insurance</td>
<td>-15.1</td>
<td>-34.2</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

</body></html>

For the first time since July 2007 when wind of the sub prime mortgage crisis in the United States began to surface, there were more optimists than pessimists among German analysts and institutional investors regarding the outlook six [...]

Optimists Exceed Pessimists Among German Investors And Analysts For The First Time Since July 2007

Tom Moeller

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090421a.jpg">
Regular gasoline prices last week held firm at $2.06 per gallon, the highest level since last November. The latest was up 42 cents from the December low. On news of a weakening U.S. economy, however, the spot market price for regular gasoline slipped to $1.37 per gallon yesterday from its average of $1.42 last week. The figures are reported by the U.S. Department of Energy. Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090421b.jpg">
 Crude oil prices weakened to an even greater degree due to soft economic news. The price for a barrel of West Texas Intermediate fell to $49.80 last week and to $45.88 yesterday. These prices remained up, however, from the December low of $32.37 per barrel. Prices reached a high of $145.66 last July. The figures on crude oil production and inventories are available in Haver&#39;s Weekly Oil Statistics database.
Higher gasoline prices and economic weakness are prompting less driving. Gasoline demand last week fell 2.4% y/y versus the 4.8% rate of decline seen last October. (Gasoline prices at the time were just off their peak.) 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 5.2% y/y. That negative comparison was led by a 9.3% decline in distillate demand and a 19.7% drop in demand for residual fuel oil. These numbers are available in Haver&#39;s OILWKLY database.
The price of natural gas fell even further with the end to of winter heating season. Prices fell to $3.55 per mmbtu (-65.0% y/y) which was near the lowest level since 2002. The latest average price was down more than two-thirds from the high reached in early-July of $13.19/mmbtu.
The Economic Outlook is yesterday&#39;s speech by Fed Vice chairman Donald L. Kohn an it can be found <a href="http://www.federalreserve.gov/newsevents/speech/kohn20090420a.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/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">04/20/09</th>
<th scope="col">06/13/09</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>2.06</td>
<td>2.05</td>
<td>-41.3%</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>49.80</td>
<td>50.46</td>
<td>-56.5%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
</html>

Regular gasoline prices last week held firm at $2.06 per gallon, the highest level since last November. The latest was up 42 cents from the December low. On news of a weakening U.S. economy, however, the spot market price for regular [...]

Gasoline Prices Remain Steady Around $2.00 Per Gallon

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090421a.jpg" align="left" border="0">
Regular gasoline prices last week held
firm at $2.06 per gallon, the highest level since last November. The
latest was up 42 cents from the December low. On news of a weakening
U.S. economy, however, the spot market price for regular gasoline
slipped to $1.37 per gallon yesterday from its average of $1.42 last
week. The figures are reported by the U.S. Department of Energy. Weekly
gasoline prices can be found in Haver's WEEKLY database.
Daily prices are in the DAILY database.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090421b.jpg" align="right" border="0">
 Crude oil prices weakened to an even
greater degree due to soft economic news. The price for a barrel of
West Texas Intermediate fell to $49.80 last week and to $45.88
yesterday. These prices remained up, however, from the December low of
$32.37 per barrel. Prices reached a high of $145.66 last July. The
figures on crude oil production and inventories are available in
Haver's Weekly Oil Statistics database.
Higher gasoline prices and economic weakness are prompting
less driving. Gasoline demand last week fell 2.4%
y/y versus the 4.8% rate of decline seen last October. (Gasoline prices
at the time were just off their peak.) 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 5.2% y/y. That
negative comparison was led by a 9.3% decline in distillate demand and
a 19.7% drop in demand for residual fuel oil. These numbers are
available in Haver's OILWKLY database.
The price of natural gas fell even further with the end to of
winter heating season. Prices fell to $3.55 per mmbtu (-65.0% y/y)
which was near the lowest level since 2002. The latest average price
was down more than two-thirds from the high reached in early-July of
$13.19/mmbtu.
The Economic Outlook is yesterday's speech
by Fed Vice chairman Donald L. Kohn an it can be found <a href="http://www.federalreserve.gov/newsevents/speech/kohn20090420a.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/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">04/20/09</th>
<th scope="col">06/13/09</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>2.06</td>
<td>2.05</td>
<td>-41.3%</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>49.80</td>
<td>50.46</td>
<td>-56.5%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
 Optimists Exceed Pessimists AmongGerman Investors And Analysts For The First Time Since July 2007 
by <a href="/comment/Curley.html">Louise
Curley</a> April 21, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090421c.jpg" align="right" border="0" height="265" width="353">For the first time since
July 2007 when wind of the sub prime mortgage
crisis in the United States began to surface, there were more optimists
than pessimists among German analysts and institutional investors
regarding the outlook six months ahead.&nbsp; The ZEW Center for
European Economic Research at Mannheim reported today that its measure
of investor expectations (the percent balance between positive and
negative opinions) rose from -3.5% to +13%.&nbsp; The excess of
optimists is, however, well below the 71.0% reached in January, 2006
and also the&nbsp; historical average of 26.1%.&nbsp; It is
however, encouraging.&nbsp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090421d.jpg" align="right" border="0" height="265" width="353">
The ZEW expectation indicator has
performed reasonably well in heralding changes in German GDP and their
magnitudes, as can be seen in the first chart.
While there was an improvement in expectations among the
participants
in the survey, there was a worsening in their appraisal of the current
conditions.&nbsp; The excess of pessimists over optimists rose to
91.6% from 89.4%.&nbsp; An excess of pessimists this large was last
seen in September, 2003.&nbsp; The second chart shows the balances
of opinion on expectations and current conditions.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090421e.jpg" align="right" border="0" height="265" width="353">The ZEW
survey also includes the participants' expectations for profits in a
number of industries.&nbsp; In general the balances of opinion on
profit expectations also turned negative around August, 2007 and became
more and more negative until the last few months.&nbsp; Since then,
most balances of opinion have become less negative.&nbsp; The
exception is the expectation for profits in the banking industry where
the optimists exceed the pessimists by 2% for the first time since July
2007.&nbsp; The third chart shows the profit expectations for the
banking industry and a few other industries.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"> ZEW
INDICATORS (% balance)&nbsp;</th>
<th scope="col">Apr 09</th>
<th scope="col">Mar&nbsp;&nbsp;
09</th>
<th scope="col">Previous Low</th>
<th scope="col">Date</th>
<th scope="col">Previous High</th>
<th scope="col">Date&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Expectations</td>
<td>13.0</td>
<td>-3.5</td>
<td>-63.9</td>
<td>&nbsp;&nbsp;&nbsp; Jul 08</td>
<td>&nbsp;71.0</td>
<td>Jan 06</td>
</tr>
<tr class="grey3">
<td class="firstcol">Current Conditions</td>
<td>-91.6</td>
<td>&nbsp;&nbsp;&nbsp; -89.4</td>
<td>&nbsp;&nbsp;&nbsp;&nbsp; -91.7</td>
<td>Sep 03</td>
<td>88.7</td>
<td>Jun 07</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey4">
<td class="firstcol">Profit Expectations</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">Banking</td>
<td>2.0</td>
<td>&nbsp;-31.6</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey2">
<td class="firstcol">Telecommunications</td>
<td>-13.0</td>
<td>-16.1</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey4">
<td class="firstcol">Vehicles/Automotive</td>
<td>-56.1</td>
<td>-70.2</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">Insurance</td>
<td>-15.1</td>
<td>-34.2</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090420d.jpg" align="left" border="0">
European orders are still on bad trends. But France is showing
some life in February. As life signs go it&#8217;s still a weak vital sign
despite its apparent vigor. Orders did jump by 5.2% in nominal terms in
February, just one month after falling by 2.1%. But orders are still
down by 23% over 12 months as the annual rate over three months has
shot up to a positive 4.3%, a rare positive three-month reading in the
e-zone. Still, the accompanying chart puts the French figures in
context. The French Yr/Yr drop had been much worse than the similar
decline in Italy since about may of 2008. With the large bump up in
orders for France in February, France &#8217;s Yr/Yr decline has braked and
left Italy with the weaker trend, but this is nothing unprecedented.
For France the order revival is a domestic affair as foreign
orders continued to fall by 0.6% in February, a drop but one with less
vigor. Still the 5.2% rise in orders speaks of a sharp rebound
domestically, possibly following the striking activity in France . So
I&#8217;d be wary of reading much into it.
Compared to Italy , French foreign order growth has been much
weaker over the last three months. Of course, one reason might be that
Italy &#8217;s &#8216;foreign&#8217; orders have benefited from some uptick in domestic
activity in France this month. By comparison, French exports have had
no such favor in Italy , where the domestic economy is still
struggling. Apart from that the two nations face a similar array of
trading partners but with their own specific concentrations of trade,
of course. Both countries show ongoing weakness in sales or in
industrial output at home. As I said above, there is not much to sink
your teeth into, if you are an optimist, despite the rise in French
orders this month. Given the performance in the rest of Europe,
especially Germany , and given the way the persisting French strikes
have wracked the French economy, I&#8217;d be wary to read much into this
rebound in French orders in February. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Italy
Orders
</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Saar except m/m</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total</td>
<td>-1.5%</td>
<td>-3.9%</td>
<td>-2.1%</td>
<td>-26.2%</td>
<td>-39.3%</td>
<td>-31.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Foreign</td>
<td>3.5%</td>
<td>-3.0%</td>
<td>-2.1%</td>
<td>-7.2%</td>
<td>-37.6%</td>
<td>-30.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Domestic</td>
<td>-4.1%</td>
<td>-4.4%</td>
<td>-2.0%</td>
<td>-34.8%</td>
<td>-40.3%</td>
<td>-31.5%</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">Memo:</td>
</tr>
<tr class="grey3">
<td class="firstcol">Sales</td>
<td>-3.1%</td>
<td>-4.0%</td>
<td>-3.3%</td>
<td>-34.6%</td>
<td>-33.1%</td>
<td>-23.0%</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">French Orders</td>
</tr>
<tr class="grey1">
<td class="firstcol">Saar except m/m</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total</td>
<td>5.2%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>4.3%</td>
<td>-30.8%</td>
<td>-23.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Foreign</td>
<td>-0.6%</td>
<td>-11.5%</td>
<td>0.0%</td>
<td>-40.1%</td>
<td>-44.0%</td>
<td>-37.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">IP ex Construction</td>
<td>-0.1%</td>
<td>-5.0%</td>
<td>-2.3%</td>
<td>-25.8%</td>
<td>-28.0%</td>
<td>-17.8%</td>
</tr>
</tbody>
</table>
</body></html>

European orders are still on bad trends. But France is showing some life in February. As life signs go it’s still a weak vital sign despite its apparent vigor. Orders did jump by 5.2% in nominal terms in February, just one month after [...]

French and Italian Orders: Some Divergence Between These Siamese Twins

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090420c.jpg" width="353">
The March National Activity Index (CFNAI) from the Chicago Federal Reserve Bank remained negative last month. At -2.96 the figure was roughly stable with February but both figures were up marginally from the low reading of -4.03 reached in January. Since 1970 there has been a 74% correlation between the level of the index and the q/q change in real GDP.
The three-month moving average of the index ticked up slightly to -3.27 but remained near its lowest since January of 1975.
An index level at or below -0.70 typically has indicated negative U.S. economic growth. A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth of roughly 3%.
The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_april2009.pdf">here</a> and the historical data are available in Haver&#39;s SURVEYS database.
The employment, production and income components made large negative contributions to the March index. Thirteen of the index&#39;s component sectors had a negative influence while 72 had a negative influence.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production &amp; income, the labor market, personal consumption &amp; housing, manufacturing &amp; trade sales, and inventories &amp; orders.
In a separate survey, the Chicago Fed indicated that its Midwest manufacturing index fell during February to its lowest level since 1994. Indicators for the steel and machinery sectors each fell but the measure for the auto sector rose while the resource sector was unchanged.
The Chicago Federal Reserve figures are available in Haver&#39;s SURVEYS 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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March &#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">CFNAI</td>
<td>-2.96</td>
<td>-2.82</td>
<td>-1.14</td>
<td>-1.79</td>
<td>-0.37</td>
<td>0.03</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Average</td>
<td>-3.27</td>
<td>-3.57</td>
<td>-3.69</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>


</html>

The March National Activity Index (CFNAI) from the Chicago Federal Reserve Bank remained negative last month. At -2.96 the figure was roughly stable with February but both figures were up marginally from the low reading of -4.03 [...]

Chicago Fed Index Remained Negative In March

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090420a.jpg" width="353">
The Conference Board reported that the March composite index of leading economic indicators fell 0.3% to the lowest level since early-2003. The decline in the February index was revised to a shortfall of 0.2%. Foreshadowing the current recession, the index has been moving steadily lower since a 2007 peak.
Six of the ten components of the leading index fell last month including sharp declines in the length of the workweek, stock prices and building permits while initial unemployment insurance claims jumped.
The breadth of one-month increase amongst the leaders&#39; 10 components fell back to 35% and over a six-month period the breadth of gain amongst the components remained minimal at just 20%.
The leading index is based on actual reports for eight economic data series. The Conference Board initially estimates two series, orders for consumer goods and orders for capital goods.
Continuing to reflect economic recession, the coincident indicators fell another 0.4% and they are off 4.9% during the last year. Half of the four component series fell during March with outsized declines registered by employment and production. Over the last ten years there has been a 76% correlation between this y/y change and real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090420b.jpg" width="353">
The lagging index fell 0.4% after a 0.3% February decline. The ratio of coincident-to-lagging indicators (a measure of economic excess) remained stable at its lowest level since 1975.
The Conference Board figures are available in Haver&#39;s BCI database. Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Financial Innovation and Consumer Protection is Friday&#39;s speech by Fed Chairman Ben S. Bernanke and it is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20090417a.htm"> here</a>.
Monetary Policy in the Financial Crisis is Saturday&#39;s speech by Fed Vice Chairman Donald L. Cohn and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/kohn20090418a.htm"> 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/BCI/BCI.HTM">Business Cycle Indicators</a> (%)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Dec. 6-Month % (AR)</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">Leading</td>
<td>-0.3</td>
<td>-0.2</td>
<td>-0.2</td>
<td>-4.9</td>
<td>-2.8</td>
<td>-0.3</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>-0.4</td>
<td>-0.6</td>
<td>-0.9</td>
<td>-5.8</td>
<td>-0.8</td>
<td>1.6</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.4</td>
<td>-0.3</td>
<td>-0.2</td>
<td>-0.4</td>
<td>2.9</td>
<td>2.8</td>
<td>3.3</td>
</tr>
</tbody>
</table>


</html>

The Conference Board reported that the March composite index of leading economic indicators fell 0.3% to the lowest level since early-2003. The decline in the February index was revised to a shortfall of 0.2%. Foreshadowing the [...]

U.S. Leading Indicators Fall To The Lowest Level Since 2003

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090420a.jpg" align="left" border="0" height="265" width="353">
The Conference Board reported that the March composite index
of leading economic indicators fell 0.3% to the lowest level since
early-2003. The decline in the February index was revised to a
shortfall of 0.2%. Foreshadowing the current recession, the index has
been moving steadily lower since a 2007 peak.
Six of the ten components of the leading index fell last month
including sharp declines in the length of the workweek, stock prices
and building permits while initial unemployment insurance claims jumped.
The breadth of one-month increase amongst the leaders' 10
components fell back to 35% and over a six-month period the breadth of
gain amongst the components remained minimal at just 20%.
The leading index is based on actual reports for eight
economic data series. The Conference Board initially estimates two
series, orders for consumer goods and orders for capital goods.
Continuing to reflect economic recession, the coincident
indicators fell another 0.4% and they are off 4.9% during the last
year. Half of the four component series fell during March with outsized
declines registered by employment and production. Over the last ten
years there has been a 76% correlation between this y/y change and real
GDP.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090420b.jpg" align="right" border="0" height="265" width="353">
The lagging index fell 0.4% after a 0.3% February decline. The
ratio of coincident-to-lagging indicators (a measure of economic
excess) remained stable at its lowest level since 1975.
The Conference Board figures are available in Haver's BCI
database. Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world.


Financial Innovation and Consumer Protection
is Friday's speech by Fed Chairman Ben S. Bernanke and it is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20090417a.htm">
here</a>.
Monetary Policy in the Financial Crisis is
Saturday's speech by Fed Vice Chairman Donald L. Cohn and it can be
found <a href="http://www.federalreserve.gov/newsevents/speech/kohn20090418a.htm">
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/BCI/BCI.HTM">Business
Cycle Indicators</a> (%)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Dec. 6-Month % (AR)</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">Leading</td>
<td>-0.3</td>
<td>-0.2</td>
<td>-0.2</td>
<td>-4.9</td>
<td>-2.8</td>
<td>-0.3</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>-0.4</td>
<td>-0.6</td>
<td>-0.9</td>
<td>-5.8</td>
<td>-0.8</td>
<td>1.6</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.4</td>
<td>-0.3</td>
<td>-0.2</td>
<td>-0.4</td>
<td>2.9</td>
<td>2.8</td>
<td>3.3</td>
</tr>
</tbody>
</table>
Chicago Fed Index Remained
Negative In March 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 20, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090420c.jpg" align="left" border="0" height="265" width="353">
The March National Activity Index (CFNAI) from the Chicago
Federal Reserve Bank remained negative last month. At -2.96 the figure
was roughly stable with February but both figures were up marginally
from the low reading of -4.03 reached in January. Since 1970 there has
been a 74% correlation between the level of the index and the q/q
change in real GDP.
The three-month moving average of the index ticked up
slightly to -3.27 but remained near its lowest
since January of 1975.
An index level at or below -0.70 typically has indicated
negative U.S. economic growth. A zero value of the CFNAI indicates that
the economy is expanding at its historical trend rate of growth of
roughly 3%.
The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_april2009.pdf">here</a>
and the historical data are available in Haver's SURVEYS
database.
The employment, production and income components made large
negative contributions to the March index. Thirteen of the index's
component sectors had a negative influence while 72 had a negative
influence.
The CFNAI is a weighted average of 85 indicators of economic
activity. The indicators reflect activity in the following categories:
production &amp; income, the labor market, personal consumption
&amp; housing, manufacturing &amp; trade sales, and inventories
&amp; orders.
In a separate survey, the Chicago Fed indicated that its
Midwest manufacturing index fell during February to its lowest level
since 1994. Indicators for the steel and machinery sectors each fell
but the measure for the auto sector rose while the resource sector was
unchanged.
The Chicago Federal Reserve figures are available in Haver's SURVEYS
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/SURVEYS/@S5/@S503/@S503.HTM">Chicago
Fed</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-2.96</td>
<td>-2.82</td>
<td>-1.14</td>
<td>-1.79</td>
<td>-0.37</td>
<td>0.03</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Average</td>
<td>-3.27</td>
<td>-3.57</td>
<td>-3.69</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
French and Italian Orders: Some
Divergence Between These Siamese Twins 
by <a href="/comment/Brusca.html">Robert
Brusca</a> April 20, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090420d.jpg" align="left" border="0">
European orders are still on bad trends. But France is showing
some life in February. As life signs go it&#8217;s still a weak vital sign
despite its apparent vigor. Orders did jump by 5.2% in nominal terms in
February, just one month after falling by 2.1%. But orders are still
down by 23% over 12 months as the annual rate over three months has
shot up to a positive 4.3%, a rare positive three-month reading in the
e-zone. Still, the accompanying chart puts the French figures in
context. The French Yr/Yr drop had been much worse than the similar
decline in Italy since about may of 2008. With the large bump up in
orders for France in February, France &#8217;s Yr/Yr decline has braked and
left Italy with the weaker trend, but this is nothing unprecedented.
For France the order revival is a domestic affair as foreign
orders continued to fall by 0.6% in February, a drop but one with less
vigor. Still the 5.2% rise in orders speaks of a sharp rebound
domestically, possibly following the striking activity in France . So
I&#8217;d be wary of reading much into it.
Compared to Italy , French foreign order growth has been much
weaker over the last three months. Of course, one reason might be that
Italy &#8217;s &#8216;foreign&#8217; orders have benefited from some uptick in domestic
activity in France this month. By comparison, French exports have had
no such favor in Italy , where the domestic economy is still
struggling. Apart from that the two nations face a similar array of
trading partners but with their own specific concentrations of trade,
of course. Both countries show ongoing weakness in sales or in
industrial output at home. As I said above, there is not much to sink
your teeth into, if you are an optimist, despite the rise in French
orders this month. Given the performance in the rest of Europe,
especially Germany , and given the way the persisting French strikes
have wracked the French economy, I&#8217;d be wary to read much into this
rebound in French orders in February. 

<table border="0" cellspacing="0" width="100%"> <colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">Italy
Orders
</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Saar except m/m</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total</td>
<td>-1.5%</td>
<td>-3.9%</td>
<td>-2.1%</td>
<td>-26.2%</td>
<td>-39.3%</td>
<td>-31.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Foreign</td>
<td>3.5%</td>
<td>-3.0%</td>
<td>-2.1%</td>
<td>-7.2%</td>
<td>-37.6%</td>
<td>-30.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Domestic</td>
<td>-4.1%</td>
<td>-4.4%</td>
<td>-2.0%</td>
<td>-34.8%</td>
<td>-40.3%</td>
<td>-31.5%</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">Memo:</td>
</tr>
<tr class="grey3">
<td class="firstcol">Sales</td>
<td>-3.1%</td>
<td>-4.0%</td>
<td>-3.3%</td>
<td>-34.6%</td>
<td>-33.1%</td>
<td>-23.0%</td>
</tr>
<tr class="grey1">
<td colspan="7" class="firstcol">French
Orders</td>
</tr>
<tr class="grey1">
<td class="firstcol">Saar except m/m</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total</td>
<td>5.2%</td>
<td>-2.1%</td>
<td>-1.9%</td>
<td>4.3%</td>
<td>-30.8%</td>
<td>-23.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Foreign</td>
<td>-0.6%</td>
<td>-11.5%</td>
<td>0.0%</td>
<td>-40.1%</td>
<td>-44.0%</td>
<td>-37.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">IP ex Construction</td>
<td>-0.1%</td>
<td>-5.0%</td>
<td>-2.3%</td>
<td>-25.8%</td>
<td>-28.0%</td>
<td>-17.8%</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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The ZEW survey for January showed improvement all around with both economic expectations and macroeconomic conditions showing improvements in the United States, Germany, and the euro area.

The economic situation in January in the euro area improved to a reading of -18.1 from -28.5 in December. In Germany, the reading improved to -72.7 from -81 in December, while in the United States the reading improved to +17.7 from -0.6 in December. The message here clearly is the month-to-month improvement. Still, the January readings leave the assessments of conditions in these three areas as quite different. The percentile-queue standings place each one of these topical readings in their queue of data back to December 1992, expressing the standing in percentile terms. Viewed in this way, the euro area has a 57.2 percentile standing, the U.S. has nearly a 45-percentile standing, while Germany has a 22.6 percentile standing, leaving each of these areas in their own distinctive positions relative to their historic norms. The euro area has a firm and above-median ranking since the reading is above the 50th percentile (where the median is located). The U.S. is slightly weaker than that, with a reading that's marginally below its median. Germany has a reading between the lower quartile and the one-fifth mark of its historic data, branding it as weak.

Macroeconomic expectations find that Germany in January moved up to a positive reading of 59.6 from 45.8 in December. The U.S. also improved, moving up to -3 from -12 in December. The macro-expectations find Germany and the U.S. in very different places with German expectations in an 80.4 percentile of their queue, placing them in the top 20% while the U.S. has a 45-percentile standing, below its historic median and essentially the same relative position as its current situation ranking. In contrast, Germany has a weak current economic assessment versus a stronger expectations assessment.

Inflation expectations weaken across the board in January, with the euro area falling to -7.6 from -4.6 in December, Germany falling to -6.0 from -1.7 and the U.S. falling to 44.2 from 54.9. The ZEW experts see a disinflationary environment, and they see that despite the pickup in current conditions and improved macroeconomic expectations. Expectations in the U.S. have a 61.1 percentile standing; the German and the euro area readings are much weaker and closer together, with the German standing at its 31.2 percentile and the euro area at its 25.8 percentile.

On the back of these expectations, short-term interest rates in the euro area are less weak, with the January reading at -7.7, up from -10.8 in December. The U.S. has a -65.6 reading, stronger than Decembers -73.9. On a ranking basis, the euro area’s short-term rates have a 37.4 percentile standing The U.S. has a 9.3 percentile standing. The interest rate assessment is that short-term rates are going to be modest to lower over the outlook.

Long-term interest rates in Germany and the U.S. weaken slightly in January from December to 44.5 in January for Germany, compared to 49.2 in December, and in the U.S., there is a very modest ‘decimal point’ change to 44.1 in January from 44.9 in December. German long-term rates have a 58.8 percentile standing while the U.S. has rates at about a 50-percentile standing, placing them just about on top of their historic median. Neither one of these expectations has long-term expectations different from historic norms.

Stock market expectations from December to January, however, are little changed and mostly weaker, with the euro area gauge falling to 35.2 from 41.3 in December. The German gauge slips to 35.9 from 36.3 in December. The January gauge for the U.S. is ticking slightly higher to 31.5 January from 30.2 in December. The rankings for the January gauges show the U.S. above its median at a 59.3 percentile mark, the euro area slightly below its median with a 44.9 percentile reading; the German stock market still scores as the weakest at a 39.7 percentile standing.

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On balance, there are improvements expected in the macroeconomic realm as well as improvements detected in the current economic situation. Inflation is expected to remain tame; short-term interest rates are expected to continue declining, while long-term interest rates are going to be showing some pressure or in the case of the U.S. will continue to oscillate around current levels or firm slightly. Stock market conditions in the U.S. are modestly higher than their historic norms; however, the euro area stocks are in for modest weakness; German stocks weakened and are historically weak. Looking ahead, the thing to do is to watch the market metrics in particular to see how the recent U.S.-European rift over Greenland is going to play out in markets and how much it's going to affect expectations. That's the newest trend in play. How quickly they forget drug running boat sinkings, Maduro’s capture, threats on Iran, and cage rattling the Fed Chair. It’s all about Greenland now- at least for now, don’t blink!

ZEW Survey Shows Advancement All Around

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.

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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.

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**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.

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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.

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**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).

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**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).

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Asia

Economic Letter from Asia: Shifting Gears

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Europe

Big Four Inflation in EMU 2025-Final

Andrew Cates

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

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

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

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

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

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

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

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Economy in Brief

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UK Unemployment Continues To Soar (Sour)

Optimists Exceed Pessimists Among German Investors And Analysts For The First Time Since July 2007

Gasoline Prices Remain Steady Around $2.00 Per Gallon

Gasoline Prices Remain Steady Around $2.00 Per Gallon

French and Italian Orders: Some Divergence Between These Siamese Twins

Chicago Fed Index Remained Negative In March

U.S. Leading Indicators Fall To The Lowest Level Since 2003

U.S. Leading Indicators Fall To The Lowest Level Since 2003